COURT OF APPEAL FOR ONTARIO

CITATION: Economopoulos (Re), 2014 ONCA 687

DATE: 20141007

DOCKET: C58177

Hoy A.C.J.O., Gillese and Lauwers JJ.A.

RE:

Constantine (Gus) Economopoulos, 1551666 Ontario Inc., Anjoca Holdings Inc., Heritage Pancake House Ltd., Vida Prijic, Peter Nicolopoulos and Aristides Nicolopoulos

And in the matter of an application for petition [sic] and sale and an order of judicial sale of certain property known municipally as 815 Juliana Drive, Woodstock, Ontario

(Appellants) (Respondent)

Montgomery Shillington, for the appellants Constantine (Gus) Economopoulos and 1551666 Ontario Inc.

Sean Flaherty, for the respondent Vida Prijic

Heard: July 16, 2014

On appeal from the order of Justice Kelly A. Gorman of the Superior Court of Justice, dated February 14, 2014.

Gillese J.A.:

OVERVIEW

[1] Constantine (Gus) Economopoulos has been involved in operating the Heritage Pancake House restaurant in Woodstock, Ontario, since the mid-1990’s. He has been embroiled in legal proceedings involving the restaurant virtually ever since.

[2] Gus Economopoulos, as tenant of the restaurant premises, entered into a lease with the landlords, Anjoca Holdings Inc. (“Anjoca”) and 15516666 Ontario Inc. (“155 Ontario”), (the “Lease”). The Lease was dated December 1, 2006, but was not registered on title until 2012.

[3] By order dated February 10, 2014 (the “Order under Appeal”), among other things: (1) the Lease was set aside on the basis that it was fraudulent and void ab initio; (2) the Land Registrar was ordered to remove the Notice of Lease from the title to the Property; and, (3) Gus Economopoulos, Anjoca, 155 Ontario, and the restaurant were ordered to pay costs of the motion on a substantial indemnity basis.

[4] In short, the effect of the Order under Appeal was that the Property could be sold free of the Lease.

[5] Gus Economopoulos and 155 Ontario (the “appellants”) appeal.

[6] For the reasons that follow, I would allow the appeal.

BACKGROUND IN BRIEF

[7] The facts in this case are extremely complicated and convoluted. I set out the following, very abbreviated, factual summary for a single reason: it is necessary to give context to, and make intelligible, the issues raised on appeal and the analysis of those issues. The limited record provided to this court is incomplete and rife with factual disputes which cannot be resolved by this court. In fact, on the record, it is not even possible to identify the parties to the underlying proceeding or to make a list of the factual matters in dispute. Thus, I wish to emphasize, the following summary is not intended to, nor does it, constitute findings of fact.

[8] In the mid-1990’s, Gus Economopoulos and his cousin, Peter Nicolopoulos, owned the property located at 815 Juliana Drive in Woodstock (the “Property”), on which the restaurant is located.

[9] Gus Economopoulos originally operated the restaurant in partnership with Peter’s father, Aristides (Art) Nicolopoulos. Later, Gus Economopoulos ran the restaurant on his own.

[10] A dispute between Gus Economopoulos and Art Nicolopoulos about the management of the restaurant led to each of them commencing legal proceedings for the recovery of money damages related to the restaurant’s operation (the “Two Actions”).

[11] On March 5, 1999, Gus Economopoulos granted a mortgage over his half-interest in the Property in favour of Nicholas Bulut.

[12] On July 22, 1999, Gus Economopoulos transferred his half-interest in the Property to Mr. Bulut, with the result that the Property was jointly owned by Mr. Bulut and Peter Nicolopoulos. Apparently Mr. Bulut continued to hold a mortgage over the Property, despite the transfer of the half-interest in the Property to him.

[13] On July 27, 1999, Art Nicolopoulos and Peter Nicolopoulos started an application for, among other things, the sale of the Property pursuant to the Partition Act, R.S.O. 1990, c. P.4 (the “Application”).

