SUPERIOR COURT OF JUSTICE - ONTARIO

COURT FILE NO.: CV-13-0924

DATE: 20131008

RE: M.J.C. INVESTMENT CORP., Applicant

AND:

MARGARET LEE COLE, CHRISANDRA FIRTH, Executor of The Estate of Richard Humble, BRIAN RANDY MARTIN, LEGAL AID ONTARIO, ROGER BRUCE McMINN, BRUCE McMINN AND MEREDA MARTIN, Respondents

BEFORE: THE HON. MADAM JUSTICE S.E. HEALEY

COUNSEL:
L. Gray, for the Applicant

G. Evans, for the Respondent Chisandra Firth

D. Winnitoy, for the Respondent Brian Randy Martin

S. Jenkins, for the Respondent Legal Aid Ontario

C. Salazar, for the Respondent Mereda Martin

R. B. McMinn, Self Represented

HEARD: September 24, 2013

ENDORSEMENT

Nature of the Application

[1] The applicant makes this application for an interpleader order pursuant to rule 43.02(1) of the Rules of Civil Procedure to pay money into court, less the applicant’s lien for costs, fees and expenses of this application. None of the respondents oppose the costs being claimed by the applicant.

[2] In this case none of the facts are in dispute and the rights of the claimants are a matter of law. Their claims are appropriate to determine in a summary fashion as permitted by rule 43.04(2)(c) and (d).

[3] The applicant was the first mortgagee of property municipally known as 7874 Parklane Crescent, Washago, Ontario. The registered owner of the property was Margaret Lee Cole, who was the spouse of the respondent Brian Martin. The mortgage went into default and the applicant issued a Notice of Sale Under Mortgage on September 14, 2012. The net proceeds amounted to $327,196.17. After payment of the costs, fees and expenses of the sale, and the payment of all undisputed claims against the mortgaged property and the mortgagor, the balance of the sale proceeds was $62,006.79. The applicant’s solicitor has invested the sale proceeds in a Guaranteed Investment Contract, which has earned interest since the closing of the sale on May 30, 2013.

[4] Prior to the sale there were four executions registered against the property, and a lien in favour of Legal Aid Ontario.

[5] Pursuant to a proceeding commenced in the Family Court in September 2012, the respondent Brian Martin obtained a child support order on June 5, 2013, five days after the closing date of the sale.

[6] As the timeline is important, it is set out for further clarity:

December 2010 First charge in favour of M.C.J. Investment Corp. registered against the property

February 2012 Execution registered in favour of the Estate of Richard Humble in the amount of $9,004.12

June 2012 Margaret Lee Cole charged under the Criminal Code of Canada and remains incarcerated

July 2012 Legal Aid Ontario lien registered in the amount of $10,000

September 28, 2012 Family Law Act application commenced by Brian Martin

October 2012 Execution registered in favour of Roger Bruce McMinn in the amount of $10,135

January 2013 Execution registered in favour of Mereda Martin in the amount of $25,261.78

May 10, 2013 Randy Martin swears an affidavit for an uncontested trial in the Family Court

May 30, 2013 Closing date under the Power of Sale

June 5, 2013 Order of Wood, J.

Issue

[7] The issue to be resolved on this application is whether a support order made five days after the closing date of sale has priority over execution creditors in circumstances where:

1. the support order calls for payment of lump sum child support;

2. the provisions of the order may lead to ambiguity with respect to priority of claims.

[8] All parties agree that the lien of Legal Aid Ontario has priority because it is a secured charge: re Calla (1976) 1975 466 (ON SC), 9 O.R. (2d) 755 (H.C.J.). After that, the four execution creditors assert that, as a result of s.27 of the Mortgages Act, R.S.O. c.M.40, they have priority to any claim created by Brian Martin’s support order.

Terms of the Order of Wood, J.

[9] The relevant paragraph of the order made on June 5, 2013 provides:

3. Any remaining monies from the sale of the matrimonial home municipally described as 7874 Park Lane Cres., Washago, Ontario L0K 2B0 shall be paid to the Respondent as lump sum child support pursuant to Section 15.1 of the Divorce Act, R.S.C. 1985, c.3 as amended or a Vesting Order as set out in Sections 9 and 24 of the Family Law Act and Section 100 of the Courts of Justice Act.

