Court of Appeal for Ontario

Date: 20210420 Docket: C68673

Rouleau, Benotto and Miller JJ.A.

Between

Enrico Iafolla Applicant (Appellant)

and

Jolanta Lasota Respondent (Respondent)

Counsel: Payam Ezzatian, for the appellant Brian P. Pilley, for the respondent

Heard: April 1, 2020

On appeal from the judgment of Justice Paul B. Schabas of the Superior Court of Justice, dated September 1, 2020.

Benotto J.A.:

[1] This is an appeal brought by the insurer of the named appellant Enrico Iafolla. He appeals the dismissal of an application for a declaration that, as a judgment creditor of the ex-husband of the respondent, he is entitled to receive the balance of the proceeds of the sale of a matrimonial home. Pursuant to the divorce judgment between the respondent and her ex-husband, those funds are to be held as security for his support obligations.

[2] As I will explain, the issue here engages the court’s fundamental duty to satisfy itself that reasonable arrangements have been made for the support of children. I would allow the appeal in part and direct the matter back to the trial judge to consider whether a variation of the Divorce Judgment is appropriate as a result of the material change in circumstances.

Background

[3] The respondent Jolanta Lasota and Zlatko Antonov were married and have one child. They separated in 2017. It is common ground that Antonov has paid no child support, has shown little interest in the child, now 11, and did not participate in the divorce proceedings. He made no financial disclosure.

[4] On July 25, 2018, Backhouse J. presided over the divorce. Antonov did not appear. She attributed an income to him based on his bank deposits and established monthly child and spousal support in the amounts of $1,429 and $3,191 respectively. In the Divorce Order, she gave Ms. Lasota control over the sale of the jointly held matrimonial home. The net proceeds of the sale after paying real estate commissions, legal expenses, tax arrears, and the outstanding mortgage were to be divided into two equal shares. From Antonov’s share, she ordered that the arrears of child and spousal support then owing, plus the equalization payment be deducted. The trial judge further ordered at paragraph 19:

The remaining balance of [Antonov’s] share of the net proceeds of the sale of the Matrimonial Home, if any, shall be held in trust as security for [Antonov’s] future child and spousal support obligations.

[5] The home was sold in November 2018. It appeared on closing that there was a writ of execution registered on title to the home on November 28, 2017. The writ relates to a judgment against Antonov for $380,071 plus costs and interest.

[6] The net proceeds of the sale were $594,273.30. It was agreed between the appellant and the respondent that, from these proceeds, various fees, tax, and mortgage payments would be paid. In addition, the 8 months of spousal and child support arrears were paid to the respondent. The balance of Antonov’s share of the proceeds would be placed in trust without prejudice the appellant’s right to bring an application to determine who has priority to those funds. The amount in issue now is $180,670.15.

[7] As mentioned, Antonov has made no support payments, including pursuant to the Divorce Order. His arrears would now be over $140,000 and soon will amount to the entire amount being held back from the sale.

Positions of the Parties

The appellant

[8] The appellant’s position is that he is entitled to the full amount of $180,670.15 pursuant to his rights under s. 2 of the Creditors' Relief Act, 2010, S.O. 2010, c. 16, Schedule 4 (“CRA”). He submits that the Divorce Order should be set aside to the extent that it interferes with his rights under the CRA.

[9] Section 2 of the CRA states:

2. (1) Except as otherwise provided in this Act, there is no priority among creditors by execution or garnishment issued by the Superior Court of Justice, the Family Court of the Superior Court of Justice and the Ontario Court of Justice.

Exception, support or maintenance orders

(3) A support or maintenance order has the following priority over other judgment debts, other than debts owing to the Crown in right of Canada, regardless of when an enforcement process is issued or served:

1. If the maintenance or support order requires periodic payments, the order has priority to the extent of all arrears owing under the order at the time of seizure or attachment.

2. If the support or maintenance order requires the payment of a lump sum, the order has priority to the extent of any portion of the lump sum that has not been paid.

[10] The appellant argues that the effect of this section is to give priority to lump sum support orders and periodic payments in arrears only. Following the payment which cleared up arrears to that date, he submits that he is entitled to collect on his judgment.

