Snider (Re), 2014 ABQB 736

Court of Queen ’ s Bench of Alberta Citation: Snider (Re), 2014 ABQB 736 Date: 20141202 Docket: B101 636925 Registry: Calgary Between: In the Matter of the Bankruptcy of Kent Christopher Snider _______________________________________________________ Memorandum of Decision of Andrew R. Robertson , Q.C., Registrar in Bankruptcy _______________________________________________________ Introduction [ 1 ] This application is brought to appeal the trustee’s decision to disallow the applicant’s claim in the bankruptcy. She is the former wife of the bankrupt, and her claim is for support payments.

Her claim was disallowed because the trustee says that her entitlement to support payments arose under an order made after the initial bankruptcy event. He refers to section 121(4) of the Bankruptcy and Insolvency Act (“BIA”) as well as a decision from Ontario, discussed below. [ 2 ] The order on which the applicant primarily relies is an order granted by Mr. Justice Poelman on March 5, 2014 in the matrimonial proceedings between the applicant and the bankrupt.

On that date he imputed an income of $120,000 per annum to the bankrupt retroactive to January 1, 2010 through to the date of his order and ongoing, with respect to the payment of sections 3 and 7 child support obligations as per the Federal Child Support Guidelines. The obligation to pay support payments was also expressly made retroactively, using the imputed income as the basis for the calculations of the amounts. [ 3 ] At the time Poelman, J. made that order, he was not aware that the former husband was in bankruptcy.

The trustee in bankruptcy was not given notice of the application and of course did not attend. It is clear that the Court did not turn his mind to section 121(4) of the BIA .

[ 4 ] The trustee argues that the March 5, 2014 order does not have the effect that the applicant says it has, because it was made after the date of the initial bankruptcy event, being the assignment, which occurred June 18, 2012. [ 5 ] The applicant says that she has a claim in the bankruptcy for unpaid support payments, and that she has a preferred claim under section 136(1) (d.1) of the BIA . The trustee says she does not have a claim at all.

Facts [ 6 ] For convenience, I will refer to the bankrupt Kent Christopher Snider as the “bankrupt” and occasionally as the “husband”, regardless of whether the parties remained married, or he had yet made his assignment in bankruptcy, at the time to which I refer. I will refer to the applicant, who I gather now goes by another last name, as the “applicant” throughout, although she was the defendant in the matrimonial proceedings. Interim Support Order Made in 2009 [ 7 ] There was an interim order made by Madam Justice Nation on September 14, 2009 that provided for support payments.

That was made shortly after the bankrupt lost his job, and it was intended only to be an interim order. It specifically provided, among other things, that he would pay interim child support of $1,410 on September 1, 2009, $1,000 on October 1, 2009, and commencing November 1, 2009 he was to pay support as per the Federal Child Support Guidelines in accordance with the “employment insurance” (meaning employment insurance benefits) that he was expected to receive at that time, or in the alternative, his employment income from new employment.

Those payments were to be made on the first day of each and every month, and continue on an ongoing basis until further order of the court. [ 8 ] That order preceded the assignment in bankruptcy, which occurred June 18, 2012. [ 9 ] The September 14, 2009 interim order of Nation, J. did not quantify the amounts, because his income going forward was not yet known, since he had recently lost his job.

He was directed to keep his the applicant, being his spouse (now former spouse), fully informed of his employment insurance benefits or alternatively his income. [ 10 ] The interim order specifically contemplated, in both paragraphs 9 and 11, that there would be a retroactive adjustment to the support benefits, to be dealt with at a domestic special application.

The order did not clarify whether the retroactive order that Nation J. contemplated would be made later would simply “plug in” the numbers arising from his actual employment insurance benefits or his income, or the retroactive order would involve some other assessment on which support payments would be directed to be made. The fact that a special application was contemplated suggests that there was likely going to be more than simple arithmetic involved.

Matrimonial Proceedings Taken in 2014 [ 11 ] The domestic special application did not occur for almost another five years - not until Justice Poelman’s order of March 5, 2014, almost 21 months after the assignment in bankruptcy. [ 12 ] In the meantime, counsel for the applicant had been made aware of the bankruptcy, but she did not give notice of the application on March 5 to the trustee in bankruptcy, Mr. Nykyforuk. She explained to me in oral argument that she had understood that the bankruptcy and been terminated by then.

