Court File and Parties

OSHAWA COURT FILE NO.: FC-14-402 DATE: 20190220 ONTARIO SUPERIOR COURT OF JUSTICE FAMILY COURT

BETWEEN:

Andrew Stefan Makovskis Applicant – and – Meagan Marie McKenney -and- Elissa Boyle Respondents

Counsel: Michael Stangarone, for the Applicant Shibley Righton LLP, for the Respondent Meagan McKenney Jonathan Miller, for the Respondent Elissa Boyle

HEARD: February 14, 2019

REASONS FOR DECISION

Woodley, J.:

PART 1 - OVERVIEW

[1] This motion brought by the Applicant Andrew Makovskis seeks to lift a Writ of Execution filed in the land registry office against the Respondent Meagan McKenney by her former lawyers, Farrell & Boyle.

[2] The Applicant does not seek to satisfy the amount secured by the Writ but instead argues that the Writ is an encumbrance under s. 21(1) of the Family Law Act, and as such is invalid as he (the spouse) did not consent to the filing of the Writ.

[3] The Applicant requires the Writ lifted as against the Respondent McKenney so that Ms. McKenney can transfer her interest in the parties’ jointly-held matrimonial home to the Applicant’s name solely, without satisfying the amount secured by the Writ.

PART II – FACTS

[4] The Applicant Andrew Makovskis and the Respondent Meagan McKenney began cohabitating in March 2008, were married in December 2009, had a child together in October 2010, and separated in September 2013.

[5] Since separating, the parties have been engaged in two separate rounds of protracted, high-conflict litigation before this court concerning parenting issues. The parties have also been involved in ongoing arbitration concerning their financial issues.

[6] The Respondent, Elissa Boyle of Farrell & Boyle, acted for Ms. McKenney from January 2014 to November 2015, when the parties settled their first custody proceeding on the eve of trial. A final order of McLeod J. was issued on November 23, 2015 (the “Consent Order”). Following settlement of the (first) custody proceeding, the Respondent McKenney and the Applicant agreed to refer the remaining financial issues to an arbitrator.

[7] Ms. Boyle rendered her final accounts to Ms. McKenney in February 2016. At that time, Ms. McKenney owed Farrell & Boyle $38,672.31 in unpaid fees. Ms. McKenney had been paying a nominal amount on a monthly basis but had stopped making any payments towards her outstanding balance. Ms. Boyle advised Ms. McKenney that Farrell & Boyle would not continue to act for her unless she attended to her account.

[8] Rather than paying the outstanding fees, Ms. McKenney hired a new lawyer who delivered a Notice of Change dated May 9, 2016. Ms. Boyle had no further involvement in the matrimonial proceedings, no involvement in the arbitration of the financial issues, and no further contact with Ms. McKenney except relating to payment of the outstanding legal fees.

[9] In August 2016, the Applicant commenced a Motion to Change the Consent Order, and the Respondent McKenney countered with her own Motion to Change. The parties picked up their swords and proceeded to re-litigate the custody issues without having resolved the financial issues, including the issue of equalization of their net family property which included their jointly-held matrimonial home.

[10] In the meantime, after making efforts to resolve the issue of their outstanding 2016 account, Farrell & Boyle retained Jonathan Miller of Shibley Righton LLP on March 21, 2017 to recover Ms. McKenney’s outstanding account. Mr. Miller delivered a demand letter on March 23, 2017 and issued a Notice of Action on March 30, 2017. When his attempts to contact Ms. McKenney about the demand letter went unanswered, he filed a Statement of Claim on April 28, 2017. Ms. McKenney was served personally on May 5, 2017.

[11] Ms. McKenney first responded to Mr. Miller on May 12, 2017. From May 12, 2017 to June 9, 2017, the parties attempted to resolve the issues without success. In a letter dated May 29, 2017, Mr. Miller demanded Ms. McKenney’s Statement of Defence by June 16, 2017.

[12] Ms. McKenney responded on June 14, 2017 and delivered an appraisal for the property which showed that its estimated value was $1.175M to $2M. In the following days, Ms. McKenney confirmed that the value of the mortgage on the property was approximately $575,000 and therefore, there was approximately $600,000 in equity in the property. Ms. McKenney stated that it had been her intent to pay the outstanding balance owing to Farrell & Boyle when she received her share of the value of the matrimonial home.

