ALBERT GELMAN INC. in its capacity as Trustee in Bankruptcy of SPIROS PANTZIRIS, v. 1529439 ONTARIO LIMITED

COURT FILE NO.: CV-14-010638-00CL

DATE: 20220715

ONTARIO

SUPERIOR COURT OF JUSTICE

(COMMERCIAL LIST)

B E T W E E N:

ALBERT GELMAN INC. in its capacity as Trustee in Bankruptcy of SPIROS PANTZIRIS, v. 1529439 ONTARIO LIMITED

Plaintiff

AND

1529439 ONTARIO LIMITED, AGLAIA PANTZIRIS, ASPE CONSULTING SERVICES LTD., JULIE PANTZIRIS also known as JULIE TAYLOR also known as JULIE TAYLOR PANTZIRIS and ELLEN BOWLIN

Defendants

Lou Brzezinski and Alex Fernet Brochu, for the Plaintiff

Frank Bennett, for Julie Pantziris

HEARD: July 5, 2022

REASONS FOR DECISION

Osborne J.

Background

[1] There are two related motions before the Court.

[2] The first is a motion by Albert Gelman Inc. in its capacity as Trustee in Bankruptcy of Spiros Pantziris (the “Trustee”) for an order:

(a) directing the Accountant of the Ontario Superior Court of Justice to pay out of Court to counsel for the Trustee, in trust, the sum of $1,974,416.09, plus accrued interest to the date of payment, and

(b) directing Steven Bellissimo, former counsel to Julie Pantziris, to release the sum of $90,000.00 held in trust, also to counsel for the Trustee, in trust.

[3] The second motion is a cross-motion by the Defendant Julie Pantziris for an order declaring that she is entitled to be paid the sum of $704,451 by way of an order:

(a) directing the Accountant of this Court to pay to her the sum of $614,451 from the Trustee’s share of the net proceeds in Court; and

(b) directing Stephen Bellissimo to release to her or as she may direct the sum of $90,000 being held by him in trust (the same $90,000 referred to above.

[4] All amounts claimed relate to the sale of a property at 9 Berkindale Crescent, Toronto, Ontario (the “Property”).

[5] The amount of $614,451 sought by Ms. Pantziris is comprised of amounts claimed in respect of carrying costs, maintenance and improvements for the Property in the amount of $582,201, together with a claim for $20,000 in respect of personal items and contents in the Property included in the sale that Ms. Pantziris claims are owned by her and not the Trustee. She also claims a further $12,250 that she maintains ought to have been adjusted on closing of the Property in respect of taxes and utilities.

[6] The $90,000 held in trust by Mr. Bellissimo, and the claim by each party to those funds, relates to that portion of the HSBC facility secured by the Property that exceeds the estimated amount of the mortgage of $750,000. It relates to a portion of an outstanding amount on a line of credit.

[7] The Defendant Julie Pantziris is the wife of the bankrupt, Spiros Pantziris.

[8] Summary judgment was granted against the Defendants by Dietrich, J. on September 28, 2020. The Court ordered that the transfer by Spiros Pantziris of his one-half interest in the Property to his wife, the defendant Julie Pantziris, be set aside and that the one-half interest be vested in the Trustee.

[9] The Court held that the transfer was both an undervalue transfer within the meaning of section 96 of the Bankruptcy and Insolvency Act, R.S.C. 1985, c.B-3 and a fraudulent conveyance within the meaning of section 2 of the Fraudulent Conveyances Act, R.S.O. 1990, c.F.9.

[10] The Defendants appealed the judgment to the Court of Appeal for Ontario.

[11] As the hearing of the appeal was pending, the Trustee became aware that the Property had in fact been listed for sale. Ultimately, the Trustee and Julie Pantziris (each an owner of a one‑half interest in the Property) entered into an agreement to permit the sale of the Property (the “Agreement”).

