



COURT OF APPEAL FOR ONTARIO

CITATION: Rusinek & Associates Inc. v.
    Arachchilage, 2021 ONCA 112

DATE: 20210223

DOCKET: C68306

Strathy
    C.J.O., Rouleau and Coroza JJ.A.

In
    the Matter of the Bankruptcy of Roshan Singho Dasanayaka Arachchilage, of the
    City of Toronto, in the Province of Ontario

BETWEEN

Rusinek & Associates Inc.,
    Licensed Insolvency Trustee for the Estate of Roshan Singho Dasanayaka Arachchilage

Applicant (Appellant)

and

Roshan Singho Dasanayaka
    Arachchilage and
Jayalukxhmi Baliah

Respondents (
Respondent
)

Sharon Sam and Mark Ross, for the
    appellant

David A. Schatzker and Richard D.
    Howell, for the respondent Jayalukxhmi Baliah

Heard: November 26, 2020 by video conference

On appeal from the judgment of Justice Cory
    A. Gilmore of the Superior Court of Justice, dated February 19, 2020, with
    reasons reported at 2020 ONSC 1090.

Rouleau J.A.:

A.

OVERVIEW

[1]

The question raised in the present appeal is
    whether a trustee in bankruptcy can initiate an equalization claim under the
Family
    Law Act
, R.S.O. 1990, c. F.3
(
FLA

). The answer to
    this question lies in the proper interpretation of ss. 5 and 7 of the
FLA
.

[2]

Section 5 of the
FLA
provides for the equalization
    of net family properties. This entitlement is, however, described as personal
    as between the spouses by s. 7(2) of the
FLA
. What this latter
    expression means and what limits, if any, it places on the entitlement provided
    in s. 5 is central to this appeal.

[3]

As I will explain, I conclude that the
    entitlement provided in s. 5 of the
FLA
, once it has crystalized,
    falls within the broad definition of property as found in s. 2 of the
Bankruptcy
    and Insolvency Act
, R.S.C. 1985, c.
    B-3
(
BIA

),
    without regard to whether an application has been initiated. However, with the
    limited exception provided in s. 7(2)(b) that has no application to trustees in
    bankruptcy, the limitation placed on this entitlement in s. 7(2) to the effect
    that it is personal as between the spouses operates to prevent anyone other
    than a spouse from starting an application for the equalization of net family
    properties. As a result, while an unexercised equalization entitlement
    constitutes property under the
BIA
for vesting purposes, a trustee in
    bankruptcy cannot initiate a claim for recovery of that equalization
    entitlement.

[4]

Therefore, for the reasons that follow, I would
    dismiss the appeal.

B.

FACTS

[5]

On March 15, 2003, Roshan Singho Dasanayaka
    Arachchilage (Roshan) and Jayalukxhmi Baliah, the respondent, were married.
    During their marriage, the matrimonial home was purchased and placed in the
    respondents name. According to the respondent, she paid the down payment and
    legal fees, made the mortgage payments, and paid all taxes and expenses related
    to the matrimonial home. She maintains that it was never the intention of the
    parties that Roshan would acquire an interest in the matrimonial home, as he
    never contributed to its acquisition or maintenance. Title to the matrimonial
    home is solely in her name.

[6]

In February 2015, the parties separated, and in
    October 2015, Roshan left the matrimonial home and has never returned. Their
    separation is permanent but neither party has commenced an application for the
    equalization of net family properties. The respondent continues to reside in
    the matrimonial home with the couples two children.

[7]

On November 30, 2015, Roshan made an assignment
    in bankruptcy, and Rusinek & Associates, the appellant, were appointed as
    bankruptcy trustee. Roshan remains an undischarged bankrupt. His declared
    unsecured liabilities total $282,700.

[8]

The appellant applied to the Superior Court for
    a declaration that the right to commence an equalization claim under the
FLA
has vested in it as Roshans trustee in bankruptcy.

[9]

The application judge determined that unless and
    until the right to commence an equalization claim is exercised by a spouse, the
    equalization claim is inchoate and does not constitute property for the
    purposes of the
BIA
. Therefore, the right to commence such a claim is
    not assignable and does not vest in the trustee in bankruptcy, as the decision
    remains personal as between the spouses.

C.

ISSUES

[10]

The issues raised on this appeal are as follows:

1.

Was this appeal properly brought before this
    court pursuant to s. 6(1)(b) of the
Courts of Justice Act
, R.S.O. 1990, c. C.43 (
CJA
)
;

2.

