Court File and Parties
COURT FILE NO.: 2209/18 DATE: 20190723 ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN: Gaetanne Simone Hobson, Applicant – and – Tania Chantal Hobson, Respondent
COUNSEL: Stuart R. MacKay, for the applicant Paul Ledroit, for the respondent
HEARD: May 30 and 31, 2019
Rady J.
Introduction
[1] The applicant and respondent are mother and daughter. I will refer to them as Gaetanne and Tania for simplicity and mean no disrespect. Until recently, they enjoyed the use of a family cottage located near Buckhorn, Ontario. Title to the cottage is in Tania’s name. It is subject to a mortgage from Tania to Gaetanne. Sadly, mother and daughter have become estranged. Gaetanne seeks a declaration that she is the true owner of the cottage and an order “correcting title” to reflect her ownership interest. Tania resists the application. She asserts that she owns the cottage.
Facts
[2] The underlying facts are relatively uncontroversial. Gaetanne and her husband Keith (Tania’s father) purchased the cottage for $147,694.57 in 2001. At the time of purchase, title was placed in Tania’s name in order to avoid capital gains upon her parents’ death. Gaetanne and Keith paid the entire purchase price. They intended to make improvements to the property. They registered a mortgage from Tania to them for $175,000. It was interest free and payable on demand. The purpose was to protect the investment in the event Tania became bankrupt or otherwise exposed the cottage to the risk of loss. The parties agree that Gaetanne and Keith intended to forgive the mortgage in their wills.
[3] Keith died in 2009. Gaetanne had the cottage appraised. By that time, it had appreciated considerably in value. The mortgage was increased to $350,000 later that year, also interest free and payable to Gaetanne on demand. No funds were advanced to Tania.
[4] At the time of the purchase of the cottage, Keith and Gaetanne received advice from their accountant, Robert Rogers, who prepared a memo contemporaneous to the transaction. It records the following:
The intention of this transaction is so that the Hobsons will not have to deal with any capital gains on the property down the road and that the mortgage on the property will be left as a gift or bequest in their wills to their daughter, but at the same time, should anything happen to their daughter such as a bankruptcy, they will have full control over the cottage and their money would not be at risk.
[5] Alfred Gariepy was retained by the parties to document and close the transaction. Mr. Gariepy was provided a copy of Mr. Rogers’ memo.
[6] Keith and Gaetanne (and subsequent to her husband’s death, Gaetanne alone) paid the expenses for the cottage, including insurance, utilities and property taxes until 2018 when Gaetanne asked Tania to assume that obligation. By that time, they were estranged.
Documentary Evidence
[7] The following records were filed and marked as Exhibits 1–5 respectively:
- Application Record October 30, 2018
- Applicant’s Reply Record November 28, 2018
- Applicant’s Responding Record March 8, 2019
- Respondent’s Record November 13, 2018
- Respondent’s Supplementary Record December 11, 2018.
[8] The majority of Gaetanne’s productions are receipts and banking records that show that she and her husband paid for the cottage as well as expenses over the years.
[9] She has also produced some of the documents prepared at the time of the purchase. The Agreement of Purchase and Sale dated July 8, 2001 was signed by Keith as purchaser. Gaetanne signed as witness.
[10] Funds to close the deal were provided to Mr. Gariepy by cheque drawn on a corporate bank account of a company owned by Keith. The cheque is signed by Keith. The other signature is not Gaetanne’s.
[11] A Direction as to Title dated September 23, 2001 was signed by Keith (who is listed as purchaser) and by Tania, pursuant to which Mr. Gariepy was directed to engross the deed in Tania’s name.
[12] Also included are copies of Keith’s primary and secondary wills dated February 23, 2005, which contain no specific reference to either the cottage or the mortgage. In both cases, the residue of his estate was left to Gaetanne and if she predeceased him, to Tania. If Gaetanne has a will, it has not been produced.
[13] The primary will disposes of all assets except shares and receivables in 1145508, which are the subject of the secondary will.
[14] Tania produced a Direction and Acknowledgement Respecting Mortgage signed by the Hobsons dated September 23, 2001, which contains the following language:
We further acknowledge that we have effected arrangements between ourselves within the context of our accountant’s “memorandum” dated August 2, 2001 which was faxed to you on September 12, 2001. We will be effecting our own arrangements respecting the liability of Tania Chantal Hobson with respect to amounts owing under the mortgage for monies owing over and above the initial purchase price of $145,000.00 plus acquisition costs (herein referred to as the “Initial Amount”) and the amount of $175,000.00 being the face amount of the Mortgage.