[14] By order dated October 1, 1999, the Application was consolidated with the Two Actions (the “Consolidated Proceeding”).

[15] On December 12, 2000, in response to the Application but within the Consolidated Proceeding, Granger J. issued an order (the “2000 Order”). Among other things, the 2000 Order prohibited Mr. Bulut (and his agents and assigns) from going onto the Property and appointed a referee to sell the Property. In para. 3 of the 2000 Order, the court ordered that the Property be sold, under the direction of the referee, on such terms as the referee deemed appropriate and,

free of the claims of encumbrancers if any, who have consented to the sale, and subject to the claims of encumbrancers who have not consented to the sale ….

[16] As will be seen, one of the critical issues raised on this appeal is how the word “encumbrancers” in the above-quoted provision of the 2000 Order should be interpreted.

[17] The 2000 Order was never registered on title and no party has ever applied for a certificate of pending litigation based on it.

[18] Peter Economopoulos (Gus Economopoulos’ brother) had a mortgage over Mr. Bulut’s ownership interest in the Property.

[19] On June 20, 2003, Peter Economopoulos enforced his mortgage by selling Mr. Bulut’s ownership interest in the Property by power of sale. The purchaser was 155 Ontario. Thus, 155 Ontario and Peter Nicolopoulos became the co-owners of the Property.

[20] Art Nicolopoulos died on May 24, 2006.

[21] On October 8, 2006, Gus Economopoulos, Peter Nicolopoulos and Angela Nicolopoulos, in her capacity as executrix and trustee for Art’s estate, entered into minutes of settlement (the “Settlement”).

[22] Two of the preambles in the Settlement are significant. The first recites that Gus Economopoulos, Art Nicolopoulos and Peter Nicolopoulos are parties to “numerous outstanding proceedings in respect of their involvement in the operation and management of Heritage Pancake House and the purchase and development of the Property”. The “numerous outstanding proceedings” are not identified in the Settlement.

[23] The second preamble of significance recites that the parties to the Settlement wished to settle their long standing disputes.

[24] As part of the Settlement, Gus Economopoulos agreed, among other things, to pay Peter Nicolopoulos $100,000 and to assume full and sole liability for debts relating to the operation of the restaurant in the approximate amount of $320,000.

[25] In consideration for the $100,000 payment, Peter Nicolopoulos agreed to transfer to Gus Economopoulos, or such person as he should designate, his one-half ownership interest in the Property. Pursuant to Gus’ designation, Peter Nicolopoulos transferred his interest in the Property to Anjoca.

[26] In para. 9 of the Settlement, the estate trustee “agrees and does transfer to Gus, or as Gus may direct in writing, all its right, title and interest in and to the Heritage Pancake House restaurant business, assets, and undertaking.”

[27] Paragraph 17 of the Settlement recites that the parties agreed to

forever release and discharge one another from all matters relating in any manner whatsoever to the Property and the Heritage Pancake House and without limitation any matter which form[s] the subject matter of all legal proceedings in existence between them ….

[28] And, in para. 18 of the Settlement, the parties agreed that

“all aforementioned legal proceedings shall be discontinued or dismissed, without costs, and all Court Orders be set aside”.

[29] As previously mentioned, Gus Economopoulos entered into the Lease with Anjoca and 155 Ontario on December 1, 2006. However, Anjoca was not formally incorporated until January 2007. Anjoca is controlled by Gus Economopoulos’ three daughters.

[30] In 2008, Mr. Bulut assigned his mortgage over the Property to Norman van Roboys, who subsequently assigned the mortgage to Mr. Bulut’s spouse, Vida Prijic, in 2009. Ms. Prijic is the respondent in this appeal (the “respondent” or “Ms. Prijic”).

[31] In 2011, 155 Ontario brought a motion for summary judgment, within the Consolidated Proceeding, seeking a declaration that the mortgage formerly held by Mr. Bulut (but by that point held by Ms. Prijic), had been paid.