Is the unexercised entitlement to equalization
    of net family properties considered property for the purposes of the
BIA
,
and if it is, can an application for
    equalization be initiated by a trustee in bankruptcy; and

3.

If s. 7(2) of the
FLA
prevents a trustee
    in bankruptcy from initiating an application for equalization, is s. 7(2)
    rendered inoperative pursuant to the doctrine of federal paramountcy?

D.

ANALYSIS

(1)

Was this appeal properly brought before this
    court pursuant to s. 6(1)(b) of the
CJA
?

[11]

The appellant brought the present appeal
    pursuant to s. 6(1)(b) of the
CJA
. The respondent argues that the
    appeal ought to have been brought under s. 193 of the
BIA
and only
    after leave to appeal had been obtained by a judge of the Court of Appeal.

[12]

Section 6(1)(b) of the
CJA
provides as
    follows:

6 (1) An appeal lies to the Court of Appeal from,



(b) a final order of
    a judge of the Superior Court of Justice, except an order referred to in clause
    19 (1) (a) or an order from which an appeal lies to the Divisional Court under
    another Act[.]

[13]

The relevant parts of s. 193 indicate the
    following:

193 Unless otherwise expressly provided, an
    appeal lies to the Court of Appeal from any order or decision of a judge of the
    court in the following cases:



(c) if the property involved in the appeal
    exceeds in value ten thousand dollars;



(e) in any other case by leave of a judge of the
    Court of Appeal.

[14]

The respondent relies on
Business
    Development Bank of Canada v. Astoria Organic Matters Ltd.
, 2019 ONCA 269, 69 C.B.R. (6th) 13, at paras. 66-67, in support of the
    proposition that where there is jurisdiction for an appeal under both the
BIA
and
CJA
, the appellant must comply with the more restrictive provisions of the
BIA
. According to the
    respondent, where, as here, a matter of procedure is at issue, s. 193(c) does
    not apply because the proceeding is not about a sum of money. Therefore, leave to
    appeal is required pursuant to s. 193(e) of the
BIA
.

[15]

I would not give effect to this submission. First, the application was brought
    by the appellant before the Superior Court pursuant to r. 14.05(3)(d) of the
Rules of Civil Procedure
, R.R.O. 1990,
    Reg. 194, wherein the appellant sought to determine whether it had the right to
    commence an equalization claim by interpreting the
FLA
and the
BIA
. Furthermore, the final order was not one made in a bankruptcy
    proceeding nor was the application judge exercising a power conferred on her by
    the
BIA
.

[16]

Second, these proceedings involve the respondent, who is a stranger to
    the bankruptcy. When determining the issue of jurisdiction in cases involving a
    stranger to the bankruptcy, the court should answer the following question: will
    the
[stranger to the bankruptcy]
be a
    creditor of the bankrupt estate as a result of losing the application?: see
    L.W. Houlden, G.B. Morawetz & Janis Sarra,
Bankruptcy
    and Insolvency Law of Canada
, loose-leaf (2009-Rel.
    5), 4th ed. (Toronto: Thomson Reuters, 2013), vol. 3, at Part VII, I
§
7, p. 7-19. If the answer is in the negative, the
    bankruptcy court does not have jurisdiction to hear the matter. Here, the respondent
    is not a creditor of the bankrupt estate. She has not commenced any claim for
    equalization. Therefore, this is a matter of property and civil rights that was
    properly brought before an ordinary civil court.

[17]

I conclude that this appeal was properly brought before this court
    pursuant to s. 6(1)(b) of the
CJA
.

(2)

Is an unexercised entitlement to equalization of net
    family properties considered property for the purposes of the
BIA
,
and if it is, can an application for equalization be initiated by a
    trustee in bankruptcy?

(a)

The Relevant Legislation

[18]

Net family property is defined in s. 4(1) of the
FLA
as:

[T]he value of all the property, except
    property described in subsection (2), that a spouse owns on the valuation date,
    after deducting,

(a) the spouses debts and other liabilities,
    and

(b) the value of
    property, other than a matrimonial home, that the spouse owned on the date of
    the marriage, after deducting the spouses debts and other liabilities, other
    than debts or liabilities related directly to the acquisition or significant
    improvement of a matrimonial home, calculated as of the date of the marriage[.]

[19]

In s. 5 of the
FLA
, the Ontario legislature provided spouses with an entitlement to
    equalization of net family properties in certain circumstances. Sections 5(1), (2),
    and (3) are as follows:

5 (1) When a divorce is granted or a marriage is
    declared a nullity, or when the spouses are separated and there is no
    reasonable prospect that they will resume cohabitation, the spouse whose net
    family property is the lesser of the two net family properties is entitled to
    one-half the difference between them.

