



COURT OF APPEAL FOR ONTARIO

CITATION: Economopoulos (Re), 2014 ONCA 687

DATE: 20141007

DOCKET: C58177

Hoy A.C.J.O., Gillese and Lauwers JJ.A.

RE:

Constantine (Gus)
    Economopoulos
,
1551666 Ontario Inc.
, Anjoca Holdings Inc., Heritage
    Pancake House Ltd.,
Vida Prijic
, Peter Nicolopoulos and Aristides
    Nicolopoulos

And in the matter of an
    application for petition [sic] and sale and an order of judicial sale of
    certain property known municipally as 815 Juliana Drive, Woodstock, Ontario

(
Appellants
) (
Respondent
)

Montgomery Shillington, for the appellants Constantine (Gus) Economopoulos
    and 1551666 Ontario Inc.

Sean Flaherty, for the respondent Vida Prijic

Heard: July 16, 2014

On appeal from the order of Justice Kelly A. Gorman of
    the Superior Court of Justice, dated February 14, 2014.

Gillese J.A.:

OVERVIEW

[1]

Constantine (Gus) Economopoulos has been involved in operating the
    Heritage Pancake House restaurant in Woodstock, Ontario, since the mid-1990s. 
    He has been embroiled in legal proceedings involving the restaurant virtually
    ever since.

[2]

Gus Economopoulos, as tenant of the restaurant premises, entered into a
    lease with the landlords, Anjoca Holdings Inc. (Anjoca) and 15516666 Ontario
    Inc. (155 Ontario), (the Lease).  The Lease was dated December 1, 2006, but
    was not registered on title until 2012.

[3]

By order dated February 10, 2014 (the Order under Appeal), among other
    things: (1) the Lease was set aside on the basis that it was fraudulent and
    void
ab initio
; (2) the Land Registrar was ordered to remove the Notice
    of Lease from the title to the Property; and, (3) Gus Economopoulos, Anjoca, 155
    Ontario, and the restaurant were ordered to pay costs of the motion on a substantial
    indemnity basis.

[4]

In short, the effect of the Order under Appeal was that the Property
    could be sold free of the Lease.

[5]

Gus Economopoulos and 155 Ontario (the appellants) appeal.

[6]

For the reasons that follow, I would allow the appeal.

BACKGROUND IN BRIEF

[7]

The facts in this case are extremely complicated and convoluted.  I set
    out the following, very abbreviated, factual summary for a single reason:  it
    is necessary to give context to, and make intelligible, the issues raised on
    appeal and the analysis of those issues.  The limited record provided to this
    court is incomplete and rife with factual disputes which cannot be resolved by
    this court.  In fact, on the record, it is not even possible to identify the
    parties to the underlying proceeding or to make a list of the factual matters
    in dispute.  Thus, I wish to emphasize, the following summary is not intended
    to, nor does it, constitute findings of fact.

[8]

In the mid-1990s, Gus Economopoulos and his cousin, Peter Nicolopoulos,
    owned the property located at 815 Juliana Drive in Woodstock (the Property),
    on which the restaurant is located.

[9]

Gus Economopoulos originally operated the restaurant in partnership with
    Peters father, Aristides (Art) Nicolopoulos.  Later, Gus Economopoulos ran the
    restaurant on his own.

[10]

A
    dispute between Gus Economopoulos and Art Nicolopoulos about the management of
    the restaurant led to each of them commencing legal proceedings for the
    recovery of money damages related to the restaurants operation (the Two
    Actions).

[11]

On
    March 5, 1999, Gus Economopoulos granted a mortgage over his half-interest in
    the Property in favour of Nicholas Bulut.

[12]

On
    July 22, 1999, Gus Economopoulos transferred his half-interest in the Property
    to Mr. Bulut, with the result that the Property was jointly owned by Mr. Bulut
    and Peter Nicolopoulos.  Apparently Mr. Bulut continued to hold a mortgage over
    the Property, despite the transfer of the half-interest in the Property to him.

[13]

On
    July 27, 1999, Art Nicolopoulos and Peter Nicolopoulos started an application
    for, among other things, the sale of the Property pursuant to the
Partition
    Act
, R.S.O. 1990, c. P.4 (the Application).

[14]

By
    order dated October 1, 1999, the Application was consolidated with the Two
    Actions (the Consolidated Proceeding).

