Canada: A Bankrupt Can't Escape A Judgment For Sexual Assault

Last Updated: June 9 2014
Article by Elizabeth K.P. Grace and Anna Matas

This blog was originally published on Slaw.

Under most circumstances, an order of discharge releases a bankrupt person from all debts. There are, however, exemptions that have been legislated to ensure that a bankrupt party does not escape a debt arising from certain morally blameworthy actions. For example, an order of discharge does not release a bankrupt person from any debt arising from an award of damages by a court in civil proceedings stemming from "bodily harm intentionally inflicted, or sexual assault": Bankruptcy and Insolvency Act, RSC 1985, c B-3 (the "BIA"), section 178(1)(a.1)(i).

The case law is clear these exceptions are based on social policy considerations which prioritize a victim's right to obtain compensation over a bankrupt's right to be free of debts following discharge. Parliament has made a policy decision that a bankrupt should not be allowed to raise the shield of his or her general discharge against judgment creditors who hold judgments grounded on reprehensible conduct: Simone v. Daley (1999), 43 O.R. (3d) 511 (ONCA).

The Ontario Court of Appeal recently weighed in on the "bodily harm intentionally inflicted" portion of section 178(1)(a.1)(i) in Dickerson v. 1610396 Ontario Inc. (2013 ONCA 653). It held section 178(1)(a.1)(i) applies where there is direct proof of intentional infliction of harm or where such intent can be reasonably inferred on the facts. In Dickerson, the defendant ran up to the plaintiff and punched him in the head with a closed fist, hard enough to cause the plaintiff to lose consciousness and fall to the ground. The plaintiff suffered a significant brain injury resulting in permanent disability. A jury awarded over a million dollars in damages to the plaintiff.

As a result of the judgment, the defendant declared bankruptcy, which had the effect of automatically staying the enforcement of the million dollar judgment against him. The plaintiff brought a motion to lift the stay and for declarations that the stay did not operate with respect to enforcement of judgment, that the judgment was an award of damages for bodily harm intentionally inflicted pursuant to section 178(1)(a.1) of the BIA, and that the judgment survived bankruptcy and was not a debt released by order of discharge.

A judge of the Ontario Superior Court ruled that, despite the jury finding that the defendant "deliberately punched the plaintiff in the head", the defendant did not "set out to intentionally injure" the plaintiff. The judge dismissed the motion to lift the stay, thereby frustrating the plaintiff's attempts to collect the million dollar damages award.

The Ontario Court of Appeal, however, overturned this decision. It did so on the basis that the plaintiff was required only to demonstrate "bodily harm intentionally inflicted". The plaintiff in Dickerson was not required to prove the circumstances in which the bodily harm he sustained met a certain level of offensiveness to social mores to justify withholding the protections of bankruptcy. He was merely required to prove the harmful act was done with specific intent to injure.

Courts have held there was a specific intent to injury in cases where a bankrupt intentionally drove his car into his daughter and her boyfriend: Sangha, Re, 2004 BCSC 799; where a bankrupt husband assaulted his wife: Winfield v. Lomas, 2008 BCSC 1636; and where a bankrupt party struck another person in the head with a baseball bat at a New Year's Eve party: Matthew v. Tattrie, 2009 BCSC 263. A criminal conviction is not required to demonstrate that the harmful act was done with the specific intent to injure.

However, the specific intent to injure has been found lacking in cases where intentional acts have unexpected consequences, such as psychological injuries resulting in physical symptoms. For example, a claim for malicious prosecution against a bankrupt which caused the judgment creditor mental suffering that manifested in physical symptoms was held not fall within section 178(1)(a.1)(i) because "the action giving rise to the harm must have had the harm itself as its goal": Floros v. Mueller, 2003 SKQB 513. Similarly, in a defamation case, the victim suffered dizziness and vertigo as a result of the defamation. However, the court found that the bankrupt had not intentionally inflicted bodily harm on the victim: Marshall, Re, 2001 CanLII 28287 (ON SC).

Importantly, the caveat that damages must be "intentionally inflicted" does not apply to sexual assault. Section 178(1)(a.1) clearly and unambiguously exempts judgments based on "sexual assault" from the bankrupt's order of discharge. This is critical, as failing to protect all damages arising from a sexual assault, whether intentionally inflicted or otherwise, would run counter to the social policy underlying section 178(1)(a.1).

Although this issue has not yet received direct judicial attention, in a recent case in British Columbia, a judge refused to stay proceedings based on a claim that the plaintiff was sexually assaulted and surreptitiously videotaped by her step-father when she was 18. The step-father pleaded guilty to criminal charges of sexual assault and then filed for bankruptcy. The judge in that case lifted the stay of proceedings on the basis that, regardless of whether the claim based on videotaping would survive the bankruptcy, it was connected to the sexual assault claim and, "it is clear that the claim for sexual assault would, under section 178(1) [of the BIA] survive a discharge of bankruptcy": Lundahl v. Poilievre, 2013 BCSC 1628.

One final practical note: the proper procedure to recover a debt that is not released by an order of discharge is for the judgment creditor (i.e., the successful plaintiff) to bring an action in the ordinary civil courts (as opposed to Bankruptcy courts). While this may add a level of expense and effort for plaintiffs who have been successful in their civil claims based on sexual assault, an avenue for recovery is available through our courts.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Elizabeth K.P. Grace
Anna Matas
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