(2)
When a spouse dies, if the net family property of the deceased spouse
    exceeds the net family property of the surviving spouse, the surviving spouse
    is entitled to one-half the difference between them.

(3)
When spouses are cohabiting, if there is a
    serious danger that one spouse may improvidently deplete his or her net family
    property, the other spouse may on an application under section 7 have the
    difference between the net family properties divided as if the spouses were
    separated and there were no reasonable prospect that they would resume
    cohabitation.

[20]

Section 7(1) of the
FLA

provides for the commencement of an
    application for equalization. Section 7(2) of the
FLA
indicates that the entitlements created in ss. 5(1),
    (2), and (3) are personal as between the spouses. This section also provides
    the estate of the deceased spouse with certain rights to initiate or continue
    an application for the equalization of net family properties. Those sections
    read as follows:

7

(1)
    The court may, on the application of a spouse, former spouse or deceased
    spouses personal representative, determine any matter respecting the spouses
    entitlement under section 5.

(2) Entitlement under subsections 5 (1), (2)
    and (3) is personal as between the spouses but,

(a) an application based on subsection 5 (1)
    or (3) and commenced before a spouses death may be continued by or against the
    deceased spouses estate; and

(b) an application
    based on subsection 5 (2) may be made by or against a deceased spouses
    estate.

[21]

The
BIA
provides
    that, with limited exceptions, all of a bankrupts property passes to and vests
    in the trustee in bankruptcy. The relevant provisions of the
BIA
are as follows:

2
In this Act,



property
means
    any type of property, whether situated in Canada or elsewhere, and includes
    money, goods, things in action, land and every description of property, whether
    real or personal, legal or equitable, as well as obligations, easements and
    every description of estate, interest and profit, present or future, vested or
    contingent, in, arising out of or incident to property[.]



40

(1)
Any property of a bankrupt that is
    listed in the statement of affairs referred to in paragraph 158(d) or otherwise
    disclosed to the trustee before the bankrupts discharge and that is found
    incapable of realization must be returned to the bankrupt before the trustees
    application for discharge, but if inspectors have been appointed, the trustee
    may do so only with their permission.



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;



but it shall comprise



(d) such powers in or over or in respect of the
    property as might have been exercised by the bankrupt for his own benefit.



71
On a bankruptcy
    order being made or an assignment being filed with an official receiver, a
    bankrupt ceases to have any capacity to dispose of or otherwise deal with their
    property, which shall, subject to this Act and to the rights of secured
    creditors, immediately pass to and vest in the trustee named in the bankruptcy
    order or assignment, and in any case of change of trustee the property shall
    pass from trustee to trustee without any assignment or transfer.

72

(1)
The
    provisions of this Act shall not be deemed to abrogate or supersede the
    substantive provisions of any other law or statute relating to property and
    civil rights that are not in conflict with this Act,
and the trustee is entitled to avail
    himself of all rights and remedies provided by that law or statute as
    supplementary to and in addition to the rights and remedies provided by this
    Act
.

(b)

The Positions of the Parties

[22]

The appellant argues that the right to payment of an equalization claim
    vests in both spouses as soon as the right under s. 5(1) of the
FLA
, in this case permanent separation,
    has crystalized. The unexercised equalization claim then constitutes property
    in the hands of a spouse. No further steps are required on the part of a spouse
    to vest the equalization claim.

[23]

Because the unexercised equalization claim is property in the hands of
    a spouse on separation, it should, in the appellants view, also be property in
    the hands of the trustee in bankruptcy.

[24]

Notably, the definition of property in s. 2 of the
BIA
is broad and includes present or
    future, vested or contingent interests, whether in, arising out of, or incident
    to property. It also includes things in action, otherwise known as choses in
    action:
Meisels v. Lawyers Professional Indemnity
    Company
, 2015 ONCA 406, 126 O.R. (3d) 448, at para. 12.
    The trustee in bankruptcy is therefore not limited to the choses in action that
    have been initiated by the bankrupt prior to bankruptcy.

[25]

In the appellants submission, it is well established that a trustee in
    bankruptcy has the right to commence any proceeding otherwise belonging to the
    bankrupt, except for claims that are personal in nature such as claims for
    mental distress, pain and suffering, or reputational damage:
Wallace v. United Grain Growers Ltd.
,
[1997] 3 S.C.R. 701, at para. 38;
Meisels
, at paras. 11-13.