She had not heard anything for almost a year, and simply assumed that the bankruptcy was over. [ 13 ] The application before me was not merely an appeal of the decision disallowing the claim, but also it asked for relief, “such that she shall keep the sum of $33,105.06 currently in her possession as per the intention of the parties during the matrimonial proceedings as between them.” This fund was the bankrupt’s share of the net proceeds of the sale of the former matrimonial home. The sale had occurred well prior to the bankruptcy and the funds had remained in the applicant’s lawyer’s trust account for years.

Review of Matrimonial File [ 14 ] The matter was brought before me in morning chambers, at the end of a long list, and it became clear that the factual background was not straightforward. There had been an order, I was told, allowing the $33,105.06 to be paid out of the trust account of the applicant’s legal counsel, and then a consent order was made setting aside that order and directing that the money be paid to the trustee in bankruptcy, apparently without a resolution of the trustee’s entitlement to it.

There was no evidence properly before me explaining what that was about. [ 15 ] It became clear that that important information would be in the matrimonial file. The order releasing the funds to the applicant had been made in the matrimonial proceedings, and the consent order setting aside was filed in both the bankruptcy proceedings and the matrimonial proceedings. Therefore, I was being asked to deal with a fund where the entitlement to it spanned both court files. [ 16 ] After hearing arguments regarding, primarily,

section 121 of the BIA , and not being clear about the $33,105.06 figure, what it represented, and how it was relevant, I reserved and subsequently called for the matrimonial file, so that I could understand the history relating to the sale of the home, the negotiations regarding the proceeds, the possibility that there was a pre-bankruptcy agreement as to the use of the funds, the facts leading to the prior interim support order, Poelman, J.’s March 5, 2014 order for retroactive support payments, the order for payment of the $33,105.06 to the applicant, and the consent order reversing that order. [ 17 ] In the matrimonial file I found an affidavit of Mr.

Nykyforuk made in support of the application to set aside the order releasing the funds (this led to the consent order having that effect). It is clear that the trustee’s legal counsel had reviewed the matrimonial file to prepare that affidavit. Accordingly, although the matrimonial file was not before me in bankruptcy chambers, it is clear that both legal counsel were familiar with its contents.

The Root Cause of the Dispute [ 18 ] The fundamental problem throughout, for all parties, is the lack of helpful communication by the bankrupt. When the bankrupt made his assignment in bankruptcy, he did not tell the trustee about the sale proceeds that were held in trust, and he apparently did not disclose the circumstances of his separation, the interim support order from September 14, 2009, the negotiations relating to the sale proceeds, perhaps an agreement regarding how they were to be used, and the claims advanced by his wife.

When the negotiations were underway to try to deal with proceeds of the sale of their house, he stopped communicating with both his lawyer (who withdrew from the file) and his wife. [ 19 ] The consequence is that the trustee in bankruptcy was not aware of the fund now subject to the contest and neither the applicant nor her legal counsel, were (initially) aware that any claim was being made to the fund by the trustee. [ 20 ] The applicant’s legal counsel explained that she was not initially familiar with bankruptcy proceedings (she said her knowledge had “ballooned” over the course of this dispute).

Relevant Information from the Matrimonial File [ 21 ] As a result of my review of the matrimonial file, there are a number of events of which I am now aware, or at least evidence of which I am now aware. Although not all of the allegations set out in the affidavits have been acknowledged as true, the following is a list of events that appear to be either accepted as true or not seriously challenged, and which appear to be at least peripherally relevant to an understanding of the facts: (

a) The parties separated on December 27, 2008. (

b) In her affidavit of August 26, 2009 the applicant deposed that the bankrupt had provided no voluntary spousal support up to that date and she made allegations of inappropriate behavior by him. On September 9, 2009 he filed an affidavit in response putting forward his evidence relating to the supposedly inappropriate behavior. I mention this simply to note that evidence of bad behaviour presented by the parties has been hotly contested. (

