Shea v. Fraser

85 O.R. (3d) 28

Court of Appeal for Ontario,

Weiler, Goudge and Cronk JJ.A.

March 29, 2007

Family law -- Support -- Child support -- Retroactive child support -- Father not responding to wife's request for financial disclosure -- Father not increasing child support payments after receiving significant salary increase -- Increase in child support retroactive to one month after demand for disclosure was made appropriate -- Father's obligation to pay child support pre-existing his bankruptcy and surviving his discharge from bankruptcy.

Family law -- Support -- Spousal support -- Bankruptcy -- Separation agreement providing that husband was required to make monthly payments to wife until "equalization payment" was satisfied -- Husband subsequently resisting demand for payment of balance owing under agreement on basis that his discharge in bankruptcy released him from obligation to make payment -- Application judge erring in granting wife summary judgment for amount owing on basis that husband's failure to give her required notice under Bankruptcy and Insolvency Act meant that discharge was inoperative as against wife -- Triable issue existing as to whether amount characterized as equalization payment in separation agreement was in reality support so that it survived discharge under s. 178(1) of Bankruptcy and Insolvency Act -- Summary judgment set aside and trial of that issue ordered -- Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, s. 178(1).

Following the parties' separation, the husband was ordered to pay support for the wife in the amount of $600 per month and child support in the amount of $448 per month based on an annual income of $30,000. The parties entered into a separation agreement in 1999 which provided that the husband was to pay the wife $300 per month until such time as a total of $30,000 had been paid to the wife "in full satisfaction of this equalization payment". The husband made an assignment in bankruptcy in June 2003. In September 2003, the wife's solicitor wrote to the husband asking that he pay the balance of the payment characterized in the separation agreement as an equalization payment, namely $24,000, and requesting financial disclosure. The husband did not respond. In January 2005, after the husband's discharge from bankruptcy, the wife initiated proceedings to enforce payment of the $24,000 and for increased child support, retroactive to September 2003. The application judge granted increased child support retroactive to October 1, 2003. He granted summary judgment in the amount of $24,000. The husband appealed. [page29 ]

Held, the appeal should be allowed in part.

The obligation to pay child support is independent of a court order or any other kind of action by the recipient parent. Parents have a free-standing obligation to support their children commensurate with their income and parents who fail to pay appropriate support will have failed to fulfill their existing support obligations for their children. If the payor spouse's income rises and the amount of child support does not increase, the payor parent has an existing unfulfilled obligation that could later merit enforcement. A court's decision to enforce that obligation by making an order of support retroactively should not be regarded as exceptional. As a general rule, the date of effective notice to the payor parent, as opposed to the date when an application was made to a court or formal notice was given, should be the date to which the award should be retroactive. In this case, the order for retroactive support went back to a month after effective notice or the demand for disclosure was made. That was a period of less than two years from when the application was brought and a date considerably after the husband's circumstances materially changed. Moreover, the husband engaged in blameworthy conduct, as he did not increase his payments as a result of the significant increase in his salary beginning in 2003 although he should reasonably have expected that increase to alter the amount of child support payable. He neglected to provide information as to his financial circumstances for a significant time after it had been requested and after court proceedings had been initiated. The obligation to pay support existed at the time of the husband's bankruptcy and was not discharged by his discharge in bankruptcy.

The application judge erred in holding that, to the extent that the husband failed to give the wife the notice required under the Bankruptcy and Insolvency Act ("BIA"), the husband's discharge was inoperative. Although the wife was not given the required notice, the husband's discharge in bankruptcy nevertheless released him from all claims provable in bankruptcy unless the claim was one that was excepted under s. 178 of the BIA or until the discharge was set aside or permission was obtained to proceed with the claim. Under s. 178(1) of the BIA, an order of discharge does not release the bankrupt from any debt or liability under an agreement for maintenance and support of a spouse or former spouse. The word "support" in the BIA does not include a division of matrimonial property. However, "support" is not defined in the BIA. Whether a particular amount claimed pursuant to a separation agreement is "support" within the meaning of the BIA is a question of fact to be determined with regard to the words of the agreement and the circumstances under which it was entered into. A particular disposition of property which is intended to be maintenance or a substitute for it can fall within s. 178 of the BIA and yet not qualify as support under the Divorce Act, R.S.C. 1985, c. 3 (2nd Supp.). The application judge did not make a judicial determination that the amount he found the husband owed the wife was a support obligation before ordering that summary judgment issue for its enforcement. In the circumstances, there was a triable issue as to whether the $24,000 was a debt or indemnity obligation in the nature of support that survived the husband's bankruptcy under s. 178(1) of the BIA. The summary judgment should be set aside and the trial of an issue directed as to whether the $24,000, described as an equalization payment in the separation agreement, was in fact maintenance within the meaning of s. 178(1) of the BIA.

APPEAL from the order of O'Connell J. of the Superior Court of Justice, dated June 21, 2005, for retroactive child support and for summary judgment for the amount the husband owed the wife under the separation agreement.