[26]

In addition, the appellant maintains that there is no support in the
    jurisprudence for the application judges conclusion that an equalization claim
    is inchoate and does not constitute property for the purposes of the
BIA
until the claim is initiated, when it
    then takes on a new form as property. In the appellants submission, the
    procedural step of commencing an application pursuant to s. 7 of the
FLA
does not render the equalization claim
    inchoate beyond the realm of contingent actions or choses in action that constitute
    property under the
BIA
.
    An equalization claim is no different than any other cause of action requiring
    the issuance of a statement of claim.

[27]

Lastly, the appellant argues that the stipulation in s. 7(2) of the
FLA

that the equalization
    entitlement is personal as between the spouses does not have the significance
    developed by the application judge and the respondent. Rather, the appellant
    submits that the use of the word personal simply distinguishes these claims
    from proprietary entitlements. Therefore, the expression personal as between the
    spouses is in no way intended to prevent the trustee in bankruptcy from commencing
    a claim to recover the property of the bankrupt.

[28]

For her part, the respondent supports the application judges determination
    that an equalization claim does not constitute property for the purposes of the
BIA
until an application
    has been commenced by a spouse. This, the respondent argues, flows from the
    Ontario legislature having qualified the entitlement to equalization of net
    family properties as one that is personal as between the spouses.

[29]

The respondent maintains that describing the entitlement to an equalization
    claim as personal as between the spouses means more than explaining that it
    is a non-proprietary claim. This language provides that the entitlement to an equalization
    claim is personal, in the sense that it can only be exercised by the spouses
    themselves, subject to the specific exceptions for estates set out in ss.
    7(2)(a) and (b) of the
FLA
.

[30]

In this regard, the respondent references Robert A. Klotz, Who Gets
    the Matrimonial Property Claim  And Then What? in Professor Jill Corraini
    & The Honourable D. Blair Nixon, eds.,
Annual
    Review of Insolvency Law 2019
(Toronto: Thomson
    Reuters, 2020) 471, at pp. 476-77
,
wherein Klotz explained the following:

The term personal or personal right is in
    common use in debtor-creditor law, having two related but distinct meanings. In
    a priority dispute involving third parties, a personal right is one that gives
    to the holder of the right, the ability to seek a court order declaring and
    enforcing that right; but until the order is made, gives no enforceable
    property right or priority over any given asset. In that sense, a personal
    right requires a triggering event, in the second sense above, to become a
    property right, a real right, a right
in specie
, or a claim having priority over another.



The other meaning of
    personal, as in personal cause of action, describes a right that has no
    existence independent of its holder, such that it cannot be bought or sold,
    cannot be exercised by anyone else, is non-assignable and cannot be stripped
    from its holder under debtor-creditor or bankruptcy law. For example, a drivers
    licence affords its holder the right to drive on public roads. It is personal
    in the sense that it cannot be sold or assigned; it cannot be seized by a
    creditor; it is useless to anyone else.

[31]

The respondent argues that the interpretation advanced by the appellant
    would state the obvious, as spouses do not have a claim to a proprietary
    interest in any particular property as a result of s. 5(1) of the
FLA
. In addition, such an interpretation
    is illogical and incoherent, as it would give no meaning to the phrase personal
    as between the spouses. According to the respondent, the only reasonable
    interpretation, therefore, is the one adopted by the application judge.

(c)

The Entitlement to an Equalization Claim is
    Property that Vests in the Trustee in Bankruptcy

[32]

It is well established in the case law that once a spouse has brought an
    application for the equalization of net family properties, that claim will vest
    in the trustee in bankruptcy upon that spouses assignment in bankruptcy: see
Blowes v. Blowes
(1993)
, 16 O.R. (3d) 318 (C.A.);
Green v. Green
, 2015 ONCA 541, 338 O.A.C.
    279, at para. 40. Once initiated by a spouse, an equalization claim constitutes
    property under the
BIA
and the trustee in bankruptcy has control over the claim and the proceeds. There
    is no limiting provision in the
BIA
or at the common law, nor does s. 7(2) of the
FLA

prevent the trustee
    in bankruptcy from pursuing the claim once a spouse has commenced an
    application.