c) In his affidavit sworn October 12, 2010, the bankrupt deposed that on April 29, 2010 his lawyer sent a settlement proposal to his wife’s lawyer dealing with the issue of matrimonial property, but no response was received until late September 2010, when a counter proposal was made. It was not acceptable, and no subsequent activity took place (up to the date of the affidavit, October 12, 2010). (

d) In his affidavit sworn March 11, 2011 he said that his wife was cohabiting with a new partner, and was pregnant with his child. She acknowledged this in her April 27, 2011 affidavit, para. 19. (In oral argument, and in the materials filed for the appeal before me no mention was made of a fourth child or a new relationship, and argument was made somewhat on the basis of what has been called by members of the Supreme Court of Canada as the “feminization of poverty”. While the new relationship and the new child are not strictly speaking relevant, an overall picture would have been of assistance.

I was led to believe that the applicant is a single mother of three children making her way in the world alone.) (

e) There were proceedings brought in 2011 for the distribution of the proceeds of the sale of their home, which were then held in trust. The property had been sold to the applicant’s sister and apparently she and their three children continued to live in the house. An order was granted May 3, 2011 by Nation, J. directing that $10,000 of the funds be paid to each of the parties. This left the figure of $66,210.12 in trust for both of the applicant and her husband. (

f) The assignment in bankruptcy occurred June 18, 2012. (

g) The application giving rise to the order to have the proceeds paid out was brought originally returnable February 21, 2014, and the application (filed February 18, 2014) asked as relief, “that the remaining balance of the net sale proceeds from the sale of the matrimonial home in the amount of $66,210.12 be immediately released to the defendant [the applicant here] in full to account for the

section 3 and

section 7 child-support arrears that have been accrued to date by the plaintiff [the husband]”. The affidavit in support (or one of the affidavits in support, as the application said that she also relied on her April 27, 2011 and August 28, 2009 evidence) did not allege that an agreement had been reached relating to the funds in question. She advised of unreported income she had learned about, because he had worked for his uncle’s advertising company and his sister’s cleaning company. She asserted that she was entitled to her

section 3 child support payments totaling $21,600, that the

section 7 expenses, associated with their children’s involvement in dance, totaled $48,653.31, and that one of their daughters required braces costing $6,000, of which he had insurance coverage and she was therefore claiming the remaining $4,500. In paragraph 31 of that affidavit, she deposed that she required the release of the $66,210.12 from her lawyer’s trust fund immediately, “so that I can provide for the debts that have accrued in providing for my daughters’ basic needs and for their ongoing educational and extra-curricular expenses.” (

h) The application proceeded before Madam Justice Martin on February 21, 2014 in morning chambers. A transcript of the proceedings is attached as exhibit I to the affidavit of Barry Nykyforuk sworn April 16, 2014 in support of an application to set aside the order.

At page 4, beginning at line 5, in response to the Court’s question, “[A]nd was there ever an agreement?”, counsel for the applicant said that they had attempted to enter into an agreement, they had gotten as far as a draft, that the husband disappeared for a period of time, and that the applicant had no money to continue with litigating a claim because the bankrupt’s stated objective was that he was going to “break” her if she separated from him.

These submissions do not appear to be entirely supported in the affidavit evidence, although in her April 27, 2011 affidavit at paragraph 6 she gave some details of his alleged threat to under-employ himself. Counsel indicated that the applicant was attempting to get the funds released and then attend at a domestic special application to deal with the ongoing amounts of support and perhaps some for the retroactive calculation, so that she could involve the Maintenance Enforcement Program. (

i) It appears that the last communication from the trustee in bankruptcy before that application had been by way of an email sent to

counsel for the applicant on March 18, 2013 – almost a year earlier. In that email, he said, “We do understand from the bankrupt that there has never been Spousal Support ordered to be paid, therefore, our position will be that the bankrupt estate ought to be entitled to receive 50% of the funds being held in trust.” He was claiming that $33,105.06 should be paid to the trustee as part of the bankrupt’s estate. Observations as to the Passage of Time [ 22 ] It appears that the applicant’s legal counsel did not reply to the trustee’s March 18, 2013 email.

