Kilitzoglou v. Curé
[Indexed as: Kilitzoglou v. Curé]
Ontario Reports
Court of Appeal for Ontario
Juriansz, D.M. Brown and Huscroft JJ.A.
November 8, 2018
143 O.R. (3d) 385 | 2018 ONCA 891
Case Summary
Contracts — Interpretation — Trial judge erring in his interpretation of cohabitation agreement between A and H by allowing his view of factual matrix to overwhelm and contradict words of contract — Dominant theme of contract being that each party was to remain financially independent of other — Trial judge erring in making inference that A wanted to take care of H for rest of H's life and in using that inference to drive his interpretation of agreement — Trial judge also erring by interpreting some provisions of agreement according to what he considered fair instead of seeking to give words in contract their ordinary and grammatical meaning in context of contract as whole.
Family law — Domestic contracts — Interpretation — Trial judge erring in his interpretation of cohabitation agreement between A and H by allowing his view of factual matrix to overwhelm and contradict words of contract — Dominant theme of contract being that each party was to remain financially independent of other — Trial judge erring in making inference that A wanted to take care of H for rest of H's life and in using that inference to drive his interpretation of agreement — Trial judge also erring by interpreting some provisions of agreement according to what he considered fair instead of seeking to give words in contract their ordinary and grammatical meaning in context of contract as whole.
Facts
A and H lived together as a couple in a residence that was originally in A's name alone. They entered into a cohabitation agreement which required A to transfer title of the residence to himself and H as tenants in common. A did so. Article 7(e) of the agreement provided that if A and H were cohabiting at the time of A's death, A would be entitled to continue to live in the residence for up to three years, and A's trustees were to pay the "ordinary and reasonable costs of maintaining the said residence including mortgage payments if any, realty taxes and insurance" for three years. Article 7(f) provided that if H chose not to purchase the residence, she would be allowed to live in the residence after the expiry of the initial three-year period if she paid A's estate $140,000 and thereafter paid "the ordinary and reasonable costs of maintaining the said residence from her own resources".
After A's death in 2007, H continued to live in the residence. When the initial three-year period expired, H and A's estate trustees disagreed over what expenses H was responsible for. H brought an action for a declaration that the trustees were responsible for all mortgage payments and all capital expenses and capital improvements for the residence. She also sought damages for breach of the cohabitation agreement and exemplary and punitive damages.
The trial judge inferred from the cohabitation agreement itself and the factual matrix in which it was made that A wanted to take care of H for the rest of her life, provided H paid the estate $140,000. He granted H judgment to cover the cost of a list of specified capital repairs. He found that A had failed to insure the mortgage, as required by the cohabitation agreement, and that his failure rested with the estate to rectify by paying the outstanding balance of the mortgage. He apportioned realty taxes and insurance between H and the estate on the basis of what he thought was "fair and reasonable". He found bad faith on the part of the trustees on the basis that they had adopted hardball tactics by trying to force H to sell the home, and awarded punitive damages against them in the amount of $20,000. The trustees appealed.
Decision
Held, the appeal should be allowed.
While the factual matrix plays a significant role by deepening the court's understanding of the words of a contract, it must never be allowed to overwhelm the words of the contract. The trial judge committed an extricable error of law by ignoring that principle. He allowed his view of the factual matrix to overwhelm and even contradict the words of the contract. The dominant theme of the contract, expressed in multiple articles, was that each party was to remain financially independent of the other and that neither was to have any obligation to support the other. It was in that light that the phrase "ordinary and reasonable costs of maintaining the said residence" had to be construed. It was not open to the trial judge to make the inference that A wanted to care for H for the rest of her life and to use that inference to drive his interpretation of the agreement. Because of that inference, he erroneously excluded from "ordinary and reasonable maintenance" in art. 7(f) what he termed "capital costs". The trial judge also erred by interpreting some provisions of the contract according to what he considered "fair", rather than seeking to give the words of the contract their ordinary and grammatical meaning in the context of the contract as a whole. The realty taxes and insurance costs had to be borne by H after the expiry of three years because the words of the contract, in their ordinary and grammatical sense, said so.
The trial judge's finding of bad faith on the part of the trustees was based in part on their failure to make capital repairs after the expiry of three years. In fact, H was responsible for those repairs. The main basis for the trial judge's finding of bad faith was his view that the trustees tried to force H to sell the residence. Given that H was not paying all of the costs of maintaining the residence, the trustees could reasonably take the position that she had not fully complied with art. 7(f) and that the residence should be sold. The trial judge's finding of bad faith, and the award of punitive damages, were set aside.
The trial judge properly found that A was in violation of the cohabitation agreement and that, as a result, the estate was duty-bound to pay the mortgage together with any arrears.
Reasons for Judgment
A. Introduction and Background
1The appellants, Shannon Curé and Tanya Curé, are estate trustees. They appeal personally and in their capacity as trustees of the estate of their late father, Albert Curé.
