AAG v JLG, 2022 ABKB 818

Court of King’s Bench of Alberta Citation: AAG v JLG, 2022 ABKB 818 Date: Docket: FL01 26394, 4801 189394 Registry: Calgary Between: A.A.G Plaintiff - and - J.L.G Defendant _______________________________________________________ Judgment of the Honourable Justice N.F. Dilts _______________________________________________________ [ 1 ] This family’s crisis and conflict has persisted following my trial decision issued on February 10, 2022 and reported at 2022 ABQB 119 (the “Decision”).

In addition to ongoing conflict relating to the PN7 Therapeutic Intervention that was directed, there has been related, ongoing and escalating conflict over financial matters, particularly regarding the Father’s nonpayment or late payment of child support and his inability to pay the costs awarded following trial. The mother was awarded costs following trial totaling $92,336.79. That costs award was issued April 29, 2022.

Under Rule 10.29(1) of the Alberta Rules of Court , AR 124/2010 , absent any direction from the Court, the unsuccessful party must pay a costs award forthwith. [ 2 ] The parties are now self-represented and have been since shortly following trial. [ 3 ] On August 23, 2022, some four months following the costs decision, the Mother received notice that the Father had made a consumer proposal. The claims identified in the consumer proposal included $134,000.00 for “matrimonial assets” being the matrimonial property award from trial, $44,000.00 for “maintenance related debts” being the

section 3 and

section 7 child support arrears, and $92,337 being the costs award. [ 4 ] Because the parties were to engage in a PN7 Therapeutic Intervention and with the intention of limiting conflict and maximizing the possibility of a success, the PN7 Order included the direction that the parties could not bring further applications without leave of the Court until the PN7 Therapeutic Intervention was complete.

[ 5 ] On September 26, 2022, the Mother wrote seeking leave to bring an application to “annul” the Father’s bankruptcy and to establish a payment plan for the Father’s trial obligations. In the weeks following, her description of the relief she wished to obtain altered somewhat. Anticipating the Mother’s application, I established a process by which the parties could seek leave of the Court to bring an application. That process requires that the applying party provide me with their application and affidavit.

I will then determine whether leave should be granted and whether I will hear the application or whether the application should proceed before another Justice or Applications Judge. [ 6 ] On October 27, 2022, the Mother provided three Notices to Attend Family Docket Court. In those, she sought to bring an application

i) to challenge the Father’s claim of insolvency; ii) to have the trial costs apportioned to establish an amount attributable to support and maintenance; and iii) to address the Father’s repayment obligations under the Decision. On October 31, 2022, the Mother provided notice that she wished to seek leave to bring a series of applications, including an application for the apportionment of the costs awarded at trial so that those costs relating to family support and maintenance would survive the completion of the consumer proposal.

The Mother was granted leave to bring that application before me. [ 7 ] A hearing date was set for December 2, 2022. On November 21, 2022, the Mother filed an application seeking three things: a “stay of execution or provisions don’t apply under

section 69.4 of the Bankruptcy and Insolvency Act , apportionment to the cost award and declaration of the property award be declared to be a support award.” The Father’s response Affidavit was sworn and filed November 28, 2022. [ 8 ] By letter dated December 1, 2022, not seen by me until the morning of December 2, 2022, the Father informed both the Mother and me that he had filed for bankruptcy on December 1, 2022 and that the Trustee for his consumer proposal would not be the Trustee in Bankruptcy.

The Father provided the name of the new Trustee in Bankruptcy. [ 9 ] Before hearing the Mother’s application on December 2, 2022, I confirmed with the Trustee in Bankruptcy that he was aware of the application to be heard.

I described the relief sought by the Mother as follows: 1. a lifting of the stay of proceedings pursuant to s 69.4 of the Bankruptcy and Insolvency Act ; 2. a declaration that a matrimonial property award be declared to be an award of spousal support; and 3. an apportionment of the costs awarded following trial to family support and maintenance. [ 10 ] The Trustee in Bankruptcy advised via email, received immediately prior to the application, that “the Trustee takes no position on today’s court hearing and does not advocate or dissent for any position the Court adjudicates.” In addition, the Trustee confirmed that neither he nor counsel for the Trustee would be attending the application.

