COURT OF APPEAL FOR BRITISH COLUMBIA

Citation:

Ostere v. Harding,

 

2017 BCCA 157

Date: 20170413

Docket: CA43681

Between:

Christeena Doreen Ostere

Appellant

(Claimant)

And

Bruce Edwin Harding

Respondent

(Respondent)

Before:

The Honourable Mr. Justice Frankel

The Honourable Mr. Justice Groberman

The Honourable Mr. Justice Harris

On appeal from:  An order of the Supreme Court of British Columbia, dated May 9, 2016 (Ostere v. Harding, 2016 BCSC 819, Vancouver Docket No. E071317)

Oral Reasons for Judgment

Counsel for the Appellant:

M.E. Campbell

Counsel for the Respondent:

A.M. Lessing

Place and Date of Hearing:

Vancouver, British Columbia

April 10, 2017

Place and Date of Judgment:

Vancouver, British Columbia

April 13, 2017


 

Summary:

The parties were common law spouses from 2002 to 2007. Among the properties they owned was their home in Langley. Until they separated, it was held as a joint tenancy. Following separation, the parties entered into a consent order transferring title to the claimant, without prejudice to the respondent’s claim of an interest in the home. The trial judge found that each of the parties had a ½ interest in the home and she required the appellant to make a payment to the respondent to buy out his share. The appellant appealed, arguing that the respondent’s claim was for a “constructive trust” interest, and that it should not have been more that 25%. Held: Appeal allowed in part. The trial judge made no error in finding that the parties each had a 50% interest in the property. The adjustments that she made, however, in determining the payout figure did not fully account for the appellant’s expenditures to maintain the property after 2007, nor did they account for her receipt of rents. Matter directed to the Supreme Court registrar for an accounting.

[1]           GROBERMAN J.A.: The parties cohabited in a common law relationship from August 2002 until August 2007. After the breakdown of their relationship, Ms. Ostere commenced litigation against Mr. Harding, seeking an interest in certain property owned by him. Mr. Harding counterclaimed for a determination of his interest in a home in Langley that the parties had owned as joint tenants when they ended their relationship.

[2]           The breakdown of the relationship pre-dated the Family Law Act, S.B.C. 2011, c. 25, so there is no statutory regime providing for the sharing of the parties’ assets. Ms. Ostere’s claims were based on the doctrine of unjust enrichment, and on the principles of constructive trust discussed in Kerr v. Baranow, 2011 SCC 10.

[3]           The trial judge made a monetary award to Ms. Ostere based on those principles. With respect to two pieces of real property owned by Mr. Harding, the judge found that Ms. Ostere was entitled to 25% of the increase in their value during the parties’ cohabitation. She made a similar award to compensate Ms. Ostere for the increase in the value of Mr. Harding’s financial investments during that same period. The judge also made certain orders in respect of chattels owned by the parties. No appeal is taken from any of those awards.

[4]           The final piece of property at issue in the trial, and the one that gives rise to this appeal, is the home in Langley where the couple resided at the end of their relationship.

[5]           The home in issue was purchased by Ms. Ostere and her brother, as joint tenants, in about 1998. When Ms. Ostere and Mr. Harding began to cohabit in 2002, Ms. Ostere left the Langley property, but continued to pay her share of expenses in respect of it. She remained a joint tenant, but the Langley home was occupied by her brother.

[6]           In 2004, Ms. Ostere’s brother found himself unable to maintain his share of expenses on the Langley home. He sold his interest in that property to Mr. Harding for $40,000. Thereafter, the Langley home was registered to Ms. Ostere and Mr. Harding as joint tenants, and they moved into it.

[7]           While the evidence suggests that Ms. Ostere’s brother’s interest in the Langley home might have been worth somewhat more than $40,000 at the time Mr. Harding purchased it, nothing turns on that fact. It is not suggested that the transaction between Ms. Ostere’s brother and Mr. Harding was other than a straightforward sale transaction between them, nor is there any basis on which to find that Mr. Harding was anything less than an equal owner of the Langley property from 2004 until the couple separated.

[8]           Upon separation, Ms. Ostere continued to live in the Langley home. Mr. Harding’s only contribution to the Langley home after leaving was a $2500 payment on the mortgage. Thereafter, Ms. Ostere was left to take care of mortgage payments and the preservation and maintenance of property. She was unable to keep up with the mortgage payments, and the mortgagee commenced foreclosure proceedings.

[9]           In July, 2008, the parties reached an agreement to allow Ms. Ostere to re-finance the Langley property. The parties entered into a consent order in the following terms:

2.         [Mr. Harding] shall sign all documents required to remove his name from title of the [Langley home].

3.         Title to the [Langley home] shall be transferred into the [Ms. Ostere’s] name.

4.         [Ms. Ostere] is at liberty to seek a new mortgage on the [Langley home] in amount of that required to discharge the existing mortgage and foreclosure proceedings, and up to an additional $50,000.