[11] The appellant relies on Maroukis v. Maroukis (1981), 33 O.R. (2d) 661 (C.A.), aff’d , [1984] 2 S.C.R. 137. In that case, the trial judge ordered that the jointly owned matrimonial home vested with the wife retroactive to the date of separation. The trial judge declared that any subsequent executions on the property did not affect the wife’s title. On appeal, this court held that the trial judge had no jurisdiction to make a retroactive order since the house was held in joint tenancy when the executions were filed and “attached to [the husband’s] interest in it.” The Supreme Court of Canada agreed with the Court of Appeal’s conclusion.

[12] Maroukis was followed in Ferguson v. Ferguson, 116 D.L.R. (4th) 707 (Ont. Unif. Fam. Ct.), at p. 713, which found that a writ of execution for a debt of the husband, filed before the order that the house be sold and proceeds divided, “has priority over any claim that the wife has to the husband's net proceeds of the sale of the matrimonial home.”

[13] Consequently, the appellant seeks a declaration that he has an entitlement to the proceeds.

The respondent

[14] The respondent submits that the Court has no jurisdiction to vary the Divorce Order outside the divorce proceedings. The effect of the order sought would be to vary the Divorce Order. Further she submits that the writ and the CRA create no substantive right to the funds for the applicant.

[15] The respondent relies on Stevens v. Stevens (2005), 20 R.F.L. (6th) 453 (Ont. S.C.J.), aff’d , 214 O.A.C. 201, where the trial judge distinguished Maroukis and Ferguson as cases determined under provincial family law statutes which did not permit retroactive orders, whereas the creation of a trust is based on the court’s equitable jurisdiction. In Stevens a retroactive vesting order was found to prevail over a writ filed by a bank. This court agreed that Maroukis and Ferguson were therefore distinguished: Stevens v. Stevens (2006), 214 O.A.C. 201, at paras. 12,15.

Decision of the Application Judge

[16] The application judge concluded that the trial judge crafted the Divorce Order to create a trust to secure the respondent’s support payments. This takes priority over the applicant’s interest which, in any event, is simply that of an execution creditor whose interest is subject to “all the equities”: Ontario Development Corp. v. Trustee of the Estate of I.C. Suatac Construction Ltd. (1976), 69 D.L.R. (3d) 353, at p. 359 (Ont. C.A.); see also 1842752 Ontario Inc. v. Fortress Wismer 3-2011 Ltd., 2020 ONCA 250, at para. 37.

[17] The application judge relied on Stevens, where Cronk J.A. expressed concern that the bank was pursuing a collateral attack on the original vesting order, stating, at para., 21 that “the determination of this issue required an evaluation and weighing of the equities as between the Bank and Ms. Stevens”. The application judge concluded that attempts to vary such orders should be addressed in the original proceeding, where the Court may consider the equities between the parties, including the scope and purposes of support orders made under the Divorce Act, R.S.C. 1985, c. 3 (2nd Supp.).

[18] The application was dismissed.

Analysis

[19] I have concluded that the application judge erred: (i) in his interpretation of the jurisprudence; and (ii) by not addressing the court’s duty regarding child support. Consequently, the matter should be returned to the trial judge to consider the material change in circumstances.

Jurisprudence

[20] The application judge relied on Stevens to establish the priority of the respondent’s claim to the proceeds of sale. There, the trial judge had determined that a constructive trust operated as of the date of separation to vest the matrimonial home in the wife’s name. Therefore, the wife had title to the home before the execution was filed. Here, the respondent did not have title in the husband’s portion of the sale at the time the writ was filed.

[21] However, I do not agree that Maroukis, relied on by the appellant, assists him. There, a writ of execution was filed with the sheriff before the trial judge vested property in the name of the wife. On an application to the trial judge to “clarify the judgment” the trial judge vested the home in the wife’s name as of the date of separation – which pre-dated the writ of execution. This court confirmed the vesting order but not the retrospective effect. The Supreme Court dismissed the appeal confirming that, when property is divided on marriage breakdown, it does not vest until the order is made and there is no provision to retroactively vest property. The wife’s title was subject to a pre-existing execution filed with the sheriff.

[22] The situation is different here. The underlying order in Maroukis was not, as it is here, for child and spousal support. And, as I will explain below, the limits on retroactivity do not apply to a variation of child support.

