Supreme Court of Canada
Kozack v. Richter,  S.C.R. 832
Janet Kozack Appellant;
Daniel Richter Respondent.
1973: January 30; 1973: May 7.
Present: Abbott, Martland, Ritchie, Spence and Pigeon JJ.
ON APPEAL FROM THE COURT OF APPEAL FOR SASKATCHEWAN
Bankruptcy—Review of judicial discretion—Bankruptcy due to judgment on bankrupt’s tort—Order for discharge—Principles of judicial discretion—Bankruptcy Act, R.S.C. 1970, c. B-3, s. 142(2).
The appellant was a gratuitous passenger in the respondent’s car which collided with a train at a grade crossing in the City of Regina. As a result of this collision the appellant suffered serious head injuries. The respondent, a wage earner in modest circumstances and with a large family, was found fully responsible for the accident by reason of “wilful and wanton misconduct”. Damages were assessed at $12,909.03 together with taxed costs of $1,194. The respondent appealed unsuccessfully and thereafter made an assignment in bankruptcy. When in due course the respondent applied for his discharge this was initially suspended for three months and later in the Court of Appeal granted on condition that the respondent consent to judgment being entered against him for $1,800 payable by monthly instalments of $50.
Held (Abbott J. dissenting): The appeal should be allowed.
Per Martland, Ritchie, Spence and Pigeon JJ: The effect of the order appealed from would be that the appellant would recover nothing: having regard to the proper application of judicial discretion as vested in the Courts by s. 142(2) of the Bankruptcy Act, R.S.C 1970, c. B-3, and the fact that the bankruptcy was precipitated by a judgment in damages for wilful and wanton misconduct in the operation of a motor vehicle, the damages should be increased to approximate 50 per cent of the total debt to the appellant without interest. The modest circumstances of the respondent were considered and the amount of monthly payment fixed by the Court of Appeal was not increased.
Per Abbott J. dissenting: The facts in this case are not in dispute and the only question concerns the principles to be applied by the Court in reviewing the exercise of judicial discretion. This Court is certainly in no better position to exercise that discretion than was the Court of Appeal for Saskatchewan. As a second appellate Court, this Court should not attempt to interfere.
APPEAL by special leave of the Supreme Court of Canada from an order of the Court of Appeal for Saskatchewan setting terms for a discharge in bankruptcy. Appeal allowed, Abbott J. dissenting.
E.F.A. Merchant, for the appellant.
R.W. Thompson, for the respondent.
ABBOTT J. (dissenting)—This appeal, by leave of this Court, is from a unanimous judgment of the Court of Appeal of Saskatchewan granting the respondent a conditional discharge under s. 142 of the Bankruptcy Act.
The relevant facts are not in dispute. They are admirably summarized in the reasons of my brother Pigeon and I need not repeat them.
The principles to be applied in the exercise of the judicial discretion given under s. 142 of the Bankruptcy Act, were considered by this Court in Industrial Acceptance Corporation Ltd. et al. v. Lalonde et al. Esty J. who delivered the unanimous judgment of the Court said at p. 120:
A judgment rendered in the exercise of a judicial discretion under s. 142 ought not to be disturbed by an appellate court, unless the learned judge, in arriving at his conclusion, has omitted the consideration of or misconstrued some fact, or violated some principle of law. In re Richards (1893), 10 Mor. B.R. 136; In re Wood (1915), Han. B.R. 53; In re Labrosse 5 C.B.R. 600; In re Lobel  1 D.L.R. 986; Re Smith  1 All E.R., 769. A consideration of the whole of the evidence, with great respect, does not warrant a reversal of the judgment of the learned judge of the first instance.
Appellate courts, however, where they have concluded that the discretionary judgment of the judge of
the first instance ought not to be disturbed, have repeatedly relieved against what has appeared to them to be an undue severity in the terms imposed. Re Nicholas 7 Mor. B.R. 54; Re Swabey 76 T.L.R. 534; Re Thiessen  1 D.L.R. 588. The purpose and object of the Bankruptcy Act is to equitably distribute the assets of the debtor and to permit of his rehabilitation as a citizen, unfettered by past debts. The discharge, however, is not a matter of right and the provisions of ss. 142 and 143 plainly indicate that in certain cases the debtor should suffer a period of probation. The penalty involved in the absolute refusal of discharge ought to be imposed only in cases where the conduct of the debtor has been particularly reprehensible, or in what have been described as extreme cases. The conduct of the debtor in this case, while not sufficient, with great respect, to justify the absolute refusal, does justify his discharge only subject to the imposition of terms.
As I have stated, the relevant facts are not in dispute. Those facts, as they relate to the automobile accident which gave rise to appellant’s claim and to the respondent’s bankruptcy, were carefully reviewed in the judgment of MacPherson J., the learned trial judge, and again by Culliton C.J.S., who delivered the unanimous judgment of the Court of Appeal confirming that judgment. Chief Justice Culliton also delivered the unanimous judgment granting the conditional discharge, which is now under appeal. As to the proceedings in bankruptcy, the court below had before it the same factual material as was placed before this Court, and it would not appear that it “has omitted the consideration of or misconstrued some fact”.
