Ontario v. Petit

Ontario v. Petit Collection Decisions of the Court of Appeal Date 1999-04-22 Docket numbers C25183 Judges Catzman, Marvin Adrian; Weiler, Karen Merle Magnuson; Charron, Louise Vivianne Subject Civil Decision Content DATE: 19990422 DOCKET: C25183 COURT OF APPEAL FOR ONTARIO CATZMAN, WEILER and CHARRON JJ.A. BETWEEN: ) ) Wendy J. Linden ATTORNEY GENERAL FOR THE ) for the appellant PROVINCE OF ONTARIO ) Applicant ) ) and ) Reid Lester ) for the respondent RONALD PETIT, SOCIAL SERVICES ) DEPARTMENT OF THE REGIONAL ) MUNICIPALITY OF NIAGARA, REVENUE ) CANADA, SULLIVAN, MAHONEY, ) BARRISTERS AND SOLICITORS, ) STEVENSVILLE LAWN SERVICE INC., ) ARISTROCRAT TILE INC., BAKKER, ) ATAMANUK, BARRISTERS AND ) SOLICITORS, CHUBB INSURANCE ) COMPANY OF CANADA and ONTARIO ) LEGAL AID PLAN ) Respondents ) Appellant: Revenue Canada ) Respondent: Chubb Ins. ) ) Heard: February 10, 1999 CATZMAN J.A: The background and the appeal [1] Ronald and Christina Petit set fire to their house. It was almost completely destroyed. They were charged with arson. Bail was set at $50,000 cash. Ronald Petit raised the money from two sources: he sold an expensive car that he owned for $45,000 and added $5,000 in cash, the source of which was not disclosed. He deposited the $50,000, and he and Christina were released pending trial. [2] The Petits, whose house had a large mortgage, carried a policy of homeowner's insurance with Chubb Insurance Company of Canada. Under the standard mortgage clause in the insurance policy, Chubb was required to pay the mortgagee regardless of the Petits' deliberate acts of arson. Chubb paid off the mortgagee and took an assignment of the mortgagee's position. It then sold the property under power of sale, but the sale realized only about a third of the amount it had had to pay the mortgagee. [3] The Petits were convicted of the charges against them. They were sentenced to terms of imprisonment: Ronald, for 3 years; and Christina, for 1 year. A compensation order of over $460,000 was made under the Criminal Code in favour of Chubb. [4] Following conviction and sentence, Ronald sought to recover the $50,000 he had deposited for bail. A number of creditors laid claim to the money, including Revenue Canada, to which he owed over $66,000 for arrears of income tax. Because of the competing claims, the $50,000 was paid into court under an interpleader order. [5] An application was then brought for payment of the money out of court. By the time the application was heard, only two creditors asserted a claim to the bail money: Chubb and Revenue Canada. Each had filed with the sheriff a writ of seizure and sale in respect of its debt. Each took the position that its claim had priority over the claim of the other. Since each was owed more than the total amount in court, the creditor establishing priority for its claim would take all of the money and the other would receive nothing. [6] Dandie J. held that Chubb had priority and was entitled to all of the money in court. Revenue Canada now appeals from that order. The decision of Dandie J. [7] It was common ground between Chubb and Revenue Canada that, by virtue of Crown prerogative, the claim of the Crown prevails where its claim comes into competition with a claim of equal degree owing to a subject: The Queen v. The Bank of Nova Scotia (1885), 11 S.C.R. 1 at 10; Household Realty Corporation Limited et al. v. A.-G. Can., [1980] 1 S.C.R. 423 at 426; Re Marten; Royal Bank of Canada v. the Queen (1981), 34 O.R. (2d) 399 (Div. Ct.) at 402. The issue, therefore, was framed by Dandie J. as follows: Is the claim by Chubb, who is a victim of the crime of arson in that it paid substantial insurance monies to the mortgagee of the accused Petit's residence as a result of a fire set by Petit, superior rather than equal to the claim of the Crown, thereby entitling Chubb to the monies presently paid into court? [emphasis added] [8] He relied on three cases in which "the Crown's prerogative or the rights of a trustee in bankruptcy were held to not be available against certain victims of crime": In re Carson (1924), 4 C.B.R. 683 (Ont. App. Div.); Blackhawk Downs Inc. v. Arnold (1972), 17 C.B.R. (N.S.) 284 (Ont. S.C.); and Re Kolari (1981), 39 C.B.R. (N.S.) 129 (Ont. Dist. Ct.). From these cases, he concluded: I find that Chubb being a victim of Petit's arson falls within the designation a creditor and much more1; I further find that the $50,000 fund in question would not have come into existence but for Petit's crime of arson, of which Chubb was a victim. Accordingly, I find that Chubb has an interest higher in degree than that of Revenue Canada and direct that the balance of the monies paid into Court be paid out to Chubb. "Higher in degree" [9] In my view, none of the three cases on which Dandie J. relied supports the conclusion that Chubb’s claim was “higher in degree” than that of Revenue Canada. 