Court File and Parties

COURT FILE NO.: CV-16-23157(Windsor) DATE: 20190307 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Sarah Curtis, Applicant AND: Lenn Curtis and Annette Curtis, Respondents

BEFORE: Justice R. Raikes

COUNSEL: Jason P. Howie, Counsel for the Applicant Lenn Curtis and Brian Ludmer, Counsel for the Respondent Annette Curtis and Ian R. Fisher, Counsel for the Respondent

HEARD: January 11, 2019

Endorsement

1There are two motions before me:

1. A motion brought by Annette Curtis for an order directing that one-third of the net proceeds of sale of the premises at 19 and 21 Talbot St. N. in Essex, Ontario (hereafter “the property”) held in trust by Farhat & Associates be paid out to each of the Applicant and Respondents; and
2. A motion brought by the Respondent, Lenn Curtis, for an order that the net proceeds of sale of the property be paid into court pending further order of this court in this proceeding or in an oppression application (court file no. CV-18-26695) or agreement of the parties. In the alternative, he seeks an order that the net sale proceeds continue to be held by Farhat & Associates pending further order of this court or agreement of the parties.

Facts

2The Applicant, Sarah Curtis, is the daughter of the Respondents, Annette and Lenn Curtis.

3The Respondents were married. They separated in December 2010. Lengthy matrimonial litigation followed. That litigation was resolved in November 2015. The matrimonial litigation included the business interests they shared.

4On November 23, 2015, Bondy J. made a consent order in accordance with an agreement reached between the parties to resolve the remaining issues in the matrimonial litigation. Paragraph 6 of that order states:

6. THIS COURT ORDERS that the Respondent’s claims in item 50 of his Answer are withdrawn on a without prejudice and without costs basis, and on the basis that the Respondent may assert those claims in the future should he wish to do so.

The issues raised by item 50 of his Answer arguably include issues raised by him in the oppression application which I will address below.

5I pause to observe that the Applicant herein, Sarah Curtis, was not a party to the matrimonial proceedings and did not consent to the order made regarding the claims in item 50 of his Answer.

a. The Property and Business

6According to Mr. Curtis’ affidavit, in 2007, the Respondents purchased a spa business which operated out of leased premises in the property. The Respondents incorporated 2140084 Ontario Inc. (hereafter “214 Ontario) to carry on the spa business. The purchase price of the spa business was financed by the Respondents’ line of credit. At the time of the purchase of the spa, the Applicant was in school and she worked part-time at the spa. The spa business was re-named and operated as Estheticare.

7In 2008, the Respondents purchased the property for approximately $168,000 per Mr. Curtis and $180,000 per Mrs. Curtis. In any event, title was taken in the names of all three parties jointly. 214 Ontario has never held title to the property. Mr. Curtis deposed that the funds to purchase the property came from a line of credit held by the Respondents. It is undisputed that since the purchase, title was held solely in the names of the three parties.

8The Respondent, Lenn Curtis, deposes that:

1. It was agreed between the Respondents that Estheticare would repay them the monies advanced for purchase of the property;
2. They planned for the Applicant to eventually become a shareholder in Estheticare with a view to her ultimately owning and operating the spa business and property once the various loans were repaid by the joint businesses or when the Respondents died;
3. The Applicant’s ownership of the property and the spa business was always subject and subordinate to repayment of the loans and monies advanced by the Respondents;
4. Estheticare serviced the line of credit but did not repay the debt incurred;
5. When the property was purchased, there was an agreement between the parties that Estheticare would repay the aggregate of the loans advanced to fund the purchases of the building and spa business, and the renovation and marketing costs by payment of $2,000 per month. They agreed to allocate $500 to rent of the property, $1,000 for interest costs of the line of credit and the remaining $500 was to be applied to principal repayment on the loans;
6. In June 2009, Estheticare purchased equipment and did some renovations to the premises at a cost of $22,600. Again, these costs were paid through the Respondents’ personal line of credit and were to be repaid with interest by Estheticare;
7. Soon after, the Respondents purchased a laser machine for $119,000 using the Respondents’ line of credit. Estheticare was to repay that amount as well; and
8. In December 2009, Mr. Curtis personally paid for roof repairs of $900 by cash.

