



COURT OF APPEAL FOR ONTARIO

CITATION: Shaver-Kudell Manufacturing Inc.
    v. Knight Manufacturing Inc., 2021 ONCA 925

DATE: 20211229

DOCKET: C69190

Strathy C.J.O., Zarnett J.A. and
    Wilton-Siegel J. (
ad hoc
)

BETWEEN

Shaver-Kudell Manufacturing Inc.

Plaintiff (Respondent)

and

Knight Manufacturing Inc., Lucy
    Shaver, Dusko Ballmer and
Alexander Knecht

Defendants (
Appellant
)

Ian J. Klaiman, for the appellant

Charles D. Hammond, for the respondent

Heard: October 22, 2021 by video conference

On appeal from the order of Justice Marc
    Smith of the Superior Court of Justice,

dated December 9, 2020, with
    reasons reported at 2020 ONSC 7635.

Zarnett J.A.:

OVERVIEW

[1]

A discharge from bankruptcy releases the insolvent
    debtor from pre-bankruptcy debts or liabilities
[1]
,
    subject to certain exceptions. One exception, under s. 178(1)(e) of the
Bankruptcy
    and Insolvency Act
, R.S.C. 1985, c.
    B-3
(the 
BIA
) is any debt or liability resulting from
    obtaining property or services by false pretences or fraudulent
    misrepresentation. That kind of debt or liability is not released, and thus
    remains enforceable against the debtor post-bankruptcy.

[2]

The respondent, Shaver-Kudell Manufacturing
    Inc., successfully sued the appellant, Alexander Knecht, and others, for
    misappropriating the respondents trade secrets and confidential information. The
    quantum of the damages and the granting of other relief was to be determined at
    a subsequent hearing. However, before that could occur, the appellant made a
    proposal to his creditors under the
BIA
, which automatically stayed the
    proceedings. The proposal was rejected by a majority of those creditors; the
    appellant was, as a consequence, deemed to have made an assignment into
    bankruptcy, continuing the stay.

[3]

In the decision under appeal, the motion judge declared
    that the debt or liability under the trial judgment arose from the appellant
    having obtained property or services by false pretences, and thus would survive
    the appellants discharge from bankruptcy. He also declared that the stay that
    the
BIA
imposes on proceedings or enforcement steps against a bankrupt
    did not apply to the respondents claims against the appellant.

[4]

For the reasons that follow, I conclude that the
    motion judge erred in law in coming to the conclusion that the debt or
    liability arising under the trial judgment falls within s. 178(1)(e) of the
BIA
.

[5]

At the core of the concept of false pretences is
    the making of a deceitful statement  that is, a statement that is false to the
    knowledge of its maker (including through wilful blindness or recklessness). For
    s. 178(1)(e) to apply, the debt or liability to the creditor must have resulted
    from the bankrupt having obtained property or services by making such a
    statement. The nature and substance of the liability of the appellant reflected
    in the trial judgment is not one that arose from such a statement. Although the
    liability arose from morally unacceptable conduct of the appellant, that is
    insufficient to fit it within the exception in s. 178(1)(e) of the
BIA
.

[6]

I would therefore set aside the declaration that
    s. 178(1)(e) applies to the debt or liability arising under the trial judgment.
    I would vary the declaration concerning the stay to provide that it is lifted
    to the extent necessary to allow the respondent to quantify its claim for the
    purpose of proving it in the appellants bankruptcy and to permit enforcement
    of any injunction granted, as described below.

BACKGROUND

[7]

In 2013, the respondent, a corporation that
    manufactures electric motor sleeves, commenced an action against four
    defendants: Dusko Ballmer and Lucy Shaver, who were former employees of
    the respondent; the appellant; and Knight Manufacturing Inc., a corporation of
    which the appellant was the controlling mind. The thrust of the claim was that
    the defendants went into business together making use of misappropriated trade
    secrets and confidential information of the respondent.

[8]

The action was directed to proceed in a
    bifurcated manner. The determination of liability issues was to take place
    first, with damages and other relief to be determined at a later date.

