Oct 10, 2017

ONTARIO COURT OF APPEAL SUMMARIES (OCTOBER 2 - OCTOBER 6)

Fiorito v. Wiggins, 2017 ONCA 765 (CanLII)

[Laskin, Feldman and Miller JJ.A.]

Counsel:

B Jaffe, for the appellant

B Ludmer, for the respondent

Keywords: Family Law, Bankruptcy and Insolvency, Lifting Automatic Stay of Proceedings, Bankrupcy and Insolvency Act, R.S.C. 1985, c. B-3, s. 69.4, Property of the Bankrupt, Exempt Property, RRSPs, Material Prejudice, Equitable Grounds, Execution Act, R.S.O. 1990, c. E.24, Orders, Security for Performance, Family Law Act, R.S.O 1990, c. F. 3, ss. 9, Schreyer v. Schreyer, 2011 SCC 35

Facts:

The parties were involved in years of custody and access litigation for their two daughters after their separation in 2008. They entered into minutes of settlement whereby the mother had custody of the girls with substantial access to the father. However, the mother did not comply with the access provisions of the settlement. The mother was found to be in contempt and was sentenced to six months’ probation. Custody of the children remained with the mother, but she was required to grant access to the father in accordance with the order. The children were found to be in need of protection. There was to be a review of the custody and access order in six months’ time.

Upon review, Justice Harper found that although the ordered access was occurring, the children refused to interact with the father and were rude and disrespectful to him and his new wife. As a result, he granted custody of the children to the father with access to the mother only during weekly sessions with the children’s therapist. The mother could bring a change motion if she was able to demonstrate that she would promote a loving relationship between the children and both parents. Costs in the amount of $400,000 were awarded to the father for the 2011 and 2013 proceedings.

However, on appeal in October 2015, the Court set aside the contempt finding as there was no outstanding order at the time to be the subject of contempt, ordered another access review to be held by February 2016, and reduced the costs award to $200,000.

In January 2016, the father brought a motion for the purpose of obtaining or ensuring payment of the $200,000 costs award. He wanted security as a condition of proceeding with the review hearing. The court made a temporary order, on consent, that:

(i) the mother produce to the father copies of all bank and investment statements;

(ii) the mother produce to the father financial and accounting records for her corporation;

(iii) examinations be held according to a stated timetable; and

(iv) pending the return of the motion, the mother was restrained from disposing of her RRSP’s and from dissipating assets.

On that motion, the mother filed evidence swearing that she intended to pay the awarded costs and denied a suggestion in the evidence submitted on behalf of the father that she intended to file for bankruptcy after the review to thwart the father’s claim.

On the review hearing, the father brought a motion requesting the assistance of the court in enforcing the costs award by garnishment against the financial institutions where the mother had registered assets. The motion was never heard, as the mother made an assignment into bankruptcy on February 22, during the review hearing.

The current appeal is in relation to a subsequent motion brought by the father for an order annulling the bankruptcy or, alternatively, lifting the stay under s. 69.4 of the Bankruptcy and Insolvency Act (the “BIA”), and authorizing the father to continue his enforcement of the costs award against the mother’s registered assets.

The motion judge determined that the father was entitled to have the stay lifted, based on three factual findings:

(i) this was an extreme case of one parent undermining the other parent with the children during eight years of litigation in which the father was trying to have a relationship with his children;

(ii) the Court of Appeal determined that the mother should pay the father $200,000 in costs for the two trials before Harper J., but she had paid nothing; and

(iii) when the court restrained the mother from disposing of her RRSP’s or dissipating assets and allowed the review hearing to proceed without the payment of the costs award, the court and the father relied on the mother’s representations in her affidavits that she intended to pay the costs and that she did not intend to thwart that payment by making an assignment into bankruptcy.

Issues:

(1) Did the motion judge err in law by lifting the stay under s. 69.4 of the BIA in order to allow the enforcement of a family law costs award?

(2) Did the motion judge err in law by misapprehending the meaning of “prejudice” and of “equitable” under s. 69.4 of the BIA?

(3) Did the motion judge misapprehend the evidence regarding whether the father would receive any payment towards his costs award in the bankruptcy?

Holding: Appeal dismissed.

