Crotty v. Crotty, 2012 ABQB 129

Court of Queen ’ s Bench of Alberta Citation: Crotty v. Crotty, 2012 ABQB 129 Date: 20120227 Docket: 4810 017837 Registry: Red Deer Between: Shelly Ann Crotty Plaintiff - and - Kevin Donald Crotty Defendant _______________________________________________________ Reasons for Judgment of J.B.

Hanebury, Master in Chambers _______________________________________________________ [ 1 ] This application requires the Court to decide if creditors registered against the title to land sold pursuant to a court order obtained in a divorce and matrimonial property action should be paid pursuant to the provisions of the Land Titles Act R.S.A. 2000, c. L- 4 or the provisions of the Civil Enforcement Act R.S.A. 2000, c. C-15. Facts [ 2 ] Mr. and Ms. Crotty separated and entered into Minutes of Settlement in September, 2009. These minutes provided that Ms.

Crotty would obtain financing and pay out the secured creditors on title. The property would be transferred to her and then listed for sale

with the proceeds to be apportioned as agreed. She could not get financing and as a result their acreage remained in joint ownership. Mr. and Ms. Crotty then listed the acreage for sale and in December, 2010, received an offer to purchase. In the intervening time period Mr. Crotty incurred debts and various writs and charges were registered against his interest in the title. As well, the mortgages registered against the title to the property had gone into arrears and a foreclosure had been commenced. [ 3 ] When it became obvious that the title could not be cleared to permit the sale, Ms.

Crotty applied to the court in her divorce and matrimonial property action to allow the sale, clear the title, and determine her share of the proceeds. The grounds of the application, as set out in her motion, were the Minutes of Settlement which provided that the property was to be listed and sold and the sale proceeds divided, and rule 1.4(2) of the Rules of Court. The motion also listed the relevant legislation as: the Matrimonial Property Act , R.S.A. 2000, c. M-8 ; the Land Titles Act , R.S.A. c. L-4; and, the Civil Enforcement Act , R.S.A. 2000, c.

C-15. [ 4 ] Her application was not opposed by the creditors and on March 2, 2011, Ouelette J. ordered the sale to proceed and cleared the title, without prejudice to the rights of the encumbrancers. The secured creditors, Servus Credit Union and Abbey Homes were ultimately paid out, with the balance of the funds to be held pending further order of the Court. [ 5 ] At the time the land was sold there were seven instruments registered against Mr. Crotty’s interest which remained outstanding: (

a) Writ: Canada Revenue Agency, $68,038.00; (

b) Writ: Bank of Montreal, $120,031.00; (

c) Caveat re Agreement Charging Land: Brown and Dixon, no amount disclosed; (

d) Writ: CIT Financial Ltd., $100,465.00; (

e) Order: Director of Employment Standards, $2,990.65; (

f) Order: Director of Maintenance Enforcement, no amount disclosed; and (

g) Writ: Chrysler Financial Services, $29,142.00. [ 6 ] Ms. Crotty then applied, again in the divorce action, for the payment to her of $15,000.00 of the sale proceeds to cover her moving costs. This was unopposed and was granted on July, 4, 2011. She then applied for one half of the net proceeds of the sale with Mr. Crotty’s share to remain in court subject to the claims of his creditors. In her motion she referenced the Matrimonial Property Act , sections 37 and 38 , the Land Titles Act , sections 122(1) and (7), and the Civil Enforcement Act , s. para. 33(2) (b).

That order was granted on August 22, 2011. [ 7 ] The funds remaining are Mr. Crotty’s and the applicants seek a determination of their priorities and the payment of the funds to them. Positions of the parties [ 8 ] Mr. Crotty, supported by the Director of Maintenance Enforcement (MEP), argues that the sale occurred pursuant to the Civil Enforcement Act . He says that pursuant to s. 99(3)(

e) of that Act and s. 20 of the Maintenance Enforcement Act , his wife is entitled

to the balance of the funds in court in partial satisfaction of his arrears of maintenance. [ 9 ] The first claimant on title is Canada Revenue Agency (CRA), and it has a subsequent writ. It argues that the sale was voluntary. The minutes of settlement were not incorporated into a court order or judgment and no charge in respect of it was registered against the title.

