



COURT OF APPEAL FOR ONTARIO

CITATION: Kuczera (Re), 2018 ONCA 322

DATE: 20180329

DOCKET: C64317

MacFarland, Huscroft and Nordheimer JJ.A.

In the
    Matter of the Bankruptcy of Miroslaw Ian Kuczera,

of the City of
    Brampton, in the Regional Municipality of Peel,

in the Province
    of Ontario, Electrician (Disability)

Robert Klotz, for the appellant, Miroslaw Kuczera

Patrick Bloomfield in person as Trustee to the Estate of
    Miroslaw Kuczera, Bankrupt

Heard:  March 21, 2018

On appeal from the order of Justice Frederick Myers of
    the Superior Court of Justice, dated August 29, 2017, with reasons reported at
    2017 ONSC 5140, on appeal from the order of the Registrar in Bankruptcy dated October
    21, 2014.

Nordheimer J.A.:

[1]

The appellant was, until about 2007, successfully employed as an
    electrician. He was married and, with his wife, raised two children. Unfortunately,
    the appellants fortunes turned suddenly and dramatically in 2007 when his
    marriage broke down. The divorce proceedings, which were acrimonious, included
    allegations of abuse by his wife (which the appellant denied) and took several
    years to conclude.

[2]

The appellants assets became tied up in the family litigation.  When
    his income became insufficient to meet the demands of paying support, as well
    as his legal fees, the appellant began to rely on credit and personal loans to
    cover his legal expenses. In December 2008, he borrowed $16,000 from his
    brother in Poland, secured against a property the appellant owned in Poland.
    The loan had to be repaid by 2009, failing which the property would be
    surrendered to his brother. In fact, the appellant could not repay the loan and
    his brother obtained judgment against him in Poland and claimed the property.

[3]

In 2009, with no end to the divorce proceedings in sight, with his debts
    continuing to mount and his financial resources continuing to diminish, the appellant
    sought the assistance of a bankruptcy trustee. The appellant declared bankruptcy
    on May 20, 2009. Following the Trustees instructions, he made nine monthly
    payments of $226 each, totalling $2,034, and was discharged on October 14,
    2010.

[4]

However, the family litigation continued.

[5]

On April 4, 2011, the appellants discharge was annulled, apparently on
    the basis of the Trustees allegation that the appellant had not disclosed the
    situation with the property in Poland  a fact that the appellant denies.

[6]

In June 2011, the appellant made a consumer proposal (the Proposal) in
    an attempt to escape from bankruptcy. The Proposal required him to make
    increasing monthly payments over a five-year period totalling $66,665. At the
    time of the Proposal, the proven claims in the estate totalled $19,415.58.

[7]

By this time, the appellants mental and emotional health began to
    deteriorate significantly as a result of the legal battles he was facing, both in
    the family law and bankruptcy litigation.  According to a later report from his
    psychiatrist, the appellant became clinically depressed and suffered from a
    Dissociative Identity Disorder.

[8]

The dispute over the proceeds of the matrimonial home was finally
    judicially resolved in late 2011. In early January, 2012, the appellant
    received $72,850 from the proceeds of the matrimonial settlement, after all deductions
    and costs and his own legal fees. He deposited these proceeds in the bank and,
    as he subsequently determined from his bank statements, withdrew about $5,000
    monthly. As the Proposal did not provide for any lump sum payment, the
    appellant says that he did not realize he should pay all of these monies to his
    Trustee.

[9]

The appellant says that he was simply unable to cope. By this point his
    mental state had deteriorated so significantly that he was unable to work.  He
    made his monthly Proposal payments to the Trustee until his money ran out in
    late 2012. He has very little memory of this period, and does not know where all
    the money went. Consequently, his Proposal was annulled on December 1, 2012,
    and the appellant was again in bankruptcy.  The appellant made payments
    totalling $4,265 under the Proposal.

[10]

The
    appellant offered some possible explanations for the disappearance of the
    settlement funds.  In this period, he had a daughter who had a drug addiction. 
    He also had a teenaged son who was living at home and who was suffering from
    some unspecified illness.  As a result of the bankruptcy proceedings, the
    appellant had to deal in cash.  He routinely took cash out of the bank in order
    to cover his living expenses.  Consequently, he had the habit of keeping
    significant sums of money in his wallet.  The appellant said that it was
    possible that his children helped themselves to some of that cash from time to
    time.  The appellant was also buying expensive Chinese medicines to treat the
    illness that his son had.  Finally, the appellant says that, throughout this
    time, he had periods of disassociation where he was unaware of where he was
    or what he was doing.  During these times, he acknowledges that he may well
    have spent money on things that he does not remember.

