Stevens v. Stevens

Catharine Mary Stevens v. Ian Stevens, Royal Bank of Canada and Crown Attorney
(Lidia Narozniak)

Ontario Superior Court of Justice

Reilly J.

Judgment: September 12, 2005
Docket: C-385-05

Counsel: Robert K. Bickle for Applicant

Larry W. Keown for Respondent, Royal Bank of Canada

Subject: Civil Practice and Procedure; Family; Property; Estates and Trusts

Civil practice and procedure — Judgments and orders — Amending or varying — Who may vary or amend

Husband moved out of matrimonial home and wife agreed to pay his credit card debts in exchange for his interest in jointly owned matrimonial home — Wife continued to employ husband in her store until she discovered that he was defrauding her company and stealing money — Husband applied to respondent bank (“bank”) for loan, and bank advanced $50,000 despite being advised of wife’s allegations of fraud against him — Husband’s application did not refer to matrimonial home — Husband defaulted on loan and bank obtained judgment against him for $53,609.49, $7,040.60, and $734.92, and registered principal writ of execution on title to matrimonial home — Wife asked bank to lift their writ of execution but bank declined — Divorce judgment made after writ registered ordered that wife was sole legal and equitable owner of matrimonial home and all right, title and interest of husband vested in her effective as of date of separation and before writ of execution was registered — Wife applied for determination of interest of bank as execution creditor in matrimonial home and declaration that bank’s writ of execution was not applicable to matrimonial home as result of divorce judgment — Bank made counter-application for order amending or varying divorce judgment to make effective date of wife’s interest in home the date of divorce judgment, and after writ of execution was registered — Bank applied in alternative for order granting leave and standing to bank to appeal di-vorce judgment — Wife’s application was granted, and bank’s counter-application was dismissed — Court had no jurisdiction to grant either forms of relief sought by bank — Rule 59 of Rules of Civil Procedure requires party seek-ing to set aside or vary order to be party to original proceeding, and bank had no status to seek such order since it was not party — Rule 13 provides for intervention of added party who claims to be adversely affected by judgment, but bank did not move for leave to intervene as added party notwithstanding its having been put on notice of litiga-tion by wife’s counsel — Court also concluded that it had no jurisdiction to grant leave and standing to bank to ap-peal divorce judgment — Court ordered that none of respondents had interest as execution creditors in matrimonial home and declared bank’s writ of execution was not applicable to matrimonial home since wife was its sole legal and equitable owner pursuant to divorce judgment.

Family law — Family property on marriage breakdown — Determination of ownership of property — Application of trust principles — Resulting and constructive trusts — Matrimonial homes

Husband moved out of matrimonial home and wife agreed to pay his credit card debts in exchange for his interest in jointly owned matrimonial home — Wife continued to employ husband in her store until she discovered that he was defrauding her company and stealing money — Husband applied to respondent bank (“bank”) for loan, and bank advanced $50,000 despite being advised of wife’s allegations of fraud against him — Husband’s application did not refer to matrimonial home — Husband defaulted on loan and bank obtained judgment against him for $53,609.49, $7,040.60, and $734.92, and registered principal writ of execution on title to matrimonial home — Wife asked bank to lift their writ of execution but bank declined — Divorce judgment made after writ registered ordered that wife was sole legal and equitable owner of matrimonial home and all right, title and interest of husband vested in her effective as of date of separation and before writ of execution was registered — Wife applied for determination of interest of bank as execution creditor in matrimonial home and declaration that bank’s writ of execution was not applicable to matrimonial home as result of divorce judgment — Bank made counter-application for order amending or varying divorce judgment to make effective date of wife’s interest in home the date of divorce judgment, and after writ of execution was registered — Bank applied in alternative for order granting leave and standing to bank to appeal di-vorce judgment — Wife’s application was granted, and bank’s counter-application was dismissed — Court found that divorce judgment was not based on jurisdiction accorded by statute, but upon right of court in equity to direct reme-dial constructive trust including date of vesting of trust — Court may direct that constructive trust interest arises and takes priority prior to court’s declaration of such interest — Court interpreted divorce judgment to direct that wife’s constructive trust interest vested as of date of separation of parties, after which husband had no further proprietary interest in matrimonial home — No writ of execution with respect to husband as execution debtor could apply to matrimonial home — Bank was put on notice of matrimonial litigation and proprietary claim of wife — Court ordered that none of respondents had interest as execution creditors in matrimonial home and declared bank’s writ of execu-tion was not applicable to matrimonial home since wife was its sole legal and equitable owner pursuant to divorce judgment.

