Kim v. Kim, 2014 MBCA 34

Citation: Kim v. Kim, 2014 MBCA 34 Date: 20140414 Docket: AF 13-30-07968 IN THE COURT OF APPEAL OF MANITOBA Coram: Madam Justice Barbara M. Hamilton Mr. Justice Alan D. MacInnes Madam Justice Diana M. Cameron BETWEEN : MI SOOK KIM ) ) S. F. Vincent (Petitioner) Respondent ) for the Appellant ) - and - ) V. B. Olson ) for the Respondent DONG SUN KIM ) M. S.

Kim ) (Respondent) Respondent ) ) Appeal heard: - and - ) December 9, 2013 ) MEE JA AN ) Judgment delivered: ) April 14, 2014 (Interested Party) Appellant ) HAMILTON J.A. [ 1 ] This appeal is about whether the ex parte interim preservation order in favour of the petitioner (Ms Kim), issued pursuant to s. 21 of The Family Property Act , C.C.S.M., c. F25 (the FPA ), should have been set aside by the motion judge. The asset protected by the preservation order is commercial real estate (the property) that had been sold by the respondent (Mr.

Kim) to the interested party (Ms An). [ 2 ] Unknown to the motion judge at the time that he granted the preservation order, the closing of the purchase of the property by Ms An had already occurred, but registration of the transfer of land had not been completed.

The registration of the preservation order in the Winnipeg Land Titles Office (WLTO) by Ms Kim is preventing Ms An from registering the transfer of land and becoming the registered owner of the property. [ 3 ] Ms An filed a motion, as an interested party, to set aside the preservation order, arguing, among other things, that at the time the preservation order was granted, the purchase and sale transaction was completed, for the purposes of s. 21 of the FPA . [ 4 ] Mr. Kim’s solicitor paid him the net-sale proceeds from the sale of the property and he has dissipated them.

He did not participate in the hearing of Ms An’s motion before the motion judge or on this appeal. [ 5 ] Ms Kim opposed Ms An’s motion, arguing that the preservation order gives her priority over the remaining asset, being the title to the property. She argues that the purchase and sale transaction is not completed because title has not been transferred to Ms An. [ 6 ] The motion judge was concerned about both “victim[s]” and concluded that Ms An’s motion was “premature” because of the “potential loss of remedy” to Ms Kim.

[ 7 ] I would allow the appeal. “[Preservation orders] cannot be invoked to set aside transactions that have already been completed” ( Gale v. Gale , 2008 MBCA 134 at para. 23 , 231 Man.R. (2d) 188 ). As I will explain, the evidence before the motion judge, and accepted by him, demonstrates that, at the time of the issuance of the preservation order, the sale to Ms An was a transaction that had already been completed. Background [ 8 ] Ms Kim filed a petition for divorce on September 9, 2010, in which she sought an accounting pursuant to the FPA .

The accounting remains pending. [ 9 ] In 2009, Ms An purchased the grocery store business carried on by Mr. Kim in the property. Ms An and her family live in the property. Mr. Kim remained the owner of the property and Ms An’s landlord. [ 10 ] Mr. Kim listed the property for sale and a friend of Ms An agreed to provide her with interim financing to purchase the property. [ 11 ] On September 24, 2010, Ms An submitted a written cash offer to purchase the property in the amount of $285,000, along with a deposit of $15,000. Mr. Kim accepted the offer the same day. [ 12 ] Through their respective solicitors, Mr.

Kim and Ms An closed the purchase and sale transaction on October 15, 2010. Mr. Kim tendered the necessary transfer of land and other closing documents and Ms An tendered the required funds to close. [ 13 ] During the week of October 18, 2010, the WLTO rejected the transfer of land because a form was not completed properly (the property registry application form did not have the title number inserted). The rejected documents were returned to Ms An’s solicitor, who resubmitted them to the WLTO on November 5, 2010. [ 14 ] On October 29, 2010, the solicitor for Mr. Kim released the net sale proceeds to him. Mr.

Kim used the proceeds to pay off some debts and lost the rest through gambling. [ 15 ] On November 4, 2010, Ms Kim filed her notice of motion for an ex parte interim preservation order with her supporting affidavit.

She did not know about the sale to Ms An. [ 16 ] On November 5, 2010, the motion judge issued the preservation order, which reads, in part, as follows: [Mr.] KIM shall not sell or part with the possession of and shall preserve all of the following assets in his possession until further order of the court: [legal description of the property] [ 17 ] The preservation order was registered against title to the property on November 8, 2010.