5.         [Ms. Ostere] shall pay to the joint line of credit the sum of $15,000 after which time the outstanding debt of approximately $35,000 shall be transferred into [Mr. Harding’s] name alone.

6.         [Mr. Harding] shall be at liberty to file a certificate of pending litigation upon the [Langley home] after [Ms. Ostere] has obtained a new mortgage.

7.         Transfer of the [Langley home] and payment of the above data [sic] is made by both parties on it [sic] without prejudice basis to any final resolution of all issues as set out in the Plaintiff’s Statement of Claim and the Defendant’s Statement of Defense or Counterclaim.

[10]        It is common ground that, when the consent order was entered into, the respondent had not yet filed a statement of defence or counterclaim, though both were contemplated. The respondent did not, in fact, file his Response to Family Claim and his Counterclaim until July 2011.

[11]        It is also common ground that, while the consent order merely stated that the $35,0000 line of credit debt would be transferred into Mr. Harding’s name alone, what actually had to occur was for Mr. Harding to pay off that debt. He failed to do so. In December 2008, he was ordered to make an immediate payment of $24,000 to forestall foreclosure proceedings. He paid the $24,000.

[12]        Ms. Ostere, for her part, took out mortgages on the property beyond those allowed by the consent order. I presume that she was able to do so because of Mr. Harding’s delays in filing a counterclaim, which, I am guessing, limited his ability to obtain a viable certificate of pending litigation.

[13]        The market value of the Langley property at the commencement of trial was accepted by the trial judge to be $565,000. The evidence concerning the encumbrances against title was inadequate, and the judge was unable to determine what equity there was in the home.

[14]        At trial, Ms. Ostere argued that she should be entitled to retain the Langley home free of any claim by Mr. Harding. Alternatively, she argued that he should only receive a proportion of the increase in value of the Langley home during the period when the couple cohabited. As she does on this appeal, she took the position that the Langley home was “her home”, and that it should have been treated in the same way as the court treated Mr. Harding’s real properties.

[15]        For his part, Mr. Harding claimed a 50% interest in the Langley home, based on the fact that he was, at the time of separation, a joint owner of the property. He contended that while the consent order had the effect of transferring legal title in the Langley home to Ms. Ostere, it was without prejudice to his equitable interest in the property.

[16]        Mr. Harding valued his interest in the property at $187,500 at the date of trial. He based that figure on the home having a market value of $565,000, and on there being jointly authorized encumbrances against it of $190,000. As the trial judge observed, “what specific encumbrances are included in the $190,000 figure was not in evidence”.

[17]        The trial judge considered that the constructive trust approach advocated by Ms. Ostere was inapplicable to the Langley property. I agree with that conclusion. At the end of their relationship, the parties were joint tenants. Each had paid for their interest in the property. The evidence did not establish that either had been unjustly enriched with respect to the property during their relationship. While Mr. Harding had enjoyed unjust enrichment as a result of the increase in the value of other property during the relationship, the judge accounted for that enrichment in her monetary award in respect of the other property.

[18]        In the end, the judge reached the following conclusions:

[105]    I agree with Mr. Harding that the fact of the joint tenancy entitles him to equal sharing in the Langley house and thus the constructive trust remedy is inappropriate on these facts. I also agree that the appropriate valuation date is the date of trial, not the date of separation, because the parties did not cease being joint tenants prior to the trial in any way that prejudiced their claims (See:Hilborn v. Wright, 2014 BCCA 92 at para. 33). Similarly, no legal authority has been provided for the argument that Ms. Ostere may retain her initial equity prior to either the cohabitation or the joint tenancy.

[106]    However, I find Mr. Harding is equally responsible for half of the encumbrances on the Langley house as at July 2008 when the consent order was entered into, plus the additional $50,000 encumbrance contemplated by the consent order. This is so because the consent order was entered into to allow Ms. Ostere to forestall the foreclosure on the Langley property that resulted because of the joint default on the mortgage payments by the joint mortgagors, Ms. Ostere and Mr.Harding. As such, Mr. Harding cannot escape the responsibility he has toward value accounted for in the consent order.

[107]     As a result, Ms. Ostere retains the Langley property and is ordered to pay Mr. Harding the following: one half of the appraised value of $565,000, set off by one half of the value of the joint encumbrances which comprise of the $138,341 mortgage, the additional $50,000 the consent order allowed Ms. Ostere to encumber the property to forestall the foreclosure, and the $50,266 joint line of credit. However, because Mr. Harding already discharged $24,000 of the $35,000 he was ordered to pay on the joint line of credit, the set off should account for this contribution. Thus the set off value of one-half of the joint mortgage is $69,170.50, one-half of the further encumbrance necessary to forestall the foreclosure is $25,000 and Mr. Harding’s outstanding share of the joint line of credit is $1,133, totalling $95,303.50. As applied against half of the appraised value of $282,500, the total Ms. Ostere is ordered to pay Mr. Harding for his share in the Langley house is $187,196.50.

