COURT FILE NO.: BK-21-00208506-OT31

DATE: 20231012

ONTARIO

SUPERIOR COURT OF JUSTICE (COMMERCIAL LIST)

IN THE MATTER OF THE BANKRUPTCY OF SERGIO GRILLONE BANKRUPTCY APPLICATION UNDER THE BANKRUPTCY AND INSOLVENCY ACT, R.S.C. 1985, c. B-3, AS AMENDED

Kenneth D. Kraft, Mark A. Freake, Daniel A. Loberto (appearing only at trial), and Mark Evans (appearing only on the July 11, 2023 Motion for Mis-Trial), for the Applicant, Bluecore Capital Inc.

Sergio Grillone, Self-Represented

HEARD: February 27, 28, 2023, March 1, 2, 3, 2023 and July 11, 2023 (motion for mistrial)

KIMMEL J.

REASONS FOR DECISION: SUMMARY BANKRUPTCY TRIAL AND MOTION FOR MIS-TRIAL

TABLE OF CONTENTS

The Summary Trial 4

The Evidentiary Record at Trial 5

Issues to be Decided. 6

Summary of Outcome. 6

The Positions of the Parties. 7

Bluecore’s Position. 7

Mr. Grillone’s Position. 10

Pre-Trial and Post-Trial Proceedings. 12

Analysis. 12

Should the Court Declare a Mis-Trial?. 12

The Alleged Misconduct 13

Mr. Grillone’s Position on the Mis-Trial Motion. 14

The Applicant’s Position on the Mis-Trial Motion. 15

Analysis of Alleged Misconduct 17

(a) First Instance of Alleged Misconduct: Evidence Tampering. 18

(b) Second Instance of Alleged Misconduct: Perjury of Mr. Robson/Suborning Perjury by Counsel 19

(c) Third Instance of Alleged Misconduct: Contempt for Failing to follow the Court’s Direction 20

(d) Fourth Instance of Alleged Misconduct: Failure to Pursue the Bankruptcy Application in Good Faith 21

A Mis-Trial Is Not the Appropriate Recourse for the Alleged Irregularities. 22

The Evidentiary Foundation for the Bankruptcy Order Has Not Been Lost 27

Decision on Mis-Trial Motion. 28

Have the Requirements of s. 43(1) of the BIA been satisfied?. 28

a) Mr. Grillone’s Indebtedness to Bluecore. 28

(i) Standard or Onus of Proof. 28

(ii) Proof of the Loan Agreement and Indebtedness to Bluecore. 29

b) Act of Bankruptcy. 31

Are Special Circumstances Required, and if so, Have They Been Demonstrated?. 32

Valente Category #1 Special Circumstances: Bluecore Demands for Repayment 34

Valente Category #2 Special Circumstances: Large Debt and Suspicious Circumstances. 35

Has the Applicant Provided a Satisfactory Estimate of the Value of its Security?. 39

Assignment of Accounts Receivable Related to Funded Files. 40

The Insurance Polices. 42

Funds Paid Into Court and Other Assets to Satisfy Secured and Unsecured Claims. 44

Should the Court Exercise its Discretion Under s. 43(7) of the BIA NOT to Grant the Bankruptcy Order 44

Costs. 48

Costs Claimed by Bluecore. 48

Costs Claimed by Mr. Grillone. 49

Analysis Regarding Costs. 50

Costs of the Bankruptcy Application and Trial 50

Costs of the Fresh Evidence Motion. 50

Costs of the Mis-Trial Motion. 51

Final Disposition. 51

The Summary Trial

[1] This was a highly contested and acrimonious summary trial of the application by Bluecore Capital Inc. (“Bluecore”) for a bankruptcy order against Sergio Grillone. Mr. Grillone has left no stone unturned in his efforts to avoid the requested order adjudging him to be bankrupt.

[2] The application was commenced approximately two years ago, on September 29, 2021, supported by an affidavit of verification sworn by Nick Robson on September 29, 2021 (the “First Robson Affidavit”). Mr. Grillone’s Notice of Dispute dated November 8, 2021 disputed the alleged act(s) of bankruptcy and also the propriety of the affidavit of verification (among other challenges). Due to the nature and extent of the matters in dispute, the court made an early direction that the application proceed by summary trial.

[3] Mr. Grillone’s challenges to the First Robson Affidavit were dealt with in an oral ruling delivered on the morning of February 28, 2023 shortly after the trial commenced, upon a preliminary motion brought by Mr. Grillone to strike the First Robson Affidavit and the entire bankruptcy application. The application was not struck nor was the entirety of the First Robson Affidavit. Certain words were, however, struck from that affidavit (to delete reference to “unpaid” and “outstanding” judgments and awards in favour of other creditors, about which Mr. Robson did not have direct knowledge or information and which were not referenced in the alleged act of bankruptcy). With those words having been struck, the affidavit of verification (First Robson Affidavit) was found to otherwise satisfy the requirements of s. 43(3) of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (“BIA”).

[4] In that ruling, Bluecore was given the option of: (i) adjourning the trial to amend its application to expressly plead that there were unpaid or outstanding judgments and awards in favour of other creditors in the six months preceding the commencement of the application and include in its alleged act of bankruptcy the failure to satisfy those other unpaid and outstanding debts; or (ii) to proceed with the summary trial of the contested bankruptcy application on the basis of the alleged act of bankruptcy as stated in paragraph 2 of its application.[^1]

[5] Bluecore elected to proceed on the basis of the alleged act of bankruptcy in paragraph 2 of its application, as follows:

[Mr.] Grillone has within the six months next preceding the date of the filing of this Application committed the following act of bankruptcy, namely Grillone has ceased to meet his liabilities as they have come due in failing to pay the above-noted sum [of $1,332,462.58] to the Applicant.

[6] This is the alleged act of bankruptcy (the “Act of Bankruptcy”) said to come within s. 42(1)(j) of the BIA, upon which this application and the summary trial has been decided. The alleged Act of Bankruptcy is that Mr. Grillone failed to pay Bluecore (a single creditor) significant amounts that were due and payable in the six months prior to the filing of the application despite persisting demands for payment evident from the Bluecore Civil Action (defined below), and thus ceased to meet his liabilities (exceeding $1,000) generally as they became due in the six months preceding the filing of this bankruptcy application. This is the foundation for Bluecore’s request for a bankruptcy order in respect of Mr. Grillone under s. 43(1) of the BIA.

The Evidentiary Record at Trial

[7] The applicant called six witnesses, all of whom were cross-examined at the trial. Seventy-two exhibits were marked, some of which were affidavits previously sworn.

[8] Mr. Grillone elected not to give viva voce evidence at trial. He filed a brief affidavit that the applicant did not object to, dated December 13, 2022, which appended his Notice of Dispute and voluminous exhibits. Mr. Grillone was also granted leave to file a further March 3, 2023 affidavit appending an email exchange about monies that had been paid into court and the potential claims of other creditors to those funds. The applicant did not object to this evidence being filed and marked and did not cross-examine Mr. Grillone.

[9] The court agreed to receive this evidence from Mr. Grillone in written form on the condition that any of the exhibits to Mr. Grillone’s December 13, 2022 affidavit and Notice of Dispute that the court was expected to consider but had not been marked during the trial would be specifically identified, and the court would be directed to them during the closing arguments. Mr. Grillone agreed he would do so and advised that there were only a few documents he intended to refer the court to from these sources. The only “new” exhibits (not previously marked during the trial) that were referred to by Mr. Grillone during the trial closing submissions related to funds that had been paid into court to his credit after the bankruptcy application was commenced.

[10] Mr. Grillone had conducted out of court examinations of various Bluecore representatives prior to the trial and the transcripts were available, but he advised before the evidentiary record was closed that he did not intend to rely upon them. The parties agreed to the following stipulation in respect of those examinations:

That various directors and former directors of Bluecore were examined by Mr. Grillone in the context of this bankruptcy application but none of the transcripts are being filed or considered in the court’s deliberation.

[11] None of these transcripts were marked or referred to, and the testimony of these witnesses is not in evidence. But to orient these examinations in the sequence of the proceedings (for purposes of the mis-trial motion discussed later), the court has identified an examination of Jeffrey Kroeker held on May 4, 2022 (he was also cross-examined on an affidavit he swore in the Bluecore Civil Action on August 5, 2020), an examination of Todd McCarthy held on June 13, 2022, an examination of Vidar Stenshall held on June 23, 2022, and the responses to written interrogatories of Per Arne Aasterud dated November 23, 2022.

Issues to be Decided

[12] The following issues have been raised for the court’s consideration:

(a) Should a mis-trial be declared?

(b) Have the requirements of s. 43(1) of the BIA been satisfied and has the applicant demonstrated that:

i. the debt owing to the applicant amounts to at least one thousand dollars; and

ii. the debtor has committed an act of bankruptcy within the six months preceding the filing of the application?

(c) Because the Act of Bankruptcy is predicated upon an unpaid debt to a single creditor, do special circumstances need to be demonstrated by the applicant and, if so, have they been?

(d) Because the applicant is a secured creditor and has not stated it is willing to give up its security for the benefit of the creditors in the event a bankruptcy order is made against the debtor, has the applicant provided a satisfactory estimate of the value of its security?

(e) Should the court exercise its discretion under s. 43(7) of the BIA not to grant the requested bankruptcy order?

Summary of Outcome

[13] For the reasons that follow, Mr. Grillone’s motion for a mis-trial is denied. The concerns raised on the mis-trial motion did not rise to a level that resulted in a mis-trial and can be appropriately addressed in the court’s adjudication of costs.

[14] The bankruptcy application is granted.

[15] Mr. Grillone is an experienced litigation lawyer. While he claims not to have had experience in bankruptcy and insolvency matters, he has utilized his skill set as a litigation lawyer to research and become familiar with this area of the law and has made use of his skill set and the tools available to him to raise a multitude of objections to this bankruptcy application, both procedural and substantive. Mr. Grillone’s resources included the use of the court’s process to raise objections, bring motions, launch attacks personally and professionally against Bluecore and its counsel, and challenge the many creditors who have pursued him through the court. Mr. Grillone has put forth a valiant effort to avoid the bankruptcy order, and he has demanded that Bluecore be required to strictly comply with the requirements of the BIA.

[16] Bluecore has been required to do so and the court is now satisfied, having considered the many arguments raised by Mr. Grillone in opposition to the relief sought on this application, that the requirements of the BIA have been satisfied and that it is appropriate to grant the order requested, declaring Mr. Grillone a bankrupt.

The Positions of the Parties

Bluecore’s Position

[17] Bluecore had previously commenced a civil action on June 25, 2020 (bearing Court File No. CV-20-00643016-000, the “Bluecore Civil Action”) against, among others, Mr. Grillone and his law firm (the “Grillone Law Firm,” a sole proprietorship) in respect of the Indebtedness (defined below). Bluecore sought repayment of the amounts claimed to be owing under a non-revolving term loan agreement entered into between Bluecore, the Grillone Law Firm, and Mr. Grillone on or about December 14, 2018 (the “Loan Agreement”).[^2] Litigation (disbursement) funding was advanced to Mr. Grillone and Grillone Law Firm (collectively defined to be the “Borrower”) under this Loan Agreement in late 2018 (the “Bluecore Loan”), which the Borrower was obligated to repay. Mr. Grillone also signed a guarantee dated December 18, 2018 for the repayment of up to $1,000,000 of the amounts owing under the Loan Agreement (the “Guarantee”).

[18] As of the date of the bankruptcy application, Bluecore claimed to be owed the principal loan amount of $1,332,461.58, plus accrued interest and fees. The amount of the Indebtedness was updated at trial to be $3,773,553 as at the end of February 2023. This final accounting was net of the amounts paid by Mr. Grillone between December 2018 and April 2019 that were credited to him and included the contractual interest accrued to the end of February 2023. The aggregate amount of principal and interest outstanding under the Loan Agreement at any given time is referred to as the “Indebtedness”.

[19] It is on this basis that Bluecore claims to be a creditor of Mr. Grillone with an unsecured portion of its debt far exceeding $1,000 and that Mr. Grillone had failed to meet his liabilities as they came due by having not repaid what he owed to Bluecore and that was outstanding in the six months preceding the bankruptcy application. Bluecore relies upon the fact that, at the time of the filing of the bankruptcy application, Mr. Grillone was admittedly unemployed and spending his time defending litigation against him and advancing claims against others, he was the subject of a Mareva Injunction Order made on October 20, 2020 in another proceeding against him that froze his worldwide assets[^3] (the “Mareva Injunction Order”), and based on his Statement of Worldwide Assets filed in connection with that order (the “Statement of Assets”), he had no apparent means to repay what he owed to Bluecore (his stated assets largely being attributed to amounts he claimed to be owed to him by others).

[20] The Bluecore Loan was cross-collateralized over a portfolio of contingency litigation cases (referred to as the “Funded Files,” identified in Schedule E to the Loan Agreement) and secured against various other assets. Bluecore’s security package in connection with the Loan Agreement included (i) an assignment of accounts receivable related to the Funded Files in favour of Bluecore; (ii) after-the-event insurance policies (the “Insurance Policies”) that were to be the subject of a corresponding irrevocable direction (the “Direction to Pay”) in favour of Bluecore; and (iii) Mr. Grillone’s personal Guarantee (collectively, the “Bluecore Security”).

[21] The First Robson Affidavit stated that it was impossible to precisely value the Bluecore Security, but estimated that: (i) the value of the Insurance Policies is nil, and (ii) the expected recovery from the Funded Files is presently unknown but expected to be de minimis. Evidence was tendered at trial from Bluecore’s principal, Mr. Robson, who testified that his best estimate of the value of the Bluecore Security was that it was worth cents on the dollar but, if he had to guess, it could be in the range of $100,000. Mr. Robson says that his estimate cannot be more precise or supported because of various unknowns and contingencies associated with the Bluecore Security.

[22] The value of the Bluecore Security depends upon what can be recovered from the Funded Files, which were transferred to other lawyers sometime after May 2019. In addition to the challenges in finding which lawyers assumed carriage of these Funded Files and how and when they were ultimately resolved (whether by settlement or adjudication), there is the added uncertainty about whether any of the listed disbursements said to have been expended by the Grillone Law Firm can be proven and, if so, whether those former clients have any obligation to repay those disbursements or to pay the Grillone Law Firm for work done. It is within this context that Bluecore said it was unable to provide a meaningful estimate of the realizable value of its security and stated it was de minimus in the First Robson Affidavit, and eventually provided a best estimate (or “guess”) of the value of its security to be in the range of zero to $100,000.00 at trial.

[23] Bluecore’s primary position is that it does not need to demonstrate special circumstances to obtain the order it seeks. However, if it does, it submits that the multitude of proceedings against and by Mr. Grillone and the existence of claims between him and Bluecore and other creditors are said to give rise to the type of special circumstances required for a single creditor bankruptcy application to succeed.

[24] Bluecore contends that these special circumstances require a single judicial forum in which to collectively streamline and address all claims and counterclaims to achieve the orderly and fair distribution of assets to Mr. Grillone’s creditors, including Bluecore, under the BIA. Bluecore maintains that it is not seeking to gain any advantage over any other creditors of Mr. Grillone in having made this application with reference in particular to the amounts owed to it under the Loan Agreement. Mr. Grillone’s failure to repay Bluecore amounts owing under the Loan Agreement was, however, the predicate upon which Bluecore brought this application in good faith and for the proper purpose of bringing order to the chaos of the multitude of legal proceedings involving Mr. Grillone and the Grillone Law Firm that arose after his abrupt exit from the practice of law in May 2019.

[25] Bluecore had identified at the time this application was filed more than twenty-five claims against Mr. Grillone commenced in and after 2019, in some of which counterclaims have also been asserted for amounts in excess of the amount he is being sued for (this includes the Bluecore Civil Action and Counterclaim). Bluecore also had identified at the time this application was commenced fifteen costs awards and/or judgments against Mr. Grillone in the other proceedings. The existence of these proceedings, regardless of whether any specific amounts were owing and unpaid in the six months prior to the commencement of the bankruptcy application, is said to be part of the special circumstances justifying the making of the bankruptcy order in this case.