Cases referred to D.B.S. v. S.R.G., [2006] 2 S.C.R. 231, [2006] S.C.J. No. 37, 2006 SCC 37 (sub noms. L.J.W. v. T.A.R.; Henry v. Henry; Hiemstra v. Hiemstra), consd [page30 ] Other cases referred to Andrews v. Andrews (1980), 1980 1913 (ON CA), 32 O.R. (2d) 29, [1980] O.J. No. 3887, 120 D.L.R. (3d) 252, 20 R.F.L. (2d) 348 (C.A.); Barnacle v. Barnacle, [1993] O.J. No. 1273 (Gen. Div.); Berdette v. Berdette (1991), 1991 7061 (ON CA), 3 O.R. (3d) 513, [1991] O.J. No. 788, 47 O.A.C. 345, 81 D.L.R. (4th) 194, 41 E.T.R. 126, 33 R.F.L. (3d) 113 (C.A.) [Leave to appeal to S.C.C. dismissed [1991] S.C.C.A. No. 306]; Blowes v. Blowes (1993), 1993 8521 (ON CA), 16 O.R. (3d) 318, [1993] O.J. No. 2022, 21 C.B.R. (3d) 276, 49 R.F.L. (3d) 27 (C.A.); Bremner v. Bremner Estate (Trustee of), 1989 4499 (SK QB), [1989] S.J. No. 65, 74 Sask. R. 110, [1989] 3 W.W.R. 377, 73 C.B.R. (N.S.) 91 (Q.B.) (sub nom. Bremner v. Bremner (Bankrupt)); Craig v. Bassett, 1988 8712 (NS CA), [1988] N.S.J. No. 374, 87 N.S.R. (2d) 216, 53 D.L.R. (4th) 465, 222 A.P.R. 216, 71 C.B.R. (N.S.) 82, 17 R.F.L. (3d) 225 (C.A.) (sub nom. Bassett v. Craig); Craig v. Craig, 1989 5175 (NS SC), [1989] N.S.J. No. 401, 94 N.S.R. (2d) 196, 65 D.L.R. (4th) 106, 247 A.P.R. 196, 78 C.B.R. (N.S.) 97, 24 R.F.L. (3d) 341 (C.A.) (sub nom. Bassett v. Craig); Drygala v. Pauli, 2003 48241 (ON CA), [2003] O.J. No. 3, 35 R.F.L. (5th) 323 (C.A.); Handelman (Re), 1997 12409 (ON SC), [1997] O.J. No. 3599, 48 C.B.R. (3d) 29, 73 A.C.W.S. (3d) 896 (S.C.J.); Huntington v. Huntington, 1990 13222 (NS SC), [1990] N.S.J. No. 475, 101 N.S.R. (2d) 271 (S.C. (T.D.)); Janakowski v. Janakowski, 2000 22587 (ON SC), [2000] O.J. No. 2650, [2000] O.T.C. 496, 7 R.F.L. (5th) 117, 98 A.C.W.S. (3d) 384 (S.C.J.); Kryspin (Re) (1983), 1983 1703 (ON SC), 40 O.R. (2d) 424, [1983] O.J. No. 2927, 142 D.L.R. (3d) 638, 44 C.B.R. (N.S.) 232 (H.C.J.); Marzetti v. Marzetti, 1994 50 (SCC), [1994] 2 S.C.R. 765, [1994] S.C.J. No. 64, 20 Alta. L.R. (3d) 1, 116 D.L.R. (4th) 577, 169 N.R. 161, [1994] 7 W.W.R. 623, 26 C.B.R. (3d) 161, 5 R.F.L. (4th) 1; Maule-Ffinch v. Maule-Ffinch, [1996] O.J. No. 1580 (C.A.); Millar v. Millar, 1991 ABCA 261, [1991] A.J. No. 955, 84 Alta. L.R. (2d) 59, 8 C.B.R. (3d) 220, 37 R.F.L. (3d) 113 (C.A.); Miller (Re) (1981), 1981 ABCA 335, 36 Alta. L.R. (3d) 29, [1996] 3 W.W.R. 421, 37 C.B.R. (3d) 316 (C.A.), revg (1981), 1980 1004 (AB KB), 11 Alta. L.R. (2d) 376, 111 D.L.R. (3d) 571, 34 C.B.R. (N.S.) 172 (Q.B.); Moore v. Moore (1988), 1988 4570 (ON SC), 67 O.R. (2d) 29, [1988] O.J. No. 2024, 72 C.B.R. (N.S.) 50, 17 R.F.L. (3d) 344 (H.C.J. in Bkcy.); Ontario (Director of the Family Support Plan) v. Zuker, 1993 16117 (ON CJ), [1993] O.J. No. 902, 47 R.F.L. (3d) 98 (Gen. Div.); Peterson v. Peterson, 1995 ABCA 439, [1995] A.J. No. 1077, 36 Alta. L.R. (3d) 34, 132 D.L.R. (4th) 329, [1996] 3 W.W.R. 426, 37 C.B.R. (3d) 76, 18 R.F.L. (4th) 207 (C.A.); Provencher (Syndic) (Re), [1996] J.Q. no 5110, J.E. 96-909, [1996] R.D.F. 271 (C.S.); Schmidt v. Schmidt, 1991 7616 (SK QB), [1991] S.J. No. 476, 95 Sask. R. 318, 36 R.F.L. (3d) 390 (Q.B.); Schroeder v. Schroeder, 1993 8987 (SK QB), [1993] S.J. No. 257, 110 Sask. R. 232, 19 C.B.R. (3d) 316, 47 R.F.L. (3d) 290 (Q.B.); Smith v. Smith (Trustee of), [1989] B.C.J. No. 2354, 78 C.B.R. (N.S.) 256 (S.C.); Tauber v. Tauber (2000), 2000 5747 (ON CA), 48 O.R. (3d) 577, [2000] O.J. No. 2133, 187 D.L.R. (4th) 1, 6 R.F.L. (5th) 442 (C.A.), supp. reasons 2000 22280 (ON CA), 51 O.R. (3d) 81, 8 R.F.L. (5th) 441 (C.A.); Van Norman v. Van Norman, 1993 2474 (BC CA), [1993] B.C.J. No. 244, 75 B.C.L.R. (2d) 306, 100 D.L.R. (4th) 341, [1993] 4 W.W.R. 513, 18 C.B.R. (3d) 123, 44 R.F.L. (3d) 406 (C.A.); Wildman v. Wildman (2006), 2006 33540 (ON CA), 82 O.R. (3d) 401, [2006] O.J. No. 3966, 273 D.L.R. (4th) 37 (C.A.) Statutes referred to Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, ss. 68 [as am.], 69.3 [as am.], 136 [as am.], 178 [as am.] Divorce Act, R.S.C. 1985, c. 3 (2nd Supp.) Family Law Act, R.S.O. 1990, c. F.3 Family Responsibility and Support Arrears Enforcement Act, 1996, S.O. 1996, c. 31 Rules and regulations referred to Federal Child Support Guidelines, SOR/97-175 [page31 ] Authorities referred to Canada, Senate, Standing Senate Committee on Banking, Trade and Commerce, Debtors and Creditors Sharing the Burden: A Review of the Bankruptcy and Insolvency Act and the Companies' Creditors Arrangement Act (Ottawa: Senate of Canada, 2003) Houlden, L.W., and G.B. Morawetz, Bankruptcy and Insolvency Law of Canada, looseleaf (Toronto: Carswell, 1992) Klotz, R.A., Bankruptcy, Insolvency and Family Law, looseleaf (Toronto: Carswell, 2001)

