



COURT OF APPEAL FOR ONTARIO

CITATION: Shaver-Kudell Manufacturing Inc. v. Knight
    Manufacturing Inc., 2021 ONCA 202

DATE: 20210330

DOCKET: M52214, M52240

van Rensburg J.A.
    (Motions Judge)

BETWEEN

Shaver-Kudell
    Manufacturing Inc.

Plaintiff

(Respondent/Responding Party on M52214/

Moving Party on M52240)

and

Knight
    Manufacturing Inc., Lucy Shaver, Dusko Ballmer and

Alexander
    Knecht

Defendants

(
Appellant
/
Moving Party
on M52214/

Responding Party
on M52240)

Ian Klaiman, for the appellant

Charles Hammond, for the respondent

Heard: March 11, 2021 by video conference

REASONS FOR DECISION

I

Introduction

[1]

The appellant, Alexander Knecht, is an
    undischarged bankrupt. He moved for an extension of time to file a notice of appeal
    from the order of M. Smith J. (the motion judge), dated December 9, 2020.
    That order declared that his debts and liabilities in certain proceedings with
    the respondent, Shaver-Kudell Manufacturing Inc. (Shaver-Kudell), would
    survive his discharge from bankruptcy. It also lifted the stay of proceedings
    to permit Shaver-Kudell to continue proceedings against him. Knecht required an
    extension of time as a result of an administrative issue that arose when he
    tried to file his notice of appeal.

[2]

Shaver-Kudell opposed the motion primarily on
    the basis that there is no right to appeal without leave under s. 193 of the
Bankruptcy
    and Insolvency Act
, R.S.C. 1985, c. B-3
(the BIA). Shaver-Kudell also argued that the extension should be
    refused because the appeal is lacking in merit.

[3]

Knecht asserted that he had the right to appeal
    and, in the alternative, sought leave to appeal under s. 193(e) of the BIA. He
    argued that he had met the test for an extension of time. At the conclusion of
    the oral hearing of the motion I granted the requested extension, with
    reasons to follow. These are my reasons.

[4]

These are also my reasons in respect of Shaver-Kudells
    cross-motion for security for costs. For the reasons that follow, that motion
    is dismissed.

II

Relevant Facts

[5]

The parties were involved in litigation in the
    Superior Court (the Action). On August 7, 2018, following a trial on
    liability, R. Smith J. concluded, among other things, that Knecht and other
    defendants committed a breach of confidence and misappropriated Shaver-Kudells
    trade secrets. He awarded costs against the defendants for a prior summary
    judgment and costs of the trial (a total of $390,521).

[6]

The Action was scheduled to continue with a
    trial on the issue of damages in April 2020. In the interim, on March 2, 2020,
    Knecht filed a Notice of Intention to Make a Proposal under s. 50.4(1) of the
    BIA. The proposal was refused by his creditors, and he was assigned into
    bankruptcy on April 27, 2020. Pursuant to s. 69(1) of the BIA, all
    proceedings against Knecht are stayed during the bankruptcy.

[7]

Shaver-Kudell brought a motion for an order
    declaring that Knechts discharge from bankruptcy would not release any debts or
    liabilities arising from its claims against him in the Action, including any
    outstanding or future costs awards. Shaver-Kudell relied on s. 178(1)(e) of the
    BIA, which provides that an order of discharge does not release the bankrupt
    from any debt or liability resulting from obtaining property or services by
    false pretences or fraudulent misrepresentation.... Shaver-Kudell also sought
    an order under s. 69.4 of the BIA lifting the stay.

[8]

The motion judge found that R. Smith J.s
    findings in the trial on liability pointed to Knechts deceitful and dishonest
    conduct which engages section 178(1)(e). Knecht participated in a scheme to
    copy Shaver-Kudells trade secrets and make unauthorized use of this property
    for his financial gain. In this way, he had obtained property by false
    pretences. Accordingly, the motion judge found that Knechts debts arising from
    claims in the Actionincluding the outstanding costs awardwould survive his
    bankruptcy discharge.

[9]

Having found that Knechts debts and liabilities
    in the Action would not be released by his bankruptcy discharge, the motion
    judge determined that Shaver-Kudell would be prejudiced if it could not proceed
    to judgment against Knecht regarding damages. On this basis, the motion judge also
    declared that the stay under s. 69(1) of the BIA would no longer operate with
    respect to the Action.