Reasoning:

(1) No. The appellant relies on the Supreme Court of Canada case of Schreyer v. Schreyer, 2011 SCC 35. In that case, the husband made an assignment into bankruptcy without giving notice to the wife, who had an equalization claim under Manitoba family law legislation. He was also discharged without notice to her, thereby releasing him from her claim. However, the husband owned a farm, which was exempt from execution by creditors under s. 13 of Manitoba’s The Judgments Act and could not be disposed of by the trustee in bankruptcy for distribution to creditors. Speaking for the court, LeBel J. stated that the appropriate remedy for the appellant would be to apply for leave to pursue a claim against the exempt property pursuant to s. 69.4 of the BIA. Lifting the stay of proceedings cannot prejudice the estate assets available for distribution. This procedure would allow bankruptcy law to maximize returns to the family rather than focusing on the needs of the bankrupt.

The appellant submits that LeBel’s comments apply only to an equalization payment, not to custody cost awards. Her argument hinges on what she submits is a necessary link between a lift-stay order and a spouse’s ability, before bankruptcy, to obtain an order granting a proprietary interest in the other spouse’s property under s. 9(1) of the Family Law Act (FLA).

In Schreyer, LeBel J. explained that the only way Ms. Schreyer’s equalization claim would not have been extinguished by Mr. Schreyer’s discharge from bankruptcy was by obtaining an order lifting the stay so she could pursue a proprietary remedy under s. 17 of the Family Property Act of Manitoba. The appellant therefore submits that the lift-stay remedy is only applicable where the debtor spouse is then able to obtain a proprietary interest in exempt assets in pursuit of an equalization claim.

The Court rejected this submission, distinguishing the facts of Schreyer from those of the present case. In Manitoba, a farm property is exempt from execution by creditors. As a result, a proprietary order would have been necessary to allow a spouse to realize on such property outside bankruptcy. By contrast, in Ontario, outside of bankruptcy, RRSP’s are not exempt from execution by creditors, as they are not a class of property specified under the Execution Act. Therefore no order under ss. 9(1)(b) or (d) of the Family Law Act is necessary to allow a spouse to execute any debt against an RRSP belonging to the other spouse. However, once a spouse makes an assignment into bankruptcy, that spouse’s RRSP’s become exempt property. Accordingly, the lift-stay remedy allows the creditor spouse to execute any debt against RRSP’s; they are only exempt under the bankruptcy regime, not under the provincial property and creditor’s rights laws.

Schreyer does not suggests that the equitable considerations for allowing a spouse to obtain the lift-stay remedy to execute against exempt or protected assets of the other spouse are limited to enforcing an equalization claim and would not apply, in appropriate circumstances, to a costs award arising out of protracted family litigation.

The Court highlights LeBel J.’s identification of maximizing returns to the family unit as a whole, not just the bankrupt, as a policy objective of bankruptcy law in Schreyer. This is the effect of lifting the stay and allowing the creditor spouse, where it is equitable to do so, to realize against exempt assets of the bankrupt spouse, which are not available to other creditors in the bankruptcy.

(2) No.

(A) Material Prejudice

The Court finds that while differential treatment may justify a finding of material prejudice, it is not a necessary factor. Material prejudice can arise from the size of the debt and the expected loss. In this case, the motion judges’ three factual findings of: (i) the need for the father to pursue lengthy custody and access litigation in order to have any relationship with his children; (ii) the mother’s failure to pay anything toward the costs ordered by the Court of Appeal; and (iii) the fact that the mother thwarted the enforcement of the costs award by reneging on assurances she made to the court about her intent to pay the costs and not use bankruptcy to thwart that payment, ground the finding of prejudice.

  1. 69.4(a) also requires that the material prejudice be related to the “continued operation” of the stay. The motion judge was entitled to find that the father would “in all likelihood, receive nothing” absent a lifting of the stay.

(B) Equitable Grounds

Under s. 69.4, courts have a broad discretion based on the particulars of the case in a finding of equitable grounds. It was within the motion judge’s discretion to take into account the circumstances regarding the background to the debt, particularly in the context where other creditors would not be affected by the order being sought. Although the appellant characterizes her decision to make an assignment into bankruptcy in the midst of the review hearing as a “change in [her] intention”, there is no explanation on the record for that change. In addition, since the respondent would be enforcing the costs award against exempt assets in the bankruptcy, other creditors would not be affected.

(3) No. The motion judge’s finding was reasonable based on the appellant’s statement of affairs. Although it is open for any creditor to oppose the discharge of the bankrupt, there is no guarantee that any order will be made or that any funds will be available. Any potential increase in the value of the home is purely speculative.

Regardless, the bankruptcy regime includes s. 69.4 and the ability of the court to lift the stay in favour of a particular creditor in prescribed circumstances. The use of that provision in these circumstances is based on sound reasons consistent with the scheme of the BIA to relieve against the automatic stay.