9In addition, Mr. Curtis’ affidavit refers to solar panels which were purchased and installed on the roof of the building on the property. Agreements were entered into by which the owners of the property were paid for power produced from those solar panels. All three parties were named in the power agreements. 214 Ontario o/a Estheticare is not a party to those agreements.

10He deposes that the costs to install the solar panels were paid from the Respondents’ line of credit and were to be repaid in priority to any distribution of profits from the solar panels.

11Mr. Curtis further deposes that at the same time as the solar panels were installed, he removed two roof-top heaters and an air conditioning unit and replaced same at a cost of approximately $10,000. That cost was funded through the Respondents’ bank account. It was to be repaid by Estheticare or from revenues from the property. No payments have been received on account of that expense.

12There is no dispute that there are no written agreements which evidence the terms of the loans or advances referred to by Mr. Curtis, nor were these alleged debts secured by any debt instrument such as a mortgage or General Security Agreement.

13It is Mr. Curtis’ position that these various loans and advances have not been repaid; he has been kept in the dark as to Estheticare’s financial operations. Repayment of these loans and advances should be made in priority to any payment to Applicant. He has received no monies from the solar panels and requires an accounting of same. He tried unsuccessfully to get full financial disclosure in the matrimonial litigation.

14Mr. Curtis commenced an oppression application under ss. 207 and 248 of the Business Corporations Act, R.S.O. 1990, c. B.16. as against Annette and Sarah Curtis and 214 Ontario (hereafter “the oppression application”) on August 1, 2018. His affidavit in support of the oppression application is before me as it was adopted through affidavit by him on the motions herein. It includes assertions that Sarah Curtis has misappropriated the equipment and clients of Estheticare for a new business she has established.

15I was advised by counsel for Mr. Curtis that there were difficulties in serving the oppression application and affidavit of Mr. Curtis on the Respondents. Although issued August 1, 2018, it was not served until January 7, 2019, mere days before the motions were argued before me. The oppression application is returnable in May 2019. None of the Respondents in the oppression application had filed responding materials in that proceeding and the time for doing so had not yet expired.

b. Partition and Sale Proceeding

16In January 2016, the Applicant initiated this application for partition and sale of the property. The application sought, inter alia, a division of the sale proceeds into one-third shares. She brought the application because she and Annette Curtis wished to sell the property but the Respondent, Lenn Curtis, was refusing.

17There were a number of appearances before Justice Campbell; however, no order for partition and sale was made because Mr. Curtis agreed in 2018 to sign the necessary sale papers. The property was sold on July 31, 2018.

18On July 24, 2018, counsel for Mr. Curtis wrote to the law firm acting on the sale to request that all funds from the sale of the property be retained in trust pending the outcome of Mr. Curtis’ oppression application. As at the date of sale, that application had not yet been issued.

19The law firm is holding $235,120.16 by way of net sale proceeds after adjustments on closing and payment of real estate commission and legal expenses.

20Annette Curtis has deposed on her motion that:

1. There is no validity to Mr. Curtis’ allegations of oppressive behaviour by Sarah or Annette;
2. Mr. Curtis could have had financial disclosure of the businesses through his accountant who was also the accountant for Estheticare;
3. Sarah was to pay her parents approximately $60,000 for her share of the property;
4. Sarah has paid Mr. Curtis approximately $66,000;
5. The entire balance owing on the line of credit was paid from the proceeds of sale of the matrimonial home;
6. She has deposited monies from the solar project to an account at the CIBC, and she attached statements showing the deposits made;
7. There is approximately $79,265 sitting in that account; and
8. She has never deposited to her personal account any monies that belonged to Mr. Curtis.

21The affidavit of Sarah Curtis is silent as to payments made to her father in respect of the property. I note that the statement by Annette Curtis that Sarah paid her father more than $60,000 is a bald statement without disclosure of any source of information or factual underpinning. No records are provided to evidence the alleged payments.

Analysis

a. Jurisdiction

22Both motions are brought in the context of the partition and sale application even though no order was made for partition and sale; in fact, the application is arguably redundant once Mr. Curtis signed the sale papers and the sale closed. Thus, the first issue is my jurisdiction to grant the relief requested. None of the parties offered any authority beyond that they believed I could grant the relief each requested.