[9]

On August 7, 2018, following a 13-day trial,
    the trial judge found the defendants jointly and severally liable to the
    respondent for misappropriation of trade secrets and breach of confidence:
Shaver-Kudell
    Manufacturing Inc. v. Knight Manufacturing Inc. et al
, 2018 ONSC 5206. The
    trial judge found:

a.

the respondent had developed a manufacturing process for its
    products and tooling that were trade secrets with the necessary quality of
    confidence;

b.

the respondent's trade secrets were acquired by Ms. Shaver and Mr. Ballmer
    in circumstances giving rise to an obligation of confidence; Mr. Ballmer then
    communicated the trade secrets to the appellant and Knight Manufacturing who
    knew or ought to have known that Mr. Ballmer and Ms. Shaver were breaching an
    obligation of confidence to the respondent; and

c.

the defendants made unauthorized use of the respondent's trade
    secrets to its detriment, and also benefitted from the breach by Ms. Shaver of
    her duty of confidence and good faith to the respondent through her use of the respondent's
    confidential information, including her knowledge of the respondent's customers
    and their purchasing patterns and payment history, to solicit the respondent's
    customers.

[10]

On November 19, 2018, the trial judge awarded
    costs against all of the defendants in the sum of $83,493 for a summary
    judgment motion, and $307,028 for the trial. They remain unpaid.

[11]

The trial of the issue of damages and other
    relief has not yet been held.

[12]

The appellant filed a Notice of Proposal to
    Creditors under the
BIA
on March 2, 2020. On April 27, 2020, at a
    meeting of creditors, the proposal was rejected, resulting in the appellants
    deemed assignment into bankruptcy.

The Motion Judges Decision

[13]

The respondent brought a motion seeking: (a) a
    declaration that any discharge from bankruptcy granted to the appellant will
    not release him from any debts or liabilities arising from the claims in the
    action against him by the respondent; and (b) a declaration that the stay under
    s. 69(1) of the
BIA
no longer operates with respect to the
    respondents claim against the appellant in the action. The motion judge
    granted the relief sought.

[14]

The motion judge began his analysis by
    considering the meaning of false pretences, the ground relied on by the respondent
    for the declaration it sought. He held that the
Criminal Code
, R.S.C. 1985, c. C-46, s. 361(1)
definition of false pretences should not be adopted to ascertain its meaning in
    s. 178(1)(e) of the
BIA
. He said:

The purpose of the [
BIA
]
is to relieve an honest and unfortunate
    debtor of their debts and liabilities, unless it falls under an exception set
    out in section 178 of the [
BIA
]
.
    Moreover, section 178(1)(e) of the [
BIA
]
has been described as a morality concept where one must
    look at the conduct and determine if it is unacceptable to society. It is not
    an exercise of determining the criminality of the conduct, and I do not believe
    that raising the requisite level of conduct to that of criminality was
    Parliaments intent.

[15]

After reviewing certain authorities, the motion
    judge settled upon the following interpretation of the term false pretences
    as it is used in the
BIA
:

It is my view that a dishonest bankrupt who
    has unlawfully obtained property by lying satisfies the requirements of false
    pretences in section 178(1)(e). Such conduct is deceitful and wrong. It is
    this type of conduct that is morally objectionable to society. If the bankrupt
    engages in such a behaviour, they should not be shielded by bankruptcy.

[16]

The motion judge then turned to a review of the
    pleadings and the trial judges findings. He noted there was no plea of fraud,
    but that the statement of claim described wrongful and morally unacceptable
    conduct, and that it was unnecessary that there be an exact plea in the
    statement of claim of circumstances described in s. 178(1). He then went on to summarize
    what he took from the trial judges reasons about the conduct of the appellant
    that brought it within s. 178(1)(e) of the
BIA
:

a.

He knew that confidential information was being used to manufacture
    the sleeves;

b.

He set up a business with individuals, [Mr.] Ballmer and [Ms. Shaver],
    who had proprietary knowledge of the [respondents] clients, manufacturing
    process and tooling, ensuring [his corporations] success;

c.

He knew that [Ms. Shaver] was successfully soliciting the [respondents]
    customers;

d.

He lied at discoveries regarding copying the [respondents] product
    list;

e.

He wanted to find a solution to manufacture sleeves in a modern way
    and was aware of [Ms. Shaver] and [Mr.] Ballmers collective knowledge in the
    industry;

f.

He was wilfully blind to the fact that [Mr.] Ballmer and [Ms. Shaver]
    intended to wrongfully use the confidential information obtained from the [respondent];

g.

He knowingly received the [respondents] trade secrets;

h.

He knew or should have known that [Mr.] Ballmer and [Ms. Shaver] were
    breaching an obligation of confidence; and

i.