[10] There was no other provision for child support contained in the order to quantify the amount ordered. His Honour had before him the evidence of Brian Martin, which informed him of:

(a) The fact of the power of sale proceeding, and the fact that there were monies owing under the mortgage in the amount of $233,643.81 as of April 3, 2012;

(b) That the value of the home was believed to be $350,000;

(c)That a title and execution search conducted on November 9, 2012 showed that the Legal Aid lien was on title, and that two executions existed at that time.

[11] Mr. Martin’s affidavit also indicated that he was unaware of whether there would be any equity remaining, and that if there was, he was seeking an order that any remaining monies be paid to him as lump sum child support pursuant to Section 15.1 of the Divorce Act, R.S.C. 1985, c.3 as amended or a vesting order as set out in Sections 9 and 24 of the Family Law Act and Section 100 of the Courts of Justice Act.

Relevant Legislation

[12] Mortgages Act, R.S.O. Chapter M.40, section 27 states:

Application of purchase money

27. The money arising from the sale shall be applied by the person receiving the same as follows:

Firstly, in payment of all the expenses incident to the sale or incurred in any attempted sale;

Secondly, in discharge of all interest and costs then due in respect of the mortgage under which the sale was made;

Thirdly, in discharge of all the principal money then due in respect of the mortgage;

Fourthly, in payment of the amounts due to the subsequent encumbrancers according to their priorities;

Fifthly, in payment to the tenants of the mortgagor of the rent deposits paid under section 106 of the Residential Tenancies Act, 2006 where the rent deposit was not applied in payment for the last rent period,

and the residue shall be paid to the mortgagor.

[13] The Creditors’ Relief Act, 2010, S.O. 2010 Chapter 16, Schedule 4 states:

No priority among execution or garnishment creditors

2. (1) Except as otherwise provided in this Act, there is no priority amount 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, Small Claims Court

(2) Subsection (1) does not affect the priority of,

(a) a creditor by garnishment issued under the Small Claims Court Rules made under the Courts of Justice Act; or

(b) a creditor by writ of seizure and sale of personal property issued under the Small Claims Court Rules made under the Courts of Justice Act.

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.

Support order rank equally

(4) Support and maintenance order rank equally with one another.

Identification re support or maintenance order

(7) A process for the enforcement of a support or maintenance order must be identified on its face as being for support or maintenance.

[14] Section 100 of the Court of Justice Act states:

Vesting Orders – a court may by order vest in any person an interest in real or personal property that the court has authority to order be disposed or, encumbered or conveyed.

[15] Section 33(1) of the Family Law Act states:

33(1) A court may, on application, order a person to provide support for his or her dependants and determine the amount of support.

[16] Section 34(1) (a) to (k) of the Family Law Act states:

34(1) In an application under section 33, the court may make an interim or final order,

(a) requiring that an amount be paid periodically, whether annually or otherwise and whether for an indefinite or limited period, or until the happening of a specified event;

(b) requiring that a lump sum be paid or held in trust;

(c) requiring that property be transferred to or in trust for or vested in the dependant, whether absolutely, for life or for a term of years;

(d) respecting any matter authorized to be ordered under clause 24 (1) (a), (b), (c), (d) or (e) (matrimonial home);

(e) requiring that some or all of the money payable under the order be paid into court or to another appropriate person or agency for the dependant’s benefit;

(f) requiring that support be paid in respect of any period before the date of the order;

(g) requiring payment to an agency referred to in subsection 33 (3) of an amount in reimbursement for a benefit or assistance referred to in that subsection, including a benefit or assistance provided before the date of the order;

(h) requiring payment of expenses in respect of a child’s prenatal care and birth;

(i) requiring that a spouse who has a policy of life insurance as defined under the Insurance Act designate the other spouse or a child as the beneficiary irrevocably;

(j) requiring that a spouse who has an interest in a pension plan or other benefit plan designate the other spouse or a child as beneficiary under the plan and not change that designation; and

(k) requiring the securing of payment under the order, by a charge on property or otherwise.

Case Law

[17] The cases of Central Guaranty Trust Co. v. Sudbury (1992), 8 O.R. 3d 561 (Gen. Div.) and National Bank of Canada v. Young, 2002 14518 (ONSC) stand for the proposition that an execution creditor can only participate in a distribution of surplus proceeds if the execution exists by the date of sale. A subsequent execution cannot attach to land no longer owned by the debtor.