[26] Some other creditors of Mr. Grillone testified at the trial about their support of the objective to streamline the claims process in respect of Mr. Grillone given the multiplicity of legal proceedings by and against Mr. Grillone. While the existence of these other creditors and amounts owing to them is not relevant to the alleged Act of Bankruptcy that Bluecore elected to proceed on following the court’s oral ruling on the first day of the trial, the court indicated in that ruling that their evidence could be tendered and that submissions could be made regarding the relevance of their testimony to other issues.

[27] Bluecore submits that the orderly determination of claims and distribution to creditors that it seeks can be accomplished through the appointment of a licenced insolvency trustee (trustee in bankruptcy), “trustee” under s. 43(9) of the BIA (“Trustee”). This will enable an orderly distribution of Mr. Grillone’s estate to his creditors, including Bluecore, and to create a single forum in which the multiplicity of claims involving Mr. Grillone can be efficiently determined while ensuring no creditor obtains an unfair advantage over the others in the interim. That is a special circumstance that is said to support the granting of the bankruptcy order, when considered in the context of the amount he owed Bluecore that remained unpaid during and prior to the six months preceding this application, the court’s earlier findings in connection with the Mareva Injunction Order, and how Mr. Grillone was handling his assets and affairs in the period leading up to the application.

[28] Bluecore denies it has any improper purpose or motive and maintains that its pursuit of this bankruptcy application is to consolidate Mr. Grillone’s assets and liabilities to allow for an orderly distribution to his creditors. Bluecore contends that the existence of the Bluecore Civil Action (and Counterclaim) and a multitude of other claims by and against Mr. Grillone is a relevant consideration in the overall exercise of the court’s discretion.

Mr. Grillone’s Position

[29] In his Notice of Dispute, Mr. Grillone claims not to be indebted to Bluecore as is alleged in the application or at all. He disputes the amount claimed but also asserts that, if any amounts are owing, they are owing to other related companies to Bluecore, Bluecore Partners 4 Inc. and Trueblue Capital Inc. (the “Bluecore Affiliates”) who Mr. Grillone claims funded the Bluecore Loan, not the applicant.

[30] Mr. Grillone also claims that it is Bluecore that is indebted to him based on a counterclaim he has asserted against Bluecore in the Bluecore Civil Action. The counterclaim is for general damages in the sum of $15,000,000 and punitive and aggravated damages in the sum of $1,000,000 (the “Counterclaim”), for the alleged breach of an undertaking that Bluecore is alleged to have given to him to assume control of the Grillone Law Firm and keep it open and generating revenue to satisfy the Bluecore Indebtedness and obligations to other creditors during Mr. Grillone’s medical leave in or about May of 2019. Mr. Grillone claims to have lost the value of his law firm while on medical leave because of the breach of this undertaking, causing the Law Society to step in to initially manage his practice as trustee in September 2019 and eventually distribute his files in January 2020 to other lawyers (files that he now claims to have had in excess of $10 million in unbilled fees and disbursements).

[31] Mr. Grillone further asserts that at the time of his Notice of Dispute he was meeting his liabilities as prescribed by law. He maintains that his Statement of Assets disclosed that he had assets that exceeded the amounts claimed to be owing by Bluecore at the time of the bankruptcy application. He denies that he committed the alleged Act of Bankruptcy in the six months preceding the filing of this application.

[32] In furtherance of this position, Mr. Grillone contends, based on correspondence appended to an affidavit he swore on March 3, 2023 (trial Exhibit 72) that details the amounts paid into court to his account, that the Statement of Assets should be updated to reflect monies paid into court (after this application was commenced) totaling at least $420,000 as of September 30, 2022. The court observes that this amount ($420,000) was already reflected on his Statement of Assets as the proceeds of the share purchase before they were paid into court, so this does not change the value of his total assets although it does change the liquidity profile. Mr. Grillone attests in his affidavit sworn December 13, 2022 (trial Exhibit 71) that the total amount standing to his credit paid into court after the bankruptcy application was commenced, as of September 30, 2022, was actually $509,899.46, comprised of the $420,000 share sale proceeds deposited into court plus accrued interest and some other amounts he had claimed to be owing and that were paid into court.

[33] Mr. Grillone also attests in that affidavit that there was more than $650,000 in additional accounts receivable, more than $5,000 in unbilled disbursements of the Grillone Law Firm in addition to the $3 million in outstanding disbursements indicated on his Statement of Assets, and $10 million in unbilled fees (specified in his Statement of Assets to be an “unknown” amount for work in progress), associated with the client files transferred by the Law Society to other lawyers after he took his medical leave in May 2019.[^4]

[34] In addition to challenging the amount claimed by Bluecore to be owing to it in its application and challenging the assertion that he was unable to meet his liabilities to Bluecore in the six months preceding the filing of the bankruptcy application (thus, failing to satisfy the requirement under the BIA that he be shown to have committed an act of bankruptcy), Mr. Grillone also objects to the granting of the bankruptcy order on the grounds that:

(a) Bluecore has not satisfied other requirements under the BIA, such as the requirement under s. 43(2) that a secured creditor provide an estimate of the value of its security in its application if it is not willing to give up its security; and

(b) Bluecore has pursued this bankruptcy application for an improper purpose and has not acted in good faith.

[35] Although he conceded during the trial closing submissions that an estimate of the value of Bluecore’s security was eventually provided during Mr. Robson’s trial testimony, Mr. Grillone insists that this is non-compliant and fatal to Bluecore’s application because this was not done in the application and affidavit of verification at the time of filing. This point was addressed in the court’s oral ruling on this and various other challenges raised by Mr. Grillone at the outset of trial.

[36] Mr. Grillone further alleges Bluecore is a foreign, now defunct, litigation lending company that is under investigation in Norway for fraud and misappropriation and has pursued an aggressive 3-pronged litigation strategy through this bankruptcy application and litigation against himself and others he was associated with professionally.

[37] Mr. Grillone alleges that the application was brought for the improper purpose of avoiding (through a stay and the assignment of his property to a Trustee in Bankruptcy) Mr. Grillone’s Counterclaim. He asks the court to exercise its discretion under s. 4.2 of the BIA not to grant the order (even if the requirements under s. 43(1) have been met) as a result of the bad faith and improper motives of Bluecore in making and pursuing this bankruptcy application.

Pre-Trial and Post-Trial Proceedings

[38] By the spring of 2022, it was apparent that this was going to be a hotly contested bankruptcy application and a trial of the contested issues was directed. Between November 2021 and January 2023 there were eighteen endorsements made by the court on case conferences, interlocutory motions, and scheduling (and re-scheduling) conferences.

[39] As was noted in my February 9, 2023 pre-trial endorsement following a trial management conference: “There is a long procedural history to this matter. Mr. Grillone has sought many (more than seven) adjournments and stays of the bankruptcy hearing over the past year.”

[40] Approximately two weeks after the trial concluded, Mr. Grillone requested an urgent case conference and asked the court to schedule a fresh evidence motion, which was initially scheduled to be heard on May 18, 2023 with a timetable for the delivery of material for that motion put in place. On May 15, 2023, that motion had to be adjourned because Mr. Grillone delivered his motion record late, had still not delivered his factum, and instead had purported to serve a summons to witness on opposing counsel, which the court declared to be a nullity. The next available court date was not until July 11, 2023 and the fresh evidence motion was adjourned until then.

[41] Mr. Grillone requested a further urgent scheduling appointment that was convened on June 14, 2023, at which he advised that he wanted to schedule a motion for a mis-trial and that he was withdrawing his fresh evidence motion. It was agreed (subject to Bluecore’s reservation of its rights regarding the costs of the withdrawn fresh evidence motion) that the July 11, 2023 hearing date would be re-purposed for the mis-trial motion. The mis-trial motion was argued that day.

[42] In the meantime, the court’s decision in the bankruptcy trial was held in abeyance pending the motion for a mis-trial. The court indicated in its June 14, 2023 endorsement that the timing and sequencing of the two decisions (motion for mis-trial and, depending on the outcome of that, the trial decision) would be determined by the outcome of the July 11, 2023 motion. These reasons include the court’s decision on the mis-trial motion, which is the first of the issues the court must decide, and the trial.

Analysis

[43] I will deal with each of the issues identified earlier in these reasons, in turn.

Should the Court Declare a Mis-Trial?

[44] Mr. Grillone brought what he described as a “with prejudice” motion for a mis-trial. Alternatively, he sought an order dismissing this bankruptcy application based on the same allegations of misconduct committed by counsel for Bluecore and Bluecore’s representative Nick Robson as he relied upon for the mis-trial.

The Alleged Misconduct

[45] The mis-trial motion was heard on July 11, 2023. The alleged misconduct involves:

(a) Evidence tampering by the applicant’s counsel who tendered as Exhibit 2 at the trial a different (more complete, 73 page) version of the Loan Agreement with all attached Schedules (the “Long Version Loan Agreement”) rather than the version (missing Schedules D and E that, without those schedules was 55 pages in length, the “Short Version Loan Agreement”) that had been identified as the Loan Agreement appended as Exhibit A to First Robson Affidavit when the application was commenced.

(b) Counsel suborning perjury by putting the Exhibit 2 (Long Version Loan Agreement) to Mr. Robson during his testimony on February 28, 2023 and inviting him to identify that version to be the same as what was attached as Exhibit A to the First Robson Affidavit. Mr. Robson did even though Exhibit 2 is not the Short Version Loan Agreement that was actually appended as Exhibit A. This is the same conduct said to amount to perjury committed by Mr. Robson in his testimony.

(c) Counsel misleading the court by continuing to refer throughout the trial and during submissions to trial Exhibit 2 (the Long Version Loan Agreement) interchangeably with Exhibit A to the First Robson Affidavit (the Short Version Loan Agreement), as the document upon which the application and the claimed outstanding debt was predicated as if they were the same document, even though they are not.

(d) Counsel failing to replace trial Exhibit 2 with the exact version of the Loan Agreement appended as Exhibit A to the First Robson Affidavit after undertaking and being directed by the court on March 3, 2023 (the “Direction”) to do so.

(e) Counsel swearing a false affidavit in response to the mis-trial motion by characterizing what transpired as “nonsense” and a simple matter of inadvertence.

[46] All of these allegations of misconduct are based on the fundamental premise that counsel for the applicant knowingly and intentionally misled the court and Mr. Grillone (and Mr. Robson, if he is not shown to have known) by stating that the Long Version Loan Agreement that included Schedules D and E was the same as the Short Version Loan Agreement that did not include these Schedules D and E. This alleged misconduct is said by Mr. Grillone to directly implicate the duty of good faith under s. 4.2 of the BIA.

[47] In CWB Maximum Financial Inc. v. 2026998 Alberta Ltd., 2021 ABQB 137, 25 Alta. L.R. (7th) 3, the Court held (at para. 56): “The good faith to be exhibited must be ‘in respect of’ BIA proceedings.” The Court went on (at para. 59) to summarize the operating principles of good faith under s. 4.2 of the BIA, including that:

Based on previous caselaw, the statutory requirement of good faith in the insolvency context requires that an interested party not bring or conduct proceedings for an oblique motive or improper purpose.

The duty of good faith, in this case, requires the parties not to lie to or mislead the other with respect to the status of the loan or the state of the lender-borrower relationship. It does not impose a duty of loyalty or disclosure, or require the subordination of one's own interests to the other, and falls short of a fiduciary duty.

Whether dishonesty has occurred in a given case is fact-specific and may, depending on the circumstances, include lies, half-truths, omissions and even silence.

A remedy, at least in this case and given the broad discretion of the Court under s. 4.2, may include denial of the [Receivership] Order.

The conduct of the party alleged to have breached the good faith requirement should be assessed in light of the intent and policy objectives of the BIA.

[48] In the receivership and restructuring context, creditors acting for improper purposes to control the outcome of votes or other self-serving motives to the prejudice of other stakeholders and in a manner that undermines the policy objectives of the governing statute (whether it be the BIA or the Companies’ Creditors Arrangement Act, R.S.O. 1985, c. C-36) have been held to be in breach of s. 4.2 or other duties of good faith. See CWB Maximum Financial, at paras. 42–44 and 48, citing 9354-9186 Québec Inc.. v. Callidus Capital Corp., 2020 SCC 10, [2020] 1 S.C.R. 521 and Uniforet Inc., (Re), 40 C.B.R. (4th) 281.

Mr. Grillone’s Position on the Mis-Trial Motion

[49] In this case, Mr. Grillone contends that Bluecore is acting for the oblique motive or improper purpose of avoiding having to defend the Counterclaim in the Bluecore Civil Action. He further contends that evidence tampering and perjury are quintessential examples of failing to act in good faith.

[50] Mr. Grillone does not offer a clear or logical explanation of the connection between the alleged ulterior motive or improper purpose of avoiding having to defend the Counterclaim and the alleged misconduct of evidence tampering, misleading the court, and suborning (or, in the case of Mr. Robson, committing) perjury. The essence of Mr. Grillone’s argument is that the applicant and its counsel will stop at nothing to ensure that the bankruptcy order is made so as to avoid having to defend the Counterclaim. To that end, the court must be satisfied that the alleged misconduct involving the substitution of the Long Version Loan Agreement for the Short Version Loan Agreement at trial impacted the outcome of the trial. Or, put another way, if the Short Version Loan Agreement had been marked as trial Exhibit 2 and if that was the only version of the Loan Agreement that had been referred to at trial, that would have (or even could have) changed the outcome of the trial.

[51] Mr. Grillone does not suggest that the existence of Schedules D and E and the fact that they were appended to the executed version of the Loan Agreement (which is the Long Version Loan Agreement) were hidden from him. What is challenged is whether the Long Version of the Loan Agreement (that includes those Schedules) should have been entered into evidence at this trial by the applicant without drawing to the court’s attention that those schedules had not been appended to the Short Version Loan Agreement and without providing some explanation for why the Short (rather than Long) Version of the Loan Agreement had been originally relied upon.

[52] Mr. Grillone contends that because a bankruptcy application is considered to be a quasi-criminal proceeding in nature, there are special policy considerations that should be taken into account (see Dallas/North Group Inc. (Re), 148 O.A.C. 288, at para. 14), particularly when it comes to the applicant’s duty of good faith under s. 4.2 of the BIA. He maintains that any evidentiary irregularity or mis-description of the evidence and exhibits should carry the most extreme consequence of a mis-trial or dismissal of the application because of the “penal” nature of bankruptcy proceedings and the consequences that individuals like him face if the application is granted.

[53] In other words, Mr. Grillone contends that he does not need to demonstrate that he relied to his detriment on the fact that the Short Version Loan Agreement (rather than the Long Version Loan Agreement) was appended to the original affidavit of verification or that the outcome of the trial would have been any different if it had been that version, rather than the Long Version Loan Agreement, that was marked as trial Exhibit 2.

The Applicant’s Position on the Mis-Trial Motion

[54] The applicant counters that:

(a) Mr. Grillone is himself a signatory to the Long Version Loan Agreement (that included Schedules D and E) and would have seen and been familiar with it at that time, in December 2018. The Funded Files identified in Schedule E in particular would have been identified by him for inclusion in that Schedule.

(b) Mr. Grillone would have known about the Long Version Loan Agreement when he received the application and supporting affidavit of verification (the First Robson Affidavit) that attached the Short Version Loan Agreement (missing Schedules D and E) at or about the end of September 2021.

(c) Mr. Grillone should have had a copy of the Long Version Loan Agreement since it was signed by him in December 2018, and, in any event, he received another copy on May 4, 2022 when he was asked to admit the authenticity of this document (among others) in an amended Request to Admit of that date. Mr. Grillone confirmed in his response to the Request to Admit dated May 12, 2022 that the authenticity of the Long Version Loan Agreement was not challenged. He was deemed to admit its authenticity when he responded to the Request to Admit, only challenging three other pages from another document (a TransUnion Credit Report, unrelated to this issue of the appended Schedules and Guarantee).