He made unauthorized use of the [respondents] trade secrets to the [respondents]
    detriment.

[17]

The motion judge continued:

The [appellants] conduct is precisely the
    type of conduct that society frowns upon. He is not an honest but unfortunate
    debtor. I find that he is a deceitful wrongdoer and he should be precluded
    from benefitting from his dishonesty. He lied under oath, which adversely affected
    his credibility. He willingly participated in the scheme to utilize
    confidential information that was not his to use. He knowingly partnered and/or
    employed individuals that had unlawful knowledge of trade secrets and he used
    this confidential information for his own financial gain and to the detriment
    of the [respondent].
Manufacturing a sleeve that was
    copied and then selling it on the market as his own creation is clearly an
    attempt at making something that is not the case appear to be true.

[18]

The motion judge found a causal connection
    between the appellants wrongful conduct and the debts that arise under the
    trial judgment, including the costs awarded to date and damages when
    quantified. Therefore, he granted the declaration that the debts would not be
    released upon discharge from bankruptcy. He also held that the stay of
    proceedings under s. 69 of the
BIA
should be lifted without
    conditions.

THE ISSUES

[19]

The issues to be decided are as follows:

a)

Did the motion judge err in finding that the liability under the
    trial judgment comes within s. 178(1)(e) of the
BIA
?

b)

Did the motion judge err in declaring that the stay of proceedings
    in s. 69 of the
BIA
did not apply to the respondents claim against
    the appellant?

ANALYSIS

(1)

Statutory Provisions

[20]

Section 178(1) and (2) of the
BIA
provide, in relevant part:

(1) An order of discharge does not
    release the bankrupt from



(d)
    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;

(e)

any debt or liability resulting from obtaining property or services by
    false pretences or fraudulent misrepresentation, other than a debt or liability
    that arises from an equity claim;



(2) Subject to subsection (1), an
    order of discharge releases the bankrupt from all claims provable in
    bankruptcy.

[21]

Section 69(1) of the
BIA
stays any
    action or execution proceedings against a debtor in respect of a claim provable
    in bankruptcy on the filing of a notice of intention to make a proposal.
    Section 69.3(1) imposes a stay, on the same terms, upon bankruptcy. Section
    69.4 permits the court to make an order that the stay no longer operates,
    subject to any qualifications the court considers proper.

(2)

Does the Liability Under the Trial Judgment Fall Within s. 178(1)(e)
    of the
BIA
?

(a)

Introduction

[22]

In my view, the motion judge erred in two interrelated
    ways in deciding that s. 178(1)(e) applied. First, he treated lying during the
    proceedings (that is, during examinations for discovery) as engaging the
    section. What the section requires is that the debt or liability arose from
    false pretences  that is, deceitful statements on the basis of which the
    debtor obtained property or services. No matter how reprehensible telling
    falsehoods on examination for discovery may be, it does not turn a debt or
    liability into one resulting from obtaining property or services by deceitful
    statements.

[23]

Second, the motion judge erred in focusing on
    the morally objectionable nature of the appellants conduct in participating in
    the misappropriation of the respondents trade secrets and confidential
    information, elevating that to a kind of implied deceit that could be present
    in any objectionable commercial behaviour, but without relating the conduct to
    the specific requirements of s. 178(1)(e). The section applies to certain
    specific conduct that is morally objectionable; it does not equate all morally
    objectionable commercial conduct with false pretences.

(b)

Statutory Interpretation

[24]

At the heart of this issue is a question of
    statutory interpretation  what conduct is captured by the phrase debt or
    liability resulting from obtaining property or services by false pretences in
    s. 178(1)(e) of the
BIA
?
[2]

[25]

Legislation is to be interpreted by conducting a
textual, contextual and purposive analysis to find a
    meaning that is harmonious
with the Act
as a whole:
Canada Trustco Mortgage Co. v.
    Canada
, 2005 SCC 54, [2005] 2 S.C.R. 601
, at para. 10.
The fundamental principle
    is that the words of an Act are to be read in their entire context and in
    their grammatical and ordinary sense harmoniously with the scheme of the Act,
    the object of the Act, and the intention of Parliament:
Bell ExpressVu

Limited Partnership v.

Rex
, 2002 SCC 42, [2002] 2 S.C.R. 559, at para. 26, citing Elmer
    Driedger,
Construction of Statutes
, 2nd ed. (Toronto, Ont.: Butterworths, 1983), at p. 87.