[13] Mr. Miller advised Ms. McKenney that Farrell & Boyle would extend the deadline to deliver her Statement of Defence to Friday, June 23, 2017. When Ms. McKenney failed to deliver her Statement of Defence, she was noted in default on June 26, 2017, and Mr. Miller obtained default judgment against Ms. McKenney in the amount of $39,367.31 on December 5, 2017 (the “Judgment”).

[14] Further to the Judgment, Mr. Miller filed a Writ of Seizure and Sale against Ms. McKenney with the Sheriff of Durham Court on December 12, 2017.

[15] In January 2018, the Applicant and the Respondent McKenney attended for trial before Timms J. concerning their Motions to Change the Consent Order. Six days into the trial the parties (again) resolved the issues by way of Minutes of Settlement and a final consent Order of Timms J. dated January 16, 2018.

[16] On April 17, 2018, Timms J. released his costs Order which awarded costs to the Applicant fixed at $63,000.

[17] On September 7, 2018, approximately two and a half years following delivery of Farrell & Boyle’s final account, the Applicant and the Respondent McKenney entered into final Minutes of Settlement.

[18] The Minutes of Settlement provide, inter alia, as follows:

a. the Respondent McKenney shall transfer her interest in the matrimonial home to the Applicant on or before October 1, 2018; b. the Applicant shall pay $1,000 to the Respondent McKenney by September 1, 2018, and $1,000 on signing of the transfer documents; c. the Applicant shall pay a further $12,000 to the Respondent McKenney on or before October 31, 2018, which payments “fully and finally satisfies all claims under the Family Law Act including but not limited to equalization, trust claims, occupation rent and costs”; d. if any encumbrance is registered on title to the home after the date of the Minutes but before the transfer, the responsible party will immediately remove it and fully indemnify the other from all liability relating to it; and e. the Applicant will use best efforts to immediately obtain a release of the Respondent McKenney’s mortgage obligations on the existing mortgage. If the Applicant is unable to obtain the Respondent McKenney’s release, after the date of the transfer, he will indemnify her from all claims the lending institution may make against the Respondent McKenney on the existing mortgage with the proviso that the Applicant will be responsible for all penalties, interest and costs resulting from this existing mortgage.

[19] The Respondent McKenney executed all documents necessary to effect the transfer and the Applicant paid the Respondent McKenney the first two installments totaling $2,000. However, to date the property has not been transferred nor has the Applicant paid the final installment due of $12,000.

[20] Mr. Miller was first contacted about lifting the Writ of Execution against Ms. McKenney to permit the property to be transferred to the Applicant on November 16, 2018. The Applicant’s lawyer, Mr. Michael Silverberg, also delivered the Minutes of Settlement to Mr. Miller.

[21] Ms. McKenney and Mr. Miller exchanged several emails in November, 2018 with respect to lifting the Writ of Execution to permit the property transfer. Ms. McKenney stated that she gave up and settled the property issues, wanting the litigation to end, and she was afraid of potential costs exposure. In particular, and in response to Mr. Miller’s question as to whether she agreed with the Applicant’s valuation of the family property she wrote:

“…the house is the only asset but as I mentioned before I don’t have $10-15k to pay to try and get more of a settlement. My submission versus my ex’s submissions reflect very different pictures for obvious reasons…I also ran the risk of the arbitrator saying that I would have to pay him money (based on his submission as high as $200K) as a decision…I was scared of that outcome.

Then after trial and the judge awarded cost (sic) to him of $60K I knew I had to do anything to make this nightmare end!...it prevented me from having to continue to fight what seemed like an endless losing battle …”

[22] Ms. McKenney advises that she has no ability to pay the amount due to the Respondent Farrell & Boyle and cannot effect the transfer without either paying the amount due to Farrell & Boyle or having the Writ lifted. The Applicant argues that the Writ is an encumbrance on the property and as the Applicant did not consent to the filing of the Writ – it is invalid and in violation of the Family Law Act. The Applicant seeks that the Writ be lifted without satisfying the monies secured by the Writ.

[23] In particular, the Applicant seeks the following relief:

an Order for summary judgment that the Writ of Seizure and Sale dated December 8, 2017 and filed with the Sheriff by Farrell & Boyle LLP, on December 12, 2017, and amended by Master Sugunasiri on August 24, 2018, shall be removed from title to the property and matrimonial home municipally known as 111700 Lake Ridge Road, Sunderland.

[24] The Respondent McKenney does not oppose the relief sought.

[25] The Respondent Farrell & Boyle oppose the motion on the basis that the Writ is not an encumbrance and did not require the Applicant’s approval as it attaches to Ms. McKenney, not the property. The Respondent Farrell & Boyle assert that the Writ is in priority to the Applicant’s interest, which did not vest until at least the execution of the Minutes of Settlement.