This is very unfortunate. [ 23 ] The trustee appears to have been given false and inadequate information by the bankrupt at the beginning of the bankruptcy. Contrary to the trustee’s assertion in his March 18, 2013 email, there had been an interim support order made by Nation, J., on September 14, 2009 and it was still in effect, although the amounts owing had never been quantified. This was presumably because the bankrupt did not comply with the terms of the order that directed him to supply the applicant with the necessary information.

As mentioned, the applicant’s affidavits disclose some detail about income not disclosed and his express threat to be under-employed. [ 24 ] It appears that the claim made by the trustee was for half the funds, it was ignored, the trustee did not follow up for almost a year, and then an order was sought and obtained without notice to the trustee to have released to the applicant the same funds that the trustee had claimed.

As well, the trustee’s email disclosed an erroneous understanding of the history regarding support payment orders, and counsel for the applicant did not set him straight. [ 25 ] It is difficult to understand why, before Justice Martin, the fact of the bankruptcy and the claim advanced by the trustee over the money that she was asking be released to her client, were not both brought to the attention of the Court. It is also difficult to understand why, before Justice Poelman on March 5, 2014, the fact of the bankruptcy was not brought to his attention.

As mentioned above, her explanation is that since she had not heard anything about the bankruptcy for almost a year, she assumed that it was over. This seems to be more in the nature of wishful thinking, since the trustee had actually claimed the money that she had in her law firm’s trust account. [ 26 ] It is also difficult to understand why the trustee did nothing after his email of March 18, 2013 until early 2014. It is the trustee’s duty to gather in the assets of the estate, he knew he was claiming roughly $33,000, but the matter seems to have fallen asleep.

Had he pursued the claim, counsel for the applicant and he may have addressed the trustee’s claim without the retroactive order granted in March, or if the application had been brought the trustee would have received prior notice of it. [ 27 ] The interim support order of September 14, 2009 was apparently not disclosed to him by the bankrupt, but prior to the application brought by the trustee to set aside the order that released the funds, the trustee’s legal counsel reviewed the file, must have become aware of the 2009 interim order for support payments, yet the trustee has still made no attempt to quantify what was payable. (In oral argument I asked if that had been done and I was advised that it has still not been done.) [ 28 ] I wish to be clear, however, that I have simply reviewed the documents attached to affidavits filed with the Court and the court orders themselves.

There may have been other communications and other steps taken of which I am not aware. Submissions to the Court The Applicant’s Submissions (

a) The Claim for the Return of $33,105.06 [ 29 ] The appeal brought by the applicant seeks the release of the $33,105.06 to her, primarily on the basis that she is owed support arrears pursuant to s. 121(4) of the BIA in excess of the $33,105.06, and that she has a preferred claim under s. 136(1) (d.1). That figure is raised because it represented the bankrupt’s share of the net proceeds of the sale of the matrimonial home, and at one point it was in the applicant’s lawyer’s hands. (

b) Special Rights Attaching to Support Payment Claims [ 30 ] Section 121(4) provides as follows: 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. [ 31 ] Section 178 (1)(

c) says that an order of discharge does not release the bankrupt from “any debt or liability arising under a judicial decision establishing affiliation or respecting support of 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”. [ 32 ] Accordingly, in order to have a claim provable in bankruptcy the applicant must have “a claim payable under an agreement or order made before” the assignment in bankruptcy. She clearly does have such a claim, at least under the interim order made September 14, 2009.

But the amount payable under that order has arguably never been quantified (except the first few payments). [ 33 ] The applicant argues that she has a support claim that has been quantified by the order of Poelman, J. made on March 5, 2014 because that order was the special application expressly contemplated by the interim order in 2009, which contemplated a retroactive order for support payments. Therefore the entitlement under the interim order, made before the assignment in bankruptcy, has now been quantified.