[12] Upon the closing of that sale, and pursuant to the order of McEwen, J. Dated October 5, 2021, the Trustee’s share of the net proceeds from the sale of the Property in the amount of $1,974,416.09 was paid into Court pending the determination or resolution of the appeal.

[13] The appeal was dismissed with costs by the Court of Appeal for Ontario on November 5, 2021. No leave to appeal that judgment was sought. There is no stay of that judgment.

[14] Accordingly, the Trustee seeks the payment out of Court and from Mr. Bellissimo for its share of the proceeds from the sale of the Property.

Analysis

[15] The chronology set out above, including the judgment of Dietrich, J., the dismissal of the appeal and the sale of the Property, are not contested. The issue is effectively whether the amount to be paid out to the Trustee representing its proceeds of the 50% interest in the Property should be adjusted as claimed by the Defendant Julie Pantziris.

[16] The Agreement sets out the terms for the sale of the Property and how the proceeds would be distributed. The sale price of the Property was $4,680,000.

[17] The Agreement between the Trustee and Julie Pantziris was executed by Ms. Pantziris on August 24, 2021 and by the Trustee the following day (both, I observe, by counsel acting on their behalf). It provided that on closing, the funds were to be distributed as follows:

(a) payment of the outstanding mortgage in the approximate amount of $750,000;

(b) payment of the usual adjustments on the Statement of Adjustments;

(c) payment of the real estate commissions;

(d) payment of transaction legal fees in an amount not to exceed $5000 plus HST and disbursements;

(e) one half of the net proceeds remaining, plus the amount of $170,000 (the costs award) representing the Trustee’s share of the proceeds pending appeal, to be paid into Court; and

(f) the balance of the net proceeds representing Julie Pantziris’ share to be paid to her or as she may direct.

[18] With respect to the payout of the mortgage in the approximate amount of $750,000 to be deducted from the purchase price, Ms. Pantziris provided to the Trustee a payout statement in the aggregate amount of $839,906.69 particularizing two amounts:

(a) $689,834.87 for HSBC Mortgage Registration No. AT4129770; and

(b) $150,071.82 for HSBC Line of Credit Account No. 002-315653-150.

[19] The Trustee objected to the deduction in respect of the line of credit amount, as a result of the inclusion of which, the total amount sought to be deducted exceeded the estimated amount of $750,000, by an additional amount of approximately $90,000. To permit the sale of the Property to proceed, the parties agreed that counsel for Ms. Pantziris, Mr. Bellissimo, would hold the $90,000 in trust pending further agreement or court order.

[20] Ms. Pantziris almost immediately took the position that property taxes outstanding as at the date of closing in the amount of $18,830.54 be deducted from the proceeds of sale. The Trustee refused. She paid those outstanding taxes from her share of the proceeds.

[21] That $90,000, and the amounts now claimed by Ms. Pantziris in respect of maintenance and improvements to the Property that she claims should be deducted from the monies held in Court before they are paid to the Trustee, are the amounts an issue on this motion.

[22] Those amounts fall into two categories: the mortgage on the one hand, and the collection of personal items, carrying costs and improvements on the other hand. The mortgage was addressed at the time the Agreement was entered into in that the issue was postponed until another day.

[23] The Agreement entered into by the parties addresses how the closing proceeds are to be divided and paid. There is no reference in the Agreement to any payment of, or reserve in respect of, additional amounts for personal items, carrying costs or alleged improvements. It refers only to the distribution of funds as set out above.

[24] By correspondence dated August 30, 2021, counsel for Ms. Pantziris delivered to counsel for the Trustee a chart entitled “Closing Funds and Distribution”. It makes no reference to any claim for any of these amounts. It specifically refers to adjustments on closing but that does not include a reference to these adjustments, even if they could be said to be ordinary course adjustments required for closing. The chart confirmed the amount payable to the Trustee is exactly the amount paid into Court and now sought by the Trustee of $1,974,416.09.