[15]

On
    December 12, 2000, in response to the Application but within the Consolidated
    Proceeding, Granger J. issued an order (the 2000 Order).  Among other things,
    the 2000 Order prohibited Mr. Bulut (and his agents and assigns) from going onto
    the Property and appointed a referee to sell the Property.  In para. 3 of the
    2000 Order, the court ordered that the Property be sold, under the direction of
    the referee, on such terms as the referee deemed appropriate and,

free of the claims of encumbrancers if any, who have consented
    to the sale, and subject to the claims of encumbrancers who have not consented
    to the sale .

[16]

As
    will be seen, one of the critical issues raised on this appeal is how the word
    encumbrancers in the above-quoted provision of the 2000 Order should be
    interpreted.

[17]

The
    2000 Order was never registered on title and no party has ever applied for a
    certificate of pending litigation based on it.

[18]

Peter
    Economopoulos (Gus Economopoulos brother) had a mortgage over Mr. Buluts ownership
    interest in the Property.

[19]

On
    June 20, 2003, Peter Economopoulos enforced his mortgage by selling Mr. Buluts
    ownership interest in the Property by power of sale.  The purchaser was 155
    Ontario.  Thus, 155 Ontario and Peter Nicolopoulos became the co-owners of the
    Property.

[20]

Art
    Nicolopoulos died on May 24, 2006.

[21]

On
    October 8, 2006, Gus Economopoulos, Peter Nicolopoulos and Angela Nicolopoulos,
    in her capacity as executrix and trustee for Arts estate, entered into minutes
    of settlement (the Settlement).

[22]

Two
    of the preambles in the Settlement are significant.  The first recites that Gus
    Economopoulos, Art Nicolopoulos and Peter Nicolopoulos are parties to numerous
    outstanding proceedings in respect of their involvement in the operation and
    management of Heritage Pancake House and the purchase and development of the
    Property.  The numerous outstanding proceedings are not identified in the
    Settlement.

[23]

The
    second preamble of significance recites that the parties to the Settlement wished
    to settle their long standing disputes.

[24]

As
    part of the Settlement, Gus Economopoulos agreed, among other things, to pay
    Peter Nicolopoulos $100,000 and to assume full and sole liability for debts
    relating to the operation of the restaurant in the approximate amount of
    $320,000.

[25]

In
    consideration for the $100,000 payment, Peter Nicolopoulos agreed to transfer
    to Gus Economopoulos, or such person as he should designate, his one-half
    ownership interest in the Property.  Pursuant to Gus designation, Peter
    Nicolopoulos transferred his interest in the Property to Anjoca.

[26]

In
    para. 9 of the Settlement, the estate trustee agrees and does transfer to Gus,
    or as Gus may direct in writing, all its right, title and interest in and to
    the Heritage Pancake House restaurant business, assets, and undertaking.

[27]

Paragraph
    17 of the Settlement recites that the parties agreed to

forever release and discharge one another from all matters
    relating in any manner whatsoever to the Property and the Heritage Pancake
    House and without limitation any matter which form[s] the subject matter of all
    legal proceedings in existence between them .

[28]

And,
    in para. 18 of the Settlement, the parties agreed that all aforementioned legal
    proceedings shall be discontinued or dismissed, without costs, and all Court Orders
    be set aside.

[29]

As
    previously mentioned, Gus Economopoulos entered into the Lease with Anjoca and
    155 Ontario on December 1, 2006.  However, Anjoca was not formally incorporated
    until January 2007.  Anjoca is controlled by Gus Economopoulos three
    daughters.

[30]

In
    2008, Mr. Bulut assigned his mortgage over the Property to Norman van Roboys,
    who subsequently assigned the mortgage to Mr. Buluts spouse, Vida Prijic, in
    2009.  Ms. Prijic is the respondent in this appeal (the respondent or Ms.
    Prijic).

[31]

In
    2011, 155 Ontario brought a motion for summary judgment, within the
    Consolidated Proceeding, seeking a declaration that the mortgage formerly held
    by Mr. Bulut (but by that point held by Ms. Prijic), had been paid.

[32]

The
    motion was heard by the late Justice T. David Little. In an endorsement dated
    October 12, 2011, Little J. said that he would dismiss the motion.  While the parties
    and the motion judge treat Little J.s endorsement as if it were an order, it
    does not appear that an order was ever issued.