Although that 2014 order was made “after the initial bankruptcy event in respect of the bankrupt”, the delay in quantifying

the support payable is attributable to the legal process, and the applicant should not bear the brunt of the delay in the legal process.Courts sometimes make orders nunc pro tunc (“now for then”) and that is what happened here. [34] This matter arose in Calgary. Calgary’s population continues to explode, the appointment of Justices of the Court of Queen’sBench has not kept up with the population growth, and the Justices are over-worked. Special applications are often booked many monthsinto the future, although that does not explain the five year gap here. The Trustee’s Submissions (

a) The Claim for the Return of $33,105.06 [35] The trustee’s counsel makes virtually no reference to this aspect of the claim, apparently because it is not thought relevant. (

b) There is no Support Claim to which Special Rights Attach [36] The trustee argues that the March 5, 2014 order was not a quantification of the interim order, because the interim order wasdirected to actual obligations under the Federal Child Support Guidelines based upon either actual employment insurance benefits oractual income. Mr. Justice Poelman imputed an annual income of $120,000 to the bankrupt, because it was argued that he haddeliberately under-employed himself, or not employed himself, to the detriment of his children’s welfare.

The trustee argues that that isa different approach than contemplated by the interim order. [37] Also, Poelman, J. was unaware of the bankruptcy and the trustee was not given an opportunity to draw to his attention theimpact of a retroactive order on a bankruptcy, and the express words of s. 121(4) of the BIA.

Had he been aware, he may have made adifferent order. [38] Furthermore, the trustee argues that a retroactive order simply has no effect on a bankruptcy – that is, even if Poelman, J. hadbeen aware of the bankruptcy, and the words of s. 121(4) had been drawn to his attention, the trustee is duty-bound to ignore it becauseits effect is excluded by s. 121(4). The applicant is not necessarily without remedy – the order survives the discharge of bankruptcy, ifthat ever occurs. She can still involve the Maintenance Enforcement Program.

She just has no claim in the bankruptcy under the March5, 2014 order. [39] The trustee relies on Bukvic v. Bukvic, 2007 CarswellOnt 2656, [2007] W.D.F.L. 2841 in support of his submissions. There isan important distinction between the facts of that case, although at first blush the facts appear similar. In Bukvic the first order forsupport was made on February 23, 2006 (see para. 10) and then the house was sold, pursuant to that first order. The net proceeds werepaid into trust pending a resolution of the issues (see para. 13).

Following that, the husband made an assignment in bankruptcy, left thecountry and was not heard from since. It was believed that he returned to Serbia and he was therefore immune from the enforcement oforders made by the Ontario court. [40] Following the assignment in bankruptcy on October 2, 2006, the Court awarded support retroactive to either the day beforethe assignment (see para. 22(e)), or the day of the assignment (suggested by para. 68).

The case appears to have been argued on the basisthat no prior order retroactive to a date before the bankruptcy had previously made. [41] On the application, the Court was being asked to make a retroactive order, and declined to do so, essentially for the reasonsargued before me by the trustee. [42] However, in Bukvic there does not seem to have been an order made prior to the bankruptcy which expressly contemplated afuture retroactive order, as we see here. Ms.

Bukvic in Ontario did not have the argument that the applicant has here, which is that theMarch 5, 2014 order may properly be said to have been the completion of an order started on February 14, 2009. [43] Furthermore, the case involved a request to make a retroactive order, not a request to ignore a retroactive order already madeby a higher court.

It is a general principle that orders of the court stand according to their terms, and must be followed, unless and untilthey are set aside. [44] It should be noted that the Ontario Court in Bukvic reviewed and considered the “feminization of poverty” described byIacobucci, J. in Marzetti v. Marzetti, (SCC), [1994] 2 S.C.R. 765 (S.C.C.), quoting L’Heureux-Dube, J. in Moge v. Moge, (SCC), [1992] 3 S.C.R. 813. The Court in Bukvic then concluded on the facts of the case that he should read s. 121(1) ofthe BIA, which speaks of “all debts and liabilities, present and future” as allowing Ms.

Bukvic to claim in the bankruptcy the whole ofthe husband’s future support obligation, which had already been calculated as being $389,666. That was her provable claim in thebankruptcy: see para. 84 and 98, in particular. Analysis The $33.105.06 Sum [45] It is not clear why the history about the $33,105.06 is currently relevant. [46] The consent order of May 2, 2014 setting aside the release of the funds allows a set-off.

