Court File and Parties
COURT FILE NO.: 33-2414856 and 32-2414857 DATE: 2021/08/17
ONTARIO SUPERIOR COURT OF JUSTICE IN BANKRUPTCY and INSOLVENCY
IN THE MATTER OF THE BANKRUPTCY OF MICHAEL JOHN DEYELL AND TREVOR JAMES PREVOST OF THE CITY OF OTTAWA IN THE PROVINCE OF ONTARIO
BEFORE: Justice Stanley J. Kershman
HEARD IN OTTAWA: June 30, 2021 at Ottawa by Zoom
APPEARANCE: K. Ferreira, for Comtech Fire Credit Union Limited G. Hamod, for the Respondent Dean Munroe and Violette Munroe-Labelle
REASONS FOR decision
Introduction
[1] This motion is brought by Comtech Fire Credit Union (“Comtech”) seeking the distribution of the balance of the funds held by Menlove Law Professional Corporation (“Menlove”) in a certain manner, being the balance of the funds held in trust from the sale of the property at 421 Chase Road, Hillier, Ontario, (“Property”), together with other relief.
[2] The Respondents, Dean Leonard Munroe (“Munroe”) and Violette Georgette Munroe-Labelle (“Labelle”), bring a cross-motion for various relief as set out in the cross-motion.
Factual Background
A. Parties
[3] Comtech is a credit union carrying on business in the Province of Ontario and is a creditor of the bankrupt, Michael John Deyell (“Deyell” or “Bankrupt”). This application relates only to property owned by Mr. Deyell and not Mr. Prevost.
[4] Mr. Deyell held a one-third joint interest in the Property municipally known as 421 Chase Road, Hillier, Ontario.
[5] The other owners of the Property were Mr. Deyell's former partner, Mr. Munroe, and Mr. Munroe's mother, Ms. Labelle.
[6] The three parties together held title to the Property as joint tenants and each owned a one-third interest in the Property.
[7] On April 13, 2015, the three owners granted to the Canadian Imperial Bank of Commerce (“CIBC”) a collateral mortgage (the “CIBC Mortgage”) against title to the Property. The CIBC Mortgage secured all indebtedness (the “Mortgage Debt”) owing by Deyell, Munroe, and Labelle to the CIBC up to the original principal amount of $670,000.
[8] This mortgage included a conventional first mortgage together with a secured line of credit.
B. Bankruptcy
[9] On August 29, 2018, Mr. Deyell made an assignment into bankruptcy.
[10] The trustee in bankruptcy is Doyle Salewski Inc. (the “Trustee”).
[11] The bankruptcy severed the joint tenancy and Mr. Deyell's one-third interest in the Property vested in the Trustee.
C. Comtech’s Proofs of Claim
[12] Comtech filed separate proofs of claim for the debts owed by Mr. Deyell to Comtech.
[13] The Trustee accepted all the proofs of claim and admitted the full amount of the debts owed to Comtech by Deyell, which was $123,281.00.
D. The Section 38 Order
[14] On February 25, 2019, Master Kaufman granted Comtech an order (the “Section 38 Order”) pursuant to section 38 of the Bankruptcy and Insolvency Act (“BIA”) to, among other things, allow Comtech to bring a partition and sale application (the “Application”) to sell the Property and realize upon the Bankrupt’s interest.
[15] The Trustee took no position on Comtech's section 38 motion (the “Section 38 Motion”).
[16] The Section 38 Order provides, among other things, that:
a) all benefits (the “Benefits”) to be derived from the Application, including costs, shall belong exclusively to Comtech and to the creditors (the “Participating Creditors”) that agree to contribute pro rata to the expense and risk of the Application;
b) the costs of Comtech and the Participating Creditors shall be paid from the Benefits and the balance, if any, shall be divided between Comtech and the Participating Creditors pro rata according to the respective amount of their claims; and
c) any balance after paying Comtech's claim, the costs of the Application, the costs of the Section 38 Motion and the claims of the Participating Creditors, shall be paid to the Trustee for the benefit of the Estate.
[17] On April 12, 2019, Comtech wrote to the Bankrupt's other creditors as identified by the Trustee. None of the creditors responded to Comtech or agreed to participate in the Application. Accordingly, pursuant to the Section 38 Order, Comtech is the only creditor entitled to the Benefits under the Application.
