Matrimonial Property and Ex-Juris Assets (Or “Debtor’s Prison Making a Comeback”)

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(Originally submitted to the Legal Education Society of Alberta, for presentation at the Advanced Matrimonial Property LESA Program, January 2016)

Now, more than ever, we live in a mobile society. The world today is much smaller than it was 50 years ago. As a result, in recent years, Canadian courts and the legal profession have increasingly been tasked with the challenge of responding to cases where matrimonial property includes foreign-held assets which, sometimes, were greater in value in than those assets held on Canadian soil. The issue raised in these cases, is how to effect an equitable distribution of matrimonial property and more importantly, what jurisdiction Canadian courts have in dealing foreign assets.
The idea for this paper came about one morning as I sat in Chambers watching Justice D. K. Miller address an ex juris asset issue, where he ordered the Wife to instruct her counsel in Zimbabwe to effect a sale of land, and to then pay those proceeds to counsel in Alberta.
At the time, having practiced for 30 years in family law, I was rather shocked and felt the Judge was over-stepping, effectively seeking to control assets that were outside of his jurisdiction. I then had the idea of writing this paper to clarify his “wrongness”, only to discover that, in fact, he may have been on the front line of a growing line of authority that has quietly been percolating under the radar, and which appears to be evolving into a resurgence of the concept of “debtor prison” as a tool for execution on civil judgments.

1. Disclosure:
It is well established that Canadian courts have the jurisdiction to consider foreign assets for the division of matrimonial property. Specifically in Alberta, section 31(1) of the Matrimonial Property Act, RSA 2000, c M-8 (“Matrimonial Property Act”), disclosure of all property, creates a statutory obligation on both spouses to disclose all the particulars of not just their properties in Alberta, but also of any property located elsewhere.
31(1) If an application has been commenced under Part 1, each spouse shall file with the Court and serve on the other spouse a statement, verified by oath, disclosing particulars of all the property of that spouse, whether it is situated in Alberta or elsewhere.
This statutory obligation was recently highlighted in the case of Chikonyora v Chikonryora . In Chikonyora, the parties were married in Zimbabwe and later moved to Alberta, Canada. During the course of the matrimonial property proceedings, the husband claimed that the parties jointly owned a property in Zimbabwe from which the wife was collecting rent. The husband advanced a claim for his share of the rent and demanded disclosure for both the property and the rents being collected from the property.

The husband was granted an order for disclosure within 30 days, failing which he could apply to have his wife held in contempt of court. The wife took the position that the Alberta Court of Queen’s Bench had no jurisdiction over the property in Zimbabwe and refused to comply with the order for disclosure. The husband’s contempt of court application was heard in front of Justice R. A. Jerke, who dismissed the husband’s application for contempt of court. The husband appealed the Chamber Justice’s dismissal of his contempt of court application.

The Court of Appeal found that Justice Jerke had erred in holding that the Alberta courts did not have the jurisdiction to compel the disclosure regarding the property located in Zimbabwe. In coming to its conclusion, the Alberta Court of Appeal first identified the statutory obligation to disclose the particulars of all property, wherever situated, as stipulated in section 31(1) of the Matrimonial Property Act. Next, the Court of Appeal referred to sections 7(3) and 8(d) of the Matrimonial Property Act to find that a court must take into consideration “other financial resources”, which would presumably include property located in foreign jurisdictions. Moreover, while not expressly stated, it was clear that the Court of Appeal determined that a “just and equitable” distribution of matrimonial property could not be achieved without the particulars of foreign assets. Originally, the Court in Chikonyora cited section 9(1) of the Matrimonial Property Act, which “authorizes Alberta courts to distribute property situated in Alberta in a manner that equalizes the foreign held assets of one or both of the spouses” .

2. Equalization of Assets through Reapportionment of Canadian Assets:
An example of a court exercising its power to distribute Canadian property in such a way as to equalize matrimonial property, which includes foreign property, is found in the case of Kiamanesh v Kiamanesh. In Kiamanesh the parties, largely though the husband’s direction, operated and managed numerous companies as well as real property located in British Columbia. In addition to the numerous companies and real estate investments, the husband purchased a precision tool company located in New Hampshire for approximately $1.3 million USD. Upon the separation of the parties, the husband caused almost all of the BC companies and properties to become insolvent by stopping all mortgage payments despite continuing to collect rent.