(d) Mr. Grillone did not himself raise any concern prior to or during the trial about the difference between the Short Version and Long Version Loan Agreements.

(e) The Long Version Loan Agreement was included among the documents in the applicant’s Document Brief for Trial, uploaded into CaseLines by January 12, 2023.

(f) Mr. Robson was asked during his evidence in chief about one of the Schedules to the Loan Agreement (Schedule E identifying the Funded Files) which was not appended to the Short Version Loan Agreement. No objection was raised to this line of questioning and Mr. Grillone questioned Mr. Robson about the subject matter of Schedule E during cross-examination.

(g) Mr. Grillone raised a concern during the trial about what had been marked as Exhibit 2, after reviewing it and noting that it did not correspond with Exhibit A to the First Robson Affidavit because it did not include Mr. Grillone’s Guarantee, yet Mr. Grillone did not raise any concern during the trial about the Long Version Loan Agreement (that included Schedules D and E) being marked as Exhibit 2.

(h) After the trial concluded, in accordance with the court’s direction, counsel for Bluecore provided Mr. Grillone with a trial exhibit list cross-referenced to CaseLines pages that included the Long Version Loan Agreement marked as trial Exhibit 2. In a March 6, 2023 email Mr. Grillone was asked to confirm that the Exhibits and CaseLines references were correct and he did so on March 8, 2023.

(i) Following the trial, for the first time on May 26, 2023, Mr. Grillone accused Bluecore and its counsel of having committed a fraud on the court and misleading the court by substituting the Long Version Loan Agreement for the Short Version Loan Agreement as trial Exhibit 2 without pointing out that they were different.

[55] Counsel for the applicant have provided the following explanations regarding the two versions of the Loan Agreement:

(a) Mr. Freake, counsel for the applicant, stated in an email to Mr. Grillone dated May 26, 2023 that the court’s direction on March 3, 2023 (and the corresponding undertaking of counsel) was made to address Mr. Grillone’s concern that Exhibit A to the First Robson Affidavit included not only the Loan Agreement but also Mr. Grillone’s Guarantee on top of it, whereas the version of the Loan Agreement marked as trial Exhibit 2 did not include the Guarantee, so the Guarantee was added to the Long Version Loan Agreement that had already been marked as trial Exhibit 2 to comply with the court’s direction. Mr. Freake went on to say to Mr. Grillone: “It is not our fault that you ‘assumed’ we put another version, or that you signed off without doing a page-flip to verify.”

(b) Mr. Kraft, also counsel for the applicant, swore in his affidavit dated June 26, 2023 (the “Kraft Affidavit”) in response to this motion that: “…on a number of occasions during Trial, I referred to the Complete [Long Version] Loan Agreement as ‘Exhibit A’ to the Robson Affidavit. This was inadvertent and inaccurate, but certainly not intended to mislead…” Mr. Kraft does not explicitly state that he and his colleagues made a mistake when they selected the Short Version Loan Agreement to append as Exhibit A to the First Robson Affidavit but Mr. Kraft does explain that Mr. Freake was not working on the file back in May 2022 when it was first identified that the application record contained the Short Version Loan Agreement that was “missing” exhibits, nor was he involved at that same time when the Long Version Loan Agreement was included in the amended Request to Admit and was authenticated by Mr. Grillone.

(c) Mr. Kraft goes on to state that Mr. Robson takes strong exception to the accusation that he committed perjury. Mr. Kraft also takes strong exception to the accusation that he and his colleagues lied to or intentionally misled the court.

Analysis of Alleged Misconduct

[56] The specific alleged misconduct associated with the marking of trial Exhibit 2 is summarized above (at paragraph 45 of these Reasons). The first four allegations will be addressed in turn. The fifth allegation of Mr. Kraft having sworn a false affidavit is a function of whether ultimately the evidence and submissions tendered in respect of the first four allegations are accepted by the court. The fifth allegation need not be separately addressed in light of the court’s findings, below.

[57] Before turning to the specific allegations, the common element of an underlying intent to mislead will first be addressed. Having regard to the explanations provided by counsel for Bluecore and the evidentiary record, the court can and does infer, as counsel for Bluecore urges it should do, that the Short Version Loan Agreement (missing two Schedules, D and E) was included in error as Exhibit A to the First Robson Affidavit.[^5]

[58] That is the most logical conclusion for the court to reach having regard to the evidence and submissions of the parties. No suggestion was made that Bluecore was in any way advantaged by the original omission of those two schedules from the version of the Loan Agreement appended to the original affidavit of verification, or that there was any reason for them to have been intentionally omitted.

[59] Nonetheless, no formal steps were taken by Bluecore or its counsel to replace the exhibit to the First Robson Affidavit when the mistake was discovered in May 2022. Instead, the Long Version Loan Agreement was authenticated through the process of the Request to Admit and response in May of 2022 and the applicant then proceeded to use the Long Version Loan Agreement for purposes of trial but mis-described it as the version that had been appended to the First Robson Affidavit.

[60] Mr. Grillone asks the court to find that it was an intentional act to mislead the court and Mr. Grillone into believing that it was always the Long Version Loan Agreement that was in evidence. He suggests that they did this intentionally rather than simply having Mr. Robson swear a further affidavit to append the authenticated Long Version Loan Agreement and/or instead of simply having Mr. Robson explain the differences between the two versions of the Loan Agreement when he testified at trial and Exhibit 2 was marked. Mr. Grillone suggests that this was done as part of the applicant’s agenda to push this application through and to cut corners whenever it furthered that objective.

[61] The applicant suggests that this was merely an oversight by counsel for the applicant, in part due to the fact that different lawyers were involved in different aspects of the marshalling of the evidence. The ease with which the mistake could have been corrected is not consistent with Mr. Grillone’s theory of an intentional act to mislead. I attribute it to the involvement of too many lawyers in the marshalling of the evidence which resulted in an oversight. This question of intent to mislead will be revisited and elaborated upon later in these reasons in the analysis and discussion regarding the fourth instance of alleged misconduct and in the general discussion about the test for declaring a mis-trial, below.

[62] I turn now to address each instance of alleged misconduct.

(a) First Instance of Alleged Misconduct: Evidence Tampering

[63] On the first allegation of evidence tampering, Mr. Grillone relies on the law of spoliation (the duty to preserve evidence) to suggest that the applicant and/or its counsel made the Exhibit A Short Version Loan Agreement “disappear”.

[64] I agree with Bluecore’s submission on this point, that the doctrine of spoliation has no application in the circumstances of this case. No evidence went missing or was destroyed. To the contrary, an incomplete document (Short Version Loan Agreement) which was missing pages was initially appended to the affidavit of verification; the mistake was identified nine months prior to trial the Long Version Loan Agreement was authenticated; and then the complete, Long Version Loan Agreement, was put forward in its place to be marked as the trial exhibit.

[65] There is no indication that any evidence was destroyed in order to affect the outcome of the trial. See Bucktol v. 2280882 Ontario Inc., 2018 ONSC 5455 and Catalyst Capital Group Inc. v. Moyse, 2016 ONSC 5271. The allegation of spoliation has not been proven by Mr. Grillone.

(b) Second Instance of Alleged Misconduct: Perjury of Mr. Robson/Suborning Perjury by Counsel

[66] On the second allegation of alleged perjury by Mr. Robson, and counsel for Bluecore suborning perjury, unquestionably it is an offence under s. 131(1) of the Criminal Code, R.S.C., 1985, c. C-46 to make a false statement under oath with the intent to mislead. In R. v. Hebert, [1989] 1 S.C.R. 233, at para. 5, the Supreme Court of Canada held that: “[f]or there to be perjury there has to be more than a deliberate false statement. The statement must also have been made with intent to mislead.”

[67] Despite Mr. Grillone’s assertion that the court should infer that Mr. Robson had the requisite intent to mislead, the evidence does not support that inference. Mr. Kraft was asking questions of Mr. Robson when Mr. Robson was asked to confirm that the Long Version Loan Agreement was Exhibit A to the First Robson Affidavit. There is no evidence that Mr. Robson realized that he was being shown the Long Version Loan Agreement rather than the Short Version Loan Agreement when he was asked to identify it and it was marked as Exhibit 2 at trial.

[68] During his testimony, Mr. Robson did not check the complete document that was shown to him on the shared screen during the Zoom hearing to ensure that it was the same as the one appended to his affidavit. He was not asked to look at the schedules to the version of the Loan Agreement being marked or the version that had been appended to the First Robson Affidavit when trial Exhibit 2 was identified. Mr. Robson took his counsel’s word that he was being shown the document that had been appended to the First Robson Affidavit when he was asked to identify the Loan Agreement at trial. It turns out his counsel was wrong about that. That does not make Mr. Robson a liar. This is not a reason to find that Mr. Robson’s testimony is entirely untrustworthy and not to be accepted (another conclusion that Mr. Grillone has asked the court to reach as a result of this alleged misconduct).

[69] Mr. Kraft unequivocally denies having any intent to mislead Mr. Robson, Mr. Grillone, or the court, and Mr. Kraft’s evidence about this was not challenged.

[70] Nor has Mr. Grillone offered even a plausible theory for why Bluecore would have been assisted by misleading the court into believing that the Long Version Loan Agreement with Schedules D and E appended was the version attached to the First Robson Affidavit. The authenticity of the Long Version Loan Agreement was not in issue and there has been no valid basis upon which there could have been an objection to the Long Version Loan Agreement being entered into evidence at trial in addition to the Short Version Loan Agreement that was appended to the First Robson Affidavit. The Long Version Loan Agreement ultimately was entered into evidence, albeit having been mis-identified as the document at Exhibit A to the First Robson Affidavit.

[71] The allegations of perjury (by Mr. Robson) and suborning perjury (by Mr. Kraft) have not been proven by Mr. Grillone. The requisite intent has not been established nor is there an evidentiary foundation from which it can be inferred.

(c) Third Instance of Alleged Misconduct: Contempt for Failing to follow the Court’s Direction

[72] On the third allegation of contempt, to establish that counsel for Bluecore was in contempt of the court’s Direction to replace what had been marked as trial Exhibit 2 with exactly what had been marked as Exhibit A to the First Robson Affidavit, would require a contempt hearing and service of originating process, followed by a sentencing hearing that would take into account mitigating factors, etc. None of that had occurred at the time of the mis-trial motion.[^6]

[73] The elements for a finding of contempt are set out in Business Development Bank of Canada v. Cavalon Inc., 2017 ONCA 663, 416 D.L.R. (4th) 269, at para.17. Assuming the court’s Direction can be construed as a court order, the party allegedly in breach must have intentionally failed to do the act that the order compels. Proof of that intention is lacking in this instance, nor is there an evidentiary foundation from which it can be inferred.

[74] Although no direct evidence was provided by Mr. Freake who was the lawyer for Bluecore who was present and interacting with the court when the Direction was made, his May 26, 2023 email (appended to the Kraft Affidavit) reveals that he misconstrued the Direction as being limited to adding the Guarantee that had been included as part of Exhibit A to the First Robson Affidavit to trial Exhibit 2; this was the very thing that Mr. Grillone had pointed out as inconsistent between trial Exhibit 2 as originally marked and the original Exhibit A to the First Robson Affidavit.

[75] Mr. Freake’s assumption that Mr. Grillone had construed the Direction in the same way as he had is evident from the May 26, 2023 email. Mr. Freake points out that Mr. Grillone did not raise any further objections to the content of trial Exhibit 2 after it had been replaced, despite the fact that he obviously reviewed and compared the exhibits when the initial objection was raised giving rise to the Direction and was given the further opportunity to review and compare them again once the trial exhibits had been finalized.

[76] Mr. Kraft attributes his own failure to adhere to the Direction to the fact that he was not present in court when it was made and was not aware of precisely what the court had said.

[77] I will return to the implications of the failure of Bluecore’s counsel to adhere to the Direction later in these Reasons, but for the immediate purposes, while the explanations are just that and do not excuse the failure to comply with the court’s Direction, they do offer a foundation for concluding, as I do, that their failure to follow the court’s Direction was not intentional and a finding of contempt is not appropriate on this record.

(d) Fourth Instance of Alleged Misconduct: Failure to Pursue the Bankruptcy Application in Good Faith

[78] Mr. Grillone argues that the applicant’s counsel are relying on a state of affairs that only exists because they failed to adhere to their undertaking and the court’s Direction. While the specific allegations of misconduct have not been made out, there remains the broader fourth allegation of mis-leading the court and failing to act in good faith in the pursuit of an application for an order under the BIA.

[79] The good faith doctrine arises in a variety of contexts. Mr. Grillone identifies the following organizing principles:

(a) The obligation of counsel to disclose all material necessary for the court to do justice even in the adversarial context. See Healthy Lifestyle Medical Group Inc. v. Chand Morningside Plaza Inc., 2019 ONCA 248, 145 O.R. (3d) 316, at paras. 12–15.

(b) The obligation of counsel not to mislead the court and to conduct themselves honourably and fairly, particularly when seeking recourse in complex commercial list matters that are intended to be dealt with on an expedited basis. See Royal Bank of Canada v. Boussoulas, 2010 ONSC 4650, at paras. 22-24.

(c) The obligation not to use tactics or engage in conduct calculated to induce the court to act under a misapprehension of the facts. See Paulus v. Fleury, 2018 ONCA 1072, 144 O.R. (3d) 791, at para. 19.

(d) That an applicant must come to court with clean hands and the court will not reward bad behaviour. See Servello v. Servello, 2014 ONSC 5035, 4 E.T.R. (4th) 316, at para. 107, aff’d 2015 ONCA 434, 9 E.T.R. (4th) 169 at paras. 4–8.

(e) The obligation of an applicant (or any interested person in any proceeding under the BIA) under s. 4.2 of the BIA to act in good faith with respect to the proceeding, discussed above.

[80] There is an element of intention (or at least willful blindness or neglect) that is required even for this allegation of a failure to act in good faith, although it does not necessarily require an intention to mislead the court. Mr. Grillone contends that Bluecore and its counsel were so single-minded about obtaining the bankruptcy order against him that they neglected their obligations and cut corners, and that this amounts to a failure to act in good faith in respect of this bankruptcy application and a breach of s. 4.2 of the BIA.

[81] Mr. Grillone is correct that there is a proper way to fix a mis-named or mis-identified exhibit, through an on-the-record explanation at the time of the marking of the exhibits in which the differences are identified and explained. Simply replacing a more complete version of an agreement without drawing that to the court’s attention or to the attention of the witness through whom the exhibit is tendered is not the proper way to do this. This is compounded by the failure to comply with the court’s Direction which would have, by necessity, forced Bluecore to address the evidentiary issue head on. However, this does not justify an order declaring a mis-trial.

A Mis-Trial Is Not the Appropriate Recourse for the Alleged Irregularities

[82] The court does not condone Bluecore and its counsel’s failure to follow the proper steps for correcting mis-identified or incomplete exhibits or to follow the court’s Direction. However, it is a matter for the court to determine, in the exercise of its discretion, what consequences should flow from this in a given case. Declaring a mis-trial is one possible consequence that might be considered and imposed for this, and it is the one that Mr. Grillone seeks; however, I do not consider that to be warranted in this case.

