COURT OF APPEAL FOR ONTARIO

CITATION: Korea Data Systems (USA), Inc. v. Aamazing
    Technologies Inc., 2015 ONCA 465

DATE: 20150624

DOCKET: C55916

Hoy A.C.J.O., Cronk and Watt JJ.A.

BETWEEN

Korea Data Systems (USA), Inc.

Plaintiff (Appellant)

and

A
amazing Technologies
    Inc. carrying on business as Ajay Amazing Technologies Inc.,
Jay Chiang a.k.a.
    Jay Tien Chiang a.k.a. Tienchieh Chiang
, Julius Chiang, Christina Chiang a.k.a.
    Christian Chiang a.k.a. Suh Mei Tasi, a.k.a. Suh Mei Tsai, a.k.a. Christina Suh-Mei
    Tsai, a.k.a. Suh-Mei Tasi Chiang, a.k.a. Christina Suh-Mei Chiang a.k.a. Suh-Mei
    Chiang, and Dong Liang a.k.a.

Tung Liang

Defendants (Respondent)

AND BETWEEN

Mendlowitz
    & Associates Inc.

as Trustee
    of the Estate of Jay Tien Chiang, a Bankrupt,

and
Korea Data Systems (USA), Inc.

Plaintiffs (Appellant)

and

J
ay Tien Chiang
    a.k.a. Jay Chiang a.k.a. Tienchieh Chiang, Christina Chiang a.k.a. Suh Mei Tasi
    a.k.a. Christian Chiang a.k.a. Suh Mei Tsai a.k.a. Christina Suh Mei Tsai a.k.a.
    Suh Mei Tasi Chiang a.k.a. Christina Suh-Mei Chiang a.k.a. Suh-Mei Chiang
, Chun Chun
    Wu, Jie Chu Wu, Chen Cheng-Yueh Tsai, Yu Chang Chiang a.k.a. Y.C. Chiang, En Fu
    Chiang, Brenda Chang, Samson Chang, David Cheng, Everview Inc., 961266 Ontario Inc.,
    1204360 Ontario Inc., 1243723 Ontario Inc., Aamazing Technologies Inc., Wen
    Wang Chiang a.k.a. Wen Chiang a.k.a. Wen Wang, Crystalview Technology Corp., E.C.
    Holdings Ltd., Telepower International (Canada), Inc., Best Buy Electronics Inc.,
    Su Feng Tsai a.k.a. Tsai Su Feng, Tsai Zheng Li, Tsai Zheng Ying, Asia Pacific Gateway
    (H.K.) Ltd., Century Group Holdings Ltd., Albany Investments Ltd., Mei Huang, Winner
    International Group Limited, Huang Chi Lung, Min Huang, Wainwright Ventures Ltd.,

New Global Investment Limited and Floratino Limited

Defendants (Respondents)

Scott C. Hutchison, Matthew R. Gourlay and Sherif M.
    Foda, for the appellant Korea Data Systems (USA), Inc.

J. Thomas Curry and Constanza Pauchulo, for the
    respondent Jay Tien Chiang

Catherine Francis and Mark A. Freake, for Mendlowitz
    & Associates Inc., in its capacity as Trustee of the Estate of Jay Tien
    Chiang, a Bankrupt

No one appearing for the respondent Christina Chiang

Heard: April 15, 2015

On appeal from the judgment of Justice Frank N. Marrocco of
    the Superior Court of Justice, dated July 9, 2012, with reasons reported at
    2012 ONSC 3922.

Cronk J.A.:

[1]

The
Bankruptcy and Insolvency Act
, R.S.C., 1985, c. B-3 (the
BIA
)
    is a comprehensive code relating to insolvent persons.  It seeks to achieve twin
    goals: the equitable distribution of a bankrupts assets among the bankrupt
    estates creditors and the financial rehabilitation of insolvent individuals:
Husky
    Oil Operations Ltd. v. Minister of National Revenue
, [1995] 3 S.C.R. 453,
    at para. 7;
Canada (Superintendent of Bankruptcy) v. 407 ETR Concession
    Company Ltd.
, 2013 ONCA 769, 118 O.R. (3d) 161, at paras. 27  30, leave
    to appeal to S.C.C. granted, 2014 CanLII 23006, appeal heard and reserved
    January 15, 2015.  In furtherance of these objectives, s. 178(2) of the
BIA
provides that an order of discharge releases the bankrupt from all claims
    provable in bankruptcy.

[2]

However, s. 178(1) of the
BIA
creates limited exceptions to
    this general rule.  These exceptions are designed to ensure that purposeful
    wrongdoers cannot take unjustified advantage of the bankruptcy regimes
    protections.  This appeal concerns the scope of the exception in s. 178(1)(d).
    It reads:

An order of discharge does not release the bankrupt from

.

any debt or liability arising out of fraud,
    embezzlement, misappropriation or defalcation while acting in a fiduciary
    capacity or, in the Province of Quebec, as a trustee or administrator of the
    property of others.

[3]

In this case, the trial judge held that s. 178(1)(d) applies only if the
    bankrupt owed a fiduciary duty to the creditor who seeks to obtain declaratory
    relief under s. 178(1)(d).  In other words, s. 178(1)(d) requires the fiduciary
    duty in question to have been one that the bankrupt owed directly to the
    claiming creditor.

[4]

The narrow issue on this appeal is whether the trial judge erred in this
    construction of s. 178(1)(d).  The appellant, Korea Data Systems (USA), Inc. (KDS
    USA), argues that a creditor of a bankrupt may rely on s. 178(1)(d) in any
    case in which the debt in question arose out of one of the enumerated activities
    in s. 178(1)(d) while the bankrupt was acting in a fiduciary capacity, even if
    the bankrupt did not owe a fiduciary duty directly to the creditor bringing the
    claim.

[5]

This interpretive issue is a matter of first impression for this court.
    For the reasons that follow, I agree with the trial judges construction of s.
    178(1)(d).  Accordingly, I would dismiss the appeal.

I.        Background in Brief

(1)

Litigation History

[6]

The litigation between the parties has a tortured and protracted history
    in the courts of both Ontario and California.  Much of that history is irrelevant
    to this appeal.  The following outline of the pertinent facts will suffice to
    place the appeal in context.

[7]

The major players in this litigation were involved in the computer
    monitor manufacturing and sales business in California in the 1990s.  Korea
    Data Systems Co. Ltd. (KDS Korea) was formed in Korea in about 1983 as a
    manufacturer of computer monitors and accessories.  It was controlled by two
    brothers, Jung Koh and Dae Soo Koh.

[8]

John Hui, a friend of the Koh brothers, began selling KDS Korea computer
    monitors in California in late 1987 or early 1988.  Mr. Hui, together with
    Julius Chiang and a third individual, incorporated a company, Amazing
    Technologies Corp. (ATC), in 1989.  ATC intended to bring computer monitors
    including ones manufactured by KDS Korea  to market under ATCs own brand
    name.

[9]

That same year, and apparently unbeknownst to Mr. Hui, Julius Chiangs
    brother, the respondent Jay Chiang, formed a separate company known as Aamazing
    Technologies Inc. or Ajay Amazing Technologies Inc. (Aamazing).

[10]

Mr.
    Hui first learned of Aamazings existence within about one year of ATCs
    incorporation.  He discovered that one of ATCs suppliers had shipped computer
    monitors to Aamazing, which had declined to pay for them.  Since the supplier
    believed that Mr. Hui controlled Aamazing, it refused to supply any further monitors
    to ATC.

[11]

Mr.
    Hui subsequently learned that his business partners brother owned Aamazing.
    This damaged the relationship between the two men.  Soon thereafter, Mr. Hui
    gave up his ownership interest in ATC.  After his departure, Julius Chiang
    owned 50% and the Koh brothers together owned the remaining 50% of the
    company.  Jay Chiang was a director and officer of ATC.

[12]

In
    1992, the Koh brothers and Mr. Hui incorporated KDS USA for the purpose of importing
    KDS Koreas computer monitors and selling them to distributors in North
    America.

[13]

In
    June 1995, Mr. Hui purchased KDS USA from the Koh brothers.

(a)

Litigation in California

[14]

By
    March 1993, the KDS companies and the Koh brothers had sued ATC, Aamazing and the
    Chiang brothers in California for, among other things, amounts allegedly owing
    on unpaid invoices.

[15]

In
    September of that year, the parties entered into a handwritten settlement
    agreement (the Settlement Agreement), ending all outstanding litigation.   Pursuant
    to the Settlement Agreement, ATC apparently paid approximately $4 million USD
    to KDS Korea and KDS USA released a further shipment of computer monitors to
    ATC.

[16]

Unfortunately,
    the settlement fell apart.  Each side accused the other of breaching its terms.
    In May 1994, the KDS companies and the Koh brothers commenced another action in
    California against ATC, Aamazing and the Chiang brothers, claiming damages for
    breach of the Settlement Agreement and amounts owing on unpaid invoices.

[17]

The
    action was tried on January 26, 1998.  Julius Chiang defended the action and
    testified at trial.  Jay Chiang initially defended the action but later decided
    not to defend the claim.  He did not appear at trial.

[18]

The
    California court found that Jay and Julius Chiang were alter egos of ATC; that
    they had controlled [ATC] and used it for their benefit to the detriment of
    the corporation and its other shareholders; that they had manipulated [ATC]
    to take advantage of their control of it; and that they had used ATC as their personal
    play thing and piggy bank.

[19]

The
    California court further held that the Chiang brothers had acted in bad faith;
    that they had violated their fiduciary duties as officers and directors to
    [ATC] and acted for their self interest rather than the corporate self
    interest; that [they] colluded together to manipulate [ATC] to defraud the K[oh]
    brothers, KDS [Korea] and KDS-USA and that [t]hey wrongfully used their
    control of [ATC] to further this fraudulent scheme.

[20]

The
    Chiang brothers were held personally liable to KDS Korea for the outstanding
    amount owed under the Settlement Agreement because they had signed it in their
    individual capacities  as well as on behalf of ATC and Aamazing  and had
    failed to honour their obligations under it in full.

[21]

They
    were also held personally liable to KDS Korea for the same amount because they
    were found to be alter egos of ATC.  On the same basis, they were held
    personally liable to KDS USA for the amount of unpaid invoices pertaining to
    computer monitors received by ATC and/or Aamazing.

[22]

Notably,
    the California court did not find that either of the Chiang brothers owed a
    fiduciary duty to KDS Korea or KDS USA or that they had breached such a duty.
    As I will explain, this is a matter of significance to this appeal.

[23]

In
    the result, on April 20, 1998, the KDS companies obtained judgment against ATC,
    Aamazing, and the Chiang brothers personally in the approximate amounts of $6.4
    million USD (KDS Korea) and $3.27 million USD (KDS USA) for sums owing under
    the Settlement Agreement and unpaid invoices (the 1998 California Judgment).
    Because he did not appear at trial, default judgment was entered against Jay
    Chiang.  He did not appeal.

[24]

That,
    however, was not the end of the matter.  On March 20, 2004, KDS USA obtained a
    second default judgment in California.  This judgment issued against Jay
    Chiangs wife Christina, and others, for the amount of $5 million USD on
    account of fraudulent conveyances and the improper transfer of funds that KDS
    USA said could have been used to satisfy Jay Chiangs debt under the 1998 California
    Judgment (the 2004 California Judgment).
[1]

(b)

Litigation
    in Ontario

[25]

On September 28, 1998, Jay Chiang filed an assignment in bankruptcy in
    Ontario.  He declared the 1998 California Judgment as a liability.  Mendlowitz
    & Associates Inc. (the Trustee) is the appointed trustee in bankruptcy
    for Jay Chiangs estate.  Jay Chiang remains an undischarged bankrupt to date.

