COURT FILE NO.: CV-19-618947

DATE: 2020-09-01

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: ENRICO IAFOLLA, Applicant

AND:

JOLANTA LASOTA, Respondent

BEFORE: Schabas J.

COUNSEL: Payam Ezzatian, counsel for the Applicant Brian Pilley, counsel for the Respondent

HEARD: August 18, 2020

REasons for judgment

[1] On this application, the applicant seeks a declaration that, as a judgment creditor of the ex-husband of the respondent, he is entitled to receive the balance of the proceeds of the sale of a matrimonial home that were awarded to the husband in a Divorce Order (defined below). The Notice of Application also seeks to set aside the Divorce Order to the extent it interferes with the Applicant’s right to obtain the proceeds, although at the hearing of this application the applicant argued that it was not necessary for me to vary or set aside the Divorce Order.

[2] For the reasons that follow, I dismiss the application. The Divorce Order validly directed that the husband’s share of the proceeds of the matrimonial home were to be applied to arrears of support payments and to an equalization payment, with the remainder to be held in trust in the event that the ex-husband continued to shirk his obligations to make continuing support payments. That was an order the judge had jurisdiction to make under the Divorce Act, R.S.C., 1985, c. 3 (2^nd Supp.) and pursuant to her equitable jurisdiction. To vary or set aside that Order, the applicant should have brought his request for relief in the divorce proceedings, where the objectives of the Divorce Act and all the equities could be addressed in resolving whether the applicant should have any priority over the remaining funds.

Background

[3] The applicant, Enrico Iafolla (“Iafolla”), obtained a judgment against the respondent’s ex-husband, Zlatko Antonov (“Antonov”) arising out of a motor vehicle accident in which Antonov was uninsured. The judgment was signed by Faieta J. on June 6, 2016 and was for the amount of $380,071.23. While I will sometimes refer to the applicant by name, in fact the claim has been subrogated to Iafolla’s insurer which is seeking to collect on the judgment.

[4] Antonov was, at the time of the accident, married to the respondent, Jolanta Lasota (“Lasota”). They were joint tenant owners of their matrimonial home, located at 23 Savona Drive in Toronto, where they lived with their child.

[5] On October 3, 2017, Lasota commenced divorce proceedings in the Superior Court.

[6] On November 28, 2017, Iafolla registered a Writ of Seizure and Sale (the “Writ”) on title to the property at 23 Savona Drive.

[7] On July 25, 2018, following an uncontested divorce trial, Backhouse J. granted the divorce (the “Divorce Order”). Justice Backhouse granted sole custody of the child to Lasota and directed Antonov to make monthly child support payments of $1,429. Backhouse J. ordered arrears for child support to be paid by Antonov of $14,290. Antonov was also ordered to pay spousal support in the amount of $3,191 per month, and to pay arrears of $24,360.

[8] The Divorce Order directed that the matrimonial home be sold and that the proceeds, net of commissions, legal expenses, tax arrears and the outstanding mortgage, be divided into two equal shares. However, Backhouse J. directed that Antonov’s share be reduced by the arrears and an equalization payment of $28,408, as well as costs of $12,279. She also ordered that the remaining balance of Antonov’s share of the proceeds “be held in trust as security for the Respondent’s future child and spousal support obligations.”

[9] Backhouse J. was not made aware of the judgment against Antonov, or the Writ registered on title to the matrimonial home. Lasota states that she was unaware of the judgment and Writ, although the applicant argues that she must have known of it, given her management of the household finances and that she opened her husband’s mail.

[10] In September 2018, an agreement was reached to sell the matrimonial home for $880,000, with a closing on November 30, 2018. Prior to the closing, however, it was necessary to remove the Writ from title, which is how the applicant became aware of the Divorce Order.

[11] The net proceeds of the sale were $594,273.30. It was agreed between Lasota and Iafolla that following the payments from Antonov’s share directed by Backhouse J. described above, and payment of an additional 8 months of spousal and child support which were additional arrears from the date of the Divorce Order to the date of sale, all of which totalled $116,297, the balance of Antonov’s share of the proceeds would be placed in trust without prejudice the applicant’s right to bring an application to determine who has priority to those funds. The amount in issue is $180,670.15.

[12] Antonov has apparently never made any support payments, including pursuant to the Divorce Order. One year after the sale, as of October 2019, Antonov’s arrears were approximately $60,000, and would now be over $100,000.

Issues

[13] The applicant’s position is that he is entitled to the full amount of $180,670.15 pursuant to his rights under s. 2 of the Creditors' Relief Act, 2010, S.O. 2010, c. C.16, Schedule 4, (“CRA”), and applies for the release of same to him. He submits that the Divorce Order should be set aside to the extent that it interferes with his rights under the CRA.

[14] The respondent submits that the Court has no jurisdiction to vary the Divorce Order outside the divorce proceedings, and that the Writ and the CRA create no substantive right to the funds for the applicant.

Analysis

[15] The parties rely on conflicting lines of cases.

[16] The applicant relies on the CRA to support his argument that Lasota has no priority to the funds, and on decisions in matrimonial proceedings which prevent courts from making retroactive orders to defeat creditors of a spouse.

[17] Section 2 of the CRA states:

2. (1) Except as otherwise provided in this Act, there is no priority among 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, 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.

[18] The effect of this section is to give priority to support orders that involve a lump sum, or require periodic payments, but only to the extent that those periodic payments are in arrears or the lump sum has not yet been paid. This would explain why the applicant consented to the payment of the amounts ordered by Backhouse J. being made to the respondent following the sale of the house. However, following that payment which cleared up arrears to that date, it is argued it that no further priority exists, and the applicant is entitled to collect on his judgment.