[83] Even in this context, the court must have regard to the established test for declaring a mis-trial. The test for declaring a mis-trial, as summarized in Forsythe v. Tone, 2018 ONSC 3598, 28 C.P.C. (8th) 377, at para. 26, includes consideration of the following non-exhaustive list of factors that have been held to apply in criminal, civil, and family cases (see van Ooyen v. Carruthers, 2018 SKQB 73, at paras. 7–16):

a. There is no "one size fits all" test. The particular circumstances of each case must be carefully assessed by the trial judge.

b. An accused [or a party] is entitled to a fair trial, not a perfect trial: R. v. Khan, 2001 SCC 86 at para. 72, [2001] 3 S.C.R. 823.

c. In Khan at para. 73, the question is asked as to whether "a well-informed, reasonable person considering the whole of the circumstances . . . [would] have perceived the trial as being unfair or as appearing to be so."

d. Does the precipitating event relate to a central or peripheral issue? Could it affect the verdict [or outcome]?

e. Is there any conduct by one side or the other that is a factor?

f. What corrective measures are available that can adequately remedy the problem? Would a mid-trial instruction assist?

g. "What matters most is the effect of the irregularity on the fairness of the trial and the appearance of fairness": Khan, at para 84.

h. A mis-trial should only be granted as a last resort, in the clearest of cases, and where no other remedy is available: R. v. Toutissani, 2007 ONCA 773 at para 9.

[84] As was noted by the court in Forsythe (at paras. 23–25):

[23] Mistrials are relatively rare ... They are caused by some fundamental error or serious irregularity in the conduct of the trial. The question is whether the irregularity is of sufficient scope or degree to prevent the prejudiced party from presenting his or her case fully, or from securing a fair adjudication on the merits. A declaration of a mistrial is a last resort, where no other curative measures will suffice.

[24] The decision to grant a mistrial is discretionary. In exercising my discretion, I should consider whether, in all of the circumstances, a mistrial is needed to prevent a miscarriage of justice. Before declaring a mistrial, I should allow other options to be canvassed to see if the trial can be saved in a way that is just and fair in the circumstances: van Ooyen at para. 10.

[25] A mis-trial should only be declared in the clearest of cases, where there has been a “fatal wounding of the trial process” or to the administration of justice which cannot otherwise be remedied. van Ooyen at para. 9.

[85] The irregularity in this case was two-fold,

(a) First, the failure to include the complete Long Version Loan Agreement at Exhibit A to the First Robson Affidavit in the first place. There is no suggestion (or logical reason) that appending the incomplete Short Version Loan Agreement was intentional, or that the applicant was initially intending not to include (hide) Schedules D and E thereto. It was submitted by Bluecore that the use of the Short Version Loan Agreement was a mistake and the court has concluded that it must have been in the circumstances. Mr. Grillone complains that counsel for Bluecore only admitted to this mistake during oral argument on the mis-trial motion. The timing of this acknowledgment does not change the court’s finding that it was, a mistake.

(b) Second, the misdescription of the Long Version Loan Agreement marked as trial Exhibit 2 as being the document appended at Exhibit A to the First Robson Affidavit and the failure to take the appropriate steps to identify the original error and have it explicitly addressed in the course of marking exhibits. Mr. Kraft’s unchallenged evidence is that the misdescription of the Long Version Loan Agreement was inadvertent and without any intent to mislead. Related to this is the failure to follow the court’s Direction with respect to the replacement of trial Exhibit 2 with what had been Exhibit A to the First Robson Affidavit, which again appears to have been the result of a misunderstanding linked to the original concerns raised by Mr. Grillone about this trial exhibit.

[86] This analysis re-engages some of the assertions regarding the alleged instances of intentional misconduct. Mr. Grillone asks the court to infer that the misdescription of trial Exhibit 2 (the Long Version Loan Agreement) as being the same [Short Version] Loan Agreement that was at Exhibit A to the First Robson Affidavit by the applicant and its counsel was intentional because they knew the difference between the two. The applicant counters that, while Bluecore’s counsel knew that there were two versions, the mis-description was inadvertent and the inference of an intention to mislead or deceive is not reasonable since the applicant and its counsel did not hide the fact that there were two versions of the Loan Agreement, having noted it in the amended Request to Admit and then using that version leading up to, and at, the trial.

[87] In all of the circumstances, I find an equally or more reasonable inference to be drawn from what transpired is that counsel asking the questions of Mr. Robson and tendering trial Exhibit 2 did not advert to the earlier identification of the Short Version Loan Agreement and unintentionally misdescribed the exhibit being entered. The opportunity for this sort of error to occur was exacerbated because not all of the trial lawyers for the applicant were involved when it was discovered that the Long Version Loan Agreement had not been appended to the First Robson Affidavit back in May 2022, and then the trial was conducted virtually with the electronic screen sharing of exhibits being controlled by different lawyers than the lawyer asking the questions.

[88] Having found that the irregularities were not intentional, I turn to the other requirements that would have to be satisfied for a mis-trial to be declared. The court must consider whether the irregularities led to a miscarriage of justice or a “fatal wounding of the trial process” or a perception or appearance of unfairness. Was there “…some fundamental error or serious irregularity in the conduct of the trial. The question is whether the irregularity is of sufficient scope or degree to prevent the prejudiced party from presenting his or her case fully, or from securing a fair adjudication on the merits.” See Forsythe, at paras. 23 and 25–26.

[89] Mr. Grillone has not established any of these requirements to justify his request for a mis-trial. I am satisfied that Mr. Grillone had a full opportunity to present his case on the merits and that it can be fairly adjudicated notwithstanding these irregularities in the marking of trial Exhibit 2 and the failure to follow the court’s Direction.

[90] There is no evidentiary foundation for concluding that trial Exhibit 2 was misdescribed to prevent Mr. Grillone from fully presenting his case or from securing a fair adjudication of his opposition to the bankruptcy application on its merits. The alleged “lie” or attempt to mislead the court and Mr. Grillone about which version of the Loan Agreement (the one with or the one without Schedules D and E) was appended as Exhibit A to the First Robson Affidavit was not, on any reasonable construction, an attempt to lie or mislead with respect to the status of the loan or the state of the lender-borrower relationship.

[91] Nor has the marking of the Long Version Loan Agreement as an exhibit at trial been connected to the alleged ulterior motivation of Bluecore to use the BIA procedure to avoid having to defend the Counterclaim. The Indebtedness (amounts advanced and not repaid and interest accrued) is not dependent upon the Schedules to the Loan Agreement, nor do the Schedules to the Loan Agreement deal with the alleged undertaking given by Bluecore long after the Loan Agreement was signed that is the cornerstone of the Counterclaim.

[92] Mr. Grillone himself signed the Long Version Loan Agreement (trial Exhibit 2) and had been provided with a further copy of it by no later than May 4, 2022. It was also included in Bluecore’s document brief for trial. Mr. Grillone has not, and cannot, point to any prejudice from the Long Version Loan Agreement having been marked as an exhibit at trial. Nor has it been suggested that there would have been anything to stop the applicant from tending into evidence at trial the Long Version Loan Agreement regardless of which version had been appended to the First Robson Affidavit.

[93] When asked to identify the prejudice that he suffered as a result of the substitution of the Long Version Loan Agreement with the Short Version Loan Agreement at trial Exhibit 2, Mr. Grillone stated that he would have conducted the out of court examinations of Bluecore directors and former directors (specifically, of Mr. Robson, Mr. Stenshall, and Mr. Kroeker) differently if he had understood that Schedules D and E (appended to the Long Version Loan Agreement) were also being relied upon by Bluecore. However, this alleged prejudice rings hollow.

[94] Those examinations (or interrogatories) were conducted in May, June, and November 2022. The first one occurred on the same day that Mr. Grillone was provided with a copy of the Long Version Loan Agreement (May 4, 2022) and the others were conducted after that. They occurred in conjunction with the delivery of an amended Request to Admit appending the Long Version Loan Agreement after it was pointed out that an earlier version was missing some of the schedules. In his response to this updated Request to Admit Mr. Grillone did not object to the authenticity of the Long Version Loan Agreement.

[95] Out of court examinations are not confined to the affidavits and appended exhibits. It was open to Mr. Grillone to have questioned any of those witnesses about any documents, including the Long Version Loan Agreement and Schedules D and E thereto that he would have known about in 2018 when it was signed and had received a further copy in early May 2022. Nor does Mr. Grillone indicate what specifically he would have asked these witnesses regarding Schedules D and E.

[96] Mr. Grillone had the opportunity to question Mr. Robson about these schedules during his cross-examination of Mr. Robson at trial. At trial, both Bluecore and Grillone referred to and relied upon the content of Schedule E that was missing from the Short Version Loan Agreement. Mr. Robson was asked about the 438 Funded Files listed in Schedule E in his examination in chief and Mr. Grillone asked questions about the 438 Funded Files in his cross-examination of Mr. Robson. That Schedule is relevant to the valuation of the Bluecore Security (discussed later in these reasons). There has been no suggestion of questions that would have been asked about Schedule D that were not asked at trial.

[97] Although the Request to Admit was not part of the evidence at trial it was in evidence for purposes of the mis-trial motion. It is relevant to demonstrate that the version of trial Exhibit 2 that was marked is authentic, and to establish that the integrity of the trial exhibit is not in issue. The mis-trial motion turns strictly upon the question of whether, from a process perspective, there is a problem because the original affidavit of verification included the Short Version Loan Agreement and it was not expressly noted on the record at trial that the Long Version Loan Agreement became the trial Exhibit.

[98] That said, the failure to do so is still a procedural irregularity that could have been avoided if the original Exhibit A to the First Robson Affidavit had been replaced in May 2022 when the Request to Admit was delivered and the Long Version Loan Agreement was authenticated and/or if the court’s Direction had been followed at trial.

[99] Not all evidentiary errors lead to mis-trial. This is not a matter of relaxing the rules of evidence or the burden of proof in the interests of expediency or efficiency, as Mr. Grillone contends. Where there has been no demonstration that the irregularity prejudiced Mr. Grillone’s opposition to this application, or was pursued in furtherance of an improper or ulterior motive on the part of the applicant, this is not an appropriate case in which to exercise the court’s discretion to declare a mis-trial.

[100] Mr. Grillone argued that prejudice does not need to be established for the court to grant the relief he seeks because the manner in which the evidence was tendered is an afront to the administration of justice. He emphasizes that because this is a bankruptcy proceeding, the applicant must demonstrate the highest form of good faith and evidentiary hygiene and its failure to do so is fatal.

[101] I disagree that the absence of prejudice is irrelevant to the consequence to be imposed. While there may be a consequence that flows from the irregularities that have been identified, that consequence is not necessarily the order for a mis-trial or the dismissal of the application that Mr. Grillone seeks, which I have found not to be warranted in this case.

[102] In terms of the process, the court is concerned in this case about:

(a) The applicant (or its counsel) not having followed the expected procedure for replacing an exhibit that was identified to have been erroneously appended to the First Robson Affidavit—the Short Version Loan Agreement was clearly missing two Schedules and the court’s attention should have been drawn to that early error. This error could easily have been rectified through a further affidavit or even through Mr. Robson’s testimony at trial if he had been directed to the error and had been given the opportunity to correct it when trial Exhibit 2 was marked. This did not occur.

(b) The applicant’s counsel not having followed the court’s Direction to replace trial Exhibit 2 with precisely what was Exhibit A to the First Robson Affidavit, not having pointed this out to the court at the time, and not having provided an explanation for why a different (Long) Version Loan Agreement was being marked instead.

[103] However, these irregularities were not of sufficient scope or degree to prevent Mr. Grillone from presenting his case fully, or from securing a fair adjudication on the merits. There has been no “fatal wounding of the trial process” or to the administration of justice which cannot otherwise be remedied. Any concerns about the trial process or the administration of justice have been remedied through this issue having been raised and the court being satisfied that the complete and authenticated Long Version Loan Agreement is before the court and was available when witnesses were examined, both during and before the trial. A well-informed, reasonable person would not perceive the trial as being unfair as a result of the manner in which the Long Version Loan Agreement was described and eventually entered into evidence at the trial.

[104] In all of the circumstances, a mis-trial is not necessary to prevent a miscarriage of justice. Having considered other options, the trial can be saved and the consequences of these procedural mis-steps can be addressed through other means that are just and fair in the circumstances, more specifically through costs (discussed below).

The Evidentiary Foundation for the Bankruptcy Order Has Not Been Lost

[105] One further argument raised by Mr. Grillone in support of the alternative request for the dismissal of this application (if the court is not declaring a mis-trial), is that since the Short Version Loan Agreement (Exhibit A to the First Robson Affidavit) is no longer in evidence (replaced by the Long Version Loan Agreement at trial Exhibit 2), there is nothing to support paragraph 3 of the First Robson Affidavit or Mr. Robson’s trial testimony, both of which were purportedly predicated upon the Short Version Loan Agreement appended as Exhibit A to the First Robson Affidavit. Mr. Grillone suggests that this leaves the applicant with no ability to prove the contractual basis for the claimed Indebtedness to Bluecore, so the application must fail because Bluecore cannot prove itself to be a creditor of Mr. Grillone without a properly proven Loan Agreement.

[106] This is a circular argument. There was only one Loan Agreement. That was the Long Version Loan Agreement, which is the basis for Mr. Grillone’s liability to Bluecore. He is defined, together with his sole proprietorship, the Grillone Law Firm, to be the “Borrower” under the Loan Agreement, and he also signed the Guarantee. Tendering the complete Long Version Loan Agreement with the appended Guarantee into evidence as trial Exhibit 2, taken together with Mr. Robson’s testimony and the testimony of Bluecore’s accountant, Ms. Lau, was sufficient to prove the contractual basis for Mr. Grillone’s liability to Bluecore that is at the heart of this bankruptcy application.

[107] The failure of counsel to ultimately abide by the undertaking and Direction to replace trial Exhibit 2 with what was Exhibit A to the First Robson Affidavit (albeit given to address a different discrepancy between the two exhibits that was identified by Mr. Grillone during the trial relating to his Guarantee) is what was ultimately identified to be problematic for purposes of the motion, and has been addressed in the preceding analysis. However, even that was not an “irregularity [that was] of sufficient scope or degree to prevent Mr. Grillone from presenting his or her case fully, or from securing a fair adjudication on the merits.” See Forsythe, at para. 23.

Decision on Mis-Trial Motion

[108] Mr. Grillone’s motion for a mis-trial, or in the alternative for the dismissal of this application, is dismissed.

[109] However, it remains the case that the Direction and undertaking were not followed, and this problem might well have been avoided if they had been, because the inadvertence of the two missing Schedules in the Short Version Loan Agreement would have been brought to the fore and it is reasonable to assume it would have been addressed directly if adverted to when the opportunity presented itself. That failure resulted in much time being spent by both sides on this mis-trial motion and there are legitimate grounds under these circumstances for some order relating to the costs of this motion to be made that reflects that this motion might have been avoided if only the Direction and undertaking had been abided by. This will be addressed at the conclusion of this decision.

Have the Requirements of s. 43(1) of the BIA been satisfied?

[110] To succeed, Bluecore must first satisfy the court that the requirements of s. 43(1) of the BIA have been satisfied. To do so, it must demonstrate that:

(a) the debt owing to the applicant creditor amounts to one thousand dollars; and

(b) the debtor has committed an act of bankruptcy within the six months preceding the filing of the application.

a) Mr. Grillone’s Indebtedness to Bluecore

[111] The distinction between the Long Version and Short Version Loan Agreement was important for purposes of the court’s decision on the mis-trial motion but for the balance of these reasons the court will simply refer to the “Loan Agreement” which was marked as trial Exhibit 2 (the operative provisions of which were also marked as Exhibit A to the First Robson Affidavit that supported the application when it was commenced, but the Longer Version Loan Agreement is what was ultimately proven and marked at trial). Mr. Grillone’s Indebtedness arises under the Loan Agreement that he entered into with Bluecore.

(i) Standard or Onus of Proof

[112] Mr. Grillone repeatedly referenced in his written and oral submissions on this motion and at trial that there is a higher standard or onus of proof on the applicant in a bankruptcy proceeding because it is a quasi-criminal proceeding. There is only one civil standard of proof, on a balance of probabilities. What the cases that Mr. Grillone relies upon have said is that in a bankruptcy application the court expects the applicant to place before the court sufficient evidence to prove every allegation in the petition.

