In Shaver-Kudell Manufacturing Inc. v. Knight Manufacturing Inc.[1], the Ontario Court of Appeal examined the exception under s. 178(1)(e) of the Bankruptcy and Insolvency Act[2] to determine what constituted a “debt or liability resulting from obtaining property or services by false pretences or fraudulent misrepresentation” that would survive a discharge from bankruptcy.
The Underlying Action and Motion
The respondent, Shaver-Kudell Manufacturing Inc., successfully sued the appellant, Alexander Knecht, and others, for misappropriating the respondent’s trade secrets and confidential information. Shortly thereafter, the appellant was deemed to have made an assignment into bankruptcy, which automatically stayed the underlying action before the quantum of damages could be determined.[3]
The respondent brought a motion to have the judgment deemed to be a debt or liability that survived discharge, as the appellant obtained the property or services under false pretences and that the stay did not apply to the respondent’s claim.[4]
The motion judge relied on the trial judge’s finding that the appellant lied during his examinations for discovery and therefore, while fraud was not specifically pleaded, the bankrupt unlawfully obtained property by lying, and that met the requirement for “false pretences” under the BIA.
In the motion judge’s view, lying is deceitful and wrong, and morally objectionable to society, thus the bankrupt should not be shielded from such behavior by the BIA. Thus, the bankrupt should not be shielded from such behavior by the BIA. As such, the motion judge ordered that the judgment would survive discharge, and the automatic stay under the BIA would not apply to the underlying action.[5]
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