[10]

Knecht served his notice of appeal of the motion
    judges order on December 17, 2020. Assuming that the order under appeal was an
    order under the BIA, Knechts counsel attempted to file the notice of appeal
    with the Registrar of the court appealed from, the Superior Court in Ottawa, in
    accordance with the
Bankruptcy and Insolvency General Rules
, C.R.C., c. 368, r. 31(1). The Ottawa court refused to accept the
    filing because there was no bankruptcy court file number. While attempting to
    sort out this administrative problem, Knechts counsel tried to file the notice
    of appeal directly in this court. However, because more than ten days had
    passed from the date of service of the notice of appeal, an extension of time
    was required.

III

The Extension of Time Motion

[11]

The test for an extension of time is whether it
    is in the interests of justice that the extension be granted. Relevant factors
    include: whether there was a
bona fide
intention
    to appeal during the appeal period; the length of and explanation for the
    delay; prejudice to the opposing party; and the merits of the proposed appeal.
    The enumerated factors are not exhaustive and may vary in importance depending
    on the circumstances. The overriding consideration is whether the justice of
    the case requires an extension:
Denomme v. McArthur
, 2013 ONCA 694 (In Chambers), at para. 7.

[12]

As I have indicated, the motion for an extension
    was opposed by Shaver-Kudell primarily on the basis that there is no appeal as
    of right. I turn to consider this issue first.

Does the appellant have the right to appeal
    the motion judges order?

(1)

The governing appeal route

[13]

If the motion judges order was made under the
    BIA, the appeal route would be governed by s. 193 of the BIA, which provides for
    appeals as of right in some cases and requires leave to appeal in others. Section
    193 provides as follows:

193
Unless otherwise expressly provided, an appeal lies to the Court of Appeal from
    any order or decision of a judge of the court in the following cases:

(a) If the point at issue
    involves future rights;

(b) If the order or decision is
    likely to affect other cases of a similar nature in the bankruptcy proceedings;

(c) If the property involved in
    the appeal exceeds in value ten thousand dollars;

(d) From the grant of or refusal
    to grant a discharge if the aggregate unpaid claims of creditors exceed five
    hundred dollars; and

(e) In any other case by leave of
    a judge of the Court of Appeal.

[14]

The proper appeal route is under s. 193 where
    the order sought to be appealed is granted in reliance on jurisdiction under
    the BIA:
Business Development Bank of Canada v. Astoria Organic
    Matters Ltd.
, 2019 ONCA 269, 69 C.B.R. (6th) 13, at para.
    21. If the motion judges order was not made in reliance on jurisdiction under
    the BIA, it would be appealable to this court under s. 6(1) of the
Courts
    of Justice Act
, R.S.O. 1990, c. C.43.

[15]

The question of jurisdiction arises in this case
    because the motion judges order has two components: the declaration under s.
    178(1)(e) of the BIA and the lift-stay order. The lift-stay order could only be
    made under s. 69.4 of the BIA. By contrast, declaratory orders under s. 178(1)
    do not engage the exercise of a power under the BIA. They are made in the
    exercise of the courts general jurisdiction: see e.g.
Water Matrix
    Inc. v. Carnevale
, 2018 ONSC 6436, 65 C.B.R. (6th) 109, at
    para. 22;
Beneficial Finance Co. v. Durward
(1961)
, 2 C.B.R. (N.S.)
    173 (Ont. Co. Ct.), at para. 14; and
Graves v. Hughes
, 2001 NSSC 68, 25
C.B.R.
    (4th) 255, at paras. 3-12. As such, orders declaring that a debt or liability
    survives a bankruptcy discharge typically are appealed directly to the Court of
    Appeal, without leave under the BIA: see e.g.
Gray (Re)
, 2014 ONCA 236, 119 O.R. (3d) 710;
Korea Data Systems
    (USA), Inc. v. Aamazing Tehnologies Inc.
, 2015 ONCA 465, 126
    O.R. (3d) 81;
H.Y. Louie Co. Limited v. Bowick
,
    2015 BCCA 256, 25 C.B.R. (6th) 221; and
Lawyers Professional Indemnity
    Company v. Rodriguez
, 2018 ONCA 171, 139 O.R. (3d) 641,
    leave to appeal refused, [2018] S.C.C.A. No. 128.