23Rule 66 governs the procedure on partition and sale applications. R. 66.03 states:

All money realized in a partition and sale proceeding from the sale of land shall forthwith be paid into court, unless the parties agree otherwise, and no money shall be distributed or paid out except by order of a judge or, on a reference, by order of the referee.

24Rule 1.04(1) directs that the Rules are to be liberally construed to “secure the just, most expeditious and least expensive determination of every civil proceeding on its merits”. Rule 1.04(1.1) provides that in applying the rules, the court shall make orders having regard to the proportionality principle.

25I find that I have jurisdiction to determine these motion under R. 66.03. The application for partition and sale involved the property in question. It was sold while the application was still pending. The application has not been dismissed or otherwise disposed of. The proceeds in question are those from the property that is the subject of the application. While the monies have not been paid into court as contemplated, the net proceeds are intact and secure.

26If it is necessary to do so, I exercise my authority to convert or transfer the two motions to motions in the oppression application with a view to saving the parties the needless expense of having to redo their motion materials and re-argue the same points.

27I turn now to the merits of the motions.

b. Motion by Mr. Curtis

28The essence of the motion brought by Annette is: the proceeds of sale should be distributed in accordance with title to the property. The title documents show that each of the parties had an undivided one-third interest. The claims made by Mr. Curtis do not affect their ownership interests; rather, they are contested unsecured claims made for monies allegedly owing or for damages.

29The essence of Mr. Curtis’ motion is that the funds need to be preserved because he is advancing significant claims in the oppression application which, if successful, might be entirely unrecoverable if the sale proceeds are distributed. The distribution should await the outcome of the oppression application. He claims a priority over any distribution to Sarah Curtis and possibly to Annette Curtis based on the agreements they had as to repayment of monies advanced and the oppression claims made.

30Mr. Curtis also argues that the Partition and Sale application deals with but one piece of the parties’ intertwined business dealings. The ownership of the property and the operation of the spa business are interrelated businesses. I should decline to exercise my discretion to provide directions for the distribution of the sale proceeds until the merits of the oppression application are determined. Further, the Applicant and co-Respondent lack clean hands which undermines their entitlement to seek partition and sale and which should inform the exercise of my discretion. I will address this argument when I deal with the motion by Mrs. Curtis below.

31I will first deal with Mr. Curtis’ motion since, if granted, it would dispose of the motion by Annette Curtis.

32The relief sought by Mr. Curtis is akin to a Mareva injunction. He has not specified that he is seeking an injunction but that is the effect of the order sought by his motion. He seeks to preserve assets to protect his recovery in the event of success on the oppression application.

33I note that Mr. Curtis does not have a registered security interest in the proceeds nor in the property that was sold. If the monies advanced for purchase of the property were indeed repayable first from any proceeds, nothing on title protects that claim. He is an ordinary creditor/claimant. I am advised that the oppression application will be vigorously opposed.

34A Mareva injunction is an extraordinary remedy because it constitutes a form of pre-trial execution. In Aetna Financial Services Inc. v. Feigelman, [1985] 1 S.C.R. 2, the Supreme Court of Canada cautioned that the imposition of such a remedy can be harsh and care must be taken to ensure that its use is not a form of “litigious blackmail”. The Ontario Court of Appeal in Chitel v. Rothbart (1982), 141 D.L.R. (3d) 268 held that Mareva injunctions are the exceptions to the rule.

35The requirements for a Mareva injunction are as follows:

1. The moving party should make full and frank disclosure of all matters in his knowledge which are material for the judge to know;
2. The moving party should give particulars of his claim against the defendant/respondent, stating the ground of his claim and the amount thereof, and fairly stating the points made against it by the defendant/respondent;
3. The moving party should give some grounds for believing that there is a risk of the assets being removed before the judgment or award is satisfied;
4. The moving party must, of course, give an undertaking in damages;
5. The moving party should give some grounds for believing that the defendant/respondent has some assets here: Third Chandris Shipping Corp. v. Unimarine S.A., [1979], Q.B. 645 (Eng. C.A.); Chitel.

