SUPREME
COURT OF CANADA
Between:
Susan
Wilma Schreyer
Appellant
and
Anthony
Leonard Schreyer
Respondent
Coram: McLachlin C.J. and Binnie, LeBel, Deschamps, Abella, Rothstein
and Cromwell JJ.
Reasons for
Judgment:
(paras. 1 to 43)
|
LeBel J. (McLachlin C.J. and Binnie, Deschamps, Abella,
Rothstein and Cromwell JJ. concurring)
|
Schreyer v. Schreyer, 2011 SCC 35, [2011] 2 S.C.R. 605
Susan Wilma
Schreyer Appellant
v.
Anthony
Leonard Schreyer Respondent
Indexed as: Schreyer v.
Schreyer
2011 SCC 35
File No.: 33443.
2010: November 9; 2011: July 14.
Present: McLachlin C.J. and Binnie, LeBel, Deschamps, Abella,
Rothstein and Cromwell JJ.
on
appeal from the court of appeal for manitoba
Family law — Family assets —
Bankruptcy and insolvency — Spouses agreeing upon separation to valuation of
assets under the Manitoba Family Property Act — Family farm owned by husband —
Husband making an assignment in bankruptcy and obtaining discharge before valuation
of assets — Valuation subsequently confirming that wife entitled to
equalization payment — Effect of bankruptcy and discharge on equalization
payment — Whether equalization claim provable in bankruptcy — Whether husband
released from equalization claim by discharge from bankruptcy — Bankruptcy and
Insolvency Act, R.S.C. 1985, c. B‑3, ss. 69.4 , 121(1) , 121(2) ,
135 , 178(1) (f), 178(2) — The Family Property Act, C.C.S.M. c. F25,
s. 17.
The parties married in 1980, separated in 1999 and filed for
divorce in 2000. The husband continued to live on the family farm, of which he
was the sole registered owner. In December 2000, the parties consented to an
accounting and valuation of their assets. Before a master undertook the
valuation, the husband made an assignment in bankruptcy. The wife was not
listed as a creditor and received no notice of the assignment. The husband was
discharged from bankruptcy in November 2002. The master subsequently proceeded
with the valuation and found that the wife was entitled to an equalization
payment of $41,063.48. The master’s report, confirmed by the Court of
Queen’s Bench, did not address the effect of the husband’s bankruptcy and
discharge on the wife’s equalization claim. The Court of Appeal held that the
wife’s equalization claim was provable in bankruptcy and had been extinguished
by the discharge of the husband’s bankruptcy.
Held:
The appeal should be
dismissed.
Manitoba is an equalization jurisdiction, not a division of property
jurisdiction. The equalization scheme is based on a principle of equal
division of the value of family assets after a process of accounting and
valuation. The accounting process results in a value that is divided between
the spouses, and any amount payable must be paid to the creditor spouse. A
debtor spouse retains the property he or she owns, but must pay a sum of money
to the creditor spouse. The assets themselves are not divided and neither
spouse acquires a proprietary or beneficial interest in the other’s assets. No
provision of The Family Property Act of Manitoba (“FPA”) vests
title in one spouse to the other spouse’s property. Proprietary interests are
not granted until the stage of payment of the equalization claim, as a form of
execution pursuant to s. 17 FPA. Accordingly, under the FPA,
an equalization claim is a debt owed by one spouse to the other.
The wife’s
equalization claim was provable in the husband’s bankruptcy. Section 121
of the Bankruptcy and Insolvency Act (“BIA ”) contains a broad definition of a provable claim, which
includes all debts and liabilities that exist at the time of the bankruptcy or
that arise out of obligations incurred before the day on which the bankrupt
went into bankruptcy. In the instant case, given the nature of Manitoba’s
equalization scheme, the wife’s claim was provable. A right to payment existed
from the time of separation of the spouses, and hence existed at the time of
the bankruptcy. All that remained was to determine the quantum by applying a
clear formula that left little scope for judicial discretion. In such
circumstances, the claim could not be considered so uncertain that s. 135 BIA
could not apply. The husband was released from the equalization claim by the
bankruptcy and his discharge. The wife’s claim was neither a proprietary
claim, nor was it exempt from the effect of a discharge as a claim for support
or maintenance under ss. 178(1) (b) or (c) BIA .
Under Manitoba’s
The Judgments Act, the family farm was exempt from execution by
creditors. The appropriate remedy for a creditor like the wife would be to
apply to the bankruptcy judge under s. 69.4 BIA for leave to pursue
a claim against the exempt property. Since this property is beyond the reach
of the ordinary creditors, lifting the stay of proceedings cannot prejudice the
estate assets available for distribution. In keeping with the wording of
s. 69.4 (b), it would be “equitable on other grounds” to make such
an order. This process would also accord with the policy objective of
bankruptcy law of maximizing, under the BIA , returns to the family unit
as a whole, rather than focussing on the needs of the bankrupt, and with
Parliament’s concern for the support of families.
In its current form, the BIA offers
limited remedies to a spouse in the wife’s position. In this regard, family
law may provide them with other forms of remedies after the bankrupt has been
discharged, more particularly through spousal support.
Cases Cited
Distinguished:
Lacroix v. Valois, [1990] 2 S.C.R. 1259; referred to: Balyk
v. Balyk (1994), 113 D.L.R. (4th) 719; Burson v. Burson (1990), 4
C.B.R. (3d) 1; Century Services Inc. v. Canada (Attorney General), 2010
SCC 60, [2010] 3 S.C.R. 379; Thibodeau v. Thibodeau, 2011 ONCA 110, 104
O.R. (3d) 161; Re Kryspin (1983), 40 O.R. (2d) 424; Ross, Re
(2003), 50 C.B.R. (4th) 274; Hildebrand v. Hildebrand (1999), 13 C.B.R.
(4th) 226; Marzetti v. Marzetti, [1994] 2 S.C.R. 765; Turgeon v.
Turgeon, [1997] O.J. No. 4269 (QL); Sim v. Sim (2009), 50
C.B.R. (5th) 295; Shea v. Fraser, 2007 ONCA 224, 85 O.R. (3d) 28.
Statutes and Regulations Cited
Bankruptcy and Insolvency Act, R.S.C.