As a result, it argues, the provisions of the Land Titles Act apply to all creditors, who are entitled to be paid pursuant to the priority of their registration. [ 10 ] The Bank of Montreal, which is next on title, argues that it, and CRA, take in priority to the subsequent caveat protecting an agreement charging land, which was filed by the counsel for Mr. Crotty. The Bank supports the position of the CRA and seeks to have the funds paid first to the CRA with the balance to it.

In the alternative, it asks that the funds be distributed pro-rata between it and the CRA. [ 11 ] CIT is next on the title after the caveat in favour of Mr. Crotty’s counsel.

It argues that the sale was a “judicial sale” as that term is used in s. 96 of the Civil Enforcement Act , and therefore the proceeds of the sale should be distributed pro-rata to all writ holders in accordance with s. 99 of the Act . [ 12 ] It argues that neither MEP, nor the Director of Employment Standards, nor the Brown Dixon caveat should be granted any priority over the writ holders. [ 13 ] Both the Director of Employment Standards and MEP argue that they have a statutory priority to payment.

Issues [ 14 ] At issue is whether the provisions of the Land Titles Act or the Civil Enforcement Act apply to the distribution of the proceeds. Each provides for a different scheme of distribution to the claimants. To determine this question, the Court must decide the legislative basis for the sale: under what provision of what Act was the property sold?

With that determination the Court can consider what legislation is applicable to the distribution of the proceeds. [ 15 ] After that determination one issue remains: do either or both of MEP and the Director of Employment Standards hold a priority entitling them to be paid ahead of the other creditors?

What statute provided the jurisdiction to sell the property? [ 16 ] There are five Acts that could be a possible source of jurisdiction for the sale of the property: the Land Titles Act ; the Maintenance Enforcement Act ; the Civil Enforcement Act ; the Law of Property Act ; or, the Matrimonial Property Act . [ 17 ] As there are no provisions in the Land Titles Act giving the Court the power to transfer the land, the transfer did not occur pursuant to that legislation. [ 18 ] Under the Maintenance Enforcement Act, orders for maintenance and agreements for maintenance can be enforced only by MEP: s. 10.1(2) and 11(1).

The transfer could not have occurred pursuant to this legislation as the application was not brought by MEP, but by Ms. Crotty herself. While there are provisions for the creditor opting out of this enforcement scheme, there is no evidence that Ms. Crotty did so. [ 19 ] The Civil Enforcement Act does allow for the sale of property in certain situations. Civil enforcement proceedings are defined

to include writ proceedings: s. 1(g)( I) . A judgment creditor who has a writ may initiate enforcement proceedings to sell land owned by the debtor. To do so, it must provide instructions to an agency to sell the land: s. 68. The sale is then handled by the agency and certain requirements are to be followed to effect the sale: s. 69 - 76. [ 20 ] The Court has the right on an application by any interested party or an agency, to give directions in respect of, or to determine, any matter or issue that arises out of any civil enforcement proceedings: s. 5. Some creditors point to this

section to argue that it allowed the Court to order the sale to occur under the Civil Enforcement Act , despite the failure to follow the usual process of using an agency. [ 21 ] It is not necessary to determine if s. 5 can support such an argument, as no creditor brought an application under the Civil Enforcement Act to commence civil enforcement proceedings. While Ms. Crotty was arguably a creditor, she had no right to commence proceedings in relation to the writ for maintenance enforcement, because, as noted above, all of those rights were held by MEP, who brought no application.

Therefore, the land was not sold pursuant to the Civil Enforcement Act. [ 22 ] The Law of Property Act , in conjunction with the Rules of Court, permits the sale of land in the course of a foreclosure action. There was a pre-existing foreclosure action at the time of this sale, but the application to sell was not filed in that action. [ 23 ] The application for sale was filed by Ms. Crotty in this action, her divorce action which sought a division of matrimonial property pursuant to the Matrimonial Property Act .