[33]

It is apparent, therefore, that an entitlement to equalization is not,
    as suggested by the respondent, a personal cause of action, in the sense of
    a right that has no existence independent of its holder, as described by
    Klotz, at p. 477 of his chapter. Personal causes of action do not vest in the
    trustee in bankruptcy and the bankrupt remains free to pursue such an action in
    his or her own right: see
Wallace
, at para. 38;

Meisels
,
at para. 13. If the entitlement to equalization were such a personal
    cause of action, it could not be stripped from the bankrupt spouse upon
    assignment in bankruptcy and passed to the trustee in bankruptcy. Unlike true
    personal causes of action, a trustee in bankruptcy is entitled to the proceeds
    of an exercised equalization claim: see
Blowes
.

[34]

I do not, however, accept the appellants interpretation of what personal
    as between the spouses means. Interpreting these words as the Ontario legislature
    simply noting that a claim for equalization is non-proprietary would give
    little or no meaning to s. 7(2) of the
FLA
. A provision in legislation should not be given an interpretation that
    defeats the purpose of the statute or renders a provision pointless or futile:
Rizzo & Rizzo Shoes Ltd. (Re)
,
[1998] 1 S.C.R. 27, at para. 27;
Jackson v.
    Stephen Durbin and Associates
, 2018 ONCA 424, 142
    O.R. (3d) 379, at para. 26.
Nor should an interpretation
    render the provision illogical, incoherent, or incompatible with other
    provisions or the object of the enactment: see
R.
    v. Stipo
, 2019 ONCA 3, 370 C.C.C. (3d) 311, at para.
    177. I say that the appellants interpretation gives little or no meaning to s.
    7(2) of the
FLA
for three
    reasons.

[35]

First, the legislature would simply be stating the obvious. The fact
    that the claim is non-proprietary is clear from the wording of s. 5(1) of the
FLA
, where the entitlement itself is
    granted, and the definition of net family property in s. 4(1) of the
FLA
that speaks only of value and not of
    interests in any particular property. Indeed, s. 10(1) of the
FLA
establishes that a person may apply to
    the court to determine a question as to the ownership interest in any
    particular property other than a question arising out of an equalization of
    net family properties under section 5. In addition, case law establishes that
    such interests in property must be established before undertaking the equalization
    of net family properties. As the Supreme Court of Canada articulated in
Rawluk v. Rawluk
, [1990] 1 S.C.R. 70, at
    p. 90,

Sections 4 and 5 of
    the
Family Law Act, 1986
create a two-step property division process that emphasizes the distinction
    between the determination of legal and equitable ownership and the equalization
    of net family property. These sections require a court
first

to determine individual ownership piles and
then
to equalize
    the spouses assets by ordering the spouse with the larger ownership pile to
pay money
to the
    spouse with the smaller pile. [Emphasis added.]

[36]

Second, such an interpretation would be incompatible with the balance
    of the section. If it were a non-proprietary claim like any other, there would
    be no need for ss. 7(2)(a) and (b) to specify the persons who can exercise the
    right. Those clauses have nothing to do with the entitlement to equalization being
    proprietary or not.

[37]

Third, the words personal as between the spouses did not originate
    with the introduction of the
FLA
.
Subsection 7(2) is a modified version of s.
    4(3) of the
Family Law Reform Act
, R.S.O. 1980, c. 152, which was
    subsequently repealed in 1986 to make way for the
FLA
. Because those
    words existed in a property division legislative scheme, they must do more than
simply inform that the claims spouses have against one
    another are personal claims instead of proprietary claims.

[38]

How, then, are the words personal as between the spouses in s. 7(2)
    of the
FLA
to be
    interpreted where, as here, a spouses equalization claim has crystalized but
    an application to court has not been made by either spouse?

[39]

As noted earlier, the respondent argues that the application judge
    correctly found that the words personal as between the spouses in s. 7(2) of
    the
FLA
operate to make
    an unexercised but crystalized equalization claim an inchoate right that does
    not constitute property for the purposes of the
BIA
until it is
    exercised by one of the spouses
.

[40]

I disagree with the respondents submission.

[41]

In my view, such an interpretation is inconsistent with the intention
    and purpose of the
BIA
and with the established jurisprudence. Property, as it is defined in s. 2 of
    the
BIA
,
has been given a broad
    interpretation. As explained by Binnie J. in
Saulnier
    v. Royal Bank of Canada
, 2008 SCC 58,
[2008] 3 S.C.R. 166,
at para. 44:

The terms of the definition
    [of property] are very wide. Parliament unambiguously signalled an intention to
    sweep up a variety of assets of the bankrupt not normally considered property
    at common law. This intention should be respected if the purposes of the
BIA
are to be achieved.