[19] The principal case relied on by the applicant is Maroukis v. Maroukis, (1981), 1981 CanLII 77 (ON CA), 33 O.R. (2d) 661 (Ont. C.A.), appeal dismissed, 1984 CanLII 76 (SCC), [1984] 2 SCR 137. In that case, which involved orders under the Family Law Reform Act, 1978 (Ont.) c. 2, the judge ordered that the matrimonial home, previously acquired in joint tenancy, vested with the wife at the date of separation. He declared that any executions on the property did not affect her title to it. This had the effect of defeating creditors of the husband who had obtained judgments and filed executions on the property after the date of separation but before the judge’s order vesting title retroactively. The Court of Appeal held that the trial judge had no jurisdiction to make such a retroactive order since the house was held in joint tenancy when the executions were filed and “attached to [the husband’s] interest in it.” The Supreme Court of Canada agreed with the Court of Appeal’s conclusion.

[20] Maroukis was followed in Ferguson v. Ferguson, [1994] O.J. No. 1975 (Ont. S.C.J), which found that a writ of execution for a debt of the husband, filed before the order that the house be sold and proceeds divided, “has priority over any claim that the wife has to the husband's net proceeds of the sale of the matrimonial home.” (para. 26).

[21] In M.J.C. Investment Corp. v. Cole, 2013 ONSC 6293, a more recent decision, this Court observed, at para. 28, that “while the Creditors Relief Act operates to grant priority to orders for support and maintenance over execution judgments, it does not do so without regarding to the timing of that order,” and therefore a vesting order that provided a spouse with title was “subject to any valid encumbrancers or registered execution creditors with an interest in the lands at the time the vesting order was made”, citing Lynch v. Segal, 2006 CanLII 42240 (ONCA), [2006] O.J. 5014 (C.A.) at paras. 46 and 65.

[22] Accordingly, the applicant submits, the order of Backhouse J. that the balance of Antonov’s proceeds be held in trust to be available to cover arrears is subject to Iafolla’s right to collect on his judgment from that sum. Indeed, the applicant points out, based on the line of cases discussed above, had Justice Backhouse been aware of the Writ she could not have made an order overriding its effect. Consequently, it is argued that it is not even necessary to vary the Divorce Order, but simply declare that the applicant has an entitlement to the proceeds.

[23] Counsel for Lasota, on the other hand, argues that this application should have been brought by the applicant as an intervener in the matrimonial proceeding. He cites s. 17 of the Divorce Act, which provides in that a support order “or any provision thereof” can only be varied on application by spouses, unless leave of the court is granted. He points out that the cases cited by the applicant are all in family law proceedings. This is for good reason, it is argued, given the role of a judge in a matrimonial proceeding in assessing division of property and support, and the equities between the spouses.

[24] The respondent relies on Stevens v. Stevens, 2005 CanLII 34598, in which Reilly J. distinguished Maroukis and Ferguson as cases determined under provincial family law statutes which did not permit retroactive orders, whereas the creation of a trust is based on the court’s equitable jurisdiction. In Stevens a retroactive vesting order was found to prevail over a writ filed by a bank. Reilly J. also held that only a party to an original proceeding is entitled to apply for an order to amend or vary a judgment.

[25] The Court of Appeal agreed with Reilly J. that the judge who had made the vesting order invoked his equitable jurisdiction and that this properly distinguished it from the decisions in Maroukis and Ferguson: Stevens v. Stevens, 2006 CanLII 23141 (ON CA), at paras. 12 and 15.

[26] Similarly, in Silver v. Silver, 2017 ONSC 7749, funds placed in trust for future support payments had priority over an execution creditor.

[27] I agree with the respondent’s submissions. Backhouse J. was concerned about Antonov’s willingness to comply with her support orders and crafted the Divorce Order to create a trust to protect the respondent’s right to obtain spousal and child support from her ex-husband. This was open to Justice Backhouse under her equitable jurisdiction, and takes priority over the applicant’s interest which, in any event, is simply that of an execution creditor whose interest is subject to “all the equities”: Ontario Development Corp. v. Trustee of the Estate of I.C. Suatac Construction Ltd. (1976), 1976 CanLII 876 (ON CA), 12 O.R. (2d) 465 (C.A.); see also 1842752 Ontario Inc. v. Fortress Wismer 3-2011 Ltd., 2020 ONCA 250 at para. 37.

[28] Moreover, Backhouse J. was not operating under the authority of Ontario’s family law regime, but under the Divorce Act, which limits the way in which orders may be varied, and which was not followed here. As Justice Backhouse established a trust, it is necessary to vary her order if the applicant is entitled to obtain any entitlement to those funds. This must be done in the matrimonial proceeding.

[29] In Stevens, Cronk J.A. expressed concern that the bank was pursuing a collateral attack on the original vesting order, stating at para. 21 that “the determination of this issue required an evaluation and weighing of the equities as between the Bank and Ms. Stevens”. This case illustrates that concern and why attempts to vary such orders should be addressed in the original proceeding, where the Court may consider the equities between the parties, including the scope and purposes of support orders made under the Divorce Act.

Conclusion

[30] The application is dismissed. Counsel for the respondent may provide costs submissions not exceeding 2 pages, double-spaced, not including supporting materials, to me within 14 days of the release of these reasons, and counsel for the applicant may provide reply materials, similarly limited, 7 days later.

Schabas J.

Date: 2020-09-01