COURT FILE NO.: CV-12-111641-00
DATE: 20130710
SUPERIOR COURT OF JUSTICE – ONTARIO
RE: Gaby Pechmann, Applicant
and
Trust Company of Bank of Montreal, in their capacity as Trustees for the Sarah Ann Pechmann Trust, Respondent
BEFORE: The Honourable Madam Justice C.A. Gilmore
COUNSEL: Rick Bickhram, for the Applicant
Angela Casey, for the Respondent
HEARD: June 28, 2013
ruling on application
Overview
[1] This application is for the court’s opinion, advice and directions to whether the applicant, Gaby Pechmann, properly exercised her authority to purchase the interest of the trust in the real property, municipally described as 60 Beech Avenue, Richmond Hill, Ontario (the “matrimonial home”) pursuant to the trust agreement, dated January 2001.
Background
[2] Roman Pechmann and the applicant were married on May 8, 1990. There is one child from their marriage, namely Sarah Ann Pechmann, born September 3, 1990. Sarah is currently twenty-two years of age. During the marriage, the parties resided in the matrimonial home until their separation in August 1996. They subsequently executed a separation agreement on April 9, 1999 (the “separation agreement”).
[3] Article 14 of the separation agreement sets out the following with respect to the matrimonial home:
14.1 Upon the execution of this agreement, at the Husband’s sole expense, the Husband shall transfer his interest in the matrimonial home, one-half to Gaby Pechmann and one-half in trust for Sarah Pechmann.
14.3 The Husband shall establish, at his sole expense, the Sarah Pechmann Trust, which trust shall be in a form satisfactory to the Wife’s solicitors, and which trust shall name Tracy Warne as trustee. The trust shall include the following terms:
(a) Sarah’s interest in the matrimonial home shall not be realized at any time without the Wife’s written consent, until the earliest of:
(i) Sarah reaches 23; or
(ii) the wife’s death; or
(iii) in the event of Sarah’s death prior to the age of 23, the 23rd anniversary of Sarah’s birth; or
(iv) the Wife’s remarriage or cohabitation with another person in a conjugal relationship for a period of six-months;
whether or not Sarah continues to reside full time with the Wife.
14.4 (a) At the Wife’s option, at any time, the matrimonial home may be sold and the interest of the Sarah Pechmann Trust, in the same proportion as exists at the date of sale, may be invested into a successor property, provided that:
(i) at the time of such investment, Sarah resides full-time with the Wife (as such is defined herein); and,
(ii) the division of proceeds and remaining provisions referred to herein shall continue to apply to the successor property;
(b) the Wife may, at any time, on 30 days’ notice to the trustee, purchase the interest of the Sarah Pechmann Trust in the matrimonial home or its successor, at ½ of the then fair market value of the home, such fair market value to be determined to an appraiser accredited by the Appraisal Institute of Canada;
[4] The trust agreement authorizes the trustee to enter into an agreement governing the co-ownership of the matrimonial home. Accordingly, a property agreement was executed between the Trust Company of Bank of Montreal (“BMO Trust”) and the applicant on January 16, 2001. The relevant portions of the property agreement are set out below:
- Ownership
Gaby and the Trustee confirm ownership of the Matrimonial Home as Tenants in Common in equal shares.
- Realization of the Trust’s Interest
(a) Subject to the provisions of Section 2(b) hereof the Trustee’s interest in the Matrimonial Home shall not be realised by the Trustee at any time during the lifetime of Gaby without the written consent of Gaby;
(b) Upon the occurrence of the earliest of:
(i) Sarah attaining the age of twenty-three (23); or
(ii) the death of Gaby; or
(iii) in the event of Sarah’s death prior to her attaining the age of twenty-three (23), the twenty-third (23rd) anniversary of Sarah’s birth; or
(iv) Gaby’s remarriage or cohabitation with another person in a conjugal relationship for a period of six months;
the Matrimonial Home shall be sold and subject to the provisions of 2(d), the proceeds of sale shall be dealt with in accordance with Section 6, provided however, if such date is the date on which Sarah attains the age of twenty-three (23) years under clause (i) above, the interest of the Trustee in the Matrimonial Home shall be transferred to Sarah and this agreement shall terminate.