1985, c. B‑3, ss. 69.3 , 69.4 , 121 , 135 , 136 (d.1),
178(1) (b), (c), (d), (f), 178(2) , 187(5) .
Civil Code of Québec, S.Q. 1991,
c. 64, art. 427.
Family Property Act, C.C.S.M.
c. F25, ss. 6(1), 13, 14, 15, 17.
Judgments Act, C.C.S.M. c. J10,
s. 13.
Marital Property Act, C.C.S.M.
c. M45.
Authors Cited
Bray, Michael J. “To Whom the Swords, for Whom the Shields? The
Feminization of Poverty in Canadian Insolvency Practice”, in
Janis P. Sarra, ed., Annual Review of Insolvency Law 2008.
Toronto: Thomson Carswell, 2009, 455.
Canada. Senate. Standing Committee on Banking, Trade and Commerce. Debtors
and Creditors Sharing the Burden: A Review of the Bankruptcy and Insolvency
Act and the Companies’ Creditors Arrangement Act. Ottawa: Senate of Canada,
2003.
Gutkin, Terry A. “Family Law and Bankruptcy” (1999), 16
Nat’l Insolv. Rev. 26.
Houlden, L. W., G. B. Morawetz and Janis Sarra. Bankruptcy
and Insolvency Law of Canada, vol. 3, 4th ed. Toronto: Carswell, 2009
(loose‑leaf updated 2011, release 5).
Klotz, Robert A. Bankruptcy, Insolvency and Family Law,
2nd ed. Scarborough, Ont.: Thomson Carswell, 2001 (loose‑leaf
updated 2007, release 1).
Wood, Roderick J. Bankruptcy and Insolvency Law.
Toronto: Irwin Law, 2009.
APPEAL
from a judgment of the Manitoba Court of Appeal (Hamilton, Freedman and MacInnes JJ.A.),
2009 MBCA 84, 245 Man. R. (2d) 86, 466
W.A.C. 86, 57 C.B.R. (5th) 157, 70 R.F.L. (6th) 237, [2009] 10 W.W.R. 588,
[2009] M.J. No. 299 (QL), 2009 CarswellMan 403, varying an order of
Guertin‑Riley J. (unreported). Appeal dismissed.
Martin W.
Mason, Robert A. Klotz, Alain J. Hogue and Matthew Estabrooks, for the appellant.
Gerald S.
Ashcroft,
for the respondent.
The
judgment of the Court was delivered by
LeBel J. —
I. Overview
[1]
This appeal concerns a perceived clash between
family law and bankruptcy law. The appellant sharply challenges the outcome of
the litigation in this case, which results from her separation and divorce from
the respondent: she has been denied recovery of an equalization payment owed
after the division of the family assets, whereas the respondent has retained
ownership of the family farm after being discharged from bankruptcy, as the
farm is exempt from seizure under Manitoba law. I would uphold the judgment of
the Manitoba Court of Appeal, which dismissed the appellant’s claim. I find no
error in law and would thus dismiss the appeal. However, the result calls for
some comments about the interplay of bankruptcy law and family law and about
how they can be made to work together rather than at cross-purposes.
II. Background
[2]
The appellant, Susan Wilma Schreyer, and the
respondent, Anthony Leonard Schreyer, were married in 1980. During their
marriage, they tried a number of times to set up a farming operation in Manitoba.
Finally, in 1997, the respondent bought part of a farm belonging to his
parents, including a house and farm buildings. Title to the property issued
solely in his name as registered owner. The respondent obtained a mortgage to
finance the purchase.
[3]
In December 1999, the marriage broke down. There
was a bitter separation. The appellant left the farm, and the respondent
continued to live on it. In March 2000, the appellant filed for divorce and
sought, among other relief, an equal division of the marital property, which
included the farm.
[4]
In December 2000, the parties consented to an
order referring to the master an accounting and valuation of the assets
pursuant to The Marital Property Act, C.C.S.M. c. M45 (“MPA”).
That Act has since been replaced by The Family Property Act, C.C.S.M.
c. F25 (“FPA”). As the relevant provisions of these two Acts are
identical, the parties have based their submissions in this Court on the FPA.
The valuation date was set as the date of separation of the parties,
December 4, 1999.
[5]
Before the master undertook the valuation, Mr.
Schreyer made an assignment in bankruptcy on December 20, 2001. Ms. Schreyer
was not listed as a creditor and received no notice of the assignment, and she
claims that she was not aware of it. The respondent was discharged from
bankruptcy on November 29, 2002. The appellant must have been informed of the
bankruptcy some time later, but before the master undertook the valuation. This
can be inferred from changes made in a new consent order for the reference to
the master dated October 8, 2004. The new order was identical to the original
consent order but for the addition of two paragraphs, one of which, as the
Manitoba Court of Appeal mentioned in its judgment (paras. 14-15),
authorized the master to deal with all issues arising out of Mr. Schreyer’s
bankruptcy. The master proceeded with the valuation, which led to the present
litigation.
III. Judicial History
A. Manitoba Court of Queen’s Bench (Master Sharp), 2007 MBQB
263 (CanLII)
[6]
Master Sharp issued a detailed report after a
lengthy hearing. For the purposes of the appeal, I need not review the
valuation of the parties’ assets and liabilities. Suffice it to say that the
master noted that the farm property was exempt from execution and that the
trustee in bankruptcy, presumably ascertaining that it was exempt, would have
released it to the respondent. After computing the parties’ liabilities and
assets at the time of separation, the master found that the appellant was
entitled to an equalization payment of $41,063.48. But the master did not
address the effect of the respondent’s bankruptcy and discharge on the
appellant’s claim that resulted in the determination of an equalization
payment.
B. Manitoba Court of Queen’s Bench, Family Division
(Guertin-Riley J.), June 23, 2008 (Unreported)
[7]
Both parties opposed confirmation of the
master’s report. Despite their objections, Guertin-Riley J. confirmed it in its
entirety and ordered the respondent to make the equalization payment as
determined by the master. The two parties appealed that order to the Manitoba
Court of Appeal.
