Keith G. Collins Ltd. v. Coutu, 2011 MBCA 52

Citation: Keith G. Collins Ltd. v. Coutu, 2011 MBCA 52 Date: 20110630 Docket: AI 10-30-07485 IN THE COURT OF APPEAL OF MANITOBA Coram: Mr. Justice Michel A. Monnin Mr. Justice Richard J. Chartier Madam Justice Holly C. Beard BETWEEN : KEITH G. COLLINS LTD., as Trustee ) R. W. Schwartz of the Estate of Robert Joseph Coutu, also ) for the Appellant known as Joseph Robert Coutu, a Bankrupt ) ) D. D.

Coutu (Applicant) Appellant ) on her own behalf ) - and - ) Appeal heard: ) May 12, 2011 DEBRA DARLENE COUTU ) ) Judgment delivered: (Respondent) Respondent ) June 30, 2011 MONNIN J.A. 1 This is an appeal by a Trustee in Bankruptcy (the Trustee) from an order directing the payment out of the proceeds of sale of a one-time marital home between the Trustee and the now-divorced wife of a bankrupt (the respondent). 2 Although the matters concerned in this appeal have overtones of a marital dispute encompassing property settlement, it would be an error to consider them from that vantage point.

This is, in fact, a dispute between a Trustee in Bankruptcy and the now ex- wife of a bankrupt, and the disposition of this appeal must be informed by the provisions of bankruptcy law and proceedings. 3 In May 2003, when they separated, the bankrupt and the respondent were joint owners of a property at 258 Margaret Avenue in the City of Winnipeg . The property was their marital home. 4 The respondent commenced proceedings under The Family Maintenance Act , C.C.S.M., c.

F20, in September of 2003. 5 The bankrupt made an assignment into bankruptcy on October 20, 2003. 6 On December 1, 2003, the bankrupt entered into a consent order with the respondent, purporting to settle the marital issues as between themselves. As part of that order, the bankrupt agreed to transfer to the respondent his share in the marital home on the understanding that the respondent would not seek to obtain spousal support for herself.

The bankrupt agreed to continue making the child support payments that he was paying at the time. 7 As far back as October 2003, the Trustee informed the respondent of the bankrupt’s assignment and the Trustee’s interest in the marital home. The Trustee sought access to the home in order to establish the value of his interest. The respondent declined to provide the access which the Trustee sought.

Finally, on September 3, 2004, the Trustee, by letter, informed the respondent that he was filing a caveat against the marital property and that she should contact the Trustee if and when she was prepared to cooperate and provide access to the residence for the purpose of valuation. 8 Over the course of the next years, some contact occurred between the Trustee and the respondent, including the Trustee’s attendance at a number of case conferences dealing with the marital issues between the respondent and the bankrupt.

9 On April 8, 2010, the Trustee brought an application for partition and sale of 258 Margaret Avenue and, after a contestedhearing, was granted an order for the sale of the property on June 3, 2010. Once the sale was ordered, the respondent cooperated in thelisting of the property and in completing the sale.

In the intervening time, a final order for divorce, effective May 13, 2010, was grantedas between the respondent and the bankrupt. 10 In granting the order for partition and sale, the judge also directed that the parties re-attend before him following thecompletion of the sale to deal with the apportionment of the proceeds from that sale. 11 On the Trustee’s motion to disburse the sale proceeds, the Trustee informed the judge that, after paying some accounts,including the sale commission, which the respondent was not disputing, he proposed to pay out the balance outstanding on the mortgage,retain for himself costs of $12,000 calculated on a solicitor-client basis and divide the remaining proceeds with the respondent. 12 As she did before us, the respondent acted on her own behalf before the judge.

The respondent objected to the Trustee’sproposal. She disputed having to pay any costs and claimed that she was entitled to a credit of at least one half of the mortgage and taxpayments which she had paid for the property from the time of separation to the time of sale. 13 In addition to the issues raised by the respondent, the judge on his own initiative considered whether the respondent had anyhomestead rights which needed to be valued.

The judge stated that the case law suggests that a Trustee in Bankruptcy takes a bankrupt’sinterest in a family home subject to the homestead interest of the non-bankrupt spouse. He found that, in this case, the respondent had nohomestead rights in the marital home because her divorce to the bankrupt had become final prior to the order for sale. 14 Having so found, the judge then went on to consider the respondent’s request for mortgage and tax payment credits.