Cases considered by Reilly J.:

Bajada v. Bajada (1991), 32 R.F.L. (3d) 70, 1991 CarswellOnt 252 (Ont. Gen. Div.) — considered

Ferguson v. Ferguson (1994), 7 R.F.L. (4th) 384, 116 D.L.R. (4th) 707, 1994 CarswellOnt 448 (Ont. U.F.C.) — distinguished

Maroukis v. Maroukis (1984), [1984] 2 S.C.R. 137, 34 R.P.R. 228, 12 D.L.R. (4th) 321, 54 N.R. 268, 5 O.A.C. 182, 41 R.F.L. (2d) 113, 1984 CarswellOnt 268, 1984 CarswellOnt 803 (S.C.C.) — distinguished

Rawluk v. Rawluk (1990), 23 R.F.L. (3d) 337, [1990] 1 S.C.R. 70, 65 D.L.R. (4th) 161, 36 E.T.R. 1, 103 N.R. 321, 71 O.R. (2d) 480, 38 O.A.C. 81, 1990 CarswellOnt 217, 1990 CarswellOnt 987 (S.C.C.) — con-sidered

Statutes considered:

Family Law Act, R.S.O. 1990, c. F.3

Generally — considered

s. 10 — considered

Family Law Reform Act, R.S.O. 1980, c. 152

s. 4 — referred to

Rules considered:

Rules of Civil Procedure, R.R.O. 1990, Reg. 194

R. 13 — considered

R. 59 — considered

APPLICATION by wife for determination of bank’s interest and declaration of her interest in matrimonial home pursuant to divorce judgment; COUNTER-APPLICATION by bank for variation of divorce judgment.

Reilly J.:

1 By this application, Catharine Mary Stevens seeks a determination of the interest of the respondent the Royal Bank of Canada as an execution creditor in property located at 20 Dawnridge Drive, Kitchener, together with a dec-laration that the execution writ filed by the respondent Royal Bank of Canada, is not applicable to the property lo-cated at 20 Dawnridge Drive, Kitchener, as a result of the divorce judgment of Mr. Justice Patrick Flynn, declared September 17, 2004.

2 By counter-application, the Royal Bank of Canada seeks an order amending or varying the judgment of Mr. Justice Flynn to remove any “retroactive” effect of such order or, in the alternative, an order granting leave and standing to the Royal Bank to appeal the judgment of Mr. Justice Flynn.

3 The genesis of this application occurred on or about October 27, 1977 when the applicant Catharine Stevens married one Peter Nagtzaam. In July, 1998, Catharine Stevens and Peter Nagtzaam separated. He moved out of the matrimonial home at 20 Dawnridge Drive, Kitchener, the following month. After the separation, Ms. Stevens and Mr. Nagtzaam made an agreement whereby she would pay his credit card debts and, in exchange, he would transfer his interest in the jointly owned matrimonial home to Ms. Stevens. Ms. Stevens continued to employ Mr. Nagtzaam in her store, the Animal Den, until she discovered he was defrauding her company and stealing money. Apparently, Mr. Nagtzaam was subsequently convicted of fraud. Ms. Stevens became aware that Mr. Nagtzaam was attempting to secure a business loan with information stolen from her business. The police were notified, as well as a number of banks in Kitchener, including the Royal Bank of Canada, of her allegations of fraud against Mr. Nagtzaam and her concern that Mr. Nagtzaam intended to use fraudulent documents to secure a loan. In October, 1999 Mr. Nagtzaam applied to the Royal Bank for a loan and was advanced the sum of $50,000, notwithstanding Ms. Stevens’ caution to the bank. In his application for a loan, Mr. Nagtzaam reported that he was single (which was not true) and that he owned property purchased in 1999 for $164,000, with a mortgage of $130,000. No evidence was adduced before me as to whether Mr. Nagtzaam did in fact purchase another property in 1999 which had equity of some $34,000. How-ever, it may be of some note in passing that no reference was made on his application to the matrimonial home which was purchased in 1997.

4 Mr. Nagtzaam defaulted on the loan and on September 18, 2000 the bank issued a statement of claim to recover the monies owing. On November 24, 2000, judgment in favour of the bank was obtained in the amounts of $53,609.49, $7,040.60 and $734.92. On November 30, 2000, writs of execution were filed by the bank. The princi-pal writ of execution was registered on title to the matrimonial property.