36I am not satisfied that the test for a Mareva injunction is met in this case, nor am I satisfied that it would be appropriate to exercise my discretion for that purpose. I note that:

1. Mr. Curtis is an ordinary unsecured creditor as it pertains to monies advanced which he says have not been repaid;
2. He has not moved expeditiously to assert the claims now advanced. The matrimonial litigation was resolved in November 2015 but his oppression application was only issued on August 1, 2018;
3. The matters he complains of in the oppression application such as non-disclosure of financial information, being excluded from the business and non-payment have been known to him for many years. Despite that knowledge, he took no steps as against his daughter, Sarah, or the company;
4. Mr. Curtis spent years litigating with Annette Curtis in matrimonial proceedings where their business interests were among the issues in play. Thus, the concerns now raised were largely, if not entirely, known to him;
5. He has not adequately explained his delay which, at this point, may give rise to limitations defences and/or a defence of laches; and
6. The evidence does not explain why he believes there is a genuine risk of assets being moved or dissipated, and why he believes that without preservation of this money, his judgment, if successful, will be uncollectible.

37My sense from reading the materials filed and hearing the submissions made is that the Partition and Sale application and oppression application are a continuation of the acrimonious matrimonial litigation that went on for five years. There is one notable difference: the daughter, Sarah, has been brought into the conflict. It is entirely unclear to me how much of this litigation is genuinely concerned with financial and economic matters versus settling old scores and hurts. I am not prepared to exercise my discretion in these circumstances.

38I turn now to Mrs. Curtis’ motion for directions regarding distribution of the monies in trust with the real estate lawyer.

c. Motion by Mrs. Curtis

39On an application for partition and sale, the following principles emerge from the case law:

1. A person who holds lands as a joint tenant or tenant in common has a prima facie right to partition and sale of them at any time: Davis v. Davis, [1954] O.R. 23;
2. There is a corresponding obligation on the other party to submit to the sale of the lands: Davis;
3. An applicant for partition and sale is entitled to an order for same unless “a sufficient reason is shown” not to so order: Davis;
4. An order for partition and sale may be denied where the party seeking the order does not come to court with clean hands or the application is vexatious or will cause oppression including hardship to the other party: Greenbanktree Power Corp. v. Coinamatic Canada Inc., [2004] O.J. No. 5158 (ON CA) at paras. 1 and 2; Garfella Apartments Inc. v. Chouduri, 2010 ONSC 3413 (Div. Ct.) at para. 30;
5. Similarly, a remedy may be denied where the moving party is attempting to use the Act to avoid contractual obligations: Garfella Apartments, paras. 34, 35 and 62; and
6. In considering whether to exercise its discretion not to grant a remedy under the Partition Act, the court should take a contextual approach by determining whether there is hardship or oppressive conduct through examination of the parties’ relationship, how it arose, the reasonable expectations of the parties, the nature of the conduct and its impact on the person who seeks to avoid a sale: Garfella Apartments Inc., para. 50.

40Rule 66.03 requires that monies realized through a partition and sale be paid into court and that no money be paid out except by order of the court or a referee appointed. In this case, the property has been sold albeit without an order made that it be done.

41In my view, the principles that apply to whether to order a sale apply with necessary modification to any order made regarding distribution of the proceeds of the sale; viz. there is a prima facie right to an order for distribution in accordance with the title holding which is subject to the exercise of the court’s discretion. The exercise of that discretion requires a contextual analysis on a case by case basis to determine whether the applicant has clean hands, whether there is oppression or hardship, whether the proceeding is vexatious and whether the moving party is using the Act to avoid contractual obligations.

42Mr. Curtis relies on two decisions by Perell J.: Glass v. 618717 Ontario Inc., 2011 ONSC 606 where he was sitting as the judge hearing summary judgment motions in the context of an application for partition and sale, and Paglia v. Favot, 2014 ONSC 2382 where he sat as a single judge of the Divisional Court on a motion for leave to appeal from the order of Stewart J..

43In Glass, two brothers carried on a substantial trucking business which they operated through a number of companies. Each also had holding companies that held various properties including a property in Vaughan on which one brother resided. An application for partition and sale was brought by one brother to force the sale of the property on which the other resided. In the meantime, the affected brother commenced an action asserting that he had been oppressed and forced out of the businesses. There was an issue as to whether he had a one-third or one-half interest in same.

44On the motion for summary judgment, the brother who was the respondent in the partition and sale application and plaintiff in the action argued that the issues in the two proceedings were interrelated and should not be dealt with in a piecemeal fashion. The moving party argued that the property issue on the partition application was discrete and could be isolated from the larger dispute.