1. In re Carson [10] In re Carson was a contest between an executor of an estate and the trustee in bankruptcy of his brother and co- executor, who had stolen money from the bank account of their deceased father's estate and had used the money to carry on his business. On the eve of his bankruptcy, whether from "fear of prosecution or to cover up his breach of trust or a mere voluntary payment to favour his father's estate at the expense of his general creditors"2, he withdrew money from his business and repaid the sums he had taken from the estate. His trustee in bankruptcy sought repayment of those sums as fraudulent preferences. [11] Fisher J. agreed that, once the stolen moneys had become intermingled with other money belonging to the miscreant executor, the relationship between him and his father's estate had become that of creditor and debtor. Fisher J. further found that, because the miscreant executor had taken money belonging to his creditors and paid them to himself and his co-executor within three months preceding his bankruptcy, the payments constituted a fraudulent preference and the trustee was entitled to an order for their return. [12] On appeal, that order was reversed. Speaking for the court, Middleton J.A. found that, although the beneficiary of the fund from which a defrauding trustee steals was "a creditor [of the thief] in some sense"3, he was not a "creditor" within the meaning of the provision of the Bankruptcy Act relating to fraudulent preferences. He said, at pp. 684-685: What, then is the situation when the debtor does not obtain credit in the usual way, but illegally takes the property of another and uses it in his business? That other has a claim as a creditor for which he can rank, but his situation is widely different from those who become creditors of their own volition and for their own profit. He is a creditor in invitum much against his own will, and with no chance of gain, and so it is said he is "a creditor and much more". … if the debtor, moved by his own instincts of propriety and his fear of punishment for his rascality, makes good the trust fund taken, he has always been regarded as doing something quite other than preferring a creditor contrary to the provisions of the bankruptcy statutes. 4 [13] Unlike Carson, the present case involves no bankruptcy, no trustee in bankruptcy and no suggestion of a fraudulent preference. The $50,000 in issue was not money Petit stole from Chubb. Nor, indeed, is it accurate to say that “the $50,000 fund in question would not have come into existence but for Petit’s crime of arson, of which Chubb was a victim” 5 except in the paralogical sense that, if Petit had not set fire to his own house, he would not have been charged with arson and would not have had to raise $50,000 bail. But while Chubb was admittedly a victim of Petit’s crime of arson, Chubb was not a victim of theft of, or any other criminal dealing with, the $50,000. Chubb is not a “creditor in invitum, … a creditor and much more” of the kind depicted by Middleton J.A. in Carson. 2. Blackhawk Downs Inc. v. Arnold [14] Blackhawk Downs was a contest between a trustee in bankruptcy and victims of fraud to whom restitution had been offered and paid into court pursuant to court order. Before the money could be paid out to the victims, the convicted fraud made an assignment in bankruptcy. His trustee in bankruptcy contended that the money in court was property of the bankrupt to be used for the benefit of creditors. Alternatively, he argued that payment of the money to the victims of the fraud would constitute a fraudulent preference under the Bankruptcy Act. [15] Lacourciere J. rejected the trustee's claim. Following In re Carson, he said, at p. 287: … there is something more than a debtor- creditor relationship between Naft and Blackhawk; the latter had no opportunity to investigate Naft's credit and is merely a creditor in invitum, being the involuntary victim of a fraud who is entitled to retain the equitable ownership of all funds traceable to the fraud. This principle was recognized in Ontario in Merchants Express Co. v. Morton (1868), 15 Gr. 274, as well as in Re Carson (1924), 4 C.B.R. 683 at 684 (C.A.). [16] He concluded, at p. 289: In my view, it would be clearly inequitable to allow the repayment to accrue to the advantage of Naft in facilitating the settlement of his general debts. Restitution was considered by the court as a favourable factor, because of the attitude of remorse demonstrated, and being a repayment to the victims of his crime. Such moneys should not be used in the discharge of the bankrupt's general debts, as this would clearly be an injustice to the persons aggrieved for whose benefit the moneys were repaid. [17] Again, unlike Blackhawk Downs, the present case involves no bankruptcy, no trustee in bankruptcy and no suggestion of a fraudulent preference, nor can the $50,000 deposited for bail be traced to Petit's fraud. Chubb is not a "person aggrieved for whose benefit" the $50,000 was paid into court. 