It is noted on the title as a “maintenance order.” [ 18 ] On November 9, 2010, the solicitor for Ms An received notification from the WLTO that the transfer of land had been rejected because the duplicate certificate of title or a lost title affidavit was required and because the preservation order prohibited dealings with the property. [ 19 ] On December 8, 2010, Mr. Kim moved to set aside the preservation order. On October 7, 2011, the motion judge heard and dismissed the motion. [ 20 ] On November 14, 2012, Ms An moved, as an interested party (pursuant to s. 58 of The Court of Queen’s Bench Act , C.C.S.M., c.

C280; Queen’s Bench Rule 37.11; and s. 33(1) of The Law of Property Act , C.C.S.M., c. L90), to be heard and to have the preservation order set aside. [ 21 ] On April 12, 2013, the motion judge heard Ms An’s motion. At the conclusion of submissions, he refused her request for substantive relief and ordered costs against her. The Preservation Order

[ 22 ]

Section 18 of the FPA entitles a spouse or common-law partner to apply to court for an accounting of shareable assets. [ 23 ]

Section 21 of the FPA provides certain discretion to the court to make an order to preserve any of those assets: Order for preservation of assets 21(1) Upon an application to the court under

section 18 alleging any of the grounds authorized under subsection (2), the court, for the purpose of preserving the assets of a spouse or common-law partner, (

a) may make a receiving order against all or any of the assets; or (

b) may make an order directing the spouse or common-law partner not to part with the possession of and to preserve the assets or any of them; or (

c) where the application is made in the course of a pending action or proceeding under

section 18 and any of the assets is in the form of a title to or an interest in land, may, notwithstanding that the title or interest is not being brought in question in the action or proceeding within the meaning of subsection 58(1) of The Court of Queen’s Bench Act , make an order for the issue of a pending litigation order in respect of the title or interest; or (

d) may make such other order as it thinks fit. Grounds for order 21(2) An order under subsection (1) may be made by the court upon any ground alleged against a spouse or common-law partner that the court deems sufficient including, without restricting the generality of the foregoing, the ground (

a) that the spouse or common-law partner has committed or is about to commit

an act amounting to dissipation; or (

b) that the spouse or common-law partner is about to abscond with assets. Ex parte order 21(3) An order under this

section may be made ex parte. [ 24 ] Ms Kim’s ex parte notice of motion sought both an “Order under [the FPA ] for preservation of assets” and “A Pending Litigation Order against the title to the property.” [ 25 ] The preservation order does not state under which part of s. 21(1) it was made. Its wording is closest to s. 21(1)(b).

While not a pending litigation order, it was registered against title to the property as a “maintenance order” and had the effect, already described, of prohibiting further dealings with the property. [ 26 ] In Gale , Steel J.A. explained that the purpose of interim preservation orders is preventative. Importantly, she stated that such orders “cannot be invoked to set aside transactions that have already been completed.” She wrote (at paras. 23, 26): Interim preservation orders are designed to prevent the dissipation of assets pending determination of an application for equalization.

Their purpose is to ensure that there are sufficient assets available to satisfy any subsequent order for equalization of the net family property and to prevent one party from dealing with property in any manner that would frustrate the rights of the other spouse. Such an order is preventative in nature; it cannot be invoked to set aside transactions that have already been completed . …. However, as the

section indicates, a preservation order can be granted upon an apprehension that assets will be squandered, hidden or absconded with. The

section is very broad, allowing an order upon any ground that the court deems sufficient, including the ground that the spouse “is about to commit

an act amounting to dissipation”.

[emphasis added] Reasons of the Motion Judge [ 27 ] The motion judge did not give formal oral reasons. Nonetheless, his reasons are ascertainable from his extensive exchanges with counsel. [ 28 ] While the motion judge was satisfied that Ms An was “equity’s darling,” he was of the view that her motion was premature because of the effect on Ms Kim. At the end of the submission of Mr. Vincent (counsel for Ms An), he stated the following to Mr. Olson (counsel for Ms Kim): Well, understand, Mr. Olson, I agree with Mr. Vincent on a number of points.

There is some assertions in the material that you have provided, which I do not happen to agree with. ... [T]he question of whether or not Ms. An is equity’s darling has never been attacked effectively through the transaction. So that is the party to whom the court has great sympathy. But the problem is, I think it is just premature, right now, to give equity’s darling the remedy, because of the potential loss of remedy, the effect that would have on your client . So I think she has other remedies that she has got to rely on right now. That may change.