[11]

On
    this latter point, the appellant has brought a motion to adduce fresh evidence
    on this appeal that consists of two detailed reports from his treating
    psychiatrist.  The appellant also attempted, unsuccessfully, to put these
    reports before the appeal judge.  The psychiatric reports outline, among other
    things, that, during the relevant time frame, the appellant presented as a
    distraught, preoccupied man, who demonstrated significant problems in
    intellectual functioning, difficulties with memory and presenting his history
    chronologically.

[12]

The
    appellant represented himself at the discharge hearing before the Registrar in
    Bankruptcy on May 14, 2014.  He attempted to have the court understand that he
    had not intentionally ignored his obligations to the Trustee.  Rather, his mental
    condition at the time left him unable to cope with his day to day
    responsibilities, let alone understand his obligations in a process that had
    already proven to be confusing and unpredictable. However, in support of these submissions,
    he only provided a very brief report from his psychiatrist.

[13]

At
    the discharge hearing, the Registrar refused to grant an absolute discharge to
    the appellant.  Rather, she ordered the appellants discharge but on two
    conditions.  One was that the appellant had to pay $61,000 (the amount
    remaining due under the Proposal) and the other was that he had to attend a
    second counselling.  Further, the Registrar suspended the discharge for six
    months.  In reaching her decision, the Registrar said:

When considering all of the facts as disclosed by the trustee
    and the bankrupt, I conclude that the bankrupt cannot be absolutely discharged,
    due to the finding of the s. 173 facts as noted above.  I am of the view that
    the bankrupt ought to have performed the proposal.  He failed to pay
    approximately $61,000 to the administrator in the proposal. In my view, that is
    the amount that the bankrupt should be required to pay as a condition of
    discharge.

I appreciate that the bankrupt will find an order of payment of
    this magnitude difficult in light of the circumstances present at the date of
    the hearing. However, it is my view that this situation could have been avoided
    had the bankrupt acted reasonably with his creditors. He clearly did not wish
    to pay his creditors under the proposal when he received significant funds in
    2012. His current situation is his own doing.

[14]

The
    appellant appealed the Registrars decision.  By this point, he had counsel.  There
    was a delay in the appeal hearing taking place because of difficulties counsel
    experienced in trying to obtain more detailed information from the appellants
    psychiatrist, who had retired.  The appeal was eventually heard on August 24,
    2017.  The appeal was dismissed.

[15]

On
    the appeal, the appeal judge refused to consider the fresh evidence of the
    psychiatric reports.  He did so based on his finding that the fresh evidence
    was not sufficiently credible nor sufficiently probative so as to have likely
    affected the result below.  Part of his reasoning for this conclusion was that
    the appellants psychiatrist was not an independent expert witness and that
    his detailed reports add little to the first letter that was before the
    Registrar.  In the end result, the appeal judge said, at para. 35:

The Registrar made no error in principle in attaching the
    condition to Mr. Kuczera's discharge. She appropriately weighed all of the
    relevant factors and her exercise of discretion is entitled to deference. In
    any event, I agree with the outcome.



Analysis

[16]

I
    begin by addressing the fresh evidence.  I am satisfied that it meets the
    necessary criteria for admission under the principles set out in
R. v.
    Palmer
, [1980] 1 S.C.R. 759.  The due diligence factor is not a rigid one
    and must be considered in light of all of the relevant facts, including the
    salient fact that the appellant was unrepresented at the hearing before the
    Registrar:
R. v. 1275729 Ontario Inc
.,
205 O.A.C. 359, at para.
    29.  In terms of the other factors, the evidence is relevant, it is credible,
    and it could reasonably have affected the result.

[17]

It
    will follow from my conclusion on this point that I disagree with the approach
    taken by the appeal judge to this fresh evidence.  The fact that the
    psychiatrist was the appellants treating psychiatrist is not a proper basis for
    rejecting the evidence.  It might go to the weight that the court would give to
    the evidence, but the asserted lack of independence is not of the type that
    would normally constitute a disqualifying factor under the
Mohan
criteria.
[1]
Indeed, it is well recognized that a treating physician is quite entitled to
    give expert evidence if properly qualified to do so: see, for example, the discussion
    in
Westerhof v. Gee Estate
, 124 O.R. (3d) 721, 2015 ONCA 206.