Under that Act, the Court has the ability to order the sale of matrimonial property: s. 9(2) and (3), or where an agreement has been entered into, s. 38 . [ 24 ] The sale could only have occurred pursuant to the Matrimonial Property Act . [ 25 ] I pause to note that this conclusion is not contradicted by either the materials filed to support the application for sale or a review of the recordings of the various court proceedings relating to the sale. [1] The original motion to clear the title and allow the sale gave as its grounds the terms of the Minutes of Settlement.

When it was heard on March 2, 2011, before Justice Oulette, [2] the matrimonial counsel for Ms. Crotty and one creditor with an agreement charging land attended. The Court was advised that no one was opposing the sale. There was no discussion of the legislation being relied upon by Ms. Crotty, but the file before the court was the matrimonial file. [ 26 ] At a subsequent proceeding on July 4, 2011, before Justice Sullivan, Ms. Crotty’s counsel sought the payment to her of some of the funds in Court.

Her counsel advised the Court that the sale had been ordered as a result of the Minutes of Settlement entered into by the parties. [ 27 ] At the final proceeding in August, 2011, before Justice Nielsen, counsel for both Mr. and Ms. Crotty were present. The only mention made of the claim for outstanding maintenance was an aside to the Court to the effect that MEP and the CRA would be arguing over Mr. Crotty’s proceeds left in court. [ 28 ] As a result, Ms. Crotty’s affidavit filed subsequently in support of this application is of no evidentiary value.

It indicates that she was a creditor and relying on the Civil Enforcement Act when she sought the sale of the property. [ 29 ] Despite the argument of Mr. Crotty’s counsel in this application to the same effect, it is clear that the sale was sought pursuant to the provisions of the Matrimonial Property Act , and furthermore, that was the only legislation she could rely on. With that determination, the next question is what legislation governs the distribution of the sale proceeds?

Which Act governs the distribution of the proceeds? [ 30 ] Certain creditors argue that the provisions of the Civil Enforcement Act apply and the distribution scheme to writ holders outlined in s. 99(3) of that Act is applicable. This subsection would pay the writ holders on a pro-rata basis.

[ 31 ] Section 99(3) is found in

Part 11 of the Act , and it is entitled “Distributions”.

Section 96 is found in that Part and it states that “all money that is realized through writ proceedings , or is otherwise received by an agency as a result of the existence of an enforcement debt must be dealt with in accordance with”

Part 1 [emphasis added]. [ 32 ] Are the remaining proceeds of the sale of the Crotty property realized through writ proceedings or are they payable to an agency as a result of the existence of an enforcement debt? [ 33 ] “Writ proceedings” is defined as “any action, step or measure authorized by this Act to be taken for the purpose of enforcing a money judgment”: s. 1(uu).

As earlier noted, in this case the creditors merely filed their writs; no steps were taken to enforce them. [3] The funds were not realized through writ proceedings. [ 34 ] An “enforcement debt” is defined as an “amount outstanding on a money judgment in respect of which a writ is in force” s. 1(q). The creditors in this case had enforcement debts. Are the proceeds payable to an agency as a result of the existence of their enforcement debts? [ 35 ] Section 96(2) sets out situations where sale proceeds should be received by an agency because of an existing writ:

(2) Where property that is bound by a writ is sold ...in proceedings to enforce a security interest or encumbrance that has priority over the writ, .... (

b) if the property is sold pursuant to a judicial sale or by a person other than a distributing authority, any portion of the proceeds in excess of the amount necessary to discharge the security interest or encumbrance shall be paid to an agency. [emphasis added] [ 36 ] Some creditors argue that the sale in this case was a judicial sale, ie. a sale by court order, and therefore the remaining funds should come within this subsection. However, that is not the question. Regardless of whether the sale in this case can be classified as a judicial sale, it must occur to enforce a security interest or encumbrance.

That did not happen in this case. The sale did not occur in the foreclosure action. The Minutes of Settlement were not reduced to a court order nor registered in any way on the title. The sale occurred under the Matrimonial Property Act when the parties could not give effect to their prior arrangement. [ 37 ] There is no requirement under s. 96 that the proceeds of the sale in this case be directed to an agency for distribution pursuant to the Act .

