COURT OF APPEAL FOR ONTARIO 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)
Counsel: 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 respondent’s 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 couple’s 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 Roshan’s 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:
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;
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
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 spouse’s 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 spouse’s 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 spouse’s 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 spouse’s death may be continued by or against the deceased spouse’s estate; and (b) an application based on subsection 5 (2) may be made by or against a deceased spouse’s estate.
[21] The BIA provides that, with limited exceptions, all of a bankrupt’s 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 bankrupt’s discharge and that is found incapable of realization must be returned to the bankrupt before the trustee’s 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 appellant’s 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 appellant’s 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 judge’s 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 appellant’s 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 judge’s 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 driver’s 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 spouse’s 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 appellant’s 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 appellant’s 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 spouse’s 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 respondent’s 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] 3 S.C.R. 166, 2008 SCC 58, 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 respondent’s suggestion that until the spouse’s 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 Klotz’s 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 bankrupt’s assets, and the bankrupt’s property passes to and vests in the trustee in bankruptcy. Once the bankrupt’s 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 bankruptcy’s 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 bankruptcy’s 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 spouse’s 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 spouse’s 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 spouse’s 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 spouse’s 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 bankruptcy’s 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 buyer’s 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 appellant’s 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] 3 S.C.R. 327, 2015 SCC 51, 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 bankrupt’s creditors. This frustrates the equitable distribution of the bankrupt’s assets among the bankrupt’s 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 bankruptcy’s 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.”