45Perell J. held that there was a genuine issue for trial as to whether he should exercise his discretion under the Act. At para. 38, he also found:

I also accept Dale and Daleco’s submission that the VM Property is not a discrete issue and it would be inequitable to deal with it in isolation from the other properties and the claims of the parties. The actions are scheduled for trial in May, 2011 and these matters, including Brain and Brianco’s tracing request, should all be addressed at the same time and expeditiously.

46In Paglia, the respondents opposed the sale because there was concurrent litigation which they argued was inextricably linked to the question of whether a sale should proceed and there were outstanding debts owing in relation to the property that made it inequitable to deal with the property in isolation. That argument was persuasive and Stewart J. declined to exercise her discretion. She also ordered the two proceedings be heard at the same time. As here, the companion litigation involved a claim for oppression. Perell J. refused leave to appeal. In doing so, he found that there was no reason to doubt the correctness of the decision of Stewart J..

47In my view, the decisions in Glass and Paglia are consistent with the principle that in exercising its discretion, the court must consider whether the remedy would cause hardship or oppression. Where the partition application is but a piece of a larger litigation puzzle, and the issues extant in the broader litigation are intertwined with the property in question, the court should exercise caution so as not to give one side an unfair advantage in the litigation or prejudice the other party in that litigation.

48The evidence before me is incomplete. However, on what evidence I do have, it appears that:

1. The joint business interests of the parties included both the salon business (214 Ontario o/a Estheticare) and the property. The spa business was a tenant in the building. Improvements were made to the building for the benefit of the spa business. It is alleged that monies expended for the purchase and improvement of the building were payable by 214 Ontario and/or from the proceeds of sale if not repaid before then;
2. Whether Sarah Curtis paid for her share of the building is in dispute;
3. The oppression application is in its infancy but, on its face, it makes claims involving the failure to make loan and rent payments. He maintains that he has been oppressed as an officer, director, shareholder and creditor of the company;
4. Whether it is equitable that the parties share equally in the distribution of the proceeds of sale is intertwined with the outcome of the claims made in the oppression application;
5. The allegations made by Lenn Curtis against Sarah and Annette Curtis put in question whether Sarah Curtis has “clean hands” as required;
6. The brief affidavit filed by Annette Curtis on the motion to distribute suggests that the property was purchased using the Respondents’ joint credit line and that Sarah’s share of the purchase cost was repayable. It was not a gift to her.; and
7. The evidence that Sarah Curtis repaid her share of that debt is inadequate.

49I am mindful that Mr. Curtis did not proceed to promptly serve the oppression application. Counsel gave varying accounts of service issues. Regardless, the issues raised by Mr. Curtis have not been addressed with any specificity by either Sarah or Annette Curtis. They could have asked to adjourn these motions to file more detailed affidavits but did not. I must make my decision on what is in front of me.

50I find that the issues related to the property cannot be isolated and separated from the larger issues in the oppression application. There is simply no reliable evidence before me that Sarah Curtis did pay for her one-third interest; that the loans and advances made were repaid; and that the building was a separate stand-alone venture. Such findings are best made on a full evidentiary record.

51I find that it would be oppressive and would produce a hardship to permit the funds to be distributed in accordance with the interests on title on the evidence before me. I exercise my discretion to refuse to permit the funds to be distributed at this time. To be clear, I make no finding as to the merits of Mr. Curtis’ claims, only that it would be inequitable and oppressive to distribute the monies equally at this point.

52Accordingly, the funds held by Farhat & Associates should be paid into court unless the parties agree that they remain held in trust by that firm pending further order of the court or agreement between the parties.

53This application is hereby adjourned to the return date of the oppression application in May 2019 where the court should consider whether the two applications should be consolidated or heard together. It may make sense to convert both to actions and make an order that they proceed together.

Conclusion

54I conclude and order as follows:

1. The motion brought by Annette Curtis for distribution of the sale proceeds is dismissed.
2. The funds held by Farhat & Associates should be paid into court unless the parties agree that they remain held in trust by that firm pending further order of the court or agreement between the parties.
3. This application is hereby adjourned to the return date of the oppression application in May 2019.
4. If the parties cannot agree on costs they may make written submissions not exceeding 3 pages within 15 days.