



COURT OF APPEAL FOR ONTARIO

CITATION: Fiorito v. Wiggins, 2017 ONCA 765

DATE: 20171004

DOCKET: C62788

Laskin, Feldman and Miller JJ.A.

BETWEEN

Anna Maria Fiorito

Applicant (Appellant)

and

Jefferson Ross Wiggins

Respondent (Respondent)

Brandon Jaffe, for the appellant

Brian Ludmer, for the respondent

Heard: August 24, 2017

On appeal from the order of Justice Pamela L. Hebner of
    the Superior Court of Justice, dated September 23, 2016.

FELDMAN J.A.:

[1]

Following protracted custody and access litigation that involved two
    lengthy trials and an appeal to the Court of Appeal, costs of $200,000 were
    awarded to the father. During a further access review hearing ordered by the
    Court of Appeal that proceeded before the awarded costs were paid, the mother
    made an assignment into bankruptcy.

[2]

The issue in this appeal is whether the bankruptcy judge erred in law by
    lifting the automatic stay arising from the bankruptcy to allow the father to
    enforce the $200,000 debt for costs against otherwise exempt assets of the
    mother.

[3]

I would dismiss the appeal.

Background Facts

[4]

The parties were married on May 23, 1998 and have three daughters. At
    the time of the motion under appeal, the children were aged 15, 13 and 12. The
    parties separated on February 8, 2008. Following two years of custody and
    access litigation, 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 agreed settlement.

[5]

The father brought a contempt motion, which was heard together with a
    custody and access trial over 22 days from March to May 2011. Justice Harper
    found the mother to be in contempt of previous interim orders. The children
    expressed fear and dislike of the father because of the mothers fear and
    dislike of him. Justice Harper sentenced the mother 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 Harper J.s order. The children were
    found to be in need of protection. There was to be a review of the custody and
    access order before Harper J. in six months: see
F. (A.M.) v. W. (J.R.)
,
    2011 ONSC 1868, 6 R.F.L. (7th) 282.

[6]

The review took place over 23 days from July 2012 to April 2013. 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, Harper J. granted custody of the children to the
    father with access to the mother only during weekly sessions with the
    childrens 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: see
F. (A.) v. W. (J.)
, 2013 ONSC 4272. Costs in the
    amount of $400,000 were awarded to the father for the 2011 and 2013 proceedings:
    see
F. (A.) v. W. (J.)
, 2013 ONSC 7770.

[7]

On appeal in October 2015, this 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: see
Fiorito v. Wiggins
, 2015 ONCA 729, 69
    R.F.L. (7th) 5.

[8]

After the date of February 1, 2016 was set for the review hearing, the
    father brought a motion returnable on January 22, 2016 for the purpose of
    obtaining or ensuring payment of the $200,000 costs award. He wanted security
    orders and payment as a condition of proceeding with the review hearing. Justice
    Hebner refused any delay, as the Court of Appeal had required the review to be
    held no later than February 2016. Instead, she made a temporary order, on
    consent, that: (i) the mother produce to the father copies of all bank and
    investment statements (personal and corporate); (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 RRSPs and from
    dissipating assets.

[9]

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

[10]

During
    the review hearing, on February 9, 2016, 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. Before the
    assets could be garnished, the mother had to convert them to cash. In
    responding evidence, the mother took the position that her RRSPs could not be
    garnished as they were in the nature of a trust. The motion was never heard, as
    the mother made an assignment into bankruptcy on February 22, during the review
    hearing.

[11]

In
    the bankruptcy, the mother claimed exempt assets of $295,600. She claimed no
    other assets with any value. Her home was valued at $275,000 and was fully
    mortgaged. The value of her shares in her corporation was $1. Comparing the
    financial statement the mother filed in response to the January enforcement motion
    with the one filed for the bankruptcy proceeding, her debts had increased by
    $41,192, with no explanation given.