C. Manitoba Court of Appeal (Hamilton, Freedman and MacInnes
JJ.A.), 2009 MBCA 84, 245 Man. R. (2d) 86
[8]
MacInnes J.A., writing for a unanimous court,
considered several issues, most of which are now irrelevant for the purposes of
the appeal. The main question addressed by the Court of Appeal was the effect
of the bankruptcy and discharge on Ms. Schreyer’s claim for an equalization
payment. The court held that Ms. Schreyer’s equalization claim was only a
personal claim against her former husband. She held no interest in the farm
itself, since Manitoba is an “equalization province”, as opposed to a “division
of property province”. Her claim was a claim provable in bankruptcy, and it had
been extinguished by the discharge of the bankrupt. As a result, the Court of
Appeal found that the Court of Queen’s Bench had erred in confirming the report
and holding, in effect, that the equalization payment remained an outstanding
obligation of the respondent even after he had been discharged from bankruptcy.
IV. Analysis
A. Issues
[9]
The parties have raised several issues. But the
core issue in this appeal is whether the application of the Bankruptcy and
Insolvency Act, R.S.C. 1985, c. B-3 (“BIA ”), has released the
respondent from Ms. Schreyer’s equalization claim in respect of the family
assets under the FPA, formerly the MPA. (The relevant statutory
provisions are reproduced in the Appendix.) Despite the apparent injustice of
the outcome, it is impossible to wish away the fact and problem of the
respondent’s bankruptcy. The issue of the legal effect of Mr. Schreyer’s
bankruptcy and discharge must be resolved. To answer this question, I must
first determine the legal nature of the equalization claim. I will then consider
whether that claim was provable in bankruptcy and whether the respondent was
released from it upon being discharged. I will also comment briefly on other
issues, such as the appellant’s claim for unjust enrichment, that are not
determinative of this appeal.
B. Positions of the Parties
[10]
The appellant raises several arguments in
support of her assertion that her equalization claim has survived her husband’s
bankruptcy and the judgment can be executed against the exempt property, the
family farm. First, she argues that her claim is a proprietary one and that,
for this reason, it was not affected by the application of the BIA and
was not provable in bankruptcy. She also states that the claim was not provable
because it remained unliquidated. In the alternative, if it was in fact
provable, she argues that the respondent is estopped from asserting his
discharge against her claim because he failed to list her as a creditor and
proceeded with the valuation before the master. Had she been made aware of his
bankruptcy in a timely manner, she could have sought leave from the bankruptcy
court under s. 69.4 BIA to pursue her claim against the exempt property.
[11]
In the further alternative, should these first
two arguments fail, the appellant submits that the respondent has been unjustly
enriched. He has retained the farm free from the equalization claim, and his
debts to his ordinary creditors have been wiped out. In her view, this
situation, which results from Mr. Schreyer’s failure to inform her of his
bankruptcy, gives rise to a claim for unjust enrichment that this Court should
remedy by imposing a constructive trust over half of the family farm.
[12]
The respondent relies, in substance, on the
Court of Appeal’s judgment. In his opinion, the equalization claim is a monetary
claim that was provable in bankruptcy, and he was released from it upon being discharged.
Moreover, the appellant did nothing to set aside or suspend the discharge under
the BIA . The respondent adds that the constructive trust issue was never
raised in the courts below, that no evidence was adduced on this issue and that
this Court should therefore not consider it.
C. Legal Nature of the Equalization Claim Under the MPA and
the FPA
[13]
The key issue here is the legal
characterization, in Manitoba family law, of a claim for equalization following
the breakup of a marriage. Does a spouse like Ms. Schreyer obtain a proprietary
interest in the family assets or a monetary claim at the end of the
equalization process? As we will see, Manitoba remains an equalization
jurisdiction. It has not joined the ranks of the provinces which have adopted
division of property systems. As a result, a spouse is entitled to an order
setting the amount payable from one spouse to the other under the equalization
scheme and may ask either to be paid this amount in money or to receive a
transfer of assets in lieu of that amount.
[14]
Every Canadian province has tried to address in
some way the inequities or difficulties arising out of the distribution of
family assets after the breakdown of a marriage or of a common law relationship
to which the same rules apply. Broadly speaking, the provincial legislatures
have chosen between two different models: equalization and division of property
(R. A. Klotz, Bankruptcy, Insolvency and Family Law (2nd ed.
(loose-leaf)), at pp. 4-29 to 4-30).
[15]
The equalization model involves a valuation of
the family assets and an accounting. The value of the assets is then divided
between the spouses, usually in equal parts, although family courts have a
limited discretion to order an unequal division. The valuation and the division
give rise to a debtor-creditor relationship in the sense that the creditor
spouse obtains a monetary claim against the debtor spouse. But the assets
themselves are not divided. Each spouse retains ownership of his or her own
property both before and after the breakdown of the marriage. Neither acquires
a proprietary or beneficial interest in the other’s assets. Assets are
transferred only at the remedial stage, as agreed by the parties or as ordered
by the family court in exercising its discretion, as a form of payment or
execution of the judgment (T. A. Gutkin, “Family Law and Bankruptcy” (1999),
16 Nat’l Insolv. Rev. 26, at pp. 31-32; Balyk v. Balyk (1994),
113 D.L.R. (4th) 719 (Ont. Ct. (Gen. Div.)), at pp. 723-25; Burson v. Burson
(1990), 4 C.B.R. (3d) 1 (Ont. Ct. (Gen. Div.)), at paras. 24-25). The
division of property schemes, on the other hand, give rise to a proprietary or
beneficial interest in the assets themselves, not just in their value (Balyk,
at pp. 723-24).
[16]
The Manitoba scheme is one of equalization. It
is based on a principle of equal division of the value of the family assets
after a process of accounting and valuation (ss. 13 and 14 FPA). The
accounting process results in a value that is divided between the spouses, and
any amount payable must be paid to the creditor spouse. A debtor spouse retains
the property he or she owns, but must pay a sum of money, the equalization
payment, if the spouses did not own assets of equal value (s. 15 FPA).
The court retains a discretion to alter the equal division of the value of the
assets where “the court is satisfied that equalization would be grossly unfair
or unconscionable” (s. 14(1) FPA). No provision of the FPA
vests title in one spouse to the other spouse’s property (s. 6(1) FPA)
in the course of the accounting and valuation. At the end of the
equalization process, a monetary debt is owed.
[17]
Proprietary interests are not granted until the
stage of payment of the equalization claim, at which point they may be granted
as a form of execution, to ensure that the payment is actually made.