In addition to the urgency of needing to salvage and mitigate losses in relation to the BC properties, the Court faced the additional challenge of the husband refusing to provide proper disclosure regarding the US company, especially with regards to the value of the company. The husband insisted, without providing any evidence, that the company was performing poorly and that his initial investment of $1.3 million USD had significantly decreased in value and was unrecoverable. The Court determined that the wife was entitled to a one half interest in the US company but, being unable to affix a value to the company, the Court felt the only equitable distribution it could make was to vest all of the Canadian assets in the wife:
… I am of the view that the fairest asset distribution at this stage, given the inference I have drawn respecting the probable value of the American investments, is to vest in the plaintiff all of the Canadian assets of the parties, including all the shares in the active or property holdings corporations, the parties’ interest in the home located at 2560 West Hill Close, West Vancouver; and the Sustech property. The defendant’s RRSPs shall be rolled over to the plaintiff.
In addition to ordering that all of the Canadian property be vested in the wife, the Court further ordered the registrar to enquire as to the value of the US company so that the wife’s equity in the US company could be adjusted based on the wife’s allocation of all of the Canadian assets. The Court furthered ordered that the wife was not obliged to take on any of the liability of the US company.

While the Court in Kiamanesh, felt it could achieve equity, pending the valuation of the US company, by reapportioning all of the Canadian assets to the wife, this raises the question of what Canadian courts can do to achieve an equitable distribution of matrimonial property when the foreign assets are worth more than the Canadian assets?

3. When the distribution of the Canadian Assets is not enough to effect an equitable distribution of the matrimonial property:
The efforts of most Canadian courts to realize an equitable distribution of matrimonial property when foreign assets have greater value than Canadian assets can be broken down into three categories:
a) Granting an ‘in personam’ order regarding the foreign property;
b) Deferring to the jurisdiction of the country where the foreign asset/property is located; or
c) Granting a compensation order, taking into account the value of the foreign property.

a) In personam orders regarding foreign property:
In Duke v Andler , the Supreme Court of Canada firmly established that Canadian courts do not have jurisdiction over foreign assets, especially foreign land . The Supreme Court of Canada did, however, refer to a long line of English cases where English courts had enforced rights affecting real property in foreign jurisdictions if two requirements were met: 1) the defendant resided in England and, 2) those rights sought to be enforced were based on contract, fraud or trust . This exception to the general rule were more recently revisited and expanded by the Ontario Court of Appeal in Catania v Giannattasio , which has since been applied to cases involving the division of matrimonial assets outside of a Canadian court’s jurisdiction. In Catania, the Ontario Court of Appeal determined that “Canadian courts do have jurisdiction to enforce rights affecting land in foreign countries if those rights are based on contract, trust or equity, and the defendant resides in Canada. Enforcing this jurisdiction is an exercise of in personam jurisdiction, which is the exception to the general rule that our courts have no jurisdiction to decide title to foreign lands ”.

The Ontario Court of Appeal further went on to name four criteria that must be met in order for a Canadian court to exercise in personam jurisdiction in enforcing a right with respect to foreign land:
1. The court must have in personam jurisdiction over the defendant. The plaintiff must accordingly be able to serve the defendant with originating process, or the defendant must submit to the jurisdiction of the court.

2. There must be some personal obligation running between the parties. The jurisdiction cannot be exercised against strangers to the obligation unless they have become personally affected by it…

An equity between the parties may arise in various contexts. In all cases, however, the relationship between the parties must be such that the defendant’s conscience would be affected if he insisted on hi strict legal rights…

3. The jurisdiction cannot be exercised if the local court cannot supervise the execution of the judgment…

4. Finally the court will not exercise jurisdiction if the order would be of no effect in situs (where the property is located)… The mere fact, however, that the lex situs would not recognize the personal obligation upon which jurisdiction is based will not be a bar to the granting of the order.