(i)


The Text

[26]

Section 178(1)(e) requires that the debt or
    liability owed to the creditor have resulted from the debtor having obtained
    property or services by false
pretences
. False pretences is not defined in the
BIA
. It is, however, defined in the
Criminal Code
, s. 361(1) as follows:

A false pretence is a representation
    of a matter of fact either present or past, made by words or otherwise, that is
    known by the person who makes it to be false and that is made with a fraudulent
    intent to induce the person to whom it is made to act on it.

[27]

The motion judge rejected use of this definition.
    He expressed two reasons: first, that Parliaments intent was not to require
    criminality in order for s. 178(1)(e) to apply; and second, that to do so would
    deprive the term false pretences of any meaning beyond that conveyed by the
    term fraudulent misrepresentation, which is also used in s. 178(1)(e).

[28]

I agree with the motion judge that s. 178(1)(e)
    does not require the debtor to have been convicted of the offence of false
    pretences, or that it is necessary to show facts sufficient to prove that the
    debtor would be criminally convicted if charged. But that does not mean the
Criminal
    Code
definition does not assist in determining the sense in which the
    words were used in s. 178(1)(e) of the
BIA
. A phrase with legal
    meaning, chosen by Parliament for use in a statute, may have its meaning
    illuminated by the way the same phrase is used in other statutes of the same
    legislative body since interpretations favouring harmony between the various
    statutes enacted by the same government should indeed prevail
[3]
:
Therrien (Re)
, 2001
    SCC 35, [2001] 2 S.C.R. 3, at para. 121.

[29]

A number of courts have followed this
    interpretive approach, and have referenced the
Criminal Code
definition to illuminate the meaning of false pretences for the purpose of
    applying it under the
BIA
:
Celanese Canada Inc. v. Murray
    Demolition Corp.
,
[2010] O.J. No. 6347 (S.C.), at para. 22;
H.Y.
    Louie Co. Limited v. Bowick
, 2015 BCCA 256, 386 D.L.R. (4th) 117, at para.
    49, citing
Szeto (Re)
, 2014 BCSC 1563, 15 C.B.R. (6th) 255, at
    paras. 37-41, revd on other grounds, 2015 BCCA 363, 388 D.L.R. (4th) 648, leave
    to appeal requested but appeal discontinued, [2015] S.C.C.A. No. 444;

and
Water Matrix Inc. v. Carnevale,
2018 ONSC 6436, 65 C.B.R. (6th) 109, at
    para. 63, affd 2016 ONCA 875.

[30]

Reference to the
Criminal Code
definition underscores that to come within the false pretences branch of s.
    178(1)(e), the debt or liability to the creditor must have arisen from the
    debtor having made, or being responsible for, a representation known to be
    false, that is,
a knowingly false statement,
designed to induce another person to act upon it. Because s. 178(1)(e)
    requires that the debtor obtained property or services by false pretences, it
    contemplates that a person actually relied upon the false statement.

[31]

The respondent argues that false pretences is
    properly understood without reference to the
Code
. False pretences in
    s. 178(1)(e) was held by this court to require the making of a deceitful
    statement in
Buland Empire Development Inc. v. Quinto Shoes Imports Ltd. et
    al.
(1999)
, 123 O.A.C. 288
    (C.A.). The court said, at para. 14:

The New Oxford Dictionary of English (1998)
    defines the verb misrepresent as give a false or misleading account of the
    nature of. The noun pretence is [defined] as an attempt to make something
    that is not the case appear to be true.
It is clear from
    these definitions that the core content of the phrases false pretences and fraudulent
    misrepresentation is deceitful statements
.

[Emphasis added.]

[32]

A similar observation appears in the decision of
    the British Columbia Court of Appeal in
Cruise Connections Canada v. Szeto
,
    2015 BCCA 363, 388 D.L.R. (4th) 648
, leave to
    appeal requested but appeal discontinued, [2015] S.C.C.A. No. 444
, at
    para. 13: The essential test for both false pretences and fraudulent
    misrepresentation under s. 178(1)(e) has been described simply as determining
    whether the bankrupt was deceitful in obtaining the property.