TheTrustee objected to such credits being given on the basis that the respondent had not paid any occupation rent from the date of separationto the date of sale. 15 The judge considered a number of authorities, some referred to him by the Trustee, others that I presume came from hisown research or knowledge of the law: Collins (Keith G.) Ltd. v. McKenzie, 2005 MBCA 35, 192 Man.R. (2d) 191; Boom v. Shore(1979), 31 C.B.R. (N.S.) 26 (Ont. Co. Ct.); and Duthie v. Duthie (Trustee of), 2001 MBQB 235, 28 C.B.R. (4th) 34. Those cases alsobrought about a consideration of Mellway v.

Mellway, 2004 MBCA 119, 187 Man.R. (2d) 247; Osachuk v. Osachuk (1971), (MB CA), 18 D.L.R. (3d) 413 (Man. C.A.); Zelezniak v. Senkiw, (MB KB), [1978] 5 W.W.R. 187 (Man. Q.B.);and Mastron v. Cotton, (ON CA), [1926] 1 D.L.R. 767 (Ont.

S.C. (A.D.)). 16 He came to the following conclusion: Although the court, in the excerpt which I have just read, talks about the tradeoff between current expenses and occupation rent, that isjust a “for instance” and does not represent the end of the considerations which a judge might employ in determining what is just andequitable in the circumstance of the particular case before the court.

In other words, although the trustee’s position is the general rule,there is a residual discretion in the court to temper it if it leads to an unfair result. 17 The judge then commented on what he considered to be the Trustee’s delay in seeking an order of sale and how this mighthave impacted on the respondent’s homestead rights, as well as bringing home to her that she should be seeking spousal support from thebankrupt because he was not in a position to transfer his interest to her as agreed upon. 18 He then said: On the other hand, had the trustee attempted to force the sale back in 2004, given the existence of the child living with the respondent, itis unlikely that an order for sale at that time would have been given.

Furthermore, if it had been given, the trustee would have beenrequired to pay for a homestead right which existed in Ms. Coutu at that time. Indeed, had the trustee pursued the issue and secured anorder for sale at any time before May 13th, 2010, the trustee would likely have had to pay something for Ms. Coutu’s loss of homesteadrights. In my view, the trustee has secured a financial benefit by waiting since, as a result of the divorce, there is no homestead interestleft of value. There is, [in] my mind, something inequitable about applying the stark proposition advanced by the trustee in this case.

The trustee hasbenefited in a number of ways by the delay. It has not had to make a mortgage payment for the past seven years. It has not needed topay for any repairs or upkeep, nor has it had to shovel the walk or cut the grass. At the very least, I would have credited Ms. Coutu withthe mortgage payments from May to December 2003, since the trustee’s position was not made crystal clear until September 3rd, 2003and an additional three months to react for Ms. Coutu would not have been unreasonable.

But even apart from that, had the trustee beensuccessful in forcing a sale back in 2003, it would have had to pay a valued homestead interest to Ms. Coutu. When a trustee possesses a one-half interest in the family home of a bankrupt, that interest carries with it the baggage that the homesteadright of the non-bankrupt spouse creates. A case of this nature does not involve simply the same considerations that might apply to twonon-arm’s length joint owners, one of whom has gone bankrupt.

Whereas the general proposition advanced by the trustee may often be applied, I am not prepared to apply it without adjustment in this case. There seems to have been no direct contact between the trustee and Ms. Coutu to discuss the situation prior to her family law hearing in December 2003, some two to three months after the assignment, which may have avoided the confusion caused when Ms. Coutu gave up her claim to spousal maintenance.

And by reason of the loss of any homestead right, the delay has resulted in a benefit to the trustee in addition to the cash benefits gained by not having to contribute on a current basis to the expenses of the family home. I believe that I can factor this additional benefit into the equation as to whether occupation rent is payable in order to determine what is just and equitable. There is no evidence before me as to what a homestead valuation would have been in 2003/2004, or indeed, at any time, up until May 2010. But there’s also no evidence before me of an appropriate occupation rent charge.

However, this issue does not involve an amount of money which makes protracted litigation worthwhile, the amount being essentially $12,250 [ sic ], which is one-half of $25,500. And I propose to make an allocation without requiring that additional evidence. And just as I factor the former homestead interest into the equation, I factor Ms. Coutu’s failure to chase her former husband for spousal maintenance after September 3rd, 2004, when it clearly was evidence [ sic ] that the trustee was claiming any increase in equity.

Had she done so, some additional contribution to her from her estranged husband might have been more likely. At the very least, she could have satisfied the court and the trustee that she was doing all that she could to secure further contribution to her expenses. Given these considerations, I am prepared to allow that Ms. Coutu receive a credit for two-thirds of one-half of the total mortgage payments.

