COURT FILE NO.: CV-21-00660075-00CL
DATE: 20220228
ONTARIO
SUPERIOR COURT OF JUSTICE
COMMERCIAL LIST
BETWEEN:
JOHWEL INVESTMENTS INC. and STONEBROOK II LIMITED PARTNERSHIP
Applicants
– and –
DARLENE WELTON, STONEBROOK PROPERTIES INC. and DAVWEL INVESTMENTS INC.
Respondents
Timothy Pinos and Meghan Rourke, for the Applicant, Johwel Investments Inc.
Sara J. Erskine and Ian Literovich, for the Respondent, Darlene Welton
David M. Golden, for the Respondent, Davwel Investments Inc.
HEARD: January 10, 2022
reasons for DECISION
dietrich j.
Overview
[1] John Welton Sr. (“John”) and David Welton (“David”) were brothers. For more than 50 years, they entered into joint ventures with each other to develop land. Typically, they did so through their respective companies, the applicant Johwel Investments Inc. (“Johwel”) and the respondent Davwel Investments Inc. (“Davwel”).
[2] One such joint venture involved the development of a two-tower condominium development project on Southdown Road, in the City of Mississauga, Ontario (the “Stonebrook Development”). For this joint venture, in 2004, they incorporated the respondent Stonebrook Properties Inc. (“Stonebrook Inc.”), in which Johwel and Davwel held the shares equally. Stonebrook Inc. acquired the real property on Southdown Road for the Stonebrook Development (the “Property”) and title was registered in its name.
[3] On November 3, 2010, following the completion of phase one of the Stonebrook Development, the first tower was transferred to a condominium corporation. Construction of the second tower was cancelled in 2012 owing to low sales. Around this time, John and David had a falling out over several things, including the construction of the second tower on the remaining real property held by Stonebrook Inc. (the “Remaining Property”) and the remuneration to be paid to David’s spouse, the respondent Darlene Welton (“Ms. Welton”).
[4] Ms. Welton brought an action against Stonebrook Inc. and United Lands Corporation Limited (“United Lands”) in 2012. She claimed commissions owing to her from Stonebrook Inc. for marketing and selling condominium units in the Stonebrook Development. Ms. Welton was successful, and on September 27, 2019, she obtained a judgment in the amount of $182,152.81 against the defendants. On November 18, 2019, she obtained a writ of execution (the “Writ”) and registered it on the title to the Remaining Property held by Stonebrook Inc. On May 27, 2020, the Court of Appeal for Ontario allowed Ms. Welton’s costs appeal and added trial costs of $74,000 to her judgment.
[5] In 2013, Davwel and David commenced an application against Johwel, Stonebrook Inc. and others (“David’s Application”), alleging oppressive conduct and other breaches.
[6] John and David died within months of each other in 2013 before they resolved their differences. In May 2014, Johwel, represented by John’s sons, John Welton Jr., and Dan Welton, brought its own application against Davwel and others. The Bank of Nova Scotia Trust Company (“Scotiatrust”) was appointed the executor and trustee of David’s estate and it took over the management of Davwel from Ms. Welton.
[7] Ultimately, the parties agreed, in Minutes of Settlement, that Johwel would acquire all Davwel’s interests in the Stonebrook Development, including its interest in Stonebrook Inc. On closing, Johwel directed Davwel to transfer all Davwel’s interests in the Stonebrook Development to the applicant Stonebrook II Limited Partnership (“Stonebrook II”), to which Johwel planned to transfer all its interests in the Stonebrook Development. Stonebrook II would then own all the shares of Stonebrook Inc. and Stonebrook II would complete the Stonebrook Development.
[8] The applicants could not close on a financing transaction that would allow for the continuation of the Stonebrook Development while the Writ was registered on title to the Remaining Property. They applied to the court to have the Writ lifted on the basis that the Writ did not bind the Remaining Property. In an Order dated April 20, 2021, Justice Hainey lifted the Writ based on an agreement that the applicants’ counsel, Cassels Brock & Blackwell LLP, would hold the amount of $235,750 in its trust account in respect of Ms. Welton’s judgment until the parties consented to its release or the court ordered its release. Ms. Welton appealed the April 20, 2021 Order to the Divisional Court, which varied it to provide that it was made without prejudice to a determination as to whether the Writ binds the Remaining Property.