2Albert was a businessman who controlled a number of companies. The respondent, Helen Kilitzoglou, was an employee of one of the companies, Alca Design Ltd. At the time of Albert's death, Helen was responsible for operating one of Alca's manufacturing facilities. Helen also had a business, Life Line Manufacturing Inc., which leased space and equipment from Alca.
3Albert and Helen became a couple in February 1995. Both had children from previous marriages. In December 1996, Albert made a down payment of $140,000 on a residence on Westridge Drive in Vaughan. The residence was registered only in Albert's name. The balance of the purchase price of $540,000 was financed by a mortgage, also in Albert's name. Helen paid for the extras.
4In September 1997, Albert and Helen moved into the residence. Albert paid the mortgage and other expenses related to the residence. A few years later the parties negotiated a cohabitation agreement dated April 26, 2004, but the agreement was not signed until September and October 2005. The cohabitation agreement required Albert to transfer title of the residence to himself and Helen as tenants in common, and Albert made the transfer in August 2005.
5Albert died suddenly in April 2007. His will, dated April 18, 2002, appointed his two daughters, the appellants, as estate trustees together with Albert's lawyer. The appellants were also the beneficiaries under the will. Helen was not a beneficiary, but the cohabitation agreement made available to her the option of remaining in the residence.
6This appeal concerns the interpretation and application of arts. 7(e) and (f) of the cohabitation agreement. These articles deal with Helen's option to stay in the residence after Albert's death and the costs of maintaining the residence if she exercises that option. Articles 7(e) and (f) provide:
7(e) If at the time of CURÉ's death KILITZOGLOU and CURÉ are cohabiting, KILITZOGLOU shall be entitled to continue to reside in the residence for up to three (3) years. CURÉ agrees to include in his will a provision to authorize and direct his Trustees to pay the ordinary and reasonable costs of maintaining the said residence including mortgage payments if any, realty taxes and insurance for the said three (3) years and until the home is sold. KILITZOGLOU, may choose to purchase the residence at any time prior to the expiry of the three (3) years.
(f)(i) In the event that KILITZOGLOU chooses not to purchase the said residence, upon the expiry of the three (3) years, KILITZOGLOU may remain in the said residence provided that she pays the sum of ONE HUNDRED AND FORTY THOUSAND ($140,000.00) to the residue of CURÉ's estate and thereafter pays the ordinary and reasonable costs of maintaining the said residence from her own resources.
Should KILITZOGLOU choose not to reside in the said residence or upon vacating the said residence, it shall be sold and the proceeds shall be divided as follows:
(a) The sum of (140,000.00) ONE HUNDRED AND FORTY THOUSAND DOLLARS shall be paid to the residue of CURÉ's estate if not already paid;
(b) The balance of said proceeds of sale shall be divided equally between KILITZOGLOU and the residue of CURÉ's estate.
7The main issue on this appeal is what costs are included in the phrase "ordinary and reasonable costs of maintaining the said residence" in art. 7(f). A review of the parties' previous litigation is necessary to understand the judgment from which this appeal is taken.
B. The First Trial
8Article 7 was considered and commented upon by McKelvey J., who presided over the first trial between the parties. A review of the reasons of McKelvey J. is necessary as the appellants submit that the trial judge erred by purporting to decide matters already decided by McKelvey J. As well, Helen characterizes certain passages of McKelvey J.'s reasons as findings, whereas the appellants characterize them as obiter dicta.
9The first trial involved several proceedings that were tried together. Helen took the position that the cohabitation agreement was invalid and claimed support under the Succession Law Reform Act, R.S.O. 1990, c. S.26. Helen sought an order removing Shannon and Tanya as estate trustees and the transfer of Albert's interest in the residence to her. She also sought an order that the designation of beneficiaries on Albert's life insurance policy was invalid and that the proceeds of the insurance policy should be paid to her. Tanya brought an application seeking a declaration that the designation was valid and that she and the CIBC were the beneficiaries under the life insurance policy.
10Helen also brought claims against the estate, Albert's accountant and Albert's lawyer for "fraud, conspiracy and creating an artificial dividend" from one of Albert's companies. Additionally, she brought a claim against Shannon and Tanya personally, Albert's accountant and the trustee in bankruptcy, alleging "fraud and conspiracy arising out of the improper appointment of the receiver manager in June of 2007 and consequential improper realization of assets arising out of that appointment". Helen claimed damages of $7,500,000, alleging a conspiracy to destroy her Life Line business by closing the Alca facility.
11Prior to the trial before McKelvey J., Helen abandoned her claim that the cohabitation agreement was not legally binding and also abandoned her claim for dependent's support.