[25] That Agreement, negotiated with the benefit of counsel for both parties in acrimonious circumstances where many items were disputed, represents the bargain between the parties and, in numerous respects, a negotiated compromise by both sides.

[26] Prior to the execution of the Agreement, the Trustee was clear and unequivocal in its position, as conceded by Mr. Bellissimo in his affidavit filed on this motion, that in the event of the sale of the Property, the Trustee would not agree to the distribution of these amounts from the proceeds and that any claim asserted by Ms. Pantziris for those costs could be advanced by her by filing a proof of claim in the bankruptcy.

[27] The Agreement does not provide as a term the payment of the amounts now sought by Ms. Pantziris, with the result that, I find, she is not entitled to any such payment by way of deduction from the proceeds held in Court for the benefit of the Trustee. The Agreement should be read as a whole, giving the words used their ordinary meaning, consistent with the surrounding circumstances known to the parties at the time of the formation of the contract. (see Creston Moly Corp. v. Sattva Capital Corp., 2014 SCC 53 at para. 47.

[28] The consent order of McEwen, J. dated October 5, 2021 providing for the payment of the Trustee’s share of the proceeds into Court approximately one month after the Agreement, similarly makes no reference to any claim for these amounts from the proceeds, whether pursuant to the Agreement or in addition thereto.

[29] That order provided that the funds were to be paid into Court pending the outcome of the then outstanding appeal. There is no reference to any other outstanding issue or reason for the funds being held. None of these amounts was the subject of the appeal, which was limited effectively to a determination of whether the summary judgment granted by Dietrich, J. would be affirmed or set aside.

[30] Ms. Pantziris asserted for the first time months later, on January 12, 2022, the position that the funds paid into Court were subject to the resolution of disputed items. There is no evidence that a claim to these amounts was ever asserted by her before that time, let alone asserted and corresponding funds agreed to be set aside for further resolution or adjudication resulting in a possible adjustment of the quantum of the proceeds held in Court for the benefit of the Trustee pending the outcome of the appeal.

[31] The Trustee takes the position that if Ms. Pantziris wishes to assert claims for these amounts, such claims are properly asserted as alleged claims provable in bankruptcy, made in that proceeding and not as against the specific proceeds held in Court. I agree.

[32] This is consistent with the position taken by the Trustee prior to the execution of the Agreement. It is also consistent with the position taken by Mr. Pantziris through her counsel in correspondence to counsel for the Trustee dated October 20, 2020 in which her counsel put the Trustee on notice that she would be submitting a proof of loss in the bankruptcy, in the event the appeal was unsuccessful, and then again by correspondence dated February 3, 2021, following the dismissal of the appeal when her counsel advised the Trustee that she wished to proceed to file a proof of claim in the bankruptcy.

[33] The affidavit sworn by Mr. Bellissimo on this motion confirms that these amounts were not agreed by the Trustee as adjustments to net proceeds, and that if Julie had a claim for them, she could advance them in the bankruptcy by filing a proof of claim (see para. 7). It is as against that advice that Mr. Bellissimo authored his correspondence of February 3, 2021 referred to above.

[34] The reply affidavit of Ms. Pantziris further confirms her understanding that the Trustee took the position that the cost of repairs, maintenance and other items she claimed did not increase the capital value and therefore were not capable of setoff as against the proceeds. She clearly understood this, as stated in her reply affidavit, well before she entered into the Agreement. Her reply affidavit further states that she instructed her lawyer to “close the deal and reserve my rights to claim against the sale proceeds. Mr. Bellissimo did that as evidenced in his two emails, October 28 , 2020 and February 3, 2021.” However, as observed above, that correspondence clearly states that the claims will be advanced in the bankruptcy by way of a proof of claim.

[35] In my view, that is sufficient to dispose of her claim for those amounts. However, if I am wrong in that view, or if claims to those amounts were asserted notwithstanding the Agreement and on the basis that the Agreement did not govern because these claims were beyond its scope or terms, I find that in the circumstances Ms. Pantziris is not entitled to those amounts.