[113] The Court of Appeal in (Re) Levesque, 2016 ONCA 393, 36 C.B.R. (6th) 217 confirmed the strict standard of proof (not to be confused with onus of proof) by its reliance (in para. 6) on the follow passage from Re Holmes (1976), 9 O.R. (2d) 240 (S.C.):

Under the jurisprudence, the Bankruptcy Act, R.S.C. 1970, c. B-3, being a quasi-criminal statute, the act of bankruptcy and every allegation in the petition must be strictly proved. This requires that evidence be placed before the Court to prove all the allegations of fact made in the petition, whether or not they are put in issue by the debtor in his notice of dispute, including what might be regarded as merely formal facts. All the elements necessary to found a receiving order must be pleaded in the petition and all allegations made therein must be strictly proved by the petitioning creditor. [Citations omitted.]

[114] This does not change the applicant creditor’s onus or burden of proof, as stated in Janis P. Sarra, Geoffrey B. Morawetz & L.W. Houlden, Annotated Bankruptcy and Insolvency Act (Toronto: Thomson Reuters Canada, 2023) at § 3:47:

The burden of proof on an applicant in a bankruptcy application is the civil standard. The onus rests on the applicant to establish that the debt or debts owing to the applicant creditor or creditors amount to $1,000 and the debtor has committed an act of bankruptcy within six months preceding the filing of the application. Every allegation made in the application and in the affidavit of verification must be strictly proved by sound and convincing evidence. [Citations omitted.]

(ii) Proof of the Loan Agreement and Indebtedness to Bluecore

[115] The applicant has proven Loan Agreement was executed by both Mr. Grillone and Bluecore as the “Borrower” Its terms are clear and unambiguous. When the application was commenced, the amount owing was claimed based on the principal amount of the loan advance in the amount of $1,332,462.58. The contractual interest was claimed but not calculated in the bankruptcy application or in the supporting affidavit. The amount claimed was disputed. That is, in part, why there was a trial.

[116] At trial, Bluecore’s bookkeeper, Mrs. Susan Lau, testified as to the outstanding Indebtedness at the time of the application and at the time of the trial. That Indebtedness included interest calculated in accordance with the rates prescribed under the Loan Agreement based upon the increased contractual rate of interest payable when the loan went into default (which is the contractual rate of 14% per annum plus an additional 16% per annum for a total of 30% per annum starting in May of 2019 when the loan went into default) and was net of payments received by Bluecore in respect of amounts due in the months of January, February, March, and April 2019. Ms. Lau’s testimony established that the precise amount of the net Indebtedness of Mr. Grillone to Bluecore:

(a) as of the date of the trial was $3,773,553.

(b) as of the end of September 2021 when the bankruptcy application was filed was $2,479,960.

[117] The applicant has been held to the strict standard of proving the outstanding debt that was owing to it by Mr. Grillone both as of the date of the application and as of the date of trial. The amount claimed to be owing when the bankruptcy application was commenced was not precisely calculated in the First Robson Affidavit but has now been, with regard to the undisputed terms of the Loan Agreement and the undisputed amounts advanced, amounts paid and interest payable. Bluecore has proven on a balance of probabilities that the debt owing to it under the Loan Agreement by Mr. Grillone both at the date of the bankruptcy application and the date of the trial was far more than $1,000.

[118] Mr. Grillone argues that because the amount of the proven Indebtedness to Bluecore does not exactly match what was stated in the affidavit of verification supporting the original bankruptcy application (at the time, on September 19, 2021) and because his Guarantee was capped at an amount that was less than the amount stated, the precise statements in the affidavit regarding the amount owing by Mr. Grillone to Bluecore were not ultimately proven, which invalidates the entire bankruptcy application. He claims that this flows from the quasi-criminal nature of the proceedings and the standard of proof that requires each item stated in the application and affidavit of verification to be strictly proven on a balance of probabilities.

[119] Mr. Grillone’s position fails to take into account that the evidentiary foundation for the bankruptcy application was not limited to the First Robson Affidavit. It was supplemented by the evidence at trial which established that, by the time of the filing of the bankruptcy application, he had failed to pay Bluecore more than the original principal loan amount that formed the basis of the alleged Act of Bankruptcy.

[120] The trial evidence supplemented the previously filed affidavit of verification. Bluecore was required to strictly prove the alleged Act of Bankruptcy at trial, which is that Mr. Grillone had failed to pay amounts outstanding and owing to it under the Loan Agreement in the six months preceding the bankruptcy application. There must be latitude to prove a different amount of the debt owing, taking into account objections raised and a more precise calculation, in a contested application that goes to trial. Once interest and fees were added in and credit was given for the amounts paid, the total amount of the Indebtedness at the time of filing was still more than the face amount of the Bluecore Loan and far more than $1,000.

[121] Mr. Grillone raised three other points to challenge the amount of the Indebtedness that he owes to Bluecore, none of which undermine the established evidentiary foundation for the proof of Mr. Grillone’s Indebtedness to Bluecore:

(a) First, that Bluecore’s 2019 financial statements indicated in a note that the Bluecore Loan had been impaired and was being carried at a loss of $533,725.00. However, it would not necessarily be the case (and none of the witnesses that Mr. Grillone cross-examined about this confirmed) that this impairment or loss value recorded for the Bluecore Loan for accounting purposes at this point in time was equal to the actual amount outstanding under the Bluecore Loan, which was calculated with reference to amounts advanced, amounts paid and interest.

(b) Second, that the funds advanced under the Bluecore Loan came from the Bluecore Affiliates and not Bluecore; however, Bluecore is the party that Mr. Grillone contracted with to advance the funds and that he agreed to repay under the Loan Agreement. Even if Bluecore had made arrangements to fund the Bluecore Loan with the Bluecore Affiliates that does not change the contractual rights and obligations as between Bluecore and Mr. Grillone.

(c) Third, the Guarantee that he signed was capped at $1 million. Bluecore maintains that Mr. Grillone is directly liable as the “Borrower” under the Loan Agreement. If there is a conflict between the Guarantee and the Loan Agreement that will be a matter that will have to be addressed through Bluecore’s proof of claim in Mr. Grillone’s bankruptcy, but the amount of his debt owing to Bluecore would still be well in excess of $1,000.

b) Act of Bankruptcy

[122] The underlying policy concern that has informed the requirement for strict proof of a bankruptcy application is that the applicant creditor must be able to prove fully the act of bankruptcy alleged, and if it cannot, the application will necessarily fail. See Re: Ivany, 2012 ONSC 7058, 97 C.B.R. (5th) 214, at para. 12.

[123] The alleged Act of Bankruptcy that Bluecore elected to proceed to trial on (described at the outset of these reasons) is that Mr. Grillone had, within the six months preceding the date of the filing of this application on September 29, 2021, “ceased to meet his liabilities as they have come due in failing to pay the above-noted sum [of $1,332,462.58] to the Applicant.”

[124] Facially, these facts have been proven by Bluecore on a balance of probabilities based on the evidence of Mr. Robson, who was responsible for collecting the Bluecore Loan once it went into default, and of the bookkeeper from Bluecore’s accounting firm who has tracked the amounts distributed to the Grillone Law Firm and the amounts repaid in respect of those advances and who has calculated the interest accruing based on the contractual rates of interest provided for in the Loan Agreement. This testimony establishes on a balance of probabilities the amount owing under the Loan Agreement to be more than the specific sum claimed (so, by definition, he also failed to pay the lesser amount claimed).

[125] Bluecore submits that this Act of Bankruptcy comes within the recognized act of bankruptcy under s. 42(1)(j) of the BIA. Section 42(1)(j) of the BIA includes among the prescribed cases constituting an act of bankruptcy a situation where “a creditor … ceases to meet his liabilities generally as they come due.”

[126] Mr. Grillone challenges the sufficiency of what Bluecore has proven to satisfy the requirements under s. 42(1)(j) of the BIA on the basis that:

(a) There was no direct evidence or allegations that Mr. Grillone had failed to pay liabilities due to any creditors other than Bluecore in the six months preceding the bankruptcy application. The evidence in the First Robson Affidavit describing outstanding litigation or even previous judgments or orders against Mr. Grillone in that litigation is not evidence that those debts remained unpaid in the six months preceding the bankruptcy application (and it is also hearsay). This was addressed when Mr. Grillone brought his motion to strike the affidavit of verification and the entire application at the outset of trial. Mr. Robson’s evidence about the “outstanding” judgments and “unpaid” awards in favour of other creditors was struck by the court in the February 28, 2023 oral ruling made at the outset of trial.

(b) In the context of this preliminary ruling at the outset of the trial, Bluecore elected to proceed on the alleged Act of Bankruptcy in the notice of application and First Robson Affidavit, which is predicated upon the failure to pay outstanding amounts owing only to Bluecore.

[127] The test to demonstrate that a debtor has ceased to meet their liabilities as they become due “requires … (i) proof of the outstanding debt owed to the applicant and (ii) evidence that the debtor has ceased to meet his liabilities to its creditors in general”: Re Ivany, at para. 12.

[128] What the court is concerned with when scrutinizing the sufficiency of the evidence is whether the evidence (in the affidavit of verification or, as in this case, at trial), provides the facts necessary to establish the Act of Bankruptcy. See Re Cadwells Ltd. (1932), 14 C.B.R. 114 (Ont. S.C.). Mr. Grillone contends that Bluecore cannot meet its onus of proof in this respect because there is no evidence that he had ceased to meet liabilities other than those to Bluecore. According to Mr. Grillone, this is not just a formal defect or irregularity that might be saved under s. 187(9) of the BIA, such as failing to specify a date, as was the case in Cadwells. He maintains this is a fundamental deficiency.

[129] Bluecore elected to proceed to trial on the basis that an act of bankruptcy under s. 42(1)(j) of the BIA can be established based on proof of a single unpaid debt. There are circumstances in which an unpaid debt to a single creditor can be the basis for a finding by the court that the debtor ceased to meet his liabilities generally as they came due. They are discussed in the next section.

Are Special Circumstances Required, and if so, Have They Been Demonstrated?

[130] The starting point of this analysis is that a single creditor can petition a debtor into bankruptcy. The opening words of s. 43(1) of the BIA make this a possibility: “subject to this section, one or more creditors may file in court an application for a bankruptcy order…” (my emphasis).

[131] However, Ontario caselaw has found that not every application can be proved with evidence of the existence of only a single creditor. The most frequently cited case, Valente v. Courey, 70 OR (3d) 31 (C.A.) regarding single creditor applications succinctly outlines (at para. 8) the law on when failure to pay a single creditor can constitute an act of bankruptcy:

It is now well-settled in the case law that the failure to pay a single creditor can constitute an act of bankruptcy under s. 42(1)(j) when there are special circumstances, which have been recognized in three categories: (a) where repeated demands for payment have been made within the six-month period; (b) where the debt is significantly large and there is fraud or suspicious circumstances in the way the debtor has handled its assets which require that the processes of the BIA be set in motion; and (c) prior to the filing of the petition, the debtor has admitted its inability to pay creditors generally without identifying the creditors.

[132] This was recently confirmed by the Court of Appeal for Ontario in Levesque (Re), 2016 ONCA 393, 36 C.B.R. (6th) 217, at para. 10. The Superior Court has also recently followed this line of authority, requiring special circumstances, in Blancco Oy Ltd. v. Inside the Box Inc., 2015 ONSC 277, 23 C.B.R. (6th) 126, Penny J.; Bankruptcy of the Jewish Foundation of Greater Toronto, 2022 ONSC 2120, 99 C.B.R. (6th) 261, Gilmore J., aff’d 2023 ONCA 268, 6 C.B.R. (7th) 214, and, more recent still, Beach (Re), 2022 ONSC 6474, 4 C.B.R. (7th) 168, Ryan Bell J.

[133] In Beach, Ryan Bell J. at para. 56, sums up the current state of the law in Ontario, outlining that in a non-exceptional situation (or a non-special circumstance situation), a single creditor cannot prove that the debtor ceased to meet their liabilities to creditors generally. Ryan Bell J. notes (relying on Re Holmes) that the policy reason for this is that the BIA is intended to benefit the class of creditors, instead of a single creditor alone. On this policy point, the Court in Re Holmes held:

[T]he act of bankruptcy described in s. 24(1)(j) [s. 42(1)(j) in the current BIA] is in my judgment, an act that singles out the conduct of the debtor in relation to the class, rather than to the individual … It is for this reason that the Court must be satisfied that there is sufficient evidence from which an inference of fact can fairly be drawn that creditors generally are not being paid.

[134] While some cases in other provinces have surmised that, based strictly on the wording of the BIA, a single creditor should be able to petition a debtor into bankruptcy, they typically have also concluded that one of the categories of special circumstances was present. See for example, ATB Financial v. Coredent Partnership, 2020 ABQB 587, 20 Alta. L.R. (7th) 174, at para. 114, wherein the Alberta court found that the categories of “special circumstances” are not closed: “[I]f other circumstances, or the circumstances as a whole, show that the debtor has ‘ceased generally,’ that may be sufficient, at least to cast the onus over to the debtor, even absent one of the typical ‘special circumstances’.” This case does not completely disregard Valente, but rather suggests it continues to be an evolving line of jurisprudence.

[135] In another Alberta decision (Sultan Management Group (Re), 2023 ABKB 262), a chambers judge granted a bankruptcy order with a single creditor applicant. The chambers judge relied on ATB and stated that the Valente circumstances were not exhaustive (though ended up finding the situation fell within the second branch of Valente nonetheless). On appeal, the Court of Appeal (Sultan Management Group (Re), 2023 ABCA 110) said the following at para. 27:

In the end, we are satisfied the chambers judge did not err in finding special circumstances that justified a conclusion there was sufficient evidence of an “act of bankruptcy” within the meaning of s 42(1)(j) of the BIA. We need not go on to make a conclusive finding as to what the chambers judge characterized as a “more contextual and purposive approach to special circumstances endorsed here” because he also specifically found the conduct qualified under the second category in Valente. We observe only that the language of “special circumstances” is not unfamiliar to the law, and it generally does not require evidence of more than a basis to inquire further.

[136] The broader, more lenient approach that the Alberta courts may be leaning towards has not been adopted in Ontario. I am not inclined to be the one to do so. The Ontario courts have consistently required that there be special circumstances in granting a single creditor bankruptcy application. The Valente categories of special circumstances were most recently confirmed by the Ontario Court of Appeal in Levesque (at para. 10) but have been confirmed in other Superior Court cases more recently (detailed above). As a single creditor petitioning Mr. Grillone into bankruptcy on the basis of his failure to pay his Indebtedness to it, Bluecore will need to prove the existence of special circumstances in order to succeed.

[137] Bluecore contends that it fits within the first two of the three recognized Valente categories of special circumstances, namely that: (a) repeated demands for repayment had been made within the six-month period; and (b) the outstanding debt was significantly large and there is fraud or suspicious circumstances in the way the debtor has handled its assets which requires that the processes of the BIA be set in motion. See Valente, at para. 8.

Valente Category #1 Special Circumstances: Bluecore Demands for Repayment

[138] In support of the first category (repeated demands for repayment), Bluecore relies upon its continued pursuit of the Bluecore Civil Action (commenced in June of 2020) as evidence of its persisting demands for repayment of the Bluecore Loan that continued during the six months preceding the bankruptcy application that was filed in September 2021.

[139] Mr. Grillone challenged this with his alternative narrative, based on the allegations in his Counterclaim, that Bluecore’s demands were disingenuous because it had allegedly undertaken in May 2019 to take over and run the Grillone Law Firm and keep the revenue streams coming in. Mr. Grillone did not attempt to substantiate the bald assertions in his Counterclaim with any corroborating or direct evidence.

[140] The undertaking that Mr. Grillone asserts in the Counterclaim Bluecore gave to him to take over his practice was not in writing and is denied by Bluecore. It appears to me to be a stretch, in that it is said to arise from the lender’s threat to take enforcement proceedings, which Mr. Grillone seeks to construe as an undertaking to implement the locum tenens to thereby take over his practice and pay all of its creditors without Mr. Grillone signing a Power of Attorney. Mr. Grillone pleads that he relied on the undertaking of Bluecore to go to court and take over his practice to protect its value. It remains open to him to try to prove it in the Counterclaim if it proceeds, but it has not been proven for any purpose in this bankruptcy application.[^7]

[141] Mr. Grillone’s narrative was not adopted by the witnesses who he put it to in cross-examination, in particular Mr. Robson. The mere existence of the Counterclaim does not negate the clear and persisting demands by Bluecore for repayment of the Bluecore Loan in the six months preceding the bankruptcy application through its continued pursuit of the Bluecore Civil Action.