Section 17 FPA provides that the amount established in the
accounting may be paid by means of a money payment, a transfer of assets, or
both. The mode of payment may be agreed on by the parties or ordered by the
court. Section 17 reads as follows:
17 The amount
shown by an accounting under section 15 to be payable by one spouse or
common-law partner to the other may be satisfied
(a) by
payment of the amount in a lump sum or by instalments; or
(b) by
the transfer, conveyance or delivery of an asset or assets in lieu of the
amount; or
(c) by
any combination of clauses (a) and (b);
as
the spouses or common-law partners may agree or, in the absence of agreement,
as the court upon the application of either spouse or common-law partner under
this Act may order, taking into account the effect of any interim order made
under section 18.1.
[18]
Under the FPA, an equalization claim is a
debt owed by one spouse to the other. The Court of Appeal did not err in
treating the appellant’s claim as a debt. The characterization of the
equalization claim is particularly important here — in the context of the
application of the BIA — for the purpose of determining whether the
appellant’s claim survived her husband’s discharge from bankruptcy.
D. Effect
of the Respondent’s Bankruptcy
[19]
The very design of insolvency legislation raises
difficult policy issues for Parliament. Legislation that establishes an orderly
liquidation process for situations in which reorganization is not possible,
that averts races to execution and that gives debtors a chance for a new start
is generally viewed as a wise policy choice. Such legislation has become part
of the legal and economic landscape in modern societies. But it entails a
price, and those who might have to pay that price sometimes strive mightily to
avoid it. Despite the proven wisdom of the policies underpinning the insolvency
legislation, it is understandable that few appreciate the “haircuts” or even
outright losses that bankruptcies trigger. So creditors seek to obtain security
or third-party guarantees. In other cases, statutory exemptions from the
application of the BIA may apply. For a long time, governments took care
to protect their own interests, but they now generally accept, albeit with some
reluctance, that they should share the fate of ordinary creditors (Century
Services Inc. v. Canada (Attorney General), 2010 SCC 60, [2010] 3 S.C.R.
379). Other types of exemptions that seem fair or even necessary are set out in
the BIA . However, the more exemptions there are, the less likely it is
that the basic policy objectives of insolvency legislation can be achieved.
[20]
As a consequence, the interpretation of the BIA
requires the acceptance of the principle that every claim is swept into the
bankruptcy and that the bankrupt is released from all of them upon being
discharged unless the law sets out a clear exclusion or exemption. As I will
explain below in greater detail, the appellant’s equalization claim was
provable in the respondent’s bankruptcy. In light of the provisions of the BIA ,
it is therefore difficult, subject to one minor reservation concerning the
terminology used, to find fault with the Court of Appeal’s holding that the
equalization claim had been “extinguished” by the respondent’s discharge. That
holding appears to be faithful both to the words of the FPA and to the
provisions of the BIA . In this respect, given that Ontario is also an
equalization province, it is worth mentioning that the Ontario Court of Appeal
recently espoused this reasoning in Thibodeau v. Thibodeau, 2011 ONCA
110, 104 O.R. (3d) 161. I agree with the following comments by Blair J.A.:
Separating
spouses are not entitled to receive a division of property. Rather, they are
entitled (generally speaking) to receive one-half of the value of the
property accumulated during the marriage. An equalization payment is the
chosen legislative default position. On the bankruptcy side, unsecured
creditors are to be treated equally and the bankrupt’s assets to be distributed
amongst them equally subject to the scheme provided in s. 136 of the BIA .
Parliament has not accorded any preferred or secured position to a claim for
an equalization payment. While it has recently chosen to amend the BIA
to give certain debts or liabilities arising in relation to claims for support
and/or alimony a preferred status, Parliament has made no such provision for
equalization claims in relation to family property. [Underlining added;
para. 37.]
[21]
The only reservation I have with the decision of
the Court of Appeal in the case at bar relates to its numerous statements that
the operation of s. 178(2) BIA has the effect of “extinguishing” the
equalization claim. With respect, this provision does not purport to extinguish
claims that are provable in bankruptcy pursuant to s. 121 BIA , but
“releases” the debtor from such claims: see, on this point, Re Kryspin
(1983), 40 O.R. (2d) 424 (H.C.J.), at pp. 438-39; and Ross, Re
(2003), 50 C.B.R. (4th) 274 (Ont. S.C.J.), at para. 15. As is clear from the
words of s. 178(2) BIA , the discharge operates to release the bankrupt
from all claims provable in bankruptcy. For creditors, the discharge means that
they “cease to be able to enforce claims against the bankrupt that are provable
in bankruptcy” (L. W. Houlden, G. B. Morawetz and J. Sarra, Bankruptcy and
Insolvency Law of Canada (4th ed. (loose-leaf)), vol. 3, at p. 6-283).
[22]
During oral argument, Mr. Klotz, counsel for the
appellant, urged the Court to view the equalization claim as a “hybrid claim”.
Thus, where an equalization claim gives a former spouse a right to a monetary
payment, it is a provable claim and the bankrupt will be released from it upon
being discharged, but because of the proprietary remedy attached to it pursuant
to s. 17 FPA, the equalization claim is also a proprietary claim and
will therefore survive the bankruptcy process.
[23]
This submission cannot be accepted for two
reasons. First, it alters the role of s. 17 FPA. As I mentioned above,
that section provides a mechanism for ensuring that the equalization payment is
made. Although the mechanism does include, under ss. 17(b) or (c) FPA,
the possibility of having assets transferred to a former spouse to satisfy the
amount found to be payable by the other spouse, this does not change the fact
that no property interest arises unless and until the parties agree to, or the
family court — upon an application — orders, such a transfer. In the
circumstances of this case, I need not consider a possible argument that, even
after the debtor has been released from a claim in a bankruptcy proceeding, it
would remain within the discretion of the family court to order a transfer of
exempt assets. Such an argument could raise important issues and difficulties
that have not been explored or argued and on which I do not intend to comment
further.
[24]
Second, the “hybrid claim” argument, if
accepted, would in substance bring equalization provinces into line with
division provinces and would in essence conflate the equalization and division
of property models. By adopting a novel interpretation of s. 17 FPA, this
Court would interfere with the Manitoba legislature’s policy choice not to give
a former spouse a proprietary interest in the family property. This Court must
give effect to this clear legislative intent, not read it out of the FPA.