12At the first trial there were 33 days of evidence commencing May 21, 2012 and ending on July 26, 2013. McKelvey J. rendered judgment on February 14, 2014. He rejected all of Helen's claims of fraud and conspiracy. He found Helen and Life Line were entitled to $72,520 from the estate for certain business and rent losses suffered as a tenant of Alca. As between these parties, he found the beneficiary designation of Albert's life insurance policy was valid. He found that Helen's payment into court of the sum of $140,000 pursuant to an order dated February 16, 2010 satisfied the condition in art. 7(f)(i) of the cohabitation agreement, which required that she pay that amount to the estate should she wish to remain living in the residence after three years. McKelvey J. found the estate was not entitled to an order for partition and sale. He also found that Helen's option to purchase the residence had expired as she had not exercised it within three years of Albert's death.
13Before McKelvey J., the estate acknowledged it was responsible for all the maintenance costs of the residence for the first three years following Albert's death as stipulated in art. 7(e). McKelvey J. dealt with Helen's claim for expenses she had incurred in maintaining the residence, as well as her claim for certain work that needed to be done but had not been done during the first three years. At the time of trial, the only work identified in Helen's claim that had not been completed was the replacement of the roof and windows.
14McKelvey J. decided that the aggregate amount of these claims was $84,106.25 and awarded Helen judgment against the estate in that amount. He indicated that the funds Helen had paid into court should be paid out to the estate, subject to a set-off of the amount he found owing to Helen. McKelvey J. expressed some concern about awarding Helen compensation for the cost of replacing the roof and the windows when she had not yet incurred the cost of carrying out these repairs. He stated, at para. 273, that"[i]f [Helen] is to receive an award to cover the cost of these repairs, there may be an issue as to whether the Estate is entitled to any assurance that the repairs are actually carried out in light of the fact that the Estate is entitled to share in the proceeds of the home once it is sold". He left it to the parties to arrange a further attendance should it prove necessary.
15McKelvey J., though he considered the issue was not before him, went on to provide his views on the application of art. 7(f)(i) "in the hope that it may be of some assistance to the parties at a later time". He stated that had he been required to, he would have found that upon the expiry of three years from Albert's death the estate would remain responsible for the capital repairs relating to the residence and Helen would become responsible for the ordinary and reasonable costs of maintaining the residence. He would also have concluded that the mortgage payments would remain the responsibility of the estate as Albert had failed to arrange for the mortgage insurance required by the cohabitation agreement.
16McKelvey J. awarded Shannon and Tanya $83,526.98 in costs payable by Helen and Life Line.
C. Helen's Motion after the First Trial
17Helen, relying on McKelvey J.'s comment that he left it to the parties to arrange a further attendance should it prove necessary, brought a motion to reopen the trial to permit her to adduce further evidence about the cost of repairing the windows and roof. She also sought to vary the reasons for judgment to allow for the cost of additional repairs not included in the judgment.
18McKelvey J. dismissed Helen's motion. He explained that he had included the opportunity for a further attendance "for the benefit of the Estate, which was subject to a judgment for the amount of the repairs, even though they had not been made and there might be an issue as to whether [Helen] would perform the repairs once she received the funds from the judgment".
19McKelvey J. ruled that it was "not appropriate to reopen the trial to receive further evidence from [Helen] to update the costs estimates given at trial or to claim new expenses which were not raised at trial" because the evidence "could have been obtained for use at trial through the exercise of reasonable diligence". These claims related to issues "which were dealt with in the trial before [him] [and] would have to be re-litigated almost in their entirety".
20In particular, McKelvey J. noted that Helen had proceeded to trial with estimates, which were several years old, for the cost of the roof and window replacements. He pointed out that she could have obtained updated estimates and introduced them at trial, had she wished to do so. McKelvey J. went on to find that there was no acceptable explanation for why the other matters raised in her motion could not have been identified and addressed in the evidence at trial. He specifically identified Helen's claim that the estate should be responsible for remediating mould in the residence as a matter that she could have raised at trial. He concluded by adding: "The interests of justice requiring finality in this litigation outweigh any potential benefit in re-litigating the home expenses."
21As for the expenses following the three years after Albert's death, Helen argued on her motion that McKelvey J. had incorrectly characterized his comments about the allocation of these expenses as obiter. She argued that the interlocutory order that had consolidated the proceedings for trial left the question of "who is responsible for capital improvements to the residence" for McKelvey J. to determine. McKelvey J. found the interlocutory order was overtaken by amendments to the relief Helen sought and by the parties' formal agreement on the issues to be determined at trial. He concluded: "I was, therefore, correct in concluding that my comments with respect to responsibility for payment of capital expenses were, in fact, obiter, as indicated in my judgment".
D. The Trial Decision under Appeal
22I now turn to the trial judgment under appeal. In her amended statement of claim filed March 18, 2015, Helen sought a declaration that Shannon and Tanya personally and as estate trustees were responsible for all mortgage payments and all capital expenses and capital improvements for the residence after the expiry of three years from Albert's death, and that her sole responsibility was limited to the ordinary and reasonable costs of maintaining the residence. She claimed that the capital expenses and capital improvements included mortgage payments"property taxes, insurance and all other related operational costs".
