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Civil Litigation - Default - Amendment. Yanic Dufresne Excavation Inc. v. Saint Joseph Developments Ltd.
In Yanic Dufresne Excavation Inc. v. Saint Joseph Developments Ltd. (Ont CA, 2022) the Court of Appeal considered a R59.06(2) variance to a default judgment seeking to add a declaration that the judgment was bankruptcy-exempt for fraud. The variance was grounded in fresh evidence of fraud, and was granted. The court held that the evidence that it could rely on for the BIA 178(1)(d) issue was anything that was properly before the court in the proceeding, including the pleadings:A. Did the motion judge err by admitting and relying upon extrinsic evidence to make Fresh findings of fact?
[18] Where a party brings an application for a declaration that a judgment debt survives bankruptcy pursuant to s. 178(1)(d), the issue is whether, by its nature, that judgment debt qualifies as a debt enumerated under s. 178(1)(d) of the BIA. Section 178(1)(d) provides:s. 178(1) An order of discharge does not release the bankrupt from
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(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. [19] Since the issue on a s. 178(1)(d) application relates to the nature of the judgment debt, an applicant cannot rely on previously unmade allegations against the judgment debtor that they engaged in additional wrongs: Lawyers’ Professional Indemnity Company v. Rodriguez, 2018 ONCA 171, 139 O.R. (3d) 641, at paras. 5, 32; H.Y. Louie Co. Limited v. Bowick, 2015 BCCA 256, 386 D.L.R. (4th) 117, at para. 88. Put simply, before an application judge can make a finding that the judgment debt survives bankruptcy pursuant to s. 178(1)(d), the judge must determine that the judgment debt arose out of fraud, embezzlement, misappropriation or defalcation while the judgment debtor was acting in a fiduciary capacity.
[20] Given that this is the relevant inquiry, the application judge is confined during a s. 178(1)(d) application to evidence “grounded in the process that produced the judgment debt”: Rodriguez, at para. 6. To be clear, the application judge may “look to the entire context of the proceedings in the [action that produced the judgment debt] to determine whether the judgment debt can be characterized as one falling within s. 178(1)”: Cruise Connections Canada v. Szeto, 2015 BCCA 363, 388 D.L.R. (4th) 648, at para. 29. This includes the “material filed that led to the obtaining of the judgment debt, including the facts pleaded in support of the action that led to the judgment debt, any evidence that was presented at the time to secure that judgment debt, and any reasons that might have been given”: Rodriguez, at para. 6. But any other evidence is “extrinsic” and inadmissible, as it is irrelevant in showing the nature of the judgment debt. Indeed, consulting extrinsic evidence could effectively alter the nature of the debt, creating a new or different debt that has never been the subject of a judgment. It could also “extend the reach of [s. 178(1)(d)] to statute-barred claims, and violate cause of action estoppel rules”: Rodriguez, at para. 6. For the purpose of this judgment, it is convenient to refer to this body of law as “the rule in Rodriguez”.
[21] Mr. Plant contends that the motion judge violated the rule in Rodriguez by admitting and relying upon the extrinsic evidence produced during Mr. Plant’s motion to set aside the Default Judgment, months after the Default Judgment was secured. I would reject this submission. In the motion before the motion judge, Yanic Inc. did not simply seek a declaration pursuant to s. 178(1)(d). Instead, having discovered previously unavailable evidence of what it believed to be fraud or defalcation by Mr. Plant while acting in a fiduciary capacity, Yanic Inc. brought a motion pursuant to Rule 59.06(2)(a) to vary the Default Judgment. Rule 59.06(2)(a) provides:59.06 (2) A party who seeks to,
(a) have an order set aside or varied on the ground of fraud or of facts arising or discovered after it was made
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may make a motion in the proceeding for the relief claimed. [22] It is obvious that fresh evidence is admissible at a Rule 59.06(2) hearing. In order to secure a variation under Rule 59.06(2), the moving party must prove, with evidence, either that the order was obtained by fraud, or that material facts supporting the variation arose or were discovered after the order was obtained: Royal Bank of Canada v. Korman, 2010 ONCA 63, 81 C.P.C. (6th) 1, at paras. 20‑21. Plainly, the rule in Rodriguez does not apply during a Rule 59.06(2) motion to vary.
[23] Moreover, given the implicit finding by the motion judge that the new evidence could not have been discovered with reasonable diligence, no question of res judicata concepts, such as cause of action estoppel or merger in the judgment, arises: H.Y. Louie Co., at paras. 62-65. Nor are there any abuse of process considerations arising out of the Motion to Vary: Cruise Connections, at para. 28.
[24] In my view, the motion judge did not err in these proceedings by admitting and considering the evidence that he did. I would dismiss this ground of appeal.
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