[18]

Nor
    do I understand the basis upon which the appeal judge found that the evidence was
    not sufficiently credible.  As I have said, the reports came from the
    treating psychiatrist.  They detailed the psychiatrists conclusions and
    observations from many sessions that he had undertaken with the appellant.  It
    is not clear to me how the reports lacked credibility.

[19]

I
    also do not understand the appeal judges conclusion that the reports were not
    sufficiently probative.  The central issue on the discharge hearing was what
    had happened to the settlement funds and why the appellant had not paid them to
    his Trustee.  The Registrar found that the appellant had failed to account for
    the loss of those funds which she, in turn, found constituted a fact under s.
    173(1)(d) of the
Bankruptcy and Insolvency Act
, R.S.C. 1985, c. B-3.  She
    used this fact to justify her refusal, under s. 172(2), to grant the appellant
    an absolute discharge.  Yet, the appellant had explained that he could not
    account for the funds because of the problems arising from his mental health.  The
    psychiatric reports went directly to that issue.

[20]

In
    my view, neither the Registrar nor the appeal judge gave proper consideration
    to the psychiatric evidence, although in fairness to the Registrar, she did not
    have the detailed reports that were provided subsequently.  She did, however,
    hear directly from the appellant with respect to these issues.  The mental
    health issues, from which the appellant was suffering at the time that the
    settlement funds were received, were significant.  They clearly could have
    affected both his thinking and his actions.  They also clearly affected his
    ability to recall events. I would add, on this point, that there is no evidence
    that the appellant personally benefitted from these funds, in the sense that he
    used them to improve his own situation to the disadvantage of his creditors. 
    Indeed, where the settlement funds went remains something of a mystery.

[21]

Further,
    in reaching the conclusion not only to deny the appellant an absolute discharge,
    but also to suspend her order of a conditional discharge for six months, the
    Registrar made an important factual error.  She found that the appellant had
    failed to disclose the Polish property to his Trustee, whereas the Trustee
    acknowledges that it was disclosed, although not in the appellants original
    statement of affairs.  Consequently, the fact relied upon by the Registrar did
    not exist.

[22]

The
    condition imposed by the Registrar that the appellant pay $61,000 as a
    condition of his discharge, given his personal history, was more than just
    difficult for the appellant.  It was crushing.
[2]
It does not reflect the rehabilitative objective of the
BIA
,
as
    affirmed by this court in
Re Moore
, 2013 ONCA 769, 118 O.R. (3d) 161,
    at para. 30:

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.

[23]

The
    appellant does not now suggest that he should have received an absolute
    discharge at the time.  He complains only about the condition requiring him to
    pay the sum of $61,000.  He suggests that a suspension of his discharge alone
    would be sufficient to penalize him for any errors that he committed in the
    course of his bankruptcy.

[24]

The
    appeal judges conclusion was based entirely on his rejection of the
    psychiatric evidence.  I have found that he erred in his conclusion on that
    point.  As a result, his order cannot stand.  Given the particular facts of
    this case, the condition respecting the payment of $61,000, imposed by the
    Registrar, was not a reasonable one.  It was based on an incomplete
    understanding of the mental health issues under which the appellant was
    labouring at the relevant times.  In light of those concerns, that condition
    cannot be justified.

[25]

I
    would have been inclined to replace the conditions imposed by the Registrar
    with a simple suspension for a period of time.  However, the appellant has been
    effectively operating under a suspension for more than three years, since the
    Registrar made her order.  Consequently, it does not appear that a further
    period of suspension would accomplish any purpose.

[26]

I
    would allow the appeal, set aside the order of the appeal judge, and set aside the
    order of the Registrar.  In place of the latter, I would grant an absolute
    discharge to the appellant.

[27]

This
    is not an appropriate case to make any award of costs of this appeal or of the proceedings
    below.

Released: IVBN MAR 29 2016

I.V.B. Nordheimer J.A.

I agree. J. MacFarland J.A.

I agree. Grant Huscroft J.A.





[1]

Regina v. Mohan
, [1994] 2 S.C.R. 9



[2]
I note that $61,000 was the entire proposal amount which was more than three
    times the total proven claims at the time.