[36] The Courts have consistently held that claims for items such as the payment of mortgage interest, real property taxes, and improvements or repairs constitute current expenses and do not increase the capital value of the property. (See Duthie v Duthie (Trustee of), 2001 MBQB 235 at para. 9-10; and McKenzie (Trustee of) v. McKenzie, 2005 MBCA 35 at paras. 4-5 and 22-33).

[37] I agree with the position of the Trustee that Ms. Pantziris is not entitled to any set off for these amounts, first because they are not provided for as terms of the Agreement she entered into and subsequently confirmed through her consent to the order of McEwen, J., and second because they are current expenses which do not increase the capital value of the Property.

[38] The issue is not whether the expenses were in fact incurred; the issue is whether the evidence establishes that such expenses increased the capital value of the property, which is the asset that yielded the proceeds of which she is entitled to 50%, subject to adjustments.

[39] Put differently, does the evidence on the record establish that the expenses said to be incurred by Ms. Pantziris increased the capital value of the Property of which she is entitled to a 50% interest? In my view it does not.

[40] Moreover, there is no evidence here as to what the quantum of the alleged increase in the capital value of the Property would be, as a result of an improvement made, or expense incurred, at a time well in advance of the sale. There is no evidence on the record to establish that, even if these amounts (or some of them) were properly items that increased the capital value of the Property, they resulted in an increase of the capital value of the Property in the full amount of the expenses paid or incurred.

[41] It cannot be assumed in the absence of any evidence that the increase in the capital value to be divided now would be on a dollar for dollar basis relative to the expense incurred, in some cases years earlier. For example, costs in respect of the improvements to the kitchen in the Property were incurred in 2008 and 2009, over ten years before the sale. In her affidavit, Ms. Pantziris claims costs for maintenance and improvements incurred from August 2008 to August, 2021. She claims the amount of all of those costs incurred, adjusted for inflation forward from a valuation of the Property as at August, 2008.

[42] There is no evidence as to what, if any, proportion of the market value of the Property in 2021 could be said to be attributable to these amounts. Moreover, Ms. Pantziris enjoyed the use of the Property (including the improvements) until it was sold.

[43] The balance of the items claimed in this category relate to regular maintenance, upkeep and operating expenses of the Property, rather than capital improvements, and similarly must be claimed by Ms. Pantziris, if at all, by asserting a proof of claim in the bankruptcy but they do not represent a proper set off as against the proceeds in Court.

[44] Certainly, the claim for $20,000 in respect of contents cannot be said, and is not argued to be, a capital improvement. While those items were included in the agreement of purchase and sale for the third party purchaser and described under a “List of Inclusions” as described in the affidavit of Ms. Pantziris, the Agreement does not provide that she is to be credited for that amount. Rather, as discussed above, it provides for the division of proceeds from the sale of the Property, and that sale occurred pursuant to the terms of the agreement of purchase and sale with the purchaser, including the contents described under the “List of Inclusions”.

[45] The second claim or category of claims relates to the mortgage. The Agreement clearly contemplates, as noted above, the deduction of funds to pay out the mortgage before the proceeds were divided. The issue is whether the amounts claimed in respect of the line of credit are included in the mortgage.

[46] The Agreement provides at section 2 (a) that a deduction may be made for:

“…the outstanding mortgage (in the approximate amount of $750,000), such amount to be confirmed to the Trustee by Julie by way of a payout statement issued by the mortgagor and provided to the Trustee upon receipt of same by (counsel) from the mortgagee”.

[47] Two documents were issued by HSBC on August 27, 2021. The first, “Payout Statement Details”, relates to account number 002-315653-B01 and mortgage registration number AT4129770. It confirms the payout amount as that August 27, 2021 as CAD $689,834.87. There is no reference to the line of credit.