5 On June 11, 2002, counsel for Ms. Stevens wrote to the bank requesting that the writ of execution be lifted from the title. It may be noted that the other respondents, Ian Stevens and the Crown Attorney on behalf of the Attorney General, agreed to lift their writs of execution. In the letter authored by counsel for Ms. Stevens of June 11, 2002, Ms. Hebner set out in some detail the history of this matter and enclosed copies of Ms. Stevens’ affidavit and her amended answer and counter-petition. Counsel for Ms. Stevens, Ms. Hebner, specifically stated “if Mrs. Stevens is successful in her claims, Mr. Nagtzaam would have no interest in the matrimonial home as he would hold his inter-est in trust for Mrs. Stevens”. The Royal Bank declined to lift its writ of execution from the property but took no further steps to intervene to pursue its claim in the matrimonial action.

6 On September 17, 2004, the matrimonial action was presided over by Mr. Justice Flynn. The relevant portions of his judgment are as follows:

1. This court orders and declares that the respondent, Catharine Mary Nagtzaam (nee Stevens) is the sole legal and equitable owner of the matrimonial home municipally known as 20 Dawnridge Drive, Kitchener, Ontario, more particularly described in Schedule ‘A’ hereto, effective from the date of sepa-ration of the parties, namely July 31, 1998.

2. This court orders and adjudges that all the right, title and interest of the petitioner, Peter Henry Nagtzaam, in 20 Dawnridge Drive, Kitchener, Ontario, more particularly described in Schedule ‘A’ hereto, shall be vested in the respondent, Catharine Mary Nagtzaam (nee Stevens) effective as of the date of separation of the parties, July 31, 1998.

7 I shall address first the counter-application of the Royal Bank of Canada, which may be dealt with in summary fashion. The respondent the Royal Bank of Canada makes application for:

(a) an order amending or varying the judgment of the Honourable Mr. Justice Flynn dated September 17, 2004, and in particular, an order amending paragraphs 1 and 2 of the order such that the effective date is amended from July 31, 1998 to September 17, 2004.

(b) in the alternative, an order granting leave and standing to the Royal Bank to appeal the judgment of Mr. Justice Flynn dated September 17, 2004.

8 The respondent Royal Bank of Canada alleges that the judgment of Mr. Justice Flynn was not reflective of, nor supported by, his endorsement. The bank submits that the formal order contained a retrospective provision in error and that such was not intended by Mr. Justice Flynn. The bank alleges further that Mr. Justice Flynn erred in law and in equity in making his judgment “retroactive to July 31, 1998”. The bank pleads that it had no notice of, and was not a party to, the family law trial proceeding and therefore in equity no relief should have been obtained by the applicant, Catharine Stevens, to the prejudice of the bank.

9 I conclude that this court has no jurisdiction to grant either of the forms of relief sought by the Royal Bank. Rule 59 of the Rules of Civil Procedure requires that the party who seeks to set an order aside or vary such order be a party to the original proceeding. The Royal Bank of Canada was not a party to the original proceeding and therefore has no status to seek such order. Rule 13 of the Rules of Civil Procedure provides for the intervention of an “added party” who claims an interest in the subject matter of the proceeding or a concern that such person may be “ad-versely affected” by a judgment in the proceeding. Notwithstanding having been put on notice by Ms. Stevens’ counsel of the litigation, the Royal Bank did not choose to move for leave to intervene as an added party. Since the Royal Bank was not a party to that proceeding, it has no status to seek to vary the order of Mr. Justice Flynn. There-fore, this court has no jurisdiction to vary that order. Further, I conclude this court has no jurisdiction to grant “leave and standing” to the Royal Bank to appeal the judgment of Mr. Justice Flynn. Therefore, the counter-application is dismissed.

10 It thus remains for determination whether the judgment of Mr. Justice Flynn effectively gives priority to Ms. Stevens’ entitlement to a full legal and equitable interest in the subject property, the former matrimonial home at 20 Dawnridge Drive, Kitchener, and whether the writ of execution filed on title by the Royal Bank should be vacated. I therefore must determine, for reasons that will become apparent, exactly the nature of relief which was granted by Mr. Justice Flynn. It may first be noted that Mr. Justice Flynn was alive to the claim of the Royal Bank, though he made no direct reference in his reasons for judgment to the writ of execution, per se. His Honour stated (at page 3):

He did not pay back the Royal Bank for the startup loan he took out to start up his own competing business, Animal Alley. And there is judgment against him in excess of $50,000 for that.

