DATE: 20060710
DOCKET: C44282
COURT OF APPEAL FOR ONTARIO
SIMMONS, CRONK and JURIANSZ JJ.A.
B E T W E E N :
CATHERINE MARY STEVENS
Larry W. Keown for the appellant, Royal Bank of Canada
Applicant (Respondent in appeal)
- and -
IAN STEVENS, ROYAL BANK OF CANADA, and CROWN ATTORNEY (LIDIA NAROZNIAK)
Robert K. Bickle for the respondent
Respondent (Appellant in appeal)
Heard: May 30, 2006
On appeal from the judgment of Justice Robert D. Reilly of the Superior Court of Justice, dated September 12, 2005, reported at (2005), [2005 ONSC 34598](https://www.canlii.org/en/on/onsc/doc/2005/2005canlii34598/2005canlii34598.html), 20 R.F.L. (6th) 453.
CRONK J.A.:
I. Background
[1] On September 17, 2004, Flynn J. of the Superior Court of Justice made an order in the matrimonial proceeding between the respondent, Catherine Mary Stevens, and her then husband, Peter Henry Nagtzaam, vesting title to the parties’ former matrimonial home in Ms. Stevens, retroactive to July 31, 1998 - the date of the parties’ separation (the “Vesting Order”).
[2] However, on November 30, 2000, the appellant, Royal Bank of Canada (the “Bank”), had filed writs of seizure and sale against Mr. Nagtzaam concerning an unsatisfied judgment arising from Mr. Nagtzaam’s default under a loan advanced to him by the Bank in 1999.
[3] Following the Vesting Order, when the Bank declined to lift its writs of seizure and sale in respect of the parties’ former matrimonial home, Ms. Stevens applied for a declaration that the writs were not applicable to the matrimonial home, among other relief. In response, the Bank cross-applied for an order amending or varying the effective date of the Vesting Order to September 17, 2004 (the date of Flynn J.’s order) or, in the alternative, granting the Bank standing to appeal the Vesting Order.
[4] Both applications were heard by Reilly J. of the Superior Court of Justice on August 22, 2005. By judgment dated September 12, 2005, the application judge granted the declaratory relief sought by Ms. Stevens and dismissed the Bank’s cross-application.
[5] The application judge held that only a party to an original proceeding is entitled to appeal or to apply for an order under the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 to amend or vary a final judgment. Accordingly, he concluded that he had no jurisdiction to alter or vary the Vesting Order or to grant the Bank standing to appeal from it. He, therefore, declined to interfere with the Vesting Order in any respect.
[6] The application judge further held that Flynn J. had granted the Vesting Order based on his conclusion that a constructive trust existed in favour of Ms. Stevens, with the result that Mr. Nagtzaam’s interest in the matrimonial home vested in Ms. Stevens as of the date of separation. It followed that, as of July 31, 1998, Mr. Nagtzaam had no further proprietary or other interest in the matrimonial home, and no writ of seizure and sale thereafter obtained by a creditor of Mr. Nagtzaam could attach to that property.
II. Issues
[7] The Bank appeals from the application judge’s judgment on several grounds. In my view, the grounds of appeal advanced by the Bank are subsumed in the following two broad issues:
(1) Whether the application judge erred in his inter-pretation of Flynn J.’s decision regarding the basis for the retroactive Vesting Order; and
(2) Whether, in the circumstances, the retroactive aspect of the Vesting Order is effective as against the Bank.
III. Discussion
(1) Decision of Flynn J.
[8] The Bank argues that the Vesting Order was made under the authority of s. 10 of the Family Law Act, R.S.O. 1990, c. F.3, rather than in reliance on principles of constructive trust and that Flynn J. neither ordered nor intended that the Vesting Order have retroactive effect. I disagree.
[9] Although it is true that Flynn J. did not mention retroactivity in his reasons and that the words “in trust” or “constructive trust” similarly do not appear in his reasons, Flynn J. signed the formal Vesting Order. Therefore, in the absence of evidence to the contrary, which does not exist in this case, it must be presumed that Flynn J. was aware of the terms of the Vesting Order, including its provision for retroactivity, and that he was satisfied that the Vesting Order reflected his disposition concerning the matrimonial home.
[10] In any event, as I elaborate later in these reasons, I am satisfied that Flynn J.’s findings concerning the understanding between Mr. Nagtzaam and Ms. Stevens at the time of their separation included the implicit finding that, from shortly after the date of their separation in July 1998, Mr. Nagtzaam’s interest in the matrimonial home was impressed with a trust in favour of Ms. Stevens. The retroactive nature of the Vesting Order accords with this key finding.