Appellant argued before us that a distinction should be made between a bankruptcy arising out of trade debts and one arising out of the commission of a tort, but no such distinction exists under the Bankruptcy Act.
The sole issue here is whether the judicial discretion exercised by the court below was unreasonable. This Court is certainly in no better position to exercise that discretion than was the Court of Appeal of Saskatchewan. As a second appellate court, I do not think we should attempt to interfere.
I would dismiss the appeal with costs. Under the terms of the order granting leave, the appellant is entitled to her costs on the application for leave.
The judgment of Martland, Ritchie, Spence and Pigeon JJ. was delivered by
PIGEON J.—This is an appeal, by special leave of this Court, from a judgment of the Court of Appeal of Saskatchewan varying the order made by a judge of the Court of Queen’s Bench on respondent’s application for discharge under the Bankruptcy Act. This order had suspended the discharge for a period of three months only. In the Court of Appeal, it was directed that respondent be required to consent to judgment being entered against him in the sum of $1,800 payable without interest by monthly payments of $50 starting February 1st, 1970.
Respondent’s debt towards the appellant arises out of an automobile accident. She was a gratuitous passenger in his car when she suffered serious head injuries in a collision with a train at a grade crossing in the City of Regina. Red lights were flashing and a warning bell was ringing and respondent was found fully responsible by reason of “wilful and wanton misconduct”. Damages were assessed by MacPherson J. at $12,909.03 plus costs taxed at $1,194. Respondent’s appeal from this judgment was unanimously dismissed. Thereupon, he made an assignment under the Bankruptcy Act and, in due course, applied for discharge.
The net result of the order appealed from is obviously that the appellant will recover nothing. With respect, I cannot agree that this is in conformity with the proper principles to be applied in the exercise of the discretion vested in the courts by the provisions of the Bankrupt-
cy Act (R.S.C. c. B-3) respecting discharge. Section 142(2) reads:
(2) The court shall on proof of any of the facts mentioned in section 143
(a) refuse the discharge,
(b) suspend the discharge for such period as the court thinks proper, or
(c) require the bankrupt, as a condition of his discharge, to perform such acts, pay such moneys, consent to such judgments, or comply with such other terms, as the court may direct.
The first fact mentioned in s.143 is:
(a) the assets of the bankrupt are not of a value equal to fifty cents in the dollar on the amount of his unsecured liabilities, unless he satisfies the court that the fact that the assets are not of a value equal to fifty cents in the dollar on the amount of his unsecured liabilities has arisen from circumstances for which he cannot justly be held responsible:
In the present case, respondent’s bankruptcy was precipitated by his condemnation to pay damages to the appellant. This being due to a finding of “wilful and wanton misconduct” on his part, certainly his financial predicament cannot be said to have arisen “from circumstances for which he cannot justly be held responsible”. The courts below did not ignore this provision. However, the sanction meted out in the first instance was purely nominal. In the Court of Appeal, respondent was in effect ordered to make payments that would hardly cover more than appellant’s costs in the trial court and in the Court of Appeal. Although respondent is a wage earner with a large family in very modest circumstances, I cannot agree that the proper application of the provisions above quoted should result in a plaintiff making no recovery for personal injuries caused by gross negligence. It would mean that motorists in respondent’s situation would be able to tell such a claimant: “There is no use suing me, if you lose you will have to pay the costs, if you win I will make an assignment in bankruptcy and you will get nothing”.
Counsel for the appellant has referred us to a number of cases dealing with analogous situations on applications for discharge. Among recent cases, the following may be noted: Rice v. Copeland in which the bankruptcy was similarly precipitated by a claim for damages arising out of a car accident which was said to be due to driving in an intoxicated condition. Dickson J. (as he then was) ordered the bankrupts to pay as a condition of their discharge 25% of their unsecured liabilities. He said (at p. 232):
In Re McIntosh, supra, Williams, C.J.Q.B. agreed with the judgment of Smily J. In re Buell (35 C.B.R. 53,  O.W.N. 421), that although the Bankruptcy Act is available to an insolvent not engaged in business, the Act was never intended to enable a judgment debtor to get rid of a judgment for damages and with no other purpose to serve than the convenience and comfort of the debtor.
In Sederoff v. Vigneault (23 C.B.R. 228,  Que K.B. 44), the debtor had gone into bankruptcy to escape payment of a judgment in damages arising out of an automobile collision. The bankruptcy judge, in the exercise of his discretion, suspended the discharge until the debtor had paid 50 cents in the dollar on the amount of his unsecured liabilities. The court of appeal refused to interfere.
In the present case, I would not increase the amount of the monthly payments fixed by the Court of Appeal, but I would increase the sum to be paid to approximate 50 per cent of the total debt to the appellant without interest.
For those reasons, I would allow the appeal with costs and vary the judgment of the Court of Appeal by increasing to $7,200 plus the costs in this Court the amount of the judgment to be satisfied by the respondent as a condition of his discharge.
Appeal allowed with costs. ABBOTT J. dissenting.
Solicitors for the appellant: Pedersen, Norman, McLeod & Todd, Regina.
Solicitors for the respondent: Bayda, Halvorson, Scheibel & Thompson, Regina.