[9] The applicants now seek an order that the Writ does not attach the Remaining Property, and an order that the funds held in trust pursuant to the April 20, 2021 Order be released.
[10] Ms. Welton asserts that the Writ does attach the Remaining Property because Stonebrook Inc. did not deal with the Property as a mere bare trustee; rather, it acted as a company incorporated to carry out the Stonebrook Development.
[11] For the reasons that follow, I find that the Writ does not attach the Remaining Property. Stonebrook Inc. is a bare trustee that holds no beneficial interest in the Remaining Property. Only property in which the debtor has a beneficial interest is subject to execution. However, for the reasons that follow, I decline to release the trust funds from the April 2021 Order at this time.
Background Facts
Ms. Welton’s work for Stonebrook Inc.
[12] Ms. Welton was married to David from 2004 until his death in 2013. In 2005, Stonebrook Inc. hired her on a full-time basis to market and sell condominium units in both phases of the Stonebrook Development. Ms. Welton did not enter into a written employment agreement. She was appointed as Stonebrook Inc.’s Vice President of Marketing and Sales.
[13] Stonebrook Inc. issued T4 tax slips to Ms. Welton in respect of her income, and the Canada Revenue Agency (the “CRA”) ruled that Ms. Welton was an employee of Stonebrook Inc. for income tax purposes from January 1, 2008 to December 31, 2010. Ms. Welton was paid based on sales revenues from the sale of condominium units in the Stonebrook Development.
[14] On October 25, 2012, while still employed by Stonebrook Inc., Ms. Welton brought her action for unpaid commissions. Stonebrook Inc. terminated Ms. Welton’s employment at the end of 2012.
[15] On September 9, 2012, Ms. Welton had been appointed as an officer and director of Davwel and she continued to work with David in the management of various joint venture projects, including Stonebrook Development. Although Ms. Welton had been involved in the business of Davwel since 2005, she became more active in Davwel when David became ill and less able to attend to his business. Ms. Welton managed Davwel until sometime after David’s death. On July 31, 2014, Scotiatrust assumed control of Davwel.
[16] Ms. Welton commenced a second action against Stonebrook Inc. and United Lands in 2015 seeking payment of wages owed to her or, in the alternative, damages on a quantum meruit basis for work she did for Stonebrook Inc. relating to a Tarion claim.
[17] Ms. Welton’s 2012 and 2015 actions were tried together in May and June 2019.
The Bare Trust Arrangement and the Joint Venture
[18] Stonebrook Inc. was incorporated pursuant to the laws of Ontario on August 11, 2004. On September 1, 2004, the Registrar of Land Titles registered the transfer of the Property as PR711217. The Transfer identifies “Stonebrook Properties Inc.” as the “Transferee.” “N/A” is noted under the heading “Capacity.”
[19] On August 27, 2004, the CRA sent a letter to Stonebrook Inc. confirming that a Business Number had been opened for its business. On the Business Number Summary of Accounts, under the heading “Description of major business activity”, the Summary reads “bare trustee for a contenancy [sic] building and selling also unit high rise.”
[20] The applicants have not produced a signed version of a declaration of trust setting out the bare trust arrangement between Johwel and Davwel as beneficial owners of the Property, and Stonebrook Inc. as the legal owner and bare trustee. There is no evidence to suggest that a declaration of trust was ever signed.
[21] An unsigned copy of a declaration of trust (the “Declaration of Trust”) is attached as a Schedule to a “draft” agreement between Johwel, Davwel, and Stonebrook Inc. (the “Co-Tenancy Agreement”). The Co-Tenancy Agreement is dated “as of the 1st day of September, 2004.” It is also unsigned. The Co-Tenancy Agreement sets out the terms, provisions and conditions governing the respective interests in the Property held by Stonebrook Inc., as well as terms relating to the responsibilities and obligations of the co-tenants regarding the Stonebrook Development. Each of Davwel and Johwel is defined as a “Co-Tenant” and collectively as “the Co-Tenants.”
[22] The Co-Tenancy Agreement provides that the Co-Tenants will operate, maintain and develop the Co-Tenancy as co-tenants in common in accordance with the Co-Tenancy Agreement and will “diligently and in good faith take such steps as are commercially practical to jointly develop the Property.” The “Property” is defined as the real property on Southdown Road acquired for the Stonebrook Development. In the Co-Tenancy Agreement, the Co-Tenants confirm the appointment of Stonebrook Inc. as nominee to hold registered title to the Property, as bare trustee for the benefit of the Co-Tenants; and Stonebrook Inc. confirms its acceptance of such appointment and covenants and agrees to hold registered title to the Property as bare trustee for the Co-Tenants in accordance with the provisions of the Declaration of Trust attached to the Co-Tenancy Agreement.