[33]

In
    his endorsement, at para. 36, Little J. states that a full hearing is required
    in order to assess the relative credibility, if any, of either party.  He also
    spent some time in the endorsement outlining various legal proceedings
    involving the Property and the legal problems that flowed from having a myriad
    of proceedings with a myriad of different parties.

[34]

Justice
    Little concluded his endorsement with a series of recommendations, including
    that: 1) the referee appointed pursuant to the 2000 Order should quickly
    dispose of the Property; 2) a trial date should be fixed where all issues can
    be disposed of at one time in any of the actions; 3) the various actions
    should be consolidated, which would include determining who the interested
    parties are, the proper identification of plaintiffs and defendants, preparing
    a single style of cause, and outlining the issues that had to be resolved; 4) no
    further steps should be taken by any party until the preceding things had taken
    place; and 5) an application should be made to have a case management judge
    appointed.

[35]

I
    understand that in late 2011, Gus Economopoulos acquired control of 155 Ontario
    which at that time, it will be recalled, owned a one-half interest in the
    Property.

[36]

On
    January 19, 2012, the Lease was registered on title to the Property.

[37]

155
    Ontario brought a motion in the Consolidated Proceeding, which led to an order
    dated February 16, 2012, appointing a single judge as case management judge
    pursuant to rule 37.15 of the
Rules of Civil Procedure
, R.R.O. 1990,
    Reg. 194.

[38]

It
    will be recalled that Little J. had recommended that the sale of the Property proceed. 
    Apparently the parties to this appeal wished to follow that recommendation but
    shared a common concern about the ambiguity in the meaning of the word
    encumbrancers in para. 3 of the 2000 Order.  This ambiguity led them to
    disagree about which encumbrances would attach to title on sale of the
    Property.  I understand that the parties agreed that a motion would be brought
    before the case management judge for directions as to the meaning of the word
    encumbrancers in the 2000 Order.

[39]

Ms.
    Prijic then brought a motion asking for a declaration that the vesting order
    arising from the sale of the Property would convey the Property free and clear
    of encumbrances registered subsequent to the 2000 Order.

[40]

However,
    in an Amended Amended Notice of Motion dated November 25, 2013, Ms. Prijic added
    a request for a determination of the appropriateness and validity of the
    registration of the Lease on title.

[41]

At
    the oral hearing of this appeal, counsel for the appellants advised that his
    position on the motion had always been that the sole issue to be decided in
    respect of the Lease was whether the unregistered 2000 Order had the effect of
    extinguishing it.  The appellants position on that issue was that the word
    encumbrancers in para. 3 of the 2000 Order encompassed later-filed
    encumbrances and, thus, the Property could be sold only subject to the Lease.  The
    appellants say that they consented to having the motion heard by the case
    management judge on that basis.  They also say that they made it clear that if
    Ms. Prijic wanted to have the Lease declared to be fraudulent, within the
    meaning of the
Fraudulent Conveyances Act
, R.S.O. 1990, c. F.29 (the 
FCA
),
    she should commence a proceeding under the
FCA
.  And, if she wanted to
    obtain a traditional mortgage enforcement remedy, she should commence appropriate
    proceedings pursuant to the mortgage.

[42]

The
    case management judge heard the motion.  She found the Lease to be fraudulent,
    within the meaning of the
FCA
, and declared the Lease to be void
ab
    initio
.
She issued the Order under Appeal, which requires that the
    Lease be set aside and the Property be sold free and clear of it.

[43]

In
    finding the Lease to be fraudulent, the motion judge stated that the Lease had
    been registered on title in clear violation of Little J.s order (para. 10),
    as a manoeuver to frustrate the sale of the Property (para. 17), and only when
    sale of the Property became imminent (para. 21).  She found that the
    presumption of fraud had been made out and that no cogent explanation had
    been offered for the timing of the Lease and its registration (para. 20).  She
    also relied on the fact that Anjoca was not a corporate entity when the Lease
    was entered into (para. 21).