[26]

KDS
    Korea and KDS USA both filed proofs of claim in Jay Chiangs bankruptcy
    pursuant to the 1998 California Judgment.  In addition, on October 5, 1998, they
    commenced proceedings in Ontario against the Chiang brothers and Aamazing,
    seeking to enforce the 1998 California Judgment (the Enforcement Action).  Among
    other relief, they sought a declaration that Jay Chiangs debt under the 1998 California
    Judgment would survive his discharge from bankruptcy under s. 178(1)(d) of the
BIA
.

[27]

By
    court order dated November 1, 1999, the KDS companies obtained leave under the
BIA
to continue the Enforcement Action against Jay Chiang and to enforce any
    judgment obtained, on the basis that Jay Chiangs judgment debt to them was
    grounded in fraud.

[28]

The
    following year, on July 28, 2000, KDS Korea, KDS USA and the Trustee issued a
    notice of action in Ontario against Jay Chiang, Christina Chiang and various
    relatives and associated corporations seeking damages in the amount of $10
    million for alleged conspiracy and fraudulent conveyances (the Fraudulent Conveyances
    Action).

[29]

On
    August 18, 2008, KDS Korea assigned its interest in both Ontario actions to KDS
    USA.

[30]

The
    Ontario litigation involving the KDS companies, the Trustee and the Chiangs has
    persisted for more than a decade.  It has generated an extraordinary number of
    court attendances, related proceedings in California, Hong Kong and elsewhere,
    dozens of witness examinations under the
BIA
, numerous reported
    decisions and, as I will explain, three contempt proceedings against the
    Chiangs.  This appeal is simply the latest foray before the courts of this
    province in the seemingly endless litigation war among the parties.

(2)

Decision Under Appeal

[31]

The
    Enforcement and Fraudulent Conveyances Actions were tried together before
    Marrocco J. (as he then was) of the Superior Court of Justice over
    approximately 51 days in 2011.

[32]

KDS
    USA was partially successful in the Enforcement Action.  The trial judge found
    that it was entitled to enforce the 1998 California Judgment against Jay Chiang
    for the full judgment amount of about $9.7 million USD.  However, as I have
    already said, he declined to issue a declaration that the debt owed to KDS USA survived
    Jay Chiangs eventual discharge from bankruptcy by reason of s. 178(1)(d) of
    the
BIA
.

[33]

The
    trial judge made the following critical findings in the Enforcement Action:

1)

Jay
    Chiang was never a director or officer of KDS Korea or KDS USA, nor was he a
    shareholder of KDS USA (at paras. 89 and 120);

2)

as
    a director of ATC, Jay Chiang owed a fiduciary duty to that company, but he did
    not owe a fiduciary duty to ATCs creditors or to KDS USA (at paras. 88  90, 121
    and 124);

3)

there
    was no relationship between KDS USA and Aamazing, nor did John Hui entrust
    property to Aamazing at any time (at para. 109);

4)

no
    misappropriation or defalcation, as those words are used in s. 178(1)(d) of
    the
BIA
, occurred in respect of the supply of computer monitors to
    ATC, which ATC then shipped to Aamazing, because the monitors were never
    entrusted to Jay Chiang or Aamazing (at paras. 114 - 15); and

5)

on
    his reading of the 1998 California Judgment, the California court made no
    finding of fraud in respect of Jay Chiangs indebtedness to KDS Korea under the
    Settlement Agreement entered into by him; in fact, Jay and Julius Chiang paid
    approximately one-half of the funds owed under that agreement to KDS Korea (at
    para. 110).

[34]

In
    this context, the trial judge held that KDS USA could not avail itself of the
    creditor protection afforded by s. 178(1)(d) of the
BIA
.  In his view,
    s. 178(1)(d) of the
BIA
should be interpreted as requiring that the
    fiduciary duty referred to in that subsection is owed to the creditor who is
    seeking a declaration that its debt survives the bankrupts discharge: at
    para. 123.  Since Jay Chiang owed no fiduciary duty to KDS USA, s. 178(1)(d)
    was not available to that company to obtain a declaration that his debt to it
    under the 1998 California Judgment would survive his discharge from bankruptcy.
    That determination is the focus of this appeal.

[35]

The
    defendants were successful in the Fraudulent Conveyances Action.  No appeal has
    been taken from that decision.

II.       The Sanction Ruling

[36]

Jay
    and Christina Chiang have been held in contempt of court in Ontario on multiple
    occasions in connection with their conduct concerning the KDS companies
    attempts to collect on the 1998 California Judgment.  Three contempt trials
    involving the Chiangs were held, in 2005, 2007 and 2010.  In at least one
    instance, the Chiangs were sentenced to jail as a result of their continuing
    contempt of court.  On appeal against sentence to this court, their sentences
    were reduced to time served but their ongoing contempt was described as
    shocking and disgraceful, leading to one of the worst cases of civil
    contempt to come before this court:
Chiang (Trustee of) v. Chiang
, 2009
    ONCA 3, 93 O.R. (3d) 483, at paras. 1 and 103.

[37]

The
    trial judge in the present case presided at the third contempt trial.  At the
    conclusion of that trial, he deferred consideration of sanctions pending the outcome
    of the Enforcement and Fraudulent Conveyances Actions.  On January 26, 2015, he
    released his reasons for decision on the sanction hearing:
Mendlowitz &
    Associates Inc. v. Chiang
, 2015 ONSC 571.  His formal order was issued on
    March 30, 2015, shortly before the argument of this appeal.  I will refer to
    his reasons and his order, collectively, as the Sanction Ruling.

[38]

At
    the hearing of this appeal, Jay Chiang sought leave to file the Sanction Ruling
    as fresh evidence.  He argued that the factual findings underpinning the
    Sanction Ruling are directly relevant to the interpretive issue before this
    court and that the Sanction Ruling meets the test for admission of fresh
    evidence on appeal.

[39]

I
    make two comments.  First, the Sanction Ruling is not evidence.  It is a
    publicly available judicial decision of the Superior Court of Justice rendered
    in related judicial proceedings  namely, contempt proceedings against the
    Chiangs.  As with any other pertinent judicial decision, it may be considered
    by this court to the extent of its relevancy.

[40]

Second,
    in my view, the Sanction Ruling provides additional context to the issue on this
    appeal, that is, whether Jay Chiangs debt to KDS USA survives his eventual
    discharge from bankruptcy under s. 178(1)(d) of the
BIA
.

[41]

It
    is unnecessary to review the Sanction Ruling in detail.  I simply observe at
    this point that, based on information obtained by the Trustee after the date of
    the decision under appeal, the Trustee sought leave of the court to withdraw
    its contempt proceedings against the Chiangs.  The post-judgment information
    includes allegations made by the KDS companies former counsel in California
    that KDS Korea had been running an Enron[-]type accounting fraud and that
    John Hui acquired the shares of KDS USA from the Koh brothers in 1995 in order
    to thwart Korean securities laws.  These allegations were unknown to the
    Trustee at the time of the trial of the Enforcement and Fraudulent Conveyances
    Actions.

[42]

In
    the Sanction Ruling, Marrocco A.C.J.S.C.J. found that KDS Korea and KDS USA,
    together with John Hui, failed to make proper disclosure in the Enforcement and
    Fraudulent Conveyances Actions, thereby permitting them to inaccurately
    portray themselves as victims of [Jay] Chiangs fraud throughout the Ontario
    litigation: at para. 193.  He also found that Jay Chiang, [KDS Korea and KDS
    USA] have each attempted to take advantage of our laws while not complying with
    them: at para. 198.

[43]

At
    the least, these findings, made by the same Superior Court justice who presided
    at the trial of the Enforcement and Fraudulent Conveyances Actions, cast
    serious doubt on the depiction of KDS Korea and KDS USA as innocent creditor-victims
    of Jay Chiangs fraudulent wrongdoing.

[44]

Based
    on his findings, Marrocco A.C.J.S.C.J. rescinded the court order that had
    granted the KDS companies leave under the
BIA
to continue the
    Enforcement Action against Jay Chiang.  He also granted the Trustee leave to
    withdraw its contempt proceedings against the Chiangs, among other relief.

III.      Issues

[45]

The
    sole issue on appeal is whether the trial judge erred in concluding that Jay
    Chiangs debt to KDS USA under the 1998 California Judgment will not survive
    his eventual discharge in bankruptcy under s. 178(1)(d) of the
BIA
.
[2]

IV.     Analysis

[46]

KDS
    USA attacks the trial judges s. 178(1)(d) ruling on two fronts.

[47]

First,
    it argues that the trial judges interpretation of s. 178(1)(d) of the
BIA
undermines,
    rather than advances, the policy objective of s. 178.  It contends that a
    proper reading of s. 178(1)(d), as applied to the facts of this case, compels
    the conclusion that Jay Chiangs debt to KDS USA will survive his eventual
    discharge from bankruptcy.

[48]

Second,
    KDS USA submits that, on the undisputed findings of the California court, Jay
    Chiang breached his fiduciary obligations to ATC and used ATC to further his fraudulent
    scheme, thereby defrauding KDS USA.  KDS USA says that, on these findings, the
    requisite elements of s. 178(1)(d) are satisfied and the declaratory relief
    sought before the trial judge ought to have been inevitable.

(1)

Trial Judges Interpretation of Section 178(1)(d)

[49]

I
    turn, first, to the trial judges impugned interpretation of s. 178(1)(d).  For
    convenience, I repeat his core holding, at paragraph 123 of his reasons:

[Section] 178(1)(d) of the BIA should be interpreted as
    requiring that the fiduciary duty referred to in that subsection is owed to the
    creditor who is seeking a declaration that its debt survives the bankrupts
    discharge.

[50]

KDS
    USA contends that the trial judge erred in law by adopting a narrow
    construction of s. 178(1)(d) that undermines, rather than advances, the policy
    objective of that section  that is, to deny certain wrongdoers the protections
    of the bankruptcy regime.  KDS USA submits that s. 178(1)(d) applies to any
    debt incurred as a consequence of a bankrupts acting fraudulently while in a
    fiduciary capacity; the fiduciary duty at issue need not be owed directly to
    the creditor who claims relief under s. 178(1)(d).

[51]

I
    disagree.  In my view, the trial judge did not err in his construction of s.
    178(1)(d).  I say this for the following reasons.

[52]

First,
    contrary to KDS USAs submission, I regard the trial judges interpretation of
    s. 178(1)(d) as consistent with the purposes of both the
BIA
regime in
    general and of s. 178 in particular.

[53]

The
    purposes of s. 178(1)(d) of the
BIA
must be understood in the context
    of the overall statutory bankruptcy scheme established by the
BIA
.  In
407 ETR Concession Company
, at paras. 27  30, this court explains the
BIA
bankruptcy regime as follows:

Bankruptcy is triggered by insolvency.  It is a procedure that
    is governed by statute. The
BIA
is the comprehensive code that
    addresses bankruptcy.  Rand J. captured the essence of the bankruptcy process
    in
Canadian Bankers Association v. Attorney General of Saskatchewan
,
    [1956] S.C.R. 31, at p. 46:

Bankruptcy is a well understood procedure by which an
    insolvent debtors property is coercively brought under a judicial
    administration in the interests primarily of the creditors.  To this proceeding
    not only a personal stigma may attach but restrictions on freedom in future
    business activity may result.  The relief to the debtor consists in the
    cancellation of debts which, otherwise, might effectively prevent him from
    rehabilitating himself economically and socially.