In the result, the proceeds do not come within the scheme for distribution set out in the Civil Enforcement Act . [ 38 ] The remaining scheme for distribution is found under the Land Titles Act. [ 39 ] It defines “instrument” to include an order of the court, a mortgage or an encumbrance and “any other document in writing relating to or affecting the transfer of or dealing with land”: s. 1(k). The Registrar is to keep a record of each instrument and caveat accepted and each is to be given a number.

Section 14(3) provides: For purposes of priority between mortgagees, transferees and others, the serial number assigned to the instrument or caveat shall determine the priority of the instrument or caveat filed or registered. In

section 56 the concept of priority by number of registration is confirmed for writs. It provides that writs “have priority the one over the other according to

section 14 and not according to the date of execution”.

[ 40 ] Section 122 (7) provides that a writ, once registered, “binds all legal and equitable interests of the debtor in the land so long as it is in force”. [ 41 ] The net result is that the priority system provides that instruments are dealt with in order of their priority of registration, and writs are therefore paid out based on their priority: Resmor Trust Co. v. Wood 2006 ABQB 841 , Alberta (Treasury Branches) v. Floral Holdings Ltd. [1989] A.J. No. 9 (ABQB) and Master Excavators Co. v. Domil Homes Ltd. [1996) A.J.

No. 387 (Master). [ 42 ] The creditors point out the valid policy reasons for requiring the funds to be paid out pro-rata to the creditors in sales of this kind. It is acknowledged that it is often of benefit to all parties to facilitate a private sale as was done in this case. However, with the facts before this court, and with no ambiguity in the law on this point, policy arguments cannot make the day.

Unless and until the law is amended, if creditors wish to protect their pro-rata claims to the proceeds of a court-ordered private sale, they should ask that the sale proceed in the foreclosure action, as has been allowed in a number of past applications, or pursuant to their writs under the Civil Enforcement Act . [ 43 ] Therefore, the funds available are first subject to the writ of the CRA and then to the writ of the Bank of Montreal, unless the claims of MEP and the Director of Employment Standards take priority.

Should the writ filed by the Director of Maintenance Enforcement be paid on a priority basis? [ 44 ] The relevant provisions of the Maintenance Enforcement Act are: 20(1) Notwithstanding any other Act, a maintenance order, whether filed with the Director or not, takes priority over any unsecured judgment debt of the debtor, other than another maintenance order. 21(1) The Director or a creditor may register a maintenance order in the Personal Property Registry.

(2) If a maintenance order is registered under subsection (1), the order is deemed to be a writ of enforcement for the amount that the payment ordered is in arrears from time to time.

(3) Notwithstanding any other Act, a maintenance order registered under this

section takes priority over any other writ of enforcement. 23(1) A maintenance order may be registered in any land titles office and the registration, so long as the order remains in force, (

a) binds all legal and equitable interests of the debtor in any land registered in the debtor’s name at the time of or after registration of the maintenance order, and (

b) operates on those interests in the same manner and with the same effect as registration of a charge by the debtor on the land of the debtor. [ 45 ]

Section 20, formerly s. 15 of the Maintenance Enforcement Act has been held to give precedence to maintenance orders, despite the provisions of any other Act : Wisener v. Wisener Estate , 2000 ABQB 162 . This priority was upheld in relation to an order filed in the Personal Property Registry in Nelson v. Nelson , 2001 ABQB 732 . However the latter case did not need to consider the provisions of s. 23 of the Act. [ 46 ] A different result occurred in relation to a maintenance enforcement order registered against the title to land.

[ 47 ] McFadyen J. considered virtually identical sections [4] of this Act, in Farm Credit Corp. v. Campbell [1992] A.J. No. 1270, (ABQB) . She held at para. 17 that: When the provisions of the Maintenance Enforcement Act are considered in relation to each other, it is clear that the legislature did not grant any special priority to a maintenance order registered at land titles .