[44]

The
    motion judge also considered what meaning should attach to the word
    encumbrancers in the 2000 Order.  She found that it was meant to refer to only
    then-existing encumbrancers.  She stated that to interpret encumbrancers to
    include after-filed encumbrances would be illogical because an owner of the
    Property who did not want the sale to proceed could undermine the 2000 Order
    simply by granting a new encumbrance (para.16).

THE ISSUES

[45]

The
    numerous grounds of appeal raised by the appellants can be summarized as
    follows.  Did the motion judge err in:

1.  setting
    aside the Lease on the basis that it was fraudulent, within the meaning of the
FCA
?
    and

2.  interpreting
    encumbrancers in the 2000 Order, as referring to only then-existing
    encumbrancers?

ISSUE #1:  Did the motion judge
    err in setting aside the Lease as fraudulent,      within the meaning of the
FCA
?

The Parties Positions

[46]

In
    their factum, the appellants challenged the motion judges finding that the
    Lease was fraudulent on three bases.

[47]

First,
    while conceding (for the purposes of this appeal only) that the non-arms
    length nature of the Lease raised an inference of fraud sufficient to place the
    burden of explanation on the appellants, they submit that the motion judge
    erred in finding that no such cogent explanation had been given.  They say
    that Gus Economopoulos provided an explanation that was sufficient to either
    meet the burden of explanation or to raise a genuine issue, necessitating
    findings of credibility, sufficient to require the trial of an issue.

[48]

In
    this regard, the appellants point to Gus Economopoulos affidavit evidence
    about the circumstances surrounding the Lease.  In a nutshell, that evidence is
    to the effect that the Lease was executed as part of the series of events
    arising from the Settlement in 2006.  Under the Settlement, the disputes
    between the parties  including the dispute that led to the 2000 Order  were
    resolved.  Furthermore, pursuant to the Settlement, Gus Economopoulos became
    personally liable for hundreds of thousands of dollars of liabilities in
    respect of the restaurant, a matter they say goes to the question of the
    adequacy of the rent paid pursuant to the Lease and to the timing of its
    execution.

[49]

Second,
    the appellants submit that the motion judge misinterpreted Little J.s recommendation
    that no further steps should be taken by any party until other things, such as
    the sale of the Property, had taken place.  Consequently, the appellants say, the
    motion judge erred in viewing the registration of the Lease on title to the
    Property as a violation of that recommendation.

[50]

Third,
    the appellants submit that the motion judge erred in finding the Lease to be
    fraudulent because in making that finding, the motion judge relied on a number
    of unwarranted negative inferences.  Among others, the appellants point to the
    negative inferences that the motion judge drew from the timing of the
    registration of the Lease, and the fact that the Lease was entered into with Anjoca,
    as landlord, prior to the date that Anjoca was formally incorporated.

[51]

At
    the oral hearing of the appeal, the appellants made a further and quite
    different submission on this issue.  They argued that not only did the motion
    judge err in finding the Lease to be fraudulent but she erred in deciding the
    issue.

[52]

The
    appellants gave two reasons for saying that the motion judge ought not to have
    entertained the question of whether the Lease was fraudulent, within the
    meaning of the
FCA
.  First, they say that they did not have proper
    notice that such a determination would be made.  Second, the appellants submit that
    as they did not consent to such a determination being made, in light of the
    role played by a case management judge, it was inappropriate for her to hear
    and decide the matter.

[53]

The
    respondent submits that the motion judge did not err in concluding that the
    appellants had provided no cogent explanation for the timing of the Lease and
    that this court should defer to her finding on that matter.  She further
    submits that it was open to the motion judge to make a finding that the Lease
    was fraudulent, within the meaning of the
FCA
.  The respondent says that
    the appellants were not taken by surprise and did not ask that the matter be
    decided by way of a trial of the issue.  The respondent adds that there is
    nothing in the record before this court to suggest that the motion judge did
    not have all of the necessary evidence to permit her to decide whether the Lease
    was fraudulent.

Analysis

[54]

In
    my view, the motion judge erred in deciding whether the Lease was fraudulent, within
    the meaning of the
FCA
.  I reach this conclusion for three reasons.

