IN THE SUPREME COURT OF BRITISH COLUMBIA
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Citation: |
Canada (Attorney General) v. Nichols, |
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2018 BCSC 1185 |
Date: 20180713
Docket: S175472
Registry: Vancouver
Between:
Attorney General of Canada on Behalf of Her Majesty the Queen in Right of Canada
Petitioner
And
Walter John
Nichols
The Toronto-Dominion Bank
Respondents
Before: The Honourable Mr. Justice Milman
Reasons for Judgment
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Counsel for the Petitioner: |
J. Levine |
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Counsel for the Respondent, Walter John Nichols: |
M. Magnusson |
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Counsel for the Applicant, Jessica Lee Moors: |
C. Reedman |
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Place and Date of Hearing: |
Vancouver, B.C. June 19, 2018 |
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Place and Date of Judgment: |
Vancouver, B.C. July 13, 2018 |
Table of Contents
A. Mr. Nichols’ Background and Means
D. Ms. Moors’ Alleged Interest in the Property
[1] This is an application by the petitioner for an order under s. 96(1) of the Court Order Enforcement Act, R.S.B.C. 1996, c. 78 [COEA], to have certain real property belonging to the respondent, Mr. Nichols, sold to satisfy Mr. Nichols’ outstanding tax liabilities. The property is located at 26293 126th Avenue, Maple Ridge, British Columbia and legally described as follows:
PID: 019-045-786
Lot 22 Section 24 Township 12 New Westminster District Plan LMP 19841
(the “Property”).
[2] The petitioner has obtained judgments against Mr. Nichols in amounts totalling over $800,000 and has registered those judgments against title to the Property. On October 3, 2017, the petitioner obtained an order from this Court under s. 92 of the COEA declaring that Mr. Nichols had failed to show cause why his interest in the Property should not be sold to satisfy the judgments. There followed a reference to a registrar under s. 94 of the COEA on December 12, 2017, at which the registrar concluded that Mr. Nichols is a registered owner in fee simple as to an undivided 100% interest in the Property, subject only to the claim of the petitioner.
[3] Mr. Nichols opposes the application on two principal grounds. First, he argues that the Property should not be sold now because he is in the process of applying to have part of the debt forgiven by the petitioner and, if he succeeds in doing so, he can obtain financing by way of a second mortgage on the Property to pay the remaining portion of the tax debt. To allow the Property to be sold now, he argues, would cause significant hardship both to him and his common law spouse, Ms. Moors, who lives with him in the house on the Property, along with their five pets. Second, Mr. Nichols argues that because Ms. Moors has been making most of the mortgage payments and has paid other household expenses, he holds a significant part of his interest in the Property on a resulting trust for her benefit.
[4] At the same time that the petitioner’s application came on for hearing, I also heard a competing application by Ms. Moors. She seeks to be added as a party to this proceeding so that she can assert her interest in the Property as the beneficiary of the resulting trust that is claimed. She also seeks a stay of these proceedings and an adjournment of the hearing of the petitioner’s application so that she can bring her own separate proceeding to assert her interest in the Property. At the hearing, I refused Ms. Moors’ application for an adjournment of the petitioner’s application due to her tardiness in asserting her position, but I heard her submissions on the other relief she is seeking.
[5] Counsel for the petitioner urges me to reject the grounds relied upon by Mr. Nichols and Ms. Moors for refusing or delaying this application on the basis that they are, in his submission, advanced too late in the process and in any event, entirely without merit and in particular, without any real support in the evidence. He says Ms. Moors has ample time, even if a sale is ordered immediately, to commence a proceeding and have her interest in the Property recognised before the sale completes and the proceeds of sale are distributed. Alternatively, he submits that the Property can be ordered sold (or the sale approved) no earlier than a specified later date, or on terms that the net proceeds of sale be placed in trust pending further order of the court, so that any interest that Ms. Moors might have in the Property can be asserted against the proceeds of sale before then.
[6] Mr. Nichols has a grade seven education and has worked primarily as a contractor or at odd jobs. Currently he works in automobile repairs, storage and maintenance. He earned $24,000 and $26,000 in 2016 and 2017 respectively.
[7] He has adduced some medical evidence suggesting that he suffers from anxiety and depression, hypertension, high cholesterol and gout.