Paragraph 3 of that order provided asfollows: Notwithstanding paragraph 2 of this Order, the Trustee is authorized to permit [the applicant] to set-off against the sum of $33,105.06 anamount less than or equal to any preferred claim for child or spousal support the [the applicant] may be allowed in the bankruptcyproceedings. [47] Since paragraph 2 of the May 2, 2014 consent order required that the applicant “pay the sum of $33,105.06 on or before June

10, 2014, respecting the Trustee’s entitlement to proceeds that were the subject of the Martin Order”, it is not clear to me how that right of set-off is relevant now. It seems that before she paid the money to the trustee she could have set off any preferred claim, but if the money has been paid (as it should have been by now) the right of set-off is no longer available. Either she has a preferred claim in the bankruptcy, or she does not.

The trustee has not “allowed” any preferred claim, or any claim at all. [ 48 ] Therefore, as I now understand the facts, the payment of the $33,105.06 is not simply interesting history. The Support Claim Generally [ 49 ] Neither the trustee nor the applicant here have tried to quantify what claim the applicant may have under the interim order granted September 14, 2009. As mentioned above, the bankrupt apparently actually told the trustee that there was no such order at all, although the trustee has been aware for some considerable period of time that the interim order had been granted.

The trustee may not have enough information from the bankrupt to make any meaningful estimate of what the amount would be. The applicant does not have the necessary information. All she knows is that there was unreported income. As I understand it, the bankrupt has essentially disappeared. [ 50 ] In light of his apparent disappearance, he may never be discharged from bankruptcy, much like Mr. Bukvic. The applicant may never be entitled to enforce the support payments after bankruptcy. He is said now to be of no fixed address, and suffering from alcoholism.

If the facts are as bleak as indicated, the order of Poelman, J. may not have much future impact on the lives of their children. [ 51 ] It must be noted that the conclusion in Bukvic was reached on the specific facts of the case, where the husband had fled the country and would never be discharged from bankruptcy: see para. 97.

Alcoholism can be treated. [ 52 ] As I raised in oral argument, a fundamental problem with the case as presented to me is that I am being asked to ignore the order of a Justice of the Court of Queen’s Bench, who made his order without knowledge of the bankruptcy and without the benefit of submissions made by the trustee.

It is argued that the trustee was entitled to ignore it because of s. 121(4) and therefore so should I. [ 53 ] The trustee has completely dismissed the applicant’s claim in the bankruptcy and it appears clear that she is entitled to some claim – we simply do not know enough to know what the dollar figure is. So simply dismissing the appeal is not the correct resolution. The correct resolution involves two stages: (

a) a return to Poelman, J. for re-consideration of the order he granted March 5, 2014, on notice to the trustee, when the applicant can argue that the application is in the nature of a quantification of the interim order from 2009; and (

b) if he confirms or varies his order, or sets it aside, or determines that his order should stand but that it is subject to s. 121(4), then the trustee must determine, as best he can, what the applicant’s proper claim is under the interim order of September 14, 2009. Conclusion [ 54 ] Accordingly, the parties are directed to approach Poelman, J., for the re-consideration of the order that he granted in matrimonial action 4801-139241, upon notice to the applicant, the trustee in bankruptcy, and the bankrupt (if he can be located for service, and I do not make any order for substitutional service at this time).

If he simply affirms his order, the parties may return to this Court for further disposition. [ 55 ] The applicant is directed to deliver a copy of this Memorandum of Decision to Mr. Justice Poelman in advance of the hearing so that he may have the benefit of my review of the history and the arguments. If either party (including the bankrupt, if he takes part) is of the view that I have mis-described the history or failed to identify important information they are free to advise him accordingly. [ 56 ] Costs of this application are reserved to Poelman, J. on the hearing of the application for re-consideration.

Heard on the 25 th day of November, 2014. Dated at the City of Calgary, Alberta this 2 nd day of December, 2014. Andrew R. Robertson, Q.C. Registrar in Bankruptcy

Appearances: Erin J. Kuzyk Dunphy Best Blocksom LLP for the Applicant Daniel K. Jukes Miles Davison LLP for the Respondent