In
Husky Oil Operations Ltd. v. Minister of National
    Revenue
, [1995] 3 S.C.R. 453, at para. 7, Gonthier J. stated that
the
    bankruptcy system serves two distinct goals: the equitable distribution of a
    bankrupts assets among the estates creditors
inter se
and the
    financial rehabilitation of insolvent individuals
.

In
The 2013 Annotated Bankruptcy and Insolvency Act
(Toronto: Carswell, 2013), at p. 2, Lloyd W. Houlden, Geoffrey B. Morawetz and
    Janis P. Sarra describe the purposes of the
BIA
as follows:

It is a fundamental purpose of the Act to provide for
    the financial rehabilitation of insolvent persons.  The Act permits an honest
    debtor, who has been unfortunate, to secure a discharge so that he or she can
    make a fresh start and resume his or her place in the business community.

The Act was passed to provide for the orderly and fair
    distribution of the property of a bankrupt among his or her creditors on a pari
    passu basis
.

The Act provides a regime whereby the creditors of the
    bankrupt will pursue their claims by collective action through the trustee so
    that the assets of the bankrupt can be realized and distributed on an equitable
    basis subject to the priorities of preferred creditors and the rights of
    secured creditors.

[Citations omitted; Emphasis added.]

[54]

As
    appears from this description of the purposes of the statute, the
BIA
seeks to strike a balance between the financial rehabilitation of insolvent
    debtors and the legitimate interests of creditors who have lost money because
    of the bankrupts conduct: see
Bank of Montreal v. Giannotti
(2000),
    51 O.R. (3d) 544 (C.A.), at paras. 11  12.  The interpretation of s. 178 of
    the
BIA
must be informed by these twin objectives.

[55]

In
Simone v. Daley
(1999), 43 O.R. (3d) 511 (C.A.), this court addresses
    the purpose and scheme of s. 178.  In his reasons, at p. 521,  Blair J. (
ad
    hoc
) (as he then was) commences his analysis of s. 178 by placing the
    section in its legislative context under the
BIA
:

An important purpose of bankruptcy legislation is to encourage
    the rehabilitation of an honest but unfortunate debtor, and to permit his or
    her re-integration into society  subject to reasonable conditions  by
    obtaining a discharge from the continued burden of crushing financial
    obligations which cannot be met.

Debts which survive a bankruptcy as a result of the provisions
    of subsection 178(1), therefore, are exceptions to this overriding principle,
    and should be addressed accordingly.  [Citations omitted.]

[56]

Justice
    Blair then adopts, at p. 522, the following analysis of s. 178, set out in
Jerrard
    v. Peacock
(1985), 57 C.B.R. (N.S.) 54 (Alta. Master), at pp. 62  63:

Considering the new start object ingrained in the Act, the
    logical interpretation of the two subsections in question is that subs. (2)
    creates the general principle (being a release of all debts) with subs. (1)
    being an exception to the general principle.  Subsection (2) [sic] establishes
    exceptions, not the principle, and must be viewed in that light
.

It is as if the section literally reads that the order of
    discharge releases the bankrupt from all claims provable in bankruptcy except
    the following and then lists the seven (now six) categories in subs. (1)
.

All of the exceptions in the section are based on what might be
    classed as an overriding social policy.  In other words, they are the kinds of
    claims which society (through the legislators) considers to be of a quality
    which outweighs any possible benefit to society in the bankrupt being released
    of these obligations.

.

Paragraphs (
d
) and (
e
) are morality concepts
    which look at conduct.  Those kinds of conduct are unacceptable to society and
    a bankrupt will not be rewarded for such conduct by a release of liability.

[Emphasis added.]

[57]

As
Simone
makes clear, s. 178 has two related components.  Section 178(2)
    sets out the controlling principle that a bankruptcy discharge releases the
    bankrupt from all claims provable in bankruptcy.  Section 178(1), in turn,
    establishes specific exceptions to this principle, which must be construed in
    the context of the societal aim of encouraging the financial rehabilitation of
    debtors. The exceptions have a limited but important purpose: to ensure that
    certain wrongdoers do not benefit from the protections afforded by the
    bankruptcy regime.

[58]

That
    this is the import of s. 178 is buttressed by the Supreme Court of Canadas
    decision in
Schreyer v. Schreyer
, 2011 SCC 35, [2011] 2 S.C.R. 605.
    In that case, the court comments, at paras. 19  20, regarding the effect of a
    debtors bankruptcy:

The very design of insolvency legislation raises difficult
    policy issues for Parliament. Legislation that establishes an orderly
    liquidation process for situations in which reorganization is not possible,
    that averts races to execution and that gives debtors a chance for a new start
    is generally viewed as a wise policy choice.  Such legislation has become part
    of the legal and economic landscape in modern societies.  But it entails a
    price, and those who might have to pay that price sometimes strive mightily to
    avoid it.  So creditors seek to obtain security or third-party guarantees.  In
    other cases, statutory exemptions from the application of the
BIA
may
    apply.
However, the more exemptions there are, the less likely it is that
    the basic policy objectives of insolvency legislation can be achieved
.

As a consequence, the interpretation of the BIA requires
    the acceptance of the principle that every claim is swept into the bankruptcy
    and that the bankrupt is released from all of them upon being discharged unless
    the law sets out a clear exclusion or exemption
.  [Emphasis added.]

[59]

Thus,
    the starting point for analysis of s. 178 is that all claims against a bankrupt
    are swept into the bankruptcy and are released upon the bankrupts discharge unless
    this result is clearly excluded or exempted by law.
[3]

[60]

In
Simone
, the central issue was whether, for s. 178(1)(d) to apply, a
    bankrupts misappropriation or defalcation must involve an element of
    dishonesty.  With respect to this question, the court rejects a broad
    interpretation of the terms misappropriation and defalcation under s.
    178(1)(d) and holds instead, at p. 526, that the courts should avoid
    attempting to sweep into [these] concepts  any and all failures by the
    fiduciary to comply with the obligations attending upon that capacity.
    Justice Blair explains this courts narrower construction of the s. 178(1)(d)
    exception at pp. 529  30:

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

for monies or property entrusted to the fiduciary in
    that capacity or inappropriate dealing with such trust property
.  Had
    Parliament intended that any innocent breach of an obligation on the part of a fiduciary
    would give rise to a debt that would not be released by a discharge from
    bankruptcy it could very easily have said so, by providing that an order of
    discharge does not release the bankrupt from any debt or liability arising from
    a breach of fiduciary obligation.  It did not do so.  It chose to couch the
    types of debts or liabilities while acting in a fiduciary capacity which would
    attract the exceptions of s. 178(1), in the context of debts or liabilities
    arising from fraud, embezzlement or misappropriation, as well as defalcation.
    While these notions may have slightly different shades or gradations of
    meaning, I can only conclude that Parliament intended the words misappropriation
    and defalcation to bear their plain and ordinary meaning, as the context in
    which they are used suggests.  [Emphasis added.]

[61]

In
Simone
, the court does not
    consider the interpretive question raised in this case  namely, whether a
    creditor may seek a declaration under s. 178(1)(d) only if it was itself in a
    fiduciary relationship with the bankrupt.
[4]
Nonetheless, in my opinion,
Simone
is instructive for the following
    reasons.

[62]

First,
Simone
reinforces the centrality of the rule established by s. 178(2):
    that a discharged bankrupt is released from all claims unless a clear exception
    is engaged.  This recognizes the key purpose of the
BIA
, which is to enable
    insolvent debtors to make a fresh start and resume a productive role in
    society.

[63]

Second,
Simone
emphasizes that surviving debts under s. 178(1) are exceptions
    to this overriding principle and should be addressed accordingly.  I take
    this to mean that the exceptions set out in s. 178(1) are to be construed
    narrowly and applied only in clear cases.

[64]

Third,
    by limiting the scope of s. 178(1)(d) to conduct by the fiduciary that has
    some element of wrongdoing or improper conduct  in the sense of a failure to
    account properly for monies or property entrusted to the fiduciary in that capacity
    or inappropriate dealing with such trust property,
Simone
instructs
    that a bankrupts wrongdoing or improper conduct is not itself sufficient to
    bring a debt within the ambit of the section.  Rather, the impugned conduct
    must relate to the fiduciary relationship itself.  In other words, it is the
    relationship between the claiming creditor and the bankrupt, as well as the
    nature of the bankrupts conduct, that anchors s. 178(1)(d).  The provision
    protects a creditor that was in a vulnerable position in relation to the
    bankrupt when its claim arose.

[65]

And
    it is here that the flaw in KDS USAs suggested interpretation of s. 178(1)(d)
    becomes clear.  KDS USA argues that s. 178(1)(d) applies to any debt or
    liability arising out of a bankrupts wrongdoing of the type envisaged by the
    section  fraud, embezzlement, misappropriation or defalcation  so long as the
    bankrupt was in a fiduciary relationship with
someone
when the debt
    arose through the bankrupts wrongful activity.  Under this interpretation, the
    relationship between the claiming creditor and the bankrupt is virtually
    irrelevant.

[66]

I
    do not accept this construction of s. 178(1)(d).  In my view, a creditor cannot
    bring its claim within the exception set out in s. 178(1)(d) when that claim
    arose out of the bankrupts breach of a fiduciary duty to a third party.  To
    hold otherwise would expand the reach of s. 178(1)(d) well beyond what it
    exists to protect: the relationship between a vulnerable creditor and a
    fiduciary debtor.  Absent clear statutory language indicating such a
    legislative intention, a broad interpretation of the exception must be
    rejected.  No such language appears in s. 178(1)(d).

[67]

KDS
    USAs urged interpretation of s. 178(1)(d) is also inconsistent with the policy
    objective reflected in s. 178(2) of the
BIA
and with the interpretive
    approach to s. 178(1)(d) that this court adopts in
Simone
.  See also
McAteer
    v. Billes
, 2007 ABCA 137, 34 C.B.R. (5th) 1, at para. 28, leave to appeal
    to S.C.C. refused, [2007] S.C.C.A. No. 342.  In a bankruptcy scheme in which
    the cardinal rule is the release of a bankrupts debts upon discharge, s.
    178(1)(d) provides for an exceptional measure of creditor protection.  That
    exception, therefore, must be construed narrowly.

[68]

Properly
    read, the purpose of s. 178(1)(d) is to prevent a bankrupt from avoiding his or
    her just debts and liabilities to a vulnerable creditor where the bankrupt was
    entrusted, in a fiduciary capacity, with moneys or property belonging to
that
creditor.  Contrary to KDS USAs contention, the trial judges
    interpretation of s. 178(1)(d) accords with this statutory purpose.

[69]

This
    interpretation of s. 178(1)(d) is also consistent with appellate authority.  In
Valastiak v. Valastiak
, 2010 BCCA 71, 63 C.B.R. (5th) 188, a husband
    and wife had sold their matrimonial home and invested the proceeds in a
    restaurant operated by the husbands corporation.  They later divorced.  By the
    time of the divorce trial, the restaurant business had failed due to the
    husbands mismanagement.  The trial judge awarded damages to the wife for the
    loss of value in her share of the business due to the husbands mismanagement.