I have not allowed her the full credit since notwithstanding that she has known of the trustee’s position since 2004, she has taken no steps in the interim to clarify the matter with the trustee, nor taken steps to pursue her husband for spousal maintenance. 19 He then dealt with the issue of costs: As to the claim of the trustee for solicitor and own client costs, and notwithstanding the lack of earnest cooperation of Ms. Coutu with the trustee to deal with the problem, I consider that to be somewhat aggressive. The fact is that the trustee was seeking to force Ms. Coutu out of her home.

Any person in the position of Ms. Coutu, and especially while she lived with her child, would normally be somewhat reluctant to encourage any kind of sale of the property. I consider that if a trustee obtains a

part interest in a family home, an application for partition and sale is simply the cost of realizing upon that asset. If the spouse of the bankrupt is prepared to cooperate, the trustee should be prepared to compensate that party for their cooperation. The lack of cooperation, however, should not increase the resident spouse’s exposure to costs. They are as entitled as the trustee, if not more, to ask the court for its views in a circumstance such as this. Given these considerations, the fact that the proposed distribution of the trustee has not been accepted, and given the fact that Ms.

Coutu has been criticized for not dealing with the issue and her spousal maintenance claim on a timely basis, I am not prepared to allow either party any costs of these proceedings. 20 Before us, the Trustee takes the position that the judge erred in finding that the respondent had a former homestead interest which was to be factored into the determination of the distribution of the sale proceeds, that he further erred in giving credit to the respondent for the mortgage and tax payments she made without having to pay occupation rent and, finally, that he was also in error in ordering that each party bear their own costs.

Standard of Review 21 I am satisfied that the issue of the homestead rights is a matter of law, which is to be reviewed on a standard of correctness. The issue of the credits to be given for mortgage and tax payments is a matter of mixed fact and law, which is to be reviewed on a standard of palpable and overriding error, while the issue of costs is a matter of discretion, wherein an appellate court is justified in interfering only if a trial judge misdirects himself or herself, or the decision is so clearly wrong as to amount to an injustice.

Transfer of the Marital Home to the Respondent 22 As part of a marital property settlement that was arrived at following the bankruptcy, the bankrupt agreed to transfer his interest in the marital home to the respondent. The right of a bankrupt to dispose of his property is dealt with in s. 71 of the Bankruptcy and Insolvency Act , which states as follows: Vesting of property in trustee 71.

On … an assignment being filed with an official receiver, a bankrupt ceases to have any capacity to dispose of or otherwise deal with their property, which shall, subject to this Act and to the rights of secured creditors, immediately pass to and vest in the trustee named in the … assignment …. 23 Because of the assignment in bankruptcy, the bankrupt had no further right to dispose of his interest in the marital home after October 20, 2003. Therefore, notwithstanding that the agreement was included in a consent judgment granted on December 1,

2003, the agreement to transfer the property was void and unenforceable. Homestead Rights 24 The judge raised the issue of whether the respondent had any homestead rights in the property and, after finding that theyhad been extinguished upon the granting of the divorce, went on to consider the value of those extinguished rights in determining whatadjustments should be made. 25 Homestead rights are granted to spouses or common-law partners by The Homesteads Act, C.C.S.M., c. H80 (the Act).

While there is no provision in the Act that explicitly states that the homestead rights are extinguished on divorce, this is implicit in thewording of the Act. I note, for example, that a “homestead” and an “owner” are defined in s. 1 as follows: “homestead” means (

a) in the case of a residence in a city, town or village occupied by the owner and the owner’s spouse or common-law partner as theirhome, the residence and the land on which it is situated …. “owner” means a married person, or a person in a common-law relationship, who is an owner of a homestead. 26

Section 4, which prohibits the disposition of the homestead property without consent, refers specifically to the consent ofthe owner’s spouse or common-law partner and makes no reference to the consent of a former spouse or former common-law partner. 27 Further, while a spouse or common-law partner can protect his/her homestead rights by filing a homestead notice against thetitle to the property, s. 20(2)(

f) of the Act provides that: Vacating of notice 20(2) A homestead notice shall be vacated by the district registrar (

f) on the filing of proof, satisfactory to the district registrar, that the spouses are divorced. 28 Finally, the effect of divorce on the dower rights contained in The Dower Act, C.C.S.M., c. D100 (which was repealed andreplaced with the homestead rights that are included in the Act), was determined by this court in Daly v. Daly (1980), (MB CA), 4 Man.R. (2d) 63. Huband J.A., speaking for the court, stated as follows (at paras. 45, 47): Dower rights do not survive a divorce. The official title of the Dower Act of Manitoba is “An Act Respecting the Dower of MarriedPersons”.