E. The Partition and Sale Order
[18] On January 22, 2020, the Honourable Justice Kershman made an order (the “Partition and Sale Order”) and granted the Application. Mr. Munroe and Ms. Labelle initially opposed the Application, but later consented to the relief quite close to the Application hearing.
[19] The Partition and Sale Order provides, among other things, that:
a) the parties (the "Parties") list the Property for sale;
b) the Mortgage Debt was $488,270.10 as at September 1, 2019;
c) the real estate solicitor shall provide a full accounting of the sale of the Property;
d) the real estate solicitor shall deposit the balance of the net sale proceeds into its trust account and shall not payout the net sale proceeds except as directed by a written direction signed and witnessed by all of the Parties or in accordance with an order of the Court;
e) if one of the Parties fails to honour any of the terms of the Partition and Sale Order, the other party or Parties may seek further direction from the Court; and
f) if the Parties fail to reach agreement as regards to the costs of the Application, the Parties may seek direction from this Court as to how the costs, if any, are to be granted, and if so, whether the costs of the Application shall be paid from the proceeds of the sale of the Property and in advance of any distribution of the net sale proceeds.
F. The Sale of the Property
[20] On January 28, 2020, the Parties retained Royal LePage ProAlliance Realty, Brokerage to list and sell the Property.
[21] On August 7, 2020, the Parties executed an amended purchase and sale agreement for the sale (the “Sale”) of the Property. The Parties agreed to sell the Property for $980,000 with a closing (the “Closing”) date of December 15, 2020.
[22] The Parties retained Menlove to act as the real estate solicitor for the Sale of the Property.
G. The CIBC Mortgage and the Discovery of the Line of Credit
[23] On December 11, 2020, CIBC sent a discharge statement (the “Discharge Statement”) to Menlove for the amount owing to it under the CIBC Mortgage. The Discharge Statement disclosed that the Mortgage Debt was $558,827.89 comprised of the following:
a) the CIBC mortgage loan (the “CIBC Loan”) which had increased to $508,479.99, for additional interest due; and
b) the amount of $50,248.66 owing to CIBC on account of a line of credit (the “Line of Credit”) that had been drawn down following the Partition and Sale Order.
[24] Mr. Munroe and Ms. Labelle drew down on the Line of Credit following the issuance of the Partition and Sale Order without first seeking Comtech's consent. Comtech received none of those funds.
[25] Comtech claims that based on the Discharge Statement, Mr. Munroe and Ms. Labelle depleted the sale proceeds by $50,248.66 (the “LOC Debt”).
H. The Closing of the Sale
[26] On December 15, 2020, the Sale closed and Menlove paid the CIBC $558,827.89, which represented the balance owing on the CIBC Loan and the Line of Credit.
[27] Following the Closing, Menlove provided the Parties with a trust ledger statement. The trust ledger statement disclosed that Menlove held $369,843.50 in its trust account on account of the net sale proceeds (the “Net Sale Proceeds”). The Net Sale Proceeds are being held in accordance with the Partition and Sale Order.
[28] On January 29, 2021, Menlove issued a reporting letter to the Parties.
I. Comtech Requests the Statements for the Line of Credit
[29] Mr. Ferreira advised the Court that both before and after the Closing he contacted Mr. Hamod, counsel for Mr. Munroe and Ms. Labelle, to request production of the bank statements associated with the Line of Credit.
[30] According to Comtech, and despite repeated requests, Mr. Munroe and Ms. Labelle have not provided an explanation for the LOC Debt or copies of the statements associated with the Line of Credit.
[31] Mr. Fox, a lawyer acting for Comtech, requested the account histories for the Line of Credit and CIBC Loan. No account histories were received.
J. No Agreement on Costs or the Distribution of the Net Sale Proceeds
[32] The Parties have not been able to agree on the distribution of the Net Sale Proceeds or the costs of the Application.
[33] Comtech relies on the Section 38 Order as proper authority to receive:
a) its costs of the section 38 Application; and
b) one-third of the Net Sale Proceeds.
[34] Comtech also seeks payment, from Mr. Munroe and Ms. Labelle's portion of the Net Sale Proceeds, for an amount equal to one-third of the LOC Debt. It claims that Mr. Munroe and Ms. Labelle reduced the amount of the Net Sale Proceeds available for distribution by incurring the LOC Debt.
Issues
[35] The overriding issue on both the motion and the cross-motion is who is entitled to how much of the money held in trust.