(c) The provisions of Sections 2(a) and 2(b) shall govern whether or not Sarah is residing full-time with Gaby, as defined in the Separation Agreement;
(d) Gaby may, at any time, during her lifetime, on thirty (30) days notice to the Trustee, purchase the interest of the Trust in the Matrimonial Home at one half of the fair market value of the Matrimonial home upon the date of giving such notice, such fair market value to be determined by an appraiser accredited by the Appraisal Institute of Canada and subject to Section 6.
[5] The applicant obtained an appraisal for the matrimonial home on March 26, 2012 and provided BMO Trust with notice on April 4, 2012 that she was exercising her authority to purchase the interest of the trust in the matrimonial home.
[6] The applicant’s appraisal was prepared by Marco Cupido, an appraiser accredited by the Appraisal Institute of Canada (“AIC”). The applicant’s appraisal assessed the fair market value of the matrimonial home at $700,000.
[7] The applicant submits that she has complied with the terms of the trust of the separation agreement and that she should be entitled to purchase the trust’s interest in the matrimonial home for $350,000.
[8] Prior to obtaining the appraisal, the applicant received two offers to purchase the matrimonial home for $1.35 million in February and March 2012. Those offers expired, as they were made by a developer who intended to assemble parcels of land for development. When the developer was unable to obtain the appropriate approvals, the offers expired.
[9] The matrimonial home was subsequently sold on March 28, 2013 for $1.35 million on terms negotiated by the applicant and the trustee. The applicant and the trustee disagree as to how the sale proceeds should be divided. The applicant was paid her 50% share of the proceeds following sale. The balance of $670,611.54 is held by the solicitor who acted on the sale. The applicant submits that Sarah should be paid $350,000. According to the applicant she should retain the balance (or $320,611.54) as she complied with the provisions of the trust agreement and the separation agreement with respect to providing proper notice to BMO Trust and obtaining the required appraisal.
[10] BMO Trust argues that the applicant’s assessment of the fair market value from April 4, 2012 is incorrect for two reasons:
(a) First, the applicant knew of the offers to purchase at $1.35 million. Notwithstanding that the offers expired, this was a fact to be considered in assessing the fair market value of the home; and,
(b) Second, that BMO Trust obtained their own appraisal from an accredited appraiser, namely Howard Colt, who appraised the value of the property retroactively to April 4, 2012 at $1.36 million. Mr. Colt took into account the offers made on the house and the plans for development of the area, as well as recent sales of properties in the same neighbourhood.
The Positions of the Parties
[11] The applicant exercised her rights pursuant to section 2(b) of the trust property agreement with respect to the purchase of the trust’s 50% interest in the matrimonial home. Specifically, that clause requires that the applicant give thirty days notice to the trustee. She may then purchase the interest in the trust in the matrimonial home at one-half of the fair market value of the matrimonial home. The fair market value is “to be determined by an appraiser accredited by the Appraisal Institute of Canada and subject to Section 6”.
[12] The applicant argues that the trustee is under a duty to adhere to the terms of the trust and cannot depart from them without the authorization of the court. The specific obligations of the duties of a trustee are in the instrument creating the trust, the terms of which are to be found within the four corners of the trust instrument. Therefore, the first duty of the trustee is to follow implicitly the terms of the trust instrument and observe those general principals of trustee law, which do not run counter to the express terms of the trust[^1].
[13] The applicant also argues that where the trust agreement and separation agreement conflict, the separation agreement prevails. BMO Trust has failed to follow their duties as trustees and failed to acknowledge a proper interpretation of the separation agreement and property agreement when they refused to consent to the applicant’s purchase of the trust interest in the matrimonial home for $350,000. BMO Trust acted outside of its scope of authority as permitted under the separation, trust and property agreements. The formula in the separation, trust and property agreements is clear and provides a concise method to calculate the value of the matrimonial home.
