



COURT OF APPEAL FOR ONTARIO

CITATION: Iafolla v. Lasota, 2021 ONCA 245

DATE: 20210420

DOCKET: C68673

Rouleau, Benotto and Miller
    JJ.A.

BETWEEN

Enrico Iafolla

Applicant (Appellant)

and

Jolanta Lasota

Respondent (Respondent)

Payam Ezzatian, for the appellant

Brian P. Pilley, for the respondent

Heard: April 1, 2020

On appeal from the judgment of Justice Paul B. Schabas of the Superior
    Court of Justice, dated September 1, 2020.

Benotto
    J.A.:

[1]

This is an appeal brought by the insurer of the
    named appellant Enrico Iafolla. He appeals the dismissal of an application for a
    declaration that, as a judgment creditor of the ex-husband of the respondent,
    he is entitled to receive the balance of the proceeds of the sale of a
    matrimonial home. Pursuant to the divorce judgment between the respondent and
    her ex-husband, those funds are to be held as security for his support
    obligations.

[2]

As I will explain, the issue here engages the
    courts fundamental duty to satisfy itself that reasonable arrangements have
    been made for the support of children. I would allow the appeal in part and
    direct the matter back to the trial judge to consider whether a variation of
    the Divorce Judgment is appropriate as a result of the material change in
    circumstances.

BACKGROUND

[3]

The respondent Jolanta Lasota and Zlatko Antonov
    were married and have one child. They separated in 2017. It is common ground
    that Antonov has paid no child support, has shown little interest in the child,
    now 11, and did not participate in the divorce proceedings. He made no
    financial disclosure.

[4]

On July 25, 2018, Backhouse J. presided over the
    divorce. Antonov did not appear. She attributed an income to him based on his
    bank deposits and established monthly child and spousal support in the amounts
    of $1,429 and $3,191 respectively. In the Divorce Order, she gave Ms. Lasota
    control over the sale of the jointly held matrimonial home. The net proceeds of
    the sale after paying real estate commissions, legal expenses, tax arrears, and
    the outstanding mortgage were to be divided into two equal shares. From
    Antonovs share, she ordered that the arrears of child and spousal support then
    owing, plus the equalization payment be deducted. The trial judge further
    ordered at paragraph 19:

The remaining balance
    of [Antonovs] share of the net proceeds of the sale of the Matrimonial Home,
    if any, shall be held in trust as security for [Antonovs] future child and
    spousal support obligations.

[5]

The home was sold in November 2018. It appeared on
    closing that there was a writ of execution registered on title to the home on
    November 28, 2017. The writ relates to a judgment against Antonov for $380,071
    plus costs and interest.

[6]

The net proceeds of the sale were $594,273.30. It
    was agreed between the appellant and the respondent that, from these proceeds, various
    fees, tax, and mortgage payments would be paid. In addition, the 8 months of
    spousal and child support arrears were paid to the respondent.  The balance of
    Antonovs share of the proceeds would be placed in trust without prejudice the appellants
    right to bring an application to determine who has priority to those funds. The
    amount in issue now is $180,670.15.

[7]

As mentioned, Antonov has made no support payments,
    including pursuant to the Divorce Order. His arrears would now be over $140,000
    and soon will amount to the entire amount being held back from the sale.

POSITIONS OF THE
    PARTIES

The appellant

[8]

The appellants position is that he is entitled to
    the full amount of $180,670.15 pursuant to his rights under s. 2 of the
Creditors' Relief Act, 2010
, S.O. 2010, c.
    16, Schedule 4 (
CRA
).
    He submits that the Divorce Order should be set aside to the extent that it
    interferes with his rights under the
CRA
.

[9]

Section 2 of the
CRA
states:

2. (1) Except as otherwise provided in
    this Act, there is no priority among creditors by execution or garnishment
    issued by the Superior Court of Justice, the Family Court of the Superior Court
    of Justice and the Ontario Court of Justice.



Exception, support or maintenance
    orders

(3) A support or maintenance order has
    the following priority over other judgment debts, other than debts owing to the
    Crown in right of Canada, regardless of when an enforcement process is issued
    or served:

1. If the maintenance or support
    order requires periodic payments, the order has priority to the extent of all
    arrears owing under the order at the time of seizure or attachment.

2. If
    the support or maintenance order requires the payment of a lump sum, the order
    has priority to the extent of any portion of the lump sum that has not been
    paid.

[10]

The appellant argues that the effect of this section is to give
    priority to lump sum support orders and periodic payments in arrears only.  Following
    the payment which cleared up arrears to that date, he submits that he is
    entitled to collect on his judgment.