[23] The terms of the attached Declaration of Trust provide that Stonebrook Inc. declares and confirms that it holds the registered title to the “Lands”, in “trust, and, not as the beneficial owner for Davwel as to an undivided fifty percent (50%) interest and Johwel as to the remaining undivided fifty percent (50%) interest. [sic]” “Lands” is not defined in the Declaration of Trust, but the Declaration includes a description of the real property on Southdown Road acquired for the Stonebrook Development, defined as the “Property.”
[24] By the terms of the Declaration of Trust, Stonebrook Inc. further declares and confirms that:
(a) it will not assign, transfer, mortgage or otherwise deal with the Lands, without first obtaining the written direction of the then beneficial owner or owners of the beneficial interest; and
(b) if it permits any execution to be issued against it or if it makes an assignment for the benefit of creditors or if it commits any act of bankruptcy as defined in the Bankruptcy Act (Canada) or if it becomes insolvent, then Stonebrook will immediately convey the Lands to the then beneficial owner or owners or such other person or persons as the then beneficial owner or owners may direct.
[25] The terms of the Co-Tenancy Agreement also require the Co-Tenants to fund the Stonebrook Development through advances to Stonebrook Inc. The funds would be placed in a bank account, and the expenses of the Stonebrook Development would be deducted prior to the distribution of the proceeds from the project or any cash surplus to the Co-Tenants.
[26] On March 6, 2008, Johwel, Davwel, and Stonebrook Inc. entered into a Beneficial Owner Agreement with a lender, Citizens Bank of Canada (the “Citizens Bank Agreement”). In the Citizen’s Bank Agreement, both Johwel and Davwel acknowledged that they were the 100 per cent beneficial owner of the real property being offered as security for a loan. They further acknowledged that the registered owner was Stonebrook Inc., defined in the agreement as the “Trustee”, and that it held the Property as bare trustee on behalf of Johwel and Davwel. Stonebrook Inc. acknowledged and agreed that it was holding legal title to the Property for the benefit of the beneficial owner, and it executed the Citizen’s Bank Agreement.
[27] On June 8, 2011, Johwel, Davwel and Stonebrook Inc. entered into a second Beneficial Owner Agreement with Peoples Trust Company (the “People’s Trust Agreement”), in which Stonebrook Inc. was referred to as the “Nominee”, and “agent for and on behalf of the Beneficial Owner.” The Beneficial Owner was defined to be Johwel and Davwel. The Agreement described the nominee as the registered owner of the Property and the Beneficial Owner as the sole beneficial owner of the Property. Stonebrook Inc. executed the People’s Trust Agreement.
[28] Sidney Y. Dick, a Certified Professional Accountant, was an officer of each of Stonebrook Inc., Johwel, and Davwel, and provided accounting services to Johwel and Davwel. He deposed that Johwel and Davwel carried out the Stonebrook Development as a co-tenancy joint venture between them, with Stonebrook as bare trustee holding all assets and incurring all liabilities, revenues, and expenses in trust for Johwel and Davwel as beneficial owners on a 50/50 undivided basis. All accounting and tax reporting was done on the basis of a co-tenancy partnership.
[29] Following John’s death, Davwel and David brought David’s Application against Johwel, John’s estate, and others. The applicants in David’s Application alleged oppressive conduct, among other things. They sought remedies, including an order directing Johwel to purchase Davwel’s interest in a number of the corporations owned by Johwel and Davwel.
[30] Ms. Welton exercised effective control over Davwel until Scotiatrust was appointed as Estate Trustee for David’s estate, following David’s death.
[31] In May 2014, Johwel commenced an application for an order, among other things, that Stonebrook Inc. be wound up or that Davwel sell its shares and interest in Stonebrook Inc. to Johwel (the “Johwel Application”).
[32] The issues raised in the Johwel Application were settled, and in the Minutes of Settlement, executed on May 25, 2018, Davwel agreed to sell its beneficial interests in the Stonebrook Development, including the Remaining Property, to Johwel. Specifically, Davwel agreed to sell its beneficial interest in the “Stonebrook Lands” and the “Stonebrook Co-tenancy” for $5.15 million, and its shares of Stonebrook Inc. for $1.00, on certain terms. The Minutes of Settlement were approved by Justice Hainey on May 6, 2019 over the objections of Ms. Welton.
