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Does Husband’s Bankruptcy Suspend His Obligation to Pay Costs Order in Wife’s Favour?

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Does Husband’s Bankruptcy Suspend His Obligation to Pay Costs Order in Wife’s Favor?

Here’s a legal scenario to consider:

  • The husband in a divorce proceeding is ordered by the court to pay $35,000 in legal costs to the wife. He fails to pay – or even to make any attempt to pay.
  • The wife succeeds in getting a court order to have the husband’s pleadings struck out entirely, for failure to pay the ordered costs. The court also orders that he be prevented from participating in the trial going-forward (e. he cannot testify, call or cross-examine witnesses, or make submissions).
  • However, given the drastic outcome, the court gives the husband a little extra time to pay the $35,000 before finalizing the part where his pleadings get struck out.
  • In the meantime, the husband makes an assignment in bankruptcy. He never does pay.

This was the situation in a case called Clark v. Moxley. The legal twist is that under Canadian federal bankruptcy legislation, all costs decisions against the husband were automatically stayed (i.e. suspended) the moment he declared bankruptcy.  After that point, creditors – including the wife with the $35,000 order in her favour – could no longer take individual steps to pursue payment from him, except via the trustee in bankruptcy.

So the legal question for the court was this:  If the wife was not in a position to enforce the costs order in her favour, did this still mean the husband’s pleadings could be struck out for non-payment?

Naturally, the husband was against this outcome:  He claimed that in light of his bankruptcy the order should not be given effect – especially since there were significant and serious custody / parenting issues outstanding, not to mention efforts on the wife’s part to exclude him from the child’s life.  If his pleadings were struck out, he would be alienated from the child.

Rather unsympathetically, the court noted that the husband was on the brink of a rather dire situation because of his own decision not to pay the ordered costs.  However, under federal bankruptcy law, that order was technically no longer enforceable once he assigned himself into bankruptcy.  That non-enforceability stripped the court of its legal justification to strike his pleadings.   Also, the husband’s bankruptcy had occurred before the motion to strike his pleadings was fully concluded.

The court therefore declined to strike the husband’s pleadings at this juncture.  It added the decision to strike pleadings is traditionally considered one of a last resort, to be used in a proportionate manner, and where there are no other remedies.

The court observed that the wife would still be eligible to fully participate in the husband’s bankruptcy proceedings, and to oppose his discharge from it.   If the costs survived the bankruptcy, then the court could still order the husband to pay them after-the-fact, or could ask for security for costs if the husband wanted to return to court to make a new application.

For the full text of the decision, see:

Clark v. Moxley

At Russell Alexander, Family Lawyers our focus is exclusively family law, offering pre-separation legal advice and assisting clients with family related issues including: custody and access, separation agreements, child and spousal support, division of family property, paternity disputes, and enforcement of court orders.  For more information, visit us at RussellAlexander.com