[32] The motion was heard by the late Justice T. David Little. In an endorsement dated October 12, 2011, Little J. said that he would dismiss the motion. While the parties and the motion judge treat Little J.’s endorsement as if it were an order, it does not appear that an order was ever issued.

[33] In his endorsement, at para. 36, Little J. states that “a full hearing is required in order to assess the relative credibility, if any, of either party”. He also spent some time in the endorsement outlining various legal proceedings involving the Property and the legal problems that flowed from having a myriad of proceedings with a myriad of different parties.

[34] Justice Little concluded his endorsement with a series of recommendations, including that: 1) the referee appointed pursuant to the 2000 Order should quickly dispose of the Property; 2) a trial date should be fixed “where all issues can be disposed of at one time in any of the actions”; 3) the various actions should be consolidated, which would include determining who the interested parties are, the proper identification of plaintiffs and defendants, preparing a single style of cause, and outlining the issues that had to be resolved; 4) no further steps should be taken by any party until the preceding things had taken place; and 5) an application should be made to have a case management judge appointed.

[35] I understand that in late 2011, Gus Economopoulos acquired control of 155 Ontario which at that time, it will be recalled, owned a one-half interest in the Property.

[36] On January 19, 2012, the Lease was registered on title to the Property.

[37] 155 Ontario brought a motion in the Consolidated Proceeding, which led to an order dated February 16, 2012, appointing a single judge as case management judge pursuant to rule 37.15 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194.

[38] It will be recalled that Little J. had recommended that the sale of the Property proceed. Apparently the parties to this appeal wished to follow that recommendation but shared a common concern about the ambiguity in the meaning of the word “encumbrancers” in para. 3 of the 2000 Order. This ambiguity led them to disagree about which encumbrances would attach to title on sale of the Property. I understand that the parties agreed that a motion would be brought before the case management judge for directions as to the meaning of the word “encumbrancers” in the 2000 Order.

[39] Ms. Prijic then brought a motion asking for a declaration that the vesting order arising from the sale of the Property would convey the Property free and clear of encumbrances registered subsequent to the 2000 Order.

[40] However, in an Amended Amended Notice of Motion dated November 25, 2013, Ms. Prijic added a request for a determination of the “appropriateness and validity” of the registration of the Lease on title.

[41] At the oral hearing of this appeal, counsel for the appellants advised that his position on the motion had always been that the sole issue to be decided in respect of the Lease was whether the unregistered 2000 Order had the effect of extinguishing it. The appellants’ position on that issue was that the word “encumbrancers” in para. 3 of the 2000 Order encompassed later-filed encumbrances and, thus, the Property could be sold only subject to the Lease. The appellants say that they consented to having the motion heard by the case management judge on that basis. They also say that they made it clear that if Ms. Prijic wanted to have the Lease declared to be fraudulent, within the meaning of the Fraudulent Conveyances Act, R.S.O. 1990, c. F.29 (the “FCA”), she should commence a proceeding under the FCA. And, if she wanted to obtain a traditional mortgage enforcement remedy, she should commence appropriate proceedings pursuant to the mortgage.

[42] The case management judge heard the motion. She found the Lease to be fraudulent, within the meaning of the FCA, and declared the Lease to be void ab initio. She issued the Order under Appeal, which requires that the Lease be set aside and the Property be sold free and clear of it.

[43] In finding the Lease to be fraudulent, the motion judge stated that the Lease had been registered on title “in clear violation of Little J.’s order” (para. 10), as a manoeuver to frustrate the sale of the Property (para. 17), and only when sale of the Property became imminent (para. 21). She found that the presumption of fraud had been made out and that no “cogent explanation” had been offered for the timing of the Lease and its registration (para. 20). She also relied on the fact that Anjoca was not a corporate entity when the Lease was entered into (para. 21).