[70]

When
    the husband later made an assignment in bankruptcy, the wife applied for a
    declaration under s. 178(1)(d) that her former husbands judgment debt survived
    his discharge because it arose out of misappropriation while he was acting in a
    fiduciary capacity.  The application judge held that s. 178(1)(d) did not apply
    because the wife had failed to demonstrate that [her husbands liability] to
    her arose out of a misappropriation while he was acting in a fiduciary capacity
    in relation to her: 2009 BCSC 204, 53 C.B.R. (5th) 181, at para. 26.  The
    application judge thus proceeded on the basis that, for s. 178(1)(d) to apply,
    the bankrupt husband must have owed a fiduciary duty to his wife, the creditor,
    and not to a third party.

[71]

In
    allowing the wifes appeal, the British Columbia Court of Appeal proceeded on
    the same basis.  At the outset of his reasons for the court, at paras. 3  4,
    Finch C.J.B.C. summarizes the matter before him as follows:

The learned [application] judge  held that the facts as found
    by [the trial judge] would support the conclusion that the [husband] had
    misappropriated funds.  However, she held that the [wife] had failed to
    establish that the [husband] misappropriated funds while he was acting in a
    fiduciary capacity in relation
to her
.  As a result, the chambers
    judge dismissed the [wifes] application.

For the reasons that follow, I have concluded that the [husband]
    held 50% of the shares in a family business on a resulting trust for the [wife]
    and that this is one of those exceptional cases where the director of a
    company, the [husband], owed a fiduciary duty to the [wife] as a beneficial
    shareholder of the company
.  As the [husbands] misappropriation of funds
    occurred while he stood in a fiduciary relation to the [wife], her right to
    recover on the compensation order is protected by the provisions of s.
    178(1)(d) of the BIA
.  [Emphasis added.]

[72]

Chief
    Justice Finch first determines that, while [the husband] held the whole legal
    interest in the shares [of the corporation that operated the restaurant], he
    was the resulting trustee of one-half of the beneficial interest of the shares
    for his former wife: at para. 43.  He then carefully distinguishes between the
    fiduciary duties the husband owed to the corporation as a director and officer
    and those he owed in the circumstances to his then-wife, as a fellow
    shareholder: at paras. 46  51.  He concludes, at paras. 52  53:

[The husband] substantially depleted the restaurant business of
    its assets, and thereby diminished the value of [the wifes] share of equity in
    the company.  [The husband] was able to do that because he was the sole
    director and shareholder of the business.  In the circumstances of this case,
his
    liability  may be said to arise from his misappropriation of the companys
    assets while he was in a fiduciary relationship with the [wife]
.
    [Emphasis added.]

[73]

The
    courts focus in
Valastiak
is on the nature of the relationship
    between the bankrupt (the husband) and the claiming creditor (the wife).  If s.
    178(1)(d) applied so long as the bankrupt breached a fiduciary duty, regardless
    of the beneficiary of that duty, then Finch C.J.B.C.s analysis of the
    fiduciary duty owed by the husband to his former wife is superfluous.  I therefore
    read
Valastiak
as supporting the proposition that, for s. 178(1)(d) to
    apply, the bankrupt must have owed a fiduciary duty to the claiming creditor
    and not merely to a third party.

[74]

The
    trial judges construction of s. 178(1)(d) is also consistent with the Supreme
    Court of Canadas jurisprudence on the law of fiduciaries.  In
Frame v.
    Smith
, [1987] 2 S.C.R. 99, at p. 136, Wilson J. (in dissent but not on
    this point) states that fiduciary relationships possess three general
    characteristics: i) [t]he fiduciary has scope for the exercise of some
    discretion or power; ii) [t]he fiduciary can unilaterally exercise that power
    or discretion so as to affect the beneficiarys legal or practical interests;
    and iii) [t]he beneficiary is peculiarly vulnerable to or at the mercy of the
    fiduciary holding the discretion or power.  See also
Hodgkinson v. Simms
,
    [1994] 3 S.C.R. 377, at p. 408.  Moreover, what is required in all cases is an
    undertaking by the fiduciary, express or implied, to act in accordance with the
    duty of loyalty reposed on him or her:
Galambos v. Perez
, 2009 SCC
    48, [2009] 3 S.C.R. 247, at para. 75.

[75]

Both
    the fiduciarys duty of loyalty and a beneficiarys peculiar vulnerability to
    the fiduciary are acutely beneficiary-specific.  The trial judges
    interpretation of s. 178(1)(d) of the
BIA
thus places the same
    emphasis on the relationship between fiduciary and beneficiary that fiduciary
    law itself does.  The law imposes obligations on fiduciaries for the purpose of
    protecting
only
those beneficiaries to whom fiduciary obligations are
    owed.  The trial judges interpretation of s. 178(1)(d) reads the same purpose
    into that section.

[76]

Finally,
    the trial judges interpretation of s. 178(1)(d) respects the scheme of the
BIA
as a whole.  The trial judge held, at para. 123, that his construction of s.
    178(1)(d) is consistent with ss. 172(2) and 173 of the
BIA
, which
    require the court to refuse a discharge, suspend a discharge or order a
    conditional discharge when it is of the view that the bankrupt has been guilty
    of any fraud.

[77]

I
    agree.  Sections 172(2) and 173 of the
BIA
[5]

seek to ensure that dishonest debtors do not benefit from their dishonesty
    by requiring the court to refuse or suspend a bankrupts discharge in
    bankruptcy, or to grant a discharge on terms (s. 172(2)), on proof that the
    bankrupt has been guilty of
any
fraud or fraudulent breach of trust
    (emphasis added) (s. 173(1)(k)).  The existence or breach of a fiduciary duty is
    not a prerequisite to the application of these sections.

[78]

Accordingly,
    it is unnecessary to expand the scope of the term fiduciary capacity in s.
    178(1)(d) in order to prevent a bankrupt from profiting under the
BIA
from his or her own fraud or fraudulent breach of trust.  As Jay Chiang put it
    in his factum:

[T]he mischief that [KDS USA] seeks to resolve by urging [its]
    interpretation [of s. 178(1)(d)] is already addressed in sections 172(2) and
    173(1)(k) of the
BIA
.

By

removing

the

requirement

that the fraud be committed while the
    bankrupt was acting in a fiduciary capacity, these provisions provide a
    complete answer to [KDS USAs] concern that [the trial judges] interpretation
    of s[.] 178(1)(d) would result in some bankrupts[] being able to benefit from
    their wrongdoing.

[79]

For
    all these reasons, I agree with the trial judges interpretation of s.
    178(1)(d).  Section 178(1)(d) is available to a creditor of a bankrupt if the
    bankrupt has abused his or her fiduciary position with the claiming creditor by
    incurring a debt to the creditor through fraud, embezzlement, misappropriation
    or defalcation, in violation of the bankrupts fiduciary duty to the claiming
    creditor.

(2)

Failure to Satisfy Requisite Elements of Section 178(1)(d)

[80]

KDS
    USA also argues that, on the findings of the California court, the requisite
    elements of s. 178(1)(d) are met.  Consequently, the trial judge erred by
    declining to grant the requested declaratory relief under s. 178(1)(d).

[81]

I
    disagree.

[82]

In
McAteer
, at para. 22, the Alberta Court of Appeal described the two
    required elements of a claim under s. 178(1)(d): i) the debt at issue must be
    linked to the bankrupts fraud, embezzlement, misappropriation or defalcation;
    and ii) the fraud, embezzlement, misappropriation or defalcation must occur in
    the context of a fiduciary relationship.

[83]

For
    the foregoing reasons, it is clear that the second element  the fiduciary
    relationship requirement  is not satisfied in this case.  Accordingly, it is
    unnecessary for the disposition of this appeal to determine whether the first
    element  proof of a nexus between the debt at issue and fraud, embezzlement,
    misappropriation or defalcation by Jay Chiang  is established on the record
    before this court.
[6]

[84]

KDS
    USA relies on the California courts findings that Jay Chiang breached his
    fiduciary duty to ATC and participated, together with his brother Julius
    Chiang, in using ATC to advance a fraudulent scheme.  At trial, the trial judge
    in the present case accepted these findings.  However, as I have already
    emphasized, the decision of the California court contains no finding that Jay
    Chiang owed or breached any fiduciary duty in respect of either KDS company.  Nor
    did the trial judge in the present case make such findings.  Indeed, his
    findings, detailed above, are to the contrary.

[85]

KDS
    USA concedes that Jay Chiang did not owe it a fiduciary duty.  This was a
    proper concession.  Nothing on the record before this court suggests that Jay
    Chiangs relationship with KDS USA bore any of the indicia of a fiduciary
    relationship.  In particular, the record does not reveal any special
    relationship between KDS USA and Jay Chiang, any exercise of discretion or
    power by Jay Chiang in relation to KDS USA, any reliance by KDS USA on Jay
    Chiang or Aamazing or any position of vulnerability by KDS USA in its dealings
    with Jay Chiang.

[86]

In
    the absence of a fiduciary relationship between KDS USA and Jay Chiang, and
    wrongdoing by Jay Chiang in the context of such a relationship, Jay Chiangs judgment
    debt to KDS USA does not fit within s. 178(1)(d).

[87]

Finally,
    there is the matter of the Sanction Ruling.  The trial judge found in his
    Sanction Ruling that the KDS companies failed to make full and candid
    disclosure in the Enforcement and Fraudulent Conveyance Actions, including in
    Anton Pillar and Mareva injunction proceedings in those actions.  Further, the Trustee
    argues that the post-judgment information discussed in the Sanction Ruling, as
    well as the trial judges findings in that ruling, call into question the
    foundation for a personal judgment against Jay Chiang for the alleged debts of
    ATC and Aamazing to the KDS companies.  As a result, Jay Chiang and the Trustee
    argue that Jay Chiang should be given an opportunity to seek his discharge from
    bankruptcy, free of his judgment debt to KDS USA.

[88]

Of
    course, the Sanction Ruling does not affect the trial judges ruling on KDS
    USAs s. 178(1)(d) claim.  The evidence at the sanction hearing was not put
    before the trial judge at trial and was then unknown to the Trustee.  That
    said, the Sanction Ruling casts new and unfavourable light on the
bona fides
of the conduct of the KDS companies and John Hui and their respective roles in
    the disputes among the parties.  As one additional contextual factor, it lends
    some further support to the dismissal of the s. 178(1)(d) claim.

V.      Disposition

[89]

I
    would dismiss the appeal.

[90]

The
    respondent Jay Chiang is entitled to his costs of the appeal, fixed in the
    amount of $25,000 as agreed by counsel, inclusive of disbursements and all
    applicable taxes.

[91]

Since
    there is no agreement among counsel on the Trustees entitlement to costs, the
    parties may deliver written submissions on this issue to the Registrar of this
    court, limited to a maximum of five pages each, within 21 days from the date of
    the release of these reasons.

Released:

AH                                                   E.A.
    Cronk J.A.

JUN 24 2015                                    I agree
    Alexandra Hoy A.C.J.O.

I
    agree David Watt J.A.