[18] Both Mr. Martin’s counsel and counsel for the claimants rely on the case of Rathbone Herman v. Rathbone 2000 22321 (ON SC), 2000 Carswell Ont. 195, 46 O.R. (3d) 678 (S.C.J.) [“Rathbone”]. The facts briefly are that a child and spousal support order was made on August 27, 1997, obligating Mr. Rathbone to pay child support. A subsequent order was made on November 20, 1997. The applicant’s counsel filed two writs of execution on November 5, 1997. RBC, the mortgagee, served a Notice of Sale on Ms. Herman at the matrimonial home, although by then she had moved to a U.S. address. A ruling was subsequently made by the court that Ms. Herman could take no steps to enforce her writs of execution, as enforcement was solely within the jurisdiction of the Family Responsibility Office (“FRO”).

[19] Following that ruling, Ms. Herman’s counsel urged the FRO to enforce the orders and to collect against the equity in the matrimonial home, but the Director took no steps. The matrimonial home sold under power of sale proceedings on September 8, 1998. By that date, there were six execution creditors who had registered writs. The FRO filed a writ of execution on January 11, 1999.

[20] RBC took the position that the FRO writ was a subsequent encumbrance that had to be paid last in accordance with the scheme under the Mortgages Act. Ms. Herman’s position was that the Creditors’ Relief Act gave the support order priority over other debts.

[21] In deciding that the support order had priority, Beckett J. wrote:

19. From the wording of s. 4(1) of the Creditors’ Relief Act, the priority for support orders exists regardless of when the enforcement process is issued or served. In this case the writ of execution was filed by the F.R.O. on January 11, 1999 and a garnishment on January 19, 1999; but the late filing of these processes, due to the F.R.O.’s delay, should not, because of s. 4(1), prejudice the applicant’s priority to these funds. The writ of execution is a procedural device and is not in itself the source of her right and her priority over other judgment debts. The applicant’s entitlement stems from the support order itself and the R.B.C.’s actual notice of it.

20. The fact is that the writ of execution remained on file at all material times even though it had been rescinded. The Mortgages Act does not state that the sale proceeds are to be distributed among “execution creditors”. Section 27 provides for the distribution of sale proceeds among “encumbrancers according to their priorities”, which contemplates any and all persons with an interest in the proceeds whether or not these persons have filed writs.

21. An “encumbrance” is defined in s. 1 of the Mortgages Act to include “a mortgage in fee or for a less estate, a trust for securing money, a lien and a charge of a portion, annuity or other capital or annual sum; and ‘encumbrancer’ has a corresponding meaning, and includes every person entitled to the benefit of an encumbrance, or to require payment or discharge thereof”. The funds are subject to the encumbrance of the applicant’s support orders of which the R.B.C. had full knowledge and notice. Despite the absence of a valid writ of execution at the time of the sale, that the applicant is an encumbrancer is supported by s. 31(4) of the Mortgages Act which requires service of notice of sale on all persons whose interest in the mortgage property was in the actual notice in writing of the mortgagee. This requirement of notice to persons with an interest other than those appearing on the sheriff’s index of writs, affirms the right of other claimants. [Emphasis in original]

22. Even if the Mortgages Act requires registration of an interest by filing of a writ of execution, the Creditors’ Relief Act specifically gives priority to support claims. This statutory provision must be interpreted as an exception to the general requirement under the Mortgages Act even if they are in conflict. Provisions of a general statute must yield to those of the special provision in a subsequent Act, not by repealing the general statute, but by creating an exception to the rule: see Dunn v. Dunn Estate (1992), 1992 7714 (ON SC), 9 O.R. (3d) 95, 46 E.T.R. 115 (Gen.Div.).

[22] Rathbone is distinguishable from the case before me in that the support order was in existence at the time of sale. As stated in para. 19 of Rathbone, the applicant’s entitlement stemmed from the support order itself and RBC’s notice of it. Due to that fact, the support order could be said to be an encumbrance as defined in the Mortgages Act. And although at para. 22 of that decision, Beckett J. wrote that the Creditors’ Relief Act specifically gives priority to support claims, with respect, I disagree. The Creditors’ Relief Act gives priority to support orders, not support claims. Rathbone appears to stand for the proposition that it is not necessary to have filed a writ for a support recipient to stand in priority to other creditors, provided that mortgagee has actual notice of the order. It does not assist in this situation where there is no support order at the time of the sale, nor any evidence that M.J.C. Investment Corp. even had notice of the proceeding in which Mr. Martin claimed child support.