The obligation of Tania Chantal Hobson for amounts in excess of the “initial amount” shall be established by memorandums executed by the parties hereto at such time as renovations and repairs are made or by virtue of other memorandums executed by the parties which confirm additional liability.
[15] A copy of this Direction and other closing documents were sent with Mr. Gariepy’s reporting letter dated January 18, 2002 and which was addressed to Keith, Gaetanne and Tania.
[16] Tania has also produced an email dated June 4, 2018 from Donald Prendergast to her lawyer. Mr. Prendergast acted when the mortgage was increased. He says:
I do not see a reporting letter to Tania in my file. I have met with Gaetanne Hobson and she confirms that after Keith died in 2009, that the mortgage was increased from $175,000.00 to $350,000.00 to protect Tania.
The Testimony
[17] Gaetanne testified that:
- she and Keith did not intend to gift the cottage to their daughter when they purchased it;
- the transaction was structured to avoid capital gain and was done with the advice of their accountant on whom they relied;
- they took a mortgage to protect their investment in the event Tania had creditors or a failed marriage;
- Tania was 20 when the cottage was purchased;
- they intended to gift the cottage to Tania in their wills;
- Mr. Prendergast is wrong when he advised Tania’s lawyer that the mortgage was increased to protect Tania;
- rather, it was to protect Gaetanne;
- she no longer wishes to gift the cottage to Tania; and
- they would not be involved in the lawsuit if Keith were alive.
[18] Robert Rogers testified:
- he is a retired accountant who provided accounting advice to Keith and Gaetanne;
- they intended to purchase a holiday property but were concerned about capital gains;
- he met with them to discuss how to structure the purchase transaction and a decision was made to have title placed in Tania’s name;
- they would take a mortgage for the entire value of the property in order to protect themselves and their investment in the event something happened to Tania;
- a mortgage would ensure they had control of the property;
- in his view, the cottage was not a gift to Tania;
- they were purchasing it for themselves and would leave it to her in their wills; and
- the property had to be in Tania’s name and she could not hold it in trust for her parents.
[19] Paddy Coughlin testified:
- he is a chartered accountant;
- he was not involved in this purchase transaction;
- the transaction was structured to avoid capital gains;
- the property had to be in Tania’s name and she would have to be the true owner; and
- if the intention was for Keith and Gaetanne to control the cottage, he does not understand why a mortgage would be taken to achieve that.
[20] I pause here to note the Mr. Coughlin was not involved in the transactions and his evidence related to how they were structured and his conclusion as to why. He was not asked to be qualified by the Court to testify as an expert. He did not sign a Form 53 acknowledgement of expert’s duty. Ultimately, for reasons that will become clear, his evidence is unnecessary to my conclusions. Consequently, I need not deal with its admissibility to which objection was made by Gaetanne.
[21] Tania testified:
- her parents purchased the cottage with funds from an inheritance Keith received and repayment of a debt, which had been earmarked for her university expenses but were no longer required for that purpose;
- her father told her the cottage would be in her name alone;
- he was concerned about a matrimonial claim if she married and divorced;
- a mortgage would be placed on title;
- the mortgage was intended to protect her;
- it would be forgiven upon their death;
- after Keith’s death, Gaetanne had the cottage appraised;
- she signed an increased mortgage under threat of eviction;
- she signed a will in which she left the cottage to her mother (which also has not been produced);
- Gaetanne told her she had a life lease for the cottage;
- her parents paid for the cottage and all improvements, until 2018 when she assumed responsibility for expenses; and
- the tax bill was addressed to her but mailed to Gaetanne’s address.
[22] Alfred Gariepy testified:
- he practises as a solicitor and was retained by the Hobsons on a joint retainer;
- he prepared the closing documents, which he sent to them for execution;
- he received a copy of Mr. Rogers’ memorandum, likely from Keith;
- he did not speak to Mr. Rogers;
- he perceived Keith to be a sophisticated businessman;
- he did not consider that Tania was to hold title as trustee;
- if Tania was a trustee, capital gains would be triggered; and
- a trustee would have no insurable interest for the purposes of fire insurance.
The Parties’ Positions
[23] Gaetanne submits:
- she is the owner of the cottage by virtue of a purchase money resulting trust;
- the cottage was put in Tania’s name solely for income tax purposes;
- a mortgage was placed on title to protect their interest and to ensure they had control of the cottage; and
- Mr. Rogers’ evidence is confirmatory of hers.
[24] Tania submits:
- the intention at the time of the closing is relevant and the evidence proves that she owns the cottage;
- beneficial ownership had to be hers for income tax purposes; and
- the property was mortgaged to protect the investment, namely the cottage and her in the event of a matrimonial or creditor claim.