David Cameletti, for appellant. Michael David Lannan and Kamaljit K. Saini, for respondent.

The judgment of the court was delivered by

[1] WEILER J.A.: -- This appeal raises two issues concerning the effect of the appellant Brian Fraser's bankruptcy on his family. The first issue is whether the application judge erred with respect to the amount and date to which he ordered retroactive child support. The second is whether the appellant's discharge in bankruptcy released him from his obligation to pay the respondent, his former wife Heather Shea, an amount he had agreed to pay her in their separation agreement.

Facts

[2] The appellant married the respondent on October 20, 1990. The couple had two children born December 5, 1991, and May 7, 1994. They separated on July 15, 1996. Pursuant to an order dated September 22, 1997, the appellant was ordered to pay support for the respondent in the amount of $600 per month "as long as she is not working full time", and child support in the amount of $448 per month "based on an annual income attributed to the Defendant Husband of $30,000".

[3] The parties entered into a separation agreement dated June 13, 1999. The agreement provided for joint custody of the children, primary residence with the respondent, and child support "in accordance with the attached Judge's endorsement dated September 22, 1997". In addition, under the heading "SETTLEMENT OF RIGHTS TO DIVISION OF NET FAMILY PROPERTIES", the agreement provided: [page32 ]

The husband shall pay the sum of Three Hundred ($300.00) Dollars to the wife each and every month until such time as a total amount of Thirty Thousand ($30,000.00) Dollars has been paid to the wife in full satisfaction of this equalization payment.

[4] Around June 23, 2003, the appellant made an assignment in bankruptcy.

[5] On September 11, 2003, the respondent's solicitor wrote to the appellant asking that he pay the balance of the payment characterized in the separation agreement as an equalization payment, namely, $24,000 and requesting financial disclosure. She requested the appellant's income tax returns for the years 2001 and 2002, as well as his pay stubs for the year 2003. The appellant did not respond to this letter and he did not provide disclosure.

[6] The appellant was discharged from bankruptcy on March 25, 2004. On January 6, 2005, the respondent initiated proceedings to enforce payment of the $24,000 and for increased child support. She asked that the order for increased child support be made retroactive to September 2003. The appellant's position was that he owed less than $24,000 and that, in any event, his bankruptcy had discharged the debt. He also resisted paying retroactive child support. Other issues that the parties raised in the proceedings, such as a dispute regarding access, payment by the appellant of his share of extraordinary expenses for the children and interim ongoing child support were resolved by the parties consenting to an order made by Herold J. dated May 3, 2005. This order states that the parties agree to vary para. 1 of the order of Dunn J. dated September 22, 1997 as follows:

The Defendant is to pay the Plaintiff child support for the children . . . commencing May 1, 2005 in the amount of $897. per month based on an income of $67,000 per annum.

In addition, the appellant undertook to provide the respondent with copies of all of his T4 slips for the year 2004 and a recent pay stub. The issues forming the subject of this appeal were adjourned for hearing to June 21, 2005.

[7] On June 21, 2005, the application judge granted the respondent's application for increased child support retroactive to October 1, 2003. He accepted the respondent's calculation of retroactive child support based on the Federal Child Support Guidelines, SOR/97-175 and ordered a retroactive payment totalling $7,951. In this regard his endorsement states:

Applicant satisfies criteria for retroactive support because notwithstanding demands for financial information none was forthcoming until now.

[8] With respect to the request for summary judgment of the amount claimed by the respondent, the application judge [page33 ]resolved a dispute as to whether the amount yet to be paid was $24,000 or $22,800, as well as whether the respondent was entitled to summary judgment, by endorsing the record as follows:

Equalization. Balance owing $24,000. The applicant was not named as a creditor. Accordingly, there is no genuine issue for trial. Therefore, judgment to issue for $24,000.

[9] The appellant appeals the quantum of retroactive support ordered. In addition, he seeks to have the order granting the respondent summary judgment set aside and summary judgment granted in his favour containing a declaration that he does not owe anything. [^1]

The Order for Retroactive Child Support

[10] In her affidavit filed in support of increased child support, the respondent swore: (1) that she had asked the appellant to provide her with copies of his tax returns for the years 2001, 2002 and a current and up-to-date pay stub for the year 2003 but that he had not done so; (2) that the appellant was employed at Toyota and that his income had substantially increased since the execution of the separation agreement; and (3) that in the circumstances she had no choice but to commence the proceeding.