SCHEDULE A

Bankruptcy and Insolvency
    Act
, R.S.C., 1985, c. B-3, ss. 172(2) and 173(1)

172(2)      The court shall, on proof of any
    of the facts referred to in section 173, which proof may be given orally under
    oath, by affidavit or otherwise,

(
a
)   refuse
    the discharge of a bankrupt;

(
b
)   suspend
    the discharge for such period as the court thinks proper; or

(
c
)   require
    the bankrupt, as a condition of his discharge, to perform such acts, pay such
    moneys, consent to such judgments or comply with such other terms as the court
    may direct.

173(1)      The facts referred to in section
    172 are:

.

(
k
)   the bankrupt has been guilty of any fraud or fraudulent
    breach of trust[.]

[1]
On November 28, 2006, KDS USA obtained a default judgment in the Superior Court
    of Justice in the approximate amount of $6.1 million USD for the enforcement in
    Ontario of the 2004 California Judgment against Christina Chiang.

[2]
As initially framed, KDS USAs appeal to this court concerned both the trial
    judges s. 178(1)(d) ruling in the Enforcement Action and his costs award in
    the Fraudulent Conveyances Action.  However, shortly before the appeal hearing,
    the parties resolved the costs issues in the Fraudulent Conveyances Action.

[3]
As the Supreme Court observes in
Schreyer
, at para. 25, this may
    sometimes produce harsh results.
Schreyer
itself is a case in point.
    In
Schreyer
, a wifes equalization claim under provincial family law
    legislation  a debt owed to her by her spouse  was held to be released by her
    spouses discharge from bankruptcy.  Since no clear exception applied, the
    bankrupt husband was released from his debt by operation of s. 178(2).

[4]
Most recently, in
Canada Mortgage and Housing Corp. v. Gray
, 2014 ONCA
    236, 119 O.R. (3d) 710, this court considers the proper interpretation and
    application of s. 178(1)(e) of the
BIA
.  The
Gray
court was
    not required to address the interpretation and application of s. 178(1)(d).

[5]
The full text of ss. 172(2) and 173(1)(k) of the
BIA
is set out in
    Schedule A to these reasons.

[6]
I note that the trial judge held, at para. 115, that no misappropriation or
    defalcation occurred in respect of the supply of computer monitors to ATC.
    There is no suggestion that Jay Chiangs conduct constituted embezzlement.
    The relevant issue at trial, therefore, was whether Jay Chiangs conduct
    amounted to fraud as that term is used in s. 178(1)(d).


COURT OF APPEAL FOR ONTARIO

CITATION: Mahoney v. Sokoloff, 2015 ONCA 390

DATE: 20150601

DOCKET: C59700

Weiler, Cronk and Pepall JJ.A.

BETWEEN

Wayde
    Mahoney, Kevin Mahoney, Carol Mahoney,

Sean
    Mahoney and Morgan Mahoney

Plaintiffs (Appellants)

and

Wendy Sokoloff and Sokoloff Lawyers

Defendants (Respondents)

Bryan D. Rumble, for the appellants

Michael R. Kestenberg, for the respondents

Heard and released orally: May 15, 2015

On appeal from the judgment of Justice Edward P. Belobaba
    of the Superior Court of Justice, dated October 30, 2014.

ENDORSEMENT

[1]

The appellants appeal from the summary judgment granted by Belobaba J.
    of the Superior Court of Justice dated October 30, 2014.  The motion judge held
    that the core reason for granting summary judgment was the appellants
    failure to put forward any evidence of losses or damages sustained in respect
    of i) the proposed claims of Wayde Mahoneys brothers, Sean and Morgan, for
    damages under the
Family Law Act
, R.S.O. 1990, c. F.3 (the
FLA
)
    for their loss of Waydes care, guidance and companionship due to his injuries;
    and ii) the respondents delayed application on behalf of Wayde Mahoney for
    benefits under the catastrophic impairment designation.  The appellants submit
    that there are genuine issues requiring a trial on both matters and that
    summary judgment, therefore, should have been denied.

[2]

We see no genuine issue for trial pertaining to the appellants alleged
    losses on the second ground.  It is undisputed that the action was eventually
    settled for the amount of $1.4 million.  The benefits available under the catastrophic
    impairment designation were retroactive with compound interest.  In these
    circumstances, and absent any evidence from them to the contrary, the
    appellants failed to demonstrate that they suffered any damages as a result of
    the respondents alleged delay in applying for the appropriate catastrophic
    designation that were not fully compensated for under the settlement.

[3]

We reach a similar conclusion concerning the suggested
FLA
claims of Wayde Mahoneys brothers.  The appellants complain that, in their
    summary judgment materials, the respondents failed to challenge specifically
    the appellants
FLA
-based claims for damages.  In these circumstances,
    they say, they were not obliged to lead evidence of these damages on the
    summary judgment motion.

[4]

We disagree.

[5]

The appellants submission, in our view, misses the point.  Apart from
    the matter of the respondents explanation for not advancing these
FLA
claims from the outset, the appellants were obliged in responding to the motion
    for summary judgment to put their best foot forward in respect of all their
    claims and to lead some evidence of the foundation for the brothers claimed losses
    under the
FLA
.  They did not do so.  As a result, on this record, the
    motion judge did not err in concluding that no genuine issue for trial arose
    regarding these claims.

[6]

Accordingly, the appeal is dismissed.  The respondents are entitled to
    their costs of the appeal in the agreed amount of $7,500, inclusive of
    disbursements and all applicable taxes.

K.M. Weiler J.A.

E.A. Cronk J.A.

S.E. Pepall J.A.


COURT OF APPEAL FOR ONTARIO

CITATION: Metrolinx v.
    Enbridge Gas Distribution Inc., 2015 ONCA 429

DATE: 20150615

DOCKET: C59191

MacPherson, Epstein and Roberts JJ.A.

BETWEEN

Metrolinx

Applicant (Respondent)

and

Enbridge Gas Distribution Inc.

Respondent (Appellant)

Cynthia R.C. Sefton and Meghan Cowan, for the appellant

Wendy J. Earle and Matthew Furrow, for the respondent

Heard: June 9, 2015

On appeal from the judgment of Justice Edward M. Morgan
    of the Superior Court of Justice, dated July 17, 2014.

Epstein J.A.:

OVERVIEW

[1]

The respondent, Metrolinx,
[1]
purchased from the Canadian National Railway Company (CN) a corridor on which
    Metrolinx operates a railway. The appellant, Enbridge Gas Distribution Inc.,
    owns six gas pipelines that run along municipal road allowances and cross under
    the Metrolinx railway.  Metrolinx asked that the six pipelines be relocated.  A
    dispute arose over which party, Metrolinx or Enbridge, should bear the relocation
    costs.

[2]

The application judge examined the relevant agreements and came to two
    main conclusions. First, the agreements between CN and Enbridges predecessor
    provided that Enbridge was responsible for the costs of relocating the six
    pipelines.  Second, in the sale from CN to Metrolinx, Metrolinx assumed all of
    CNs rights and obligations: these rights and obligations included the ability
    of Metrolinx to require Enbridge to pay the relocation costs in issue.

[3]

Enbridge appeals.

[4]

First, Enbridge argues that CN only had a contractual right to require
    that Enbridge pay to relocate pipelines on CN owned lands, not on municipal
    road allowances.  Second, even if CN had such a right, CN did not convey these
    rights to Metrolinx. Enbridge submits that the application judge erred in law
    in holding otherwise.

[5]

For the reasons that follow, I see no reason to interfere with the
    application judges analysis or conclusion.

ANALYSIS

[6]

The resolution of the divide between the parties rests on the
    interpretation of three complex agreements relating to the arrangements between
    CN, subsequently Metrolinx, and Enbridge.

(a)

The Master Utility Agreement  January 1, 1997

[7]

On January 1, 1997, CN and Enbridges predecessor entered into an
    agreement referred to as the Master Utility Agreement (the MUA).  The purpose
    of the MUA was to consolidate previous agreements relating to areas in which
    gas pipelines cross beneath CNs railways.

[8]

The first issue on appeal is whether, under the terms of the MUA, CN was
    entitled to require Enbridge to pay the costs associated with relocating the
    six pipelines.  This depends on the definition of Crossing in the MUA.
    Specifically, do the locations at which the six pipelines at issue cross
    underneath CNs railways, which are located on municipal road allowances,
    constitute Crossings under the terms of the MUA?

[9]

The MUA defines Crossing or Crossings in art. 1.1 as the pipeline
    or pipelines of [Enbridge] which cross, more or less, perpendicularly on, over
    or under the Right-of-Way of [CN].

[10]

Right-of-Way
    is in turn defined in art. 1.4 as the lands of [CN] now or formerly used as
    corridors for the movement of trains.

[11]

Enbridge
    submits that the definition of Crossing excludes the six crossings at issue
    in this litigation.  Enbridge points out that the definition of Crossing
    refers to pipelines that cross under CNs Right-of-Way, which in turn is
    defined as lands of CN.  Since the pipelines run under municipal road
    allowances, not lands of CN, the pipelines are not Crossings within the terms
    of the MUA.

[12]

I
    disagree.

[13]

Under
    the APPLICATION section of the MUA, art. 4.1 provides that, This Agreement
    shall apply to all Crossings already established as referred to in Schedule
    A. Schedule A contains a list of all railway crossings to which the MUA
    applies.  Enbridge has admitted that the six crossings in issue are included in
    Schedule A.

[14]

In
    my view, art. 4.1 indicates that the six crossings at issue in this appeal
    qualify as Crossings for the purposes of the MUA. They are Crossings already
    established under art. 4.1. Therefore, these Crossings are governed by the
    MUA.

[15]

As
    the application judge noted, art. 6.1 of the MUA provides that the removal and
    alteration of the Crossings is governed by a document called the Railway
    Guidelines, which is incorporated by reference. The Railway Guidelines are
    defined in art. 1.9 of the MUA as the Guide to Pipe and Wire Process which has
    been provided to [Enbridge]. Significantly, the relevant portion of this guide
    provides that Enbridge shall pay the cost of modifying any Crossings. Moreover,
    s. 4 of Appendix D of the guide further provides that Enbridge shall pay the
    cost of modifying any Crossings not simply for lands owned by the Railway but
    for the purposes of alterations in Railway Property, facilities or operations
    of the Railway. Railway Property is defined in the first paragraph of the
    MUAs preamble as the right-of-way, tracks or other property owned or
    controlled by the Railway.

[16]

The
    interpretation Enbridge urges is not supported by the wording of the MUA. Moreover,
    it would represent a change in the historical financial arrangements between
    the parties of such significance that the MUA would, one would think, contain
    express wording to this effect.

[17]

I
    agree with the application judge that, under the MUA, the six pipelines in
    issue are Crossings.  It follows that CN had the right to require Enbridge to
    pay the cost of relocating the pipelines.

(b)

The Agreement of Purchase and Sale  March 31, 2009

[18]

On
    March 31, 2009, CN and Metrolinx entered into an agreement of purchase and sale
    (the APS) whereby CN sold to Metrolinx the railway corridor where the six pipelines
    in issue are located.

[19]

The
    second issue on appeal is whether, as part of this transaction, CN also
    conveyed to Metrolinx the right to require Enbridge to pay to relocate the six
    pipelines.

[20]

To
    resolve this issue, the question that must be answered is whether CNs right to
    demand that Enbridge pay for the pipeline relocation in issue is a Crossing
    Agreement within the meaning of the APS.

[21]

Crossing
    Agreements are defined in art. 1.01 of the APS as:

the agreements and orders provided to [Metrolinx] by [CN]
permitting access in, over, along, under or with respect to
roads, highways and other public access routes connecting the parcels of land
    comprising the Land and attached hereto as Schedule H. [Emphasis added.]