[44] The motion judge also considered what meaning should attach to the word “encumbrancers” in the 2000 Order. She found that it was meant to refer to only then-existing encumbrancers. She stated that to interpret “encumbrancers” to include after-filed encumbrances would be “illogical” because an owner of the Property who did not want the sale to proceed could undermine the 2000 Order simply by granting a new encumbrance (para.16).

THE ISSUES

[45] The numerous grounds of appeal raised by the appellants can be summarized as follows. Did the motion judge err in:

1. setting aside the Lease on the basis that it was fraudulent, within the meaning of the FCA? and

2. interpreting “encumbrancers” in the 2000 Order, as referring to only then-existing encumbrancers?

ISSUE #1: Did the motion judge err in setting aside the Lease as fraudulent, within the meaning of the [FCA](https://www.canlii.org/en/on/laws/stat/rso-1990-c-f29/latest/rso-1990-c-f29.html)?

The Parties’ Positions

[46] In their factum, the appellants challenged the motion judge’s finding that the Lease was fraudulent on three bases.

[47] First, while conceding (for the purposes of this appeal only) that the non-arms’ length nature of the Lease raised an inference of fraud sufficient to place the burden of explanation on the appellants, they submit that the motion judge erred in finding that no such “cogent explanation’ had been given. They say that Gus Economopoulos provided an explanation that was sufficient to either meet the burden of explanation or to raise a genuine issue, necessitating findings of credibility, sufficient to require the trial of an issue.

[48] In this regard, the appellants point to Gus Economopoulos’ affidavit evidence about the circumstances surrounding the Lease. In a nutshell, that evidence is to the effect that the Lease was executed as part of the series of events arising from the Settlement in 2006. Under the Settlement, the disputes between the parties – including the dispute that led to the 2000 Order – were resolved. Furthermore, pursuant to the Settlement, Gus Economopoulos became personally liable for hundreds of thousands of dollars of liabilities in respect of the restaurant, a matter they say goes to the question of the adequacy of the rent paid pursuant to the Lease and to the timing of its execution.

[49] Second, the appellants submit that the motion judge misinterpreted Little J.’s recommendation that no further steps should be taken by any party until other things, such as the sale of the Property, had taken place. Consequently, the appellants say, the motion judge erred in viewing the registration of the Lease on title to the Property as a violation of that recommendation.

[50] Third, the appellants submit that the motion judge erred in finding the Lease to be fraudulent because in making that finding, the motion judge relied on a number of unwarranted negative inferences. Among others, the appellants point to the negative inferences that the motion judge drew from the timing of the registration of the Lease, and the fact that the Lease was entered into with Anjoca, as landlord, prior to the date that Anjoca was formally incorporated.

[51] At the oral hearing of the appeal, the appellants made a further and quite different submission on this issue. They argued that not only did the motion judge err in finding the Lease to be fraudulent but she erred in deciding the issue.

[52] The appellants gave two reasons for saying that the motion judge ought not to have entertained the question of whether the Lease was fraudulent, within the meaning of the FCA. First, they say that they did not have proper notice that such a determination would be made. Second, the appellants submit that as they did not consent to such a determination being made, in light of the role played by a case management judge, it was inappropriate for her to hear and decide the matter.

[53] The respondent submits that the motion judge did not err in concluding that the appellants had provided no “cogent explanation” for the timing of the Lease and that this court should defer to her finding on that matter. She further submits that it was open to the motion judge to make a finding that the Lease was fraudulent, within the meaning of the FCA. The respondent says that the appellants were not taken by surprise and did not ask that the matter be decided by way of a trial of the issue. The respondent adds that there is nothing in the record before this court to suggest that the motion judge did not have all of the necessary evidence to permit her to decide whether the Lease was fraudulent.

Analysis

[54] In my view, the motion judge erred in deciding whether the Lease was fraudulent, within the meaning of the FCA. I reach this conclusion for three reasons.

