Ferreira v. Macedo, 2016 ONSC 951

Ferreira v. Macedo, 2016 ONSC 951

CITATION: Ferreira v. Macedo, 2016 ONSC 951

DIVISIONAL COURT FILE NO.: 271/15
DATE: 20160311

ONTARIO SUPERIOR COURT OF JUSTICE DIVISIONAL COURT

J. Wilson, Stewart and Thorburn JJ.

BETWEEN:

Antonio Ferreira Appellant

– and –

Gildo Macedo and Maria Pia Pagliuca Respondents

COUNSEL:

Samuel Kazen, for the Appellant Peter D. Woloshyn, Respondents

HEARD at Toronto: February 5, 2016

Stewart J.

Overview

1In 1993, the Applicant, Antonio Ferreira (“Ferreira”), and his brother-in-law, the Respondent Gildo Macedo (“Macedo”), jointly purchased the property located at 28 Harvie Avenue in the City of Toronto (the Property). Under a Trust and Indemnity Agreement executed by the parties on July 29, 1993, ownership of the property was split equally between them (the “Trust Agreement”).

2Each contributed to the deposit required for the purchase, lived together in the property and paid for the various carrying costs associated with its upkeep and maintenance for several years.

3In late 1996, Ferreira moved out of the property and into another house. He stopped paying carrying costs for the property, but remained its co-owner in accordance with the Trust Agreement.

4Macedo and his family continued to occupy the property. Initially he rented out a portion of the property, but eventually he and his family occupied the entire house.

5A dispute arose between the parties as to their respective entitlement to the property. Ultimately, Ferreira brought an application for an order of partition or sale of the property pursuant to the Partition Act, R.S.O. 1990, c. P.4.

The Appeal

6Ferreira appeals from the order of Myers, J. dated April 24, 2015 which dismissed the application for partition and sale, and awarded to him the sum of $13,000 payable upon the eventual sale of the property. He also appeals the order of the application judge dated May 25, 2015 that awarded costs to Macedo and his common law spouse, the co-Respondent Maria Pia Pagliuca, in an amount which offset the amount awarded to Ferreira in its entirety.

7Ferreira submits that the application judge erred by refusing the remedy of partition and sale in the absence of malicious, vexatious or oppressive conduct. The Appellant further submits the application judge erred in applying the equitable doctrines of laches, acquiescence and waiver in light of the Trust Agreement. Finally, the Appellant challenges the finding that only $13,000 was owed to him.

8The Respondents argue that the application judge properly decided this case and his findings should not be disturbed on appeal.

Jurisdiction

9Section 7 of the Partition Act provides that an appeal lies to the Divisional Court from any order made under it. This Court has all powers to substitute our decision for that of the application judge but only in accordance with the applicable standard of review dependent upon the nature of that decision.

Standard of Review

10The Supreme Court of Canada set out the standard of review applicable to appeals from a final order of a judge in Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235.

11On questions of law, the standard is correctness. On questions of fact, the standard is palpable and overriding error. On questions of mixed fact and law, there is a spectrum. Where there is an extricable legal principle, the standard of review is correctness. However, with respect to the application of the correct legal principles to the evidence, the standard is palpable and overriding error.

12An appellate court will not interfere with the trial judge’s findings of fact unless it can plainly identify the imputed error, and that error is shown to have affected the result.

13With respect to findings of fact, an appellate court may substitute its own view of the evidence and draw its own inferences of fact where the trial judge is shown to have committed a palpable and overriding error or made findings of fact that are clearly wrong or unsupported by the evidence: see H.L. v. Canada (Attorney General), 2005 SCC 25, [2005] 1 S.C.R. 401.

14A discretionary decision of a lower court will be reversible where that court misdirected itself or came to a decision that is so clearly wrong that it amounts to an injustice: see Elsom v. Elsom, [1989] 1 S.C.R. 1367, at p. 1375; Penner v. Niagara (Regional Police Services Board), 2013 SCC 19. Reversing a lower court’s discretionary decision is also appropriate where the lower court gives no or insufficient weight to relevant considerations: see Friends of the Oldman River Society v. Canada (Minister of Transport), [1992] 1 S.C.R. 3, at pp. 76-77.

Background Facts

15Under the Trust Agreement, ownership of the property was split equally between Ferreira and Macedo.