The distinction between in rem orders and in personam orders affecting land is therefore one between is one between orders affecting the title of lands versus orders enforcing rights affecting land.

A well-known example of where an ‘in personam´ order has been made with regards to foreign matrimonial property is the case of Macedo v Macedo . In Macedo, the parties were married in Portugal and later relocated to Ontario. The parties had assets in both Canada and Portugal, namely the matrimonial home and a property in Portugal for which the husband was collecting rents to the exclusion of the wife. As the wife had incurred a disproportionate share of the family debts and liabilities, the Court ordered that the matrimonial home be vested in the wife. The Court then determined, taking into account arrears in child support, that the husband’s interest in the parties’ Canadian property amounted to approximately $18,000.

With regards to the property in Portugal, the Court found that the property was sellable and that the wife had received an offer for the property that was greater than the appraised value. The property would have been sold if not for the husband’s refusal to co-operate. The Court therefore determined that the property in Portugal should be sold with the husband’s $18,000 interest in the Canadian assets coming out of the wife’s share in the Portuguese property. In examining its jurisdiction with regards to the sale of the property in Portugal, the Court in Macedo conceded that it did not have the power to vest title of the property in the wife, but found that it had jurisdiction in personam over the husband and could order the husband to sell the property in Portugal, or, alternatively, the husband could pay the wife for her share of the property minus his interest in the Canadian property:
Having said this, the court is satisfied that it retains jurisdiction in personam against the Respondent in this jurisdiction. Consequently, the court is empowered to make an order for the sale of the property (see Brathwaite v. Braithwaite (1984), 40 R.F.L. (2d) 415 (Ont. H.C.) and Renshaw v. Renshaw (1983), 33 R.F.L. (2d) 252 (Ont. Co. Ct.)). Therefore, there will be an order that the Respondent sell the property as soon as possible, and the net proceeds are to be divided equally amongst the parties. The Respondent shall pay the Petitioner one-half of the rental proceeds from the property in Portugal until such time as it is sold. I would further order that the Respondent has the choice of otherwise paying the Petitioner a lump sum payment of $57,000, representing her share of the family assets in question. The court recognizes that this part of the order may be difficult to enforce, however trusts that it shall be pursued as enforceable.

The Court’s remark in Macedo regarding the anticipated difficulty enforcing the order reflects the doubt cast in subsequent cases that such ‘in personam’ orders regarding matrimonial property are an effective or even valid tool.

In Potter v Boston , the Court examined an application by the husband who sought leave to appeal an interim order that granted his wife exclusive possession of a condominium, which was owned by the husband and located in Florida, for one week every month. In coming to its decision, the Court considered Macedo and noted that the case should be approached with caution as the order granted in Macedo could only be enforced through the court’s contempt powers and questioned whether contempt orders were an effective means of enforcement .

Ultimately the Court in Potter determined that there was “good reason to doubt the correctness of the [interim] order” and expressed concern that denying the husband leave to appeal would set a potentially incorrect precedent.

In Stano v Stano , the Supreme Court of British Columbia set aside an order directing the husband to transfer his interest in an apartment located in the Czech Republic. In reviewing the order, the Court determined that it had no jurisdiction over the assets located in the Czech Republic and remarked that the assets would need “to be dealt with either in accordance with the laws of the Czech Republic, or in further proceedings here upon proper pleadings and evidence.”

There are two reported cases of interest in Alberta that where Alberta courts have made ‘in personam’ orders affecting rights in property located outside of Alberta. The first is Mitrovic v Mitrovic .