[11] Although Flynn J. did not refer explicitly in his reasons to the doctrine of constructive trust, he did hold that an understanding had been reached between Mr. Nagtzaam and Ms. Stevens concerning the matrimonial home, which was enforceable “in equity”. He further held that Ms. Stevens acted in reliance on the understanding that Mr. Nagtzaam’s interest in the matrimonial home would be transferred to her in consideration for her payment of his debts and the spouses’ joint debts at the time of separation. Ms. Stevens fulfilled her part of this bargain.
[12] In these circumstances, I agree with the application judge that Flynn J.’s reasons compel the conclusion that he based the Vesting Order on the equitable principles inherent in the constructive trust remedy. The Bank, quite properly in my view, does not suggest that the remedy of constructive trust cannot have retroactive effect in a proper case. That Flynn J. also alluded to his authority under s. 10 of the Family Law Act to declare the ownership or right to possession of particular property does not displace this interpretation. As was noted by this court in Martin v. Martin (1992), 1992 ONCA 7402, 8 O.R. (3d) 41 and Miller v. Miller, [1996] O.J. No. 863 at paras. 11 and 12, s. 10 of the Family Law Act is procedural in nature. It is a vehicle through which questions of ownership or possession may be determined and the declaratory relief authorized by s. 10(1)(a) must find a substantive basis elsewhere.
(2) Effectiveness of the Vesting Order As Against the Bank
[13] The Bank contends that the doctrine of constructive trust was unavailable to ground a retroactive Vesting Order, because the imposition of such a trust in this case unjustly defeated the interests of intervening creditors (like the Bank) and because it also had the effect of “wiping out” the Bank’s writs. The Bank further submits that the provisions of the Family Law Act do not permit the court to oust execution creditors by granting a retroactive vesting order regarding property. It, therefore, argues that the retroactive aspect of the Vesting Order is ineffective as against the Bank.
[14] In the circumstances of this case, it is my view that the Bank’s argument cannot succeed. I say this for several reasons.
[15] First, many of the cases relied upon by the Bank in support of its position are concerned with the court’s jurisdiction to grant vesting orders as a remedy for implementing the substantive powers contained in family law legislation: see for example, Maroukis v. Maroukis, 1984 SCC 76, [1984] 2 S.C.R. 137; and Ferguson v. Ferguson (1994), 1994 ONSC 7445, 7 R.F.L. (4th) 384 (Ont. Unified Fam. Ct.). But that is not this case. I have already concluded that the retroactive Vesting Order here was anchored in the equitable principles of constructive trust.
[16] Second, several of the submissions advanced by the Bank constitute a collateral attack on the decision of Flynn J. rather than a challenge of the application judge’s decision. Such an attack is not open to the Bank.
[17] Third, the Bank emphasizes that its interests were not contemplated or protected under the Vesting Order because Flynn J. did not have an opportunity to consider the effect of a retroactive vesting order on third party execution creditors. The application judge found as a fact, however, that the Bank was put on notice in June 2002 by Ms. Stevens’ then counsel that the effect of a successful outcome for Ms. Stevens in the matrimonial proceeding would mean that Mr. Nagtzaam would have no interest in the matrimonial home. The notice letter to the Bank from Ms. Stevens’ counsel was provided to the Bank at a time when it was an execution creditor of Mr. Nagtzaam and prior to Flynn J.’s order. Despite this advance notice that its interests could be adversely affected, the Bank took no steps to intervene in the matrimonial proceeding.
[18] Fourth, and importantly, the warning contained in the notice letter provided to the Bank by Ms. Stevens’ counsel was expressed this way: “If Mrs. Stevens is successful in her claims, [Mr. Nagtzaam] would have no interest in the matrimonial home as he would hold his interest in trust for Mrs. Stevens” [emphasis added]. In addition, the notice letter stated: “[Ms. Stevens] is claiming that Mr. Nagtzaam holds his one half interest in the matrimonial home in trust for her.”
[19] This language clearly put the Bank on notice of a trust claim by Ms. Stevens concerning the matrimonial home, at a time when it was open to the Bank to take action to protect its position. It also confirms that the matter of a trust claim was a live issue before Flynn J.