[8] The petitioner suggests that Mr. Nichols appears to have access to funds beyond his reported annual incomes because he obtained financing in 2004 to purchase a speedboat for $86,463, requiring monthly payments of $786.37. On the financing application for that purchase he claimed, contrary to what he reported on his tax returns during those years, that he earned $10,000 per month at a job that he had held for the previous seven years. He claimed on the same application to own vehicles worth $45,000 and $28,000 and to have accumulated $30,000 in an RSP account.
[9] Mr. Nichols denies that he has access to that kind of money. He claims that he purchased the boat in 2004 for someone else and that it is not his. But the petitioner has adduced evidence showing that Mr. Nichols purchased supplies or goods from marine-oriented vendors between 2010 and 2013 that are not explained.
[10] Mr. Nichols’ tax liabilities originally arose from audit reassessments for the 2001, 2002 and 2003 taxation years and assessed returns for the 2006, 2007, 2008 and 2009 taxation years.
[11] Mr. Nichols was reassessed after the Canada Revenue Agency (“CRA”) learned that Mr. Nichols had been charged in California on November 10, 2003 with, among other things, possession of marijuana for sale and possession of money over $100,000 which was obtained as a result of trafficking in marijuana. Mr. Nichols pled guilty to two of the counts with which he was charged by the American authorities and served an eight-month sentence in California.
[12] The CRA has since obtained certificates from the Federal Court of Canada in respect of Mr. Nichols’ resulting tax liabilities, as follows:
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Certificate No. |
Amount |
Date |
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GST 5900-06 |
$61,204.60 |
October 17, 2006 |
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ITA-91114-09 |
$492,957.70 |
July 18, 2009 |
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ITA-4451-11 |
$11,248.27 |
May 26, 2011 |
[13] Interest continues to accrue on these amounts under the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.) and the Excise Tax Act, R.S.C. 1985, c. E-15.
[14] Mr. Nichols appealed the quantum of his tax liabilities as assessed by the CRA. The Tax Court of Canada dismissed his appeal on June 19, 2009 in a decision indexed at 2009 TCC 334. At that time, the petitioner was also awarded legal costs in the amount of $10,861.75.
[15] The CRA has been unable to collect the vast majority of that debt. It has reduced the debt to a minor extent by setting off against it various refunds or other tax credits that Mr. Nichols has claimed over the years. These have been applied in particular to reduce his 2001 tax liability, which is the oldest of them.
[16] Mr. Nichols contends that he has sought at various times over the years to negotiate a compromise of his tax debts with the CRA, but the petitioner disputes this.
[17] The only evidence that Mr. Nichols has adduced of these attempts consists of a few scattered pieces of correspondence from Mr. Nichols’ former tax lawyers. First, there is a “without prejudice” letter dated April 27, 2009 from Mr. Nichols’ then legal counsel to counsel at the Department of Justice offering to settle the appeal that he then had underway before the Tax Court of Canada on certain terms. It is apparent that those discussions did not lead to a settlement because Mr. Nichols carried on with his appeal, which turned out to be unsuccessful.
[18] Mr. Nichols has also reproduced emails from his legal counsel to him dated April 24, 2009 and April 27, 2011 reporting on discussions between his legal counsel and the CRA, suggesting that the parties were at least considering at that time a proposal whereby Mr. Nichols would refinance the Property so that he could pay part of his tax debt. It is not clear what, if anything, became of those discussions.
[19] Most recently, in an affidavit made June 18, 2018 (i.e., the day before the hearing of these applications), Mr. Nichols claims that he has been looking at refinancing options for a number of months. He says that he cannot get financing while the CRA liens are on the Property. His newest proposal involves renting out the basement suite to supplement his income to allow him to make payments on the loan he proposes to take out to pay off at least part of the tax debt.
[20] Mr. Nichols acquired the Property in 2009 for $460,000, with a $330,000 mortgage. It is not clear how he qualified for that mortgage or how he came up with the $130,000 down payment. His reported income from 1995-1998 was only one dollar, with a business loss of $7,568 in the 1999 tax year.
[21] The outstanding amount owing on the mortgage was $428,270.19 as of February 21, 2018 and $426,704.40 as of April 30, 2018. In addition, there are unpaid property taxes owing in the amount of approximately $15,000.