[26] To the date of this motion, the amount outstanding to Farrell & Boyle inclusive of interest is $44,733.21

PART III – ISSUES AND LAW

[27] The issues are as follows:

a. Is the Respondent’s Writ of Execution an encumbrance on the matrimonial property? b. Whose interest in the property, the Applicant or Farrell & Boyle, has priority?

a. Is the Writ an Encumbrance?

[28] The Family Law Act, R.S.O. 1990, c. F.3 (the “Act”) prohibits a spouse from disposing of or encumbering an interest in a matrimonial home unless certain conditions are met. For example, the other spouse can consent to the encumbrance or it can be imposed by court order. However, this prohibition does not apply to the acquisition of an interest in property by operation of law.

[29] A Writ of Seizure and Sale obtained by a judgment creditor is not an encumbrance on the matrimonial home within the meaning of s. 21 of the Act (or s. 42 of the former Family Law Reform Act), except in certain limited circumstances, such as where the Writ is obtained through a non-arm’s length transaction with the intent of defeating s. 21 of the Act.

[30] The Applicant submits that the case law is clear that a consent to a default judgment (or non-opposition) by a non-arm’s length creditor which results in a Writ against the matrimonial home engages the provisions of s. 21(1) of the Act.

[31] The Applicant specifically relies on the case of Boyd v. Boyd (2008), 2008 ONSC 1417, 54 R.F.L. (6th) 460 (Ont. S.C.) in support of his position. In Boyd, the husband’s lawyer obtained judgment for $35,000 and filed a writ of execution against the husband in the land registry office. The lawyer, however, did not cease his representation but instead continued to represent the husband throughout the litigation. Eberhard J. correctly concluded that in the circumstances of that case, the husband’s lawyer was not at arm’s length, and the filing of the writ with the cooperation of the husband had the effect of utilizing the matrimonial home as security for the lawyer’s fees while the lawyer continued his representation.

[32] Clearly this did not occur in the present case. Ms. Boyle ceased to represent Ms. McKenney and had no insight or influence into the ongoing legal proceedings.

[33] The Applicant also relies on the case of Buttarazzi v. Buttarazzi (2009), 2009 ONSC 80136, 84 R.F.L. (6th) 240 (Ont. S.C.), which is a decision of McGee J., who coincidently was the counsel who argued the Boyd decision before Eberhard J. In Buttarazzi, McGee J. stayed the execution of a judgment obtained by a non-arm’s length creditor, being the executor of the husband’s father’s estate, who happened to be the husband’s brother. In reaching her decision, McGee J. stated, at paras. 77 – 79, as follows:

It is accepted that courts should be vigilant to prevent non-parties interfering with the enforcement of a judgment. Such mindfulness is fully warranted when persons are dealing at arms’ length, in good faith and for bone fide purposes.

In the family law cases in which a stay of execution would be considered, none of these elements are routinely present. Rather, it is all too frequent the case that spouses attempt various manoeuvres to avoid obligations to a creditor spouse…

As a general rule, consent judgments obtained by non-arms’ length parties during the court of ongoing matrimonial litigation are to be viewed with suspicion. When the additional element of notice of competing spouse’s claim, (such as designation of a matrimonial home, or a section 12 order) is present, it will be difficult to defeat a finding that the non-arms’ length creditor and benefiting spouse have colluded. Such circumstances are by definition an abuse of process.

[34] In Bank of Montreal v. Bray (1997), 36 O.R. (3d) 99 (C.A.), Mr. Bray acted as guarantor on a line of credit being extended to his company. Mrs. Bray did not know about the guarantee. The company did not repay the loan and the bank obtained, among other things, judgment against Mr. Bray and filed a Writ of Execution against Mr. Bray. The Court of Appeal concluded that the Writ of Execution was not an encumbrance on the property and did not contravene s. 21 of the Act because s. 21 was not intended to interfere with normal commercial transactions.

[35] In Hurst v. Gill, 2011 NSCA 100, 342 D.L.R. (4th) 583, the Nova Scotia Court of Appeal was asked whether a solicitor’s judgment for fees against his client, which was registered against the matrimonial home, constituted an encumbrance in violation of the Matrimonial Property Act (whose language generally tracks s. 21 of the Act). The court said that mere knowledge that a debtor owns a matrimonial home is insufficient to bring a creditor’s judgment within the meaning of an “encumbrance”. Permitting this distinction would serve to create two classes of creditors where one class would be at risk of their claim being compromised simply because they had knowledge that the debtor owned a matrimonial home.