In Mitrovic¸ the husband acquired real property in Croatia after the parties married. The wife brought an application for division of matrimonial assets, including the property in Croatia. After determining that the husband held one half of the property in trust for his sister, the Court determined that the wife had a 1/4 in the property (one half of the husband’s half interest). Although the Court considered the idea of ordering the sale of the Croatian property, it decline to do so for two reasons: 1) the sister’s half interest in the property and, 2) the Court did not have the jurisdiction to order the sale of the property . The Court did find, however, that it could make an in personam order against the husband pursuant to the exceptions listed in Duke v Andler:
… in weighing what should be done with the Croatian property, the court’s starting point is its recognition that its jurisdiction, as a domestic court, to deal with immovable in a foreign country is tenuous. However, this court does have in personam jurisdiction over Mr. Mitrovic: he resides in Alberta, and is likely to continue to do so because of the presence of his daughter in this province. Therefore, the court is in a position to order Mr. Mitrovic to do things and to proceed in contempt against him should he willfully refuse to do so.

Of particular significance, the Court determined that the personal obligation owed by the husband to his wife was not only a moral obligation but an obligation imposed by the Matrimonial Property Act. The Court therefore ordered that the husband be appointed as trustee for the wife’s 1/4 interest in the Croatian property and declared that she had an obligation to pay reasonable management fees and expenses along with the right to 1/4 of the net rents collected from the property as well as 1/4 of the net proceeds of the property if it should be sold. The husband was further ordered to provide the wife with an annual report and accounting of the Croatian property.

The second reported case where an Alberta court has made an ‘in personam’ order regarding real property outside of Alberta is the case of Welsh v Welsh which followed both Catania and Mitrovic and in fact, took the issue of jurisdiction one step further. The parties in Welsh were married and resided in Edmonton, Alberta. Prior to their marriage, they signed a pre-nuptial agreement stating that they agreed to be governed by the laws of Alberta. Shortly before their separation, the parties sold the matrimonial home in Edmonton and used the proceeds as a deposit for a property located in Osoyoos, British Columbia. Following the parties’ separation, the husband lived in the property in Osoyoos while the wife lived in a property owned by the parties in Arizona. The husband subsequently began proceedings in Alberta, British Columbia and Arizona. Although the husband represented to the Alberta court that he would discontinue the BC and Arizona actions, he did not. Moreover, the husband failed to pay for various expenses associated with the property in Osoyoos, which resulted in the wife paying for these expenses in order to prevent the bank from foreclosing on the property.

Based on the above, the wife sought exclusive possession of the home in Osoyoos. Although the Court began with the general rule from Duke v Andler, after reviewing the four-part test in Catania, the Court determined that it had jurisdiction to grant the wife exclusive possession of the property in Osoyoos and, in fact, granted exclusive possession of the property in Osoyoos to the wife. In coming to its decision, the Court made the following determinations:
1) That the husband had attorned to the jurisdiction of the Alberta Court, both on the record and through his commencement of the divorce and division of matrimonial property proceedings in Alberta;
2) That the husband had an obligation to his wife by virtue of the Matrimonial Property Act (citing Mitrovic);
3) That despite the fact that the husband had disregarded previous orders of the Alberta Court, that the Court could supervise and enforce an order granted by the Alberta Court as the husband had family, a corporation and bank accounts in Alberta; and
4) That transfer of the property in Osoyoos was neither illegal nor impossible under the laws of British Columbia.

Although the four elements from Catania were satisfied in Welsh, what the Court appears to have glossed over is the fact that an order for exclusive possession is more aptly classified as an in rem remedy rather than an in personam order, which is also the exact same concern outlined by the Ontario Court in Potter. With the greatest of respect, as well, one might question the Court’s interpretation of the fourth element, where they seem to have greatly simplified the reasoning in Catania – moving the bar from the relatively high standard of determining, to use the wording in Catania, to decline the application if “the order would be of no effect in the situs”, to the ridiculously low threshold of merely requiring that the order sought “must not be illegal or impossible according to the laws where the property is situated.”

With the greatest of respect, the interpretive effort of the Court’s to “do right”, if we adopt the approach in Welsh v. Welsh, waters down the Catania test to this asking if the court is being asked to make an order against a party to the action, if the parties to the action have any form of relationship, contractual, statutorily, or equitably, and whether or not the order would be illegal in the lex situs. The concept of any significant distinction between the natures of “in rem” versus “in personam” jurisdiction is thus whittled to a sliver. Essentially, as long as you are before the court and what you are asking for is not “illegal”, the court has jurisdiction over any property, including land and interests in land – albeit via an “in personam” remedy, i.e.) telling the other party what to do with their foreign property.