[12]

The
    motion judge noted the legal effect of the mothers assignment into bankruptcy
    on the father: (i) he was no longer able to enforce the costs award; (ii) upon the
    mothers discharge, that award would be unenforceable; and (iii) the mother
    would be able to keep her RRSPs. This result would occur because although RRSPs
    are exempt assets in bankruptcy, under Ontario law they are not exempt from
    creditors outside of bankruptcy, as they are not a class of property specified
    under the
Execution Act
, R.S.O. 1990, c. E.24. The mother would
    therefore be able to keep those assets.

Decision of the Motion Judge

[13]

The
    father brought a motion, heard on August 5, 2016, for an order annulling the
    bankruptcy or, alternatively, lifting the stay under s. 69.4 of the
Bankruptcy
    and Insolvency Act
, R.S.C. 1985, c. B-3 (the BIA), and authorizing the
    father to continue his enforcement of the costs award against the mothers
    registered assets.

[14]

The
    motion judge referred to s. 69.4 of the BIA, which allows the court to make a
    declaration that the automatic stay on bankruptcy does not operate in respect
    of the applying creditor where the creditor is likely to be materially prejudiced
    by the stay, or where it is equitable on other grounds. She considered case law
    regarding lifting stays to allow a spouse to enforce an equalization claim
    against exempt assets, including
Schreyer v. Schreyer
, 2011 SCC 35,
    [2011] 2 S.C.R. 605, and
Scott (Re)
, 2014 ONSC 5566, 51 R.F.L. (7th)
    233. She also considered
Shirkie v. Shirkie
, 2015 SKQB 303, 67 R.F.L.
    (7th) 274, where a bankruptcy stay was lifted to allow a spouse to pursue a
    family property claim against exempt assets.

[15]

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 RRSPs 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 mothers
    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.

[16]

Based
    on those factual findings, the motion judge found that the father was likely to
    be materially prejudiced by the continued operation of the stay. She concluded,
    based on the record, that the father was likely to receive nothing towards his
    costs award unless the stay was lifted, and she observed that allowing him to
    enforce that award against the mothers bankruptcy-exempt assets would not
    affect other creditors. She was also satisfied, on the alternative ground, that
    it was equitable to grant the declaration. Finally, because the costs debt
    would be released on the mothers discharge from bankruptcy, the motion judge
    also ordered the discharge to be stayed for a reasonable period of time to
    allow the father to take the appropriate enforcement steps.

Issues

[17]

The
    issues on this appeal are:

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?

Analysis

(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?

[18]

In
    the Supreme Court of Canada case of
Schreyer
, 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 Manitobas
The Judgments Act
, C.C.S.M. c. J10, and could
    not be disposed of by the trustee in bankruptcy for distribution to creditors.

[19]

Speaking
    for the court, at para. 32, LeBel J. stated:

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. Master), at para. 16; and,
    generally, on Parliament's concern for the support of families,
Marzetti v.
    Marzetti
, [1994] 2 S.C.R. 765 (S.C.C.), at pp. 800-01.

[20]

The
    appellant submits that LeBel J.s statement of the law applies only to an
    equalization payment, and not to a custody costs award. The argument hinges on
    what she submits is a necessary link between a lift-stay order and a spouses ability,
    before bankruptcy, to obtain an order granting a proprietary interest in the
    other spouses property under s. 9(1) of
Family Law Act
, R.S.O. 1990,
    c. F.3 (the FLA) when applying for an order for an equalization payment. Such
    a proprietary order is not available to enforce a costs award.

[21]

Sections
    9(1)(b) and (d) of the FLA provide:

9 (1) In an application under section
    7, the court may order,



(b) that security, including a
    charge on property, be given for the performance of an obligation imposed by
    the order;



(d) that, if appropriate to satisfy
    an obligation imposed by the order,

(i) property be transferred to or in
    trust for or vested in a spouse, whether absolutely, for life or for a term of
    years, or

(ii) any property be partitioned or sold.

[22]

Section
    5 of the FLA establishes entitlement to an equalization payment between
    spouses. Section 7 provides the mechanism to apply to court to determine any
    matter respecting the entitlement under s. 5.