[36] All parties acknowledge that the total amount of monies available is $369,843.50. The parties also agree that a one-third share of the monies would be $123,281, prior to any claims.
[37] The sub-issues on both the motion and the cross-motion are as follows:
Is Comtech entitled to a claim of $7,000 for legal fees, disbursements, and relevant taxes in relation to the section 38 Application?
Should Mr. Munroe and Ms. Labelle have to account to Comtech for one-third of the amount they took from the secured Line of Credit after the date the Section 38 Order was granted, which is $16,749.55 (50,248.66/3)?
Are Mr. Munroe and Ms. Labelle entitled to an allowance or contribution and indemnity from the Bankrupt’s share of the proceeds because they paid the mortgage payments of principal and interest after the Bankrupt left the property and after which time the Bankrupt made no further payments?
Are Mr. Munroe and Ms. Labelle entitled to reciprocal allowance for the amount drawn by the Bankrupt in 2015 of approximately $54,897.54?
Is Comtech entitled to share the profits generated by the Airbnb for guests who stayed at the property?
Issue #1: Is Comtech entitled to a claim of $7,000 for legal fees, disbursements and relevant taxes in relation to the section 38 Application?
Comtech’s Position
[38] Comtech argues that by virtue of the assignment into bankruptcy, the joint tenancy with Mr. Munroe and Ms. Labelle was severed and that a tenancy in common was created as between the Trustee and Mr. Munroe and Ms. Labelle.
[39] The Trustee could have pursued partition and sale of the property, subject to any rights, protection, and arguments available at law to the non-bankrupt owners.
[40] The Trustee chose not to proceed with partition and sale because it did not believe there were enough funds in the estate to commence such proceedings.
[41] Comtech brought the application for the Section 38 Order and was successful. On that basis, it should be entitled to its costs of $7,000.
Mr. Munroe and Ms. Labelle’s Position
[42] Mr. Munroe and Ms. Labelle argue that throughout these proceedings Comtech has unnecessarily increased the cost to all parties.
[43] They argue that Comtech did not attempt to sell the property by mutual agreement prior to bringing the Application. They argue further that they did not receive a letter of demand from Comtech before being served with the initial notice of application and were compelled to file responding materials so as to not prejudice themselves in the event that a consent order could not be agreed upon.
[44] Mr. Munroe and Ms. Labelle are hoping to limit the cost and procedures to all parties involved and request that the court summarily determine how to distribute the Net Sale Proceeds. Mr. Munroe argues that he filed a claim for a constructive trust against the Bankrupt’s interest in the Property and was granted a lifting of the stay pursuant to the claim made by this Court on December 11, 2019. The Court finds that no proceedings have been commenced by Mr. Munroe pursuant to the lifting of the stay.
[45] Given that the proceedings arose from the Bankrupt’s misconduct, Mr. Munroe and Ms. Labelle argue that the costs related to the proceedings granted to Comtech should be awarded exclusively out of the Bankrupt’s share of the proceeds.
Analysis
[46] The Section 38 Order granted Comtech the right to stand in the Trustee’s shoes pursuant to section 38(1) of the BIA. This ensures that the Bankrupt’s one-third interest in the proceeds of the Property was preserved for the benefit of all the creditors who wished to join or participate in the Application.
[47] Comtech advised all other creditors in accordance with section 38 of the BIA and the Section 38 Order. No other creditors chose to participate. On that basis, Comtech carried all costs associated with the proceedings.
[48] Having reviewed the wording of the Section 38 Order, the Court is satisfied that Comtech should be entitled to its costs of bringing the section 38 Application. The Court is aware that Mr. Munroe and Ms. Labelle consented to the Section 38 Order very close to the court date.
[49] Notwithstanding the consent, Comtech had to take the necessary steps to bring the 38 Application and obtain the Section 38 Order.
[50] The Court finds that the costs claimed of $7,000 for the section 38 Application are appropriate and assesses Comtech’s costs for these proceedings at $7,000. This money is payable out of the gross proceeds held in trust before payment to anyone else, including Comtech.
[51] Paragraph 5 of the section 38 Order states that Comtech and the creditors’ costs to comply with paragraph 4, “shall be paid from the benefits and the balance, if any, shall be divided between Comtech and the participating creditors pro rata according to the respective amounts of their claims.”
[52] The Court finds that the $7,000 costs claim be subtracted from the $369,843.50 held in trust.