[55] First, I would accept the appellants’ submission that they did not receive proper notice that a determination would be made under the FCA. There is no mention of the FCA in the Amended Amended Notice of Motion or the predecessor notices of motion. Although the Amended Amended Notice of Motion asks for “[a] determination of the issue as to the appropriateness and validity of the registration of the two Notices of Lease”, in the circumstances of this case, that did not constitute sufficient notice to the appellants that the FCA would be in issue on the motion. In this regard, it is noteworthy that the appellants contend that they made it clear to the respondent throughout that if she wished such a determination, it would have to be done through an appropriate proceeding under the FCA, and not in a motion for directions. The record supports the appellants’ contention on this point.

[56] Second, in the circumstances of this case, a determination of whether the Lease was fraudulent, within the meaning of s. 2 of the FCA, required a trial.

[57] Section 2 of the FCA requires a finding that a conveyance was made with the “intent to defeat, hinder, delay or defraud creditors or others”. It reads as follows:

2. Every conveyance of real property or personal property and every bond, suit, judgment and execution heretofore or hereafter made with intent to defeat, hinder, delay or defraud creditors or others of their just and lawful actions, suits, debts, accounts, damages, penalties or forfeitures are void as against such persons and their assigns. [Emphasis added.]

[58] Neither party disputes that the Lease is a conveyance within the meaning of s. 2 of the FCA. Thus, the question was whether the Lease had been entered into with the intent to “defeat, hinder, delay or defraud” creditors or others. Indeed, the crucial question in any fraudulent conveyance action is whether the plaintiff has proved the fraudulent intent of the debtor: FL Receivables Trust 2002, 2007 ONCA 425, at para. 39.

[59] Gus Economopoulos’ explanation of the circumstances surrounding the Lease raises a triable issue on that matter.

[60] It will be recalled that his explanation was that the Lease was entered into as part of the series of events arising from the Settlement. The Settlement is dated October 8, 2006. The Lease is dated December 1, 2006. It is clear from the terms of the Settlement that it was made in contemplation of Gus Economopoulos continuing to operate the restaurant on the Property. One of the recitals states “AND WHEREAS Gus has continued operating the [restaurant]”. Further, under the terms of the Settlement, Gus Econompoulos assumed liability for hundreds of thousands of dollars of debts relating to the restaurant. As the Lease was entered into shortly after the Settlement and all parties to the Settlement were aware that Gus was going to continue operating the restaurant, this explanation had to be considered when determining intent for the purposes of s. 2 of the FCA. No such consideration was undertaken.

[61] Furthermore, in para. 17 of the Settlement, the parties agreed to release and discharge one another from all matters and legal proceedings “relating in any manner whatsoever” to the Property and the restaurant. In light of that exchange of promises, it is not clear what part, if any, of the 2000 Order was still operative vis-à-vis Gus Economopoulos and his operation of the restaurant. Again, this is a matter going to intention, for the purpose of s. 2.

[62] Moreover, the factual backdrop to the 2000 Order had dramatically changed by the time the Lease was entered into in 2006. The 2000 Order was made when the joint owners of the Property were adversarial in nature. After the Settlement was implemented, that was no longer the case because Peter Nicolopoulos had transferred his interest in the Property to Anjoca. Again, this consideration is relevant to the question of intent, for the purposes of s. 2 of the FCA.

[63] Third, as I explain below, there is a real question as to the validity of the “badges of fraud” relied on by the motion judge.

[64] In conclusion, in the circumstances of this case, I do not see how, in the absence of a trial, the requisite determination of intent could be made. It is clear that, among other things, credibility findings are required in order to make the requisite findings on intent.

[65] In light of the foregoing, it is unnecessary to decide whether the appellants are correct in their submission that because of the role of a case management judge, it was inappropriate for her to have decided the FCA issue in the absence of their consent. The question of a case management judge’s jurisdiction is one that I would leave to a case in which it has been squarely raised and fully argued.