11 Mr. Justice Flynn then concluded that Ms. Stevens was not entitled, as a matter of contract, to Mr. Nagtzaam’s interest in the jointly held matrimonial home. He did accept that there was an oral agreement between Ms. Stevens and Mr. Nagtzaam that upon her satisfaction of Mr. Nagtzaam’s debts he would transfer his interest in the matrimo-nial home to her. Mr. Justice Flynn went on to say (at page 7):

So whether or not at law an agreement like that can be enforced, it seems to me in equity it must be.

12 Mr. Justice Flynn then continued to make it clear (at pages 8-9) that his determination of Ms. Stevens’ interest in the matrimonial property was not a matter of equalization in accordance with the Family Law Act. His Honour then made reference to s. 10 of the Family Law Act, which provides the jurisdiction to determine questions of title between spouses and to declare ownership and a right of possession. He concluded:

I simply will declare that the respondent Stevens, or Catherine Mary Nagtzaam, be declared the legal and beneficial owner of the property at 20 Dawnridge Drive, Kitchener, and that there be made an ancillary or-der vesting Mr. Nagtzaam’s right, title, equity and interest in her.

13 Mr. Justice Flynn signed a formal judgment dated the next day, September 17, 2004, wherein he directed legal and equitable ownership of the matrimonial home in Ms. Stevens, together with a vesting order. This order was di-rected to be effective as of the date of separation, July 31, 1998.

14 As noted above, the writ of execution was filed by the bank in November of 2000, well prior to the judgment of Mr. Justice Flynn September 17, 2004. The question to be resolved is whether the judgment of Mr. Justice Flynn purporting to vest Mr. Nagtzaam’s interest in the jointly held property in the applicant Ms. Stevens, effective July 31, 1998, effectively removes the writ and right of execution of the Royal Bank filed in November, 2000 as a valid claim against the subject property.

15 Though he did not specifically so state, I conclude that Mr. Justice Flynn found a constructive trust in favour of Catherine Stevens, which constructive trust vested in her the interest of Peter Nagtzaam in the matrimonial home as of the date of separation, July 31, 1998. The question then remains whether the judgment of Flynn, J. serves to vacate the writ of execution filed by the Royal Bank prior to the judgment of Mr. Justice Flynn.

16 Counsel for the applicant, Catherine Stevens, has cited a wealth of jurisprudence, which need not be repeated. It is trite law that an execution creditor has no greater rights than does the debtor on the date of the filing of the writ of execution. The applicant relies in part on the Supreme Court decision in Rawluk v. Rawluk, [1990] 1 S.C.R. 70 (S.C.C.). In that decision Mr. Justice Cory stated at paragraphs 42-43:

42. As well in Hussy v. Palmer, supra, at p. 1290 (quoted by Dickson J. in Rathwell v. Rathwell, supra, at p. 455), Lord Denning M.R. noted that a constructive trust may arise at the outset when the property is ac-quired, or later on, as the circumstances may require. As a result, even if it is declared by a court after the parties have already separated, a constructive trust can be deemed to have arisen when the duty to make restitution arose. It should therefore be considered as part of the property owned by the beneficiary at valuation date.

43. It must be emphasized that the constructive trust is remedial in nature. If the Court is asked to grant such a remedy and determines that a declaration of constructive trust is warranted, then the proprietary in-terest awarded pursuant to that remedy will be deemed to have arisen at the time when the unjust enrich-ment first occurred. But, as Professor Scott makes clear, the fact that the proprietary interest is deemed to have arisen before the remedy was granted is not inconsistent with the remedial characteristics of the doc-trine.

17 In Bajada v. Bajada, [1991] O.J. No. 515 (Ont. Gen. Div.), Mr. Justice Kozak stated at page 3:

The Constructive Trust remedy provides proprietary relief which prevails not only against the titled spouse but also against third parties depending upon the date that the trust is found to have arisen. It could very well be that the non titled spouse’s interest could take priority over executions registered prior to the decla-ration depending upon the date of the trust.

Therefore, counsel for the applicant argues that even though the declaration of constructive trust did not occur until September 17, 2004, the trust itself was found to have arisen and to be effective as of the date of separation, July 31, 1998. Thus, submits Mr. Bickle, the trust takes priority over the writ of execution registered in 2000.