The court’s obligation with respect to child support

[23] Child support is the right of the child. The Divorce Act establishes a child centered approach to divorce orders by giving priority to children’s needs. Children are not parties to their parents’ divorce. Consequently, the presence of a child in divorce proceedings engages special duties for the court to ensure that arrangements are made for support. Section 11(1)(b) of the Divorce Act provides that:

[I]t is the duty of the court... (b) to satisfy itself that reasonable arrangements have been made for the support of any children of the marriage, having regard to the applicable guidelines, and, if such arrangements have not been made, to stay the granting of the divorce until such arrangements are made

[24] The trial judge, in accordance with her duty under s. 11 of the Divorce Act, secured the sale proceeds of the home for future support including support for the child. There is no similar duty on the court for property claims between the spouses or for spousal support. The trial judge clearly intended to secure the ex-husband’s share of the matrimonial home proceeds for the benefit of the child. That is why she included paragraph 19 in the Divorce Order.

[25] The appellant submits that the provisions of paragraph 19 mean that only the portion of the proceeds left over after his debt is paid are available to secure the support. He relies on the words “net proceeds if any” will be secured. I do not agree for two reasons.

[26] First, paragraph 19 of the Divorce Order must be read with paragraph 16 which refers to net proceeds as: “remaining after paying real estate commissions, legal expenses on the sale, tax arrears, if any, [and the] outstanding mortgage”. There is no mention of outstanding debts or writs.

[27] Second, the trial judge was clearly not aware of the appellant’s writ. Because the declaration sought by the appellant effectively eliminates the security the trial judge put in place, the security the trial judge would have ordered had she known of the writ would likely have been different. For example, she could have considered s. 2(3)(2) of the CRA to comply with her duty under s.11(1) of the Divorce Act.

[28] The discovery of the writ of execution constitutes a material change in circumstances giving rise to a variation application. The test for a “material change”, is a change that is substantial, continuing and that “if known at the time, would likely have resulted in different terms”: Willick v. Willick, [1994] 3 S.C.R. 670, at p. 688; L.M.P. v. L.S., 2011 SCC 64, at para. 32. Had the appellant’s writ of execution been known at the time of the Divorce Order, it would likely have resulted in a different order.

[29] On a variation application, the terms of the original order are presumed to comply with the objectives of the Divorce Act: L.M.P., at para 33. Once the material change is established any variation should reflect that change in accordance with the objectives set out in s. 17(4).

[30] The Divorce Act provides:

17 (1) A court of competent jurisdiction may make an order varying, rescinding or suspending, retroactively or prospectively, (a) a support order or any provision of one, on application by either or both former spouses;

(3) The court may include in a variation order any provision that under this Act could have been included in the order in respect of which the variation order is sought, and the court has the same powers and obligations that it would have when making that order.

(4) Before the court makes a variation order in respect of a child support order, the court shall satisfy itself that a change of circumstances as provided for in the applicable guidelines has occurred since the making of the child support order or the last variation order made in respect of that order. [Emphasis added.]

[31] I note as well that the security ordered by the trial judge applies to both the spousal and child support. It was not apportioned as between the two types of support. It will remain up to the trial judge address this if she considers it appropriate. At approximately $17,000/year in child support alone, and given that the child is only 11, the child support obligation alone could well exhaust the disputed amount.

Power to return matter to trial judge

[32] The application judge viewed the effect of the order sought to be a variance of the Divorce Order. He explained that the variation should be done in the divorce proceedings. However, given his disposition he did not consider referring the matter to the trial judge to assess whether a variation was appropriate to ensure that child support was in compliance with the provisions of the Divorce Act.

[33] In the circumstances the application judge ought to have referred the matter to the trial judge. That the respondent did not move for a variation is not material for several reasons.

[34] First, s. 11 imposes a duty on the court to ensure adequate arrangements for the support of the child.

[35] Second, the primary objective in the Family Law Rules is to enable the court to deal with cases justly. In this regard, r.1(6) provides that the court may impose conditions and give directions as appropriate. Further, the court, pursuant to r. 7(2) and (5) may add a party to a variation if the person – not a spouse - is affected.

[36] Third, a return to the trial judge on a variation would eliminate the potential of two conflicting court orders.

[37] Section 134 of the Courts of Justice Act, R.S.O. 1990, c. C.43, provides that this court may, “make any order that ought to or could have been made by the court” appealed from. Because the court below should have referred the matter back to the trial judge to revisit her orders in light of the writ it is appropriate that this court make that order.

Disposition

[38] I would allow the appeal in part and order that the matter be returned to the trial judge to consider the material change in circumstances.

[39] I would make no order as to costs.

Released: April 20, 2021 “P.L.” “M.L. Benotto J.A.” “I agree Paul Rouleau J.A.” “I agree B.W. Miller J.A.”