16Pursuant to the Trust Agreement, Macedo holds legal title to the property. Ferreira’s beneficial ownership of half of the property is held in trust for him by Macedo.

17Ferreira contributed $13,000 and Macedo contributed $8,000 for the down payment on the property. The remainder of the purchase price was financed by way of a mortgage in Macedo’s name. Under the Agreement, however, Ferreira agreed to indemnify Macedo in the event of default on the mortgage.

18Ferreira and his family moved into the main floor and basement of the property and Macedo and his family moved into the second floor. They paid $900 and $700 per month, respectively, to cover expenses for the property. Ferreira also renovated the basement at his own expense to accommodate his family.

19In the fall of 1996, Ferreira moved out of the property.

20In December 1996, Macedo listed the property for sale. Although a buyer was found in April 1997, the sale did not close.

21After the move, Ferreira stopped making contributions towards carrying costs or maintenance.

22Beginning in 1996, Macedo and his family had possession of the entire property. For some time Macedo rented out the second floor of the house and kept the rental income. The Respondents have paid the maintenance, taxes and mortgage costs on the property during this time, but have not paid any occupation rent.

23In 2000, Macedo transferred title to the property to himself and his common-law spouse, Maria Pia Pagliuca, as joint tenants. Under the Trust Agreement with Ferreira, Macedo was not to transfer or encumber the property without obtaining Ferreira’s written permission.

24As soon as Ferreira found out about this transfer, he registered the Trust Agreement on title.

25In August 2013, the Respondents listed the property for sale without notifying Ferreira. When Ferreira found out about this potential sale, he registered a caution against the property. The Respondents then took the property off the market.

26In March 2014, Ferreira commenced an application under the Partition Act, seeking an order that the property be sold and that he receive 50% of the proceeds of sale.

The Decision

27In dismissing Ferreira’s application, the application judge relied on the equitable doctrines of laches, acquiescence and waiver.

28The application judge took the view that, because Ferreira had not contributed to the property’s expenses since he moved out in late 1996, he should not be entitled to share in any capital appreciation or recoup the monthly upkeep and mortgage payments made by him between 1993 and late 1996. The application judge ordered that Macedo pay to Ferreira the sum of $13,000, being the amount of Ferreira’s contribution toward the down payment originally made on the property when it was purchased in 1993, when it ultimately sold.

29By order of May 25, 2015, the application judge awarded costs of the application to the Respondents in the amount of $13,000, effectively offsetting Ferreira’s modest recovery.

30Ferreira appeals the substantive disposition of his application and the later decision on costs.

The Issues

31There are two issues:

1. Did the application judge err by relying on the doctrines of laches, acquiescence and waiver in denying partition and sale?

2. Did the application judge make an overriding and palpable error in restricting Ferreira’s relief to the return of his original down payment?

Did the application judge err by relying on the doctrine of laches, acquiescence and waiver in denying partition and sale?

32A party may seek partition or sale for an interest in property that is legal, equitable or both. Section 2 of the Partition Act provides:

All joint tenants, tenants in common and coparceners, all doweresses, and parties entitled to dower, tenants by the courtesy, mortgagees or other creditors having liens on, and all parties interested in, to or out of, any land in Ontario, may be compelled to make or suffer partition or sale of the land, or any part thereof, whether the estate is legal and equitable or equitable only.

33In this case, Ferreira sought the remedy of partition and sale to recognize his half ownership interest the property in accordance with the Trust Agreement.

34It was acknowledged that the Trust Agreement between Ferreira and Macedo had been breached in some respects by each of them. The application judge found that those breaches did not result in the loss of equitable title to the property by Ferreira. Specifically, he found that any breach of executory payment obligations was not a ground for rescission of the Trust Agreement. Therefore, Ferreira did not lose his interest in the property due to any abandonment or breach of the Trust Agreement. This determination is not challenged by the Respondents.

35There is a prima facie statutory right for partition and sale of a property for co-owners unless the narrow and limited discretion to refuse to make such an order engages.

36The scope of the court’s discretion to refuse to make an order of partition or sale (apart from family law cases often involving children and other property issues) is limited to circumstances of malice, oppression and vexatious intent: see Economopoulos (Re), 2014 ONCA 687, 2014 CarswellOnt 13831, at para. 89; Greenbanktree Power Corp. v. Coinmatic Canada Inc. (2004), 75 O.R. (3d) 478 (C.A.), at paras. 1-2; P. Perell, “A Partition Act Primer” (2005) 30 Advoc. Q. 251, at p. 253.