[33] In her appeal of Justice Hainey’s Order to the Divisional Court, Ms. Welton argued that the Minutes of Settlement were premised on the fact that the assets held by Stonebrook Inc. were held by it as bare trustee; however, the evidence before Justice Hainey did not support that premise.
[34] On November 20, 2019, the Divisional Court allowed Ms. Welton’s appeal and varied the judgment to specify that there had been no judicial determination on the nature of Stonebrook Inc.’s interest in the Property, and that Justice Hainey’s decision was without prejudice to Ms. Welton’s right to argue that Stonebrook Inc. did not hold the Remaining Property as a bare trustee. Johwel’s motion for leave to appeal the Divisional Court’s decision was dismissed.
[35] On March 31, 2021, Stonebrook Inc., Davwel and Johwel signed a Termination of Trust Agreement regarding the Declaration of Trust, in which it was agreed that the Declaration of Trust would, as of the date of the sale of Davwel’s interest in the Property to Johwel, terminate and be of no further effect. Also in March 2021, Johwel, Stonebrook II, and Stonebrook Inc. signed an Amended and Restated Declaration of Trust in which Stonebrook Inc. declares that it holds the Remaining Property “in trust, and not as beneficial owner, for Stonebrook II as to an undivided fifty percent (50%) interest and Johwel as to the remaining undivided fifty percent (50%) interest.”
[36] Davwel has since ceased operations and is being wound up by Scotiatrust.
Positions of the Parties
[37] The applicants submit that the Writ does not and cannot attach the Remaining Property registered in the name of Stonebrook Inc. because Stonebrook Inc. acquired it for the Stonebrook Development, on the direction of Johwel and Davwel, and it made the acquisition as a nominee and bare trustee for Johwel and Davwel.
[38] They further submit that Stonebrook Inc. continues to hold the Remaining Property as nominee and bare trustee for the current successor beneficial owners, the applicants themselves; that Stonebrook Inc. does not own any beneficial interest in the Remaining Property; and that it holds no other assets that can be used to satisfy the execution of the Writ. Therefore, it cannot be liable for Ms. Welton’s judgment. The applicants contend that as an execution creditor under the Writ, Ms. Welton may claim no more than the beneficial interest of Stonebrook Inc. in the Remaining Property and, therefore, the Writ does not bind or attach the Remaining Property.
[39] The applicants assert that they should be entitled to a declaration that the Writ cannot be enforced against them as beneficial owners.
[40] Davwel, represented by Scotiatrust, agrees with, and supports the applicants’ submission that because Stonebrook Inc. owns no beneficial interest in the Remaining Property, the Writ cannot be enforced against the Remaining Property.
[41] Stonebrook Inc. did not respond to the application.
[42] Ms. Welton submits that there is insufficient evidence for the court to determine the existence of a bare trust, and there is ample evidence to demonstrate that Stonebrook Inc. did not act or deal with the Property as a bare trustee. Rather, the evidence shows that Stonebrook Inc. acted as the operating company incorporated to carry out the Stonebrook Development, including the development of the Property, and the building and selling of the condominium units. Further, she submits that Stonebrook Inc. owned assets, including the Property, and had obligations, including liability for her judgment in respect of which she obtained the Writ.
[43] Accordingly, she asserts that Stonebrook Inc. did not function as a mere bare trustee, and that it cannot claim that it has no beneficial interest in the Remaining Property. Therefore, the Writ can and should attach the Remaining Property.
Issues
[44] The issues in this matter are as follows:
Is Stonebrook Inc. a bare trustee that held the Property on trust for its beneficial owners, Johwel and Davwel, initially, and now holds the Remaining Property on trust for the applicants?
Does the Writ attach the Remaining Property held by Stonebrook Inc.?
Should the court make a declaration that the Writ cannot be enforced against the applicants?
Is Stonebrook Inc. a bare trustee holding the Remaining Property on trust for its beneficial owners?
Legal Principles
[45] In White v. Gicas, 2014 ONCA 490, at para. 1, the Court of Appeal for Ontario confirmed the requirements to settle a trust: a) intention to create a trust; b) identification of the specific subject matter of the trust; c) an identified beneficiary of the trust; and d) a transfer of the trust property to the trustee.