The issue of in personam orders regarding matrimonial property in foreign jurisdictions has yet to be examined by the Alberta Court of Appeal. In Chikonyora the Court of Appeal determined that the issue of jurisdiction over foreign property was not properly before the Court and therefore declined to address the Alberta courts’ jurisdiction regarding foreign property, if any. It also appears that Potter has yet to reach the Ontario Court of Appeal, if at all.

The gray area between in rem orders that affect title to land and in personam orders that enforce rights with regards to land is often too murky to discern, as outlined above, which brings us to the next option a court has with regards to matrimonial assets located in a foreign jurisdiction: to defer to the foreign jurisdiction.

b) Deferring to the Foreign Jurisdiction:
While the Court in Stano determined that the issue of the foreign matrimonial assets would need to be dealt with according to the laws of the Czech Republic or, potentially in BC pending pleadings and evidence, in Bindra v Bindra the court deferred completely to the foreign jurisdiction. In Bindra, the wife sought, in lieu of the monies owed to her by the husband, an order recommending that the Indian Government vest matrimonial property located in India to her. The Court struggled with the fact that the property in India was jointly owned and it did not know whether the laws in India would allow the wife to force the sale of the property in India. Ultimately, the Court declined to do anything, stating that the best course of action for the wife to recover her interest in the property was to begin proceedings in India:
In my view, the best course of action is for this court to do nothing. Both the Wife’s and Husband’s joint ownership remains and will be protected under the laws of India. The Wife can bring whatever proceeding she wants to in India to recover her half interest in the Property. Nothing in this order is intended to or affects her interest in the Property.

The Court in Bindra explained its decision to do nothing with regards to the property in India as a ‘Catch 22 situation’:
To grant her judgment against the Husband in Canada and still allow her to retain joint ownership of the Property in India would not be appropriate. On the other hand, for the Wife to release her interest in the Property to the Husband in exchange for the monetary judgment she seeks against him may be problematic since she may never recover on the judgment against her Husband.

In addition to finding that it does not have the jurisdiction to make an order regarding the property in India, the Court in Bindra also briefly referred to the challenges faced by many spouses who are granted a compensation order (which will be discussed further below): that they are unable to collect their compensation monies because the majority of the assets are held in foreign jurisdictions, compensation orders are valid for a maximum of 20 years and/or a compensation order can be extinguished by a discharge in bankruptcy to name a few. For some courts, however, compensation orders are the only legal and equitable option they have to deal with matrimonial assets in foreign jurisdictions.

c) Compensation (Equalization) Orders:
Two relatively recent cases from the Supreme Court of British Columbia illustrate the use of compensation orders when the spouses’ foreign assets eclipse the matrimonial assets held in Canada: Friedl v Friedl and Kim v Hong . In addition to the issue of the greater value of the foreign assets, for which both courts found that they had no jurisdiction over, both courts in Friedl and Kim were faced with the additional challenge of lack of proper disclosure.

In Kim, the parties were South Korean citizens who had moved to Vancouver, nine years prior to their separation. Their lavish lifestyle in Vancouver was funded through the husband’s business interests in a company in South Korea as well as through the sale of numerous properties in South Korea. The parties’ lifestyle was further supplemented by ‘house-flipping’ properties in British Columbia, for which the wife displayed an aptitude. After a lengthy review of the South Korean properties and the parties’ intentions with regards to said properties, the Court determined that all of the husband’s South Korean assets and the parties’ Canadian assets were matrimonial property and were therefore subject to division.

The South Korean assets significantly out-valued the Canadian assets. The Court, however, dispelled any notion that it had jurisdiction over the Korean assets and determined that the only remedy was to reapportion the Canadian assets and/or make a compensation order:
Equal division of the Korean Assets which are family assets is impossible as this court does not have jurisdiction over foreign property. This means that the respondent will retain 100% of the Korean assets, which are worth substantially more than the Canadian assets. This would clearly be unfair. This unfairness can be remedied by reapportionment of the Canadian family assets in the claimant’s favour in a way that takes into account what would have otherwise been her entitlement to the Korean Assets if they were in Canada, and, or in the alternative, by a compensation order.