[23]

In
Schreyer
, LeBel J., at para. 25, explained that the only way Ms.
    Schreyers equalization claim would not have been extinguished by Mr.
    Schreyers discharge from bankruptcy was by obtaining an order lifting the stay
    so that she could seek a proprietary remedy under s. 17 [of
The Family
    Property Act

of Manitoba]. That section is to the same effect as
    s. 9(1) of the Ontario FLA. The appellant submits that the lift-stay remedy is
    therefore only applicable where the creditor spouse is then able to obtain a
    proprietary interest in exempt assets in pursuit of an equalization claim.

[24]

I
    do not accept this submission. 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, RRSPs 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) 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 spouses
    RRSPs become exempt property: see BIA, s. 67(1)(b.3). Accordingly, the
    lift-stay remedy allows the creditor spouse to execute any debt against RRSPs;
    they are only exempt under the bankruptcy regime, not under the provincial
    property and creditors rights laws.

[25]

Similarly,
    I do not accept the appellants argument that the effect of the lift-stay order
    is to give the respondent a proprietary interest in the RRSPs for a costs debt,
    effectively expanding the courts power under s. 9(1) of the FLA. As stated, under
    Ontario law, the respondent does not require a proprietary order to execute
    against RRSPs, as outside bankruptcy they are not assets that are exempt from
    execution.

[26]

Furthermore,
    there is nothing in the reasons of LeBel J. that 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.

[27]

Maximizing
    returns to the family unit as a whole, not just the bankrupt, is identified by
    LeBel J., at para. 32, as a policy objective of bankruptcy law. 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)

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

(a)

Material Prejudice

[28]

The
    appellant submits that the motion judge erred by finding that the respondent
    would suffer material prejudice because he would likely receive nothing towards
    his costs award in the bankruptcy. The appellant argues that s. 69.4(a)
    requires prejudice different from that experienced by other unsecured
    creditors, and that the fathers prejudice is no different from that suffered
    by any other unsecured creditor in a bankruptcy.

[29]

I
    would not accept the submission that the motion judge erred in her interpretation
    or application of the material prejudice requirement of the section. Her
    conclusion is readily justifiable by the record.

[30]

The
    appellant argues that differential treatment is a requirement for material
    prejudice. I disagree. In my view, differential treatment may justify a finding
    of material prejudice. However, it is not a necessary factor. The appellant
    cites
Ingles (Re)
(1997), 46 C.B.R. (3d) 202 (B.C. S.C., in Chambers),
Janodee Investments Ltd. v. Pellegrini
(2001), 25 C.B.R. (4th) 47
    (Ont. S.C.) and
Exponents Canada Inc. v. Sharma
, 2014 ONSC 7097, 19
    C.B.R. (6th) 231. However, these cases include differential treatment as one
    possible kind of material prejudice. Material prejudice arises when the
    bankruptcy would treat a creditor unfairly, differently or in some way worse
    than other creditors: see
Ingles
, at para. 23;
Janodee
, at
    para. 28; and
Exponents
, at para. 69.

[31]

Material
    prejudice can arise from the size of the debt and the expected loss. As noted by
    Farley J. in
Cumberland Trading Inc. (Re)
(1994), 23 C.B.R. (3d) 225
    (Ont. Gen. Div.), at para. 11, material prejudice:

[I]s an objective prejudice as opposed to a subjective one 
    i.e., it refers to the degree of the prejudice suffered vis-à-vis the
    indebtedness and the attendant security and not to the extent that such
    prejudice may affect the creditor
qua
person, organization or entity.

[32]

The
    motion judge made three factual findings that differentiated the respondents
    position from that of other creditors and demonstrated the unfairness he faced:
    (i) the need for the father to pursue lengthy custody and access litigation in order
    to have any relationship with his children; (ii) the mothers 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. It was these findings that grounded the
    finding of prejudice.