[46] In Paragon Development Corporation v. Sonka Properties Inc., 2011 ONCA 30, 103 O.R. (3d) 481, at para. 6, the Court of Appeal for Ontario stated: “A bare trustee holds legal title to property on behalf of another and has no independent power, discretion or responsibility in connection with the property.” A bare trustee is to convey the property to the beneficiaries or beneficiaries on demand and to account for the property prior to its conveyance: see Donovan W.M. Waters, Mark R. Gillen & Lionel D. Smith, Waters' Law of Trusts in Canada, 5th ed. (Toronto: Thomson Reuters Canada, 2021), at 2.VIII.
[47] A bare trust may be formed without the requirement of a written document: Practical Law Canada Commercial Real Estate, “Bare Trusts and Nominee Relationships” (Thomson Reuters Canada).
[48] In Trident Holdings Ltd. v. Danand Investments Ltd. (1988), 1988 CanLII 194 (ON CA), 64 O.R. (2d) 65, at p. 75, the Ontario Court of Appeal described a bare trust and the role of its trustee as follows, quoting from Maurice C. Cullity, “Liability of Beneficiaries — A Rejoinder” (1985-86), 7 E. & T.Q. 35 at p. 36:
... The distinguishing characteristic of the bare trust is that the trustee has no independent powers, discretions or responsibilities. His only responsibility is to carry out the instructions of his principals — the beneficiaries. If he does not have to accept instructions, if he has any significant independent powers or responsibilities, he is not a bare trustee.
Analysis
[49] Ms. Welton asserts that there is insufficient evidence to show that a bare trust existed, especially in light of the fact that there is no executed version of a declaration of trust naming Stonebrook Inc. as a bare trustee with the legal ownership of the Property. Respectfully, I disagree. I find that notwithstanding the absence of a declaration of trust in writing, the record supports the creation and existence of a bare trust arrangement whereby Stonebrook Inc. held the Property, and now holds the Remaining Property, on trust for its beneficial owners.
[50] The four requirements to settle a trust, as described by the Court of Appeal for Ontario in White v. Gicas, are present in this case.
[51] Johwel and Davwel intended to create a bare trust, with Stonebrook Inc. as bare trustee, and they carried out the Stonebrook Development as if they had. The record shows that Johwel and Davwel routinely structured their joint ventures using a nominee corporation that would hold the real property to be developed as a bare trustee for the beneficial owners. Ms. Welton, herself, acknowledged, in her affidavit in response to this application, that John and David “individually or through their companies, Davwel Investments Inc. and Johwel Investments Inc. acquired and developed numerous properties and investments through nominee companies they each owned on a 50/50 basis”, though she does not agree that Stonebrook Inc. was a bare trustee. However, the bare trust relationship was made known to, and accepted by, the CRA. Stonebrook Inc. filed “nil” tax returns. Stonebrook Inc. entered into financing arrangements with lenders as a bare trustee, together with Johwel and Davwel as beneficial owners of the Property held by Stonebrook Inc.
[52] The subject matter of the bare trust was described in the Declaration of Trust, both in the “Re” line of the Declaration and in the first recital. Notwithstanding that there is an inconsistency in the use of the terms “Property” and “Lands” in the Declaration, I am satisfied that both terms refer to the real property on Southdown Road acquired for the Stonebrook Development, municipally known as 1075 Southdown Road. The “Property” defined in the Co-Tenancy Agreement, to which the Declaration of Trust is attached, refers to the same real property. In the Declaration of Trust, Stonebrook Inc. declares and confirms that it holds the registered title to the lands described, which it holds “in trust, and, not as the beneficial owner for Davwel as to an undivided fifty percent (50%) interest and Johwel as to the remaining undivided fifty percent (50%) interest.” This same language identifies the beneficiaries of the trust, being the beneficial owners of the Property. The third requirement is, therefore, also met.
[53] The fourth requirement, delivery of the trust property to the trustee, is also met. The transfer of the Property from the vendor, Southdown Lakeshore Developments Inc. to Stonebrook Inc. was registered in the Land Registry Office as PR711217 on September 1, 2004.