[11] The appellant's affidavit acknowledged that he had been asked to provide these documents, had not done so and promised to do so. He asked that support be re-examined back to January 1, 2001, arguing that his income then would have entitled him to pay a lesser amount of child support than that provided for under the agreement, but that he had nevertheless largely made his support payments. [^2]

[12] The judge at first instance did not accede to the appellant's request and, as indicated, made an order for retroactive child [page34 ]support from October 2003 to May 2005, when the order for ongoing support was made. The total awarded for this period was $7,951.

[13] On this appeal, the appellant submitted that the judge at first instance ought to have made the order for support retroactive for a shorter period, namely, the initiation of proceedings in January 2005.

[14] The recent decision of the Supreme Court of Canada in D.B.S. v. S.R.G.; L.J.W. v. T.A.R.; Henry v. Henry; Hiemstra v. Hiemstra, 2006 SCC 37, [2006] 2 S.C.R. 231, [2006] S.C.J. No. 37 is instructive. Writing on behalf of himself, McLachlin C.J.C., LeBel and Deschamps JJ., Bastarache J. observed at paras. 48 and 54 that the obligation to pay child support is independent of a court order or any other kind of action by the recipient parent. Parents have a free-standing obligation to support their children commensurate with their income. Thus, parents who fail to pay appropriate support will have failed to fulfill their existing support obligations to their children. If the payor parent's income rises and the amount of child support paid does not increase, the payor parent has an existing unfilled obligation that could later merit enforcement. A court's decision to enforce that obligation by making an order of support retroactively should not be regarded as exceptional.

[15] In addition, in deciding whether an order of retroactive support is appropriate, all relevant factors should be considered. Where the parties have entered into a separation agreement but the payor parent's circumstances have changed such that the payor parent is not paying the support obligation that actually exists, the court has a discretion to make a retroactive award of support so long as the applicable statutory regime permits it: see para. 68. Blameworthy conduct by the payor parent, defined by Bastarache J. at para. 106 as "anything that privileges the payor parent's own interests over his/her children's right to an appropriate amount of support", is one factor that will militate in favour of a retroactive award.

[16] Justice Bastarache also indicated that while a court should consider the previous agreement or court order that the payor parent was following, and presume that compliance with that agreement or court order by the parent was reasonable on his or her part, the greater the disparity between what a payor parent acting reasonably should be presumed to pay and what is actually being paid, the more likely it is that this presumption will be rebutted. Further considerations are the contribution the payor parent has made to extraordinary expenses for the children or other conduct that has had the effect of fulfilling his or her support obligation, the circumstances of the children and any hardship occasioned by a retroactive award. [page35 ]

[17] I shall now apply the considerations mentioned in D.B.S., supra, to the present appeal. As indicated by his tax returns, the appellant's disclosed income increased from stated income of $11,788.48 for 2002 to $50,566.47 for 2003. His 2004 income tax return is not part of the record before us, but it will be recalled that the order of May 2005 based support on income of $67,000 and, according to the respondent's affidavit, the appellant has been steadily employed at Toyota throughout. Further, despite the fact that one of the appellant's children had been diagnosed with an attention deficit hyperactive disorder and the respondent incurred extraordinary expenses for him and other extraordinary expenses for their other child, there is no evidence that the appellant paid his proportionate share of these expenses, as opposed to arbitrarily and sporadically paying some small amounts, until the court application was brought and the consent order of May 3, 2005 was made. There is no suggestion that the children have in any event enjoyed all the advantages they would have received had the payor parent been appropriately supporting them. Nor is there any evidence before us concerning hardship to the appellant. Retroactive support was appropriate.

[18] Insofar as the date to which retroactive support should be ordered, in D.B.S., supra, Bastarache J. held that the date of effective notice, as opposed to the date when an application was made to a court, formal notice, or the date when support should have increased, as a general rule should be the date to which the award should be retroactive. He further held at para. 123 that in general, "[I]t will usually be inappropriate to make a support award retroactive to a date more than three years before formal notice was given to the payor parent." At the same time, at para. 124, Bastarache J. acknowledged that the date from which increased support should have been paid will sometimes be a more appropriate date from which the retroactive order should start:

This situation can most notably arise where the payor parent engages in blameworthy conduct . . . . This will not only be the case where the payor parent intimidates and lies to the recipient parent but also where (s)he withholds information. Not disclosing a material change in circumstances -- including an increase in income that one would expect to alter the amount of child support payable -- is in itself blameworthy conduct. The presence of such blameworthy conduct will move the presumptive date of retroactivity back to the time when circumstances changed materially.

[19] Here, the order for retroactive support goes back to October 1, 2003, a month after effective notice or the demand for disclosure was made. This is a period of less than two years from when the application was brought and a date considerably [page36 ]after the appellant's circumstances materially changed. Furthermore, in this case, the appellant engaged in blameworthy conduct. He did not increase his payments as a result of the significant increase in his salary beginning in 2003 although he should reasonably have expected that increase to alter the amount of child support payable. [^3] He neglected to provide information as to his financial circumstances for a significant time after it had been requested and after court proceedings had been initiated. In the result, this blameworthy conduct in which the appellant engaged is an additional reason for upholding the date to which the order of child support was made retroactive. In arriving at this conclusion, I note that the obligation to pay appropriate support is an ongoing obligation. That obligation existed at the time of the appellant's bankruptcy, was not discharged by his discharge in bankruptcy, and has no effect on third parties.