Article 5.01(12) of the APS reads:

[CN]: (a) to the best of its knowledge, has the lawful right
    and authority to cross over, under and through all public highways and roads
    connecting all parcels of land (which parcels collectively comprise the Land)
    and to operate its trains[,] have railway tracks, ties and related rail
    equipment on such public roads and highways, (b)
has the
    lawful right and authority to assign and transfer the private crossing
    agreements forming part of the Crossing Agreements to [Enbridge] without notice
    to or approval of any third party or any Authority
[Emphasis added.]

[22]

While
    the definition of Crossing Agreements in art. 1.01 of the APS is not entirely
    clear, the term acquires greater clarity from Schedule H of the APS, which is
    incorporated into the APS by art. 1.04.

[23]

The
    use of Crossing Agreement in other parts of the APS, particularly Schedule H,
    makes it apparent that Crossing Agreement includes CNs agreement to require
    Enbridge to pay the costs of relocating the six pipelines.

[24]

In
    art. 1 of Schedule H, CN gives Metrolinx its right, title and interest in the
    Crossing Agreements and the full benefit of all covenants, agreements,
    obligations, terms, conditions, representations and warranties of any nature or
    kind whatsoever arising from or out of or in any way relating to the Crossing
    Agreements.  In my view, CNs right to require Enbridge to pay to relocate the
    pipelines in issue constitutes a covenant or obligation relating to the
    Crossing Agreements, the full benefit of which has been assigned to
    Metrolinx.

[25]

Accordingly,
    based on the terms of the APS, including Schedule H, CN gave Metrolinx the
    right to require Enbridge to remove the pipelines at Enbridges expense. This
    conclusion is confirmed with reference to a third agreement, to which I now
    turn.

(c)

The General Assignment and Assumption Agreement  March 30, 2011

[26]

On
    March 30, 2011, the parties entered into a General Assignment and Assumption
    Agreement (the GAAA), a document that appears to be a follow-up agreement to
    the APS. Although the GAAA was signed in 2011, it had an effective date of
    March 31, 2009. The GAAA reinforces the conclusion that Metrolinx is entitled
    to require Enbridge to pay the costs of relocating the pipelines in issue.  In
    the words of the application judge, the GAAA [made] it clear, in case anything
    was left out of the [APS] and the Schedule H Agreement, that everything CN had
    relating to the stretch of track at issue has been assigned to Metrolinx.

[27]

Article
    1 of the GAAA provides:

[CN] does hereby assign, set over and transfer to [Metrolinx]
    all of the right, title and interest of [CN] in and to the Assigned Agreements
    and Rights together with the full benefit of all covenants, agreements,
    obligations, terms, conditions, representations and warranties of any nature or
    kind whatsoever arising from or out of or in any way relating to the Assigned
    Agreements and Rights to the extent that same affect the Rail Lands, as of the
    31st day of March, 2009...

[28]

Assigned
    Agreements and Rights is defined in the recitals of the GAAA as various
    leases and license agreements,
crossing agreements
and development agreements
in relation to Rail Lands

    (emphasis added). The term crossing agreements is not further defined.

[29]

Since
    crossing agreements are not defined in the GAAA, it was open to the
    application judge to interpret them as including the agreements between CN and
    Enbridge relating to Enbridges pipelines crossing under CNs railways.

[30]

Accordingly,
    CN and Enbridges agreements regarding who bears the cost of moving the
    pipelines constitute Assigned Agreements and Rights under the GAAA. Article 1
    of the GAAA says that CN gave Metrolinx the full benefit of all covenants,
    agreements, obligations of any nature or kind whatsoever arising from or out
    of or in any way relating to the Assigned Agreements and Rights.

[31]

Thus,
    the GAAA confirms the conclusion that CN gave Metrolinx the right to require
    Enbridge to remove the pipelines, at Enbridges expense.

[32]

Finally,
    I agree with the application judge that the fact that the contracts at issue
    arose in a federally regulated context does not alter the interpretation of the
    agreements in issue. As the application judge wrote, It may well be the case
    that the Crossing Agreements were an outgrowth of federal regulations that
    prevailed at the time of their signing. Nevertheless, they are valid contracts,
    and remain so whether or not the relevant federal regulations continue to govern
    either of the parties.

CONCLUSION

[33]

The
    application judges decision was based on the interpretation of a number of
    contracts between the parties and their predecessors.  In
Sattva Capital
    Corp. v. Creston Moly Corp.
, 2014 SCC 53, [2014] 2 S.C.R. 633, the Supreme
    Court clarified that contractual interpretation is a question of mixed fact and
    law as it requires an examination of the agreement in issue as well as the
    surrounding circumstances known to the parties at the time the contract was
    entered into.

[34]

In
    limited circumstances, it may be possible to extract a discrete question of law
    upon which the interpretation depends.  However, such circumstances will be
    rare.

[35]

This
    is not one of them. Here, the application judge examined the wording of the
    agreements in the light of the surrounding circumstances, including the
    objective intentions of the parties and the commercial arrangements between
    them. This was a question of mixed fact and law.

[36]

It
    follows that the application judges decision will only be overturned where
    there has been a palpable and overriding error.  And, in my view, the
    application judge committed no error in interpreting the various agreements as
    he did and in reaching the conclusions he reached.

[37]

The
    wording of the relevant agreements supports the application judges
    interpretation.  Furthermore, the application judges reasoning that the
    intention of CN and Metrolinx when they entered into the APS and especially the
    GAAA was that Metrolinx would fully step into the shoes of CN and assume all
    of CNs rights and obligations  and that CN would therefore have no further
    involvement with the railway property  makes commercial sense.

DISPOSITION

[38]

For
    these reasons, the appeal is dismissed.

[39]

In
    accordance with the agreement of counsel, Metrolinx is entitled to its costs of
    the appeal fixed at $12,000, inclusive of disbursements and HST.

Released: June 15, 2015 (JCM)

Gloria
    Epstein J.A.

I
    agree J.C. MacPherson J.A.

I
    agree L.B. Roberts J.A.

[1]
The Greater Toronto Transit Authority was the predecessor to Metrolinx. For the
    purposes of these reasons, both Metrolinx and the Greater Toronto Transit
    Authority will be referred to as Metrolinx.


COURT OF APPEAL FOR ONTARIO

CITATION: Militky v. Drummond/North Elmsley (Township), 2015
    ONCA 408

DATE: 20150605

DOCKET: C59809

Feldman, Hourigan and Benotto JJ.A.

BETWEEN

Däg Militky and Allison Militky

Appellants (Applicants)

and

The Corporation of the Township of Drummond/North
    Elmsley

Respondent (Respondent)

Michael S. Polowin and Roberto D. Aburto, for the
    appellants

Janet Bradley, for the respondent

Heard and released orally: June 3, 2015

On appeal from the order of Justice Kenneth E. Pedlar of
    the Superior Court of Justice, dated December 3, 2014.

ENDORSEMENT

[1]

The appellants want to run a commercial paintball facility in an area
    zoned as a Private Park in the respondent Township.

[2]

The motion judge determined that the type of facility contemplated fits
    within the type of use described in the definition of Place of Recreation in
    the By-law, and not within the type of use described in the definition of Public
    Park, which is informative of what is contemplated for a Private Park as
    well.

[3]

In our view, the motion judge made no error in his conclusion, which is eminently
    sensible.

[4]

The Official Plan provides in s. 4.3.6(7), that:

New commercial uses shall only be permitted by an
    Amendment to the Zoning By-law.

[5]

The Private Park was previously used as an equestrian facility.  Therefore
    the proposed paintball operation is a new commercial use that requires an
    amendment and the input of the Municipality.  The appellants have applied for such
    an amendment.

[6]

The appeal is dismissed with costs to the Township on the partial
    indemnity scale fixed at $22,500, inclusive of disbursements and HST.

K. Feldman J.A.

C. W. Hourigan J.A.

M. L. Benotto J.A.


COURT OF APPEAL FOR ONTARIO

CITATION: Moon v.
    Ottaway, 2015 ONCA 489

DATE: 20150629

DOCKET: C59548

Hoy A.C.J.O., Sharpe and Benotto JJ.A.

BETWEEN

Charles Moon

Appellant (Plaintiff)

and

Dorothy Ottaway and Thomas Neal

Respondents to Appeal (Defendants)

AND

Dorothy Ottaway

Respondent to Appeal (Plaintiff by Counterclaim)

and

Charles Moon and Maia
    Caron

Appellants (Defendants to the Counterclaim)

Chad A. Yehia, for the appellant Charles Moon

Hugh Pattison, for the respondent Dorothy Ottaway

Amanda S. Gibson, for the respondent Thomas Neal

Heard and released orally: June 25, 2015

On appeal from the judgment of Justice W. Low of the Superior
    Court of Justice, dated October 16, 2014.

ENDORSEMENT

[1]

The appellant, Charles Moon, leased a house from the respondent landlord,
    Dorothy Ottaway.  Her real estate agent, the respondent Thomas Neal, was
    involved in the leasing transaction.  On his own initiative, and without
    obtaining the landlords consent, the appellant undertook extensive renovations
    to the home.  The appellant subsequently defaulted in payment of rent and the
    landlord sought relief at the Landlord and Tenant Board.  Just before the
    hearing before the Board, the appellant commenced this action against the
    landlord for damages for breach of contract and unjust enrichment and against
    the real estate agent for damages for negligent misrepresentation and/or
    inducing breach of contract.  Among other things, the appellant claimed that he
    was entitled to set-off the value of renovations to the house that he had
    undertaken.  The landlords application before the Board was converted to a
    counterclaim for arrears of rent and an eviction order.

[2]

After a summary/hybrid trial, the trial judge dismissed the appellants
    claims against the landlord and her real estate agent and allowed the
    landlords counterclaim.

[3]

The appellant asks this court to quash the judgment of the trial judge
    and order a new trial.  He argues that the trial judge made three errors that
    require this court to order a new trial.

[4]

First, he says that the law did permit the trial judge to proceed by way
    of a summary/hybrid trial.

[5]

Second, he says that his counsel should have been allowed to ask him questions
    covered in his affidavit prepared in anticipation of the landlords summary
    judgment motion and utilized in the summary/hybrid trial.  He argues that the
    court was denied the opportunity to observe his demeanour as he recounted that
    portion of his narrative.

[6]

Third, he says the trial judge erred at law when she denied his request
    for an adjournment to obtain an expert report relating to the increase in value
    of the leased property resulting from the renovation work he had done.

[7]

This court will not direct a new trial unless some substantial wrong or
    miscarriage of justice has occurred:  s. 134(a),
Courts of Justice Act
,
    R.S.O. 1990, c. C43. As we explain, the trial judge made no error and there was
    no miscarriage of justice.

[8]

As to the first alleged error, the landlord brought a motion before the
    trial judge for directions to ensure the expeditious trial of the issues raised
    in the action and counterclaim.  The trial judge ordered that the action and
    counterclaim proceed before her on October 6, 2014 as a summary proceeding,
    using the affidavit materials and cross-examination transcripts that had been
    prepared for use on the summary judgment motion which had been brought by the
    landlord but not yet heard, together with supplementary
viva voce
evidence.  The appellant did not challenge the order when it was made or at
    trial.  It is not open to the appellant to challenge that order at this appeal
    after trial:
Harris v. Leikin Group Inc.
, 2014 ONCA 479 at para. 43.
    The order provided a proportionate, fair and expeditious manner of determining
    the matter in dispute consistent with the approach in
Hryniak
.  The
    appellant was not prejudiced by the manner in which the proceeding was conducted.