[54] The following features of the Co-Tenants’ arrangement with Stonebrook Inc. are consistent with a bare trust arrangement:
(i) the financial statements for Stonebrook Inc. do not reflect the income and expenses, and assets and liabilities of the Stonebrook Development;
(ii) the financial statements for Stonebrook Inc. show nominal assets and liabilities;
(iii) the Property was recorded as an asset on the financial statements of the Johwel-Davwel co-tenancy, and not as an asset on the books of Stonebrook Inc.;
(iv) all accounting and financial statements, including tax filings relating to the Stonebrook Development were done at the co-tenancy level;
(v) two third-party lenders (Citizen’s Bank of Canada and People’s Trust Company) entered into beneficial ownership agreements with Johwel and Davwel that recognized Stonebrook Inc. as a bare trustee of the lands acquired by Stonebrook Inc. for the Stonebrook Development; and
(vi) when Stonebrook Inc. sought a business registration number from the CRA, Stonebrook Inc. described its business as “bare trustee for a contenancy [sic] building and selling also unit high rise.”
[55] Mr. Dick swore an affidavit dated January 30, 2017 in support of the Johwel Application in which he stated that Stonebrook Development was undertaken as a co-tenancy joint venture between John and David with Stonebrook Inc. as bare trustee holding all assets and incurring all liabilities, revenues, and expenses in trust for John and David as beneficial owners on a 50/50 basis. He deposed that all accounting and tax reporting was done on the basis of a co-tenancy partnership.
[56] On Dan Welton’s cross-examination on his affidavit in support of this application, when asked if Stonebrook Inc. was incorporated to build the condominiums at Southdown Road and to sell them, he responded that Stonebrook Inc. did this work “in its capacity as a nominee for Johwel and Davwel.” In response to the question of whether all purchase and sale agreements between end users who bought the units were with Stonebrook Inc., Dan responded: “Yes, as the nominee for Johwel and Davwel.” Dan Welton consistently gave this same answer to questions about payments made by Stonebrook Inc. to vendors for supply materials, and the hiring and payment of employees.
[57] Dan Welton also deposed that the reference on the CRA document to the building and selling the high-rise units was part of the role of the bare trustee Stonebrook Inc., but only “operating for the benefit of Johwel and Davwel.” Similarly, he deposed that all duties and obligations associated with building and selling the high-rise units were also the responsibility of Stonebrook Inc. as the bare trustee “as nominee for Johwel and Davwel.”
[58] Ms. Welton argues that notwithstanding that Stonebrook Inc. may have called itself a bare trustee and entered into agreements as a bare trustee, it was not in fact a bare trustee. She asserts that it undertook all manner of business regarding the development and building of the condominium towers including: i) banking activity; ii) payments to consultants, trades, suppliers, and government entities; iii) making condominium deposits, paying construction change costs, and finishing upgrades; iv) agreements of purchase and sale between Stonebrook Inc. and purchasers; v) contracts with consultants and trades; vi) paying invoices from consultants and trades; vii) marketing, signage, and advertising; viii) donations to charities; ix) press releases; x) designing brochures and displays; xi) arranging hoarding around construction sites; xii) publishing newsletters; and xiii) communications with purchasers, trades and others. Ms. Welton asserts that the costs of employees were the responsibility of Stonebrook Inc. and were deducted from the assets of the joint venture before the profits were distributed, and that this process was specifically mandated in the Co-Tenancy Agreement.
[59] Ms. Welton also asserts that Stonebrook Inc. employed persons, like her, who were paid commissions out of sales revenues Stonebrook Inc. received.
[60] Ms. Welton contends that the description of a bare trustee is not determinative of the legal substance of the relationship, as discussed in 1162740 Ontario Limited, et al. v. Pingue, et al., 2014 ONSC 7418. Rather, there must be consideration of the rights and duties involved. Ms. Welton argues that in carrying out various business activities, Stonebrook Inc. had independent powers, discretions, and responsibilities and, consequently, based on the reasoning in Trident, Stonebrook Inc. was not a bare trustee.
[61] The applicants assert that a bare trustee can take on an administrative role that is consistent with its role as trustee, as set out in Amneet Holdings Ltd. v. 79548 Manitoba Ltd. et al., 2004 MBCA 32, 184 Man. R. (2d) 52, at para. 12. I agree that a bare trustee can take on administrative roles consistent with its role as trustee. Where a bare trustee holds title to real property to be developed into condominium units, the bare trustee would, of necessity, be required to enter into agreements of purchase and sale. No other entity could convey legal title. Similarly, the bare trustee would need to be involved in financing arrangements in which the real property it holds on trust for the beneficial owners is offered as security. As title holder, only the bare trustee could mortgage the real property. However, these actions would be taken on the direction of the beneficial owners for their benefit. As the Court of Appeal for Ontario confirmed in Trident, the bare trustee will have no independent powers, discretions, or responsibilities. His only responsibility is to carry out the instructions of his principals, who are the beneficiaries. The bare trustee can have no discretion to decline to carry out the instructions of the beneficial owners.