[20] I would uphold the order of the application judge that the appellant pay the respondent retroactive child support in the amount of $7,951.

The Order for Summary Judgment

[21] The appellant's position at the hearing and on appeal is that he declared bankruptcy on June 23, 2003, that he notified the respondent through her solicitor of his bankruptcy and the name of his trustee, that she proved no claim in the bankruptcy and that his discharge in bankruptcy has released him from paying the balance of the amount owing under the separation agreement.

[22] The respondent's position is quite different. The respondent states that through her solicitor she wrote to the appellant on September 11, 2003 and asked the appellant to start making the outstanding payments owing. She received no written response. Her affidavit material acknowledges that the appellant told her solicitor that he had made an assignment in bankruptcy. The respondent's affidavit goes on to say that, at the time, the appellant undertook to advise her solicitor of the name of his trustee in bankruptcy but did not do so.

[23] I am prepared to accept the application judge's finding that the appellant failed to give the respondent the notice [page37 ]required under the BIA. The appellant's conduct prevented the respondent from seeking a declaration that the payment in issue would survive the bankruptcy or, alternatively, opposing his discharge in bankruptcy until she could negotiate an amendment to the separation agreement.

[24] The application judge also held that, to the extent that notice had not been given, the appellant's discharge was inoperative. This was an error. Although the respondent was not given the required notice, the appellant's discharge in bankruptcy nevertheless releases him from all claims provable in bankruptcy unless the claim is one that is excepted under s. 178 or until the discharge is set aside or permission obtained to proceed with the claim: Janakowski v. Janakowski, 2000 22587 (ON SC), [2000] O.J. No. 2650, 7 R.F.L. (5th) 117 (S.C.J.), at paras. 29-30.

[25] The appellant accordingly submits that we should allow the appeal and grant him summary judgment. The matter is not so simple.

[26] The relevant parts of ss. 178(1) and (2) of the BIA provide:

178(1) An order of discharge does not release the bankrupt from . . . . .

(c) any debt or liability . . . under an agreement for maintenance and support of a spouse, former spouse... . . . . .

(2) Subject to subsection (1), an order of discharge releases the bankrupt from all claims provable in bankruptcy.

[27] In Berdette v. Berdette (1991), 1991 7061 (ON CA), 3 O.R. (3d) 513, [1991] O.J. No. 788, 33 R.F.L. (3d) 113 (C.A.), Galligan J.A. indicated that the Family Law Act, R.S.O. 1990, c. F.3 is a debtor-creditor statute. The spouse with the greater net family property owes the spouse with the lessor net family property an equalization payment that can be satisfied by a money judgment or the transfer of property or a combination of both. If a spouse agrees to make an equalization payment in a separation agreement or a court makes an order for equalization under Ontario's present Family Law Act, and the payor spouse subsequently makes an assignment or is petitioned into bankruptcy, an order of discharge will release the payor spouse from that liability: see The Honourable L.W. Houlden and The Honourable G.B. Morawetz, Bankruptcy and Insolvency Law of Canada, looseleaf (Toronto: Carswell, 1992) at 6-124.4, citing inter alia Blowes v. Blowes (1993), 1993 8521 (ON CA), 16 O.R. (3d) 318, [1993] O.J. No. 2022, 49 R.F.L. (3d) 27, 21 C.B.R. (3d) 276 (C.A.). Section 178(1) of the BIA lists eight classes of debts that are not released by an order of discharge. As indicated above, one of these exceptions is support. [page38 ]

[28] The word "support" in the BIA does not include a division of matrimonial property. See e.g., Van Norman v. Van Norman, 1993 2474 (BC CA), [1993] B.C.J. No. 244, 44 R.F.L. (3d) 406, 18 C.B.R. (3d) 123 (C.A.). "Support" is not, however, defined under the BIA. In Moore v. Moore (1988), 1988 4570 (ON SC), 67 O.R. (2d) 29, [1988] O.J. No. 2024 (H.C.J.), Campbell J. held that whether a particular amount claimed pursuant to a separation agreement is "support" within the meaning of the BIA is a question of fact to be determined with regard to the words of the agreement and the circumstances under which it was entered into. He instructed the fact finder as follows at para. 29:

The task in these cases is to determine as a question of fact whether the money owing under the agreement is really in the circumstances a form of maintenance and support, or is basically intended as maintenance and support, or is in effect maintenance and support or a substitute for it.

(Emphasis added)

The decision in Moore, supra, has been cited with approval by the British Columbia Court of Appeal in Van Norman, supra, the Alberta Court of Appeal in Peterson v. Peterson, 1995 ABCA 439, [1995] A.J. No. 1077, 18 R.F.L. (4th) 207 (C.A.) and the Nova Scotia Court of Appeal in Craig v. Craig, 1989 5175 (NS SC), [1989] N.S.J. No. 401, 24 R.F.L. (3d) 341, 78 C.B.R. (N.S.) 97 [Craig v. Craig cited to R.F.L.].

[29] The finding of fact that the payment is "in effect maintenance and support or a substitute for it" does not mean that the obligation to pay need qualify as a support order within the meaning of the Divorce Act, R.S.C. 1985, c. 3 (2nd Supp.) or pursuant to provincial legislation. As observed by Chipman J.A. in Craig v. Craig at p. 352 R.F.L., supra, the authorities "show that a particular disposition of property which is intended to be maintenance or a substitute for it can fall within s. 178 of the Bankruptcy Act and yet could never be support under the Divorce Act".