23She also sought damages in the amount of $750,000 for the breach of the cohabitation agreement, and exemplary and punitive damages in the amount of $25,000. In their statement of defence, the appellants relied on the doctrine of res judicata and pleaded that most of Helen's claims were "incapable of being tried in the context of this action as they have been fully decided" in the judgment of McKelvey J. The appellants took the position that Helen was responsible for all costs of the upkeep of the residence commencing on the third anniversary of Albert's death, and counterclaimed for payments made by the estate relating to utilities, property taxes, insurance and maintenance after those three years.
(i) The factual matrix
24Referencing the Supreme Court's decision in Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, the trial judge considered that the surrounding contextual circumstances of the cohabitation agreement included the fact that Albert and Helen were common-law partners for some nine years before the cohabitation agreement was executed, a relationship he described as "entrenched and lasting". While the cohabitation agreement included a "very wide, sweeping release" in relation to support, maintenance and property transfer issues, Albert knew or should have known that Helen's financial circumstances in 2004 were tenuous, while his were sound. It was Albert who was in a position to keep the home maintained up to a reasonable standard. Additionally, on Albert's death in 2007, Helen was essentially without funds. The trial judge also considered it highly significant that Helen and Albert became one-half owners of the residence as tenants in common, which, he said"speaks volumes about the nature of the relationship between Helen and Albert and the desire of Albert to take care of Helen for the rest of her life via providing her with a home to occupy". He added that, in his view, art. 7(f)(i) also supported the logical inference that Albert wanted to care for Helen for the rest of her life, provided she paid the estate $140,000.
25The trial judge's finding that it was Albert's intention to take care of Helen in this way governed his interpretation of the cohabitation agreement.
(ii) Capital expenses
26While the trial judge characterized McKelvey J.'s discussion that the estate should be responsible for the capital costs of the residence after the expiry of three years as obiter, he set out independent reasons for concluding that the estate was responsible for all capital costs and capital repairs commencing April 10, 2010, the third anniversary of Albert's death. This conclusion would give effect to Albert's intention to take care of Helen for the rest of her life.
27The trial judge granted Helen judgment to cover the cost of a list of specified capital repairs. These included replacement of the exterior windows and doors at an estimated cost of $58,000 plus HST, replacement of the garage doors at an estimated cost of $16,274 plus HST, replacement of the HVAC system at the cost of $19,246 plus HST, and replacement of the eavestroughs and downpipes in the amount of $5,797. He also ordered compensation for the remediation of mould damage, resultant painting and repairs to toilets that could not be fixed by simply inserting new plumbing gear but did not quantify the amount of compensation for these items. He also declared that repairs to the porch and various walkways were capital repairs.
28The trial judge found that certain matters, such as the replacement of carpeting, the sanding, the painting of wooden floor areas and the replacement of the oven were not recoverable capital expenses, but were part of the ordinary maintenance for which Helen was responsible. He also refused Helen's claims for the installation of new leaf guards on the eavestroughs and for upgraded toilets.
29The trial judge refused Helen's request for a declaration that the estate was bound to pay future capital expenses. He declined to do so because he had no doubt that the estate trustees and Helen would not be able to agree on whether an expense was capital or non-capital. Therefore, he ordered that if the parties could not agree in the future, they should "bring a succinct application to court to determine the issue".
(iii) The mortgage
30The trial judge found that Albert had failed to insure the mortgage and his failure rested with the estate to rectify. He ordered that the estate pay the outstanding balance of the mortgage.
(iv) Realty taxes and insurance
31The trial judge did not "think that it would be fair or reasonable to hold the Estate 100% liable [for the realty taxes], given that Helen and the Estate are tenants in common in equal shares and because Helen is the occupier enjoying exclusive use of the premises and land". He apportioned the insurance premiums on the home on a 50/50 basis "to reflect the equity apportionment in the home". He said that he saw "no reason why this division of payment is unfair, nor why it should be borne exclusively by Helen".
32He made clear that the apportionment of these expenses on a 50/50 basis applied starting on the third anniversary of Albert's death.
(v) Counterclaim
33The trial judge found the estate was entitled to recoup one half of the realty taxes and any maintenance costs it had paid after the third anniversary of the death of Albert. He dismissed the remainder of the counterclaim.
(vi) Bad faith and personal liability of the trustees
34The trial judge found bad faith on behalf of Shannon and Tanya on the basis that they adopted "hardball" tactics by trying to force Helen to sell the home. He characterized their conduct in denying Helen "access to funds to pay the mortgage" and to make the capital repairs "so desperately needed" to be "high handed and reprehensible". He found the use of funds from the sale of Albert's cottage to pay legal counsel and to make a distribution to the beneficiaries improper. He further found that the disbursements from Albert's holding company, 778910 Ontario Ltd., breached the interlocutory order dated October 22, 2009 restricting disbursements without a court order. He ordered Shannon and Tanya to reimburse the estate for money distributed to the beneficiaries and for the payments the estate had made to legal counsel.
