COURT OF APPEAL FOR ONTARIO
Rouleau, Hoy and Hourigan JJ.A.
BETWEEN
William First
Creditor (Respondent)
and
Andre Fillion
Debtor (Respondent)
and
McNally Gervan LLP
Garnishee (Respondent)
Ron Aisenberg, for the appellant Seahold Investments Inc.
No submissions on behalf of the respondent William First
No submissions on behalf of the respondent Andre Fillion
No submissions on behalf of the respondent McNally Gervan LLP
Heard: In writing
On appeal from the order of Justice Julianne A. Parfett of the Superior Court of Justice, dated April 25, 2019.
REASONS FOR DECISION
1This appeal arises out of a dispute between the appellant, Seahold Investments Inc., and the respondent, William First, as to who is entitled to settlement funds held in trust by McNally Gervan LLP for its client, Andre Fillion.
2The appellant appeals the motion judge’s order, dated April 25, 2019, that McNally Gervan pay all monies held in trust for Mr. Fillion to Mr. First.
3This appeal was case managed. The case management judge directed that Mr. First file his factum by May 11, 2020 if he intended to respond to the appeal, and that, if he did not do so by that date, the appeal would proceed before a panel in the absence of responding materials. Mr. First did not file a factum, and this appeal has accordingly proceeded in writing without the benefit of submissions from Mr. First. Counsel for McNally Gervan advised the case management judge that McNally Gervan would not be participating in the appeal.
Background
4In 2009, Mr. Fillion sustained injuries in a slip and fall accident. He commenced an action against the owner and occupier of the premises where the accident occurred. Mr. First – Mr. Fillion’s then common law partner – was also a plaintiff in the action. He claimed damages in the amount of $25,000 for “loss of care, guidance and companionship” pursuant to s. 45 of the Family Law Act, R.S.O., 1990, c. F.3, and special damages in an unspecified amount for out-of-pocket expenses and loss of income. Mr. Fillion retained McNally Gervan to act for him and Mr. First.
5The relationship between Mr. Fillion and Mr. First broke down and, on April 28, 2013, they entered into an agreement (the “Agreement”) to settle all financial matters arising from the termination of their relationship.
6Paragraph 4(b) of the Agreement arose out of the accident and required Mr. Fillion to pay Mr. First “One-Hundred and Twenty thousand dollars for extraordinary care provided to Andre Fillion and income forfeited as a result of providing that care”. Paragraph 5 of the Agreement provided that, “Should Andre Fillion make any successful insurance claims or obtain any settlement funds from any parties found liable for the personal injury which brought about the need for extraordinary care and complications to the spousal relationship, any amount claimed therein for the re-imbursement of William First will be deducted from the monies referred to in 4(b)”. Paragraph 6 provided that monies payable under the Agreement became due and payable, without interest, on the later of September 1, 2015 or “the day on which all claims made by Andre Fillion for compensation for losses sustained by his personal injury are resolved or settled”.
7There was no evidence before the motion judge of when or if McNally Gervan received notice of the Agreement. The affidavit of Mr. First indicates that McNally Gervan was made aware of Mr. Fillion’s debt to Mr. First in October of 2017, but there is no indication that McNally Gervan was made aware of the language of the Agreement or any possible equitable assignment to Mr. First.
8The appellant is a litigation financer and provided funds to Mr. Fillion to permit him to pursue the litigation. Between May of 2013 and June of 2014, Mr. Fillion signed the first of several promissory notes in favour of the appellant and Irrevocable Directions to Frank McNally of McNally Gervan. The Irrevocable Directions required Mr. McNally to pay any and all sums owing to the appellant “immediately upon receipt by him/her or his/her law firm of all or any portion of the Settlement Funds and to make the aforesaid payment in priority to any other payment out of the Settlement Funds, saving and excepting any payment to my solicitor or his/her law firm”.
9The promissory notes and Irrevocable Directions were faxed to McNally Gervan within days of being signed by Mr. Fillion. McNally Gervan was also sent monthly statements setting out the amount outstanding.
10In August 2017, the action settled for $150,000, all inclusive. On August 23, 2017, Mr. Fillion and Mr. First signed an Authorization & Direction to McNally Gervan, instructing it to settle for $150,000, all inclusive, and acknowledging that their net amount would be $90,000 to $95,000 after disbursements, legal fees and HST, and that from that amount, $12,000 would be allocated to Mr. First and the balance to Mr. Fillion. Mr. Fillion also acknowledged that he had loans with the appellant that he was responsible to pay.
11On September 7, 2017, Mr. First commenced an action against Mr. Fillion, to enforce the payment obligation in the Agreement. On the consent of Mr. Fillion, he obtained judgment against Mr. Fillion in the amount of $185,000. Mr. First then issued and served McNally Gervan with a Notice of Garnishment.
12In response, McNally Gervan brought a motion under rules 60.08(16) and 43 of the Rules of Civil Procedure, R.R.O 1990, Reg. 194, seeking a garnishment hearing or interpleader order to determine its liabilities with respect to Mr. First, the appellant, Mr. Fillion, and another litigation financer, Settlement Lenders Inc., in relation to the settlement funds balance of $78,000 it held in trust. The appellant was a respondent to McNally Gervan’s motion, as both an interested person to the garnishment, and as a claimant to the interpleader. It also brought its own motion seeking payment of the settlement funds.
13Neither Mr. Fillion nor Settlement Lenders Inc. filed materials or attended the motions.