[30] In resisting summary judgment and seeking an order declaring that he " . . . does not owe $24,000 in an equalization payment to the respondent", the appellant raised s. 178(2) and the characterization of the payment stipulated in the separation agreement as an equalization payment as a shield to the respondent's enforcement measures taken after his bankruptcy. In his helpful text Bankruptcy, Insolvency and Family Law, looseleaf (Toronto: Carswell, 2001), Robert A. Klotz states at 3-16:

In which venue does this issue arise? Typically, the characterization issue is raised in matrimonial court as a shield to enforcement measures taken after the payor's bankruptcy. Unless the obligation is clearly for support, case law suggests that enforcement measures cannot be undertaken after bankruptcy without, first, either a judicial determination that it is a support obligation, or a judicial allocation or attribution as to what portion is referable to support. [page39 ]

[31] The application judge did not make a judicial determination that the amount he found the appellant owed the respondent was a support obligation before ordering that summary judgment issue for its enforcement. Perhaps he was of the opinion that the appellant's conduct in the bankruptcy foreclosed the issue. I will explain.

[32] At what is stated to be Exhibit "A" to the appellant's affidavit, sworn June 15, 2005, an unsigned handwritten document headed "Creditor Information" lists a debt owing to the respondent Heather Shea in the amount of $20,000, the approximate amount of the balance outstanding. However, at Exhibit "G" to the appellant's affidavit sworn February 8, 2005, there is a photocopy of a document headed "Liabilities" with the signature of Brian Gregory Fraser, the trustee in bankruptcy, at the bottom. That document does not list the respondent as a creditor. Instead, it lists the Ministry of Community and Social Services Att/Family Responsibility Office ("FRO") as an unsecured creditor in the amount of $20,000. The FRO is constituted under the Family Responsibility and Support Arrears Enforcement Act, 1996, S.O. 1996, c. 31. As MacPherson J.A. recently observed in Wildman v. Wildman (2006), 2006 33540 (ON CA), 82 O.R. (3d) 401, [2006] O.J. No. 3966, 273 D.L.R. (4th) 37 (C.A.), at para. 31, the title announces the intended purpose of the Act unequivocally. It is legislation designed specifically to improve the dismal support payment statistics in the Province of Ontario. The appellant has proffered no explanation for listing the liability as such.

[33] The trustee was apparently under the impression that all sums owed by the appellant to the respondent were support arrears and, thus, that they would be unaffected by the bankruptcy. The appellant did nothing to rectify the situation. [^4]

[34] The test for determining whether summary judgment should issue is whether there is a genuine issue for trial. The [page40 ]appellant's unexplained conduct in the bankruptcy proceedings raises a triable issue as to whether he acknowledged that the payment in issue is a substitute for support. My conclusion that there is a triable issue as to whether the $24,000 is a debt or indemnity obligation in the nature of support that survives the appellant's bankruptcy under s. 178(1) of the BIA is strengthened by consideration of a number of principles that Klotz has distilled in his book at 3-24.

[35] First, would the claimant have been entitled to support had the debt not been granted? If so, the obligation may be a substitute for support: see Smith v. Smith (Trustee of), [1989] B.C.J. No. 2354, 78 C.B.R. (N.S.) 256 (S.C.); Van Norman v. Van Norman, supra; and Craig v. Craig, supra. At the time that the separation agreement was entered into, there was an outstanding order for support in the amount of $600 per month in favour of the respondent until she obtained full time employment. She was a mother with two young children in need of monthly support at twice the amount provided for as a monthly equalization payment in the separation agreement. This was a six-year marriage. The length of time it would have taken the appellant to pay off the $30,000 at the rate of $300 per month is 8.33 years. This length of time is not disproportionate to the length of time over which support might have been ordered.

[36] Second, does the debt reflect a specific valuation of an asset, or can it be traced in amount or nature to a property interest claimed in the proceeding? If so, the quantum may reflect a property division rather than a support entitlement; or alternatively, it may be a pure or partial substitute for support. See Bremner v. Bremner Estate (Trustee of), 1989 4499 (SK QB), [1989] S.J. No. 65, 74 Sask. R. 110 (Q.B.); Provencher (Syndic) (Re), [1996] J.Q. no 5110, [1996] R.D.F. 271 (C.S.); and Maule- Ffinch v. Maule-Ffinch, [1996] O.J. No. 1580 (C.A.). Beyond using the words "equalization payment" in the separation agreement, no indication is given of the assets to which the payment relates, nor is there any schedule of the assets and their value attached to the agreement. There is no calculation as to how the lump sum was arrived at, nor is there any indication as to why the payment was not paid as a lump sum immediately.

[37] The respondent states in her affidavit sworn on March 24, 2005 that:

The Equalization payment was derived from my share of the Donut Shop, St. Laurentian Donuts that the Respondent and I owned at the date of separation. I have no knowledge of what has transpired with the donut shop, whether the Respondent continues to own a share of this business or whether he has sold it. [page41 ]

[38] In Craig v. Bassett, 1988 8712 (NS CA), [1988] N.S.J. No. 374, 17 R.F.L. (3d) 225, 71 C.B.R. (N.S.) 82 (C.A.), the parties were business partners. When they separated, the husband bought out his wife's interest in the business and she gave up her employment in it. In their separation agreement each released the other from "any and all rights past, present and future to maintenance" irrespective of the future economic circumstances of the parties. When the husband declared bankruptcy, the wife applied for a declaration that the debt was not discharged by the bankruptcy. There was no evidence that the wife had any other income. The judge at first instance found that, as there was no provision in the agreement for the payment of any other maintenance, the purpose of the agreement was to provide the wife with a "terminal income" or to give her an opportunity to obtain other employment, and therefore the debt was not released by the discharge. On appeal, the decision of the judge at first instance was upheld. It is at least arguable that the case before us bears many of the same similarities.