[23] Although I have also been referred to the case of Aljibouri v. Mohamad (1993), 1993 8672 (ON SC), 13 O.R. (3d) 543 (Gen. Div.), I do not find that its facts assist in resolving the issue before the Court either.

[24] Mr. Winnitoy relies on s. 2(3)(2) of the Creditors’ Relief Act in particular to support his argument that as long as the excess sale proceeds are not disbursed, his client’s support order should be paid out in priority. He concedes that, had the excess funds already been distributed among the other creditors, his client would not be entitled to relief. But because the funds remain invested he argues that the support order should be honoured and the entire unpaid lump sum should be dispersed to Mr. Martin. He argues from a policy prospective also; the child in question should not be deprived of support just because his client’s basket motion for an uncontested trial was unable to be dealt with for approximately 25 days after it was filed.

[25] Mr. Evans argues that there must be a cut-off date, and that is the date of sale. Otherwise, commercial uncertainty would result, with the potential for subsequent support orders to interfere with solicitors undertakings to discharge liens at the time of closing. Mr. Winnitoy rebuts that in such situations, where the proceeds are already disbursed to discharge liens, support recipients would be out of luck.

[26] Subsequent to argument, all counsel were given an opportunity to make submissions on the case of Lynch v. Segal, 2006 42240 (ON CA), [2006] O.J. No. 5014 (C.A.) [“Lynch”], which had not been previously drawn to the Court’s attention.

[27] The appellant in Lynch argued that Ms. Segal was a known judgment creditor of Mr. Segal’s, with a support order ranking in equal priority to Ms. Lynch’s, both with priority over those of other non-secured claimants. To not recognize her interest as a support recipient when vesting the lands in Ms. Lynch would be to “ignore the broad interjurisdictional statutory scheme that has been put in place by legislators across the continent to protect spouses and children” [para. 58].

[28] Of relevance to this application is the conclusions of Blair J.A. at para. 60 of Lynch:

Ms. Segal was not an execution creditor of Mr. Segal in Ontario at any relevant time in these proceedings. Although she was well aware of Ms. Lynch’s lawsuit against her former husband, she had no enforceable encumbrance against any of his assets in this province.

[29] What is important about these comments is that they recognize that the timing of a support order is relevant.

[30] The difference between Lynch and the case before me is that Ms. Segal delayed in registering her foreign judgment until well after the trial and indeed until after the appeal had been argued, even though she was aware of Ms. Lynch’s proceeding, whereas the delay in obtaining the support order by Mr. Martin was somewhat due to circumstances beyond his control.

[31] Returning to the ruling in Lynch, the case makes clear that Mrs. Lynch’s vesting order provided her with title subject to any valid encumbrancers or registered execution creditors with an interest in the lands at the time the vesting order was made.

[32] These remarks leave no doubt that, although Ms. Lynch received her vesting order subject to existing liens, her support order received the priority ascribed by the Creditors’ Relief Act.

[33] Of greater assistance is the case cited in Lynch at para. 46, being Re Maroukis and Maroukis, 1984 76 (SCC).

[34] The Supreme Court of Canada confirmed the order of the Ontario Court of Appeal.

[35] A relevant application of this reasoning is available in Ferguson v. Ferguson, [1994] O.J. No. 1975 (U.F.C.).

[36] The husband’s solicitors had their account assessed and issued a writ of seizure and sale prior to the conclusion of the parties’ matrimonial trial.

[37] The court referred to the above-noted principles enunciated in Maroukis.

[38] Although Maroukis and Ferguson did not involve support orders, both are important for the principle that a vesting order takes effect at the time that it is made and cannot operate retroactively.

[39] I determine that a support order made after the closing date of the sale can never be given priority afforded by the Creditors’ Relief Act, regardless of its provisions.

[40] This court orders that the sum paid into court shall be distributed first to the executor in favour of the estate of Richard Humble, second to the lien of Legal Aid Ontario, and third to the additional execution creditors, and last to Brian Martin as a subsequent encumbrance.

HEALEY J.

Date: October 8, 2013