Gray (Bankrupt), Re, 2014 ONCA 236

• Judge: Laskin, van Rensburg and Hourigan, JJ.A.
• Court: Court of Appeal (Ontario)
• Case Date: January 29, 2014
• Jurisdiction: Ontario
• Citations: 2014 ONCA 236;(2014), 317 O.A.C. 286 (CA)

Gray (Bankrupt), Re (2014), 317 O.A.C. 286 (CA)

MLB headnote and full text

Temp. Cite: [2014] O.A.C. TBEd. AP.004

In The Matter Of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, as amended

In The Matter Of the Bankruptcy of Evan Peter Gray of the City of Toronto in the Province of Ontario

Canada Mortgage and Housing Corporation (creditor/appellant) v. Evan Gray (debtor/respondent)

(C57109; 2014 ONCA 236)

Indexed As: Gray (Bankrupt), Re

Ontario Court of Appeal

Laskin, van Rensburg and Hourigan, JJ.A.

March 28, 2014.

Summary:

The Canada Mortgage and Housing Corp. (CMHC) appealed a decision of a Superior Court judge that Gray's debt to the Royal Bank of Canada, which had been assigned to the CMHC, did not survive his discharge from bankruptcy. At issue was the proper interpretation of s. 178(1)(e) of the Bankruptcy and Insolvency Act.

The Ontario Court of Appeal dismissed the appeal.

Bankruptcy - Topic 8987

Discharge of debtor - Liabilities not released by discharge - Act of fraud of debtor - Gray agreed to co-sign with Roberts on a mortgage application, purportedly to assist a new immigrant - Roberts took Gray to meet someone called "Mike," who held himself out as a mortgage broker - Gray and Roberts signed separate mortgage applications, at different times and in different places - Gray provided accurate information, while Roberts misrepresented his income and employment - Roberts also submitted an inflated property valuation - Gray was unaware of Roberts' misrepresentations - Gray and Roberts purchased the property as tenants in common and the Royal Bank of Canada (RBC) extended a mortgage loan - The mortgage was insured by the Canada Mortgage and Housing Corp. (CMHC) - Gray was paid $2,500 for his participation in the transaction - The mortgage went into default - RBC sued on the mortgage debt and obtained a default judgment against Gray and Roberts - RBC's statement of claim did not allege fraud - The judgment debt was reduced by the net proceeds of sale of the mortgaged property - The judgment was assigned to CMHC - CMHC enforced the judgment, and Gray's wages were garnished before he made an assignment in bankruptcy - CMHC moved for a declaration that the outstanding amount of Gray's debt would not be released by his discharge from bankruptcy under s. 178(1)(e) of the Bankruptcy and Insolvency Act (BIA) - A Superior Court judge concluded that there was no evidence of any misrepresentation by Gray that had been relied upon by RBC in advancing the mortgage funds, and there was no basis on the evidence for finding that Gray reasonably ought to have known of Roberts' misrepresentations - As such, on a strict reading of s. 178(1)(e), the mortgage was obtained by Roberts' fraudulent misrepresentations, in which Gray did not participate and about which he neither knew nor reasonably ought to have known - Accordingly, the debt did not survive Gray's discharge from bankruptcy - CMHC appealed - The Ontario Court of Appeal dismissed the appeal - Section 178(1)(e) required a finding that the bankrupt "obtained property by" fraudulent misrepresentation - A causal connection between the bankrupt's wrongdoing and the creation of the debt or liability was required - It was not sufficient that the bankrupt engaged in fraud, or that the debt or liability "arose out of" a fraudulent scheme - Here, the mortgage funding was obtained by Roberts' fraudulent misrepresentations, and not as a result of what Gray represented or failed to disclose to RBC - See paragraphs 24 to 40.

Cases Noticed:

Ste. Rose & District Cattle Feeders Co-op v. Geisel (2010), 255 Man.R.(2d) 45; 486 W.A.C. 45; 2010 MBCA 52, consd. [para. 20].

Simone v. Daley et al. (1999), 118 O.A.C. 54 (C.A.), refd to. [para. 24].

Buland Empire Development Inc. v. Quinto Shoes Imports Ltd. et al. (1999), 123 O.A.C. 288 (C.A.), refd to. [para. 38].

Giannotti (Bankrupt), Re (2000), 138 O.A.C. 316 (C.A.), refd to. [para. 40].

Statutes Noticed:

Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, sect. 178(1)(e) [para. 2].

Counsel:

Kenneth Kraft and Matthew Diskin, for the appellant;

Trung Nguyen, for the respondent.

This appeal was heard on January 29, 2014, by Laskin, van Rensburg and Hourigan, JJ.A., of the Ontario Court of Appeal. The following judgment of the Court of Appeal was delivered by van Rensburg, J.A., on March 28, 2014.