[48] The second document issued by HSBC on the same day is a letter confirming a “payout figure” of $150,071.82 for “the above Line of Credit”, defined as account number 002-315653-150. The letter further states that the payout figure should be confirmed on the day of payout, as it is a fluctuating overdraft facility.

[49] In her affidavit, Ms. Pantziris states that “in previous correspondence regarding the house sale, the mortgage on the house was incorrectly stated at approximately $750,000”.

[50] In his affidavit, Mr. Bellissimo does not address the issue of the quantum of the mortgage, or whether the letter of credit amount should be included, at all.

[51] I find that the mortgage amount referenced in the Agreement at section 2(a) does not include the additional amounts in respect of the line of credit. It follows that the Trustee is entitled to the payment of the $90,000 held in Mr. Bellissimo’s trust account.

[52] I acknowledge that both amounts are secured by the equity in the Property. However, the mortgage and the line of credit have different account numbers. The payout confirmation documents issued by the mortgagor, HSBC, on August 27, 2021 address the mortgage and the line of credit separately, in separate documents, neither of which refers to the other.

[53] There is no dispute that the line of credit was secured by the Property. However, I am satisfied that, again applying the principles set out by the Supreme Court of Canada in Sattva, supra, at the reference to the “mortgage” in the Agreement between the parties does not include a reference to the separate line of credit facility.

[54] I also observe that unless challenged elsewhere, this result, and the corresponding payment from Mr. Bellissimo’s trust account to the Trustee in the amount of $90,000 would effectively give credit to Ms. Pantziris for the full estimated amount of the mortgage at the time of the Agreement of $750,000, notwithstanding that, as confirmed by HSBC, the actual amount of the Mortgage outstanding was only $689,834.87.

[55] Ms. Pantziris further asserts on this motion that, in the event her claim for the line of credit amount is not part of the mortgage and therefore owing to her pursuant to the terms of the Agreement, as I have now found, she is entitled to this amount either by way of remedial constructive trust or equitable lien.

[56] She asserts that the remedial constructive trust ought to be imposed as the Trustee would be unjustly enriched at her expense, and that this Court has jurisdiction under section 183 of the BIA to grant that relief. That provision invests in this Court such jurisdiction at law and in equity as will enable it to exercise original, auxiliary and ancillary jurisdiction in bankruptcy and other proceedings authorized by that Act. Ms. Pantziris argues that jurisdiction should be exercised to impose a constructive trust here. In my view, it should not.

[57] The position of Ms. Pantziris is that the Trustee would be unjustly enriched if she is not given credit for her carrying charges and improvement costs for the Property. For the reasons set out above, I am of the view that the Trustee is not receiving any benefit or enrichment in respect of those carrying charges and improvement costs, whether just or unjust. As stated above, the carrying charges represent ordinary course expenses associated with the occupation and use of the Property, which Ms. Pantziris enjoyed prior to the sale. There is no benefit to the Trustee.

[58] I reach the same conclusion in respect of the improvement costs, also for the reasons expressed above. There is no evidence that the improvement costs, even if incurred by Ms. Pantziris, resulted in any benefit or enrichment to the Trustee in the form of an increased sale price for the Property, 50% of which is for the benefit of the Trustee.

[59] For all of these components of the claim, I find that none of the required elements of a constructive trust are made out here. There is no enrichment, there is no corresponding deprivation, and even if there were an enrichment, there is no absence of a juristic reason for it. The juristic reasons for the vesting in the Trustee of a 50% interest in the Property were the findings of Dietrich, J. resulting in summary judgment.

[60] The claim for an equitable lien must also fail. The court may impose a lien, as acknowledged by Ms. Pantziris, where one of the parties has improved the value of the asset to the exclusion of the other party. For the same reasons, I am not satisfied that the evidence establishes that she has improved the value of the asset.