After calculating the wife’s entitlement to both the Canadian and Korean assets as well as any adjustments for monies already paid, dissipated assets and debts, the Court awarded the wife sole possession of all of the Canadian assets as well as a compensation order of over 3 million dollars.

In Friedl, the parties were German citizens who later relocated to British Columbia. The husband held many properties and business interests, both in his name and in the name of his companies, which included real property in Michigan, Switzerland, Germany and British Columbia. In its deliberation with regards to the division of matrimonial property, the Court determined that it had the jurisdiction to consider the value of the assets located outside of British Columbia , but that it had no power to “determine the right, title or interest in land situated outside the province” .

As the husband failed to provide proper disclosure, the Court was at odds to even assign a rough value to the various assets so the Court assigned the wife’s interest in each property on a percentage basis which reflected the manner in which the assets became family property . The Court then ordered that each property be appraised within a specified time frame and that the wife then be compensated for her percentage interest in the properties. In addition to her interests in the foreign properties, the wife was awarded exclusive possession of the matrimonial home as well as interests in the husband’s companies and those companies’ assets, which included shares in an aviation company. In order to facilitate the wife’s compensation and to provide security for the wife, the Court further ordered that the husband’s interests in the companies as well as the shares in the aviation company would be held in trust for the wife until such time that she was properly compensated for her interests in the various real properties.

While the Court in Friedl was able to fashion a solution that would secure payment of the wife’s compensation order, it was only able to do so as the companies were located in British Columbia and the Court therefore had jurisdiction over these companies. Often times, however, there are no assets within the jurisdiction that can be held ‘hostage’ to ensure payment of the compensation order. Additionally, as already outlined above, compensations orders are judgments which have a limited life-span and can be extinguished by a discharge in bankruptcy unless those orders direct a specific interest in property held by the debtor party.

A Bankruptcy-Proof Solution?
A recent case in Alberta has fashioned a new solution, and potential fourth option, for courts dealing with out of jurisdiction assets: Darby v Darby . In Darby, the husband founded and sold a variety of successful and profitable businesses throughout the parties’ marriage. Upon the parties’ separation, the husband liquidated all of the matrimonial assets and absconded with the proceeds to Costa Rica in what the Court called “an elaborate plan to defeat his wife’s claim for a share of the matrimonial property” . As part of his ‘elaborate plan’ the husband invested $4.2 million in what he alleged to be an irrevocable disability and life insurance policy.

A financial expert retained by the wife testified that the proceeds from the sale of the matrimonial assets were not out of the husband’s control as he claimed, but that the wife had very few options in recovering any of the assets now that they were offshore in a non-reciprocating jurisdiction. The financial expert also raised the issue that a judgment made by the Alberta Court could be subject to bankruptcy proceedings if the husband ever chose to return to Canada. The Court therefore determined that it would be “prudent to deal creatively with Mrs. Darby’s share of [the] family property” .

The wife sought an order that the husband’s home in Costa Rica be transferred to her, in addition to other orders dealing with property outside of Alberta. The Court declined, remarking that such orders would not assist her due to the fact that the husband had already disregarded a previous preservation order and more pertinently, the fact that “[the] Court’s jurisdiction ends at the Canadian border” . Instead, the Court took a surprising turn and examined the issue of spousal support before making a determination on the matrimonial property issue.

After determining that the wife was entitled to spousal support on the basis that she had contributed to the development of the substantial family assets, the Court returned its mind to the issue of matrimonial property and determined that section 9(3)(a) and (j) of the Matrimonial Property Act granted Alberta courts the discretion to order periodic payments with respect to matrimonial property along the same lines as a maintenance support order . The Court then calculated that the wife’s portion of the matrimonial property amounted to over 2 million dollars and ordered spousal maintenance in the sum of $10,000 per month for the next 20 years.