[22] On December 6, 2016, the petitioner obtained an appraisal showing the value of the Property to be $1 million. Mr. Nichols has more recently obtained an appraisal suggesting the Property to be worth $1.1 million. Its current assessed value is $1.466 million.
[23] Mr. Nichols says that Ms. Moors first moved in with him in January 2006 but continued to maintain her own home. He says that in December 2006, she terminated her lease and moved in with him on a permanent basis.
[24] Their tax returns tell a different story. Ms. Moors declared herself to be living at a different address from May 8, 2008 until March 16, 2015, when she first declared herself to be living at the Property. Ms. Moors reported herself to be “single” in April 2018 for the 2016 and 2017 tax years. On his 2012 return, Mr. Nichols reported himself as “separated.” On his 2013-2015 returns he filed as “single” again. Mr. Nichols explains that he filed in that manner because he did not want “to tie [Ms. Moors] to my tax debt.”
[25] Ms. Moors claims that she has been paying the mortgage and other household expenses. That claim is dubious, argues the petitioner, because Ms. Moors has reported nominal or no income on her tax returns for many years. Nevertheless, she claims to be working as a “pilot car owner-operator” and that she acquired the funds that were used to pay the mortgage and other household expenses from her “work as well as two ICBC settlements and an inheritance from a family member.” She has offered no other particulars, and no documentary evidence, as to the source of the funds she says she used to make those payments.
[26] The evidence that has been adduced suggests that the mortgage is paid in cash each month directly into Mr. Nichols’ line of credit, in order to avoid garnishment by the CRA. Ms. Moors claims that she is the one making these payments but there is no documentary evidence to confirm the truth of that claim.
[27] The allegation that Ms. Moors has an interest in the Property by virtue of her having made mortgage and other payments first arose in an affidavit that Mr. Nichols affirmed in this proceeding on August 11, 2017. He claimed then that the couple had been together since 2004 and had been residing together since 2006 at the Property (although Mr. Nichols only acquired the Property in 2009). Since that time, he claims to “have relied on her income to pay for the majority of the household expenses and bills.”
[28] The petitioner brings this application pursuant to s. 96 of the COEA. That provision states, in relevant part, as follows:
96 (1) If in a summary way or on the trial of an issue, or as the result of inquiries under sections 92 to 95, or otherwise, any land or the interest of any judgment debtor in it is found liable to be sold, an order must be made by the court declaring what land or what interest in it is liable to be sold, and directing the sale of it by the sheriff.
(2) Despite subsection (1), if a premises situated on the land or interest in it of a judgment debtor is the home of the debtor, the court may defer the sale, subject to the performance by the judgment debtor of terms and conditions of payment or otherwise as the court imposes.
…
[29] Counsel for Mr. Nichols argues that the petitioner’s application to compel a sale should be refused, in light of his ongoing efforts to compromise the tax debt and refinance the Property. She relies, in that regard, on Canadian Imperial Bank of Commerce (CIBC) v. Pegg (1984), 45 A.C.W.S. (3d) 445 (B.C.S.C.), and Cronkhite Supply Ltd. v. Adams (1983), 44 B.C.L.R. 159 (S.C.), where similar applications were refused on like grounds.
[30] Counsel for Mr. Nichols argues that the hardship to him and Ms. Moors that would flow from such a sale includes the following:
(a) rent for a comparable home would be double the cost of the mortgage they are currently paying;
(b) Mr. Nichols has no savings and a sale would cause him financial instability;
(c) Mr. Nichols has mental health challenges that would be exacerbated by the proposed forced sale;
(d) Ms. Moors is an innocent third party, in that she did not benefit from Mr. Nichols’ accumulation of the tax liability;
(e) if the Property is sold, Mr. Nichols will be unable to renovate in order to generate income from the basement suite, as he proposes to do; and
(f) Mr. Nichols and Ms. Moors will be unable to find adequate accommodation for themselves and their five pets, which are a source of comfort for Mr. Nichols and assist him in alleviating his mental health symptoms so that, among other things, he can earn income.
[31] Counsel for the petitioner argues that those cases are distinguishable in that the debtor had, for some time prior to the hearing, been offering a realistic payment proposal and it was the judgment creditor who was being unreasonable in refusing to accept it. Here, there is no realistic or concrete payment proposal on offer as an alternative to the proposed sale.