[39] Third, the wording of the agreement must be examined in order to attempt to glean an intention from the language used and the degree of integration with or differentiation of the debt from other parts of the document. See Schmidt v. Schmidt, 1991 7616 (SK QB), [1991] S.J. No. 476, 36 R.F.L. (3d) 390 (Q.B.); Re Miller (1981), 1980 1004 (AB KB), 11 Alta. L.R. (2d) 376, 111 D.L.R. (3d) 571 (Q.B.); Bremner v. Bremner (Trustee of), supra; Van Norman v. Van Norman, supra. I will consider the wording of the agreement together with the fourth principle, namely, that the labels used in the document are not determinative: Ontario (Director of the Family Support Plan) v. Zuker, 1993 16117 (ON CJ), [1993] O.J. No. 902, 47 R.F.L. (3d) 98 (Gen. Div.); and Huntington v. Huntington, 1990 13222 (NS SC), [1990] N.S.J. No. 475, 101 N.S.R. (2d) 271 (S.C. (T.D.)).

[40] In the separation agreement, under the heading "SETTLEMENT OF RIGHTS TO DIVISION OF NET FAMILY PROPERTIES", is the following provision:

(1) The husband shall pay the sum of Three Hundred ($300) Dollars to the wife each and every month until such time as a total amount of Thirty Thousand ($30,000) Dollars has been paid to the wife in full satisfaction of this equalization payment.

(2) Each party acknowledges that each has been advised of his or her rights to the equalization of their net family properties under the Family Law Act, 1986.

Under the heading FINANCIAL, is the following provision:

(1) Each of the parties:

(a) is financially independent; [page42 ]

(b) does not require financial assistance from the other;

(c) releases the other from all obligations to provide support or interim support pursuant to the Family Law Act, 1986, or the Divorce Act, 1985, and

(d) releases all rights to claim or obtain support or interim support pursuant to the Family Law Act, 1986, or the Divorce Act, 1985, from the other.

(2) The parties realize that their respective financial circumstances may change in the future by reason of their health, the cost of living, their employment and otherwise. No change whatsoever, even if it be material, profound, catastrophic, or otherwise, will give either party the right to claim or obtain interim or permanent support pursuant to the Family Law Act, 1986, the Divorce Act, 1985, or any other statute or law, from the other.

Under the heading "RELEASES" and the subheading "Property", the agreement states:

Except as provided in this agreement, the husband and the wife agree that: . . . . .

(b) each releases all rights to and interest in property owned by the other . . . .

(Emphasis added)

[41] What is "provided in this agreement" is the payment of $30,000 by periodic payments of $300 a month. Given the wife's circumstances, namely, being a mother with two young children with a support order of $600 a month, it is hard to imagine how the wife could agree she was financially independent and not in need of support unless these terms were conditional upon payment of the periodic payments totalling $30,000 and she was looking to these payments in lieu of support. Indeed, if the agreement is conditional upon the payments being made, the appellant's bankruptcy will not release him from his obligation to make the payments whether they are characterized as support or an equalization payment. See Millar v. Millar, 1991 ABCA 261, [1991] A.J. No. 955, 37 R.F.L. (3d) 113 (C.A.); and Schroeder v. Schroeder, 1993 8987 (SK QB), [1993] S.J. No. 257, 47 R.F.L. 290 (Q.B.). It is at least arguable that the releases are conditional upon the payment being made. Klotz indicates at 3-6 that the problem of determining whether the obligations in an agreement are conditional may be exacerbated by the thoughtless inclusion of boilerplate severability clauses. In this agreement, however, under the heading "SEVERABILITY OF TERMS", one again finds the introductory phrase, "Except as otherwise provided, all of the terms of this agreement are severable from each other and will survive the invalidity of any other term of this agreement" (emphasis added). [page43 ]Again, if a functional approach to interpreting the agreement is adopted, it is at least arguable that the clause is subordinate to the "otherwise provided" periodic payments being made. As well, it is arguable that the severability clause is only triggered by a finding that a term is invalid, which is not the situation here.

[42] The wording of the separation agreement does not specifically link the periodic payments to support. That said, having regard to the recitals to the agreement and its structure, an argument can be made that they are linked. The concluding language of the recitals states

NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the premises and the mutual covenants expressed herein the parties agree as follows:. . .

(Emphasis added)

The substantive provisions in the agreement are grouped under the following major headings: Custody and Access; Financial; Child Support; Material Change in Circumstances; Personal Property; Settlement of Rights to Division of Net Family Properties; Canada Pension Plan Credits; Other Pensions; and Releases. All the releases are grouped together. A structural analysis of the agreement suggests that an argument might be made that the releases, including the releases relating to support, are related to fulfillment of the settlement clauses.

[43] The fifth principle requires the court to consider the attributes of the obligation. An obligation that bears interest, or that is governed by an acceleration clause on default, is less akin to support. Here, the amount to be paid does not bear interest and the agreement contains no acceleration clause in the event of default.

[44] The sixth principle involves consideration of the tax treatment of the debt, although this is not determinative. The income tax returns of the appellant in the years immediately following the signing of the agreement are not before the court.

[45] The seventh principle that the court may consider is the subsequent conduct of both spouses. I have already discussed the trustee's conduct and the appellant's acquiescence to his characterization of the sum of $20,000 as support in the bankruptcy proceedings. For the reasons noted above, the respondent took no steps in the bankruptcy proceedings.