35Having found bad faith by Shannon and Tanya, he awarded punitive damages against them in the amount of $20,000 on a joint and several basis to sanction their conduct. He indicated he would consider staying the punitive damages if they paid off the mortgage within 90 days. He also held Shannon and Tanya to be jointly and severally liable "for the funds that they are required to pay pursuant to this judgment".
36Finally, the trial judge awarded costs to Helen in the amount of $85,000 on a substantial indemnity scale to be paid by Shannon and Tanya personally, not by the estate.
E. Analysis
(i) Standard of review
37The cohabitation agreement in this case is an individually negotiated contract. The Supreme Court in Sattva set out the standard of review to be applied to contract interpretation, at para. 50: "Contractual interpretation involves issues of mixed fact and law as it is an exercise in which the principles of contractual interpretation are applied to the words of the written contract, considered in light of the factual matrix." Determining the factual matrix or surrounding circumstances is a question of fact. Interpreting the contract in the context of the factual matrix is a question of mixed fact and law. The findings of the trial judge in these areas are accorded deference and an appeal court can intervene only where there is palpable and overriding error.
38An appeal court can also intervene where there is a question of law. Questions of law include the application of an incorrect principle, the failure to consider a required element of the legal test or the failure to consider a relevant factor.
(ii) The trial judge erred in his determination and use of the factual matrix
39The trial judge erred in his determination of the factual matrix and in the use that he made of it to interpret the cohabitation agreement.
(a) The factual matrix consists of the surrounding circumstances at the time of contracting
40The factual matrix consists only of objective evidence of the facts of which the parties were aware or ought to have been aware at the time of contracting. The trial judge cited but failed to apply this legal principle. He erred in law in considering Helen's financial circumstances at the time of Albert's death in 2007 to construe the agreement, which was negotiated in 2004 and executed in 2005.
(b) The factual matrix cannot overwhelm the contract
41The trial judge committed a more fundamental error. While the factual matrix plays a significant role by deepening the court's understanding of the words of a contract, the Supreme Court cautioned in Sattva that it must never be allowed to overwhelm the words of the contract. Contract interpretation must always be rooted in the words of the contract itself. The trial judge committed an extricable error of law by ignoring this principle. He allowed his view of the factual matrix to overwhelm and even contradict the words of the contract.
42In this case, the trial judge noted that the cohabitation agreement included a "very wide, sweeping release" in relation to support, maintenance and property transfer issues. However, he did not review or make any reference to the provisions that contained the release. The court now does so as art. 7(f)(i) must be read in light of the whole agreement.
43The preamble to the agreement states that the parties intended that their rights and obligations with respect to support or maintenance from or for the other be determined by the agreement. Article 18 stipulates that the agreement is "the entire and only agreement between them relating to the matters referred to in this Agreement" and that there are "no written or oral collateral agreements between them".
44The parties covenanted in art. 5.2 that at all times during their relationship "or upon the death of the first of them to die . . . each shall be and continue to be completely separate and independent from the other as regards the ownership, use, enjoyment and disposal of all property of every nature and kind".
45In art. 6.1, the parties covenanted that "they shall each remain financially independent of the other and that neither shall have any obligation to support the other under any present or future circumstance, statute or rule of law or equity in any jurisdiction".
46In art. 6.2, they acknowledged that each of them "may suffer or enjoy drastic changes in their respective income, assets and debts, in the cost of living or in their health, or changes of fortune by reason of unforeseen factors". In light of this acknowledgment they agreed that "under no circumstance will any change, direct or indirect, foreseen or unforeseen, in their circumstances give either of them the right to claim any alteration or variation of any of the terms of this Agreement or the terms in any other agreement between them".
47Article 6.2 also provides the parties' acknowledgment that each may be called upon "during the rest of his or her life to use, either wholly or in part, his or her capital for his or her own support and each agrees to do so without any recourse to the other at any time".
48In art. 6.3, the parties each released any rights they had or may acquire to "maintenance, support, alimony, corollary relief, or any other payment of money or transfer of property".
49Article 7, a portion of which is set out above, dealt with the residence. It provided that Albert and Helen intended to live in the residence and that title to the property would be held in both their names as tenants in common. Article 7(a) provided that their individual household goods and chattels would remain their individual property, but that each would include in their will a provision granting a life interest over the other's household goods and chattels prior to distribution to their respective children. Article 7(d) specified that Albert had made the $140,000 down payment and that the balance of the purchase price had been financed by a first mortgage, which Albert undertook to continue to be life insured until the year 2012. It also stipulated that if the property were sold as a result of the parties' separation or for any other reason, Albert would receive $140,000 from the net proceeds notwithstanding title to the property, before the remaining net equity would be divided equally between the parties.