[53] Therefore, the Court finds that after subtracting the $7,000 costs, the balance held in trust is $362,843.50. The Court finds that the $362,843.50 is the starting point for dividing the balance of the proceeds.
Issue #2: Should Mr. Munroe and Ms. Labelle have to account to Comtech for one-third of the amount that they took from the secured line of credit close to the date that the Section 38 Order was granted, which amounts to $16,749?
Comtech’s Position
[54] Comtech argues that on December 11, 2020, CIBC issued the Discharge Statement showing the amount owing under the CIBC Mortgage to Menlove. The Discharge Statement disclosed that the Mortgage Debt was $558,827.89 comprised of the following:
a) The CIBC Mortgage loan that had increased to $508,479.99 for additional interest due; and
b) The amount of $50,248.66 that was also due to the CIBC on account of a secured Line of Credit, part of which was incurred shortly before the Partition and Sale Order was made.
[55] Comtech said it only learned of the Line of Credit’s outstanding balance when it received a copy of the Discharge Statement. Comtech argues that Mr. Munroe and Ms. Labelle should have disclosed this information when they provided their consent to the Partition and Sale Order, which was on the eve of the Application date.
Mr. Munroe and Ms. Labelle’s Position
[56] Mr. Munroe and Ms. Labelle do not deny that they drew against the Line of Credit and that the outstanding principal amount of $47,703.61 resulted from their use of the Line of Credit.
[57] Mr. Munroe and Ms. Labelle argue that Comtech never requested that the Line of Credit be closed or that they abstain from using the Line of Credit.
[58] They argue that the Bankrupt, during April 2015, used $54,896.54 of the Line of Credit, which he never reimbursed.
[59] Mr. Munroe and Ms. Labelle argue if the allowance is made for a one-third reimbursement on the Line of Credit when it was closed, then there should be a reciprocal allowance made for the two-thirds of the $54,897.54 drawn by the Bankrupt in 2015, amounting to $36,598.36.
Analysis
[60] Paragraph 6 of the Partition and Sale Order states that “the amount payable under the CIBC mortgage as of September 1, 2019 is $488,270.10.” Comtech argues that Mr. Munroe and Ms. Labelle, in providing their consent, never sought to correct the form of the Partition and Sale Order to reflect the increased amount of the Mortgage Debt owed to the CIBC.
[61] In addition, Comtech argues that Mr. Munroe and Ms. Labelle did not advise Comtech what the monies drawn from the Line of Credit were used for, despite numerous requests to provide the information.
[62] Comtech argues it was only on June 11, 2021, when the Respondents served the responding motion record, did Comtech learn that on December 30, 2019 Mr. Munroe and Ms. Labelle used the Line of Credit to pay down a corresponding line of credit with the Bank of Nova Scotia.
[63] Comtech argues that attempts by Mr. Munroe and Ms. Labelle to justify their actions by suggesting that Comtech never requested that the Line of Credit be closed are unreasonable.
[64] The Court notes that paragraph 6 of the Section 38 Order indicates the amount payable as of September 1, 2019 on the CIBC Mortgage was $488,270.10. The Court is prepared to accept that the amount was increased with interest payable to the date of closing.
[65] The Court does not agree that it was proper for Mr. Munroe and Ms. Labelle to draw down on the Line of Credit at a time when they knew there was a court order for partition and sale and the mortgage amount was set out in the Partition and Sale Order.
[66] The Court finds that Mr. Munroe and Ms. Labelle’s conduct of withdrawing the funds from the Line of Credit to pay down the Bank of Nova Scotia line of credit was improper, particularly knowing that there was a partition and sale application in progress.
[67] The Court finds that Mr. Munroe and Ms. Labelle should have disclosed to Comtech what they were doing when paying down the Bank of Nova Scotia line of credit. Even if they had, the fact that they were using a line of credit partially belonging to the Bankrupt should not be reason to allow them to have an improper advantage over Comtech, who brought the section 38 Application.
[68] The Court finds that Mr. Munroe and Ms. Labelle’s drawing down on the Line of Credit on December 30, 2019 was inappropriate as it relates to Comtech. On that basis, the Court finds that Comtech should not have to pay $16,749, which is the one-third share of the $50,248.66. This amount should be payable only by Mr. Munroe and Ms. Labelle.