[66] Because I am of the view that the issue of whether the Lease was fraudulent, within the meaning of s. 2 of the FCA, ought not to have been decided on the motion, I will say little as to the merits of that determination. I would note, however, that two of the negative inferences which the motion judge relied on in reaching that determination are troubling.

[67] First, on the record before this court, there is nothing about the timing of the execution of the Lease by Anjoca that should lead to a negative inference in relation to the question of intent, for the purposes of s. 2 of the FCA.

[68] The Settlement was entered into on October 8, 2006. Peter Nicolopoulos’ lawyer was directed to transfer his (Peter Nicolopoulos’) interest in the Property to Anjoca by means of a direction dated November 29, 2006. Anjoca executed the Lease in December of 2006 and was incorporated shortly thereafter in January of 2007. By its subsequent actions, Anjoca adopted the Lease.

[69] The formation of pre-incorporation contracts is common practice. Ontario’s Business Corporations Act, R.S.O. 1990, c. B.16, clearly contemplates such contracts and provides, in s. 21(2), that

A corporation may, within a reasonable time after it comes into existence, by any action or conduct signifying its intention to be bound thereby, adopt an oral or written contract made before it came into existence in its name or on its behalf.

[70] Second, the motion judge found that registering the Lease on title was done “in clear violation of Little J.’s order”. As indicated earlier, there is no order by Little J. in the record before this court. There is only his endorsement dated October 12, 2011, which concluded with a series of recommendations. Thus, the motion judge erred in treating the registration of the Lease as a violation of a court order.

[71] Further and in any event, it is not readily apparent that registering the Lease on title violated Little J.’s recommendation. The recommendation in question is found in para. 41 of Little J.’s endorsement. It reads as follows:

No further steps should be taken by any of the parties until the above [recommendations are] completed.

[72] The Lease was entered into in 2006, long before the recommendation was made in 2011. Obviously, therefore, the act of entering into the Lease could not be contrary to the recommendation. The question is whether its registration on title was contrary to the recommendation. In this regard, it is not clear whether the recommendation is a general prohibition against any party doing anything in relation to the Property or a direction that the parties were to take no further steps in the proceeding until the various other recommendations had been complied with. It is not readily apparent to me that the registration of an existing Lease on title is a step in a proceeding.

[73] For these reasons, the motion judge’s finding that the Lease was registered on title in violation of Little J.’s order cannot stand.

[74] Accordingly, I would allow this ground of appeal.

ISSUE #2: Did the motion judge err in her interpretation of the word “encumbrancers” in the 2000 Order?

The Parties’ Positions

[75] The appellants submit that the motion judge erred in interpreting the word “encumbrancers” in the 2000 Order as referring to only encumbrancers in existence at the time the 2000 Order was issued. They say that the 2000 Order must be interpreted as having contemplated the continued operation of the restaurant because the restaurant had been in continuous operation since the early 1990’s, its continuation was not prohibited by the terms of the 2000 Order, and, at the time the application which led to the 2000 Order was commenced, it was in the best interests of all parties that the restaurant continue to occupy the premises. Accordingly, the appellants submit, the 2000 Order must have contemplated that a lease would come into existence that enabled the continued use of the Property by the restaurant. As a lease is an encumbrance, the word “encumbrancers” in the 2000 Order must have been intended to encompass a later-filed lease.

[76] The respondent submits that the motion judge correctly interpreted “encumbrancers” so that the sale of the Property would be subject only to the claims of encumbrancers in place at the time that the 2000 Order was made. The respondent argues that the motion judge’s interpretation is consistent with the objective of a sale under the Partition Act which, she contends, is to permit the expeditious judicially supervised sale of land for the benefit of all parties while protecting the rights of existing encumbrancers. The respondent submits that it would be illogical and contrary to the objective of the Partition Act for the 2000 Order to apply to encumbrances that neither existed nor were in the contemplation of the parties at the time that the 2000 Order was made.