50The next arts., 7(e) and (f), which are the provisions at issue in this case, are set out above.
51The last provision of article 7, art. 7(g), allowed Albert to require Helen to "vacate the residence forthwith" but on doing so he would have to pay her entitlement under art. 7(d) within 60 days.
52The parties in article 8 released all rights each had or may acquire in the estate of the other, including any allowance or payment as a dependent from the estate of the other under the Succession Law Reform Act or Family Law Act, R.S.O. 1990, c. F.3.
53Article 9 provided that if the parties were married at the death of the first spouse, the surviving spouse would accept the terms of the will of the deceased spouse and would advance no claims against the estate of the deceased spouse.
54Article 10.1 provided that the present or future debts of Helen would be her responsibility alone and that she would repay them in the ordinary course.
55Article 12 contains a broad and sweeping release by which the parties each released, disclaimed and waived all claims and rights he or she may have or may acquire with respect to the property of the other.
56Consideration of these provisions leaves no doubt that a dominant theme of the agreement is that each party would remain "financially independent of the other and that neither shall have any obligation to support the other under any present or future circumstance". Given this dominant theme, emphasized explicitly and repeatedly throughout the agreement, it was not open to the trial judge to make the inference that Albert wanted to care for Helen for the rest of her life, and use that inference to drive his interpretation of the agreement. The inference he made stands in stark contrast to the agreement read as a whole.
(iii) Realty taxes and insurance
57The trial judge made a further legal error by interpreting some provisions of the contract according to what he considered "fair", rather than seeking to give the words of the contract their ordinary and grammatical meaning in the context of the contract as a whole. Specifically, he apportioned realty taxes in accordance with what he thought "fair or reasonable" and apportioned insurance premiums "to reflect the equity apportionment in the home". He said he saw no reason why this division of payment was unfair. However, it was an error of law to fail to apportion these expenses according to the ordinary grammatical meaning of the words of the contract.
58Article 7(f)(i) requires Helen to pay "the ordinary and reasonable costs of maintaining the said residence from her own resources" upon the expiry of three years. In art. 7(e) realty taxes and insurance are included in "the ordinary and reasonable costs of maintaining the said residence". The phrase "ordinary and reasonable costs of maintaining the said residence" must be given the same meaning in arts. 7(e) and (f) of the agreement.
59The realty taxes and cost of insurance had to be borne by Helen after the expiry of three years because the words of the contract, in their ordinary and grammatical sense, say so. The trial judge erred by deviating from the clear text of the agreement and finding otherwise on the basis of what he considered fair.
(iv) Capital expenses
60The trial judge, construing the cohabitation agreement on the basis that Albert wanted to look after Helen for the rest of her life, found the estate was responsible for all repair costs he characterized as capital repairs. This led to his distinguishing between the various claimed repair costs by classifying them as either capital or non-capital in nature. It also led to his inability to finally dispose of one of Helen's main claims -- that the estate had a continuing obligation to pay for capital improvements and capital expenses related to the residence as long as she lived there.
61The trial judge's analysis of Helen's claim for capital repairs is flawed. First, the trial judge erred by entertaining Helen's claims for repairs that arose in the first three years after Albert's death. McKelvey J. had finally adjudicated these claims. He had already granted Helen judgment for expenses arising during the first three years that she had already paid, as well as for the anticipated cost of replacing the windows and roof based on estimates Helen had introduced in the trial before him. Moreover, when Helen sought to introduce further evidence to update the costs estimates given at trial and to claim new expenses that were not raised at trial, McKelvey J. dismissed her motion because she did not satisfy him that these matters could not have been raised at trial. Accordingly, the trial judge erred by failing to find Helen was foreclosed by res judicata from renewing in her new action claims for expenses and repairs that arose during the three years following Albert's death.
62Second, in regard to repairs that arose after three years, the trial judge erred by excluding from "ordinary and reasonable maintenance" what he termed "capital repairs". Article 7(f)(i) makes no mention of capital repairs. Moreover, it is difficult to discern the basis upon which he identified repairs as capital or non-capital in nature. He explained that the replacement of the garage doors and the repair of the walkways and porch were capital items because they were not "day to day maintenance". Replacement of the carpet and the sanding and painting of floors were ordinary maintenance rather than capital expenses because "[n]ormal wear and tear of occupants degrades carpet", and the wooden floor area was "notorious for wear and tear". Replacing the oven was also ordinary maintenance, but for a different reason: the oven was used exclusively by Helen.
63Having provided the parties with no basis for determining who would be responsible for future repairs, the trial judge left the main dispute between the parties unresolved, requiring them to re-attend on a "succinct application" every time they disagreed about the nature of a repair.