[42]

Nothing in the
BIA
suggests that property is restricted to choses in action that have
    been commenced. As noted earlier, the definition of property includes choses
    in action, even where the claim has not yet been initiated by the bankrupt
    prior to bankruptcy. There is simply no precedent for the respondents
    suggestion that until the spouses equalization claim is commenced by a spouse,
    it is an inchoate right that does not come within the broad definition of
    property for the purposes of the
BIA
. No other claim is dealt with this way. Either the claim is property
    for the purposes of the
BIA
and vests in the trustee in bankruptcy, or
    it is personal in nature and the trustee in bankruptcy can neither advance the
    claim nor receive the proceeds from such a claim.

[43]

As explained earlier, if the claim were personal in nature, this would
    mean that a bankrupt spouse not only retained the capacity to initiate the
    claim during the currency of the bankruptcy but also to retain the proceeds of
    such a claim:
Wallace
, at
    para. 38;

Meisels
,
at para. 13. However,
    this court has already determined that a bankrupt spouse is not entitled to
    receive any proceeds from an application for equalization once it has been
    commenced, as it constitutes property and is vested in the trustee in
    bankruptcy: see
Blowes
.

[44]

I therefore reject the suggestion that the entitlement to an
    equalization claim is an inchoate right that does not constitute property until
    it is exercised by a spouse. Once a right to equalization has crystalized due to
    permanent separation, it has value to that spouse. The fact that a spouse has
    not taken the procedural step of commencing an application for the equalization
    claim does not take it outside the broad definition of property in the
BIA
. The equalization claim is like any
    other chose in action. Therefore, it vests in the trustee in bankruptcy.

[45]

Lastly, in oral submissions, the respondent advanced a somewhat nuanced
    position. She acknowledged that the bankrupt could not make an equalization
    claim following discharge from bankruptcy, as the claim itself does go to the
    trustee to the extent that it can be exercised. This suggests that the unexercised
    equalization claim is something different than a personal cause of action, as
    described in
Klotzs

chapter, at p. 477. This, in effect, was a
    concession that the right to commence the equalization claim had vested in the
    trustee in bankruptcy. It follows, therefore, that if the right to make the
    claim vested in the trustee in bankruptcy, an unexercised right to claim equalization
    falls within the broad definition of property under the
BIA
. I agree with this interpretation.

(d)

The Entitlement to Equalization Cannot be Initiated
    by the Trustee in Bankruptcy

[46]

Finding that the entitlement to an equalization claim is property and properly
    vests in the trustee in bankruptcy does not, as the appellant suggests, end the
    matter. The question remains as to whether, as argued by the respondent, s.
    7(2) of the
FLA
operates
    to prevent the trustee in bankruptcy from initiating the claim to recover that
    property. Put another way, what is the effect of s. 7(2) of the
FLA
on an unexercised equalization claim during
    the estate-administration stage of the bankruptcy?

[47]

As explained by Gonthier J. in
Royal Bank
    of Canada v. North American Life Assurance Co.
,
[
1996
]
1
    S.C.R. 325, at paras. 44-49, the Supreme Court of Canada recognized two
    distinct stages in a bankruptcy: the property-vesting stage, or the property-passing
    stage; and the estate-administration stage. At the time of the assignment in
    bankruptcy, by operation of s. 71 of the
BIA
, the trustee in bankruptcy is
    obligated to take possession of the bankrupts assets, and the bankrupts
    property passes to and vests in the trustee in bankruptcy. Once the bankrupts
    property has passed into the possession of the trustee in bankruptcy, the
BIA
provides the trustee in bankruptcy
    with the power to administer the estate. In
Royal Bank of Canada
, at
    para. 47, the Supreme Court gave the example of assets that are made exempt
    from execution or seizure under provincial laws, specifically citing life
    insurance annuities under ss. 2(kk)(vii) and 158(2) of
The Saskatchewan Insurance Act
, R.S.S.
    1978, c. S-26, as repealed by
The Insurance Act
, S.S. 2015, c. I-9.11, s. 11-1. Such assets vest in the trustee at the
    time of bankruptcy at the property-vesting stage. However, the exemption under s. 67(1)(b)
    of the
BIA
then operates
    at the estate-administration stage to bar the trustee from distributing exempt
    items to the creditors. Section 40(1) of the
BIA
then requires the trustee in bankruptcy to return unrealizable property
    to the bankrupt prior to the trustee in bankruptcys application for discharge.