3. Re Kolari [18] Re Kolari was a contest between a trust company from which a senior employee had stolen money and the Minister of National Revenue for income tax assessed on the amount stolen. The stolen money had been intermingled with salary cheques paid to the employee and her husband. The fund claimed by both the trust company and the Minister of National Revenue represented the proceeds of bank accounts and the sale of the matrimonial home and its contents, into which the money stolen could be traced. [19] Stortini D.C.J. held that the trust company was entitled to the entire fund in priority to the Minister of National Revenue. His conclusion rested upon his finding, at p. 135, that the trust company is not an ordinary execution creditor of Kolari. In equity the stolen money is held to be the subject-matter of a fiduciary relationship. This is apart from and in addition to the fact that Kolari was at all material times the servant and agent of [the trust company] in a fiduciary position. [20] The fact that the stolen money had been intermingled with money that was not stolen caused Stortini D.C.J. some concern. He concluded, however, that the trust company was entitled to the proceeds of sale of the home and contents, on the basis of the failure to "satisfy the onus encumbent on the fiduciary to identify with reasonable precision the financial contribution made by Mrs. Kolari toward the purchase of the home"6. He concluded, further, that the trust company was entitled to the balances in the bank accounts, on the basis of the application of the "first out" principle and the onus of establishing contribution, from which he found on the evidence that "the balance of Mrs. Kolari's money in the three accounts now in court is charged with the equitable proprietary interest of [the trust company]"7. [21] Re Kolari rested upon principles of tracing and concepts of trust that do not arise in the present case. As Mr. Lester acknowledged in argument on behalf of Chubb, the $50,000 in the present case cannot be traced, in whole or part, to the destruction by fire of the Petit home, nor can it be said to be impressed with a trust in Chubb's favour. The $50,000 that Petit raised for bail was made up of $45,000 realized on the sale of an automobile and $5,000 in cash. Nothing in the material before the court indicates the source of the $5,000, but there is no suggestion of any connection between that money and the house, the mortgage or the fire. There is, in short, no such link between Chubb and the fund it claims as there was between the beneficiaries of the estate and the money restored to the bank account by the miscreant executor in Carson; the victims of fraud and the money paid into court by way of restitution in Blackhawk Downs; and the trust company and the proceeds of funds stolen by its employee in Kolari. [22] If Chubb's claim is to succeed, it must be on some basis other than that found to exist in the three cases on which Dandie J. relied in support of the order under appeal. Breach of Fiduciary Duty [23] In an alternative submission, Mr. Lester argued that Chubb was entitled to assert a constructive trust over the $50,000 based on a fiduciary duty owing by Petit and breach of that duty. Petit was said to be in breach of his fiduciary duty to his insurer and his mortgagee in destroying property which Chubb had contracted to insure and over which the mortgagee (in whose shoes Chubb now stands) held a substantial mortgage. [24] The short answer to this submission is that Petit owed no fiduciary duty to Chubb either in its capacity as insurer or as assignee of the mortgagee. There is authority in this court against both of these propositions. The fact that an insurance contract is one of utmost good faith does not mean that it gives rise to a general fiduciary relationship: Plaza Fiberglass Manufacturing Ltd. v. Cardinal Insurance Co. (1994), 18 O.R. (3d) 663 (C.A.) at 669. Similarly, except for some limited purposes inapplicable to the present case, the relationship between mortgagor and mortgagee is not of a fiduciary character and neither is a trustee for the other: Malahide Developments Ltd. v. Richard Bennett Developments (Sarnia) Ltd. (1982), 35 O.R. (2d) 373 (C.A.) at 376. Conclusion [25] It follows from the foregoing that Chubb stands in no higher position than Revenue Canada as a creditor of Ronald Petit. Chubb and Revenue Canada are creditors of equal degree and, as such, the claim of Revenue Canada must prevail. [26] Accordingly, I would allow the appeal, set aside the order of Dandie J. and substitute in its place an order that the money paid into court under the interpleader order be paid to Revenue Canada. Revenue Canada is entitled to its costs, payable forthwith after their assessment, of the application before Dandie J. and of the appeal. Released: April 22, 1999 “M.A. Catzman J.A.” “I agree.” “K.M. Weiler J.A.” “I agree.” “Louise Charron J.A.” _______________________________ 1 Date format is yyyymmdd 2 PUT IN CASE NUMBER – NOT LOWER COURT NUMBERS 1 An expression taken from In re Carson, at 685 2 In re Carson Estate (1924), 4 C.B.R. 600 (Ont S.C.), at 603 3 In re Carson (1924), 4 C.B.R. 683 (App. Div.), at 684 4 The reference to "a creditor and much more" will be recognized as the expression used by Dandie J. in the passage cited at para. 8, above 5 See the extract from the reasons of Dandie J., at para. 8, above 6 Re Kolari (1981), 39 C.B.R. (N.S.) 129 at 136 7 (1981), 39 C.B.R. (N.S.) 129 at 136