37The application judge made no finding of malice, oppression or vexatious intent against Ferreira, nor is there any factual basis on the evidence that would have permitted him to do so.

38In his reasons for decision (at para. 23), the application judge decided to deal with the application applying principles of equity, rather than law:

It seems to me that rather than dealing with technical legal arguments, these parties’ rights ought to be resolved in equity. They are family. They commenced their investment as partners – a fiduciary relationship. Their legal rights were expressly made subject to an equitable trust. The partition remedy is ultimately discretionary (Di Felice v. 1095195 Ontario Ltd., 20213 ONSC 1 at paras. 109 to 111). Everything about this case points to a conclusion formed in fairness as between the parties.

39The application judge proceeded to deny Ferreira relief on the basis of the doctrines of laches, acquiescence and waiver. He applied these doctrines to conclude that Ferreira’s departure from the premises, his failure to contribute to the carrying costs of the property and the perceived delay in asserting his property interest operated to preclude any entitlement to the remedy sought.

40After learning of the transfer by the Respondent to his common law spouse, the Appellant immediately registered the Trust Agreement of title to protect his interest. By doing so, it is evident that he has not waived his interest in the property and did not forego reliance upon his known right.

41Relief pursuant to contract is not governed by the equitable doctrines of laches, or acquiescence: see M.(K.) v. M.(H.), [1992] 3 S.C.R. 6. While these defences may operate to defeat an equitable claim, they cannot successfully resist a legal claim such as that advanced by Ferreira based upon the Trust Agreement.

42The application judge relied upon the decisions in Badii v. Badie, 2013 ONSC 4634 and Barker v. Barker, 2010 ONSC 408, 91 R.P.R. (4th) 114, cases in which the doctrine of laches was applied to property claims made in the family law context. These decisions are distinguishable. The arrangement between Ferreira and Macedo is a commercial contractual one. Although they may be related to each other, any special considerations arising from a matrimonial or spousal relationship do not apply.

43I also note that, although the trial decision in Barker v. Barker was upheld on appeal (i.e., Barker v. Barker¸ 2011 ONCA 447), the Court of Appeal for Ontario stated (at para.16):

We are also troubled by the manner in which the application judge disposed of the husband’s claim for occupation rent. The husband complains that the application judge erred in drawing on the equitable doctrine of laches to defeat his claim. Whether he is right or not on this is something we need not finally decide.

44Generally speaking, where a claim is based on a legal enforceable Trust Agreement in writing and registered on title, rather than equity, the claim may be barred only by expiry of the applicable limitation period.

45Because he decided the issue raised on the application on the basis of the equitable doctrines referred to above, the application judge did not consider section 42 of the Real Property Limitations Act, R.S.O. 1990, c. L.15 states that any limitation period in the case of an express trust runs from the date of conveyance of the land to a bona fide purchaser:

Express trust: when right of beneficiary accrues

42. Where land or rent is vested in a trustee upon an express trust, the right of the beneficiary of the trust or a person claiming through the beneficiary to bring an action against the trustee or a person claiming through the trustee to recover the land or rent, shall be deemed to have first accrued, according to the meaning of this Act, at and not before the time at which the land or rent has been conveyed to a purchaser for a valuable consideration, and shall then be deemed to have accrued only as against such purchaser and any person claiming through the purchaser.

46The Respondents argued before the application judge that the limitation period started to run when Macedo transferred legal title to the property from himself alone to himself and his wife jointly in 2000 and expired before Ferreira launched his application.

47I do not agree with that position. I conclude that the transfer to Maria Pia Pagliuca – the Respondent’s common law spouse - cannot be one to “a purchaser for valuable consideration” within the meaning of s. 42 of the Act. The transfer to her was in breach of the terms of the Trust Agreement and there is no evidence of any consideration.

48In any event, Macedo continues to have legal title to the property as a joint tenant. Accordingly, the limitations period clearly has not begun to run as against the portion of title that Macedo has retained for himself.