[69] The Court is unsure how Mr. Munroe and Ms. Labelle arrived at the figures of $49,703.61, being the outstanding principal balance together with accrued interest of $164.72 at December 15, 2020.
[70] The Court finds that the amount to be divided is $50,248.66 as opposed to the numbers provided by Mr. Munroe and Ms. Labelle above.
[71] Accordingly, Comtech should receive a credit of $16,749.
Issue #3: Are Mr. Munroe and Ms. Labelle entitled to an allowance, or contribution and indemnity from the Bankrupt’s share of the proceeds because they paid the mortgage payments of principal and interest after the Bankrupt left the property and after which time the Bankrupt made no further payments?
Mr. Munroe and Ms. Labelle’s Position
[72] Mr. Munroe and Ms. Labelle argue that after the mortgage was taken out, the three parties made payments on the mortgage for a period of time in 2015.
[73] Mr. Munroe and Ms. Labelle argue that since the Bankrupt made no payments towards the mortgage after August 1, 2015, they should be given credit for paying the Bankrupt’s portion of the mortgage and that contribution and indemnity should be made for the bankruptcy or prior to any payment to Comtech or the Bankrupt’s estate.
[74] Mr. Munroe and Ms. Labelle argue that a court may, during the proceedings in a partition and sale application, make all just allowances and give such directions as to do complete equity between the parties: Mastron v. Cotton (1925), 1925 464 (ON CA), 58 O.L.R. 251, at p. 2 (C.A.).
[75] They argue that where one party has paid more than their share of encumbrances, they are entitled to an allowance for the excess. They rely on the case of Re Kostiuk, 2002 BCCA 410, 2 B.C.L.R. (4th) 284, at para. 56.
[76] According to their calculations, the Bankrupt only paid a share of the mortgage payments for 2015 of $3,191.50. Thereafter he made no further payments.
[77] On that basis, according to Mr. Munroe and Ms. Labelle, they should receive an allowance of $58,038.27, being the difference between the Bankrupt’s share of payments less what he actually paid ($61,229.42-$3191.15).
[78] They argue that the Mortgage Debt was common and that contribution and indemnity should be made from the Bankrupt’s share prior to making any payment to Comtech or the Bankrupt’s estate.
Comtech’s Position
[79] Comtech argues that Mr. Munroe and Ms. Labelle’s position is problematic for three reasons:
The allegations made in the affidavits without any supporting financial documentation demonstrate that Mr. Munroe and Ms. Labelle carried the cost of the Property and the amount of those costs. No accounting records, tax returns, or bank statements were filed by Mr. Munroe and Ms. Labelle;
The allegations only deal with half of the question. The other half of the question is rental income. Comtech argues that Mr. Munroe and Ms. Labelle presumably received the rental income. There is no accounting for how much that income was, what the property expenses were, and whether the property produced a profit; and
Mr. Munroe and Ms. Labelle were the only parties that drew monies against and benefitted from the Line of Credit.
[80] In addition, Comtech argues that there is a prima facie right to an order for distribution in accordance with the title holding, which is subject to the Court’s discretion: Curtis v. Curtis, 2019 ONSC 1527, 303 A.C.W. (3d) 347, at para. 41.
[81] Comtech argues that the exercise of 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 proceedings are vexatious, or whether the moving party is using the Partition Act, R.S.O. 1990, c. P.4, to avoid contractual obligations: Curtis at para. 41.
[82] Comtech argues that no grounds were raised by Mr. Munroe and Ms. Labelle that can support the Court using its discretion to move away from ordering the Net Sale Proceeds to be distributed in accordance with the one-third title holdings of each party. Comtech says that it has come to court with clean hands. Comtech says that Mr. Munroe and Ms. Labelle have openly admitted that they have no defence of hardship. To this end, the evidence reflects that Mr. Munroe and Ms. Labelle benefitted from the Sale and that they will receive two-thirds of the Net Sale Proceeds.
[83] Comtech argues that there should be no credit given for the mortgage payments paid by Mr. Munroe and Ms. Labelle because the mortgage was an encumbrance against the entire property and had to be paid in full, no matter who contributed how much towards the monthly mortgage payments.
[84] Furthermore, Comtech argues that since none of the income from running the Airbnb was revealed by Mr. Munroe and Ms. Labelle, no corresponding credit should be given for the mortgage payments made by Mr. Munroe and Ms. Labelle on behalf of the Bankrupt.