[16]

The determination of whether a debt survives
    bankruptcy can also be made in bankruptcy proceedings and not in a separate
    civil action, particularly where the moving party also seeks leave to commence
    or continue an action against the bankrupt: see
Re McKee
(1997), 47 C.B.R. (3d) 70 (Alta. Bankruptcy Registrar), where such
    a declaration was made while bankruptcy proceedings were pending, but prior to
    the discharge hearing. See also
Re Mariyanayagam

(1998), 10 C.B.R. (4th) 105 (Ont. Gen. Div.), at para. 4;
Re
    Bissonette
, 2006 CarswellOnt 7023 (Bankruptcy Registrar),
    at para. 3;
Re Di Paola

(2006), 84 O.R.
    (3d) 554 (C.A., In Chambers), at para. 5;
Re Berger
, 2010 ONSC 4376, 70 C.B.R. (5th) 225, (Bankruptcy Registrar), at
    para. 2.

[17]

This court has previously considered the question
    of jurisdiction where the order under appeal was made only partly in reliance
    on jurisdiction under the BIA. In
Dal Bianco v. Deem Management
    Services Limited
, 2020 ONCA 585, 82 C.B.R. (6th) 161,
    part of the order under appeal (indeed the substantive issue on the appeal)
    would have been appealable directly to this court under the
Construction
    Act
, R.S.O. 1990, c. C.30, but the order was made in an
    application for directions in a receivership. This court held that the
    substance of the order was in proceedings authorized by the BIA: it responded
    to a motion for the courts directions brought under s. 249 of the [BIA] to
    help the receiver distribute the remaining funds in the receivership. Because
    the BIA was a source of jurisdiction for the courts order, the appeal route
    was under s. 193: at para. 12. See also
Third Eye Capital
    Corporation v. Ressources Dianor Inc./Dianor Resources Inc.
, 2019 ONCA 508, 70 C.B.R. (6th) 181, at para. 129 (where jurisdiction
    for an appeal from an order approving a receivers sale of assets, of which a
    vesting order was a component, was under the BIA).

[18]

Applying these authorities, I conclude that the appeal
    route for the motion judges order is under s. 193 of the BIA. The order was
    made on a motion during the currency of Knechts bankruptcy, and, as part of
    the order the motion judge lifted the stay under s. 69(1) of the BIA to permit the
    Action to continue against the bankrupt.

[19]

I turn now to consider whether there is an
    appeal as of right of the order or whether leave to appeal is required.

(2)

Does a right to appeal lie under s. 193?

[20]

Knecht submits that he has a right to appeal the
    motion judges order under ss. 193(a), (b) and (c). I agree that the order is
    appealable under s. 193(c). While it is unnecessary to consider other provisions
    of s. 193, I suggest that the order is also appealable under s. 193(a).

[21]

Section 193(c) provides for a right of appeal
    if the property involved in the appeal exceeds in value ten thousand dollars.
    I recognize that the scope of that provision is a matter of debate among
    appellate courts. In
2403177 Ontario Inc. v. Bending Lake Iron Group
    Ltd.
, 2016 ONCA 225, 35 C.B.R. (6th) 102 (In Chambers),
    Brown J.A. construed s. 193(c) narrowly, and held that it would not provide a
    right of appeal from orders that (i) are procedural in nature; (ii) do not
    bring into play the value of the debtors property; or (iii) do not result in a
    gain or loss (in the sense of involving some element of a final determination
    of the economic interests of a claimant in the debtor): at paras. 53, 61. This
    approach has been followed by a number of decisions of this court, but has been
    called into question in the decisions of some other appellate courts: see e.g.,
MNP Ltd. v. Wilkes
, 2020 SKCA 66, 80 C.B.R.
    (6th) 1, interpreting s. 193(c) as applying when, on the evidence, there is at
    least $10,000 at stake in the appeal: at para. 63.

[22]

I am satisfied that, irrespective of the
    approach taken, the motion judges order falls within s. 193(c). In the circumstances
    of this case, I would follow the approach taken by Nordheimer J.A. in
Royal
    Bank of Canada v. Bodanis
, 2020 ONCA 185, 78 C.B.R. (6th)
    165 (In Chambers). He distinguished cases like
Bending Lake
that involved proposed appeals of orders made in receivership proceedings,
    and he determined that an appeal of bankruptcy orders in two proceedings where
    the debts relied on exceeded $10,000 fell under s. 193(c). Nordheimer J.A.
    explained that s. 193(c) clearly applies where the appellants entire
    property ha[s] been taken out of their control and placed into the hands of a
    Trustee in Bankruptcy, who has the right to dispose of that property and
    distribute it among the creditors, without further court intervention: at
    para. 9.

[23]

Similarly, the debts and liabilities that will
    survive Knechts discharge under the motion judges order exceed $10,000. And the
    effect of the order under appeal is that Knechts property exceeding $10,000 in
    value will be subject to Shaver-Kudells enforcement of its judgment in the
    Action, including the costs order already made, following his discharge from
    bankruptcy.