[25]
I do not doubt that an outcome like the one in
this appeal looks unfair, given that the appellant’s equalization claim was
based primarily on the value of an asset — the farm property — which was exempt
from bankruptcy and therefore not accessible to other creditors. None of the
policies underlying the BIA require that the appellant emerge from the
marriage with no substantial assets. Parliament could amend the BIA in
respect of the effect of a bankrupt’s discharge on equalization claims and
exempt assets. But the absence of such an amendment makes the outcome of this
case unavoidable. The only way Ms. Schreyer could have avoided it would have
been to obtain an order from the bankruptcy court lifting the stay of
proceedings imposed by operation of s. 69.3 BIA so that she could seek a
proprietary remedy under s. 17 FPA. As will be discussed below, however,
the circumstances were such that Ms. Schreyer did not pursue these recourses.
E. What Is a Provable Claim?
[26]
Section 121 BIA contains a broad
definition of a provable claim, which includes all debts and liabilities that
exist at the time of the bankruptcy or that arise out of obligations incurred
before the day the debtor went into bankruptcy. Thus, s. 121 provides that
“[a]ll debts and liabilities, present or future, to which the bankrupt is
subject on the day on which the bankrupt becomes bankrupt or to which the bankrupt
may become subject before the bankrupt’s discharge by reason of any obligation
incurred before the day on which the bankrupt becomes bankrupt” are deemed to
be provable claims. According to s. 121(2) , the trustee must apply s. 135 BIA
to determine whether contingent or unliquidated claims are provable. If
the debt exists and can be liquidated, if the underlying obligation exists as
of the date of bankruptcy and if no exemption applies, the claim will be deemed
to be provable.
[27]
The date of the bankruptcy is of critical
importance. If the equalization claim was liquidated before the bankruptcy,
there is no doubt that the claim is provable. If it was still unliquidated as
of the date of the bankruptcy, the issue becomes whether it remained too
uncertain to allow the trustee to value it under s. 135 BIA . In the
instant case, given the nature of Manitoba’s equalization scheme, I consider
the claim to have been provable. The FPA establishes a principle of
equality between spouses. The accounting of assets and liabilities under s. 15 FPA
leads to an equal division, subject to a limited judicial discretion under s.
14 to depart from the formula provided for in s. 15. A right to payment existed
in this case from the time of separation of the spouses, and hence existed at the
time of the bankruptcy. All that remained was to determine the quantum by
applying a clear formula that left little scope for judicial discretion. In
such circumstances, the claim could not be considered so uncertain that s. 135 BIA
could not apply. On the contrary, the appellant’s claim, which had arisen
before the bankruptcy and was determinable under the FPA, was provable
(Klotz, at pp. 5-3 to 5-5 and 5-9).
[28]
The situation in this case differs from the one
the Court considered in Lacroix v. Valois, [1990] 2 S.C.R. 1259.
In that case, the Court held that a claim for a compensatory allowance under
Quebec family law after the breakdown of a marriage was not provable in
bankruptcy and that the debtor was not released from it upon being discharged.
Unlike in Manitoba, Quebec’s compensatory allowance scheme established a
particular mechanism for compensation for unjust enrichment that gave the judge
a broad discretion. In Quebec, unlike under the FPA, a right to a
compensatory allowance does not flow directly from the breakdown of a marriage.
The right arises solely from the judgment rendered in the circumstances and for
the reasons set out in what is now art. 427 of the Civil Code of Québec,
S.Q. 1991, c. 64. Thus, no claim for a compensatory allowance would be provable
in bankruptcy before a judgment granting such an allowance was rendered.
Moreover, in Lacroix, the legislation establishing the compensatory
allowance scheme had come into force after the bankruptcy. Given these
circumstances, that case should not be interpreted as establishing that
unliquidated claims under the equalization schemes of the common law provinces
are not provable in bankruptcy.
[29]
In the instant case, the appellant’s claim is
not a proprietary claim. It was provable under ss. 121 and 135 BIA . It
was not exempt from the effect of a discharge as a claim for support or
maintenance under ss. 178(1) (b) and (c). The bankruptcy and
discharge had the effect of releasing the respondent from it. The BIA
and the possible remedies create an exception that applies solely to alimony or
support. Although it is of equal importance, a claim under an equalization of
property scheme cannot be considered to constitute support (R. J. Wood, Bankruptcy
and Insolvency Law (2009), at pp. 291-92).
[30]
I will now consider whether the farm’s status as
property exempt from execution and the respondent’s failure to list the
appellant as a creditor in the bankruptcy have any impact on the legal status
of the equalization claim.
F. Status of the Family Farm as an Exempt Property
[31]
Under s. 13 of Manitoba’s The Judgments
Act, C.C.S.M. c. J10, the Schreyers’ family farm was exempt from execution
by creditors. But the appellant, as a spouse, would have been entitled to
pursue the enforcement of her equalization claim against the exempt property, as
we shall see. This property lay out of the reach of the trustee in bankruptcy,
who could not dispose of it on behalf of the bankrupt’s estate in order to
distribute it to his creditors.
[32]
In such circumstances, the appropriate remedy for
a creditor like the appellant would be to apply to the bankruptcy judge under
s. 69.4 BIA for leave to pursue a claim against the exempt property. Since this property is beyond the reach of the ordinary
creditors, lifting the stay of proceedings cannot prejudice the estate assets
available for distribution. In keeping with the wording of s.
69.4 (b) BIA , this is why it would be “equitable on other grounds”
to make such an order. This procedure would also accord with the policy objective
of bankruptcy law of maximizing, under the BIA , returns to the family
unit as a whole rather than focussing on the needs of the bankrupt: see, on
this point, Hildebrand v. Hildebrand (1999), 13 C.B.R. (4th) 226 (Man.
Q.B.), at para. 15; and, generally, on Parliament’s concern for the support of
families, Marzetti v. Marzetti, [1994] 2 S.C.R. 765, at pp. 800-801.