18 The respondent Royal Bank relies principally on two cases. They are Maroukis v. Maroukis, [1984] 2 S.C.R. 137 (S.C.C.) and Ferguson v. Ferguson , [1994] O.J. No. 1975 (Ont. U.F.C.). In both cases, writs of execution filed with the sheriff prior to a court order dealing with family property were found to have priority over the claim of the spouse who was accorded proprietary rights in the property pursuant to the judgment of the family court. In both cases, the judgment of the court was found to be a “triggering event” and that any rights acquired by an execution creditor prior to that “triggering event” would constitute valid claims against the property.

19 I conclude that both cases may be distinguished from the application at bar. The disposition of the court in Maroukis v. Maroukis was an order providing for disposition of family assets under s. 4 of the Family Law Reform Act. The disposition of the court in Ferguson v. Ferguson was for equalization of net family property pursuant to the Family Law Act. As Mr. Justice McIntyre stated in Maroukis v. Maroukis (at page 4):

There is no authority in the Act for an order retroactively vesting property in a spouse as the appellant con-tends and as Judge Luchak ordered.

20 Having considered Maroukis v. Maroukis, Mr. Justice Beckett of the Unified Family Court, found that though Maroukis was determined under the Family Law Reform Act, the same principal was applicable under the Family Law Act. He stated (at para. 23):

There is no authority in Section 7(1) of the Family Law Act to make an order with retroactive effect.

21 It appears clear law that a disposition of property or equalization of property, if done pursuant to the Family Law Act, will not have retroactive effect. Proprietary rights apply only as of the date of the order or judgment of the court.

22 However, I conclude in this case that though Mr. Justice Flynn made reference in passing to s. 10 of the Fam-ily Law Act, his judgment was based not on a jurisdiction accorded by statute, but upon the right of the court in eq-uity to direct a remedial constructive trust. In finding and directing a constructive trust, the court has the jurisdiction to direct the date of vesting of the trust. Otherwise expressed, the court may direct that the constructive trust interest “arises” and takes priority prior to the court’s declaration of such interest. In this case, Mr. Justice Flynn directed that the applicant, Catharine Stevens’, trust interest vested as of the date of separation, July 31, 1998. As of that date, Peter Nagtzaam had no further propriety interest in the subject property. He merely held it in trust for Catherine Ste-vens. Thus, no writ of execution with respect to Peter Nagtzaam as execution debtor could apply to the property.

23 I concede I am troubled by the submission of counsel for the Royal Bank with respect to the fact that the Royal Bank was not a party to the proceeding before Mr. Justice Flynn and that the bank therefore had no opportunity to plead its own equities before Flynn J. However, I remind myself that I am not sitting on appeal of the judgment of Mr. Justice Flynn; I am simply interpreting and giving effect to that judgment. Moreover, if equities are to be con-sidered, I am mindful that the Royal Bank was clearly put on notice of the matrimonial litigation and the proprietary claim of Catherine Stevens by Ms. Hebner’s, letter of June 11, 2002, which advised the Royal Bank that if Catherine Stevens’ claim was successful, in effect the Royal Bank would have no excisable interest in the subject property. I am further mindful that in his application for the loan, Mr. Nagtzaam did not, apparently, refer to an interest in the subject property. Thus, it cannot be said on behalf of the bank that the loan was granted relying upon assurances by Mr. Nagtzaam (however false) that he had an interest in the subject property. In sum, even if the Royal Bank had had an opportunity to plead its equities before Mr. Justice Flynn, it is highly doubtful whether Mr. Justice Flynn’s decision would have been any different.

24 For the above reasons, I direct that none of the respondents to this application (and specifically the Royal Bank of Canada) have an interest as execution creditors in the property located at 20 Dawnridge Drive, Kitchener, as more specifically described in paragraph 1(a) of the notice of application. Further, I grant relief as sought by paragraph 1(b) of the notice of application and declare that the writ of execution filed and registered by the Royal Bank is not applicable to the property located at 20 Dawnridge Drive, Kitchener, by reason that the property vested in Catherine Mary Stevens as the sole legal and equitable owner of the property on July 31, 1998 pursuant to the order of Mr. Justice Flynn made on September 17, 2004.

25 I wish to thank counsel for their considerable assistance to the court in resolving this matter and commend them on their preparation and their advocacy. If the parties cannot agree on costs in this matter, they may make writ-ten submissions to the court within 60 days of publication of this ruling as to an order for costs. Submissions should be sent directly to judges’ chambers at the Superior Court in Kitchener, directed to my attention.

Application granted; counter-application dismissed.