So your client, as unfortunate as she may be, with respect to the circumstances that have occurred, is fortunate that the registration was timely, because it did catch, and in my view, attaches to the proceeds of sale and that is the only problem Mr. Vincent has here today .... So I think we are just premature with the application and I hope that you can carry forward the claim appropriately against the party responsible and therefore, clear the title for this purchaser. Because what she really wants is legal title, not damages.

She should be entitled to specific performance, at the end of the day here. [emphasis added] [ 29 ] The motion judge agreed with Mr. Vincent that Ms An was the beneficial owner of the property. He was of the view that she was “fully protected” because of the responsibilities of the solicitors involved in the purchase and sale transaction. During the course of Mr. Vincent ’ s submissions, the motion judge stated: … [Ms An] is fully protected.

It’s her lawyer’s responsibility and her lawyer has a remedy against the solicitor that released the funds before the registrations were clear. . . . . . -- the biggest problem that I have with your position on this -- . . . . . Is that the, the intervening registration is there for a reason. …. . . . . . It’s her solicitor’s job to clear the title. Her solicitor has imposed a trust condition on the vendor’s solicitor. It is the vendor’s solicitor’s

job to clear the title. That’s where we’re at. . . . . . …. ... Ms. An is the one that is the innocent in the whole transaction. I’m convinced on that. . . . . . But she has other remedies. [ 30 ] The motion judge concluded that the registration of the preservation order was valid and had a continuing benefit. He stated: … [The] vendor’s solicitor is under a trust condition to clear the title. Therefore, they must deal, they, he, or someone in a position of an insurer for him, must deal with this encumbrancer. . . . . .

Because the encumbrance is a valid registration that was timely, because it issued before the title issued, in the name of the purchaser, and as I said, this is the way the transactions are closed. . . . . . …. … [T]he encumbrance vests in … the proceeds of sale. [ 31 ] He did not accept Ms An’s argument, relying on Gale , that the purchase and sale transaction was completed, stating that “the transaction [had] not been completed. ….

Until such time as this encumbrance is dealt with, there’s no completion.” Ms An’s Position [ 32 ] Ms An asserts that the motion judge erred in several ways. [ 33 ] She submits that he failed to consider that the continuation of the preservation order served no further statutory purpose given that the asset to be protected from dissipation (the property) had been sold and the sale proceeds dissipated. [ 34 ] She says that the effect of the motion judge’s dismissal of her motion is to set aside a transaction that has already been completed, contrary to Gale . [ 35 ] Ms An also says that the motion judge erred in law in refusing to set aside the preservation order after correctly finding that she was beneficially and equitably the owner of the property, that she should be the legal owner and that she is entitled to specific performance. [ 36 ] Finally, she argues that between herself and Ms Kim, the motion judge failed to find that the balance of convenience and the prospect of irreparable harm favoured Ms An and that he erred in continuing the preservation order for the sole purpose of preserving a claim of legal malpractice by Ms An against her solicitor and by that solicitor against Mr.

Kim’s solicitor. Ms Kim’s Position

[ 37 ] Ms Kim asserts that the motion judge’s decision not to revoke the preservation order is a matter of discretion that is entitled to deference. She says that he did not err in the manner alleged by Ms An. [ 38 ] More specifically, she argues that the motion judge understood that the asset to be protected by the preservation order is the title to the property and that this asset is crucial to her ability to recover the lost funds dissipated by Mr. Kim. [ 39 ] She says that the motion judge correctly concluded that the transaction had not been completed because title had not been transferred.

She relies on the priority of the preservation order. She points to s. 64 of The Real Property Act , C.C.S.M., c.

R30, that provides that priority is established based on serial numbers assigned by the WLTO to registrations. [ 40 ] Finally, with respect to the balancing of interests between Ms An and Ms Kim, she says that the strength of her equalization claim has never been contested by Ms An and was, therefore, not an issue for the motion judge; if the preservation order was not continued, she would lose all her remedies; and that if the preservation order continues, Ms An will suffer no significant loss or harm because she can rely on the trust condition imposed by her lawyer that she receive clear title and, if not, then insurance funds will compensate her.

Issue and Standard of Review [ 41 ] The granting of an ex parte preservation order pursuant to s. 21 of the FPA is a matter of discretion. Whether to set aside such an order is also often a discretionary decision, particularly in those situations where the contest is between the rights and obligations of the spouses engaged in a family property dispute.