[36] Farrell & Boyle obtained judgment arising from its contractual relationship with Ms. McKenney. The Writ of Execution is not an encumbrance, but rather Farrell & Boyle’s attempt to secure its judgment.

[37] I accept the submission of the Respondent Farrell & Boyle that just because Ms. Boyle was aware that Ms. McKenney owned 50 percent interest in a matrimonial home does not compromise her claim. From the date Ms. McKenney filed the Notice of Change, on May 9, 2016, Ms. Boyle became at arm’s length with Ms. McKenney. Ms. Boyle was a creditor in the ordinary sense of the word. Ms. Boyle had no insight into or involvement with the protracted litigation that continued between the Applicant and Respondent. The fact that Ms. Boyle once acted for Ms. McKenney does not cast her as forever being a non-arm’s length party nor does this fact disqualify Ms. Boyle from seeking to collect her fees in the ordinary course.

[38] The fact that the parties (the Applicant and the Respondent McKenney) continued to re-litigate issues between them for years following Ms. Boyle’s involvement, thus dissipating their personal assets, does not and cannot disqualify Ms. Boyle from relying upon her right to obtain enforcement of her judgment in the ordinary course.

[39] I accept the submissions of the Respondent Farrell & Boyle that they did not act in concert with Ms. McKenney. They requested payment of their accounts and attempted to reach a resolution without having to proceed with litigation. They required Ms. McKenney’s defence and extended the time for her to deliver a defence to avoid default proceedings. Only when it became clear that Ms. McKenney would not defend the action did Farrell & Boyle take default proceedings to secure its position.

[40] Although not argued before me, if there was collusion, it was arguably between the Applicant and the Respondent McKenney. Instead of seeking enforcement of the Minutes of Settlement against Ms. McKenney, the Applicant sought relief against Farrell & Boyle. Further, Ms. McKenney, although served, did not respond to the motion nor attend until I held the matter down and required her attendance.

[41] Section 21(1) of the Act is engaged in situations where one of the parties involved in a matrimonial dispute seeks to obtain an advantage in the proceeding through a non-arm’s length transaction. However, s. 21(1) of the Act is not engaged where the execution is filed as a result of an arm’s length commercial transaction or where the parties to the matrimonial litigation cooperate with one another to avoid payment of a legitimate debt.

[42] In the present case, I find that Farrell & Boyle were an arm’s length party to a commercial transaction. In the circumstances of this case, s. 21 (1) of the Act is not engaged and the Writ is not an encumbrance.

b. Whose interest in the property, the Applicant or Farrell & Boyle, has priority?

[43] Until an order regarding a spouse’s interest in specific matrimonial property has been made, a spouse only has a personal right to require the court to determine ownership of family assets: see Maroukis v. Maroukis, [1984] 2 S.C.R. 137.

[44] In the present case, Farrell & Boyle sued Ms. McKenney for recovery of their fees and filed a Writ of Execution on December 12, 2017 (as amended on August 24, 2018). The Writ was filed (and amended) before the execution of the Minutes of Settlement on September 7, 2018.

[45] Even if the Minutes had been executed prior to the filing of the Writ, it is unlikely that the Minutes would operate to determine ownership of the property as the Minutes have not been completed nor has a court order in accordance with the Minutes been obtained or sought.

[46] In the circumstances, Farrell & Boyle’s interest ranks in priority to the Applicant: see Hurst v. Gill, 2011 NSCA 100; Ferguson v. Ferguson (1994), 7 R.F.L. (4th) 384 (Ont. U.F.C.); Kimptom v. Kimptom (2003), 41 R.F.L. (5th) 99 (Ont. S.C.); Maroukis v. Maroukis.

PART IV – RELIEF GRANTED

[47] For the reason provided herein:

a. the Applicant’s motion for summary judgment is dismissed; and b. Farrell & Boyle’s interest in the property as secured by the Writ of Execution ranks in priority to the Applicant’s interest.

[48] Subject to any offer to settle that affects costs, the Respondent Farrell & Boyle are entitled to their costs of the motion on a partial indemnity basis.

[49] If the parties are not able to agree on costs, the Respondent Farrell & Boyle shall serve and file their costs submissions within 15 days and the Applicant shall serve and file their response submissions 15 days thereafter. Any reply shall be served and filed ten days thereafter. All submissions are limited to three pages in length, with any Bills of Costs, and/or Offers to Settle attached.

Justice S. J. Woodley

Released: February 20, 2019