Valente Category #2 Special Circumstances: Large Debt and Suspicious Circumstances

[142] With respect to the second category of Valente special circumstances (where the debt is significantly large and there is fraud or suspicious circumstances in the way the debtor has handled its assets which require that the processes of the BIA be set in motion), Bluecore contends that the Indebtedness at the time of the bankruptcy application (as now proven specifically, accounting for both the payments received and interest accrued, to be $2,479,960 based on Ms. Lau’s testimony) was significant and has continued to increase since then (proven by the time of trial to be $3,773,553).

[143] This court has emphasized that the size of the debt needs to be considered in the context of the facts. In Inside the Box, Penny J. found (at para. 27) that the debt was significant (the second category in Valente) “in the context of a one-man software company with no office and no website”. The court found in that case that a category 3 Valente special circumstance existed as well.

[144] Mr. Grillone’s case raises similar considerations. He was operating a sole proprietorship law firm with litigation funding for disbursements in excess of $1.3 million. According to his own Statement of Affairs, the outstanding disbursements (that would have included the Funded Files) were estimated to be $3 million. That means Bluecore had funded more than one-third of the billed disbursements. It considered these to be of questionable collectability at the time of the application based on early discussions with Mr. Grillone’s own staff about the status of the Funded Files and the fact that Mr. Grillone had stepped away from his law practice for personal reasons and agreed to allow the Law Society to step in, initially as trustee. By the time of the application, the Law Society had re-distributed his client files to be taken over by other lawyers.

[145] The liquid or realizable assets disclosed on Mr. Grillone’s Statement of Affairs were just over $500,000. He has since demonstrated that there may be as much as $650,000 available to his creditors, based on what had been paid into court as of September 30, 2022 and further amounts paid or to be paid into court detailed in his December 2022 affidavit. If Mr. Grillone’s assertions about his liquid assets are accepted for purposes of this trial, he still had at the time of the bankruptcy application, and has, far less available than what would be required to repay the Bluecore Indebtedness. Thus, Bluecore was at the time of the application a creditor owed significant Indebtedness relative to the available liquid assets to satisfy it.

[146] Mr. Grillone contends that the realizable or liquid value of his assets is not relevant. I disagree. When considering the size of the debt relative to the available assets, the ability to repay that debt provides relevant context. Further, if the value of the security is to be estimated by the creditor, that estimate does depend on what the security is realistically worth. This is all part of the context.

[147] Bluecore also contends that there is fraud or suspicious circumstances in the way Mr. Grillone has handled his assets that require that the processes of the BIA be set in motion.

[148] In terms of the fraud, Bluecore relies upon the findings of this court when the Mareva Injunction Order was granted against Mr. Grillone prior to the bankruptcy application in another proceeding, and specifically, the court’s findings with respect to Mr. Grillone’s efforts to hide his knowledge of, involvement in, and entitlement to the $420,000 in share sale proceeds that ultimately were paid into court (see paragraphs 29, 30, 31, 32, 36, 38, and 62). By way of summary, the court concluded (at para. 62) as follows:

I will not repeat it all again. In general terms, Mr. Grillone's lack of disclosure, evasive answers to questions under oath and lack of transparency with respect to the sale of the Spectrum Way Property, his attempts to keep the proceeds of the sale of 239's shares in 189 out of the reach of his creditors, combined with the timing of the efforts to sell that property when the legal proceedings by creditors against him, including by the plaintiffs, were mounting in the fall of 2019, all give rise to an inference of a serious risk that the Grillone defendants, under the direction of Mr. Grillone, will attempt to dissipate assets or put them beyond the reach of the plaintiffs and other creditors if left to their own devices. Mr. Grillone is the directing mind of the Grillone Law Firm so it is reasonable to assume that his conduct will be consistent with respect to the assets of both of the Grillone defendants.

[149] This was the basis on which the Mareva Injunction Order was granted against Mr. Grillone. Mr. Grillone says that there is no evidence that this conduct (of dissipating assets to put them beyond the reach of creditors) continued after the order was made. He is correct, and that evidence was not led at this bankruptcy trial. But there are other circumstances arising from how Mr. Grillone has conducted himself that are relevant to this analysis.

[150] In keeping with the policy behind Valente of the need for there to be some basis for the applicant’s belief that there is a class of creditors who are in need of the protection of a bankruptcy order, Bluecore was permitted to, and did, call as witnesses at trial some of the other creditors of Mr. Grillone. They testified about their frustrations and concerns regarding the multiplicity of claims and counterclaims and the need for a streamlined process that they are all hopeful can be achieved through a bankruptcy proceeding. There was evidence of at least three other significant creditor claims against Mr. Grillone, met in each instance by a counterclaim or counter-suit.

[151] Ms. Baksh from Bank of Nova Scotia (“BNS”) testified to the judgment the bank has against Mr. Grillone for $340,859 plus $95,000 in costs, which the bank claims to have first ranking security for payment of. Mr. Grillone asserted a counterclaim against BNS that was dismissed. He appealed. He also started another action against the bank, in which the bank’s representative and its counsel in the first action are accused of falsifying evidence, including the security it relies upon, and of making misrepresentations to the court. There is some overlap between the security granted to BNS and security granted to Bluecore, for example the accounts receivable. The bank believes that the known assets of Mr. Grillone will be sufficient to cover its debt, but that will not leave much for other creditors such as Bluecore.

[152] Mr. Saggi (the creditor in whose action the Mareva Injunction Order was granted) testified to an outstanding claim for repayment of significant debt, as well as outstanding costs awards that had been made in that proceeding prior to the bankruptcy application that remain unpaid. He and the other plaintiffs in that action are also facing a counterclaim.

[153] Mr. DeLuca from Omega Process Servers testified to an outstanding costs award against Mr. Grillone granted in August 2020 that remains unpaid, and a subsequent costs award made in November of 2021 upon the dismissal of the appeal that also remains unpaid. Mr. Grillone has asserted a counterclaim in Omega’s proceeding, against Mr. DeLuca personally as well as Omega’s former lawyer. The litigation between them is continuing. It is particularly acrimonious and Mr. Grillone accuses Mr. DeLuca of having a vendetta such that his testimony should not be given any weight. Mr. DeLuca’s testimony does not add anything different or unique to what the other creditors testified to so it is unnecessary to make findings one way or the other about his credibility.

[154] Stephen Pauwels of Bridgepoint testified to an outstanding claim for repayment of significant debt that remains unpaid, as well as costs awards that have been made in that proceeding after the bankruptcy application started that remain unpaid. All of these creditors testified that they support the bankruptcy application.

[155] Mr. Pauwels expressed the reasoning succinctly to be (this is my paraphrasing from the notes of his testimony):

Because here we are many years later with incredible judicial resources dedicated to claims and counterclaims and multiple sets of counsel, this [bankruptcy] is the preferred procedure to deal with multiple creditors and proceedings. This situation requires the diligence and focus of professional trustee to manage and expedite all of these proceedings because we are not getting anywhere.

[156] The court’s ruling at the outset of trial permitted the testimony of other creditors, although not to prove that Mr. Grillone had failed to pay specific outstanding amounts that were owed to them at the time of the application. What their testimony reinforces is that the class of creditors as a whole has an interest in the court granting the bankruptcy petition, which they all support. Mr. Grillone tried to challenge this premise in cross-examination of Mr. Robson, by suggesting that there might be other creditors of his (for example, the many former clients who are suing him in negligence and whose claims are presently being defended by Law Pro) who do not need and would not benefit from a bankruptcy and might actually be prejudiced by the stay of proceedings against Mr. Grillone that would be automatically granted. Mr. Robson did not agree.

[157] The court does not see any ultimate disadvantage of a bankruptcy to those other potential creditors. Depending on the state of their claims they could apply to lift the stay if Law Pro continues to defend and respond to them. If Law Pro is not defending and/or responding to those claims, then they are in the same boat as all creditors of Mr. Grillone and would benefit from the streamlining. Given the sheer magnitude of outstanding claims against Mr. Grillone (in excess of 25) some central streamlining through a Trustee in Bankruptcy should be of assistance to all, including even those claims ultimately being defended by and responded to by Law Pro.

[158] Mr. Grillone tried to establish through his affidavit evidence and in his cross-examinations of these other creditors that they could have applied to have monies paid out of court to satisfy any actual judgments or awards (primarily for costs) that they have against him, and that the balance of their claims must still be proven and counterclaims contended with. None of the creditors accepted the suggestion that they could alone apply for monies to be paid out of court to them without consideration of competing claims by other creditors.

[159] In any event, for the immediate purposes, it is not what has been adjudged to be owing to these creditors that is the point. It is the mere existence of these other claims and counterclaims (leaving aside what amounts may have been outstanding in judgments or awards in their favour as at the date of the bankruptcy application, which Bluecore is not relying on specifically) that is indicative of a course of litigious conduct adopted by Mr. Grillone in response to claims by his many creditors. Mr. Grillone has adopted a manner of dealing with his creditors and claims against him and the available assets to satisfy those claims that is litigious, consumes court time and costs for all involved, and creates a circumstance that in the court’s view requires that the processes of the BIA be set in motion.

[160] It is not necessary to find that a fraud has been committed. It is enough that the petitioning creditor is a significant creditor, and that Mr. Grillone has not only failed to repay any of the Indebtedness to Bluecore since April 2019 but has adopted an aggressive and litigious counter-attack in an attempt to avoid his contractual liability for the Indebtedness under both the Loan Agreement and the Guarantee and is apparently adopting the same approach with other creditors. I find that these add up to create a situation of special circumstances of a category 2 Valente type. See Re Global Franchise Marketing Ltd. (1982), 40 C.B.R. (N.S.) 269 (Ont. S.C.), at paras. 27-29.

[161] Even if this circumstance does not strictly come within the Valente category 2 in that I have not found that Mr. Grillone has committed a fraud or found suspicious circumstances in the way he has handled his assets in the six months prior to the bankruptcy application, I find that it constitutes a new category of special circumstances that are sufficient to support an act of bankruptcy under s. 42(1)(j) based on a failure to pay a single creditor. The categories of special circumstances are not closed. See ATB Financial, at para. 114.

[162] An order under s. 43(1) of the BIA is necessary to achieve an orderly distribution of Mr. Grillone’s estate to his creditors, including Bluecore, and to create a single forum in which the multiplicity of claims involving Mr. Grillone (by and against him) can be determined while ensuring no creditor obtains an unfair advantage over the others in the interim. This is in the best interests of the creditors of Mr. Grillone. That is a special circumstance that supports the granting of the bankruptcy order. This is particularly so when considered in the context of the amount of the unpaid debt owing to Bluecore and persisting during and prior to the six months preceding this application relative to the available liquid or realizable assets of Mr. Grillone.

Has the Applicant Provided a Satisfactory Estimate of the Value of its Security?

[163] Section 43(2) of the BIA requires a secured creditor making a bankruptcy application to either (a) state that they are willing to give up their security for the benefit of the creditors in the event of a bankruptcy order being made; or (b) give an estimate of the value of their security, in which case they may be admitted as an applicant creditor to the extent of the balance of the debt due to them after deducting the value estimated, in the same manner as if they were an unsecured creditor.

[164] Bluecore is a secured creditor and has not stated it is willing to give up its security for the benefit of the creditors in the event the bankruptcy order is made. Accordingly, the court must be satisfied that it has provided a satisfactory estimate of the value of its security.

[165] Mr. Grillone’s personal Guarantee had not been honoured despite demands for payment by Bluecore, eventually leading to the Bluecore Civil Action which was met with the Counterclaim. Aside from the Guarantee, the Bluecore Security is comprised of: (i) an assignment of accounts receivable related to the Funded Files in favour of Bluecore, and (ii) the Insurance Policies and the corresponding irrevocable Direction to Pay in favour of Bluecore for the payment of assigned after-the-event insurance proceeds for paid disbursements.

[166] In the application, Bluecore stated: “There is no way, at present, to provide a meaningful estimate as to the realizable value of the security and there may be little or no recovery. However, there is no doubt that the realizable value of the security is materially less than the amount owed to the Applicant.”

[167] Mr. Robson testified in the First Robson Affidavit that he was unable to value the security that Bluecore holds over Mr. Grillone’s property. This is not surprising given that the property of Mr. Grillone identified in his own Statement of Affairs that could have been subject to the Bluecore Security included a global amount for outstanding disbursements of $3 million (only some of which would have been in respect of the Funded Files, the value of which would in turn depend on if and when those files were settled or resolved and the collectability of the disbursements), some specified accounts receivable for a particular client of $60,000 that has not been tied to any of the Funded Files (but is de minimus in any event) and an “unknown” amount for work in progress or “WIP” of the Grillone Law Firm that had not yet been converted into accounts receivable.

[168] In his motion at the outset of trial, Mr. Grillone asked the court to dismiss Bluecore’s application because (among other reasons) it had not provided an estimate of the value of its security as part of its application when filed. Bluecore indicated in response that because the application was contested it remained open to Bluecore to provide that estimate during the trial. In the February 28, 2023 oral ruling, the court determined that as long as the estimate was provided in the proceeding and before the bankruptcy order was made, such that the balance of the amounts owing to Bluecore after deduction for that estimate can be determined, there would be no substantial injustice to Mr. Grillone and the goal of ensuring that the status of the applicant having been clearly delineated vis-à-vis other creditors would be met.

[169] Mr. Robson testified that Bluecore had, as of the date of the trial, not received any material amounts on account of its Security and did not believe that there was any prospect that it would do so in the future in the circumstances. He elaborated on this in his trial testimony.

[170] Mr. Robson explained that, when the application was commenced he considered the Bluecore Security to be worthless because: The client files had been taken over by other lawyers under the auspices of the Law Society and the Insurance Policies were worthless (if never assigned by the clients to the law firm) and, as it turns out, possibly non-existent and rescinded. The implications of all of this on the estimated value of the Bluecore Security is explained in the following sections of these reasons.

Assignment of Accounts Receivable Related to Funded Files

[171] In his evidence at trial, Mr. Robson explained that the 438 Funded Files that were originally identified in Schedule E to the Loan Agreement were the cases that Mr. Grillone identified for which the Bluecore Loan would be used to fund ongoing disbursement costs. The “per file disbursements” for those files as at the date of the Loan Agreement as listed in Schedule E (Robson estimates) were already approximately $4 million.

[172] When it commenced the application, Bluecore had not received any meaningful information regarding the likelihood of recoveries on those files, which lawyers were handling them after the Law Society arranged for them to be transferred, or whether they had resulted in settlements or judgments.

[173] In terms of efforts made by Bluecore to obtain information about these receivables, Mr. Robson explained that he was debriefed when he took over the collection of Mr. Grillone’s debt by one of Bluecore’s outgoing directors (Jeffrey Kroeker). Mr. Kroeker advised him that there had been communications early on with one of the lawyers who was handling certain client files, Mr. Scullion, but Mr. Robson was not aware of any meaningful information about likely recoveries. Since then, the Law Society had taken over and distributed the files. Based on this state of affairs, Bluecore did not consider that it had any authority to track down where those files had gone because it was not a lawyer of record and neither the Law Society nor the other lawyers had any right or reason to disclose information to Bluecore. That remained the case at trial. Mr. Robson did not pursue the matter further.

[174] In cross-examination, Mr. Robson admitted that there was one file that he was aware of Mr. Scullion settling and that the amount of approximately $14,000 payable to the Grillone Law Firm from that file was paid into court in April 2022, but he says that the amount is negligible, compared to the Indebtedness. The same would apply to any funds paid into court in 2022 relating to files that were taken over by Mr. Bekarias (discussed below).