49I therefore am of the opinion that the application judge misdirected himself as to the test for the limited discretion to refuse an order for partition and sale. There is no evidence of malice, oppression or vexatious intent shown as against Ferreira. Absent this evidence, the order for partition and sale must be granted.

Did the application judge make an overriding and palpable error in restricting the Appellant’s relief to the return of his original down payment?

50The usual order in the case of partition and sale is to order the sale of the property in question, with an appropriate accounting for relative contributions and benefits by each of the parties.

51Instead, the application judge awarded Ferreira $13,000, based upon his assessment of the equities of the situation, which was the amount he paid as a deposit when purchasing the property many years ago.

52Ferreira submits that the application judge erred in failing to recognize the undisputed facts as to the monthly payments he made towards the property of at least $900 per month from August 1993 to approximately September 1996, the $5,000 ( at least ) he spent by no later than 1996 in renovating the basement, and the increase in the value of these sums due to inflation over a period of approximately 20 years.

53Admittedly, the Respondent has paid expenses over the years but he and his family have had the benefit of possession of the entire property over the years, either through its use or by retention of rental income.

54The application judge also failed to take into account that the value of the property has increased significantly both since its initial purchase and since Ferreira left the property.

55The Respondents in turn advanced a number of bases for other adjustments that would operate in their favour. Many of these are set out by the application judge (at para. 18):

It is the respondents’ position that the applicant abandoned his rights. Alternatively, they calculate the applicant’s portion of unpaid mortgage payments and carrying costs, adjusted for the time value of money, to exceed 50% of the current value of the property claimed by the applicant. However, the respondents give no credit for the fact that they occupied the full property after the applicant moved out. The respondents would have been entitled to be put in the position that they would have been in had the applicant complied with the agreement. Peleshok Estate v. Peleshok, 2011 ONSC 3156 at para. 123. Had the respondents insisted that the applicant continue to meet his obligation to pay, he would have rightly looked to them to mitigate their loss by renting out his bottom two floors. Instead, they took over those floors for themselves. In an accounting, the applicant would be entitled to credit for imputed rent. Mostovac v. Mostovac, 2010 ONSC 2593 at para. 59. Unlike the Mostovac case however, there is no evidence before the court as to the value of forgone rent. I have no ability to determine whether implied rent would wipe out all, or only a small portion of the applicant’s unpaid expenses.

56The application judge concluded that he had inadequate evidence to support any of the calculations relied upon by either side. He observed (at para. 19): “If I thought that the case properly came down to a taking of accounts, I would have no alternative but to refer the matter to a Master given the lack of evidence on this issue.”

57In view of the determination above that an order for sale ought to have been granted in this case, I am of the further opinion that the failure of the application judge to refer the matter to a Master for an accounting of proceeds to occur following the sale of the property likewise amounts to a palpable and overriding error.

58For these reasons, the orders of the application judge dated April 25 and May 25, 2015 are hereby set aside.

Next Steps in the Proceeding

59During the hearing before this Court, the Panel and the parties discussed potential ways of solving the accounting in a cost-efficient manner if the appeal were to be successful. As listed below, the parties agreed to certain parameters for any potential accounting before a Master.

60The parties also agreed to arrange a settlement conference as a means of resolving this issue without a sale.

61An order shall issue that the property at 28 Harvie Avenue in the City of Toronto be listed for sale and sold and the proceeds of sale prima facie to be split equally between Ferreira, on the one hand, and Macedo on the other, or held in trust pending accounting before a Master.

62On the accounting, the Master shall determine all adjustments to be applied to the proceeds to reflect the contribution of each of the parties and the respective benefits received, including taking into account the following:

(a) The initial contribution of Ferreira and Macedo to the purchase of the property, including down payments and legal fees;

(b) Financial contributions of Ferreira and Macedo to the carrying costs of the property since its purchase;

(c) Occupation rent and/or rental received from third parties;

(d) Capital improvements to the property; and,

(e) Inflation or interest factors to apply to categories of adjustment.

63The parties have agreed that the order for sale in paragraph 61 herein is not to be executed upon for a period of 45 days from the date of the release of these reasons, so as to permit the parties a chance to resolve their dispute without a sale.

Costs

64Ferreira shall have his costs of the application below fixed at $13,000.00 and costs of this appeal fixed at $6,000.00, inclusive of all disbursements and applicable taxes.

J. Wilson J.

Stewart J.

Thorburn J.