[55]

First,
    I would accept the appellants submission that they did not receive proper
    notice that a determination would be made under the
FCA
.  There is no
    mention of the
FCA
in the Amended Amended Notice of Motion or the
    predecessor notices of motion.  Although the Amended Amended Notice of Motion
    asks for [a] determination of the issue as to the appropriateness and validity
    of the registration of the two Notices of Lease, in the circumstances of this
    case, that did not constitute sufficient notice to the appellants that the
FCA
would be in issue on the motion.  In this regard, it is noteworthy that the
    appellants contend that they made it clear to the respondent throughout that if
    she wished such a determination, it would have to be done through an
    appropriate proceeding under the
FCA
, and not in a motion for
    directions.  The record supports the appellants contention on this point.

[56]

Second,
    in the circumstances of this case, a determination of whether the Lease was fraudulent,
    within the meaning of s. 2 of the
FCA
, required a trial.

[57]

Section
    2 of the
FCA
requires a finding that a conveyance was made with the intent
    to defeat, hinder, delay or defraud creditors or others.  It reads as
    follows:

2.
Every conveyance
of real property or personal
    property and every bond, suit, judgment and execution heretofore or hereafter
made
    with intent to defeat, hinder, delay or defraud creditors or ot
hers of
    their just and lawful actions, suits, debts, accounts, damages, penalties or
    forfeitures are void as against such persons and their assigns.  [Emphasis
    added.]

[58]

Neither
    party disputes that the Lease is a conveyance within the meaning of s. 2 of the
FCA
.  Thus, the question was whether the Lease had been entered into with
    the intent to defeat, hinder, delay or defraud creditors or others.  Indeed,
    the crucial question in any fraudulent conveyance action is whether the
    plaintiff has proved the fraudulent intent of the debtor:
FL Receivables
    Trust 2002
, 2007 ONCA 425, at para. 39.

[59]

Gus
    Economopoulos explanation of the circumstances surrounding the Lease raises a
    triable issue on that matter.

[60]

It
    will be recalled that his explanation was that the Lease was entered into as
    part of the series of events arising from the Settlement. The Settlement is
    dated October 8, 2006.  The Lease is dated December 1, 2006.  It is clear from
    the terms of the Settlement that it was made in contemplation of Gus
    Economopoulos continuing to operate the restaurant on the Property.  One of the
    recitals states AND WHEREAS Gus has continued operating the [restaurant]. 
    Further, under the terms of the Settlement, Gus Econompoulos assumed liability
    for hundreds of thousands of dollars of debts relating to the restaurant.  As
    the Lease was entered into shortly after the Settlement and all parties to the
    Settlement were aware that Gus was going to continue operating the restaurant,
    this explanation had to be considered when determining intent for the purposes
    of s. 2 of the
FCA
.  No such consideration was undertaken.

[61]

Furthermore,
    in para. 17 of the Settlement, the parties agreed to release and discharge one
    another from all matters and legal proceedings relating in any manner
    whatsoever to the Property and the restaurant.  In light of that exchange of promises,
    it is not clear what part, if any, of the 2000 Order was still operative
vis-à-vis
Gus Economopoulos and his operation of the restaurant.  Again, this is a
    matter going to intention, for the purpose of s. 2.

[62]

Moreover,
    the factual backdrop to the 2000 Order had dramatically changed by the time the
    Lease was entered into in 2006.  The 2000 Order was made when the joint owners
    of the Property were adversarial in nature.  After the Settlement was
    implemented, that was no longer the case because Peter Nicolopoulos had
    transferred his interest in the Property to Anjoca.  Again, this consideration
    is relevant to the question of intent, for the purposes of s. 2 of the
FCA
.

[63]

Third,
    as I explain below, there is a real question as to the validity of the badges
    of fraud relied on by the motion judge.

[64]

In
    conclusion, in the circumstances of this case, I do not see how, in the absence
    of a trial, the requisite determination of intent could be made.  It is clear
    that, among other things, credibility findings are required in order to make
    the requisite findings on intent.

[65]

In
    light of the foregoing, it is unnecessary to decide whether the appellants are
    correct in their submission that because of the role of a case management
    judge, it was inappropriate for her to have decided the
FCA

issue
    in the absence of their consent.  The question of a case management judges
    jurisdiction is one that I would leave to a case in which it has been squarely
    raised and fully argued.

[66]

Because
    I am of the view that the issue of whether the Lease was fraudulent, within the
    meaning of s. 2 of the
FCA
, ought not to have been decided on the
    motion, I will say little as to the merits of that determination.  I would
    note, however, that two of the negative inferences which the motion judge
    relied on in reaching that determination are troubling.