[33]
After the stay was lifted, the appellant would
then have been able to ask the family court to attribute a proprietary interest
in the family farm to her in satisfaction of her equalization claim. Such an
interest would not have been affected by the bankruptcy. The problem, however, is that the appellant asserts that she was
unable to pursue this remedy because Mr. Schreyer had failed to disclose the
equalization claim in the statement of affairs he submitted to the trustee upon
his assignment into bankruptcy. As a result, the appellant claims, she learned
of the existence of the bankruptcy only after the respondent had been
discharged.
[34]
The appellant now seeks a remedy based on the
respondent’s failure to list her as a creditor at the time of the bankruptcy.
In substance, she argues that because of that failure, which was a breach of
the statutory duties of a bankrupt debtor, she should be allowed to disregard her
husband’s discharge and to pursue her claim against the family farm, which is
an exempt property for the purposes of the BIA . In this respect, s.
178(1) (f) BIA appears to provide the creditor with only a limited
remedy (Wood, at pp. 294-95). Parliament did not intend that every
omission from a list of creditors would deprive the discharge of its effect.
Parliament realized that many such omissions may be accidental omissions or
administrative oversights. It thus chose a more limited remedy that enables a creditor
to claim a dividend he or she did not receive. In the case of a failure to list
a creditor, a discharged bankrupt may be sued, but only for the amount of the
dividend the creditor would otherwise have received. In the case at bar, this
remedy would have been irrelevant, because no dividend was paid to Mr.
Schreyer’s creditors. I note that it has not been alleged that the failure to
disclose was fraudulent, which might have brought into play another exception
to the effect of the discharge, that of fraud under s. 178(1) (d) BIA .
[35]
The alternative remedies appear to be complex,
and fraught with difficulties. The obstacle to any course of action
contemplated by a creditor in Ms. Schreyer’s position is the discharge of
the bankrupt. It is true that any order made by the court in exercising its
bankruptcy jurisdiction, including an order of discharge, can be reviewed,
rescinded or varied under s. 187(5) BIA . In theory at least, the
appellant might file a motion for suspension of the discharge on the basis of
misconduct on the respondent’s part, particularly in
view of the fact that he failed to notify her of his assignment into bankruptcy.
If the discharge were suspended, the appellant could then seek leave from the
bankruptcy court to pursue her equalization claim, which would be revived by
the suspension, against the exempt property. She could ask the family court to
grant her a proprietary interest in the family farm in satisfaction of her
equalization claim.
[36]
It would be hazardous here to try to determine whether
the theory translates well into practice. Would the circumstances of this case
be sufficient to justify suspending the discharge? Would such a remedy be
available under s. 187(5) BIA ? In such matters, judges must exercise a
broad discretion, but they must also bear in mind the underlying policies of
the BIA . Several years have gone by since the discharge. Would it
be appropriate to review it now? What might be the condition of the property
itself, which was heavily mortgaged at the time of separation of the parties?
Given that the appellant has not taken this approach, I will refrain from
expressing any view about the practicality or the soundness of following such a
procedure in this case. Nevertheless, it bears mentioning that any
interpretation of the scope of the bankruptcy court’s discretion under s.
187(5) BIA must be consistent with the policies underlying the
provisions that specifically set out the circumstances in which a court may
suspend or annul a discharge or grant a conditional discharge. It should be noted
that s. 187(5) BIA is a residual section that applies to all orders made
by the bankruptcy court. As such, it serves to complement the more specific
provisions of the BIA , not to create an exception to them.
[37]
In its current form, therefore, the BIA
offers limited remedies to spouses in the appellant’s position. In this regard,
family law may provide them with a safer harbour after the bankrupt has been
discharged, more particularly through spousal support. The record in this case does not disclose whether a support order has been made,
and the issue of whether support should be granted or varied is not before this
Court. The appropriateness of awarding or varying spousal support and the
quantum of support are matters that fall within the discretion of the family court.
If a support order were made in a case like this one, the court might
well aim to mitigate the inequities arising from the bankruptcy, such as the
release of the debtor spouse from an equalization claim or the retention by the
debtor spouse of an exempt asset (see Turgeon v. Turgeon, [1997] O.J.
No. 4269 (QL) (Gen. Div.); and Sim v. Sim (2009), 50 C.B.R. (5th) 295
(Ont. S.C.J.)). Such determinations must be made on a case-by-case basis.
[38]
However, the possibility of mitigating
the consequences of this litigation by means of a decision with respect to spousal
support should not overshadow the problems created by the failure in the BIA
to differentiate between equalization schemes and division of property schemes.
The best way to address the potentially inequitable impact of bankruptcy law on
the division of family assets would be to amend the BIA : see, on this
point, Shea v. Fraser, 2007 ONCA 224, 85 O.R. (3d) 28, at para. 48. Over
the last two decades, Parliament has made positive steps in amending the BIA
to address the economic effects of divorce when those effects are compounded by
insolvency, and the role of such situations in the “feminization of poverty” (M.
J. Bray, “To Whom the Swords, for Whom the Shields? The Feminization of Poverty
in Canadian Insolvency Practice”, in J. P. Sarra, ed., Annual Review of
Insolvency Law 2008 (2009), 455).
[39]
Before 1997, claims for
support or alimony were not expressly provable under the BIA , potentially
giving spouses no access to the bankrupt’s estate. After the 1997 amendments
(S.C. 1997, c. 12), s. 121(4) BIA was added to specifically provide that
these claims were provable. They remained unaffected by a discharge pursuant to
ss. 178(1) (b) and (c) BIA . Parliament has also shown a
willingness to give spouses limited priority over unsecured creditors for
support payments that accrued before the bankruptcy (s. 136 (d.1) BIA ).
Further amendments to address the issue of the division of matrimonial property
have also been considered by the Standing Senate Committee on Banking, Trade
and Commerce. In its report released in November 2003 (Debtors and Creditors
Sharing the Burden: A Review of the Bankruptcy and Insolvency Act and
the Companies’ Creditors Arrangement Act), the Committee took the view that
inequities like the one perceived to exist in the case at bar required “prompt
resolution” (p. 85). To this end, it recommended that the BIA be amended
to provide that “bankruptcy does not stay or release
any claim for equalization or division against exempt assets under
provincial/territorial legislation regarding equalization and/or the division
of marital property” (p. 86).
[40]
More than seven years have elapsed since the Committee
issued its report. It seems to me that this matter is ripe for legislative
attention so as to ensure that the principles of bankruptcy
law and family law are compatible rather than being at cross-purposes.