Analysis
[85] No evidence was tendered about any written agreement between the parties as to who was responsible for how much of the mortgage payments or what would happen if one or more of the parties did not contribute to those payments. All three parties were jointly and severally liable on the mortgage. Keeping the mortgage in good standing was as much of an interest to Mr. Munroe and Ms. Labelle as it was to the Bankrupt.
[86] Furthermore, if the mortgage had not been kept up to date, the mortgagee could have taken its remedies pursuant to the mortgage and/or the standard charge terms. The mortgagee would not have had to consider who was responsible for which part of the mortgage since all three parties had signed the mortgage.
[87] The Court finds that nonpayment of the mortgage by the Bankrupt in the bankruptcy context of this case does not require the Trustee or the section 38 creditor, as the case may be, to provide a credit to Mr. Munroe and Ms. Labelle for the mortgage payments made.
[88] Furthermore, there is no evidence of how Mr. Munroe and Ms. Labelle treated the mortgage interest and the expenses with respect to the Property. Presumably the mortgage and certain of the other expenses were treated as tax deductible expenses because they were running the Airbnb. Deducting these expenses would have the effect of reducing their income and thereby reducing the income taxes that they would pay.
[89] The Court follows the reasoning in Curtis and finds that there is a prima facie right to order the distribution in accordance with how that title is held. The Court has looked at the context of this case and finds that based on the lack of any written agreement as to how and by whom the mortgage payments were to be made and what would happen if someone did not make their share of the mortgage payments, the Court exercises its discretion and finds that there will be no credit given to Mr. Munroe and Ms. Labelle for paying the Bankrupt’s share of the mortgage payments.
[90] Mr. Munroe and Ms. Labelle raised several cases including Kostiuk in which the Court says at para. 42:
Most of the cases in which these matters are considered concern co-owners who have, at one time, shared possession of the property, and one co-owner subsequently either leaves or is excluded. Many arise in cases of matrimonial disputes. There are few cases where, as here, the co-owners are strangers and one co-owner has never been in possession.
[91] The Court in Kostiuk then goes on to deal with the concept of “ouster”, which is defined as “the wrongful putting one out of rightful possession of his or her property.”: M. v. H. (1994), O.R. (3d) 118 (S.C.).
[92] There is no evidence that possession was demanded by either the Trustee or Comtech.
[93] Furthermore, there is no claim for occupational rent by either the Trustee or Comtech.
[94] The Court finds that ouster is not a consideration in the present case. Therefore, the Court finds that the Kostiuk case is inapplicable in this case.
[95] Mr. Munroe and Ms. Labelle’s counsel relies on the Mastron case stating, “the general rule is that one joint tenant, unless ousted by his co-tenant, may not sue the other for use and occupation”.
[96] Mr. Munroe and Ms. Labelle’s counsel also relies on the case of Re Kirkpatrick v. Kirkpatrick Stevenson, [1883] O.J. No. 329 (H.C.), stating that a co-tenant is not liable for the profits taken by them from common property where there is no exclusion or ouster.
[97] In the Mastron case, the parties were spouses who purchased a house as joint tenants. There was a mortgage on the house that the plaintiff made the payments on until he left. Thereafter, the defendant made the payments. The plaintiff sued for partition and sale.
[98] The Court held that where the joint tenancy was terminated by the Court ordered partition and sale, the Court was entitled to make just allowances and give directions to complete the equity between the parties. The Court went on to say that what was just and equitable depends on the circumstances of each case. The Court notes that the Mastron case does not involve a bankruptcy (at p. 768).
[99] The Court agrees that what is just and equitable depends on the facts of each case.
[100] The Court finds that what is equitable in this case is different than what was equitable in the Mastron case.
[101] In the present case, Mr. Munroe and Ms. Labelle ran the property as an Airbnb, brought in revenues, paid expenses, and kept the profits. There is no evidence put forward that there were no profits. As stated previously, Mr. Munroe and Ms. Labelle also had the opportunity to claim depreciation and other expenses related to the Property and reduce their personal income tax liability accordingly.
[102] The Court finds that the facts of this case differ from the Mastron case. Based on the just and equitable principle, the Court finds that the Mastron case does not apply.
[103] Counsel for the Respondents rely on the Kirkpatrick case. That is an 1883 case dealing with an estate. There was no bankruptcy aspect in that case.