[33]

Section
    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 on Other Grounds

[34]

The
    appellant also submits that the motion judge erred in finding that it was
    equitable to grant the declaration lifting the stay in favour of the
    respondent. She argues that the cause of the debt is not relevant to the
    consideration of the equities, nor did the change in her intention regarding an
    assignment into bankruptcy either prejudice the respondent or create an
    inequity. She also argues that, while the motion judge could have postponed the
    review regarding access to the children, the motion judge could not have
    transferred the RRSPs to the father using s. 9(1) of the FLA because the debt arose
    from a costs award and not an equalization claim.

[35]

I
    do not agree with these submissions. Under s. 69.4 courts have a wide
    discretion based on the particular facts of the particular case: see L.W.
    Houlden, G.B. Morawetz and Janis Sarra,
Bankruptcy and Insolvency Law of
    Canada
, 4th ed. (Toronto: Thomson Reuters, 2016) vol. 2 at pp. 3-350,
    3-400.1. The motion judge was clearly entitled 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. Further,
    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. The court had previously
    relied on her representations that: (i) she intended to pay the costs; and (ii)
    she had no intention of filing for bankruptcy to avoid this payment. It is
    apparent that the motion judge did not accept that the appellants behaviour
    was a simple change of intention.

[36]

Further,
    as in
Schreyer
, because the respondent would be enforcing the costs
    award against exempt assets in the bankruptcy, other creditors would not be
    affected. As LeBel J. held, at para. 32, [i]n keeping with the wording of s.
    69.4(
b
) [of the]
BIA
, this is why it would be equitable on
    other grounds to make such an order.

[37]

The
    appellant repeats again here her submission regarding the limited application
    of s. 9(1) of the FLA. To be clear, the motion judge did not refer to this
    provision or intend to make any order under it. The orders she made regarding
    the RRSPs were only to facilitate their liquidation for ease of execution and
    to prevent the appellant from dissipating them. The orders did not give the
    respondent a proprietary interest or preference in respect of those assets.

[38]

Lastly,
    on this point, the appellant argues that none of the factors listed in
Advocate
    Mines Ltd.
,
(Re)
(1984), 52 C.B.R. (N.S.) 277 (Ont. S.C.),
    that are typically present when a bankruptcy stay is lifted are present in this
    case. However, the appellant rightfully concedes that these factors are not an
    exhaustive list. Given the strong equitable grounds, lifting the stay was
    appropriate in this case. Further, in light of the history and current status of
    the proceedings, I would find that logic dictates that this claim be allowed
    to proceed, in line with the fifth
Advocate Mine
s
factor: see
Advocate
    Mines
, at p. 278.

(3)

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

[39]

The
    appellant submits that the respondent could have opposed the appellants
    discharge from bankruptcy and thereby shared with other creditors in any
    payment made as a condition of that discharge. She points to evidence that
    there was potential further growth of equity in her home. She also argues that
    the value of her exempt assets would lead the bankruptcy court to order a
    payment as a condition of discharge.

[40]

Accordingly,
    the appellant argues that the motion judges finding that the respondent would
    likely receive nothing toward his costs award misapprehends and denigrates the
    bankruptcy regime and the rights of creditors under that regime.

[41]

I
    disagree. The motion judges finding was reasonable based on the appellants
    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.

[42]

In
    any event, 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 does not
    denigrate the regime. In this case, there are sound reasons, consistent with
    the scheme of the [BIA] to relieve against the automatic stay: see
Ma (Re)
(2001), 143 O.A.C. 52 (C.A.), at p. 54 (citations omitted).

[43]

Finally,
    regardless of whether the respondent received nothing in the bankruptcy or a
    small dividend towards the $200,000 costs debt, the findings of material
    prejudice and that it was equitable to make the declaration for a lift-stay
    would be amply justified.

Result

[44]

I
    would dismiss the appeal with costs fixed at $25,000 inclusive of disbursements
    and HST, to be included within the lift-stay order.

Released: K.F. October 4, 2017

K. Feldman
    J.A.

I agree.
    John Laskin J.A.

I agree.
    B.W. Miller J.A.