As explained in Gale , the analysis in that case is appropriately one based on well-known injunctive criteria and calls for the court to consider: 1) the relative strength of the equalization claim; 2) the balance of convenience; and 3) the prospect of irreparable harm. [ 42 ] A discretionary decision is entitled to deference.

This court will not intervene unless there is a demonstrated error in principle, a palpable and overriding error of fact, or the decision is so clearly wrong as to amount to an injustice. [ 43 ] This appeal does not concern the balance to be struck between spouses engaged in a family property accounting dispute. Neither is it an appeal where the findings of fact are at issue. [ 44 ] In my view, the crucial issue is whether the motion judge erred when he concluded that “the transaction [had] not been completed” for the purposes of applying the principles articulated in Gale .

Because that raises an extricable question of law in the context of a question of mixed fact and law, the standard of review is correctness. Furthermore, if the motion judge did err, the issue is whether the prima facie entitlement of Ms Kim to the preservation order had been negated by the evidence brought forward by Ms An. In other words, was the motion judge obligated to set aside the preservation order? This does not raise a question of discretion. Rather, it raises a question of law that calls for the standard of review of correctness.

Analysis and Decision [ 45 ] The motion judge understandably expressed concern for the positions of both Ms An and Ms Kim. His exchanges with counsel demonstrate that he focussed on the potential for some sort of settlement that could benefit both of them. However, I am of the view that by doing so, he failed to consider the legal effect of the uncontroverted evidence brought before him by Ms An’s motion. [ 46 ] The motion judge issued the preservation order, on an ex parte basis, based on the evidence from Ms Kim that she was concerned that Mr. Kim would sell the property and dissipate the proceeds.

This exercise of discretion is not at issue. [ 47 ] The preservation order ordered Mr. Kim: 1) not to sell the property; 2) not to part with possession of the property; and 3) to preserve the property. [ 48 ] At the time the motion judge granted the preservation order, but unknown to him, Mr. Kim had sold the property and parted with its possession. Indeed, prior to the issuance of the preservation order, Ms An had paid the full purchase price and Mr. Kim had provided closing documents, including the transfer of land to transfer title to Ms An. Therefore, it was simply too late for Mr.

Kim to comply with any aspect of the preservation order. Certainly, these are circumstances that fall within the exception articulated in Gale that s. 21 of the FPA does not apply to “transactions that have already been completed” (at para. 23). Moreover, Mr. Kim had already received the sale proceeds. The preservation order, when granted, and indeed when later registered, did not attach the sale proceeds, as the motion judge wrongly stated.

[49] Gale has been mentioned in several decisions in this jurisdiction. See Kozub v. Burgess, 2013 MBCA 64; Martin v.Orris, 2010 MBCA 59, 255 Man.R. (2d) 126; Stanze v. Stanze, 2009 MBCA 128; Shearer v. Hood, 2008 MBQB 322, 235 Man.R. (2d)250; and S.R.P. v. P.P., 2013 MBQB 311, 300 Man.R. (2d) 290. However, none of these decisions considered the exception articulatedin Gale. In my view, this exception is necessary to address the rights and obligations that arise for the parties to a bona fide bindingagreement affecting an asset owned by one spouse.

Therefore, a bona fide binding purchase and sale agreement, such as the agreemententered into in this case by Ms An, is, for the purposes of this exception, a transaction that is already completed. I point out that thisconclusion does not impact on the right of a spouse to seek a preservation order with respect to the proceeds of sale in appropriatecircumstances. [50] I think it important to remember that Ms Kim did not have any equitable or proprietary interest in the property prior toMr. Kim listing it for sale or anytime thereafter.

Nor did the preservation order provide Ms Kim with an interest in the property. SeeSchreyer v. Schreyer, 2011 SCC 35, [2011] 2 S.C.R. 605, in which the Supreme Court of Canada explained that the FPA provides anequalization model for the valuation and division of family assets and not proprietary interests (at paras. 15, 17): …. … [T]he assets themselves are not divided. Each spouse retains ownership of his or her own property both before and after thebreakdown of the marriage. Neither acquires a proprietary or beneficial interest in the other’s assets. ….

Proprietary interests are not granted until the stage of payment of the equalization claim, at which point they may be granted as a form ofexecution, to ensure that the payment is actually made. …. [51] The FPA is premised on an accounting between spouses based on the fair market value of assets owned at the date ofseparation. The nature of an asset can, of course, vary widely. For example, it can be real property, as is the case here, or shares, as wasthe case in Gale.