[104] The portion of the Kirkpatrick case relied upon by counsel deals with rents and profits received by a party from the residuary real estate of which both were tenants in common. It then goes on to cite other caselaw dealing with agricultural products derived from the land.
[105] The facts of the Kirkpatrick case are easily distinguishable from the present case and as such the Court finds that the Kirkpatrick case does not apply.
[106] Mr. Hamod raised an argument that Mr. Munroe had obtained a section 69.4 of the BIA order to lift the stay of proceedings in Mr. Deyell’s bankruptcy granted by Kershman J.
[107] The Court has reviewed the order. Paragraph 2 reads as follows:
This Court further orders and declares that Dean Munroe’s right to prosecute his claim against the bankrupt shall be for the purpose only of:
a) establishing the amount for which he is entitled to prove in the bankruptcy of Michael John Deyell as an unsecured creditor; and
b) obtaining a remedy against the legal title the bankrupt held, on the date of bankruptcy, and the property municipally known as 421 Chase Rd., Hillier, Ontario, KOK 2JO.
[108] The Court finds that the purpose of the order lifting the stay of proceedings is very specific as set out by the wording.
[109] The Court finds that the specific purposes of the aforesaid order are not covered by the terms of this motion.
[110] The Court finds that paragraph 2 of the section 69.4 order does not have anything to do with any of the credit claimed by Mr. Munroe and Ms. Labelle.
[111] Mr. Hamod argues that Mr. Munroe has filed a constructive trust claim with respect to the Bankrupt’s interest in the Property. This issue was not directly argued on the motion. It was only brought up peripherally in the context of limiting procedures and costs. The Court declines to make any finding with respect to any constructive trust claim by Mr. Munroe.
[112] The Court finds that neither Mr. Munroe nor Ms. Labelle are entitled to an allowance or contribution and indemnity because they alone made the mortgage payments after the Bankrupt stopped making his share of the mortgage payments.
Issue #4: Should Mr. Munroe and Ms. Labelle receive credit for two-thirds of the $54,897.54 ($36,598.36) drawn down by the Bankrupt in 2015 from the Line of Credit?
Mr. Munroe and Ms. Labelle’s Position
[113] Mr. Munroe and Ms. Labelle argue that the Bankrupt drew down $54,897.54 from the Line of Credit in April 2015. The balance of the Line of Credit was used by Mr. Munroe and Ms. Labelle. The total amount drawn on the Line of Credit was approximately $112,000. No evidence was provided as to the proportions used by Mr. Munroe and Ms. Labelle respectively.
[114] Mr. Munroe and Ms. Labelle argue that should Comtech receive credit for the $16,749 as above, they should receive a corresponding credit for two-thirds of $54,897.54, equating to $36,598.36.
Comtech’s Position
[115] Comtech argues that no credit should be given to Mr. Munroe and Ms. Labelle for this amount because there was no evidence of an agreement as to how the monies taken in 2015 were to be repaid and by whom.
Analysis
[116] No evidence was provided of any written agreement between the three property owners related to the repayment of the Line of Credit and who would be responsible for how much.
[117] The Court finds that how the parties chose to use the Line of Credit was based on their own personal decision making or at best on business decision making. The Court finds that without any written agreement there is no basis that would allow for the credit sought by Mr. Munroe and Ms. Labelle.
[118] Therefore, the Court finds that no credit should be granted to Mr. Munroe and Ms. Labelle for the amount claimed of $36,598.36.
Issue #5: Is Comtech entitled to a share of the profits generated by the Airbnb?
Mr. Munroe and Ms. Labelle’s Position
[119] Mr. Munroe and Ms. Labelle argue on the cross-motion that they are not required to share the profits generated from the Airbnb guests staying at the Property because they did not claim any of the operating costs from the Property.
[120] They rely on the cases of Kostiuk at para. 84 and Mastron at p. 2.
[121] They also argue that a co-tenant is not answerable if they take the whole enjoyment of the property where there is no exclusion or ouster, nor for any profit they made by the employment of their industry in capital. They rely on the Kirkpatrick case at para. 12.
[122] Mr. Munroe and Ms. Labelle argue that Comtech did not allege ouster or exclusion, nor has Comtech tendered any evidence of wrongful exclusion of possession or ouster. They argue that all parties consented by their actions to Mr. Munroe and Ms. Labelle’s exclusive possession of the Property.