Analysis

[77] In my view, the motion judge erred in interpreting the word “encumbrancers” in para. 3 of the 2000 Order as referring to only encumbrancers then in existence.

[78] Paragraph 3 of the 2000 Order reads as follows:

THIS COURT ORDERS that the land be sold under the direction of the Referee on such terms as the Referee deems appropriate, free of the claims of encumbrancers if any, who have consented to the sale, and subject to the claims of encumbrancers who have not consented to the sale, and that the purchaser pay the purchase money into court to the credit of this proceeding, subject to the order of the Court.

[79] The source of the wording in para. 3 is significant.

[80] It will be recalled that the 2000 Order was made pursuant to an application for sale under the Partition Act. Rule 66.02 of the Rules of Civil Procedure provides that a judgment for partition or sale “shall be in (Form 66A)”. The relevant provision in Form 66A reads as follows:

THIS COURT ORDERS AND ADJUDGES that the land, or such part of it as the referee thinks fit, be sold under the direction of the referee, free of the claims of encumbrancers, if any, who have consented to the sale, and subject to the claims of encumbrancers who have not consented to the sale, and that the purchaser pay the purchase money into court to the credit of this proceeding, subject to the order of the court.

[81] A comparison of the wording in para. 3 of the 2000 Order with the relevant provision in Form 66A reveals that the two are virtually identical. This is not surprising, given the mandatory wording in rule 66.02 which requires that an order for partition or sale “shall” be in Form 66A.

[82] Turning then to the interpretation of “encumbrancers”, I begin by noting that there is nothing in the wording of Form 66A or para. 3 of the 2000 Order that restricts “encumbrancers” to only those in existence at the time the order of partition or sale is made. On a plain reading of both provisions, the word “encumbrancers” would encompass both existing and subsequent encumbrancers.

[83] However, that does not end the matter. In determining what meaning attaches to the word “encumbrancers”, it is vital to recognize that Form 66A is the source of para. 3 of the 2000 Order.

[84] Rule 66.02 mandates that Form 66A is to be used for orders of partition and sale. Because Form 66A is a mandated standard form of order, the interpretation of its wording has the potential to affect a great many people other than the parties to this dispute. Moreover, because the Rules of Civil Procedure are the source of Form 66A, Form 66A is essentially subordinate legislation.

[85] Consequently, in my view, it would be incorrect in law to interpret the word “encumbrancers” in para. 3 of the 2000 Order by reference to the intention of the parties at the time that the 2000 Order was made. Instead, the word “encumbrancers” should be interpreted within the legislative context in which Form 66A was developed, which brings us to ss. 2 and 3 of the Partition Act.

[86] Sections 2 and 3 of the Partition Act give persons interested in land in Ontario the right to seek a court-ordered partition or sale of that land. For ease of reference, I will refer to such persons as co-owners. Sections 2 and 3 read as follows:

2. All joint tenants, tenants in common, and coparceners, all doweresses, and parties entitled to dower, tenants by the curtesy, 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.

3. (1) Any person interested in land in Ontario, or the guardian of a minor entitled to the immediate possession of an estate therein, may bring an action or make an application for the partition of such land or for the sale thereof under the directions of the court if such sale is considered by the court to be more advantageous to the parties interested. [Emphasis added.]

[87] The right to seek partition or sale is limited to those who have possession, or an immediate right to possession, of the land: 909403 Ontario Ltd. v. DiMichele, 2014 ONCA 261, 319 O.A.C. 72, at para. 79; Nobis Investments Ltd. v. Atlantic Metal Spinning Co., 1988 CarswellOnt 1708, [1988] O.J. No. 335, at para. 1 (C.A.); Morrison v. Morrison (1917), 1917 CanLII 536 (ON CA), 39 O.L.R. 163, at pp. 168 and 171-72 (C.A.).