Section 21, by its very purpose, contemplates that spouses, in the ordinary course of their lives and their businesses,have the right to dispose of such assets, whatever their nature, after the date of separation. As explained in Gale, that right can becurtailed by the issuance of a preservation order in the appropriate circumstances. [52] We heard a great deal of argument about the importance of the fact that the asset in question here is real property. Inparticular, Ms An relied on her status as a beneficial owner. On the other hand, Ms Kim relied on the fact that Mr.

Kim remained theregistered owner and asserted that the registration of the preservation order gave her priority under The Real Property Act. The motionjudge, rightly in my view, concluded that Ms An was the beneficial owner of the property. The equitable interest of a purchaser of realproperty has long been recognized at common law, including in jurisdictions like Manitoba, using the Torrens land registration system. See, for example, Pitblado & Hoskin v. Swerid et al., 2003 MBCA 134, 180 Man.R. (2d) 50. In Church v.

Hill, (SCC),[1923] S.C.R. 642, Anglin J. wrote (at p. 644): ... [E]quitable doctrines and jurisdiction apply to lands under the Land Titles or Torrens system of registration and equitable interests insuch lands may be created and will be recognized and protected. …. See also St. Mary’s Parish Credit Union Limited v. T. M. Ball Lumber Company Limited, (SCC), [1961] S.C.R. 310 at316; and Landstrom Developments Ltd. v.

Passburg Petroleums Ltd. (1984), 1984 ABCA 78 , 53 A.R. 96 at para. 12 (C.A.), inwhich the above quote was cited with approval. [53] However, Ms An’s status as beneficial owner, and the fact that she has paid the full purchase price and received atransfer of land, is important for context as it underscores the bona fide nature of the purchase and sale agreement entered into betweenMs An and Mr. Kim. The crucial finding for the purpose of this appeal is that Ms An and Mr. Kim entered into a bona fide purchaseand sale agreement prior to the issuance of the preservation order.

In other words, the transaction was completed for the purpose ofdetermining whether a preservation order could be ordered with respect to the property. As a result, a preservation order, in the formsought by Ms Kim and ordered by the motion judge, was not possible under s. 21 of the FPA. [54] Ms Kim’s fundamental argument is that the motion judge did not err when he concluded that the transaction was notcompleted because the property had not been transferred into Ms An’s name. She relies on the registration of the preservation order andits impact on the ability of Ms An to register the transfer of land.

The weakness of this argument is that the registration of thepreservation order does not make it enforceable, when it cannot be enforced for the reason just explained. Moreover, while I agree thatthe closing of the real estate transaction is currently not complete for the purposes of well-known real estate conveyancing principles inManitoba, the crucial question is whether the transaction was complete for the purposes of s. 21 of the FPA. [55] Although not argued before us, I think s. 10(1) of The Judgments Act, C.C.S.M., c.

J10, is worth noting: Certificate of judgment not to affect land 10(1) No judgment for the payment of money whereof a certificate has been registered binds or forms a lien or charge on land inrespect of which the person who is the judgment debtor,

(

a) has made a bona fide sale, exchange, conveyance or transfer, or a bona fide agreement for sale or exchange, subsisting at the time of the registration; or (

b) has given a bona fide option to purchase subsisting at the time of the registration. [ 56 ] This

section appears to be a codification of the equitable doctrine that “an execution creditor can only sell the [property] of his debtor subject to the charges, liens and equities to which the same was subject in the hands of the execution debtor” ( Jellett v. Erratt; Jellett v. Powell; Jellett v. The Scottish Ontario & Manitoba Land Co.; Jellett v. Wilkie (1896), 1896 CanLII 49 (SCC) , 26 S.C.R. 282 at 283) . This common-law principle and s. 10(1) of The Judgments Act give priority to the bona fide purchaser over a judgment creditor. In this case, Ms Kim does not have a money judgment.

Her end goal, however, is to obtain an order of equalization, which may be in the form of a money judgment. If she were granted a money judgment, this

section puts at issue whether she would be able to register it against the property that Ms An has purchased pursuant to a “bona fide agreement for sale.” This is consistent with the exception articulated in Gale that a preservation order “cannot be invoked to set aside transactions that have already been completed” (at para. 23). Conclusion [ 57 ] Ms An’s purchase of the property was a completed transaction as contemplated by Gale . Therefore, the property could not be the subject of a preservation order.

As a result, the motion judge erred when he did not set aside the preservation order. [ 58 ] I would allow the appeal and would order that the preservation order be set aside and that it be discharged from the title to the property. I would order costs in favour of Ms An on appeal and in the Court of Queen’s Bench. J.A. I agree: J.A. I agree: J.A.