[62] The terms of the Co-Tenancy Agreement state that the Co-Tenants agreed to operate, maintain and develop the Co-Tenancy as co-tenants in common in accordance with the Co-Tenancy Agreement, and to “diligently and in good faith take such steps as are commercially practical to jointly develop the Property.” It was the responsibility of the Co-Tenants, through the Management Committee, as described in the Co-Tenancy Agreement, as opposed to Stonebrook Inc., to develop the Property. The Management Committee was composed of John and David.
[63] The Co-Tenancy Agreement in the present case is distinct from the agreement in the case of Yan v. 0797861 B.C. Ltd., 2015 BCSC 1001, 45 B.L.R. (5th) 114, on which Ms. Welton relies. She relies on that case to assert that Stonebrook Inc. was not a bare trustee, but a company with authority, on behalf of the co-tenants, to manage the operations and affairs of the joint venture, including the development, and construction of the lands and to make all decisions regarding the business of joint venture. In Yan, the terms of the governing joint venture agreement specifically provided that the company allegedly acting as bare trustee, as “Manager”, would have exclusive authority to manage the operations and affairs of the joint venture, and to make all decisions regarding the joint venture. The terms of that joint venture agreement also vested in that company powers to enter into agreements; to manage, control and develop all activities of the joint venture; to open bank accounts; to borrow funds; to grant security; to manage and develop and operate assets of the joint venture; and to execute deeds, documents and instruments to carry out the purpose of the joint venture agreement.
[64] By contrast, the role of Stonebrook Inc., as nominee, as set out in the Co-Tenancy Agreement is “to hold registered title to the Property, as bare trustee and for the benefit of the Co-Tenants.” In the Co-Tenancy Agreement, the nominee accepts its appointment and covenants and agrees to hold the Property as bare trustee for the Co-Tenants in accordance with the Declaration of Trust. Stonebrook Inc. is not assigned any authority to independently manage the operation or the affairs of the Stonebrook Development.
[65] In this application, there is no evidence that Stonebrook Inc. had any discretion to decline to carry out the instructions of the Management Committee composed of the principals of the beneficial owners. While there is no evidence of specific written directions given to Stonebrook Inc. by the Management Committee/beneficial owners to undertake various activities associated with the Stonebrook Development, this is not surprising. In addition to being the principals of Johwel and Davwel (the beneficial owners of the Property), and forming the Management Committee for the Co-Tenancy, John and David were also directors and officers of Stonebrook Inc., who would carry out the instructions of the Management Committee/beneficial owners. I am satisfied that the activities undertaken by Stonebrook Inc. regarding the Stonebrook Development were on the direction of the beneficial owners and not through an exercise of its own discretion.
Does the Writ attach the Remaining Property?
Legal Principles and Analysis
[66] Section 9(1) of the Execution Act, R.S.O. 1990, c. E.24 reads as follows:
9(1) The sheriff to whom a writ of execution against lands is delivered for execution may seize and sell thereunder the lands of the execution debtor, including any lands whereof any other person is seized or possessed in trust for the execution debtor and including any interest of the execution debtor in lands held in joint tenancy. [Emphasis added.]
[67] Unfortunately for Ms. Welton, because Stonebrook Inc. is a nominee corporation and a bare trustee, the Writ cannot attach the Remaining Property that Stonebrook Inc. holds as registered owner for the beneficial owners. This result is made clear in s. 9 of the Execution Act, as well as in the jurisprudence. The Writ does not attach the Remaining Property.
[68] An execution creditor may claim no more than the interest of the debtor in the lands registered in the debtor’s name: Michaud v. Coreslab Structures (Ont.) Inc., 2012 ONSC 355, at para. 63.