[46] Finally, in deciding whether a payment is maintenance within the meaning of s. 178(1) of the BIA, the comments of the Supreme Court of Canada in Marzetti v. Marzetti, 1994 50 (SCC), [1994] 2 S.C.R. 765, [1994] S.C.J. No. 64, 5 R.F.L (4th) 1, 26 C.B.R. (3d) 161, at para. 80, [page44 ]favouring a purposive approach, albeit in a different context, are apposite:

[T]here are related public policy goals to consider . . . [T] here is no doubt that divorce and its economic effects . . . are playing a role in the "feminization of poverty" . . . . A statutory interpretation which might help defeat this role is to be preferred over one which does not.

[47] For these reasons, I would dismiss the appellant's request for a declaration that his discharge in bankruptcy released him from his obligation to pay the $24,000 he owed the respondent. Instead, I would set aside the summary judgment ordering him to make that payment and direct the trial of an issue as to whether the $24,000 payment, described as an equalization payment in the separation agreement, is in fact maintenance within the meaning of s. 178(1) of the BIA.

Further comments

[48] I cannot leave this judgment without further comment on the unsatisfactory state of the law. In its recent review of the BIA, the Standing Senate Committee on Banking, Trade and Commerce identified seven fundamental principles that it believed ought to guide the design of insolvency laws in this country: fairness, accessibility, predictability, responsibility, co-operation, efficiency and effectiveness. [^5] The situation before us reflects none of those principles. At the very least, consideration ought to be given to amending the BIA to reflect the existing state of the common law, which is that any payment that fulfills the function of maintenance is maintenance.

Costs

[49] The matter of costs in family matters, is approached somewhat differently than in other civil litigation. Discretionary factors, including the ability to pay and the conduct of the parties prior to the litigation, can play a more significant role: Drygala v. Pauli, 2003 48241 (ON CA), [2003] O.J. No. 3, 35 R.F.L. (5th) 323 (C.A.); Tauber v. Tauber (2000), 2000 5747 (ON CA), 48 O.R. (3d) 577, [2000] O.J. No. 2133, 6 R.F.L. (5th) 442 (C.A.); and Andrews v. Andrews (1980), 1980 1913 (ON CA), 32 O.R. (2d) 29, [1980] O.J. No. 3887, 20 R.F.L. (2d) 348 (C.A.).

[50] The application judge made an order for costs in the amount of $2,500 payable to the respondent. I would set aside [page45 ]that order. The respondent is entitled to her costs here and below with respect to the order for retroactive support. I would fix the amount of those costs at $3,500 all inclusive. Insofar as the $24,000 payment is concerned, having regard to the fact that I would direct the trial of an issue, and all the circumstances of this appeal, I would order that the parties each bear their own costs.

Appeal allowed in part.

Notes

[^1]: It appears that s. 178(2) of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (the "BIA") does not have the effect of releasing the debtor's legal obligation to pay, but rather prevents a creditor from pursuing remedies against the debtor's property. In Re Handelman, 1997 12409 (ON SC), [1997] O.J. No. 3599, 48 C.B.R. (3d) 29 (S.C.J.), Farley J. upheld Master Ferron's grant of leave to a creditor to proceed with an action against a discharged bankrupt. In doing so, Farley J. considered the decision of Catzman J. (as he then was) in Re Kryspin (1983), 1983 1703 (ON SC), 40 O.R. (2d) 424, [1983] O.J. No. 2927 (H.C.J.) respecting the predecessor to s. 178(2) to the effect that the section does not extinguish the debt, but only releases the debtor from claims provable in bankruptcy. Justice Farley also noted that s. 69.3(1) of the BIA only stays any remedy against the bankrupt's property and the commencement or continuation of any action for the recovery of a claim provable in bankruptcy.

[^2]: The appellant's income tax return for the year 2001 shows his income as $3,096. In view of the fact that the earlier order of Dunn J. attributed income to the appellant of $30,000, it is not clear to me whether a court would have continued to impute this amount of income to him.

[^3]: Originally the appellant submitted that the income disclosed in his 2001 tax return would have justified him paying a lower amount of support than that provided in the separation agreement. Although not an issue on this appeal, I note that he was the person in possession of that information and he chose not to apply for a variation of child support. Also, given that the earlier support order was based on attributed income, it is possible that a larger income, as opposed to the income disclosed in his tax return, would have been attributed to him.

[^4]: The trustee is charged with fixing the amount the bankrupt must pay into the estate for distribution to creditors. First, the trustee determines the bankrupt's total income from all revenues irrespective of their nature or source. Next, the trustee determines the amount of a bankrupt's earnings that are surplus earnings. Pursuant to s. 68(1), that is "the portion of the total income of an individual bankrupt that exceeds that which is necessary to enable the bankrupt to maintain a reasonable standard of living". In fixing the amount of surplus income to be paid into the estate for the benefit of creditors, the trustee is obligated to have regard to the bankrupt's personal and family situation. In general, support payments are excluded from the determination of surplus income. As the trustee's report in bankruptcy was not filed in these proceedings, I am unable to determine whether the appellant claimed any payments for his wife from his surplus income. Further, subject to the rights of secured creditors, s. 136(1) creates a priority for any lump sum amounts of support. As no such amount was owing to the FRO, I do not know whether the appellant received a benefit from claiming this priority.

[^5]: Canada, Senate, Standing Senate Committee on Banking, Trade and Commerce, Debtors and Creditors Sharing the Burden: A Review of the Bankruptcy and Insolvency Act and the Companies' Creditors Arrangement Act (Ottawa: Senate of Canada, 2003).