[11]

The appellant relies on
Maroukis v.
    Maroukis
(1981), 33 O.R. (2d) 661 (C.A.), affd
    [1984] 2 S.C.R. 137. In that case,
the trial judge ordered
    that the jointly owned matrimonial home vested with the wife retroactive to the
    date of separation. The trial judge declared that any subsequent executions on
    the property did not affect the wifes title. On appeal, this court held that
    the trial judge had no jurisdiction to make a retroactive order since the house
    was held in joint tenancy when the executions were filed and attached to [the
    husbands] interest in it. The Supreme Court of Canada agreed with the Court
    of Appeals conclusion.

[12]

Maroukis
was followed in
Ferguson v. Ferguson
, 116 D.L.R. (4th) 707
    (Ont. Unif. Fam. Ct.), at p. 713, which found that a writ of execution for a
    debt of the husband, filed before the order that the house be sold and proceeds
    divided, has priority over any claim that the wife has to the husband's net
    proceeds of the sale of the matrimonial home.

[13]

Consequently, the appellant seeks a declaration that he has an
    entitlement to the proceeds.

The respondent

[14]

The respondent submits that the Court has no jurisdiction to vary the
    Divorce Order outside the divorce proceedings. The effect of the order sought
    would be to vary the Divorce Order. Further she submits that the writ and the
CRA
create no substantive right to the
    funds for the applicant.

[15]

The respondent relies on
Stevens v. Stevens
(2005)
, 20 R.F.L. (6th) 453 (Ont. S.C.J.),
    affd 214 O.A.C. 201, where the trial judge distinguished
Maroukis
and
Ferguson
as cases determined under provincial family law statutes which did not
    permit retroactive orders, whereas the creation of a trust is based on the
    courts equitable jurisdiction. In
Stevens
a retroactive vesting order was found to prevail over a writ filed by
    a bank. This court agreed that
Maroukis
and
Ferguson
were
    therefore distinguished:
Stevens v. Stevens
(2006),

214 O.A.C.
    201, at paras. 12,15.

DECISION OF THE APPLICATION JUDGE

[16]

The application judge concluded that the trial judge crafted the
    Divorce Order to create a trust to secure the respondents support payments.
    This takes priority over the applicants interest which, in any event, is
    simply that of an execution creditor whose interest is subject to all the
    equities:
Ontario Development Corp. v. Trustee of
    the Estate of I.C. Suatac Construction Ltd.
(1976), 69
    D.L.R. (3d) 353, at p. 359 (Ont. C.A.); see also
1842752
    Ontario Inc. v. Fortress Wismer 3-2011 Ltd
., 2020
    ONCA 250, at para. 37.

[17]

The application judge relied on
Stevens
, where Cronk J.A. expressed concern that the bank was pursuing a
    collateral attack on the original vesting order, stating, at para., 21 that
    the determination of this issue required an evaluation and weighing of the
    equities as between the Bank and Ms. Stevens. The application judge concluded
    that attempts to vary such orders should be addressed in the original
    proceeding, where the Court may consider the equities between the parties,
    including the scope and purposes of support orders made under the
Divorce Act
, R.S.C. 1985, c. 3 (2nd Supp.).

[18]

The application was dismissed.

ANALYSIS

[19]

I have concluded that the application judge erred: (i) in his
    interpretation of the jurisprudence; and (ii) by not addressing the courts
    duty regarding child support. Consequently, the matter should be returned to
    the trial judge to consider the material change in circumstances.

Jurisprudence

[20]

The application judge relied on
Stevens
to establish the priority of the respondents claim to the proceeds of
    sale. There, the trial judge had determined that a constructive trust operated
    as of the date of separation to vest the matrimonial home in the wifes name.
    Therefore, the wife had title to the home before the execution was filed. Here,
    the respondent did not have title in the husbands portion of the sale at the
    time the writ was filed.

[21]

However, I do not agree that
Maroukis,
relied on by the appellant, assists him. There, a writ of execution
    was filed with the sheriff before the trial judge vested property in the name
    of the wife. On an application to the trial judge to clarify the judgment the
    trial judge vested the home in the wifes name as of the date of separation 
    which pre-dated the writ of execution. This court confirmed the vesting order
    but not the retrospective effect. The Supreme Court dismissed the appeal
    confirming that, when property is divided on marriage breakdown, it does not
    vest until the order is made and there is no provision to retroactively vest
    property. The wifes title was subject to a pre-existing execution filed with
    the sheriff.

[22]

The situation is different here. The underlying order in
Maroukis
was not, as it is here, for child
    and spousal support. And, as I will explain below, the limits on retroactivity
    do not apply to a variation of child support.

The courts obligation with respect to child
    support

[23]

Child support is the right of the child. The
Divorce Act
establishes a child centered
    approach to divorce orders by giving priority to childrens needs. Children are
    not parties to their parents divorce. Consequently, the presence of a child in
    divorce proceedings engages special duties for the court to ensure that
    arrangements are made for support.  Section 11(1)(b) of the
Divorce Act
provides that:

[I]t is the duty of the court...