The motion judge’s reasons
14In brief oral reasons, the motion judge commented that the Agreement “could certainly have been drafted more clearly” but that “the agreement does indicate that the monies owed were to come from any settlement of the action”. She concluded:
It is apparent that Mr. Fillion and Mr. First believed that any settlement would be large enough that everyone would be paid. Unfortunately, that did not turn out to be the case. As the agreement with Mr. First was executed first, it stands first in line for the funds. Consequently McNally Gerv[an] are ordered to pay all the monies they hold in trust to Mr. First.
15The motion judge ordered that there be no costs awarded for the motions.
Analysis
16The motion judge did not make an express finding that the Agreement and the Irrevocable Directions constituted equitable assignments of the settlement funds. However, it is implicit from the manner in which she resolved the priority issue that she considered both to be equitable assignments.
17The appellant argues that the motion judge failed to consider binding authority from this court as to what is required to make an equitable assignment and that her interpretation of the Agreement and the Irrevocable Directions is accordingly not owed deference. It submits that, considering the applicable jurisprudence, only the Irrevocable Directions are equitable assignments, and, therefore, the appellant has priority. In the alternative, relying on Bank of Montreal v. Union Gas Co. of Canada Ltd. (1969), 1969 CanLII 257 (ON CA), 7 D.L.R. (3d) 25 (C.A.), citing Dearle v. Hall (1828), 38 E.R. 475, it submits that the motion judge erred by determining priority by the order of execution of the Agreement and the Irrevocable Directions, rather than by considering the order of notice given to McNally Gervan.
18We agree with the appellant that the motion judge erred by failing to consider what is required to make an equitable assignment and that, having regard to what is required, only the Irrevocable Directions are equitable assignments. The appellant, as an equitable assignee based on the Irrevocable Directions, has priority over Mr. First, as a judgment creditor. Accordingly, it is not necessary to consider whether, as the appellant argues, when the funds at issue have not been paid over, priority of equitable assignments is determined by the order of notice given to the person holding the funds, rather than by the order of the assignments.
19This court has described the law of equitable assignment as follows, in Thibodeau v. Thibodeau, 2011 ONCA 110, 104 O.R. (3d) 161, at para. 57, citing the House of Lords in Swiss Bank Corp. v. Lloyds Bank Ltd., [1981] 2 All E.R. 449 (H.L.), at p. 453, quoting Rodick v. Gandell (1852), 42 E.R. 749, at p. 754:
an agreement between a debtor and a creditor that the debt owing shall be paid out of a specific fund coming to the debtor, or an order given by the debtor to his creditor upon a person owing money or holding funds belonging to the giver of the order, directing such person to pay such funds to the creditor, will create a valid equitable charge upon such fund, in other words, will operate as an equitable assignment of the debts or fund to which the order refers.
20Equity does not require a particular form to effect a valid assignment. But whatever form is used must clearly show an intention that the assignee is to have the benefit of the debt or chose in action assigned: Nadeau v. Caparelli, 2016 ONCA 730, 132 O.R. (3d) 729, at para. 19. [Emphasis added.]
21The motion judge did not consider the requirement that the Agreement must clearly show an intention that Mr. First was to have the benefit of the settlement funds. Indeed, she found that the Agreement “could certainly have been drafted more clearly”. We agree with the motion judge that the Agreement does not clearly show an intention that Mr. First was to have the benefit of the settlement funds. Rather, it provides that the monies payable under the Agreement became due and payable on the later of September 15, 2015 or “the day on which all claims made by Andre Fillion for compensation for losses sustained by his personal injury are resolved or settled”. If the action settled before September 15, 2015, Mr. Fillion had the benefit of the settlement funds. The Agreement did not direct him to pay the monies he owed Mr. First out of the settlement funds.
22In contrast, the Irrevocable Directions required Mr. McNally to pay any and all sums owing to the appellant “immediately upon receipt by him/her or his/her law firm of all or any portion of the Settlement Funds and to make the aforesaid payment in priority to any other payment out of the Settlement Funds, saving and excepting any payment to my solicitor or his/her law firm”. This language clearly shows an intention that the appellant was to have the benefit of the settlement funds.
23Moreover, a direction by an assignor to a person holding funds of the assignor to pay the funds over to a third party has been recognized as “an instance of a good equitable assignment”: Bitz, Szemenyei, Ferguson & MacKenzie v. Cami Automotive Inc., 1997 CarswellOnt 2309 (Gen. Div.), at para. 21. This is also true of a direction to pay a portion of a specified fund: Bitz, at paras. 17, 19.
24We note that the motion judge did not rely on the garnishment process as a basis for according priority to Mr. First, and we agree with her that the garnishment process does not assist Mr. First. Rule 60.08(1) of the Rules of Civil Procedure provides:
A creditor under an order for the payment or recovery of money may enforce it by garnishment of debts payable to the debtor by other persons. [Emphasis added.]
25Mr. First could use the garnishment process against McNally Gervan only if it were an “other person” with a “debt payable” to Mr. Fillion. The settlement funds are monies owed to Mr. Fillion by the defendant in the action which Mr. Fillion directed be paid first to McNally Gervan in trust and then to the appellant in accordance with the Irrevocable Directions. Once those amounts are paid, there will be no balance remaining and no amount that could be argued is a garnishable debt: Richter LLP v. Big Truck TV Productions Inc., 2015 ONCA 567, 127 O.R. (3d) 314.
Disposition
26The appeal is allowed, the order of the motion judge is set aside, and McNally Gervan is ordered to pay all the monies it holds in trust for Mr. Fillion to the appellant. There shall be no costs of the motions below and no costs of this appeal.
“Paul Rouleau J.A.”
“Alexandra Hoy J.A.”
“C.W. Hourigan J.A.”
