COURT FILE AND PARTIES
COURT FILE NO.: 33-1820422
DATE: 20140918
ONTARIO
SUPERIOR COURT OF JUSTICE
IN THE MATTER OF THE PROPOSAL OF EDWIN HAROLD MORTON:
OTTAWA BANKRUPTCY
BETWEEN:
MENZIES LAWYERS PROFESSIONAL CORPORATION, MENZIESBANK CORP. and DOUGLAS G. MENZIES, personally
Creditors/Moving Parties
– and –
DOYLE SALEWSKI, TRUSTEES IN BANKRUPTCY FOR EDWIN MORTON AND CANADA REVENUE AGENCY
Respondents
Douglas Menzies and Jonathan Solomon, for the Moving Parties/Creditors
Luc Vaillancourt, for the Respondent Ministry of the Attorney General
Paul Salewski, for the Trustee in Bankruptcy
HEARD: June 3, 2014 at Ottawa
REASONS FOR DECISION
KERSHMAN J.
[1] On consent, the parties have agreed that the style of cause in these proceedings will be amended as follows:
IN THE MATTER OF THE PROPOSAL OF EDWIN HAROLD MORTON: OTTAWA BANKRUPTCY
BETWEEN:
MENZIES LAWYERS PROFESSIONAL CORPORATION, MENZIESBANK CORP. and DOUGLAS G. MENZIES, personally
Moving Parties/Creditors
and
DOYLE SALEWSKI INC., TRUSTEES IN BANKRUPTCY FOR EDWIN MORTON and ATTORNEY GENERAL OF CANADA
Respondents
Introduction
[2] This motion is brought by the Moving Parties for the following relief:
a solicitor’s lien in favour of Douglas Menzies in the amount of $110,500.58;
a solicitor’s lien in favour of Menzies Lawyers Professional Corporation (“Menzies Lawyers”) in the amount of $23,243.33, plus an ongoing lien for their representation in the ongoing matrimonial litigation in priority to all other creditors, save and except Douglas Menzies; and
a salvage lien in favour of Menziesbank Corp. (“Menziesbank”) in the amount of $30,000.00.
[3] These liens are being requested by the Moving Parties in relation to services rendered or money lent to Edwin Morton.
Dates
[4] The following is a chronology of the major events as they relate to the issue of the solicitor’s liens:
Legal services were rendered by Douglas Menzies between approximately 2008 and 2010.
A Divorce Judgment was obtained on September 28, 2009. Douglas G. Menzies was counsel for Mr. Morton at the time.
Legal services were rendered by Menzies Lawyers beginning in 2011 and are still ongoing.
The Canada Revenue Agency (“CRA”) filed its Tax Lien in the amount of $227,042.00 on July 16, 2010 based on an assessment.
The CRA Tax Lien was registered on August 23, 2010 for $227,042.00.
Menziesbank made a loan to Mr. Morton to pay off two execution creditors and his legal fees in 2011 or 2012.
The CRA obtained an ex parte Jeopardy Order on October 30, 2013.
The Notice of Intention to Make a Proposal was filed by Mr. Morton on December 13, 2013.
The Proposal was filed by Mr. Morton on January 14, 2014.
The Notice of Motion in this matter was dated March 7, 2014.
Factual Background
[5] Edwin Morton (“Mr. Morton”) and Cindy Rivard (“Ms. Rivard”) were married on November 25, 2000 and have three children. The parties separated on or about June 8, 2007. Litigation proceedings were commenced and Mr. Morton was ordered to pay spousal support and child support totaling $4,000.00 per month. A trial was commenced before Justice Campbell. The matter was settled after one day of trial by way of Minutes of Settlement, dated September 29, 2009. A final Divorce Judgment, dated April 19, 2010, was granted in accordance with the Minutes of Settlement. The Court ordered Ms. Rivard to pay an additional $1,000.00 to settle the order. The Campbell Divorce Judgment included the following relief:
The matrimonial home at 160 Grandpré Court, Navan, Ontario, was to be sold.
Ms. Rivard was required to pay Mr. Morton various amounts including an equalization payment of $50,000.00, together with part of his criminal defence costs of $27,500.00. The criminal defence costs arose out of a claim by Ms. Rivard of domestic assault by Mr. Morton. The charges were eventually dismissed.
Ms. Rivard was also required to pay Mr. Morton the following amounts:
$2,800.00, being one‑half the interest Mr. Morton had paid to Elsie Morton;
$5,365.46 for interest that Mr. Morton had paid to the RBC and TD lines of credit since June 8, 2007;
$9,775.28 for half the capital pay down of the TD and RBC lines of credit;
$12,550.69 for half the capital and interest payments on the CIBC Visa;
$866.42 for half the interest that Mr. Morton had paid on the TD Visa.
In addition, Ms. Rivard was to pay $30,000.00 towards Mr. Morton’s costs of the matrimonial proceedings.
Pursuant to para. 17 of the Divorce Judgment, Mr. Morton was allowed to secure his interest in his wife’s undivided one‑half interest in the equity in the home for the monies owing to him by registering a second mortgage pursuant to the terms of the Divorce Judgment. The evidence is that the mortgage was never signed or registered.