When, by virtue of divorce, the parties cease to be married, dower rights evaporate. Throughout the Act reference is made tothe dower rights of a “wife”, and these rights do not subsist after a divorce has altered status.

By reason of divorce, the wife is about to lose her dower rights. .... 29 With the exception of the addition of rights for common-law partners, the homestead provisions in the Act are essentiallyidentical to the corresponding provisions in The Dower Act, particularly as they relate to those persons who are protected by thelegislation. 30 Thus, the law is clear that, upon spouses divorcing, the homestead rights cease to exist and, as a result, the judge erred whenhe factored in homestead value in considering what he termed as the adjustments that he was prepared to make.

Credits for Mortgage and Tax Payments 31 It appears that the judge was prepared to make adjustments for the mortgage principal and interest payments and theproperty tax payments paid by the respondent following the separation because of what he considered to be the delay by the Trustee inrealizing on the asset.

In my view, that was a misapprehension of the facts and the reality of the situation which the Trustee was facing. 32 On the one hand, there was reliable evidence that indicated that the Trustee did, in the early stages of the bankruptcy,attempt to negotiate with the respondent to have access to the property and effect an initial assessment of value. The Trustee was metwith a distinct lack of cooperation and eventually decided to bide his time. He was not “hiding in the bushes” or pretending to go away.

He filed a caveat to put the respondent on notice that he was claiming an interest in the property. 33 On the other hand, considering that the respondent was a single mother receiving no spousal support and with an underagechild in her charge, the Trustee realized that his chances of successfully proceeding to partition and sale at that time were limited. Caselaw has indicated that, in such circumstances, courts are loathe to grant such an order and that the relief sought is usually postponed untilthe child reaches at least the age of majority.

See McKenzie. 34 Case law is also clear that, in general, if a sale is ordered and a joint tenant wishes to claim for mortgage interest, property

J.A.I agree: J.A.I agree: J.A. tax and property maintenance payments, he or she must have been paying occupation rent. See Boom, Duthie, and Osachuk. Thatstatement was also reiterated in McKenzie, where Monnin and Hamilton JJ.A. wrote (at para. 23): In a recent decision, Mellway v. Mellway (2004), 2004 MBCA 119 , 187 Man.R. (2d) 247; 330 W.A.C. 247; 2004 MBCA 119,this court confirmed that the law in Manitoba on this issue was as set out in Osachuk.

In writing for the court, Monnin, J.A., stated: “Osachuk does stand for the proposition that there are to be no reimbursements due unless occupation rent is paid” (at para. 42). 35 Based on the above, I am persuaded that the judge’s decision to ignore the non-payment of occupation rent by therespondent and still give her a credit for the mortgage interest and tax payments made was, although well-meaning, still a palpable andoverriding error. 36 The same cannot be said regarding the mortgage principal payments.

The respondent is entitled to be reimbursed for onehalf of these payments on the basis that they increased the equity in the property in which the Trustee will share. See, for example,Mastron, Osachuk at 416-17, 436, Balzar v. Balzar (1990), (MB KB), 67 Man.R. (2d) 196 at para. 21 (Q.B.), andDuthie at para. 9. The respondent will, therefore, receive a credit equal to one half of the principal portion of the mortgage payments.

Costs 37 In ruling that neither party was to receive costs, the judge appears to have directed his focus not specifically to the cost issueitself, but to the fact that the Trustee was seeking solicitor-client costs. I take no issue with his comments on those costs. Before us, theTrustee justified his seeking solicitor-client costs on the basis that he always sought such costs in matters such as this and that herequested them in his pleadings.

Without going into the matter at length, I simply state that such is not a basis on which to obtainsolicitor-client costs and that the judge was not in error when he declined to make such an award. 38 I fail to understand, however, why the judge did not, in this case, follow the usual practice of awarding party and party coststo the successful party. As stated earlier, I am not at all satisfied that the Trustee, in the circumstances, failed to pursue his remedy in atimely fashion, nor did he act in any manner that should draw criticism.

The Trustee did what he had to do and I see no valid reason notto award him his costs on a party and party basis. 39 In

summary, therefore, I would allow the appeal in part and direct that the respondent receive a credit for one half of theprincipal portion of the mortgage payments made by her following the separation and that the Trustee be awarded costs as set out above.