[175] At trial, and subject to the competing claims of other creditors, Bluecore has identified through the trial process and Mr. Grillone’s evidence about recoveries, that there might be funds subject to the Bluecore Security comprised of: $14,000 paid in court in respect of the file settled by Mr. Scullion, $78,961.57 paid into court by Vic Purewal and $82,157.90 paid into court by George Bekarias. That is the maximum known value of Bluecore’s Security in the accounts receivable, before any assessment is made regarding which of those amounts were on account of incurred disbursements in Funded Files and whether any are subject to the prior security granted to BNS.

[176] When pressed at trial what Bluecore’s recoveries on account of its Security might be, Mr. Robson indicated that his best guess or estimate is that the recoveries from the Security (its value) could be in the range of $100,000, taking into account the various contingencies of other creditors and all that remained unknown about the Funded Files. Mr. Robson’s estimate was that, at best, the security is worth cents on the dollar to Bluecore. He also testified that the security could be worth nothing, especially if it turns out the same security was given to other creditors as well and there are competing claims to it. For example, BNS also was given an assignment of accounts receivable.

[177] A secured creditor is entitled to put their own estimate of value. If the estimate is absurdly small that may be grounds to dismiss the petition as being frivolous. However, if the estimate is real and not a sham, then the court need not make a determination of the true value after the declaration of estimated value. See Hugh M. Grant Ltd. (Re) (1982), 41 C.B.R. (N.S.) 28 (Ont. S.C.), at para. 20.

[178] I do not consider Mr. Robson’s estimates of the value of the Bluecore Security in the First Robson Affidavit (to be de minimis) or at trial (in the range of zero to $100,000), to be absurdly small or a sham. The true value remains to be seen, but the estimates are real and the court need not look behind them.

The Insurance Polices

[179] Mr. Robson explained that “after the event insurance” is a type of insurance policy that a plaintiff can take out to cover the risk of an unsuccessful outcome and their own disbursements (owing to their lawyer) and any costs exposure that they may face. The premium is set and then typically not paid until the plaintiff knows the outcome, which might be paid out of a settlement or judgment if successful. Part of the Bluecore Security included an assignment of the right that the Grillone Law Firm was supposed to have (through assignments from its clients) to the proceeds of amounts paid under those Insurance Policies in respect of the Funded Files.

[180] Before joining Bluecore, Mr. Robson worked for an insurance brokerage firm and was involved in the original placement of the Insurance Policies from the insurance company, DAS, with the Grillone Law Firm’s clients who were the named beneficiaries. After Mr. Grillone took his medical leave in May 2019, Mr. Robson was involved in initial discussions with staff at the Grillone Law Firm and DAS about the files in respect of which the insurance was supposed to apply.

[181] At the time of the bankruptcy application and when he swore the First Robson Affidavit, he believed that the Insurance Policies were worth nil. This was based on his understanding that Mr. Grillone had not arranged for the Grillone Law Firm to receive from its clients who were the named beneficiaries an assignment of their entitlements under the Insurance Policies, and that this rendered the Security in favour of Bluecore in the Grillone Law Firm’s entitlements under those policies and the direction to pay those insurance proceeds to Bluecore worthless.

[182] Bluecore had thought it had real security over any recovery of disbursements for the Funded Cases, but that had all disappeared because Mr. Grillone had not arranged for the assignment of the DAS insurance proceeds to the Grillone Law Firm by the clients before those files were taken over by other lawyers. This failure to obtain the assignment of the Insurance Proceeds also broke the chain in Bluecore’s standing or status to ask about what had happened to the Funded Files. Mr. Grillone suggested that they could have asked him or his lawyer in the Bluecore Civil Action to make inquiries, but Bluecore did not consider that to be a viable option given the acrimony of that litigation at the time.

[183] Mr. Robson was not involved on behalf of Bluecore in May 2019. He later learned, by reading a letter from DAS that Mr. Grillone produced dated February 4, 2020 that DAS had rescinded the Insurance Policies for various reasons stated in that letter. Mr. Grillone confirmed during closing submissions that he does not dispute that DAS rescinded the Insurance Policies at that time, although he does not accept as true all of the stated reasons in that letter for the rescission.

[184] Neither of the parties rely upon the DAS February 4, 2020 letter for the truth of its contents (e.g. the stated reasons for the rescission of those policies). It is relied upon by Bluecore simply to identify the point in time when Mr. Robson, then acting as a Bluecore representative, first learned that DAS had rescinded the Insurance Policies, which was after this application was commenced and in the lead up to the trial.

[185] I accept Mr. Robson’s testimony that he did not receive the DAS letter when it was originally sent in February 2020 (in his capacity as a representative of the insurance brokerage firm he then worked for) and that there was no record of it having been received by Bluecore that he could find. The factual predicates for his explanation for why he thought that Bluecore’s Security as it related to the Insurance Policies was worthless were not challenged by Mr. Grillone.

[186] Yet Mr. Grillone argues that the court should not accept this explanation provided by Mr. Robson, should instead conclude that he had received the DAS letter in February of 2020, and find that this was another inaccuracy in the First Robson Affidavit. Mr. Grillone urged the court to make a general finding that Mr. Robson’s testimony was not credible. One of the justifications for this was the alleged perjury committed by Mr. Robson that was the subject of Mr. Grillone’s motion for a mis-trial (discussed and dismissed, above). Another justification is based on the imprecision of Mr. Robson’s evidence, by not knowing where the source of the amount claimed to be owing and unpaid to Bluecore came from when he swore the First Robson Affidavit, and it turning out not to be correct that the entire Bluecore Loan Advance was outstanding because some amounts had been repaid, while the interest accrued. Bluecore’s failure to acknowledge the $1 million cap on liability in the Guarantee is another cited example of misleading or inaccurate testimony from Mr. Robson.

[187] Mr. Grillone also points generally to the various irregularities in Mr. Robson’s affidavit that were the subject of his motion to strike the application at the outset of the trial, which was dismissed. He contends that even though the court was prepared to overlook or forgive these, Mr. Robson cannot be relied upon for his accuracy.

[188] I am not persuaded that any general finding regarding the reliability and veracity of Mr. Robson’s testimony is warranted. In light of all of the challenges raised by Mr. Grillone, he can be rest assured that the court has carefully scrutinized the details of Mr. Robson’s testimony on any particular subject for which it is relied upon, as is evident from these reasons. On the essential requirements for the order sought the court has explained what evidence was relied upon, and if it involved testimony from Mr. Robson, the court did so having evaluated that evidence and determined it to be reliable and trustworthy.

[189] On this particular point, I have found Mr. Robson’s testimony to be reliable and trustworthy and have accepted that he was not aware of the February 2020 DAS letter when he swore the First Robson Affidavit. Even if he had received it then, he did not recall or rely upon it when he swore the First Robson Affidavit. Mr. Robson testified that if he had known that the Insurance Polices had been rescinded that would have simply reinforced the conclusion that he had reached at the time the application was commenced, which is that the Insurance Policies added no value to the Bluecore Security.

Funds Paid Into Court and Other Assets to Satisfy Secured and Unsecured Claims

[190] Mr. Grillone’s Statement of Affairs disclosed worldwide assets totalling approximately $3.5 million, $420,000 of which was comprised of funds that were later paid into court. Mr. Grillone’s subsequent affidavits suggest his assets were worth more, after accounting for accounts receivables and unbilled fees and disbursements not listed originally.

[191] The only liquid or realizable assets indicated are the funds paid into court. As at September 30, 2022, the accountant of the Superior Court of Justice confirmed that there was almost $510,000. There is some suggestion from Mr. Grillone that there were additional deposits (and there would be some accrued interest) after that. The evidence of Mr. Grillone indicates that the total could be closer to $650,0000 depending on whether some of the deposits he attests to were included in the amount reported by the accountant. Some of those monies could be subject to Bluecore’s Security in the accounts receivable for Funded Disbursements, but that remains to be determined. Some may be subject to the security of BNS. Bluecore remains hopeful that some of the funds paid into court will eventually be available to satisfy the Indebtedness and any amounts as may later be found to be owing to other creditors.

[192] Bluecore’s estimate of the value of the Bluecore Security is discussed above, somewhere between zero and $100,000. This is not inconsistent with the evidence of up to $650,000 having been paid into court to Mr. Grillone’s credit as not all of that money is necessarily associated with the Bluecore Security. Insofar as monies have been paid into court to the credit of Mr. Grillone or the Grillone Law Firm that are the subject of the Bluecore Security in the Grillone Law Firm accounts receivable or file specific disbursements, they will have to be accounted for and credited in the unsecured portion of Bluecore’s claim in the bankruptcy for recovery of the Indebtedness. Bluecore has confirmed that it will only pursue as a claim in the bankruptcy its net Indebtedness, which would credit any recoveries under the Bluecore Security. This would all have to be particularized in its proof of claim in the bankruptcy.

[193] In the meantime, Mr. Robson has provided his best estimate of the value of the Bluecore Security, ranging from zero to $100,000. I find that to be sufficient to satisfy s. 43(2) of the BIA.

Should the Court Exercise its Discretion Under s. 43(7) of the BIA NOT to Grant the Bankruptcy Order

[194] Section 43(7) of the BIA requires the court to dismiss a bankruptcy application “if the court is not satisfied with the proof of the facts alleged in the application or of the service of the application, or is satisfied by the debtor that the debtor is able to pay their debts.”

[195] The preceding analysis in these reasons has established that the court is satisfied of the facts alleged in the application.

[196] Mr. Grillone did not testify and the affidavits filed by him do not satisfy me that he was able to pay all of his debts, nor was that established through any of his cross-examinations of his creditors who testified. His bald assertion that he was meeting his lawful debts is unsubstantiated. His suggestion that his Statement of Affairs establishes that he had assets that far exceeded his Indebtedness to Bluecore is unsupported. That conclusion is dependent upon uncollected accounts receivables and disbursements and unbilled fees and disbursements about which he provides no information aside from the amounts paid into court.

[197] The court is also required to dismiss the application under s. 43(7) if for any other sufficient cause it is satisfied that no order ought to be made. This has been interpreted to be a residual discretion in the court not to grant a bankruptcy application even if the other statutory prerequisites have been met. The Court of Appeal for Ontario in Medcap Real Estate Holdings Inc. (Re), 2022 ONCA 318, 468 D.L.R. (4th) 253 held at para. 9:

Despite the mandatory language of s. 43(7) (“it shall dismiss the application”), all counsel referred to the power under it as discretionary. This accords with the description given to the power under s. 43(7) in the case law … In essence, the judge hearing a bankruptcy application has a discretion to determine what qualifies as sufficient cause for not making an order, thus triggering the power to dismiss an otherwise proven application. [Citations omitted.]

[198] Some examples of what courts have previously found to be “sufficient cause” were provided by the Court of Appeal in Buth-Na-Bodhiaga Inc. v. Lambert (2002), 60 O.R. (3d) 787, at para. 40:

(a) the filing of a petition to get rid of a business competitor or to gain a business advantage;

(b) using the bankruptcy court as a collection agency, not with the intent of obtaining the benefit of an equal distribution of the debtor's assets for all creditors, but with the intent of forcing the debtor to make some special arrangement for the payment of the petitioning creditor's debt, regardless of what is done for other creditors;

(c) using the bankruptcy court for extortion, that is, threatening bankruptcy unless the debtor pays something beyond what is legally due;

(d) filing a petition in order to harass a debtor;

(e) filing a petition in order to terminate a contract;

(f) filing a petition in order to settle a dispute between shareholders;

(g) purchasing a debt in order to be able to file a petition; and

(h) filing a petition to prevent the debtor from defending itself against a disputed claim.

[199] Mr. Grillone has not established any of these sufficient causes to exist in this case. This is a discretion that should be used sparingly and only in exceptional circumstances. See Daniel Diena (Re), 2012 ONSC 5849, 97 C.B.R. (5th) 312 citing with approval (at para. 10) the following passage by Professor Roderick Wood.

Courts will sometimes dismiss bankruptcy applications if it is clear that the proceedings would be no benefit to the creditors. This might be established if it can be shown that the debtor has no assets and has no prospect of acquiring any in the future.

Courts will also dismiss a bankruptcy application if it is shown that the applicants brought it for an improper purpose. This occurs where the bankruptcy application is brought against the debtor out of spite or vengeance or as part of a vendetta. It also occurs where the application is brought in order to obtain a business advantage such as the elimination of a competitor or the termination of a contract.

See also Re Ivany, at paras. 31–34 on improper purpose.

[200] Mr. Grillone focuses on the second example in Diena, in attempting to demonstrate that Bluecore’s bankruptcy application was brought for an improper purpose. Mr. Grillone contends that the avoidance of the Counterclaim and associated legal fees to defend it is not a proper purpose for a bankruptcy application. Further, Mr. Grillone contends that Bluecore is not acting in good faith because it is trying to gain the advantage of not having to defend what it considers to be a frivolous Counterclaim through the bankruptcy application.

[201] Section 4.2(1) of the BIA requires any interested person in any proceeding under the BIA to act in good faith with respect to the proceeding. Under s. 4.2(2), if the court is satisfied that an interested person fails to act in good faith, the court may make any order it considers appropriate in the circumstances. A similar argument was considered in connection with Mr. Grillone’s motion for a mis-trial, which was dismissed.

[202] Mr. Grillone relies in part upon Mr. Robson’s acknowledgment during his cross-examination that one of the reasons Bluecore commenced this application was because, when he became involved, he looked at the situation, including the outstanding Bluecore Civil Action and the Counterclaim, and thought it was ridiculous and was going to cost a lot of money to defend even if baseless. Mr. Robson acknowledged that he wanted to come up with an orderly way to wind it all up, so the bankruptcy application made sense.

[203] Part of the court’s reasoning when this issue was considered earlier in connection with the mis-trial motion was that there was no logical connection between Bluecore’s stated desire to avoid having to defend the Counterclaim and the evidence that it (and its counsel) was accused of tampering with. There is a more logical correlation here where the alleged failure to act in good faith is the use of the bankruptcy application as a means to avoid having to defend the Counterclaim because of the automatic stay of proceedings involving Mr. Grillone that would ensue if the application is granted. However, that is just one aspect of the analysis.

[204] First, the court must consider the full context of Mr. Robson’s evidence about the purpose of the bankruptcy application. Mr. Robson did not say that avoiding the Counterclaim and associated legal costs was the only reason for bringing the bankruptcy application. Mr. Robson also testified that there appeared from the public records to be a large class of other creditors and a multitude of litigation and that, without some order to the process through the involvement of a professional, Bluecore’s prospects of recovery would be diminished from the weight of the litigation proceedings that Mr. Grillone was engaged in both as a defendant and plaintiff (or plaintiff by counterclaim).

[205] In First City Trust Co. v. Omni-Stone Corpo (1991), 4 O.R. (3d) 636 (Bankr. Ct.), at para. 23 the Court cited the following with approval:

It is not an abuse of process or an improper purpose to commence a petition for the collection of a debt. It is not improper to petition to gain remedies not available outside of bankruptcy, including a thoroughgoing investigation of the bankrupt’s affairs.

[206] A similar conclusion was reached in 0757376 B.C. Ltd. (Re), 2011 BCSC 1268, at para. 32, wherein the Court stated: “It is appropriate for the Court to grant a receiving order where it is to the benefit of all of the parties that an independent trustee investigate the affairs of the debtor.” In that case, the Court determined that the bankruptcy process was uniquely well equipped to dispose of shareholder disputes and oppression remedy claims in a summary fashion (at paras. 33–34).

[207] This court’s February 28, 2023 oral ruling in respect of Mr. Grillone’s motion to strike the First Robson Affidavit and dismiss the application expressly allowed that it would remain open to Bluecore to tender evidence from other creditors of Mr. Grillone about the existence of outstanding liabilities of Mr. Grillone to them. Such evidence would be for purposes of the court’s consideration of whether to exercise its discretion under s. 43(7) of the BIA (if Mr. Grillone asked the court to do so).