[61] Moreover, I accept the position of the Trustee that if I am mistaken with respect to the claim for a constructive trust or an equitable lien, the doctrine of cause of action estoppel would apply so as to bar Ms. Pantziris from asserting those claims now. (See Cliffs Over Maple Bay Investments Ltd., Re., 2011 BCCA 180 at para. 28, quoting with approval from Angle v. Minister of National Revenue, 1974 CanLII 168 (SCC), [1975] 2 S.C.R. 248).

[62] As observed by the British Columbia Court of Appeal in Maple Bay, res judicata takes two forms in modern practice: cause of action estoppel and issue estoppel, where the former means that a litigant is estopped because the cause has passed into a matter adjudged in the previous proceeding; and the latter means that a litigant is estopped because the issue has clearly been decided in the previous proceeding.

[63] The requirements for a cause of action estoppel to be made out are these:

(a) there must be a final decision of a court of competent jurisdiction in the prior action;

(b) the parties to the subsequent litigation must have been parties to or in privity with the parties to the prior action;

(c) the cause of action and the prior action must not be separate and distinct; and

(d) the basis of the cause of action and the subsequent action was argued or could have been argued in the prior action if the parties had exercise reasonable diligence.

[64] I am satisfied that those requirements are made out here. Both parties to this motion were the parties to the motion for summary judgment resulting in the judgment of Dietrich, J. and the appeal from that judgment. The cause of action or claim asserted on this motion and on the summary judgment motion are not separate and distinct, and the very claims that Ms. Pantziris advances now ought to have been argued on the summary judgment motion by her.

[65] The basis of that motion was the dispute about whether the Trustee ought to be entitled to a declaration that it was the owner of a 50% interest in the Property. If Ms. Pantziris were of the view that, even if the Trustee were found to have an interest in the Property as a result of the transfer under value or fraudulent conveyance, as were asserted, the proportionate interest ought to be adjusted or reduced from 50% to account for the claims that she now makes, those claims ought to have been advanced as part of the summary judgment motion and subsequent appeal. They were not, and they cannot be raised now.

Disposition

[66] For all of the above reasons, the motion of the Trustee is granted and the cross-motion of Ms. Pantziris is dismissed. The Accountant of the Superior Court of Justice is directed to pay out of Court the sum of $1,974,416.09 plus accrued interest to the date of payment, to counsel for the Trustee, in trust. Mr. Steven Bellissimo, lawyer, is directed to pay to counsel for the Trustee, in trust, the sum of $90,000 on deposit in his solicitor’s trust account.

[67] The Trustee seeks costs of this motion in the partial indemnity amount of $26,964.74 or the higher amounts set out in its Bill of Costs on a substantial indemnity scale of $39,651.52 or full indemnity scale in the amount of $43,958.91, plus disbursements of $1120.38. Ms. Pantziris provided a Costs outline seeking costs on a partial indemnity scale of $$44,110 plus HST, an amount which is in excess of, but very close to, the full indemnity amount sought by the Trustee.

[68] The Trustee has been successful on both motions. Having regard to all of the circumstances, the nature of both motions, the issues raised and all of the relevant factors, I award the Trustee costs in the amount of $40,000 inclusive of taxes and disbursements.

Osborne J.

Released: July 15, 2022

COURT FILE NO.: CV-14-010638-00CL

DATE: 20220715

ONTARIO

SUPERIOR COURT OF JUSTICE

(COMMERCIAL LIST)

B E T W E E N:

ALBERT GELMAN INC. in its capacity as Trustee in Bankruptcy of SPIROS PANTZIRIS, v. 1529439 ONTARIO LIMITED

Plaintiff

AND

1529439 ONTARIO LIMITED, AGLAIA PANTZIRIS, ASPE CONSULTING SERVICES LTD., JULIE PANTZIRIS also known as JULIE TAYLOR also known as JULIE TAYLOR PANTZIRIS and ELLEN BOWLIN

Defendants

REASONS FOR DECISION

P. Osborne J.

Released: July 15, 2022