64The trial judge arrived at this unsatisfactory result because he commenced his analysis on the basis that Albert intended to look after Helen for the rest of her life. The agreement, as reviewed above, repeatedly emphasizes that the parties intended to remain "financially independent of the other and that neither shall have any obligation to support the other under any present or future circumstance".
65The trial judge lost sight of the legal principle emphasized by Rothstein J., at para. 57 of Sattva:
The interpretation of a written contractual provision must always be grounded in the text and read in light of the entire contract. While the surrounding circumstances are relied upon in the interpretive process, courts cannot use them to deviate from the text such that the court effectively creates a new agreement.
66The trial judge erred by allowing a faulty factual matrix to overwhelm the words of the agreement. He relied on the faulty factual matrix to interpret art. 7(f)(i), ignoring the context of the whole of the agreement, and the whole of art. 7 in particular. In doing so, he in effect created a new agreement.
67The context of the whole agreement and the other parts of art. 7 indicate that Albert's objective intention was to make only a limited provision for Helen. Albert, in the cohabitation agreement, did not give Helen a survivor interest in the residence. Albert and Helen were tenants in common. The agreement ensures that Albert or his estate would recoup the down payment he had made. The agreement also gave Albert the right to require Helen to vacate the residence forthwith, reserving to Albert the option to remain in the residence by buying Helen out. Even Albert's individual household goods and chattels would ultimately be distributed to his children. The agreement, when read as a whole, repeatedly emphasizes the parties' intentions to remain financially independent with no claims of any nature on each other's estates. It is in this light that the phrase "ordinary and reasonable costs of maintaining the said residence" must be construed.
68As noted above, the phrase "the ordinary and reasonable costs of maintaining the said residence" appears in both arts. 7(e) and (f) of the agreement. Article 7(d), which deals with Albert's obligation to pay the expenses while both were living in the house, requires Albert to pay the "everyday ordinary and reasonable costs of maintaining the residence". The modifier "everyday" that appears in art. 7(d) does not appear in arts. 7(e) and (f). The logical inference is that the "ordinary and reasonable costs" in arts. 7(e) and (f) are not limited to "everyday" costs as they are in art. 7(d). Further, the parties agreed before McKelvey J. that under art. 7(e) the estate was responsible for all repairs to maintain the residence in the first three years without any distinction for repairs of a capital nature. The same phrase "ordinary and reasonable costs of maintenance" in art. 7(f) has the same meaning.
69The language of the agreement states that Helen, if she elects to remain in the residence, is responsible for paying from her own resources all the ordinary and reasonable costs of maintaining the residence. The words "ordinary and reasonable" protect Helen from demands of the estate trustees that she carry out repairs beyond those ordinarily and reasonably required. Although art. 7(f) does not include the costs of any additions or renovations that improve the residence, major repairs are required in the ordinary course of maintaining a residence. In the ordinary course, furnaces, ovens and garage doors wear out and have to be replaced. These may not be "everyday" costs, but they are readily differentiated from the costs of building an addition to the house or performing renovations that improve the residence and go beyond simply maintaining it. The trial judge quite correctly decided the estate did not have to pay for the installation of leaf guards on the eavestroughs and for new upgraded toilets. These would have been improvements. The agreement does not address who would be responsible for capital improvements. In the unlikely event the parties agree to effect capital improvements to the residence, they, as tenants in common, would share the cost equally.
70Article 7(f)(i) provides for two conditions precedent to Helen's entitlement to remain in the residence. To remain in the residence, Helen must pay the estate $140,000 and she must pay the ordinary and reasonable costs of maintaining the residence. Should Helen not wish to incur the cost of a major repair reasonably required to maintain the residence, she may choose not to do so. But in that event, according to the terms of the agreement, she would no longer have the right to remain in the residence. Should Helen vacate the residence, all costs would be borne equally by the tenants in common until the house is sold pursuant to art. 7(f).
(v) Bad faith
71McKelvey J. rejected the submission that Shannon and Tanya had acted in bad faith in their administration of the estate. He explained that the circumstances facing the estate provided a compelling explanation why events unfolded as they did. Initially, there were limited funds available to the estate following Albert's death. This was complicated by the fact that the business operated by Albert failed and went into bankruptcy. There were further problems when Helen objected to Shannon and Tanya being appointed as executors of the estate. The court appointed an independent estate trustee and, up to the time of McKelvey J.'s judgment, the disbursement of funds by the estate trustee was controlled by the court. McKelvey J. concluded:
In these circumstances it would be unfair to characterize any breach by the Estate of its responsibilities under the cohabitation agreement as being egregious or motivated by ill will towards Ms. Kilitzoglou.
72McKelvey J.'s finding applies to conduct up to the time of the trial before him. After the trial before McKelvey J., Shannon and Tanya still had no control over the estate until the removal of the court-appointed estate trustee. The trial judge could base his finding of bad faith only on the actions of Shannon and Tanya after the removal of the court-ordered estate trustee.