[33]

I do not read the decisions in
Buland
or
Cruise Connections
to mean that the
Code
definition is unhelpful.
    Although the descriptions of false pretences in those decisions did not expressly
    reference the
Code
definition, they are harmonious with it. The description
    in
Buland
was adopted in a passage quoted with approval in
H.Y.
    Louie
that also referenced the
Code
definition. The conclusions
    in
Buland
and in
Cruise Connections
on whether the debt or
    liability there in issue fell within s. 178(1)(e) expressly turned on whether
    the liability arose from the debtor having obtained property by the making of
    or participation in deceitful statements:
Buland
, at paras. 13-15;
Cruise
    Connections
, at para. 49. The term deceitful has within it the notion of
    a knowingly false statement
[4]
that caused a person to act to their prejudice:
Bruno Appliance and Furniture,
    Inc. v. Hryniak
, 2014 SCC 8, [2014] 1 S.C.R. 126, at paras. 18-21.

[34]

The motion judges second reason for rejecting
    use of the
Code
definition is that it would merge the concepts of
    fraudulent misrepresentation and false pretences. I do not accept this proposition.

[35]

Most cases, when discussing s. 178(1)(e), treat
    fraudulent misrepresentation and false pretences as closely connected terms
    with the same requirements. The core concept of making a deceitful statement
    applies to both: see
Montréal (City) v. Deloitte Restructuring Inc.
,
    2021 SCC 53, at paras. 24-25. To the extent that they are not identical
    concepts, if any, it may be that fraudulent misrepresentation requires the creditor
    itself to have relied on a false statement made to it, while false pretences
    may extend to cases where a false statement was made by the debtor to, and
    relied on by, a third party, depriving the creditor of property to which it was
    entitled:
Ste. Rose & District Cattle Feeders Co-op v. Geisel
,
    2010 MBCA 52, [2010] 11 W.W.R. 251, at paras. 104-7
[5]
. But that distinction does not
    take away from the requirement that a deceitful statement by the debtor, on the
    basis of which property or services were obtained by the debtor, must be the
    source of the debt or liability to the creditor, when the false pretences
    branch of s. 178(1)(e) is relied upon.

[36]

Reading the text of s. 178(1)(e) with the
    benefit of the definition of false pretences in the
Code
illuminates
    its core concept: it only applies to a debt or liability that has arisen from
    one or more deceitful statements, by the debtor or for which the debtor is responsible,
    on the basis of which the debtor obtained services or property. It does not apply
    to other kinds of lying or wrongdoing, no matter how morally objectionable,
    that do not have these basic characteristics.

(ii)

Context

[37]

Reading s. 178(1) as a whole reinforces the view
    that s. 178(1)(e) refers to specific types of wrongdoing, within specific
    parameters.

[38]

Section 178(1)(a.1) provides that a debt
    reflected in a judgment for sexual assault or intentional infliction of bodily
    harm is not released. Section 178(1)(d) provides that a debt is not released if
    it arose from fraud, embezzlement, misappropriation or defalcation while acting
    in a fiduciary capacity. Similarly, s. 178(1)(e) provides that debts are
    not released if they arose from the obtaining of property or services by
    fraudulent misrepresentation or false pretences.

[39]

In other words, rather than legislating a
    catchall of debts arising from morally objectionable conduct, the
BIA
identifies categories of specific wrongful conduct that give rise to debts that
    are not released, and specifies the criteria to be applied. In doing so, Parliament
    must be taken to have intended that only these specific categories, on the
    specific terms identified, will be given this effect, even though other forms
    of morally objectionable conduct giving rise to debts can easily be imagined.

(iii)

Purpose

[40]

As has been observed, one of the purposes of
    bankruptcy legislation is to encourage the rehabilitation of an honest but unfortunate
    debtor by providing, subject to reasonable conditions, a discharge of their
    debts. Section 178(1) provides for certain debts to survive bankruptcy as exceptions
    to the general principle, stemming from different policy considerations. For
    example, the provisions of s. 178(1)(b) and (c), which provide that debts for
    support obligations are not released by bankruptcy, are rooted in an overriding
    social policy to protect spouses and children. Others, like ss. 178(1)(a.1), (d),
    and (e), are based on considerations of morality. Section 178(1)(e) is a moral
    sanction against the bankrupt for obtaining property through deceitful means,
    and prevents a bankrupt being rewarded for such conduct by a release of
    liability:
Simone v. Daley
(1999)
,
    43 O.R. (3d) 511, at pp. 521-22;
Cruise Connections
, at para. 15.