[32] Counsel for Mr. Nichols also relies on M. Dhaliwal Holdings Inc. v. Pacific Blue Farms Ltd., 2014 BCSC 1482, Bank of Nova Scotia v. Brickell (1980), 22 B.C.L.R. 222 (S.C.), and Luo v. Vesterinen, 2017 BCSC 1566, aff’d 2018 BCCA 167, in support of the submission that the proposed sale should not be ordered in view of Ms. Moors’ claim to a resulting trust.
[33] Counsel for the petitioner does not dispute that a resulting trust can, in principle, arise if a spouse has contributed to the mortgage and other household expenses. He says that those cases are distinguishable from this one, however, in that the debtor and beneficiary in those cases had come to court with much better evidence than that which has been put before me here. In this case, he argues, Mr. Nichols and Ms. Moors have made little more than bald assertions, unsupported by any documentary evidence and moreover, have raised these allegations only at the very last minute in a transparent effort to forestall the inevitable.
[34] I agree with counsel for the petitioner that the evidence upon which Mr. Nichols and Ms. Moors rely in opposing the application to have the Property sold is thin and dubious, at best. The allegations they make come very late in the process and are poorly supported.
[35] In particular, Mr. Nichols and Ms. Moors have provided no satisfactory explanation as to why, if they have been living together as common law spouses for many years with Ms. Moors paying the mortgage and other household expenses, they each filed their tax returns on the basis that they were single and living separately during most of the period in question.
[36] I am troubled by Ms. Moors’ inability to document or explain satisfactorily the source of the funds that she says she used to make the mortgage payments, particularly because she says they came in part from her earnings from work, when she reported no such earnings on her tax returns.
[37] Although I accept that Ms. Moors might, with better evidence, potentially be able to establish a beneficial interest in the Property, I am not persuaded that it would be appropriate to add Ms. Moors as a party to this proceeding at this stage or to order a stay of these proceedings on her behalf, given the frailty of the evidence she has adduced in support of her claim thus far and the late stage at which it is advanced.
[38] There is no explanation forthcoming as to why Mr. Nichols did not make any voluntary payments towards his tax debts earlier or pursue a reasonable compromise before. While there is some evidence of an effort to negotiate a compromise between 2009 and 2011, it is not clear what became of those discussions or why they failed. In his most recent affidavit, Mr. Nichols claims only that he is “[i]n the process of preparing an application for taxpayer relief.” The application had still not been made as of the date of the hearing of these applications.
[39] On the other hand, counsel for the petitioner has acknowledged that there is no specific prejudice flowing to the petitioner if the sale is deferred so that Mr. Nichols can attempt to refinance and Ms. Moors can seek to establish her beneficial interest in the Property. His position is simply that both of those efforts are bound to fail.
[40] I appreciate that the tax debt has grown to the point that it now exceeds the value of Mr. Nichols’ equity in the Property. Any refinancing therefore appears to be contingent on achieving a compromise of the tax debt, something the petitioner says will not be forthcoming. I also accept the petitioner’s submission that Mr. Nichols’ recent hint of a new proposal may be “too little too late” and therefore that achieving the necessary compromise will be difficult if not impossible. But I am also mindful that in balancing the relative degree of prejudice as between the parties, the prejudice to Mr. Nichols and Ms. Moors of losing their home is obviously severe whereas the prejudice to the petitioner in postponing its collection effort for a few more months is minor. The petitioner holds charges on title to secure the prospect of receiving a substantial, if not complete, payment eventually. There has been no suggestion, let alone evidence, that the Property will lose value in the meantime.
[41] I have concluded on that basis that the sale should be deferred pursuant to s. 96(2) of the COEA for a period of four months to allow Mr. Nichols to attempt to arrange a compromise of his tax debt and a refinancing. The petitioner may renew its application at the end of that period. At that time, if Mr. Nichols has not put forward a reasonable proposal to pay off all or at least a significant part of his tax debt, the petitioner’s application for a forced sale of the Property is likely to be seen as the only alternative.
[42] The applications are adjourned generally, on the terms set out in these reasons for judgment.
[43] The parties will bear their own costs.
“Milman J.”
The Honourable Mr. Justice Milman