CITATION: Engenheiro v. Runco, 2022 ONSC 6028
DIVISIONAL COURT FILE NO.: 30222
DATE: 20221025
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
Backhouse, Stevenson, and Gomery JJ.
BETWEEN:
Marcel Engenheiro
Appellant
– and –
Lilla Runco
Respondent
Saba Ahmad for the Appellant
Lucas Lung for the Respondent
HEARD by videoconference: October 24, 2022
S. GOMERY J.
[1] Marcel Engenheiro appeals a decision by Sanderson J. on March 21, 2022, granting Lilla Runco’s application for the sale of property under s. 2 of the Partition Act, RSO 1990, c P.4. After hearing submissions on Mr. Engenheiro’s behalf, we dismissed the appeal from the bench, with reasons to follow. These are the reasons.
Background
[2] The parties are former spouses. The property at issue is a small apartment building in Toronto that they purchased as joint tenants in 1996. In 2019, the parties executed a global agreement settling property claims arising as a result of their divorce in New York State. Pursuant to the agreement, Ms. Runco is entitled to USD $500,000, net of any taxes or other specified consideration, in return for her interest in the property. Mr. Engenheiro had the option of buying out Ms. Runco’s share or keeping the balance of proceeds after any outstanding mortgages and taxes were paid.
[3] The divorce agreement set out the steps that the parties would take to list the building for sale. Once an offer of a minimum value was obtained, Mr. Engenheiro had 90 days to exercise his right of first refusal. This required him to prove that he had the financing necessary to purchase the respondent’s interest in the property. The amount of financing required was contingent on how much money Mr. Engenheiro would have to put into escrow for taxes, as determined by the parties’ respective tax advisors.
[4] The agreement provided that, if Mr. Engenheiro failed to exercise his right of first refusal within the 90 day deadline, the property would be sold to a third party. This would occur, notably, if the parties’ tax advisors failed to agree on Ms. Runco’s potential tax liability, or if Mr. Engenheiro did not obtain the financing needed to acquire Ms. Runco’s interest in the property along with sufficient funds for her potential tax liability.
[5] The parties listed the building and received offers in 2020 above the minimum price set out in the divorce agreement. Their advisors were unable to agree on the amount of withholding tax that had to be put in escrow, however, within the required delay. Based on Mr. Engenheiro’s calculation, he had the financing in place to exercise his right of first refusal. Based on Ms. Runco’s calculation, he did not. In light of their disagreement, none of the third party offers was accepted.
[6] Ms. Runco obtained an order from the New York State Court on September 22, 2020, permitting her to list the property for sale and precluding Mr. Engenheiro from taking further steps to exercise his right of first refusal. She then brought an application in Ontario for recognition and enforcement of the order. Justice Ramsay dismissed the application as unenforceable on March 19, 2021. Ms. Runco did not appeal this order, applying instead for partition under s. 2 of the Partition Act.
The decision below
[7] After reviewing the legal principles applicable on a partition motion, Sanderson J. reviewed the context in which the parties’ dispute arose. She reviewed the terms of their divorce agreement and the arguments they advanced. Like the New York State Court, she found that Mr. Engenheiro failed to meet the prerequisites for the transfer of the property to him, and that he no longer had the right to exercise a right of first refusal. Sanderson J. concluded that Mr. Engenheiro had not proved that Ms. Runco had engaged in malicious, vexatious or oppressive conduct. She therefore granted the application.
Analysis
[8] Mr. Engenheiro contends that Sanderson J. fundamentally misapprehended the nature of the dispute before her. In his submission, this is a contract dispute. Sanderson J. should have considered whether Ms. Runco should be ordered, pursuant to the divorce agreement, to sell her interest in the property to Mr. Engenheiro, and whether she had proved that her advisors’ tax opinion should be preferred. Instead, Sanderson J. simply applied the test under s. 3(1) of the Partition Act, unfairly putting the onus on Mr. Engenheiro to prove that Ms. Runco had behaved in a malicious, oppressive, or vexatious way.
[9] Mr. Engenheiro acknowledges that the interpretation of a non-standard agreement, such as the divorce agreement at issue here, is entitled to deference unless a judge makes an extricable error of law. Extricable errors of law include “the application of an incorrect principle, the failure to consider a required element of a legal test, or the failure to consider a legal factor”: Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 SCR 633, at para. 53.
[10] In our view, Mr. Engenheiro has failed to establish that Sanderson J. made any extricable error of law.
[11] Contrary to Mr. Engenheiro’s argument, the parties’ agreement did not displace the remedies available under the Partition Act. The divorce agreement explicitly anticipated the situation that developed. If Mr. Engenheiro did not exercise his right of first refusal within a 90-day peremptory delay, he lost the right to buy out Ms. Runco’s interest in the property. As both the New York State Court and Sanderson J. found, Mr. Engenheiro did not fulfill the prerequisites to obtain the transfer of the property to him within the prescribed timeline. His right to first refusal was exhausted and he was not entitled to require that Ms. Runco sell her interest to him. In these circumstances, there was nothing precluding an order under the Act.
[12] Mr. Engenheiro argued that Sanderson J. should have considered whether Ms. Runco unreasonably refused to accept Mr. Engenheiro’s estimate of the tax liability arising on the sale of the property, and instead relied on a revised calculation that was twice the amount previously discussed. This argument is an attempt to relitigate findings of fact open to the application judge on the record before her.
[13] Given the lapse of Mr. Engeheiro’s right to acquire the property pursuant to the divorce agreement, Sanderson J. correctly applied the principles relevant to an application under the Partition Act. An order for sale was appropriate unless Mr. Engenheiro could show that Ms. Runco engaged in malicious, oppressive or vexatious conduct. Sanderson J. concluded that he had not done so.
Disposition
[14] The appeal is dismissed. The parties agree on the quantum of costs but not the deadline by which they should be paid. Mr. Engenheiro shall pay Ms. Runco $20,000 in costs on the appeal within 30 days.
Justice Sally Gomery
I agree.
Justice Nancy Backhouse
I agree.
Justice Suzanne Stevenson
Released: October 25, 2022