[41]

The purpose of s. 178(1) and the legislation as
    a whole supports reading s. 178(1)(e) as applying to debts or liabilities
    that result from the obtaining of property by the deceitful means of false
    statements. It does not support reading the subsection as applying to any
    conduct without those attributes that a court might characterize as morally
    objectionable or that prevents a debtor being described as honest but
    unfortunate.

[42]

In other words, for the purposes of s. 178(1)(e),
    it does not follow that all morally objectionable behaviour involves false
    statements  the core of the concept of false pretences. As
Buland
makes clear, at paras. 13 and 15, wrongful conduct that does not involve false
    statements by which property was obtained is not covered by s. 178(1)(e):

In his judgment, Lederman, J., equated
    fraudulent removal by a tenant of his own property with false pretences or
    fraudulent misrepresentation. The appellant asserts that this conclusion is
    wrong because the removal of goods is an entirely different activity than the
    making of statements. We agree with this submission.



There is nothing in the record before either
    Marchand, J., or Lederman, J., to establish that the appellant ever said
    anything about the removal of goods from the store. Indeed, the statement of claim
    prepared by the landlord asserts that the tenants engaged in unlawful
conduct
, namely, failing to pay rent, vacating the
    premises and removing stock. One can sympathize with Lederman, J.s, desire to
    give s. 178(1)(e) a broad interpretation as it is remedial legislation.
    However, such an interpretation must be anchored in the conduct proscribed by
    the provision. That conduct is false statements which the landlord did not
    claim, and Marchand, J., did not find, had been made by the tenants. [Emphasis
    in original.]

(c)

The Motion Judge Did Not Find False Statements Within the Meaning of
    s. 178(1)(e) And Therefore Erred in Finding That the Debt or Liability Came
    Within It

[43]

The motion judges list of findings by the trial
    judge (reproduced in para. 16 above) refers to only one incident of lying. The
    reference was to the appellant having lied on his examination for discovery.

[44]

Although lying on examination for discovery
    reflects on whether the appellant was honest, it is not the type of false
    statement that satisfies s. 178(1)(e), which requires a deceitful statement by
    which the debtor obtained property or services, causing the debt or liability of
    the creditor to arise. By focusing on a lie told on examination for discovery,
    the motion judge failed to focus on whether false statements were the source of
    the liability.

[45]

A false statement on discovery may have damaged
    the appellants credibility in his unsuccessful attempt to fend off liability,
    but it is not the source of his liability. It is not a statement on the basis
    of which he obtained property or services. It could not make the liability one arising
    from obtaining property by false pretences.

[46]

The balance of the motion judges list refers,
    to be sure, to morally objectionable commercial conduct  wrongfully
    appropriating and using trade secrets and confidential information. But, there
    is no suggestion that the misappropriation was committed by the appellant in a
    fiduciary capacity attracting s. 178(1)(d), and a misappropriation in another
    capacity cannot be brought within s. 178(1)(e) unless effected by deceitful
    statements. As was the case in
Buland
, conduct, although wrongful, that
    does not involve false statements is not captured by s. 178(1)(e).

[47]

The only other passage of the motion judges
    reasons germane to whether the liability reflected in the trial judgment was
    one that arose from the appellant obtaining property or services by false
    pretences is the motion judges observation that [m]anufacturing a sleeve that
    was copied and then selling it on the market as his own creation is clearly an
    attempt at making something that is not the case appear to be true.

[48]

However, the motion judge did not attribute the observation
    that the sleeves were sold as the appellants own creation to the trial judge.
    I can find no reference in the trial judges findings, and we were not pointed
    to anything in argument, that the appellant ever said anything to anyone in any
    manner about where the processes that led to making the sleeve came from in the
    course of manufacturing or selling the product. There was no finding that the
    appellant made a false statement to a customer to effect a sale, or that any
    customer relied on any such statement. Although a false statement need not be
    made expressly, and can be made by means other than words, the motion judge did
    not identify how a false statement on the basis of which the appellant obtained
    property or services could be implied here.

[49]

In effect, the motion judge took morally
    objectionable behaviour

misappropriation of trade
    secrets  and implied deceit. But that approach does not respect the proper
    scope of s. 178(1)(e), which requires a deceitful statement as the source of
    the liability. If it were to be implied that every sale of a manufactured item
    carries with it an implicit representation that no third partys rights were
    infringed by the manufacturing process used, the scope of s. 178(1)(e) would be
    inappropriately expanded.