[88] Prior to the passage of legislation, co-owners of land did not have the right to compel partition or sale of land – only coparceners could invoke the writ de partitione facienda to compel partition.[^1] In giving co-owners the prima facie statutory right to compel partition or sale, the Partition Act (and its predecessor legislation) conferred a powerful right upon them.

[89] This court has affirmed the strength of that prima facie statutory right, holding that the courts have only a narrow discretion to refuse to make such an order. The scope of the court’s discretion to refuse to make an order of petition or sale is limited to circumstances of malice, oppression and vexatious intent. See Greenbanktree Power Corp. v. Coinamatic Canada Inc. (2004), 2004 CanLII 48652 (ON CA), 75 O.R. (3d) 478, 193 O.A.C. 204 (C.A.), at paras. 1-2.

[90] It goes without saying that the rights of other parties interested in the land can be affected by the partition or sale of the land. Nonetheless, in the words of s. 2 of the Partition Act, they may be compelled to “suffer” partition or sale.

[91] Form 66A provides some protection for “those other parties interested in the land” who are encumbrancers, by making the sale of the land subject to their claims, if they do not consent to the sale.

[92] An encumbrancer does not cease to acquire a valid interest in the land simply because the encumbrance arises, or is registered, after the land is subject to an order for partition or sale. A significant period of time might elapse between the granting of such an order and the eventual sale of the land. Indeed, that was the case here, with the sale order being made in 2000 and fourteen years later, the Property not yet sold. In the interval between a sale order being made and the sale taking place, any number of encumbrances might arise. For example, a municipality might become entitled to register an encumbrance if property taxes on the land go unpaid and creditors might wish to register judgments against an owner of the land. The fact that such encumbrances arise and/or are registered after a sale order has been made does not render them unworthy of the protection afforded by Form 66A. Interpreting the word “encumbrancers” to encompass subsequent encumbrancers gives them that measure of protection.

[93] Moreover, the motion judge’s interpretation of encumbrancers would confer a new right on co-owners of land by shielding their land from valid encumbrances that arise after the order for partition or sale has been granted. That was not the purpose of ss. 2 or 3 of the Partition Act.

[94] In conclusion, when considered within the legislative context of ss. 2 and 3 of the Partition Act, the correct interpretation of “encumbrancers” in para. 3 of the 2000 Order accords with its plain meaning, namely, as encompassing all encumbrancers, whether in existence at the time the 2000 Order was made or subsequently.

[95] For these reasons, I would allow this ground of appeal.

DISPOSITION

[96] Accordingly, I would allow the appeal with costs to the appellants fixed at $10,000, all inclusive. I would set aside paras. 1 and 2 of the Order under Appeal. I would direct the parties to revise para. 3a of the Order under Appeal, as necessary, to make it consistent with these reasons. I would make no order in respect of para. 3b of the Order under Appeal because that relief was not requested and because I understand that para. 3b was made on consent of the parties.[^2]

[97] In light of the result on appeal, the costs order below made in respect of the parties to this appeal, namely para. 4 of the Order under Appeal, cannot stand and I would set it aside. If the parties are unable to resolve the matter of costs of the motion, I would permit them to make brief written submissions on the matter, to a maximum of three pages, within fourteen days of the date of release of this judgment.

Released: October 7, 2014 (“A.H.”)

“E.E. Gillese J.A.”

“I agree Alexandra Hoy A.C.J.O.”

“I agree P. Lauwers J.A.”

[^1]: John Irvine, “A House Divided: Access to Partition and Sale under the Laws of Ontario and Manitoba” (2011), 35:1 Man. L.J. 217, at 219-20. See also Re Hutcheson and Hutcheson, 1950 CanLII 93 (ON CA), [1950] O.R. 265, at 268 (C.A.). And, more generally on the Partition Act, see Paul Perell, “A Partition Act Primer” (2005), 30 Advocates Q. 251.

[^2]: See para. 2 of the motion judge’s Supplementary Endorsement dated February 10, 2014.