In making its order, the Court specified that the passage of time alone would not satisfy the order and that the order only lapsed upon the payment in full of the wife’s share of the matrimonial property which, at the husband’s discretion, could be paid in one full lump sum. The Court also specified that in the event that there should be a change in the bankruptcy legislation that the order was intended to survive any assignment in bankruptcy.

By fashioning the equalization payment/compensation order into a maintenance order, the Court in Darby was able to shape a bankruptcy-proof order. Although the order has no real bite in terms of enforceability as the husband had relocated permanently to Costa Rica , it at least closed any further avenue of frustrating the wife’s entitlement to her share of the matrimonial property.

Although this novel approach in Darby had no impact on the husband so long as he remained in Costa Rica, if a similar order were made against a spouse who resided within Canada and held assets in a foreign jurisdiction, it could prove to be a powerful tool in ensuring that the other spouse received their fair portion of any matrimonial assets held outside of the country. More importantly, the approach in Darby has the potential to become a more practical and equitable remedy than the three general approaches currently being used by Canadian courts today.

Debtor’s Prison Redux
While the somewhat expansive interpretation of Catania adopted by the Alberta Court in Welsh seems to dissolve most impediments to asserting claims on ex juris assets, and while the Courts appear to be willing to make equalization Orders to account for value of ex juris assets, in both cases, the next question is “What if the Order is not complied with?”

In the case of an order directing use or transfer of ex juris property, clearly there is every reason to believe that even if the Alberta order is not “illegal”, it is very possible that a party may not comply to affect the result directed. Likewise, if the Court makes an equalization order or judgment directing payment, if there are no assets within Alberta to execute against, what is the next step for the creditor?

In Mitrovic, Justice Viet suggests that the difficulty over enforcement can be remedied by use of the contempt remedy:
Therefore, the court is in a position to order Mr. Mitrovic to do things and to proceed in contempt against him should he wilfully refuse to do so.

While on its face, this appears to be appropriate, it does raise certain red flags when one has regard to Rule 10.52(3) of the Alberta Rules of Court:

(3) A judge may declare a person to be in civil contempt of Court if
(a) the person, without reasonable excuse,
(i) does not comply with an order, other than an order to pay money, that has been served in accordance with the rules for service of commencement documents or of which the person has actual knowledge,

The aforesaid Rule is a reflection of the abolition of the Victorian concept of “Debtor Prison”, namely, that a person should not be placed into jail for failure to pay a debt. As commented by Justice Binnie in R. v Wu,
“Debtors’ prison for impoverished people is a Dickensian concept that in civilized countries has largely been abolished. Imprisonment for civil debt was abolished in Ontario by the end of the 19th century.”

In Wu, the Court went on to hold that as a conditional sentence is a form of imprisonment, it is inappropriate to impose upon a party simply because they have no ability to pay a fine. Ironically, in his penultimate direction, Justice Binnie states:

The sentencing judge commented that “hard cases make bad law and this is a hard case”. In my view, with respect, it also made bad law. I would allow the appeal.

With this adage warning us of the dangers of “hard cases” ringing in our ears, we then find that, in fact, the concept of “Debtor Prison” is not in fact abolished in Canada at all.

To follow the progression of the law, it is perhaps best to simply outline it in point form:

i) In 1976, a husband (who happened to be a lawyer) was ordered to pay $50,000.00 to his wife in a Divorce Action. He did not do that, and a contempt motion was brought to have him jailed in default of such payment. When the Husband raised the argument against debtor prison, the Court countered by stating that the facts established “not mere default in payment of an order for payment of money, but a defiance of the court by manipulating, concealing and removing assets from the jurisdiction so as to make execution impossible.” The Court found jurisdiction to have the husband held in contempt and jailed.

ii) In 1979, a husband was ordered to pay $73.50 per week or 50% of his employment insurance. The husband did not pay that amount, and was held in contempt for such failure to pay and sentence to two months imprisonment. The Quebec Court of Appeal considered the matter, and accepted the Superior Court judge’s application of McNeil that a recalcitrant husband could be jailed, as a last resort (ignoring, completely, the fact that the Court found in McNeil that the husband’s contempt went far beyond simply not paying the Judgment).