[9]

We also reject the appellants second argument.  The trial judge was
    entitled to direct that he not repeat in his examination-in-chief evidence
    given in his affidavit.  The court had ample opportunity to observe his
    demeanour in other portions of his examination-in-chief and cross-examination.
    The trial judges approach was efficient and appropriate.

[10]

Finally,
    we see no error in the trial judges exercise of her discretion to deny the
    appellants request for an adjournment to obtain an expert report.  The
    appellant had previously failed to comply with a timetabling order made by
    another judge.  By the time of trial, the appellant had not paid rent for nine
    months.  He was aware of the issues and had ample time to obtain an expert
    report.  Moreover, the documentary evidence in favour of the landlord that the
    appellant had undertaken renovations at his own expense was overwhelming. The inability
    of the appellant to put evidence as to the value of these renovations before
    the court was of no moment.

[11]

This
    appeal is accordingly dismissed.

[12]

The
    landlord will be entitled to costs in the amount of $20,000, inclusive of
    disbursements and HST.  The real estate agent will be entitled to costs in the
    amount of $8,000, inclusive of disbursements and HST.

Alexandra
    Hoy A.C.J.O.

Robert J. Sharpe
    J.A.

M.L. Benotto J.A.


COURT OF APPEAL FOR ONTARIO

CITATION: Moore v. Getahun, 2015 ONCA 443

DATE: 20150617

DOCKET: C58338

Laskin, Sharpe and Simmons JJ.A.

BETWEEN

Blake Moore

Respondent

and

Dr. Tajedin Getahun
,
    The Scarborough Hospital  General Division,

Dr. John Doe and
    Jack Doe

Appellant

J. Thomas Curry and Jaan E. Lilles, for the appellant

Paul J. Pape and Joanna Nairn, for the respondent

Matthew Gourlay and Samuel Walker, for the intervener
    Criminal Lawyers Association

Richard Halpern and Brian Cameron, for the intervener
    Ontario Trial Lawyers Association

William D. Black, Jerome R. Morse and John J. Morris,
    for the intervener The Holland Group

John A. Olah and Stephen Libin, for the intervener
    Canadian Defence Lawyers Association

Courtney Raphael, for the intervener Canadian Institute
    of Chartered Business Valuators

Linda R. Rothstein and Jean-Claude Killey, for the
    intervener The Advocates Society

Heard: September 22, 23, 24, 26, 2014

On appeal from the judgment of Justice Janet M. Wilson
    of the Superior Court of Justice, dated January 14, 2014, with reasons reported
    at 2014 ONSC 237.

COSTS ENDORSEMENT

[1]

We have now received written submissions from the parties with respect
    to the costs of this appeal. The respondent has submitted a bill of costs
    claiming costs at a partial indemnity rate inclusive of disbursements and taxes
    in the amount of $83,875.85. The appellant submits that as the appeal involved
    issues of public importance, no costs should be awarded.

[2]

In our view, as the respondent was the successful party, he is entitled
    to his costs of the appeal. While the appeal did involve an issue of public
    importance, that is the case for many appeals to this court. It is only where
    an issue is truly novel or a matter of first impression that a departure is
    warranted from the normal rule that a successful party is entitled to partial
    indemnity for costs. The issue raised in this appeal was not of that character.

[3]

Nor do we accept the appellants alternate submission that the
    respondents costs should be reduced to one third of the amount claimed to
    reflect the fact of both the appellants success on the point of public
    importance and the dismissal of the appeal on the narrower ground the trial
    judges error on the issue of public importance did not affect the outcome.

[4]

While the respondent did raise certain issues in his factum relating to
    the issue of public importance, those issues were not pursued in oral argument.
    The respondents submissions were focused precisely on the point upon which he
    succeeded. We agree with the respondent that to reduce his costs to one third
    would amount to a distributive costs award that is not favoured by this court.

[5]

As this appeal was argued over four days, albeit in conjunction with the
    related appeal in
Westerhof v. Gee Estate
, 2015 ONCA 206, and as the
    appellant has taken no issue with the quantum claimed by the respondent apart
    from the submission that we should make a distributive costs award, we award
    the respondent costs in the amount claimed, namely, $83,875.85, inclusive of
    disbursements and taxes.

John Laskin J.A.

Robert J. Sharpe J.A.

Janet Simmons J.A.


COURT OF APPEAL FOR ONTARIO

CITATION: Nanne v. 3011650 Nova Scotia Limited (Michipicoten
    Forest Resources), 2015 ONCA 391

DATE: 20150605

DOCKET: C59236

Feldman, Benotto and Brown JJ.A.

BETWEEN

Gerald Nanne

Tenant (Respondent)

and

3011650 Nova Scotia Limited c.o.b. as
    Michipicoten Forest Resources

Landlord (Appellant)

AND BETWEEN

Joseph Pasternak

Tenant (Respondent)

and

3011650 Nova Scotia Limited c.o.b. as
    Michipicoten Forest Resources

Landlord (Appellant)

AND BETWEEN

Glenn Campbell

Tenant (Respondent)

and

3011650 Nova Scotia Limited c.o.b. as
    Michipicoten Forest Resources

Landlord (Appellant)

Wendy J. Earle and Matthew Furrow, for the appellant

Robert G. Doumani and Patrick Harrington, for the
    respondents

Brian A. Blumenthal, for the intervener Landlord and
    Tenant Board

Heard: March 30, 2015

On appeal from the order of the Divisional Court (Associate
    Chief Justice Frank N. Marrocco, Justices Sidney N. Lederman and Harriet E.
    Sachs), dated February 21, 2014, with reasons reported at 2014 ONSC 1012,
    dismissing an appeal from order of the Landlord and Tenant Board, dated June
    17, 2013.

By the Court:

OVERVIEW

[1]

During the 1970s and 1980s, the Algoma Central Railway leased out a
    large number of one-acre cottage sites on property it owned north of Sault Ste.
    Marie. In 1997, the Railway sold the land to the appellant, 3011650 Nova Scotia
    Limited c.o.b. as Michipicoten Forest Resources (the Landlord). In 2005, the
    Landlord sold part of the land and cottage sites to Algoma Timberlakes Corp., retaining
    for itself a tract of land on which 435 cottage sites are located.

[2]

In its 2010 decision in
Matthews v. Algoma Timberlakes Corp
.,
[1]
this court held that the
Residential Tenancies Act, 2006
(the
RTA
)
[2]
applied to the cottage sites on the Timberlakes land.

[3]

The respondents are the tenants of three cottage sites located on the
    Landlords property. The respondents lease the cottage sites from the Landlord
    and they own the structures that they have built on the sites. The leases are
    each for a term of one year but renewable for 20 years. (The leased sites and
    the cottages built thereon collectively will be referred to as the Cottages.)
    In their Agreed Statement of Facts, the parties agreed that the Cottages on the
    Landlords property are similar to those located on the Timberlakes land
    considered by this court in
Matthews
.

[4]

In 2012, the respondents applied to the Landlord and Tenant Board for
    rent rebates.

[5]

Although the Landlord acknowledged that the
Matthews
decision
    applied to the respondents Cottages, it argued that the
RTA
could not
    apply to them without rendering those tenancies void. The Landlord based its
    argument on the subdivision control provisions of the
Planning Act
(the
PA
). Specifically, the Landlord contended that although the
    leases were at most 20 years in duration, the security of tenure provisions of the
RTA
would extend the tenancy agreements for the Cottages beyond 21
    years, thereby contravening the subdivision control provisions of the
PA
,
    with the result that the tenancy agreements would not create or convey any
    interest in land:
PA
s. 50(21). In order to avoid that result, the
    Landlord submitted that the Board should find that the respondents Cottages
    were not subject to the
RTA
, but to the
Commercial Tenancies Act
,
[3]
and dismiss their rent rebate applications.

[6]

The Board rejected the Landlords argument, holding that the respondents
    tenancies were subject to the
RTA
and, based on its interpretation of
    s. 50(3) of the
PA
, their leases were not void under the
PA
.
    It ordered the Landlord to rebate to the respondents part of the rent they had
    paid for 2011 and 2012. The Divisional Court dismissed the Landlords appeal.
[4]
Leave to appeal to this court was granted.

[7]

For the reasons set out below, the appeal is dismissed.

FACTS

[8]

The facts are not in dispute. At the hearing before the Board, the
    parties filed an Agreed Statement of Facts. As was the case in
Matthews
,
    the three one-acre sites leased by the respondents contain cottages built in
    the 1980s. Access to one Cottage was by road; to the other two Cottages, by
    boat or snowmobile.

[9]

Although the respondents original leases were with the Railway, in June
    2008, each of them entered into a new lease agreement with the Landlord. Each
    lease was for a term of one year, with an automatic right of renewal for nineteen
    further one-year terms, subject to a 30-day notice to terminate before each
    renewal.  The leases would terminate without any right of further renewal on
    the 20
th
anniversary of the lease date.

HEARING BEFORE THE LANDLORD AND TENANT BOARD

[10]

Section
    135(1) of the
RTA
enables a tenant of a rental unit to apply to the
    Board for an order that the landlord repay any money collected in contravention
    of the
Act
. In March 2012, the three respondents each filed with the
    Board applications for rent rebates against the Landlord by using the
    standardized Form T1 entitled Tenant Application for a Rebate. The respondents
    argued in their applications that the Landlord had imposed unlawful rents for
    the years 2009 through 2011 and, as a result, had collected rents for those
    years in excess of the lawful rents permitted under the
RTA
. The respondents
    contended that the rent increases imposed by the Landlord were void. They
    sought rent rebates in the following amounts: (i) Nanne - $4,353.96; (ii)
    Pasternak - $3,903.99; and, (iii) Campbell - $3,175.83.

[11]

The
    Board held that the rents charged by the Landlord since 2008 were illegal and
    ordered the Landlord to pay the respondents rebates for the two years 2011 and
    2012  the maximum period recoverable due to
RTA
s. 135(4)  specifically,
    rebates of $1,181.11 to Nanne, $1,083.19 to Pasternak, and $926.68 to Campbell.

[12]

Before
    the Board, the Landlord argued that although the leases for the three Cottages
    were for a term of no more than 20 years, the deemed renewal of term provision
    in
RTA
,

s. 38(1) would transform them into leases of
    indefinite duration.
RTA
s. 38(1) provides:

38. (1) If a tenancy agreement for a fixed term ends and has
    not been renewed or terminated, the landlord and tenant shall be deemed to have
    renewed it as a monthly tenancy agreement containing the same terms and
    conditions that are in the expired tenancy agreement and subject to any increases
    in rent charged in accordance with this Act.

[13]

The
    Landlord argued that these leases would then contravene the subdivision control
    requirements of
PA
s. 50(3) which states:

(3)  No person shall convey land by way of a deed or
    transfer, or grant, assign or exercise a power of appointment with respect to
    land, or mortgage or charge land, or enter into an agreement of sale and
    purchase of land or
enter into any agreement that has the
    effect of granting the use of or right in land directly or by entitlement to renewal
    for a period of twenty-one years or more unless

(a) the grantor by deed or transfer, the person granting,
    assigning or exercising a power of appointment, the mortgagor or chargor, the
    vendor under an agreement of purchase and sale or the grantor of a use of or
    right in land, as the case may be,
does not retain the
    fee or the equity of redemption in, or a power or right to grant, assign or
    exercise a power of appointment in respect of, any land abutting the land that
    is being conveyed
or otherwise dealt with other than land that is the
    whole of one or more lots or blocks within one or more registered plans of
    subdivision  [Emphasis added.]