[50]

In the absence of deceitful statements from
    which the liability arose, the motion judges findings that the appellant is not
    an honest but unfortunate debtor, or that his conduct was morally
    objectionable, are insufficient to bring the matter within s. 178(1)(e). I
    would therefore set aside the declaration the motion judge made that s.
    178(1)(e) applies to prevent the release of any debts or liabilities arising from
    claims in the action, including any outstanding or future costs award.

(3)

Did the Motion Judge Err in Declaring That the Stay Under s. 69 of
    the
BIA
No Longer
    Operates?

[51]

An order under s. 69.4 of the
BIA
declaring that a stay no longer operates is discretionary:
Fiorito v.
    Wiggins
, 2017 ONCA 765, 415 D.L.R. (4th) 562, at para. 35, leave
    to appeal refused, [2017] S.C.C.A. No. 466. However, here the premise of the motion
    judges order was the erroneous legal conclusion that s. 178(1)(e) applied
    to the appellants liability for the respondents claims. The declaration that
    the stay does not apply at all to the proceedings in the action as against the
    appellant or to enforcement of any judgment against the appellant cannot stand.

[52]

The appellant agrees that the stay as it
    pertains to the claim in the action against him should nonetheless be lifted
    subject to conditions. The appellants proposed conditions would allow the respondents
    claim in the action to continue against him, but would prevent enforcement,
    other than as a claim in bankruptcy against the bankrupt estate, of any
    judgment against the appellant. The conditions would also insulate the
    appellant from any costs, production or discovery obligations if he does not
    further defend the action. The respondent takes issue with the extent of these proposed
    conditions, including because they would interfere with enforcement of the
    respondents claim against the appellant for return of equipment and injunctive
    relief against ongoing use of the trade secrets.

[53]

I agree that the stay should be lifted to allow
    the action to proceed against the appellant for the purpose of quantifying any
    damages or accounting of profits owing by the appellant, establishing the
    identity of any property still in the possession of the appellant that incorporates
    the trade secrets, and for any forward-looking injunctive relief against the
    appellant. Any monetary judgment shall only be a claim in bankruptcy against
    the bankrupt estate of the appellant and may not be otherwise enforced against
    the appellant. Any order for the return of any equipment in the possession of
    the appellant that was made using the trade secrets, and any injunctive relief
    that is granted against the appellant restraining any future use by him of the
    trade secrets may be enforced against him. The questions of whether the stay
    should be lifted to permit the respondent to seek any documentary or oral
    discovery from the appellant, or to enforce any future costs awards that arise
    from his continued participation in defending claims against him, are dependant
    on circumstances in the continuing action as they evolve. Accordingly, those
    issues are best left for determination by the Superior Court on a future
    motion, if required.

CONCLUSION

[54]

For these reasons, I would allow the appeal, set
    aside the declaration that s. 178(1)(e) applies, and vary the declaration
    concerning the stay as described above.

[55]

In accordance with the agreement of the parties,
    I would award costs to the appellant in the sum of $10,000, inclusive of
    disbursements and applicable taxes.

Released: December 29, 2021 G.R.S.

B.
    Zarnett J.A.

I
    agree. G.R. Strathy C.J.O.

I
    agree. Wilton-Siegel J.





[1]

As long as they are claims provable in bankruptcy:
Bankruptcy and Insolvency Act
, R.S.C. 1985, c. B-3
, s. 178(2). There is no issue about the
    debts and liabilities in this case meeting that definition.



[2]

The respondent did not assert in the court below or this
    court that the conduct of the appellant fell within the meaning of fraudulent
    misrepresentation in s. 178(1)(e).



[3]
The presumption is even stronger when the statutes relate to the
    same subject matter. It is unnecessary in this case to resort to the stronger
    presumption.



[4]
In the sense that the statement was false to the knowledge of its
    maker, or was made without belief in its truth, or was made recklessly as to
    whether it was true or false.



[5]
There is a view that even for the false pretences branch of s.
    178(1)(e), the deceitful statement must have been made to the creditor: see
Alberta Securities Commission v. Hennig
,
2021 ABCA 411, at paras. 90-93. It is not necessary to consider
    which view is correct. The appellant presented his case on the basis that false
    pretences could include a deceitful statement to a third party, as did the
    respondent who does not point to any false statements made to it.