As such the application proceeded on the understanding that the Father had made an assignment into bankruptcy. [ 11 ] For ease, I will refer to the Mother’s applications as the “Lifting of the Stay Application”, the “Apportionment Application” and the “Recharacterization Application”. The Lifting of the Stay Application [ 12 ] The bankruptcy scheme is designed to ensure that the assets of a bankrupt are distributed fairly amongst creditors by creating a single proceeding that is controlled in a single forum: Alberta (Attorney General) v Moloney , 2015 SCC 51 .

For the bankruptcy model to work, an automatic stay comes into effect and precludes creditors from enforcing their provable claims individually. When a debtor files a consumer proposal, s 69.2 of the Bankruptcy and Insolvency Act , RSC 1985, c.B-3 ( BIA ) prevents a creditor from commencing or continuing a proceeding for the recovery of a provable claim until the consumer proposal is concluded. The same statutory stay arises under s 69.3 of the BIA on the bankruptcy of any debtor.

That stay remains in effect until the Trustee is discharged. [ 13 ] However, by operation of s 69.41 of the BIA , the stay does not operate in respect of a claim for spousal or child support where the order compelling payment was made before the initial bankruptcy. [ 14 ] In addition, s 69.4 of the BIA permits the court to declare that the statutory stay of proceedings against a bankrupt does not operate where the court is satisfied that the creditor is likely to be materially prejudiced by the continued operation of the stay or that it is equitable to make such a declaration.

The onus is on the creditor to establish that there are sound reasons, consistent with the bankruptcy scheme, to lift the automatic stay. The decision whether to lift the automatic stay is a discretionary one. Whether the creditor will be materially prejudiced by the stay is not an invitation to examine the bankrupt’s actions or behaviours.

Instead, the question is whether prejudice arises to the creditor as a result of the operation of the bankruptcy scheme and particularly s 69 such that the creditor should be permitted to commence or continue proceedings relating to their provable claims: Gagnon (Re) , 2021 ABQB 583 at para 62 . [ 15 ] In opposing the Mother’s Lifting of the Stay Application, the Father suggests that in her application materials, the Mother did not apply to lift the statutory stay. He points to the fact that the Mother sought what she described as a “stay of execution.” The Father’s argument in that regard holds no merit.

The Mother identified that she sought relief under s 69.4 of the BIA . While her choice of phrasing may have been inexact, there is no reasonable basis for confusion.

The Mother sought the necessary permission to bring the Apportionment Application and the Recharacterization Application. [ 16 ] While the Father concedes that the Mother’s Apportionment Application should be heard, he maintains that there is no sound reason to lift the stay and to permit the Mother to bring the Recharacterization Application. [ 17 ] A stay will be lifted in circumstances where the action to be pursued is for a claim to which a discharge from bankruptcy would not be a defence: Re Advocate Mines Limited , (1984) 52 CBR (NS) 277 (ONSC) . Under s 178(1)(

c) of the BIA , that includes a claim for family support or maintenance. The Mother’s Apportionment Application and Recharacterization Application ask this Court to

address whether other aspects of the Decision can be apportioned to or recharacterized as family support or maintenance. In my view, the Mother’s applications fall squarely within the framework set out in Advocate Mines . [ 18 ] In any event, I am also satisfied that the Mother would be materially prejudiced should she be denied the opportunity to bring the Apportionment Application or the Recharacterization Application now. The Mother seeks this Court’s assistance to determine whether certain of her claims survive bankruptcy.

If she is successful, those claims will not be subject to the statutory stay provisions and will not be discharged following bankruptcy. The determination of her applications is necessary to facilitate the administration of the Father’s estate in bankruptcy. It is appropriate that the Mother be permitted to pursue that determination now.

The prospect of delaying that determination would be highly prejudicial. [ 19 ] I therefore make an order under s 69.4 of the BIA declaring that the stay of proceedings under s 69.2 of the BIA does not operate with respect to the Applications now brought by the Mother to establish the amount to which she is entitled as family support and maintenance. The Apportionment Application [ 20 ] Before considering the Apportionment Application, I will address whether it is within my authority to hear and decide the Apportionment Application given the rule of functus officio .

It should be noted that neither party raised concerns with my hearing either the Apportionment Application or the Recharacterization Application. [ 21 ] The rule of functus officio states that “the court has no jurisdiction to reopen or amend a final decision, except in two cases: (1) where there has been a slip in drawing up the judgment, or (2) where there has been error in expressing the manifest intention of the court”: Doucet-Boudreau v Nova Scotia (Department of Education) , 2003 SCC 62 at para 113 .

The rationale underlying the doctrine of functus officio is to protect the fair and proper administration of justice by ensuring that parties can rely on the finality of a proceeding: Doucet at para 114.