[48]

The issue for this court to determine is, therefore, whether the
    qualification the Ontario legislature has imposed on the right granted in s. 7 of
    the
FLA

limits the trustee in bankruptcys ability to initiate the equalization
    claim during the estate-administration stage of bankruptcy. In my view, this is
    precisely the effect of the words personal as between the spouses in s. 7(2) of
    the
FLA
. A spouse makes the
    decision to initiate a claim for equalization, as it is something that is
    personal to the spouses, and that decision cannot be made by a trustee in
    bankruptcy or any other assignee.

[49]

In
Rondberg Estate v. Rondberg Estate
(1989)
, 62 D.L.R. (4th) 379 (Ont. C.A.),
    Grange J.A. considered the wording in s. 7(2) of the
FLA
, albeit in
    that case, it involved an executor of an estate making an election pursuant to
    s. 6 of the
FLA
rather than advancing a claim by a trustee in
    bankruptcy. The executor in that case sought to elect to make an equalization
    claim on behalf of a deceased spouse. In reaching the conclusion that the executor
    could not make such an election, Grange J.A., at p. 383, explained that:

I have come to the
    conclusion that Reid J. was right and that the Legislature of Ontario must be
    presumed to have intended to restrict the election (as opposed to the
    application) to a surviving and living spouse. The failure to specify any right
    of election in the personal representative under s. 6 coupled with the rights
    given them under s. 7 and the statement in the latter section that entitlement
    under s. 5 is personal between the spouses lead inevitably to that
    conclusion. Reid J. thought the omission was deliberate. As he put it, he
    could think of few things more personal than the consideration by a surviving
    spouse whether to respect or to override the wishes of the deceased. While the
    procedure to enforce the decision could be entrusted to a stranger to the
    marriage, the decision itself could not. [Citations omitted.]

[50]

That statement is apposite. There can be no
    doubt that the decision to advance an equalization claim is deeply personal. The
    respondent argues that, in the present case, if an equalization claim is made
    by the trustee in bankruptcy, it may result in the respondent and her children
    having to leave the matrimonial home, as it would likely have to be sold to
    fund the equalization claim.

[51]

Such a decision may create further conflict
    between the spouses by involving them in litigation and causing them to incur
    legal fees they may well not be able to afford. Conflict between spouses often
    has an impact on the children of the marriage. There is, of course, no
    obligation under the
FLA
for a spouse to make an equalization claim,
    and parties are encouraged to settle their affairs without resorting to the
    courts. As stated in the Preamble of the
FLA
, it is desirable to
    encourage and strengthen the role of the family and it is necessary to
    provide in law for the orderly and equitable settlement of the affairs of the
    spouses. This interpretation of personal as between the spouses is
    consistent with these overall purposes of the
FLA
.

[52]

If a spouse has already taken the step of
    commencing an application for the equalization of net family properties, the
    concerns outlined in the paragraph above are substantially reduced, as the
    parties are already in a situation of conflict. In such a case, the trustee in
    bankruptcy steps into the shoes of the bankrupt spouse and continues the claim
    that has already commenced.

[53]

Lastly, such an interpretation of personal as
    between the spouses is consistent with the rights the Ontario legislature has provided
    to estate trustees to administer claims for equalization after a spouses
    death. The interplay between ss. 5 and 7 of the
FLA
makes it clear
    that an estate trustee can continue an equalization claim that has commenced
    before the spouses death. However, a claim for equalization by a spouse having
    the lesser of the two net family properties cannot be initiated by the estate
    trustee after the spouses death.

[54]

In other words, an estate trustee cannot make
    the personal decision to exercise a right to recovery from a surviving spouse
    of the deceased spouses entitlement to equalization. There is, in my view, no
    principled reason why personal as between the spouses should be applied any
    differently to trustees in bankruptcy as to estate trustees. While the
    unexercised claim vests in the trustee in bankruptcy, absent the personal
    decision by a spouse to initiate an application for equalization of net family
    properties as provided in s. 7(2) of the
FLA
(the triggering event),
    the trustee in bankruptcy is unable to commence that claim for the purpose of
    distributing the proceeds of the litigation to creditors.

[55]

However, unlike exempt property, an unexercised
    equalization claim does not automatically become unrealizable property that
    must be returned to the bankrupt prior to the trustee in bankruptcys
    application for discharge, pursuant to s. 40(1) of the
BIA
. As Klotz
    points out, at pp. 531-39, a trustee may have other options for realizing value
    from that cause of action during the estate-administration stage, for example,
    a sale of the claim under s. 30 of the
BIA
. However, because
third parties would similarly be unable to initiate an unexercised
    equalization claim,
the practical effect of s. 7(2) of
    the
FLA
is to limit the potential buyers market. What steps a trustee
    in bankruptcy may or should take in realizing value from an unexercised
    equalization claim that has vested in the trustee in bankruptcy is not a
    question that is before the court. I leave that issue for another day.