[14] BMO Trust contends that they have complied with their obligations as trustees in order to obtain the best possible price for the trust interest in the home, based on fair market value. BMO Trust argues that in interpreting the contract, the dominant part of the sentence should be the words “fair market value” as opposed to the word “appraisal”, which simply modifies the phrase fair market value. The requirement that fair market value be determined by an appraiser accredited by the AIC is only a mechanism to determine the fair market value. Further, an appraised value is an educated guess about the price that a willing arms length purchaser would pay. The actual price paid by an arms length purchaser is a far superior indicator of the fair market value.
[15] BMO Trust submits that even if the court finds that the fair market value must be determined by an appraisal, the appraisal obtained from Howard Colts is a more reliable indicator of fair market value than that of Mr. Cupido. Mr. Cupido’s appraisal does not take into account either of the previous offers from the developer (the ones that expired), nor does it reference the development plans for the matrimonial home and its neighbouring properties. Mr. Colt’s appraisal considers the development plans for the neighbourhood and their importance in determining the value of the matrimonial home. Mr. Colt’s appraisal recognized that the value of the property was no longer solely based on the value of the home, but the value of the land on which it is located because of its potential for development.
[16] Finally, BMO Trust argues there is no basis to allege a breach of trust in this case. BMO Trust does not stand in a fiduciary relationship to the applicant, in that the applicant is not a beneficiary of the trust. The trust is under a duty to act in Sarah’s interest and not that of the applicant. At all times, BMO Trust acted in furtherance of its duties to Sarah in order to maximize and protect the value of the trust property.
Analysis
[17] I agree with BMO Trust in this case that the fair market value of the matrimonial home should be determined based on its sale price. My reasons for coming to this conclusion are as follows:
(a) The real issue in this case is the interpretation of fair market value in the context of the property agreement. I find that, contrary to the assertions of the applicant, a strict interpretation of this provision would ignore the definition of fair market value in the case law and would not maximize Sarah’s interest in the trust.
(b) I do not agree with the applicant that the trustee’s appraisal assesses the property at a premium which is therefore outside of the fair market value. Rather, the term fair market value is to be interpreted as the price that a willing arms length purchaser would pay. There is no doubt that the purchaser in this case was arms length. The fact that the property happened to be located in an area where a developer intended to assemble parcels for development cannot be ignored. A willing purchaser in my view includes a purchaser who is prepared to pay a premium. I agree with the trustee that the requirement of obtaining an appraisal is only a mechanism to determine fair market value, and that the best indicator of fair market value is in fact the sale price.
(c) As between the two appraisals, I prefer that of Mr. Colt. I find that his comparables are more relevant than those used by the applicant’s appraiser, as they are all neighbouring and abutting properties which were to be sold to the same developer. The applicant complained that Mr. Colt did not go inside the property and therefore was unable to properly appraise it; however, it is clear that the property was to be slated for development and would be demolished in any event. An inspection of the interior property was therefore of little or no value.
(d) I disagree with the applicant that the trustee has failed to follow the directions of the trust or fulfill their specific obligations, as per the Merril Petroleums case. In fact, I find the opposite. The trustee has acted at all times in good faith and in a manner to ensure that Sarah’s trust interest was safeguarded and maximized.
(e) Finally, there is an issue of equitable principles. Given my findings above, it would be inequitable for the applicant to profit by approximately $320,000 based on what I view as an overly strict interpretation of the property agreement in the trust.
[18] In all of the circumstances, and given my reasons above, I make the following orders:
(a) The solicitor holding the net proceeds from the sale of the matrimonial home shall pay the remaining sale proceeds to BMO Trust in its capacity as a trustee of the Sarah Pechmann Trust.
(b) There has been no breach of trust, and I therefore decline to order a trial of that issue.
(c) If the parties cannot agree on costs, I will receive written submissions commencing with the applicant on a seven day turnaround, commencing July 24, 2013. Cost submissions shall be no more than two pages in length, exclusive of any Bill of Costs or Offer to Settle. All costs submissions shall be delivered via email through my assistant at jennifer.beattie@ontario.ca.
Justice C.A. Gilmore
Released: July 10, 2013
[^1]: Merril Petroleums Ltd. v. Seaboard Oil Co. [1957] CarswellAlta 56, para 113