[20] These facts lead to the inescapable inference that the Bank’s failure to seek to intervene in the matrimonial proceeding resulted either from execution creditor tactics or because the Bank ‘dropped the ball’. In these circumstances, the Bank could hardly be heard to complain before the application judge (more than three years after the Bank received the relevant warning from Ms. Stevens’ matrimonial counsel) that the retroactive Vesting Order was fatally flawed or fundamentally unjust.
[21] Fifth, I do not agree with the Bank’s contention that the Vesting Order is ineffective as against it because the prerequisites for the imposition of a constructive trust were not met in this case. I do agree, however, that the determination of this issue required an evaluation and weighing of the equities as between the Bank and Ms. Stevens by the application judge. The application judge’s reasons do not permit me to conclude that this analysis was undertaken.
[22] There is no issue between the parties that the leading authorities on the imposition of a constructive trust are the decisions of the Supreme Court of Canada in Soulos v. Korkontzilas, 1997 SCC 346, [1997] 2 S.C.R. 217 and Peter v. Beblow, 1993 SCC 126, [1993] 1 S.C.R. 980. The relevant principles outlined in those cases need not be repeated here. I am satisfied that the application of these principles to the facts of this case establishes that the Bank’s writs are ineffective as against the former matrimonial home. My reasons for reaching this conclusion may be briefly stated.
[23] Justice Flynn determined that, at the time of the parties’ separation, Mr. Nagtzaam agreed to transfer all of his right, title and interest in the matrimonial home to his wife, provided that she paid his credit card and other accumulated debts. As I have said, Ms. Stevens did so. But Mr. Nagtzaam, when presented with a transfer document regarding the matrimonial home, refused to sign it. Against this factual backdrop, Flynn J. implicitly found that, from the time that Ms. Stevens paid the parties’ and Mr. Nagtzaam’s debts, Mr. Nagtzaam held his interest in the former matrimonial home in trust for his wife.
[24] The parties separated in July 1998. Mr. Nagtzaam did not apply for a loan with the Bank until October 1999, and the Bank did not obtain a judgment and its writs against him until November 2000.
[25] On this record, I am satisfied that Ms. Stevens paid the agreed debts on behalf of Mr. Nagtzaam prior to the date on which the Bank obtained and filed its writs of seizure and sale. Thus, when the writs were obtained, Mr. Nagtzaam had no interest in the matrimonial home to which the writs could attach. His former interest in the matrimonial home was now the subject of a trust in favour of Ms. Stevens. The Bank, as an execution creditor, could not enjoy any right to the matrimonial home different or greater than the right enjoyed by Mr. Nagtzaam. I note, in this regard, that when applying for a loan from the Bank in 1999, it appears that Mr. Nagtzaam made no mention of the matrimonial home or any interest therein when disclosing his assets to the Bank.
[26] Justice Flynn’s reasons make clear his finding that Ms. Stevens became entitled to Mr. Nagtzaam’s interest in the matrimonial home prior to the date on which the Bank acquired any legal rights as an execution creditor of Mr. Nagtzaam.
[27] I offer the following final observations. It is of some significance that, prior to Mr. Nagtzaam seeking a loan from the Bank, Ms. Stevens, who had continued to employ Mr. Nagtzaam following their separation, discovered that he was defrauding her company. The police were notified, as were several financial institutions, including the Bank, of the allegations of fraud against Mr. Nagtzaam. Ultimately, Mr. Nagtzaam was convicted of fraud.
[28] The Bank chose to ignore Ms. Stevens’ warning and, nonetheless, advanced to Mr. Nagtzaam a loan upon which he subsequently defaulted. As I have said, approximately three years later, the Bank again chose to ignore a warning from Ms. Stevens delivered through her counsel – this time regarding the implications for the Bank of an outcome in the matrimonial proceeding favourable to Ms. Stevens.
[29] In all the circumstances, I am of the opinion that the granting of the Vesting Order, retroactive to the date of the parties’ separation, was not inappropriate. On the somewhat unusual facts of this case, I have no hesitation in concluding that the equities as between Ms. Stevens and the Bank compel the dismissal of this appeal.
IV. Disposition
[30] Accordingly, I would dismiss the appeal. Ms. Stevens is entitled to her costs of the appeal on a partial indemnity basis, fixed in the amount of $5,900, inclusive of disbursements and Goods and Services Tax.
RELEASED:
“JULY 10 2006” “E.A. Cronk J.A.”
“EAC” “I agree J. Simmons J.A.”
“I agree R.G. Juriansz J.A.”