[24]

In short, the property involved in the appeal of
    the motion judges declaration under s. 178 exceeds in value $10,000. Since the
    lift-stay provision is part of the motion judges order and dependent on that
    declaration, the entire order is subject to appeal as of right under s. 193(c).

[25]

The conclusion that s. 193(c) applies can also
    be reached by applying the approach in
Bending Lake
. The motion judges order is not procedural in nature, it brings
    into play the value of Knechts property that will or will not be available to
    satisfy Shaver-Kudells claims as his creditor, and it makes a final
    determination of Shaver-Kudells economic interests, resulting in a gain to
    that party in excess of $10,000.

[26]

I am also of the view that the order under
    appeal falls within the scope of s. 193(a) of the BIA. Section 193(a) provides
    for a right of appeal if the point at issue involves future rights. Future
    rights have been described as rights which could not at the present time be
    asserted but which will come into existence at a future time:
Elias
    v. Hutchison
, 1981 ABCA 31,
121 D.L.R. (3d) 95, at para. 28, cited with approval in
Ravelston
    Corp., Re
(2005), 24 C.B.R. (5th) 256, (Ont. C.A.), at
    para. 19. The pertinent question is whether the rights engaged in the appeal
    are future rights or presently existing rights that are exercisable in the
    future:
Business Development Bank of Canada v. Pine Tree Resorts
    Inc.
, 2013 ONCA 282, 115 O.R. (3d) 617 (In Chambers), at
    para. 16.

[27]

Shaver-Kudell submits that its rights arose as
    soon as R. Smith J. determined the liability issues in the Action. All of the
    circumstances were present such that s. 178, by operation of law, would ensure
    that the debts and liabilities arising therefrom would survive Knechts
    bankruptcy discharge. This is a question of present rights that can be
    exercised in the future.

[28]

I disagree. While s. 178 operates as a matter of
    law, it is necessary for a creditor to obtain a court declaration that a debt
    survives bankruptcy:
Canada (Attorney General) v. Bourassa (Trustee
    of)
, 2002 ABCA 205, 312 A.R. 19, at para. 5. Shaver-Kudell
    did not obtain the s. 178 declaration until December 2020.

[29]

In my view, the motion judges order involves
    the future rights of both parties: Knechts right to be discharged from the
    debts and liabilities arising out of the judgments in the Action and Shaver-Kudells
    right, as a creditor of the bankrupt, to enforce the judgments following his discharge
    from bankruptcy.

[30]

While Shaver-Kudell is able to continue
    proceedings against Knecht, it does not have a present right to enforce the
    judgment of R. Smith J. against Knecht. This right is suspended by the
    bankruptcy and will be eliminated by the discharge, absent the order declaring its
    survival. In light of the motion judges order, this right will arise in the
    future, upon Knechts discharge. As lower courts have noted, [a] creditors
    right of action for a debt not released by the debtors discharge arises upon
    the discharge of the debtor:
Lang v. Soyatt

(1988), 68 C.B.R. (N.S.) 201, (Ont. Sup. Ct.), at para. 13;
Re
    Wilson
(1930), 11 C.B.R. 425 (Ont. Sup. Ct.). See also
Re
    Cameron
, 2002 ABCA 183, 37 C.B.R. (4th) 78 (In Chambers),
    at paras. 5-6.

Extension of Time

[31]

Apart from arguing the jurisdiction point, Shaver-Kudell
    asserted that the extension of time should be refused because the appeal lacks
    merit. Shaver-Kudell did not dispute that Knecht formed a
bona fide

intention to appeal within the relevant timeframe, nor did
    it oppose the requested extension on the basis of the length of or explanation
    for the delay in filing the notice of appeal.

[32]

Turning to the merits of the appeal, the
    question is only whether there is so little merit in the proposed appeal that
    the appellant should be denied [his] important right of appeal:
40
    Park Lane Circle v. Aiello
, 2019 ONCA 451 (In Chambers),
    at para. 8. It is sufficient to say that the appeal has at least an arguable
    chance of success.

