Ignorance May Not Be Bliss, But It Can Be Beneficial: Evidence Of The Conduct Of A Judgment Creditor Can Be Used In Certain Circumstances To Engage Section 178(1)(D) Of The Bankruptcy And Insolvency Act

Ignorance May Not be Bliss, but it can be Beneficial: Evidence of the Conduct of a Judgment Creditor Can be used in Certain Circumstances to Engage Section 178(1)(d) of the Bankruptcy and Insolvency Act and Protect a Judgment from an Order of Discharge

The Defendant was a dentist who had executed a personal guarantee on July 7, 2011 in favour of the Plaintiff (the "Bank") in order to secure payment of the indebtedness of the Defendant's professional corporation. The Bank made a demand for payment on the guarantee, and subsequently brought an action against the Defendant (the "First Action").The Bank was successful on a motion for summary judgment and judgment was granted against the Defendant.

The First Action, the motion for summary judgment, and the judgment made no reference to fraudulent misrepresentation or false pretences on the Defendant's part, necessary to engage section 178(1)(e) of the BIA.

The Defendant was adjudged bankrupt on December 2, 2013 by petition issued by the Bank.

After lifting the stay of proceeding caused by the Defendant's bankruptcy, the Bank commenced a new action against the Defendant for fraud and fraudulent misrepresentation in relation to the same debt as the First Action (the "Second Action"). The Bank also claimed for declaratory relief pursuant to section 178(1)(e) of the BIA that would allow the judgment to survive an order of discharge. The Bank submitted that after the Court rendered judgment in the First Action, the Bank became aware of fraud and fraudulent misrepresentations on the part of the Defendant, and that was why it brought the Second Action instead of including those claims as part of the First Action.

The Defendant brought a motion for summary judgment of the Second Action, and took the position that there was no genuine issue requiring the trial as the Second Action sought to reconstitute the First Action's judgment debt in a way that would survive the Defendant's bankruptcy, despite not advancing any claims of fraud contemporaneously with the First Action.

Accordingly, there were two issues before the Court:

Whether the Bank could lead evidence in the Second Action that was outside of: the facts pleaded in support of the First Action; the evidence presented at the time to secure the judgment debt in the First Action; and the reasons that were given by the Court in granting judgment in the First Action If so, whether there was a genuine issue requiring a trial The Defendant argued that the...