[67]

First,
    on the record before this court, there is nothing about the timing of the
    execution of the Lease by Anjoca that should lead to a negative inference in
    relation to the question of intent, for the purposes of s. 2 of the
FCA
.

[68]

The
    Settlement was entered into on October 8, 2006.  Peter Nicolopoulos lawyer was
    directed to transfer his (Peter Nicolopoulos) interest in the Property to
    Anjoca by means of a direction dated November 29, 2006.  Anjoca executed the
    Lease in December of 2006 and was incorporated shortly thereafter in January of
    2007.  By its subsequent actions, Anjoca adopted the Lease.

[69]

The
    formation of pre-incorporation contracts is common practice.  Ontarios
Business
    Corporations Act
, R.S.O. 1990, c. B.16, clearly contemplates such contracts
    and provides, in s. 21(2), that

A corporation may, within a reasonable time after it comes into
    existence, by any action or conduct signifying its intention to be bound
    thereby, adopt an oral or written contract made before it came into existence
    in its name or on its behalf.

[70]

Second,
    the motion judge found that registering the Lease on title was done in clear
    violation of Little J.s order.  As indicated earlier, there is no order by Little
    J. in the record before this court.  There is only his endorsement dated
    October 12, 2011, which concluded with a series of recommendations.  Thus, the
    motion judge erred in treating the registration of the Lease as a violation of
    a court order.

[71]

Further
    and in any event, it is not readily apparent that registering the Lease on
    title violated Little J.s recommendation.   The recommendation in question is
    found in para. 41 of Little J.s endorsement.  It reads as follows:

No further steps should be taken by any of the parties until
    the above [recommendations are] completed.

[72]

The
    Lease was entered into in 2006, long before the recommendation was made in
    2011.  Obviously, therefore, the act of entering into the Lease could not be
    contrary to the recommendation.  The question is whether its registration on
    title was contrary to the recommendation.  In this regard, it is not clear
    whether the recommendation is a general prohibition against any party doing
    anything in relation to the Property or a direction that the parties were to
    take no further steps in the proceeding until the various other recommendations
    had been complied with.  It is not readily apparent to me that the registration
    of an existing Lease on title is a step in a proceeding.

[73]

For
    these reasons, the motion judges finding that the Lease was registered on
    title in violation of Little J.s order cannot stand.

[74]

Accordingly,
    I would allow this ground of appeal.

ISSUE #2:   Did
    the motion judge err in her interpretation of the word encumbrancers in the 2000
    Order?

The Parties Positions

[75]

The
    appellants submit that the motion judge erred in interpreting the word
    encumbrancers in the 2000 Order as referring to only encumbrancers in
    existence at the time the 2000 Order was issued.  They say that the 2000 Order
    must be interpreted as having contemplated the continued operation of the
    restaurant because the restaurant had been in continuous operation since the
    early 1990s, its continuation was not prohibited by the terms of the 2000
    Order, and, at the time the application which led to the 2000 Order was
    commenced, it was in the best interests of all parties that the restaurant
    continue to occupy the premises.  Accordingly, the appellants submit, the 2000
    Order must have contemplated that a lease would come into existence that
    enabled the continued use of the Property by the restaurant.  As a lease is an
    encumbrance, the word encumbrancers in the 2000 Order must have been intended
    to encompass a later-filed lease.

[76]

The
    respondent submits that the motion judge correctly interpreted encumbrancers
    so that the sale of the Property would be subject only to the claims of
    encumbrancers in place at the time that the 2000 Order was made.  The
    respondent argues that the motion judges interpretation is consistent with the
    objective of a sale under the
Partition Act
which, she contends, is to
    permit the expeditious judicially supervised sale of land for the benefit of
    all parties while protecting the rights of existing encumbrancers.  The
    respondent submits that it would be illogical and contrary to the objective of
    the
Partition Act
for the 2000 Order to apply to encumbrances that
    neither existed nor were in the contemplation of the parties at the time that
    the 2000 Order was made.

Analysis

[77]

In
    my view, the motion judge erred in interpreting the word encumbrancers in para.
    3 of the 2000 Order as referring to only encumbrancers then in existence.