73Part of the basis for the trial judge's finding of bad faith was the failure of Shannon and Tanya to make the capital repairs he had identified, and which were "so desperately needed". As explained above, all the costs of maintenance that arose in the first three years had already been adjudicated by McKelvey J., and Helen had received funds to repair the roof and windows. Helen is responsible for ordinary and reasonable costs of maintenance that arose or do arise after the third anniversary of Albert's death. Shannon and Tanya's failure to pay such costs could not form part of the basis for finding them to have acted in bad faith.
74The trial judge also supported his finding of bad faith by relying on the fact that Shannon and Tanya disbursed funds from Albert's holding company contrary to Lauwers J.'s order dated October 22, 2009 and paid out money from the estate to the beneficiaries. Lauwers J.'s order was an interlocutory order preventing dissipation of the company's funds pending the trial of Helen's claim for damages from the estate and others arising out of their alleged "fraud, conspiracy and creating an artificial dividend". That interlocutory non-dissipation order ceased to have effect when McKelvey J. dismissed Helen's claims. The disbursement of funds from Albert's holding company following the judgment of McKelvey J. cannot support the trial judge's finding of bad faith.
75The main basis for the trial judge's finding of bad faith was his view that Shannon and Tanya tried to force Helen to sell the residence. He reasoned that Helen was not obliged to sell the residence "given her payment of the $140,000.00 to secure her right to stay as per the agreement". However, art. 7(f)(i) provided two conditions precedent for Helen's right to stay in the residence. Not only did Helen have to pay $140,000 to the estate, she also had to pay the ordinary and reasonable costs of maintaining the residence. Given that Helen was not paying all of the costs of maintaining the residence, Shannon and Tanya could reasonably take the position that she had not fully complied with art. 7(f)(i) and that the residence should be sold. Their position that the residence should be sold could not support a finding of bad faith.
76The trial judge's finding of bad faith is set aside. Consequently, the trial judge's orders based on that finding, including the award of punitive damages against Shannon and Tanya and the orders making Shannon and Tanya personally liable for various matters, fall away.
(vi) Insurance on the mortgage
77Article 7(d) required Albert to maintain insurance on the mortgage, stated to have a balance of $325,000 at the time the agreement was drafted, until 2012. Albert maintained a life insurance policy for $600,000 on which he designated the CIBC"as there ( sic ) interest may appear", and Tanya as the beneficiaries. Helen challenged the beneficiary designation of the insurance policy in the first action and, prior to the matter being heard, the court ordered the disputed life insurance proceeds to be held in trust by a firm of solicitors, after which it was entirely paid out by the court-appointed estate trustee pursuant to court orders. At the time of the trustee's discharge, there remained a balance on the mortgage.
78While Albert designated the CIBC as a beneficiary on his life insurance policy, he did not specifically have a policy of mortgage insurance. If he had arranged mortgage insurance, the mortgage would have been discharged. The trial judge quite properly found Albert was in violation of the cohabitation agreement and that the estate was duty-bound to pay the mortgage together with any arrears. His declaration to that effect is upheld. Further, while the insurance moneys were exhausted, other moneys in the estate were paid out to the beneficiaries while the mortgage remained outstanding. The trial judge's order that Shannon and Tanya reimburse the estate for the funds to pay off the mortgage is also upheld.
(vii) Counterclaim
79It follows from the foregoing analysis that the appellants' counterclaim must be allowed. Helen is liable to compensate the estate for all ordinary and reasonable costs the estate has paid to maintain the residence after the third anniversary of Albert's death, other than payment of the outstanding mortgage.
(viii) Costs appeal
80Given the success of the appellants' appeal, their appeal of the trial judge's costs order against them is moot.
F. Conclusion
81The appeal is allowed. The trial judgment is set aside and replaced with an order that:
(i) the appellants, Tanya Curé and Shannon Curé, personally and as estate trustees for the estate of Albert Curé, are responsible for the payment and discharge of the outstanding mortgage on the residence;
(ii) from the third anniversary of Albert Curé's death for as long as Helen Kilitzoglou remains in the residence or until her death, Helen Kilitzoglou is responsible for all ordinary and reasonable costs of maintaining the residence, including all costs of realty taxes and property insurance, with no exclusion for any ordinary and reasonable costs of maintenance on the basis that they are purportedly "capital" in nature;
(iii) Helen Kilitzoglou is liable to the appellants, Tanya Curé and Shannon Curé, as estate trustees for the estate of Albert Curé, for all ordinary and reasonable costs of maintaining the residence paid by the estate of Albert Curé after the third anniversary of the death of Albert Curé, other than payment of the outstanding mortgage.
82The appellants are entitled to their costs of the appeal fixed in the amount of $25,000, inclusive of disbursements and taxes. The appellants are entitled to their costs at trial in the amount of $25,478.16, as reflected in the bill of costs submitted at trial.
Appeal allowed.
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