The exceptions to the rule are codified in Rule 9.12 of the Rules of Court , which states that the Court may “correct a mistake or error in a judgment or order arising from an accident, slip or omission.” [ 22 ] In addition, Rule 9.14 of the Rules of Court allows the Court to make any further order needed to give effect to a judge’s original intention: 9.14 On application, the Court may, after a judgment or order has been entered, make any further or other order that is required, if (

a) doing so does not require the original judgment or order to be varied, and (

b) the further or other order is needed to provide a remedy to which a party is entitled in connection with the judgment or order. [ 23 ] Examples of the application of Rule 9.14 in family proceedings include Yassa v Parker , 2018 ABQB 305 where the Court ordered an apportionment of costs after trial; and Friesen v Friesen , 2020 ABQB 305 where the Court awarded pre and post-judgment interest.

In Yassa at paragraphs 30-32 , Justice Topolinski concluded that there was ample clear and convincing authority that under Rule 9.14(b), a court can apportion costs after entry of a judgment to clarify and give effect to the court’s intention and to give effect to the remedy to which the party was entitled, as long as doing so did not vary the original judgment or order. The rationale and policy considerations surrounding this conclusion were discussed by Justice Topolinski at paragraph 29 and onward of her decision.

I agree with her reasoning in full. [ 24 ] These policy considerations were also discussed by the Court in Dorey v Havens , 2019 BCCA 47 at paragraph 29 in the context of apportioning costs after trial: I agree that a judge has a limited jurisdiction to apportion costs granted in an order preceding a bankruptcy by one of the parties to the family proceeding. As observed in Manolescu and Philip , prior to a bankruptcy, a judge will not normally apportion costs between maintenance and other issues because to do so would serve no purpose.

In those cases in which it becomes an issue due to a subsequent bankruptcy, it is in my view a proper exercise of the authority of the court to address apportionment in hindsight in order to give effect to the intention of Parliament — expressed in s. 178(1) (

c) of the BIA — that liability for costs relating to child and spousal support should not be extinguished by the bankruptcy of the debtor. In such cases, the substance of the order — the amount owed — is not altered. Rather, some or all of the costs are attributed to support-related issues. [ 25 ] I am satisfied that this same reasoning applies in this instance and permits me to decide the Apportionment Application.

I reach that conclusion particularly considering the unique facts of this case, including the fact that the Father’s consumer proposal was made just four months following my costs decision and that his assignment into bankruptcy was made while this application was pending and just seven months following my costs decision. As in Yassa , had I been aware of the Father’s intention to make a consumer proposal or to make an assignment into bankruptcy at the time of issuing either the Decision or the costs decision, I would have addressed the apportionment of costs at that time.

Absent any such stated intention, I had no reason to. Moreover, I remain best positioned to undertake that exercise based on my recollection of the trial. [ 26 ] Turning to the merits of the Apportionment Application, s 178(1)(

c) of the BIA provides that an order of discharge does not release a bankrupt from any liability under a family support and maintenance order. It is well established that court costs incurred in obtaining an order for family support or maintenance are also subject to the protection of s 178(1)(

c) of the BIA : Yassa at para 11, Dorey at para 16. However, only that portion of the costs that relate to the claims for support will come within the exception in s 178(1)(c): Babcock v Murano , 2018 ONSC 5079 . [ 27 ] In an application to apportion costs, the court is to consider all the issues canvased at trial and the time devoted to those issues: MWB v ARB , 2014 BCSC 2309 at para 18 . The apportionment should not be punitive but should reflect how the trial proceeded and the evidence that was required. However, an apportionment is not an exact science and is fact dependent.

[28] In this instance, the trial proceeded over 11 days and addressed issues of parenting, child support (including arrears), spousalsupport, and matrimonial property division. In the context of the parenting decision, the Father sought a material change in parenting,arguing that the children should be placed in his care. That position drove an inquiry into the suitability of a change in parenting, theinvolvement of the family in the previous PN7 process, and the general breakdown of the relationship between father and children.

Theparenting determination was a precursor to the determination of the Father’s support obligations – as with most family trials, the issues ofparenting and support were intertwined. [29] In the context of determining child support and spousal support, I was required to establish the parties’ guideline incomes oversix years, including what business expenses the Father was entitled to deduct for the purposes of paying support. That incomedetermination required an explanation of the compensation structure for each of the Father’s employers.