[69] In 1842752 Ontario Inc. v. Fortress Wismer 3-2011 Ltd., 2020 ONCA 250, 150 O.R. (3d) 186, the Court of Appeal for Ontario, citing Michaud, held, at para. 37:
… unless displaced by a statutory provision to the contrary, an execution creditor may seize and sell no more than the debtor’s interest in land. Put another way, the execution creditor stands in no better position than the debtor. Accordingly, lands to be sold at the request of an execution creditor are sold subject to the charges, liens and equities to which they were subject in the hands of the debtor. In Michaud, it was thus held that a prior unregistered trust declaration or agreement made by the registered owner had priority over an execution creditor. An execution creditor of a registered owner subject to an unregistered trust agreement cannot sell the beneficial interest in lands because the registered owner does not own it … [Emphasis added.]
[70] In Colantonio v. Don Park L.P. et al., 2013 ONSC 1059, the court held that a writ of seizure and sale did not attach real property held in trust by a bare trustee, even though the bare trustee had misled his creditor about the nature of his interest in the property he held on trust.
[71] In Leppanen Estate (Trustee of) v. M. Champagne Siding Ltd., [1997] O.J. No. 4021 (Ont. Gen. Div.), the court confirmed that the Execution Act requires true ownership by the debtor before an execution in favour of an unsecured creditor can attach the land.
Should the court make a declaration that the Writ cannot be enforced against the applicants?
[72] Ms. Welton did not name the beneficial owners of the Remaining Property as defendants in her 2012 action against Stonebrook Inc. and United Lands. She has no judgment against the beneficial owners of the Remaining Property for unpaid commissions owing to her relating to the Stonebrook Development. The applicants, which are now the beneficial owners of the Remaining Property, seek a declaration that the Writ cannot be enforced against them. They, as opposed to Stonebrook Inc., against which Ms. Welton obtained judgment and issued the Writ, have brought this application.
[73] In their application materials, at Schedule “C” to their factum, they include a practice note, which states as follows:
Bare Trusts and Nominee Relationships by Practical Law Canada Commercial Real Estate
Liability
Often, parties choose to use a bare trust or nominee structure to shield the beneficial owner from material civil liability. While this may be effective in some cases, it is often times not the case at a practical level.
As a general rule, an entity which is not actually party to an agreement is not liable in contract for the obligations set forth in that agreement...
... A bare trust or nominee relationship can at times be held to be an agency relationship in which the trustee is acting as an agent of the beneficial owner. This can be the case where you have a bare trustee with no discretion or decision-making power to deal with the real property except by the explicit direction of the beneficial owner and it is ultimately the beneficial owner who is liable for the debts and obligations of the bare trustee (as was held in Trident Holdings Ltd v. Danand Investments Ltd., 1988 CarswellOnt 112 (Ont. C.A.)).
[74] Neither Ms. Welton nor the applicants made submissions on whether Stonebrook Inc. was or was not acting as an agent for the beneficial owners regarding Ms. Welton’s employment.
[75] Accordingly, while I find that Stonebrook Inc. is a bare trustee, which holds the Remaining Property on trust for the beneficial owners/applicants, and I find that the Writ does not attach the Remaining Property, I make these findings without prejudice to Ms. Welton to make an argument in this proceeding based in agency, if so advised.
[76] Should Ms. Welton decide to make such an argument, the parties shall, within thirty days of the date of these reasons, arrange a case conference before me to timetable their submissions. If no such case conference is so arranged, the applicants shall be entitled to a declaration that the Writ cannot be enforced against them, and to an order that the $235,750 held in trust by Cassels Brock & Blackwell LLP, to the credit of this application, as a condition of the lifting of the Writ, in accordance with Justice Hainey’s April 20, 2021 Order, be released from that Order.
Costs
[77] At the hearing, the parties were encouraged to, and agreed to, attempt to reach an agreement on the matter of costs and to advise the court if an agreement had been reached. If they have not reached an agreement on the matter of costs, they may arrange a case conference to address the issue of costs.
Dietrich J.
Released: February 28, 2022
COURT FILE NO.: CV-21-00660075-00CL
DATE: 2022028
ONTARIO
SUPERIOR COURT OF JUSTICE
COMMERCIAL LIST
BETWEEN:
JOHWEL INVESTMENTS INC. and STONEBROOK II LIMITED PARTNERSHIP
Applicants
– and –
DARLENE WELTON, STONEBROOK PROPERTIES INC. and DAVWEL INVESTMENTS INC.
Respondents
REASONS FOR DECISION
Dietrich J.
Released: February 28, 2022