[78]

Paragraph
    3 of the 2000 Order reads as follows:

THIS COURT OR
D
ERS that
    the lan
d be sold under the direction of the
    Re
feree on such terms as the Referee deems appropriate, free of the
    claims of encumbrancers if any, who have c
on
sente
d
to the sale, an
d
subject to the claims of encumbrancers who
    have not c
on
sente
d
to the sale, an
d
that the purchaser pay the purchase m
on
ey into court to the cre
d
it of this procee
d
ing, subject to the or
d
er of the Court.

[79]

The
    source of the wording in para. 3 is significant.

[80]

It
    will be recalled that the 2000 Order was made pursuant to an application for
    sale under the
Partition Act
.  Rule 66.02 of the
Rules of Civil
    Procedure
provides that a judgment for partition or sale shall be in (Form
    66A).  The relevant provision in Form 66A reads as follows:

THIS COURT OR
D
ERS AN
D
A
D
JU
D
GES that the lan
d
, or such part of it as the referee thinks
    fit, be sol
d
un
d
er the
d
irecti
on
of the referee, free of the claims of
    encumbrancers, if any, who have c
on
sente
d
to the sale, an
d
subject to the claims of encumbrancers who
    have not c
on
sente
d
to the sale, an
d
that the purchaser pay the purchase m
on
ey into court to the cre
d
it of this procee
d
ing, subject to the or
d
er of the court.

[81]

A
    comparison of the wording in para. 3 of the 2000 Order with the relevant provision
    in Form 66A reveals that the two are virtually identical.  This is not
    surprising, given the mandatory wording in rule 66.02 which requires that an
    order for partition or sale shall be in Form 66A.

[82]

Turning
    then to the interpretation of encumbrancers, I begin by noting that there is
    nothing in the wording of Form 66A or para. 3 of the 2000 Order that restricts encumbrancers
    to only those in existence at the time the order of partition or sale is made. 
    On a plain reading of both provisions, the word encumbrancers would encompass
    both existing and subsequent encumbrancers.

[83]

However,
    that does not end the matter.  In determining what meaning attaches to the word
    encumbrancers, it is vital to recognize that Form 66A is the source of para.
    3 of the 2000 Order.

[84]

Rule
    66.02 mandates that Form 66A is to be used for orders of partition and sale. 
    Because Form 66A is a mandated standard form of order, the interpretation of
    its wording has the potential to affect a great many people other than the
    parties to this dispute.  Moreover, because the
Rules of Civil Procedure

are the source of Form 66A, Form 66A is essentially subordinate
    legislation.

[85]

Consequently,
    in my view, it would be incorrect in law to interpret the word encumbrancers
    in para. 3 of the 2000 Order by reference to the intention of the parties at
    the time that the 2000 Order was made.  Instead, the word encumbrancers should
    be interpreted within the legislative context in which Form 66A was developed,
    which brings us to ss. 2 and 3 of the
Partition Act
.



[86]

Sections
    2 and 3 of the
Partition Act

give persons interested in land in
    Ontario the right to seek a court-ordered partition or sale of that land.  For
    ease of reference, I will refer to such persons as co-owners.  Sections 2 and 3
    read as follows:

2.  All joint tenants, tenants in common, and coparceners, all
    doweresses, and parties entitled to dower, tenants by the curtesy, mortgagees
    or other creditors having liens on, and
all parties interested in
, to or
    out of,
any land in Ontario, may be compelled to make or suffer partition or
    sale of the land
, or any part thereof, whether the estate is legal and
    equitable or equitable only.

3.  (1)
Any person interested in land in Ontario,
or
    the guardian of a minor entitled to the immediate possession of an estate therein,
may bring an action or make an application for the partition of such land or
    for the sale

thereof
under the directions of the court if such sale
    is considered by the court to be more advantageous to the parties interested. 
    [Emphasis added.]

[87]

The
    right to seek partition or sale is limited to those who have possession, or an
    immediate right to possession, of the land:
909403 Ontario Ltd. v.
    DiMichele
, 2014 ONCA 261, 319 O.A.C. 72, at para. 79;
Nobis
    Investments Ltd. v. Atlantic Metal Spinning Co.
, 1988 CarswellOnt 1708,
    [1988] O.J. No. 335, at para. 1 (C.A.);
Morrison v. Morrison
(1917),
    39 O.L.R. 163, at pp. 168 and 171-72 (C.A.).