I was also required to considerthe evolution of the parties’ marriage and the parties’ respective education and employment history. Finally, as is the case in manyfamily trials, division of family debts and assets was connected, directly or indirectly, to child support and spousal support. [30] The Father argues that less than 15% of the trial time was spent on issues of child support and spousal support. The Motherargues that 100% of the costs awarded be allocated to support issues.

Neither is a fair or reasonable estimation of the time taken at trial toresolve the issues of child support and spousal support. [31] In my view, the majority of the time spent at trial involved evidence or argument that ultimately bore on the award of childsupport and spousal support. Those issues included the history of the marriage and relationship of the parties, the consequences of thefamily breakdown, the parties’ incomes, education and work history. Those same issued consumed significant time post-trial in reachingthe Decision.

I was provided hundreds of pages of exhibits relating to income and support claims. Considering the circumstances of thetrial as a whole, I allocate 70% of the costs award following trial as relating to family support and maintenance. As a result, $64,635.75,is attributable to family support and maintenance claims and will not be released by the Father’s discharge following bankruptcy. Recharacterization Application [32] As I did with the Apportionment Application, I will first address whether it is within my authority to hear and decide theRecharacterization Application. [33]

Section 17 of the the Divorce Act, RSC 1985, c 3 (2nd Supp) permits a court to vary, retroactively or prospectively, a spousalsupport order. However, under s 17(4.1) of the Divorce Act, before the court can vary a spousal support order, the court must be satisfiedthat there has been a change in the condition, means, needs or other circumstances of either former spouse since the making of thespousal support order.

That means that the condition precedent to the variation of a spousal support award is that a material change ofcircumstances must have occurred since the making of the spousal support order: Unterschultz v Clark, 2022 ABCA 335 at para 33.Whether there has been a material change of circumstances is a question of fact: Unterschultz at para 38. [34] Any material change of circumstances must be a change from the original findings made by the court; in addition, the changemust not reasonably have been anticipated at the time the initial findings were made: Willick v Willick, (SCC).Material changes that were not contemplated or anticipated at the time the original findings were made can support a variationapplication: Unterschultz at para 51. [35] The bankruptcy of one spouse may constitute a material change in circumstances; however, whether it is a material changemust be assessed in the context of the whole of the circumstances.

In Lipinski v Lipinski, 2011 ONSC 653 and Ruja v Ruja, 2018ONSC 4930, the bankruptcy of one party that resulted in a property equalization payment not being made constituted a material changein circumstances that positioned the court to make a variation order awarding lump sum spousal support. [36] In this instance, the Father’s lack of financial health was a matter known and explored at trial. However, neither the Court northe Mother were on notice at trial that the Father would file a consumer proposal following the Decision.

I disagree with the Father thathis consumer proposal should reasonably have been anticipated at the time of trial. Had it been so, it would have borne on the discussionof the Father’s ability to pay spousal support.

Instead, I concluded that “given the financial position of the parties, my order regarding s.3 and s. 7 child support, and my order regarding the division of matrimonial assets, although [the Mother] has established an entitlementto spousal support, I find that [the Father] does not have the present means to pay spousal support” (emphasis added). [37] In the Decision, I ordered that the Father owed the mother an equalization payment of $133,966.42 and directed that it be paidover 8 years.

The discharge of that debt and other debts discussed in paragraph 260 of the Decision could materially impact the Father’sability to pay spousal support. I am satisfied in these circumstances that the Father’s consumer proposal and now bankruptcy amounts toa material change in circumstances that permits me to vary the spousal support award retroactively if warranted. [38] I am also satisfied that it is necessary and appropriate that I address the Recharacterization Application now. The Father hadeffective notice of the Mother’s application to vary the spousal support award in her application materials.

I also observe that it is anefficient use of court resources that this application be heard now by me rather than requiring the Mother to line up behind the numerousfamily litigants seeking the assistance of the court through a special chambers application. [39] Turning to the merits of the Recharacterization Application, the Mother asks that the matrimonial property award berecharacterized as a lump sum spousal support award given the determination at trial that she was entitled to spousal support on acompensatory and non-compensatory basis.

In Lipinski, the court concluded it had the authority to issue a retrospective order to convertthe equalization amounts due on a matrimonial property division into a lump sum spousal support obligation. It did so after concludingthat the bankruptcy was a material change in circumstance entitling the court to vary its prior award.