[208] The other creditors who testified comprised not only the first priority secured creditor, BNS, that has a judgment against him, but also other lenders who had sued Mr. Grillone and were embroiled in litigation with him, including counter-suits. Their evidence was that they too believe that a bankruptcy order would streamline the various proceedings and bring order to the determination of Mr. Grillone’s assets and liabilities, the competing claims of all creditors, and how they should be prioritized.

[209] This streamlining of creditor claims in the circumstances of this case is not an improper purpose for a bankruptcy application that has been made by one of the creditors for the benefit of all. Nor does the court consider Bluecore to have failed to act in good faith by bringing this application. Grillone is embroiled in a multiplicity of proceedings in which he is being sued and counter-suing multiple creditors. Creditors need to have a process for determining where they stand vis-à-vis Mr. Grillone and each other, even those whose claims might be covered by his Law Pro insurance.

[210] Mr. Robson (and Bluecore) is proceeding on the assumption that the process for creditors establishing claims to, and the determination of priorities and the eventual distribution of, any funds paid into court to Mr. Grillone’s credit (and any other identified liquid or realizable assets of Mr. Grillone) would be managed by a professional Trustee in Bankruptcy if one is appointed. So would the pursuit of any counterclaims on behalf of Mr. Grillone if determined to be in the interests of the estate and other stakeholders to do so.

[211] Mr. Grillone submitted during closing argument that the court could fulfill the role envisioned for the Trustee through its case management function. The Trustee’s role in this bankruptcy goes well beyond the court’s case management functions. The court’s role in this context will be one of oversight and to provide advice and directions in respect of discrete questions brought forward by the Trustee.

[212] I find that granting the bankruptcy order and appointing a Trustee is in the best interests of all of the creditors of Mr. Grillone. The bankruptcy process is well suited to bring order to the multitude of claims by and against Mr. Grillone and that is a legitimate purpose for a creditor to make a bankruptcy application, assuming it can meet the other requirements for the granting of the application as Bluecore has done in this case.

Costs

Costs Claimed by Bluecore

[213] Bluecore requests that its costs of this application be paid out of the bankrupt estate of Mr. Grillone, on taxation of the estate, if the application is granted. Accordingly, no Bill of Costs has been provided.

[214] Bluecore has provided costs outlines in respect of:

(a) The fresh evidence motion that Mr. Grillone requested and was given leave to bring after the trial concluded but subsequently withdrawn; and

(b) The mis-trial motion heard on July 11, 2023 and dismissed by these reasons.

[215] Bluecore is prima facie entitled to its costs of the withdrawn fresh evidence motion, and its right to claim those costs was expressly reserved when the court permitted Mr. Grillone to withdraw it three days before it was scheduled to proceed. The premise of the fresh evidence motion was to attempt to discredit Bluecore and its primary trial witness Mr. Robson, who Mr. Grillone said would be exposed through the fresh evidence motion for having given false evidence and misleading the court in two other court proceedings. Mr. Grillone served a piecemeal but lengthy motion record that appended the alleged damning prior evidence and his own commentary about it. There was also a misguided attempt to serve a subpoena on Mr. Kraft that was declared a nullity by the court.

[216] Bluecore’s costs outline indicates all-inclusive actual costs incurred to defend this fresh evidence motion of $116,603.01, with a corresponding amount of $104,942.70 in substantial indemnity costs and $69,961.80 in partial indemnity costs.

[217] The issues raised in the mis-trial motion entailed serious allegations of misconduct against both Bluecore and its counsel, of evidence tampering, spoliation, and perjury. Mr. Grillone was in default of the court’s order of May 15, 2023 that he pay $2,000 in costs to Bluecore. This was for costs thrown away of the last minute adjournment that Mr. Grillone required just prior to the first return date for his fresh evidence motion, but he was nonetheless permitted to present his mis-trial motion on July 11, 2023.

[218] Bluecore’s costs outline indicates all-inclusive actual costs incurred to oppose the mis-trial motion of $58,776.95, with a corresponding amount of $52,899.26 in substantial indemnity costs and $35,266.17 in partial indemnity costs.

Costs Claimed by Mr. Grillone

[219] Mr. Grillone initially advised the court that he was not seeking costs for his withdrawn fresh evidence motion, but later advised by email on July 19, 2023 that he was doing so and uploaded a Costs Outline as of that date into CaseLines. He was also given an opportunity to respond to Bluecore’s request for costs of that motion.

[220] Mr. Grillone relies on many of the same arguments in support of the costs of the mis-trial motion as he relied upon in support of the mis-trial motion itself, linking them to various factors under r. 57 that the court may take into consideration in the exercise of its discretion regarding costs. Although no counsel of record appeared for Mr. Grillone at the trial or at the mis-trial motion, Mr. Grillone’s costs outline for the mis-trial motion seeks costs in respect of time spent and the hourly rate of Vic Purewal of the Purewal Law Firm.

[221] The actual fees claimed total $18,750 (with corresponding claims for $16,877 in substantial indemnity costs and $11,250 in partial indemnity costs), plus disbursements claimed of $26,760.57 for an all-inclusive total of $57,926.94 in actual costs, which translate into $55,808.21 in substantial indemnity costs and $49,451.94 in partial indemnity costs. To whatever scale and quantum of costs are awarded, Mr. Grillone asks the court to add a further $50,000 for bad faith, abuse of process, and deterrence, relying upon the Supreme Court of Canada’s decision in British Columbia (Minister of Forests) v. Okanagan Indian Band, 2003 SCC 71, [2003] 3 S.C.R. 371.

[222] On the fresh evidence motion, Mr. Grillone does not claim any legal fees, but claims the same $50,000 plus $6,500 in HST for non-indemnification factors. The non-indemnification factors referred to by the Supreme Court of Canada in the Okanagan Indian Band case (at paras. 22–23) include the encouragement of settlement, the prevention of frivolous and vexatious litigation, and the discouragement of unnecessary steps. He claims to be entitled to these costs because Bluecore concealed the existence of other proceedings that it was involved in that relate to this loan, but on the funding/lenders’ side.

[223] Mr. Grillone also relies on the allegations in the mis-trial motion and the conduct of Bluecore and its counsel described therein to oppose any request by Bluecore that he pay costs. Since Mr. Grillone attributes his discovery of the evidence tampering, spoliation, and perjury to the work he was doing on the fresh evidence motion, which eventually led him to pursue the mis-trial motion instead of the fresh evidence motion, he argues that there should be no costs awarded against him given the significance of what he alleges he unearthed.

[224] No costs outline in respect of the costs of the bankruptcy application and trial was located in the materials from Mr. Grillone.

Analysis Regarding Costs

Costs of the Bankruptcy Application and Trial

[225] Section 45(1) of the BIA provides that, if a bankruptcy order is made, the costs of the applicant shall be taxed and be payable out of the estate, unless the court otherwise orders.

[226] On that basis, Bluecore’s costs of the bankruptcy application and trial (excluding any costs that the court has already ruled upon in respect of steps in this proceeding or in respect of the fresh evidence motion and mis-trial motion determined below) shall be taxed and payable out of Mr. Grillone’s estate in bankruptcy. Given the court’s findings above, the concerns identified about the evidentiary irregularities concerning the marking of trial Exhibit 2, and the failure to follow the court’s Direction, those costs shall be limited to a partial indemnity scale. Bluecore shall not be permitted to claim full indemnity costs of this application in the bankrupt estate, even if its Loan Agreement and the Bluecore Security entitle it to full recovery of its costs of enforcement proceedings.

Costs of the Fresh Evidence Motion

[227] Mr. Grillone brought and pursued the fresh evidence motion, requiring Bluecore to incur costs to respond to it. It was abandoned, in part because of evidentiary irregularities that Mr. Grillone says he discovered when preparing for that motion, but it was nonetheless abandoned after having been presented in a piecemeal manner, including a misguided summons issued to counsel for Bluecore that the court declared to be a nullity.

[228] In the exercise of my discretion under s. 131 of the Courts of Justice Act, R.S.O. 1990, c. C.43 and having regard to the applicable factors under r. 57, including the nature of the allegations, the manner in which they were pursued, the amount claimed, the importance of the issues given what the fresh evidence was expected to represent, steps taken by Mr. Grillone that initially prolonged this motion before it was withdrawn close to the originally scheduled hearing date of May 18, 2023 (once adjourned and then later withdrawn), I am awarding Bluecore partial indemnity costs of the fresh evidence motion fixed in the all-inclusive amount of $50,000. This is based on the Costs Outline provided by Bluecore in respect of this motion which indicates all-inclusive partial indemnity costs of close to $70,000 and with regard to Mr. Grillone’s request that he be awarded his non-indemnity costs of the fresh evidence motion in the amount of $50,000.

Costs of the Mis-Trial Motion

[229] Bluecore succeeded on the mis-trial motion, but the court indicated in the reasons for dismissing that motion that Bluecore did not handle the evidentiary irregularities in the manner that would be expected and failed to follow the court’s Direction, even though this did not justify granting the motion for a mis-trial. If Bluecore had followed the Direction it likely would have resulted in the evidentiary irregularities coming to the fore and being addressed head on during the trial at the very least, and avoided the mis-trial motion. Mr. Grillone is right that there should be consequences for this, even if the consequences are not what he had asked for (the mis-trial).

[230] In the exercise of my discretion under s. 131 of the Courts of Justice Act, and having regard in particular to r. 57.01(1)(e) and (f) and 57.01(4)(a), I am not awarding any costs to Bluecore of the mis-trial motion. Notwithstanding that Bluecore successfully resisted the mis-trial motion, for the reasons previously indicated and in particular its failure to follow the proper procedure to correct the mis-identified exhibit appended to the First Robson Affidavit and the mis-described trial Exhibit 2, and for failing to follow the court’s Direction I find that Bluecore is not entitled to any costs of the mis-trial motion.

[231] Mr. Grillone’s request for costs is unsupported. He had no counsel of record that appeared on this motion; yet his costs outline seeks fees based on time spent and an hourly rate of counsel who was presumably advising him in the background, even though no accounts or invoices have been presented and there is nothing to indicate any amounts having been paid by Mr. Grillone. Nor has Mr. Grillone demonstrated the lost opportunity costs or actually incurred expenses that might have justified an award of costs to a party acting in person, and he states in his Costs Outline for the mis-trial motion that he s not claiming any fees for himself.

[232] In any event, while the court is not prepared to condone the conduct of Bluecore and/or its counsel by awarding costs, this is not a case in which I would order Bluecore to pay costs to Mr. Grillone.

[233] Nor is it a case that justifies a penal costs award against Bluecore in the amount of $50,000 (or any other amount) under the other functions of costs awards as instruments of policy that are mentioned in the Okanagan Indian Band case (at paras. 22-26), such as to encourage settlement, prevent and discourage frivolous or vexatious litigation, discourage unnecessary steps and to generally ensure that litigation is conducted in an efficient and just manner. The punitive costs sought by Mr. Grillone from Bluecore would not serve any of those objectives.

[234] The objective of underscoring the importance of following the court’s process is sufficiently served by declining to award Bluecore its costs of this mis-trial motion that it succeeded in opposing.

Final Disposition

[235] An Order shall issue generally in the form of the draft filed by Bluecore with its application, with appropriate adjustments to reflect that the application was contested and proceeded by way of a trial and to limit the costs that Bluecore may seek to have taxed and assert as part of its claim in the bankruptcy to the partial indemnity amounts claimed in its Bill of Costs.

[236] The mis-trial motion is dismissed with no order of costs of that motion to either party. Mr. Grillone is ordered to pay to Bluecore its all-inclusive partial indemnity costs of the withdrawn fresh evidence motion fixed in the amount of $50,000.

[237] At one point during the trial, Bluecore said it was going to ask for provisional execution of the bankruptcy order. It was explained to Mr. Grillone on the day that it was raised, but it was not raised or requested again during closing submissions. There was some indication that there might be agreement about this term of the bankruptcy order because both parties might have an interest in including it in the court’s order if the application is granted. If there is agreement on the inclusion of a term for provisional execution, it may be included in the form that is submitted to the court for signature on that basis with written confirmation that this term has been agreed to.

[238] Farbers & Partners Inc. provided a consent to act as the Trustee in this matter (trial Exhibit 11). It was brought to the court’s attention by counsel for Bluecore at a case conference convened by Mr. Grillone for another purpose (on September 28, 2023) that Farbers & Partners Inc. has changed its name. Leave was requested to file an updated consent to act from the proposed Trustee reflecting this new name. Mr. Grillone asked to be provided first with this new consent and an opportunity to consider it. The court has not been advised since February 28, 2023 as to whether there is any objection to this revised consent being filed. Unless there is a basis for objecting, the updated consent should be filed so that the bankruptcy order can reflect the new name of the Trustee.

[239] This decision and the orders and directions contained in it shall have the immediate effect of a court order. Any party may take out a formal order by following the procedure for so doing under r. 59.

KIMMEL J.

Released: October 12, 2023

[^1]: The existence of outstanding or unpaid liabilities owed by Mr. Grillone to other creditors was not ruled entirely irrelevant or inadmissible, but only not to be relied upon to prove the alleged act of bankruptcy, which was the failure to pay Bluecore. The liabilities of Mr. Grillone to other creditors were also referenced in a reply affidavit of Mr. Robson dated February 2, 2022 that he testified about and was marked as trial Exhibit 12. Those liabilities were also the subject of testimony of other trial witnesses who are creditors of Mr. Grillone. To the extent determined to be relevant and admissible in other respects, that evidence is addressed in these reasons.

[^2]: Mr. Grillone’s motion for a mis-trial heard July 11, 2023 deals with concerns raised by Mr. Grillone about the version of the Loan Agreement marked as Exhibit 2 at trial. However, the terms of the Loan Agreement, insofar as they relate to the advances and requirements for repayment and interest, are not in dispute. The concerns raised were in relation to certain appendices, all of which were appended to trial Exhibit 2, but only some of which were appended to the original affidavit of verification on this bankruptcy application.

[^3]: See Saggi v. Grillone, 2020 ONSC 6351.

[^4]: Aside from the monies paid into court, none of these assets that Mr. Grillone attests to are liquid and no supporting materials are provided in respect of the accounts receivable and unpaid billings. Nor has Mr. Grillone provided any evidence about the likelihood that any of the claimed accounts receivable for fees and disbursements, or amounts claimed for unbilled fees and disbursements, will be recovered. He also provided no evidence as to any efforts made by him to locate the client files and ascertain their status from the lawyers who took them over.

[^5]: Mr. Grillone has since pointed out that Bluecore had attached the same Short Version Loan Agreement to affidavits in other proceedings, which he says is inconsistent with the idea of a mistake; however, that could have been the source or origin of the mistake.

[^6]: Seemingly anticipating this, while the court’s decision was under reserve Mr. Grillone booked a case conference on September 28, 2023 and asked the court to schedule a contempt motion and to require Bluecore’s counsel to appear and show cause why they should not be held to be in contempt of the court’s Direction. He was told that, since he would be asking in that contempt motion to have the court consider and adjudicate upon the very same concerns about the failure of Bluecore’s counsel to abide the court’s Direction as had been raised on this mis-trial motion and that findings of the court on this motion could have implications for any further proceedings arising out of the alleged contempt, a further contempt motion would not be scheduled.

[^7]: In the context of pleadings motions relating to the Counterclaim in the Bluecore Civil Action as it relates to other individual defendants, some observations were made about the frailties of the premise of the Counterclaim against Bluecore. See Bluecore Capital v. Grillone, 2022 ONSC 5386. The court observed (at para. 9) that: “Mr. Grillone was clear that at this stage he is not concerned with pleading a meritorious claim that will win the day. He submits that he has (or will) plead enough of a claim to be entitled to proceed. One can question the appropriateness of that position. It might be that Mr. Grillone is trying to delay recognition of his indebtedness so as to stave off the bankruptcy proceeding that is outstanding against him.”