[88]

Prior
    to the passage of legislation, co-owners of land did not have the right to
    compel partition or sale of land  only coparceners could invoke the writ
de
    partitione facienda

to compel partition.
[1]
In giving co-owners the
prima facie
statutory right to compel partition
    or sale, the
Partition Act

(and its predecessor legislation)
    conferred a powerful right upon them.

[89]

This
    court has affirmed the strength of that
prima facie

statutory
    right, holding that the courts have only a narrow discretion to refuse to make
    such an order.  The scope of the courts discretion to refuse to make an order
    of petition or sale is limited to circumstances of malice, oppression and
    vexatious intent.  See
Greenbanktree Power Corp. v. Coinamatic Canada Inc.
(2004), 75 O.R. (3d) 478, 193 O.A.C. 204 (C.A.), at paras. 1-2.

[90]

It
    goes without saying that the rights of other parties interested in the land can
    be affected by the partition or sale of the land.  Nonetheless, in the words of
    s. 2 of the
Partition Act
, they may be compelled to suffer partition
    or sale.

[91]

Form
    66A provides some protection for those other parties interested in the land who
    are encumbrancers, by making the sale of the land subject to their claims, if
    they do not consent to the sale.

[92]

An
    encumbrancer does not cease to acquire a valid interest in the land simply
    because the encumbrance arises, or is registered, after the land is subject to an
    order for partition or sale.  A significant period of time might elapse between
    the granting of such an order and the eventual sale of the land.  Indeed, that was
    the case here, with the sale order being made in 2000 and fourteen years later,
    the Property not yet sold. In the interval between a sale order being made and
    the sale taking place, any number of encumbrances might arise. For example, a municipality
    might become entitled to register an encumbrance if property taxes on the land
    go unpaid and creditors might wish to register judgments against an owner of
    the land.  The fact that such encumbrances arise and/or are registered after a
    sale order has been made does not render them unworthy of the protection
    afforded by Form 66A.  Interpreting the word encumbrancers to encompass
    subsequent encumbrancers gives them that measure of protection.

[93]

Moreover,
    the motion judges interpretation of encumbrancers would confer a new right on
    co-owners of land by shielding their land from valid encumbrances that arise
    after the order for partition or sale has been granted. That was not the
    purpose of ss. 2 or 3 of the
Partition Act
.

[94]

In
    conclusion, when considered within the legislative context of ss. 2 and 3 of
    the
Partition Act
, the correct interpretation of encumbrancers in
    para. 3 of the 2000 Order accords with its plain meaning, namely, as
    encompassing all encumbrancers, whether in existence at the time the 2000 Order
    was made or subsequently.

[95]

For
    these reasons, I would allow this ground of appeal.

DISPOSITION

[96]

Accordingly,
    I would allow the appeal with costs to the appellants fixed at $10,000, all
    inclusive.  I would set aside paras. 1 and 2 of the Order under Appeal.  I
    would direct the parties to revise para. 3a of the Order under Appeal, as
    necessary, to make it consistent with these reasons.  I would make no order in
    respect of para. 3b of the Order under Appeal because that relief was not requested
    and because I understand that para. 3b was made on consent of the parties.
[2]


[97]

In
    light of the result on appeal, the costs order below made in respect of the
    parties to this appeal, namely para. 4 of the Order under Appeal, cannot stand
    and I would set it aside.  If the parties are unable to resolve the matter of
    costs of the motion, I would permit them to make brief written submissions on
    the matter, to a maximum of three pages, within fourteen days of the date of
    release of this judgment.

Released: October 7, 2014 (A.H.)

E.E. Gillese J.A.

I agree Alexandra Hoy
    A.C.J.O.

I agree P. Lauwers J.A.





[1]
John Irvine, A House Divided: Access to Partition and Sale under the Laws of
    Ontario and Manitoba (2011), 35:1 Man. L.J. 217, at 219-20.  See also
Re
    Hutcheson and Hutcheson
, [1950] O.R. 265, at 268 (C.A.).  And, more
    generally on the
Partition Act
, see Paul Perell, A Partition Act Primer

(2005), 30 Advocates Q. 251.




[2]
See para. 2 of the motion judges Supplementary Endorsement dated February 10,
    2014.