In converting the unpaid lump sumequalization award into a lump sum spousal support award, the court noted that had the respondent provided notice of his bankruptcywhen the court made its equalization order and before filing his consumer proposal, the court would have granted an order that theequalization amounts be converted into a lump sum spousal support award.

[40] In Sim v Sim, , the recipient spouse brought a new claim for spousal support after her former spouse’sdischarge from bankruptcy extinguished the property equalization payment her former spouse owed her. The recipient spouse had anorder entitling her to periodic spousal support. The court ordered lump sum spousal support in an amount equal to the outstandingequalization payment, concluding that the recipient spouse counted on the equalization payment to assist her in funding her retirementand that the bankruptcy left her without the benefit of the equalization payment.

A similar outcome was reached in Ruja but incircumstances where a consent judgment representing a settlement of spousal support and property division was converted into a lumpsum spousal support award to survive the bankruptcy of the payor spouse. [41] Although none of the cases cited above are analogous to the case before me and none are binding on this Court, theunderlying rationale respecting s 178(1) of the BIA carries through each decision. Section 178(1) of the BIA lists those classes of debtsthat are not released by an order of discharge.

They reflect society’s view that the survival of certain claims outweighs the bankrupt’sinterest in being released of those claims on discharge. While a claim for equalization of family property does not fall within theexceptions listed in s 178(1) BIA, I am satisfied that where there has been a material change in circumstances arising from the payor’sbankruptcy and when warranted in the circumstances, the court may vary a spousal support award and retroactively order lump sumspousal support in the amount of the unpaid property equalization award.

To do so allows the recipient spouse the financial relief towhich she was entitled and is aligned with the social policy considerations underlying s 178(1) of the BIA. [42] In the Decision, I determined that the Mother was entitled to spousal support following the breakdown of the marriage: I find that despite both parties maintaining a modest lifestyle after separation, [the Mother] has demonstrated short-term need arisingfrom the breakdown of the marriage.

Her need following separation was significantly exacerbated by [the Father’s] non-payment ofexpenses for which he was partially responsible, including the cost of the therapeutic intervention and the children’s therapy with Dr.Yasenik. [The Mother] was also left to service the lion’s share of the matrimonial debt. In the meantime, [the Father] accessed joint fundsfor his own use. Those actions resulted in enormous financial strain on [the Mother].

While this decision will rectify some of that strain,it will in no way address the financial crisis she experienced following separation. [43] It is consistent with the social policy considerations that the Mother now not be denied the financial relief she was to receivefrom a determination of child support (ongoing and arrears), a determination of the property equalization amount, and the deferral ofspousal support.

There is no question that the Mother was expecting that the financial obligations set out in the Decision would be met toprovide her the financial relief to which she is entitled. [44] There are many factors that would, at trial, be considered in determining whether a lump sum spousal support award iswarranted and appropriate, including the advantages in high conflict situations of terminating ongoing contact between the parties andeliminating the risk of nonpayment of periodic support, and the disadvantage that the means and needs of the parties may change overtime.

Despite these factors not having been argued at trial, in these unique circumstances, I am prepared to order, retroactive to the dateof the Decision, that the Mother is entitled to a lump sum spousal support award in the amount of $133,966.42. [45] I therefore conclude on the facts of this case that there has been a material change in circumstances entitling me to vary theDecision as it relates to spousal support. I do so by directing that the Mother is entitled to a lump sum spousal support award of$133,966.42. That award shall not be released by an order of discharge following bankruptcy.

In my view, this outcome honours therationale of the bankruptcy scheme in protecting spouses and their children who are entitled to support following breakdown of amarriage. Conclusion 1.

The stay of proceedings under s 69.2 of the BIA shall not operate with respect to the Mother’s Apportionment Application andRecharacterization Application; 2. 70% of the costs awarded following trial, being $64,635.75, are attributable to family support and maintenance claims and will not beextinguished by the Father’s discharge following bankruptcy; 3. there having been a material change in circumstances since the findings in the Decision, retroactive to the date of the Decision, theMother shall be entitled to lump sum spousal support in the amount of $133,966.42. [46] The Mother is awarded costs of this application in the amount of $2,000.

This cost award is attributable to family support andmaintenance claims and shall not be released by the Father’s discharge following bankruptcy. Heard on the 2nd day of December, 2022. Dated at Calgary, Alberta this 8th day of December, 2022. N.F. Dilts J.C.K.B.A.

Appearances: Self represented Litigant- Plaintiff Self represented Litigant- Defendant