[6] The Divorce Judgment allowed Ms. Rivard to live in the home until June 1, 2010, primarily to provide a place for the children to grow up in. Ms. Rivard asked for, and Mr. Morton provided consent to an extension of time for the sale from year to year until the youngest child was able to complete high school.
[7] Mr. Morton ran into problems with the Canada Revenue Agency (“CRA”) and was reassessed at various times. The CRA is represented by the Attorney General of Canada in these proceedings.
[8] On July 16, 2010, the Attorney General registered a certificate in the Federal Court of Canada in the amount of $227,042.00, representing the amount of tax debt together with accruing interest, pursuant to s. 223(3) of the Income Tax Act, R.S.O. 1990, c. I.2.
[9] On August 23, 2010, the Attorney General registered a tax lien (“Tax Lien”) in the amount of $227,042.00, pursuant to ss. 223(5) and 223(6) of the Income Tax Act, against the property at 160 Grandpré Court, Navan, Ontario.
[10] Ms. Rivard and Mr. Morton attempted to sell 160 Grandpré Court and were advised that, in addition to the Tax Lien, there were two writs of seizure and sale in favour of the RBC and the CIBC. Based on the Tax Lien and the writs of seizure and sale, there was not enough money to pay out the encumbrances.
[11] In order to sell the property, Menziesbank loaned $33,000.00 to Mr. Morton. Menziesbank entered into negotiations with the execution creditors, which resulted in a settlement of those claims wherein the RBC was paid $14,500.00 and CIBC was paid $10,552.04, while $4,947.96 was paid to Menzies Lawyers on account of outstanding legal fees. An additional $3,000.00 was paid to Menziesbank on account of fees to arrange the loan. The total loaned by Menziesbank to Mr. Morton was $33,000.00. The Court notes that Menziesbank is claiming a salvage lien for only $30,000.00 of the $33,000.00.
[12] In order to close the transaction, Menzies Lawyers, acting for both Ms. Rivard and Mr. Morton, brought a motion for a vesting order in favour of the purchasers, conditional on paying the purchase price to discharge the first mortgage, the vendor’s solicitor’s account, the arrears of property taxes, with the balance of the monies being paid into court to the credit on the matrimonial action.
[13] In addition to paying out the vendor’s solicitor’s account, amounts were paid to Menzies Lawyers and to Ms. Rivard’s counsel, Mr. Cross, totaling approximately $9,000.00, as their costs to deal with the issue of the vesting order out of the sale proceeds of the former matrimonial home.
[14] The property was sold and the net proceeds were paid into court.
[15] At the same time the sale was being conducted, Ms. Rivard revived the matrimonial action claiming that Mr. Morton had underpaid child support and spousal support.
[16] For various reasons, the CRA assessed and re‑assessed Mr. Morton for tax penalties and interest, which increased his liability to CRA in excess of $400,000.00.
[17] Mr. Morton appealed the assessments and the penalties to the Tax Court. The appeal was denied and the assessments, including the penalties, were confirmed. In or about October 30, 2013, the Attorney General applied to the Federal Court of Canada and obtained a Jeopardy Order on an ex parte basis, as provided by s. 225.2(2) of the Income Tax Act, authorizing the Attorney General forthwith to take collections despite the taxpayer’s appeal and objections, which at that time had not yet been heard. The Jeopardy Order was granted. Mr. Morton did not file an application for review of the Jeopardy Order.
[18] On December 13, 2013, Mr. Morton filed a Notice of Intention to Make a Proposal (“NOI”), pursuant to s. 50.4(1) of the Bankruptcy and Insolvency Act (“BIA”). The CRA attempted to seize Mr. Morton’s salary by way of statutory set‑off; however it was stayed, pursuant to s. 69.1 of the BIA after the filing of the NOI.
[19] On January 14, 2014, Mr. Morton filed a Division 1 Proposal, pursuant to s. 62(1) of the BIA.
[20] The CRA filed a Proof of Claim with the Trustee, Doyle Salewski Inc., on January 31, 2014 for $280,387.06, as a secured creditor and for $123,762.88, as an unsecured creditor.
[21] The first meeting of creditors has been adjourned sine die until after this decision has been rendered.
Issues
[22] The issues in this matter are as follows:
1. Is the present motion stayed and, if so, should the stay of proceedings be lifted?
Is Menziesbank entitled to a salvage lien?
If the solicitors’ liens are valid, what is the priority as between the liens and the Attorney General of Canada’s Tax Lien?
(continued verbatim…)
Mr. Justice Stanley J. Kershman
Date: September 18, 2014
COURT FILE NO.: 33-1820422
DATE: 20140918
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
MENZIES LAWYERS PROFESSIONAL CORPORATION, MENZIESBANK CORP.
and DOUGLAS G. MENZIES, personally
Creditors/Moving Parties
-and-
DOYLE SALEWSKI, TRUSTEES IN BANKRUPTCY FOR EDWIN MORTON AND CANADA REVENUE AGENCY
Respondents
REASONS FOR DECISION
Kershman J.
Released: September 18, 2014