(e)

Conclusions

[56]

In conclusion, I am of the view that the
    unexercised but crystalized claim for equalization is a chose in action that,
    on bankruptcy, constitutes property at the property-vesting stage of a
    bankruptcy. However, s. 7(2) of the
FLA
prevents a trustee in
    bankruptcy from initiating the claim for the recovery of the equalization
    entitlement during the estate-administration stage of a bankruptcy. This is because
    the required triggering event pursuant to s. 7(2) of the
FLA
, the initiation
    of the application by a spouse, has not occurred.

(3)

Does the doctrine of federal paramountcy render
    s. 7(2) of the
FLA
inoperative
?

[57]

The appellant argues that if s. 7(2) of the
FLA
prevents a trustee in bankruptcy from commencing a claim for equalization, then
    the doctrine of federal paramountcy renders it constitutionally inoperative. In
    the appellants submission, where, as here, a federal and a provincial statute
    are independently valid, but a conflict prevents compliance with both laws,
    then the provincial law, the
FLA
, will be read down to not conflict
    with the federal statute, the
BIA
: see
Alberta (Attorney General)
    v. Moloney
, 2015 SCC 51,
[2015] 3 S.C.R. 327, at
    paras. 17-18, 29
.

[58]

The appellant explains that, by interpreting s.
    7(2) of the
FLA
as preventing the trustee in bankruptcy from
    initiating a claim for equalization, the trustee in bankruptcy is prevented
    from realizing on an asset of the estate, the crystalized but unexercised right
    to equalization, for the benefit of the bankrupts creditors. This frustrates
    the equitable distribution of the bankrupts assets among the bankrupts
    creditors, which is one of the purposes of the
BIA
:
Moloney
,
    at para. 32.

[59]

Where the
BIA
tells the trustee in
    bankruptcy to do something and the
FLA
prevents it, the provision of
    the
FLA
is incompatible with the purpose of the
BIA
,
and the provisions are in conflict. The
    laws cannot operate concurrently, and, as a result, the appellant submits that s.
    7(2) of the
FLA
should be declared constitutionally inoperative by
    reason of the doctrine of federal paramountcy.

[60]

I disagree. The right to equalization is a creation
    of the provincial legislature. The province that created the right is free to
    limit the circumstances in which an application for equalization can be
    commenced. As I have explained, by providing that the right to commence an
    equalization application is personal as between the spouses, the province has
    made this equalization right subject to a triggering event. Only a spouse can
    choose to commence that application. In a sense, this is no different than the conditions
    imposed in s. 5(1) of the
FLA
, whereby the equalization of net family
    properties can only occur if there is a divorce, a declaration of nullity of
    marriage, or a separation with no reasonable prospect of resumed cohabitation.

[61]

The trustee in bankruptcy takes the property during
    the property-vesting stage of bankruptcy in the form it was given by the
    province, which is a property right that is subject to the triggering event. A
    statutorily created asset subject to a condition over which the trustee in
    bankruptcy has no control does not, in my view, make the section creating the
    limitation incompatible with the purpose of the
BIA
,
as suggested by the appellant. Upon
    bankruptcy, the trustee in bankruptcy gets no more than what any other
    assignee, such as an estate trustee, would receive: that is, a right to pursue
    an equalization claim once the decision is made by a spouse, and only a spouse,
    to initiate the claim. Such an interpretation does not conflict with the
BIA
.

[62]

As stated earlier, while s. 7(2) of the
FLA
prevents a trustee in bankruptcy from initiating an unexercised equalization
    claim, it does not necessarily prevent a trustee in bankruptcy from realizing value
    from that cause of action during the estate-administration stage, although its
    practical effect is to limit the trustee in bankruptcys options. In this
    sense, there is no operational conflict between s. 7(2) of the
FLA
and
    the scheme and purpose of the
BIA
.

[63]

I conclude that s. 7(2) of the
FLA
is
    not in operational conflict with the
BIA
, nor does it frustrate the
    purpose of the
BIA
. Therefore, the doctrine of federal paramountcy is
    not applicable in the present appeal.

E.

DISPOSITION

[64]

For these reasons, I would dismiss the appeal. I
    would award costs to the respondent in the agreed amount of $10,000, inclusive
    of disbursements and applicable taxes.

Released: February 23, 2021 GRS

Paul Rouleau J.A.

I agree G.R. Strathy C.J.O.

I agree S. Coroza J.A.