[41]
However, until such legislative changes are
made, creditor spouses should be alive not only to
the pitfalls of the BIA , but also to the importance of the remedies available
under it in such situations. In the case at bar, however, given the
nature and the state of the proceedings now before this Court, I am of the view
that the Court of Appeal made no errors and that the specific remedies sought
by the appellant may not be granted.
[42]
I agree with the respondent that the unjust
enrichment claim and the request for imposition of a constructive trust should
fail. The issue was not properly raised at first instance, and no evidence was
adduced on this issue.
V. Conclusion
[43]
For these reasons, I would dismiss the appeal,
but in light of the particular circumstances of this case, I would not award
costs.
APPENDIX
Bankruptcy and Insolvency Act, R.S.C.
1985, c. B-3
PROPERTY OF THE BANKRUPT
67. (1) The property of a bankrupt divisible among his
creditors shall not comprise
(a) property held by the bankrupt
in trust for any other person;
(b) any property that as against
the bankrupt is exempt from execution or seizure under any laws applicable in
the province within which the property is situated and within which the
bankrupt resides;
. . .
Stay
of Proceedings
. . .
69.3 (1) Subject
to subsections (1.1) and (2) and sections 69.4 and 69.5 , on the bankruptcy of
any debtor, no creditor has any remedy against the debtor or the debtor’s
property, or shall commence or continue any action, execution or other
proceedings, for the recovery of a claim provable in bankruptcy.
(1.1) Subsection (1) ceases to apply in respect of a creditor on the day on which
the trustee is discharged.
. . .
69.4 A creditor
who is affected by the operation of sections 69 to 69.31 or any other person
affected by the operation of section 69.31 may apply to the court for a
declaration that those sections no longer operate in respect of that creditor
or person, and the court may make such a declaration, subject to any
qualifications that the court considers proper, if it is satisfied
(a) that the creditor or person
is likely to be materially prejudiced by the continued operation of those
sections; or
(b) that it is equitable on other
grounds to make such a declaration.
Claims Provable
121. (1) All debts and liabilities, present or
future, to which the bankrupt is subject on the day on which the bankrupt
becomes bankrupt or to which the bankrupt may become subject before the
bankrupt’s discharge by reason of any obligation incurred before the day on
which the bankrupt becomes bankrupt shall be deemed to be claims provable in
proceedings under this Act.
(2) The determination whether a
contingent or unliquidated claim is a provable claim and the valuation of such
a claim shall be made in accordance with section 135 .
(3) A creditor may prove a debt not
payable at the date of the bankruptcy and may receive dividends equally with
the other creditors, deducting only thereout a rebate of interest at the rate
of five per cent per annum computed from the declaration of a dividend to the
time when the debt would have become payable according to the terms on which it
was contracted.
(4) A claim in respect of a debt or
liability referred to in paragraph 178(1) (b) or (c) payable under
an order or agreement made before the date of the initial bankruptcy event in
respect of the bankrupt and at a time when the spouse, former spouse, former
common-law partner or child was living apart from the bankrupt, whether the
order or agreement provides for periodic amounts or lump sum amounts, is a
claim provable under this Act.
Admission and Disallowance of Proofs
of Claim and
Proofs of Security
135. (1) The trustee shall examine every proof of
claim or proof of security and the grounds therefor and may require further
evidence in support of the claim or security.
(1.1) The trustee shall
determine
whether any contingent claim or unliquidated claim is a provable claim, and, if
a provable claim, the trustee shall value it, and the claim is thereafter,
subject to this section, deemed a proved claim to the amount of its valuation.
(2) The trustee may disallow, in whole
or in part,
(a) any claim;
(b) any right to a priority under the applicable
order of priority set out in this Act; or
(c) any security.
(3) Where the trustee makes a
determination under subsection (1.1) or, pursuant to subsection (2), disallows, in
whole or in part, any claim, any right to a priority or any security, the
trustee shall forthwith provide, in the prescribed manner, to the person whose
claim was subject to a determination under subsection (1.1) or whose claim, right
to a priority or security was disallowed under subsection (2), a notice in the
prescribed form setting out the reasons for the determination or disallowance.
(4) A determination under subsection
(1.l) or a disallowance referred to in subsection (2) is final and conclusive
unless, within a thirty day period after the service of the notice referred to
in subsection (3) or such further time as the court may on application made
within that period allow, the person to whom the notice was provided appeals from
the trustee’s decision to the court in accordance with the General Rules.
(5) The court may expunge or reduce a proof of claim or a proof of security on
the application of a creditor or of the debtor if the trustee declines to
interfere in the matter.
Duties of Bankrupts
158. A bankrupt shall
. . .
(d) within five days following the bankruptcy, unless the time is
extended by the official receiver, prepare and submit to the trustee in
quadruplicate a statement of the bankrupt’s affairs in the prescribed form
verified by affidavit and showing the particulars of the bankrupt’s assets and
liabilities, the names and addresses of the bankrupt’s creditors, the
securities held by them respectively, the dates when the securities were
respectively given and such further or other information as may be required,
but where the affairs of the bankrupt are so involved or complicated that the
bankrupt alone cannot reasonably prepare a proper statement of affairs, the
official receiver may, as an expense of the administration of the estate,
authorize the employment of a qualified person to assist in the preparation of
the statement;
. . .
Discharge of Bankrupts
. . .
178. (1) An order of discharge does not release the bankrupt from
. . .
(b) any debt or liability for alimony or alimentary pension;
(c) any debt or liability arising
under a judicial decision establishing affiliation or respecting support or
maintenance, or under an agreement for maintenance and support of a spouse,
former spouse, former common-law partner or child living apart from the bankrupt;
(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;
(f) liability for the dividend
that a creditor would have been entitled to receive on any provable claim not
disclosed to the trustee, unless the creditor had notice or knowledge of the
bankruptcy and failed to take reasonable action to prove his claim;
(g) any debt or obligation in
respect of a loan made under the Canada Student Loans Act , the Canada
Student Financial Assistance Act or any enactment of a province that
provides for loans or guarantees of loans to students where the date of
bankruptcy of the bankrupt occurred
(i) before the date
on which the bankrupt ceased to be a full- or part-time student, as the case
may be, under the applicable Act or enactment, or
(ii) within seven
years after the date on which the bankrupt ceased to be a full- or part-time
student; or
(h) any debt for interest owed in
relation to an amount referred to in any of paragraphs (a) to (g).