(b)  to
    satisfy itself that reasonable arrangements have been made for the support of
    any children of the marriage, having regard to the applicable guidelines, and,
    if such arrangements have not been made, to stay the granting of the divorce
    until such arrangements are made

[24]

The trial judge, in accordance with her duty under s. 11 of the
Divorce Act
, secured the sale proceeds of
    the home for future support including support for the child. There is no
    similar duty on the court for property claims between the spouses or for
    spousal support. The trial judge clearly intended to secure the ex-husbands
    share of the matrimonial home proceeds for the benefit of the child. That is
    why she included paragraph 19 in the Divorce Order.

[25]

The appellant submits that the provisions of paragraph 19 mean that
    only the portion of the proceeds left over after his debt is paid are available
    to secure the support. He relies on the words net proceeds
if any
will be secured. I do not agree
    for two reasons.

[26]

First, paragraph 19 of the Divorce Order must be read with paragraph 16
    which refers to net proceeds as: remaining after paying real estate
    commissions, legal expenses on the sale, tax arrears, if any, [and the] outstanding
    mortgage. There is no mention of outstanding debts or writs.

[27]

Second, the trial judge was clearly not aware of
    the appellants writ. Because the declaration sought by the appellant
    effectively eliminates the security the trial judge put in place, the security
    the trial judge would have ordered had she known of the writ would likely have
    been different. For example, she could have considered s. 2(3)(2) of the
CRA
to comply with her duty under s.11(1)
    of the
Divorce Act.


[28]

The discovery of the writ of execution constitutes
    a material change in circumstances giving rise to a variation application.
The test for a material change, is a change that is substantial,
    continuing and that if known at the time, would likely have resulted in different
    terms:
Willick v. Willick
, [1994] 3 S.C.R. 670, at p. 688;
L.M.P.
    v. L.S
., 2011 SCC 64, at para. 32. Had the appellants writ of execution
    been known at the time of the Divorce Order, it would likely have resulted in a
    different order.

[29]

On a variation application, the
terms of the original order are presumed to comply with the
    objectives of the Divorce Act:
L.M.P.
, at para 33. Once the material
    change is established any variation should reflect that change in accordance
    with the objectives set out in s. 17(4).

[30]

The
Divorce Act
provides:

17 (1) A court of competent
    jurisdiction may make an order varying, rescinding or suspending,
retroactively
or prospectively,

(a) a support order or any
    provision of one, on application by either or both former spouses;



(3)
The court may include in a
    variation order any provision that under this Act could have been included in
    the order in respect of which the variation order is sought, and the court has
    the same powers and obligations that it would have when making that order.

(4)
Before
    the court makes a variation order in respect of a child support order, the
    court shall satisfy itself that a change of circumstances as provided for in
    the applicable guidelines has occurred since the making of the child support
    order or the last variation order made in respect of that order. [Emphasis
    added.]

[31]

I note as well that
the
    security ordered by the trial judge applies to both the spousal and child
    support. It was not apportioned as between the two types of support.  It will
    remain up to the trial judge address this if she considers it appropriate. At
    approximately $17,000/year in child support alone, and given that the child is
    only 11, the child support obligation alone could well exhaust the disputed
    amount.

Power to return matter to trial judge

[32]

The application judge viewed the effect of the
    order sought to be a variance of the Divorce Order. He explained that the
    variation should be done in the divorce proceedings. However, given his
    disposition he did not consider referring the matter to the trial judge to assess
    whether a variation was appropriate to ensure that child support was in compliance
    with the provisions of the
Divorce Act
.

[33]

In the circumstances the application judge ought
    to have referred the matter to the trial judge. That the respondent did not
    move for a variation is not material for several reasons.

[34]

First, s. 11 imposes a duty on
the court
to ensure adequate arrangements for the support of the child.

[35]

Second, the primary objective in the
Family
    Law Rules
is to enable
the court
to deal with cases justly. In
    this regard, r.1(6) provides that the court may impose conditions and give
    directions as appropriate.  Further, the court, pursuant to r. 7(2) and (5) may
    add a party to a variation if the person  not a spouse - is affected.

[36]

Third, a return to the trial judge on a
    variation would eliminate the potential of two conflicting court orders.

[37]

Section 134 of the
Courts of Justice Act
,
    R.S.O. 1990, c. C.43, provides that this court may, make any order that ought
    to or could have been made by the court appealed from. Because the court below
    should have referred the matter back to the trial judge to revisit her orders
    in light of the writ it is appropriate that this court make that order.

DISPOSITION

[38]

I would allow the appeal in part and order that
    the matter be returned to the trial judge to consider the material change in
    circumstances.

[39]

I would make no order as to costs.

Released: April 20, 2021  P.L.

M.L.
    Benotto J.A.

I
    agree Paul Rouleau J.A.

I
    agree B.W. Miller J.A.