[33]

Among other things, the appeal raises legitimate
    questions about the interpretation of obtaining property by false pretences
    within s. 178(1)(e), and whether the test under that provision was properly
    applied in the circumstances in this case. In finding that Knechts conduct
    fell within s. 178(1)(e), the motion judge declined to adopt the
Criminal
    Code
definition of false pretences, which he found would amount to a
    requirement of fraudulent misrepresentation.
As Knecht points
    out, there are cases that follow the definition of false pretences in the
Criminal
    Code
, or at least suggest that there
    must be a finding of fraud or an actionable misrepresentation (which were not
    present in this case):
see e.g.
H.Y.
    Louie Co. v. Bowick
, 2015 BCCA 363, 28 C.B.R. (6th) 1;
Celanese
    Canada Inc. v. Murray Demolition Corp.
, [2010] O.J. No.
    6347 (S.C.), at para. 22; and
Toronto Dominion Bank v. Cushing
, 2007 BCSC 1581, 37 C.B.R. (5th) 60.

[34]

For these reasons the motion to extend time to
    file the notice of appeal was granted.

IV

Motion for Security for Costs

[35]

An order for security for costs may be made
    under r. 61.06(1) of the
Rules of Civil Procedure
, R.R.O. 1990, Reg. 194, where (a) there is good reason to believe
    that the appeal is frivolous and vexatious and that the appellant has
    insufficient assets in Ontario to pay the costs of the appeal; (b) an order for
    security for costs could be made against the appellant under r. 56.01; or (c)
    for other good reason. Rule 61.06(1) is permissive, not mandatory. In
    determining whether an order should be made for security for costs, the
    overarching principle to be applied to all the circumstances is the justness
    of the order sought:
Yaiguaje v. Chevron Corporation
, 2017 ONCA 827, 138 O.R. (3d) 1, at para. 19.

[36]

Shaver-Kudell moves for security for costs of
    the appeal under r. 61.06(1)(c). It argues that security under this provision
    is warranted because the appeal has little merit and it will be difficult to
    recover costs of the appeal from Knecht, who is bankrupt. Shaver-Kudell points
    to the unpaid costs award of almost $400,000, that has been outstanding since
    2019, and contends that Knecht should not be able to litigate with impunity
    where the reasonable inference is that someone else is paying the costs of his
    appeal.

[37]

In response to the motion, Knecht asserts that
    his appeal has merit. He has not paid the outstanding costs because he is bankrupt,
    and if he is successful in his appeal he will be discharged from
    Shaver-Kudells claims. Knecht contends that he is impecunious and unable to
    pay security for costs; he has provided copies of the Creditors Package in his
    bankruptcy and information about his earnings and expenses. His assets are
    vested in the trustee, and although he is working and earning income, any
    surplus income he earns will vest in the trustee.

[38]

To grant security for costs under r. 61.06(1)(c),
    the other good reason must be compelling. Resort is to this provision when
    the respondent has been unable to obtain security under the other two
    categories, and security for costs under r. 61.06(1)(c) should not be made
    routinely:
Combined Air Mechanical Services Inc. v. Flesch
, 2010 ONCA 633, 268 O.A.C. 172 (In Chambers), at para. 8. Security
    for costs has been awarded under this provision where an appeal has a low
    prospect of success and the appellant has the ability to pay costs, but it
    would be nearly impossible to collect such costs:
Perron v. Perron
, 2011 ONCA 776, 286 O.A.C. 178 (In Chambers), at para. 23;
Henderson
    v. Wright
, 2016 ONCA 89, 345 O.A.C. 231 (In Chambers), at
    para. 27. Other examples include circumstances where there has been a finding
    that the appellant committed fraud, particularly if coupled with a finding that
    the appellant took steps to put his assets out of the reach of his creditors:
York
    University v. Markicevic
, 2017 ONCA 651 (In Chambers), at
    para. 58.

[39]

This is not such a case. I have determined that Knecht
    has a right of appeal, and that the appeal is of arguable merit. Furthermore, there
    has not been any finding that Knecht committed fraud or tried to put his assets
    out of reach of his creditors. His failure to pay the outstanding costs order of
    R. Smith J. is not (as in some cases) evidence of intransigence or contempt for
    orders of the court. Knecht is bankrupt and but for the order under appeal, his
    debts and liabilities in the Action, including the outstanding costs order,
    will not survive his discharge from bankruptcy.

[40]

In these circumstances, Shaver-Kudell has not met the test for
    security for costs and its motion is dismissed.

V

Disposition

[41]

For
    these reasons, Knechts motion for an extension of time was granted and
    Shaver-Kudells motion for security for costs is dismissed.
If
    the parties are unable to agree on the costs of the motions, they may provide
    their written submissions not exceeding three pages each (and filed
    electronically at coa.e-file@ontario.ca), within ten days of these reasons.

K. van Rensburg J.A.