Analysis
[25] The analysis necessarily begins with an examination of intention. Pecore v. Pecore, 2007 SCC 17 is the leading authority on presumptions of resulting trust and advancement. The presumptions only arise if “evidence of the transferor’s intent in making the transfer is unavailable or unpersuasive. This may be especially true when the transferor is deceased and thus is unable to tell the court his or her intention in effecting the transfer” (at para. 23).
[26] I have concluded that it is unnecessary to deal with the presumptions. I am satisfied that preponderance of evidence demonstrates that at the time of the cottage purchase, Keith and Gaetanne intended that title would be in Tania’s name and the cottage hers. Unfortunately, given the estrangement, Gaetanne regrets the decision.
[27] Obviously, given the parties’ self-interest, their evidence must be viewed with a degree of scepticism. Consequently, the contemporaneous documentary evidence takes on considerable importance.
[28] I would observe at the outset that Keith appears to have been directing the transaction. Mr. Gariepy believes that he received instructions and the copy of Mr. Rogers’ memorandum from Keith. Keith signed the Agreement of Purchase and Sale and the Direction as to title. Funds to close the purchase were drawn from his company. Mr. Gariepy formed the impression that Keith was an experienced businessman.
[29] The parties are agreed that title was taken in Tania’s name to avoid adverse tax treatment. Mr. Gariepy testified that Tania could not be trustee with her parents retaining a beneficial interest. This would not accomplish their tax planning objectives. Mr. Gariepy also made the valid point that a trustee would have no insurable interest for the purposes of fire insurance. Mr. Gariepy was a good witness who recognized his professional obligations on a joint retainer. He gave evidence fairly and I accept it.
[30] I do not consider his evidence to be at odds with much of Mr. Rodgers. Indeed, the memorandum is consistent with Mr. Gariepy’s understanding of the transaction. It makes three points:
- the transaction’s structure was to avoid a capital gain;
- the mortgage would be forgiven; and
- their investment and control of that investment would not be jeopardized if Tania were to have creditors in future.
[31] On this last point, the mortgage transactions were clearly designed to prevent any creditors having access to the cottage’s equity. Not only would that protect the initial investment of funds, it would protect Tania’s ownership. This is consistent with Mr. Prendergast’s understanding and indeed what he says Gaetanne confirmed to him.
[32] Mr. Rogers testified that Keith and Gaetanne did not intend to gift the cottage to their daughter but rather would bequeath it to her in their wills. However, Keith’s will contains no such stipulation and for obvious reason. He could not bequeath something to which he had no title. As a result, I believe Mr. Rogers to be mistaken on this point.
[33] However, Keith’s will does not contain a reference to the mortgage either. It may be that he and Gaetanne intended to forgive the mortgage on their death but that did not happen. Gaetanne did not produce her will although it is probably not relevant because she is at liberty to change it at any time prior to her death.
[34] Consequently, what is the effect of the mortgage registered on title? Is Tania’s ownership interest subject to the mortgage in favour of Gaetanne?
[35] Clearly, the mortgage was used as a way to shield the cottage if Tania experienced financial misfortune. It protected both Tania’s ownership interest and the cottage that was enjoyed by the Hobson family. Funds to purchase and improve the cottage were advanced by Keith and Gaetanne. The mortgage was later increased, essentially to tie up or insulate the increased equity because of the cottage’s increased value. However, no advance of funds was made to Tania at that time.
[36] The answer must be found in the Direction and Acknowledgement dated September 23, 2001 and signed by the three Hobsons. It refers to arrangements being made by the parties respecting Tania’s liability for amounts in excess of the initial amount as defined in the document and the face amount of the mortgage.
[37] Tania’s liability was to be established by memoranda signed by the parties. None have been produced. It is reasonable to conclude that none exist.
[38] Neither Gaetanne nor Tania were asked about this document. Mr. Rodgers and Mr. Gariepy were not either. It is not felicitously worded. However, it seems clear that it contemplates that Tania is liable for the mortgage. As I say, it may be that the Hobsons intended to forgive the mortgage upon their deaths but for whatever reason that has not occurred. The liability remains.
[39] The mortgage was subsequently increased for Tania’s protection. However, she received no consideration whatsoever. In my view, this mortgage does not reflect any indebtedness by Tania to Gaetanne. Her liability is limited to the mortgage originally registered.
[40] It follows that Gaetanne’s application must be dismissed.
[41] I will receive brief written submissions on costs by September 2, 2019 according to a timetable that I will leave to counsel to arrange.