[14]

According
    to the Landlord, since the Cottages were not within a registered plan of
    subdivision and it retained the fee in abutting lands, the leases would
    contravene
PA
s. 50(3), with the result that under
PA
s.
    50(21) the leases would not create or convey any interest in land. The only
    way to avoid that result, in the Landlords submission, would be for the Board
    to hold that the Cottages were not subject to the
RTA
.

[15]

Although
    both the
RTA
and the
PA
contain sections which state that
    each Act prevails in the event one of its provisions conflicts with that of
    another statute,
[5]
the Landlord submitted that public policy considerations required the
    subdivision control provisions of the
PA
to prevail over the deemed
    tenancy renewal provisions of the
RTA
.

[16]

The
    Board rejected the Landlords submission, holding that the deemed renewal of
    residential tenancies right contained in
RTA
s. 38 did not conflict
    with
PA
s. 50(3) because the latter section only applied to
    agreements of 21 years or more, not to a statutory provision for security of
    tenure, such as
RTA
s. 38(1). The Board also found that even if the
    lease agreements were void under
PA
s. 50(21), the tenancies would
    continue to be subject to the
RTA
.

REASONS OF THE DIVISIONAL COURT

[17]

The
    Divisional Court dismissed the Landlords appeal. The court found it
    unnecessary to determine the applicable standard of review as it held that the
    Boards decision was correct. At paras. 22-23 of its  reasons, the Divisional
    Court stated:

In my view, the Board correctly interpreted s. 50(3) and
    correctly observed that the Landlords interpretation of the subsection would
    lead to an absurd result. The wording of section 50(3) is directed at the
    parties
entering into an agreement that has the effect
of directly or indirectly providing for the use of the land for more than 21
    years. In other words, for a lease to be void, it is the agreement entered into
    by the parties, not a statutory provision, that must have the effect of
    providing for a term of usage of more than 21 years.

Such an interpretation is consistent with the legislatures
    intention to prevent people from circumventing the subdivision control
    provisions of the
PA
by entering into leases with a term of more than
    21 years and consistent with the remedial purpose of the
RTA
to
    protect residential tenants in Ontario. [Emphasis in original.]

[18]

In
    its appeal to this court, the Landlord seeks to set aside the orders of the
    Divisional Court and to dismiss the respondents applications to the Board.

[19]

The
    Board intervened on the issue of the standard of review to be applied to its
    decisions, but took no position on the merits of the appeal.

ANALYSIS

Effect of the
Matthews
decision

[20]

The
    Landlord argues that even though the respondents Cottages fall within the
    definition of rental units in the
RTA
, s. 50(3) of the
PA
renders
    the leases void because of the operation of
RTA
s. 38(1). Therefore,
    argues the Landlord, the respondents cannot rely on the rent control provisions
    in the
RTA
.

[21]

In
    our view, that argument is not open to the Landlord in the context of this appeal.
    In
Matthews
, this court held that the rent control provisions of the
RTA
applied to the land leases in question in that case. The parties agreed
    that the land leases in
Matthews
were similar to the land leases in
    the present case. The Board and the Divisional Court were bound by
Matthews
when determining the respondents applications for a rent rebate.

[22]

Although
    the court in
Matthews
was not directed to the possible conflict
    between
PA
s. 50(3) and
RTA
s. 38(1), the Landlord has not
    directly asked this court to overrule
Matthews
, nor did it request that
    a five-judge panel be constituted.

In fact, the Landlord did not
    expressly take the position that
Matthews
was wrongly decided (though
    in oral argument it acknowledged that were we to accede to its argument, our
    decision would contradict
Matthews
).

[23]

Consequently,
    in light of the way this appeal has been presented, this court is not in a
    position to
overrule
Matthews
and hold that the respondents cannot rely on the rent
    control provisions of the
RTA
in
    respect of their Cottages: see
Cumming v. Peterborough Police Association
,
[6]

R. v. Labrecque,
[7]
and
Royal
Bank of Canada v. Trang
.
[8]

[24]

In
    support of its position that this court should consider the
PA
issue
    and the effect of the application of the
RTA
to land lease communities
    in Ontario, the Landlord argued in its factum that the
RTAs
application
    to the respondents Cottages could have disastrous consequences for the
    orderly development and environment of Ontario. However, this submission
    ignores the
Land Lease Statute Law Amendment Act, 1994
,
[9]
which simultaneously amended both the
PA
and Part IV of the
Landlord
    and Tenant Act
[10]
(predecessor to the current
RTA
) to recognize the category of land
    lease community home. At that time, the
PA
was amended to prohibit the
    future construction of land lease community homes except on parcels of land
    within a registered plan of subdivision or which fall within the exemptions of
    the present
PA
ss. 50(3)(b) or 50(5)(a) (which apply where a grantor
    does
not
retain the fee in abutting lands). The prohibition
    in that amendment is now found in
PA
s. 46, which provides:

46(1)

parcel of land means a lot or block within a registered plan
    of subdivision or any land that may be legally conveyed under the exemption
    provided in clause 50 (3) (b) or clause 50 (5) (a).

(2.1) Unless otherwise authorized by a by-law in force under
    section 34 or an order of the Minister made under clause 47 (1) (a), or a
    permit issued under section 13 of the Public Lands Act,
no
    person shall construct or erect or locate or use or cause to be constructed,
    erected, located or used a land lease community home except on a parcel of land
    as defined in subsection (1)
, and in no case except as otherwise so
    authorized shall any person construct, erect, locate or use or cause to be
    constructed, erected, located or used more than one land lease community home
    on any such parcel of land. [Emphasis added.]

[25]

Therefore,
    there is no concern that future developers could evade the subdivision control
    provisions of the
PA
by entering into 20-year land leases where the
    parcels of land are not part of a registered plan of subdivision.

Indefinite renewal of pre-1994
    land leases

[26]

The
    underlying issue in this dispute is whether the rent control provisions of the
RTA
apply to the respondents Cottage leases (which replaced leases that
    pre-existed the 1994 amendments and therefore were not affected by the
    amendments).
[11]
As discussed, that issue was decided in
Matthews
.

The
    question of whether the leases are subject to the indefinite, automatic renewal
    provisions of the
RTA
 and if so, whether that would create a
    conflict with
PA
s. 50(3)

should not, and need not, be decided
    in the context of the present appeal.

[27]

At
    the time of the 1994 amendments, the
Landlord and Tenant Act
did not
    provide for a tenants right to indefinite renewal or security of tenure; the
    security of tenure that exists today in the
RTA
was not available to
    tenants until 1997, with the enactment of the
Tenant Protection Act, 1997
.
[12]

[28]

It
    is therefore arguable whether the legislature, in simultaneously enacting
PA
s. 46 and adding land lease communities to the
Landlord and Tenant Act
,
    had the intention to allow indefinite, automatic renewal of existing 20-year
    land leases that were not part of a registered plan of subdivision.

[29]

In
    the proper context, it may be open to a party to raise the issue of the possible
    conflict between
PA
s. 50(3) and
RTA
s. 38(1) as these
    provisions apply to pre-1994 land leases, potentially including the respondents
    Cottage leases.

[30]

However,
    in the current appeal, along with the failure to address the conflict with the
Matthews
decision or seek to have a five-judge panel reconsider that decision, the
    parties did not direct the court to
PA
s. 46, or provide any guidance
    on how to approach or interpret the 1994 amendments. Nor did they provide this
    court with evidence regarding the number of pre-1994 land lease communities that
    are not subject to a registered plan of subdivision, which evidence might well have
    assisted the court in addressing the policy arguments raised by the Landlord.
    Without evidence and robust argument of these issues, this court is not in a
    position to decide the legal question in the full context of the potential
    effects of the application of
RTA
s. 38(1) on the Cottage or similar leases.

DISPOSITION

[31]

For
    these reasons, the appeal is dismissed. On the issue of an application for a
    rent rebate, we are bound by the result in
Matthews
, and the Landlord
    did not request a review of that decision by a five-judge panel. The Boards
    decision to grant rent rebates to the Tenants for 2011 and 2012 stands.

[32]

The
    parties agreed that the successful party should be awarded costs of the appeal
    in the amount of $12,000. The Board did not seek any costs. Accordingly, we
    award the Tenants costs fixed at $12,000, inclusive of disbursements and HST.

Released: June 5, 2015 (KF)

K.
    Feldman J.A.

M.L.
    Benotto J.A.

David
    Brown J.A.

[1]
2010 ONCA 468.

[2]
S.O. 2006, c. 17.

[3]
R.S.O. 1990, c. L.7.

[4]
2014 ONSC 1012 (Div. Ct.).

[5]

RTA
s. 3(4);
PA
s. 71.

[6]
2013 ONCA 670, at para. 3.

[7]
2011 ONCA 360, at para. 5.

[8]
2014 ONCA 883, at paras. 38-39.

[9]
S.O. 1994, c. 4.

[10]
R.S.O. 1980, c. 232.

[11]
Section 46 does not apply to land lease communities that existed prior to 1994
    (including the community at issue). Section 46(4) provides:

This section does not apply to prevent the continued
    use in the same location of any land lease community home that,

(a) was constructed, erected or
    located and in use prior to the day the Land Lease Statute Law Amendment Act,
    1994 receives Royal Assent

[12]
S.O. 1997, c. 24.


COURT OF APPEAL FOR ONTARIO

CITATION: Nobili v. Economical Mutual Insurance Company, 2015
    ONCA 472

DATE: 20150624

DOCKET: C59669

MacFarland, Lauwers and Huscroft JJ.A.

BETWEEN

Robert J. Nobili

Plaintiff

(Appellant)

and

Economical Mutual Insurance Company, Jack F.
    Fitch, Hershel J. Sahian, Michael M. Lerner, Robert V. Moses, Stephen R.
    Schenke, Ian T. Dantzer,    Paul B. Schabas, Kathleen A. Waters and Andrew C.
    Murray

Defendants

(Respondents)

Robert J. Nobili, acting in person

Diana Romano Reid, for the respondent Economical  Mutual Insurance Company

Ian Epstein, for the respondent Lerner

Antonios T. Antoniou, for the respondent Sahian and  Fitch

Benjamin Kates, for the respondent Schabas

Helen A. Daley, for the respondent Waters

Heard: June 19, 2015

On appeal from the order of Justice Deena F. Baltman of
    the Superior Court of Justice, dated October 30, 2014.

APPEAL BOOK ENDORSEMENT

[1]

The appellant appeals the order of Baltman J. on a Rule 21 motion
    dismissing his action as disclosing no reasonable cause of action.

[2]

In careful reasons the motion judge considered each of the appellants
    claims made against the defendant parties in the statement of claim. She
    concluded that the claim was utterly unmeritorious after considering the
    various causes pleaded against each of the parties. We agree with her analysis
    and see no error.

[3]

The appeal is dismissed.

[4]

Costs to each of the respondents appearing fixed in the sum of $2000.00
    inclusive of disbursements and HST.