Ontario Court Of Appeal Addresses Use Of Fresh Evidence In Obtaining A Declaration That Judgment Debt Survives Bankruptcy

• Published date: 12 September 2022
• Subject Matter: Litigation, Mediation & Arbitration, Insolvency/Bankruptcy/Re-structuring, Insolvency/Bankruptcy, Trials & Appeals & Compensation
• Law Firm: WeirFoulds LLP
• Author: Mr Philip Cho

In a recent decision, the Ontario Court of Appeal approved the use of "fresh" evidence in obtaining a declaration that a judgment debt for statutory breach of trust survives bankruptcy. In the case of Yanic Dufresne Excavation Inc. v. Saint Joseph Developments Ltd., 2022 ONCA 556 ("Yanic"), the Court of Appeal reviews some best practices for obtaining a declaration under s. 178 of the Bankruptcy and Insolvency Act ("BIA") where the bankruptcy occurs after judgment and highlights the importance of pleading sufficient facts to support an s. 178 declaration.

The Court of Appeal considered an appeal from the decision of Justice Kershman granting the plaintiff's cross-motion to vary the default judgment against one of the individual defendants, Albert Plant ("Plant"). The reasons for decision in the motion below will be of interest, particularly to those in the construction law bar, as it also provides a thorough review of the nature of evidence and factors to support a breach of trust claim against a director pursuant to s. 13 of the Construction Act. However, I want to focus on the procedure that led to Justice Kershman's decision which the Court of Appeal upheld.

Procedural History & Superior Court Decision

The plaintiff was an excavation company retained by one of the defendant corporations of which Plant was a director and officer. The plaintiff obtained default judgment against the defendants, including Plant, on a motion for default judgment before Justice Kane. As is the accepted practice, the default judgment did not include any declaratory relief that the judgment survives bankruptcy because at the time, Plant was not bankrupt. Less than one month after the issuance of the default judgment, Plant made an assignment in bankruptcy.

The plaintiff advised the trustee in bankruptcy that it would be seeking to obtain a declaration that the judgment debt as against Plant survives bankruptcy. Under s. 178 of the BIA, certain types of debts are not affected by a bankruptcy, including, for example, fines or penalties, spousal or child support, student loans, and of significance in this case, a debt arising out of "fraud, embezzlement, misappropriation or defalcation while acting in a fiduciary capacity."

Upon learning that the plaintiff sought a declaration that the judgment debt survives bankruptcy, Plant brought a motion to set aside the default judgment and, as required, swore an affidavit providing evidence to support a defence on the merits. Plant was...