(1.1) At any time after five years after a bankrupt who has a debt referred to in
paragraph (1)(g) ceases to be a full- or part-time student, as the case
may be, under the applicable Act or enactment, the court may, on application,
order that subsection (1) does not apply to the debt if the court is satisfied
that
(a) the bankrupt has acted in
good faith in connection with the bankrupt’s liabilities under the debt; and
(b) the bankrupt has and will
continue to experience financial difficulty to such an extent that the bankrupt
will be unable to pay the debt.
(2) Subject to subsection (1), an order
of discharge releases the bankrupt from all claims provable in bankruptcy.
180. (1) Where a
bankrupt after his discharge fails to perform the duties imposed on him by this
Act, the court may, on application, annul his discharge.
(2) Where it appears to the court that
the discharge of a bankrupt was obtained by fraud, the court may, on
application, annul his discharge.
(3) An order revoking or annulling the
discharge of a bankrupt does not prejudice the validity of a sale, disposition
of property, payment made or thing duly done before the revocation or annulment
of the discharge.
181. (1) If, in
the opinion of the court, a bankruptcy order ought not to have been made or an
assignment ought not to have been filed, the court may by order annul the
bankruptcy.
(2) If an order is made under subsection
(1), all sales, dispositions of property, payments duly made and acts done
before the making of the order by the trustee or other person acting under the
trustee’s authority, or by the court, are valid, but the property of the
bankrupt shall vest in any person that the court may appoint, or, in default of
any appointment, revert to the bankrupt for all the estate, or interest or
right of the trustee in the estate, on any terms and subject to any conditions,
if any, that the court may order.
(3) If an order is made under subsection
(1), the trustee shall, without delay, prepare the final statements of receipts
and disbursements referred to in section 151.
Authority of the Courts
187. . . .
(5) Every court may review, rescind or
vary any order made by it under its bankruptcy jurisdiction.
The
Family Property Act,
C.C.S.M. c. F25
PART I
APPLICATION OF ACT
. . .
DIVISION 2
APPLICATION TO ASSETS
. . .
Disposal of assets
6(1) No provision of
this Act, nor the giving of an accounting under this Act, vests any title to or
interest in any asset of one spouse or common-law partner in the other spouse
or common-law partner, and the spouse or common-law partner who owns the asset
may, subject to subsections (7), (7.1), (8), (8.1), (9), (9.1) and (10) and to
any order of the court under Part III or IV, sell, lease, mortgage,
hypothecate, repair, improve, demolish, spend or otherwise deal with or dispose
of the asset to all intents and purposes as if this Act had not been passed.
. . .
PART II
SHARING OF ASSETS
Right to accounting and equalization of assets
13 Each spouse and
common-law partner has the right upon application to an accounting and, subject
to section 14, an equalization of assets in accordance with this Part.
Discretion to vary equal division of family assets
14(1) The court upon
the application of either spouse or common-law partner under Part III may order
that, with respect to the family assets of the spouses or common-law partners,
the amount shown by an accounting under section 15 to be payable by one spouse
or common-law partner to the other be altered if the court is satisfied that
equalization would be grossly unfair or unconscionable having regard to any
extraordinary financial or other circumstances of the spouses or common-law
partners or the extraordinary nature or value of any of their assets.
. . .
Conduct not a factor
14(3) In exercising
its discretion under this section, no court shall have regard to conduct on the
part of a spouse or common-law partner unless that conduct amounts to
dissipation.
Accounting and division
15(1) In an accounting
of assets between spouses or common-law partners under this Act, there shall be
ascertained
(a) the value of the total inventory
of assets of each spouse or common-law partner, after adding to or deducting from
the inventory such amounts as are required under this Act to be added or
deducted;
(b) the value of the share to which
each spouse or common-law partner is entitled upon the division, to be
determined by combining the values ascertained under clause (a) and dividing
the total into two equal shares or, where the application for an accounting is
not under Part IV, such other shares as the court may under section 14 order;
and
(c) the amount payable by one spouse
or common-law partner to the other in order to satisfy the share of each spouse
or common-law partner as determined under clause (b).
Fair market value
15(2) The value of any asset for the purposes of subsection (1) shall
be the amount that the asset might reasonably be expected to realize if sold in
the open market by a willing seller to a willing buyer.
Valuation of non-marketable
assets
15(3) Where an asset is by its nature not a marketable
item, subsection (2) does not apply and the value of the asset for the
purposes of subsection (1) shall be determined on such other basis or by
such other means as is appropriate for assets of that nature.
Closing and valuation dates
16 In any accounting under section
15, the closing date for the inclusion of assets and liabilities in the
accounting, and the valuation date for each asset and liability shall be as the
spouses or common-law partners may agree and, in the absence of agreement,
(a) the date when the spouses or
common-law partners last cohabited with each other; or
(b) where the spouses or common-law
partners continue to cohabit with each other, the date either of them makes an
application to the court under Part III for an accounting of assets.
Method of payment
17 The amount
shown by an accounting under section 15 to be payable by one spouse or
common-law partner to the other may be satisfied
(a) by payment of the amount in a
lump sum or by instalments; or
(b) by the transfer, conveyance or
delivery of an asset or assets in lieu of the amount; or
(c) by any combination of
clauses (a) and (b);
as the spouses or common-law partners may agree or,
in the absence of agreement, as the court upon the application of either spouse
or common-law partner under this Act may order, taking into account the effect
of any interim order made under section 18.1.
The
Judgments Act, C.C.S.M. c.
J10
Exemptions
13(1) Subject to subsections (2), (3) and (4), unless otherwise
provided, no proceedings shall be taken under a registered judgment or
attachment against
(a) the farm land upon which the judgment debtor or his family actually resides or which he
cultivates, either wholly or in part, or which he actually uses for grazing or
other purposes, where the area of the land is not more than 160 acres;
. . .
Appeal
dismissed without costs.
Solicitors for the appellant: Gowling Lafleur
Henderson, Ottawa.
Solicitors for the
respondent: Thompson Dorfman Sweatman, Winnipeg.