[123] They argue in the absence of ouster and considering that the evidence shows that the profits resulted from Mr. Munroe and Ms. Labelle’s investment of time, money, and labour without the participation of the Bankrupt, that Comtech’s claim for a share of the profits fails.
Comtech’s Position
[124] Comtech argues that it is not claiming any interest in the profits generated by the Airbnb. Rather, it argues that Mr. Munroe and Ms. Labelle have not accounted for the profits made on the Property, which they should have. Accordingly, the amounts claimed by Mr. Munroe and Ms. Labelle as a deduction for mortgage payments that should have been, but were not, contributed by the Bankrupt should be ignored.
Analysis
[125] The Court does not accept the argument by Mr. Munroe and Ms. Labelle that Comtech is making a claim with respect to any profits generated by the Airbnb.
[126] Comtech’s position is that if Mr. Munroe and Ms. Labelle claim part of the mortgage payments that were not made by the Bankrupt as a deduction, they should also be including the income, not profit, earned from operating the Airbnb. The Court notes that no information was provided as to the income and expenses of the Airbnb business.
[127] Furthermore, since this was an Airbnb business, there would also be depreciation and other expenses from running the business at the Property that were not included in the calculations. The Court finds that Comtech is not making any claim to the Airbnb profits or revenues.
[128] The Court notes that nowhere in Comtech’s notice of motion or material did it ever seek to share in the profits, as claimed by Mr. Munroe and Ms. Labelle.
[129] Therefore, the Court finds that the issue raised by Mr. Munroe and Ms. Labelle is not one that Comtech questioned. It is a non-issue. The Court finds that Mr. Munroe and Ms. Labelle’s argument with respect to this issue fails.
Conclusion
[130] In conclusion, the following are the Court’s calculations of how the proceeds are to be divided, subject to the issue of costs being resolved:
Amount held by Menlove Law Professional Corporation in Trust
$364,843.50
Payable to Comtech Re costs of s. 38 Application
($7,000)
Amount Remaining in Trust
$362,843.50
Initial Entitlement
Comtech $120,947.83
Munroe $120,947.83
Labelle $120,947.83
Share of Line of Credit taken by Munroe and Labelle after s. 38 Order granted $16,567.87
- $16,567.87
($8,283.93)
($8,283.93)
Adjustment for Bankrupt’s Line of Credit taken in 2015
0
0
0
Allowance to Munroe and Labelle for mortgage payments made by them after the Bankrupt left the Property
0
0
0
Adjustment for profits made by Munroe and Labelle re. Airbnb.
0
0
0
Amount payable to each party. This is subject to the issue of costs of the motion or cross-motion being resolved
Comtech $137,515.70
Munroe $112,663.90
Labelle $112,663.90
[131] None of these amounts are to be paid out until the issue of costs is resolved. Once that occurs, a further endorsement will be issued setting out the amounts to be paid to each of the parties.
[132] Any accrued interest on the amounts being held in trust shall be divided in proportion based on the amount being received as above and not based on the amounts received after the issue of costs is determined.
Costs
[133] The parties shall have 14 days to resolve the issue of costs. If they are unable to do so, the parties contact the Trial Coordinator and obtain a date and time to argue the issue of costs. Each side will have 20 minutes to argue their position. Cost outlines are to be exchanged and provided to the court together with any section 49 offers at least five days prior to the court appearance.
Miscellaneous
[134] This matter shall be case managed by Kershman J.
[135] If there are any concerns as to the mathematics of the calculations set out in this decision, the parties shall write to the Court within the next 14 days setting out their concerns, failing which these calculations will stand.
[136] Order accordingly.
Justice Stanley Kershman
Released: August 17, 2021
COURT FILE NO.: 33-2414856 and 32-2414857 DATE: 2021/08/17
ONTARIO SUPERIOR COURT OF JUSTICE IN BANKRUPTCY and INSOLVENCY
IN THE MATTER OF THE BANKRUPTCY OF MICHAEL JOHN DEYELL AND TREVOR JAMES PREVOST OF THE CITY OF OTTAWA IN THE PROVINCE OF ONTARIO
BEFORE: Justice Stanley J. Kershman
HEARD IN OTTAWA: June 30, 2021 at Ottawa
APPEARANCE: K. Ferreira, for Comtech Fire Credit Union Limited G. Hamod, for the Respondent Dean Munroe and Violette Munroe-Labelle
REASONS FOR DECISION
Kershman J.
Released: August 17, 2021