iii) In 1992, the question of contempt as a tool to enforce a judgment came before the Supreme Court of Canada in Videotron Ltee v. Industries Microlec produits. While the case did not relate, actually, to enforcement of a judgment – but rather related to the issue of the compellability of a witness to give evidence against his own interests in a contempt hearing – the Court, in obiter, did make the following comment:

The courts are also particularly reluctant to hold someone in contempt of court who has not complied with an order to pay a sum of money, since imprisonment for debt has been abolished. The conduct of the debtor must indicate a certain degree of intention to evade his or her obligations (citing Parent v. Perreault at para 22).

iv) Following the aforesaid somewhat tenuous foundation of the availability of contempt to enforce money judgments, our Federal Court of Appeal then more directly ruled on the point. In Canada v. United States Steel Corp., the Federal Government was seeking to enforce certain undertakings given by U.S. Steel, and seeking fines against them for failure to comply. U.S. Steel argued that the process did not comply with the Charter of Rights, which it argued was applicable because of the potential of contempt proceedings, including jail, in default of compliance. Again, arguably in obiter, the Supreme Court considered the argument, and in citing the Videotron decision, in fact expanded upon it:

While U.S. Steel is correct to say that a person cannot be imprisoned for a civil debt for, as Justice Binnie held in R. v. Wu, [2003] 3 S.C.R. 530 (S.C.C.) at paragraph 2, “[d]ebtors’ prison for impoverished people is a Dickensian concept that in civilized countries has largely been abolished”, the Act does not provide for the possibility of U.S. Steel or any of its executives being sent to debtors’ prison for the failure to pay a penalty imposed upon it. A person who is ordered by a court to pay money to another cannot be imprisoned for contempt if he or she is unable to pay the debt because imprisonment for debt has been abolished: Vidéotron Ltée c. Industries Microlec produits électroniques inc., [1992] 2 S.C.R. 1065 (S.C.C.), at 1078. However, a person who is ordered by a court to pay money can be imprisoned for contempt if he or she shows “a certain degree of intention to evade his or her obligations”: Ibid. That is, if he or she is unwilling to pay the debt despite having the ability to pay.

v) The B.C. Court of Appeal came to a similar outcome in Microwave Cablevision Ltd. v. Harvard House Capital Ltd., ruling that while their legislation prohibited incarceration to enforce a judgment, the general rule for civil contempt still allowed a Court to hold a person in contempt for failure to obey an order for payment of monies. As stated in para 26:

Mere non-payment does not justify imprisonment. It must be shown that the debtor knew of the order (R. 42(39)(a)(ii)) and then the debtor may show cause (R. 42(39)(a)(iii)). If a debtor has refused or neglected to obey an order that he could have obeyed, the contempt power of the court may be exercised. Failure to obey an order that he was not able to obey would not, in the absence of some other ingredient indicating contempt, warrant an order under R. 42(39).

vi) The B.C. decision has since been applied in subsequent cases, including Rarick v. Rarick in Alberta. The question being:
a) Was the debtor aware of the Order;
b) Did the debtor refuse or neglect to comply notwithstanding being aware of the Order; and
c) Did the debtor have the ability to comply with the Order (keeping in mind that, for example, in Parent, the “ability” was based not on his income, but it appears, his “potential” income, which may run afoul of the Alberta Court of Appeal decision in Hunt v. Smolis-Hunt .)
The law in this area is far from clear and there tends to be an element of something going beyond mere non-payment, such as effort to hide assets such as in Parent, however, the law does seem to have evolved to provide that a court may direct payment of funds – in contrast to simply directing a judgment – and if the creditor can establish the debtor was aware of the order, had the ability to comply and refused, it would appear that Rule 10.52(3) will not prevent a Court from jailing the party in default.

Debtor’s prison, redux? Time will tell.

Robert G. Harvie, Q.C., and Mariko Constable

December 16, 2015

By |2016-01-18T16:39:38-07:00January 18th, 2016|Family Law|9 Comments