[108]     Any post consent order contributions by Ms. Ostere on the mortgage principal may be credited to Ms. Ostere. If the parties are unable to agree on the amount due, the matter is to be referred to the registrar for directions, inquiries and accounting.

[19]        I am in general agreement with most of the trial judge’s reasoning, but am unable to agree with her assessments of the amounts to be set off against Mr. Harding’s ½ interest in the property.

[20]        First, I am unable to follow the judge’s reasoning that led her to conclude that Mr. Harding’s outstanding share of the line of credit debt was only $1,133. The consent order of 2008 did not divide liability on the line of credit equally. Rather, Mr. Harding was to be responsible for all but $15,000 of the $50,266 debt. Having paid only $24,000, his remaining liability (as of 2008) was $11,266.

[21]        I also do not understand why Ms. Ostere would be entitled to any credit for reduction of the mortgage principal, since any such reduction would simply increase her own equity in the home. Mr. Harding’s entitlement, under the judge’s order, did not depend on the amount of equity in the property, but only on its market value and his share of encumbrances against the property as of 2008.

[22]        The judge’s order also failed to take into account expenditures made by Ms. Ostere after the 2008 order that were necessary in order to preserve the parties’ equity in the property. Ms. Ostere paid municipal taxes, home insurance, and interest on the authorized encumbrances, and made other expenditures to maintain the property. Mr. Harding should have to account for those expenditures.

[23]        For his part, Mr. Harding says that Ms. Ostere should account for rental income she received by renting out part of the property. He says, as well, that the court should take into account the fact that Ms. Ostere has occupied the property since 2008.

[24]        In respect of rental income, I agree that Mr. Harding should enjoy ½ of the net rental income from the date of the consent order to the date of judgment in the trial court, after deducting the reasonable expenses associated with renting part of the home.

[25]        I would not accede to Mr. Harding’s invitation to the Court to require Ms. Ostere to account for her own occupancy of the home. As a joint tenant, she was fully entitled to occupy the property without payment to Mr. Harding. While the 2008 consent order probably had the effect of severing the joint tenancy, there is nothing in the agreement that removed her right to occupy the property without payment, and the conduct of the parties suggests that they did not intend that it do so.

[26]        In the result, it appears to me that the amount that Ms. Ostere must pay Mr. Harding for his interest in the Langley home must be the subject of an accounting. I would direct, under Rule 18-1(1) and (2) of the Supreme Court Family Rules that an accounting be held by the Supreme Court registrar, with the result of the accounting to be certified by the registrar. The accounting will adjust the amount Mr. Harding is owed for his interest in the Langley home, by reflecting his share of the expenditures Ms. Ostere has made to preserve the property and by reflecting his share of the rental income that has been generated.

[27]        In terms of expenditures, the registrar will have to make a determination of what amounts have been expended to pay municipal taxes, home insurance, and necessary maintenance expenses for the Langley property between the date of the consent order and the conclusion of the trial. As well, the expenses will include the interest that would have been payable on the $188,341.00 in authorized encumbrances on the property over that period. The interest calculation should be based on the actual rates of interest applicable to the mortgage from time to time, and the calculation should follow the usual rules for calculation of mortgage interest. For the purposes of the calculation, however, the mortgage principal will be assumed to be $188,341.00 throughout the period rather than whatever the actual principal was.

[28]        Before accounting for the expenditures, Mr. Harding’s entitlement (in round numbers) is $177,300, calculated as follows:

$282,750.00    (50% of the market value of the home)

- $94,170.50    (50% of the authorized encumbrances on home)

- $11,266.00    (Amount owed by Mr. Harding on the line of credit)

[29]        From the $177,300, the registrar must deduct 50% of the expenditures determined, in the accounting, to have been made. The registrar is also directed to determine the net rental income for the property during the period. One-half of that amount will be added to Mr. Harding’s entitlement.

[30]        The record does not establish what, if any, arrangements were made for payment of interest on the line of credit, and so we are unable to determine what, if any, adjustment needs to be made for interest paid on that amount from 2008 to the date of judgment. If the parties are unable to agree on this matter, they may seek further directions by making a request through the registrar of this court.

[31]        In the result, I would allow the appeal by striking out paras. 7 through 9 of the order of the court below, and substituting therefor an order directing an accounting by the Supreme Court registrar in accordance with these reasons, with Ms. Ostere being required to pay Mr. Harding the amount certified by the registrar on the accounting.

[32]        FRANKEL J.A.: I agree.

[33]        HARRIS J.A.: I agree.

[34]        FRANKEL J.A.: The appeal is allowed and the order below is varied in accordance with the reasons of Mr. Justice Groberman.

“The Honourable Mr. Justice Groberman”