The legislature appears to have deliberately chosen to leave the issue of priority of a maintenance order registered at land titles to be dealt with in accordance with the ordinary rules applicable to writs of execution registered against title to land. [emphasis added] [5] [ 48 ] The decision in Farm Credit Corp. is binding upon this Court. [6] There is no special priority given to a maintenance order vis-a- vis prior registrations on the title to land. The provisions of the Land Titles Act govern. Should the writ file by the Director of Employment Standards be paid on a priority basis? [ 49 ]

Section 109 of the Employment Standards Code gives an employee a deemed security interest on the property or assets of an employer to a maximum of $7500.00. It is granted a priority over virtually any other claim or right, subject to the provisions of s 111. [ 50 ]

Section 111 of the Act provides for the registration of the order at the Land Titles Office and states that the registration creates a secured charge in favour of the Director and “has the same priority it would have if it were a mortgage registered against an interest in land”: s. 111(3).

Under s. 104 of the Land Titles Act, the priority of a mortgage is determined pursuant to s. 14, ie. by date and time of registration. [ 51 ] The result, as under the Maintenance Enforcement Act, is that an order of the Director of Employment Standards that is registered against the title to land does not give the Director a priority in relation to the proceeds from the sale of that land. [7] The Director is subject to the same priority system as other creditors. Conclusion [ 52 ] Mr. Crotty filed no affidavit evidence and no claim was made by him for an exemption.

Similarly, no affidavit was filed to support the agreement charging land filed by Dixon and Brown, nor did they argue that they were entitled to a priority over the prior writs. [8] The funds in court are to be paid first to the CRA and then to the Bank of Montreal. There is no priority payment to be made to either the Director of Maintenance Enforcement or the Director of Employment Standards. [ 53 ] If costs cannot be agreed, the parties may speak to costs within sixty days of the release of this decision. Heard on the 08 th day of November, 2011.

Dated at the City of Red Deer, Alberta this 27 th day of February, 2012

J.B. Hanebury M.C.C.Q.B.A. Appearances: Daniel G. Segal Department of Justice Canada for the Applicant Minister of National Revenue Anthony J. DiLello Fric, Lowenstein & Co. LLP for the Bank of Montreal Monica R. Brown Duhamel Manning Feehan Warrender Glass LLP for Kevin Donald Crotty Nicole T. Taylor-Smith Miller Thomson LLP for CIT Financial Ltd. Calvin C. Robb Robb & Evenson Lawyers for Director of Employment Standards Ronda J. Goulden Government of Alberta / Civil Law Branch for Director of Maintenance Wulf Siewert Siewert Bothwell

for Plaintiff Shelly Ann Crotty [1] Transcripts were not filed. [3] As noted in Seel Mortgage Investment Corp. v. Tri-Dell James Construction Ltd., [1981] A.J. No. 532 (Master), p. 20, the filing of a writ is not a seizure. See as well s. 26 of the Civil Enforcement Act , which indicates that the filing of a writ is merely a pre-requisite to enforcement proceedings. [4] This decision pre-dated the proclamation of the Civil Enforcement Act . As a result the Act was amended and the original reference to the Sheriff in s. 16 is now to the Personal Property Registry in s. 21.

Otherwise the sections she considered were identical to those now under consideration. [5] I note that in Nugent v. Nugent , 2004 ABQB 741 , Park J., in obiter indicated that s. 20(1) gave priority to a maintenance enforcement order over a CRA writ where both were registered against the title to property voluntarily sold. In that case the proceeds were sufficient to pay both, and he did not consider the decision in Farm Credit Corp. or s. 23 of the Maintenance Enforcement Act. [6] Since her decision the Civil Enforcement Act was proclaimed, including s. 99(3) (

e) which speaks to the payment of priority creditors from the distributable fund. However, as earlier noted, in this case, the distribution provisions of the Civil Enforcement Act are not relevant to the proceeds of the sale of the Crotty’s property. [7] However, when the proceeds of the sale are subject to distribution under the Civil Enforcement Act , s. 99(3)(

e) ensures that effect can be given to the priority found under both the Maintenance Enforcement Act and the Employment Standards Code . [8] See: Jellett v. Wilkie (1986) 26 S.C.R. 282 and the cases considering this decision.