Yes, the right of survivorship is iron clad.  In Re Cameron and Re Shaul, 2011 ONSC 6471, the writer acting for The Bank of Nova Scotia (the “Bank”) in its capacity as assignee of the Trustee in Bankruptcy, moved under s. 96 before Justice Ruth Mesbur (sitting in bankruptcy) seeking a declaration that the transfers of the bankrupts’ joint interest in their matrimonial homes to the remaining tenants (their spouses), by way of ‘right of survivorship’ (jus accrescendi)  (the “Transfers”) were transfers at undervalue within the meaning of the Bankruptcy and Insolvency Act (“BIA”).  A successful result would enable the court to declare the Transfers void or in the alternative render Judgment against the remaining tenants for the lesser of the value of the Bankrupts’ respective interest in the properties as at the date of death or aggregate of the Bankrupts’ creditors’ claims.   

Of concern was whether the jus accrescendi was immutable and what effect, if any, did a ‘post-transfer’ bankruptcy have.  In a strongly worded decision the court dismissed the Bank’s motion relying on matrimonial legal principles while, in the writer’s respectful opinion, rejecting the application of the insolvency principles that underpin the BIA to provide protection and recourse to the general body of creditors.  

The bankrupts obtained loans from the Bank which were not guaranteed by their spouses. The bankrupts died resulting in a transfer of their joint interest in the matrimonial homes to their spouses which rendered their estates insolvent. The Bank obtained Bankruptcy Orders against each estate. The Trustee was unable or unwilling to pursue an action to try to “claw back” the Bankrupts’ former interests in their matrimonial home under s. 96.  The Bank then obtained an assignment of the Trustee’s right to pursue a claim against the spouses for recovery of the Bankrupts’ former joint interests.  

The jus accrescendi is arguably the most important characteristic of joint tenancy concurrent ownership.  Upon the death of a joint tenant his or her interest in the jointly held property is automatically transferred by way of operation of law thereby increasing the holdings of the surviving tenant.  The Bank argued that the jus accrescendi is not immutable and must be subject to the rights and interests of a bankrupt’s creditors especially since the intent of a bankrupt is irrelevant in considering a s.96 application. So long as a transfer at undervalue occurs within the prescribed period it is subject to being set aside. The court disagreed.

To succeed the Bank was required to demonstrate that a “transfer” by way of survivorship was indeed a “transfer”. The Bank cited the legal definition of “transfer” as defined in the Black’s Law Dictionary which includes “any mode of disposing of or parting with an asset or an interest in an asset…every method – direct or indirect…voluntary or involuntary – of disposing of or parting with property or …an interest in property”.  Section 2 of the BIA defines “transfer at undervalue” as a disposition of property or provision of services for which no consideration is received by the debtor or for which the consideration received by the debtor is conspicuously less than the fair market value of the consideration given by the debtor.”  

The Bank argued that in view of the foregoing, “transfer” by way of survivorship is a “transfer” as contemplated by s.96.  The court disagreed finding that upon the death of a joint tenant, the deceased does not “dispose” or “part with” an asset; rather the deceased’s interest is “extinguished” leaving nothing to transfer or part with.  In arriving at this conclusion the court relied on concepts of joint tenancy and did not agree that it was bound by those underpinning the BIA and the history of s.96. Such a finding appears inconsistent with the above referenced definitions. An “extinguishment” falls within the Black’s Law definition of “transfer”. 

The court further held that even if the Court found that the “automatic vesting” by right of survivorship was a “transfer”, the Bank had not established that the transfer was made at undervalue.  In arriving at that conclusion the court relied on the preamble of Ontario’s Family Law Act (“FLA”), an act that has no agenda to protect creditors, citing that marriage is an economic partnership and that each spouse is entitled to an equal share of the net value of assets acquired during the marital partnership.  In the writer’s view, her Honour relied heavily on principles consistent with the application of the FLA and its function of protecting spousal property rights without adequately considering the intent and principles of the BIA and the legitimate interests of creditors, particularly when the acquisition and preservation of these assets could at times be considered to have occurred at the expense of those creditors. 

The court’s decision confirms that the jus accrescendi is indeed immutable. A ‘post-transfer’ bankruptcy that involves the rights of creditors has no effect on a remaining tenant’s right to the deceased’s joint-interest in jointly held property.  Given the court’s finding that a “transfer” by way of survivorship is not a “transfer” at all, the consequence is that all jointly held property shall remain with the surviving tenant providing him/her/it with a ‘windfall’ in the face of a bankrupt estate.  This result does not appear to be in harmony with and complementary to the principles and purpose of the BIA.

It was open to the court to have found the Transfers were indeed “transfers” as contemplated by s.96 though to exempt the same from applying to the matrimonial home.  To do so would have given due weight to both the principles underpinning the BIA and FLA while affording the Trustee the ability to invoke section 96 to “claw back” a deceased bankrupt’s joint-interest in other property in augmentation of the bankrupt estate. Regrettably, the court’s finding that the jus accrescendi is not a transfer precludes a Trustee from returning to court seeking similar relief on different facts. The decision leaves us with the following question: while the matrimonial home enjoys sanctity under our laws, should such status be extended to other assets such as a recreational cottage property in the Muskokas? I would think not.   Had the court found that a transfer by jus accrescendi was indeed a “transfer”, the same could have generated an avenue for recovery for a bankrupt’s creditors that had previously been unavailable. 

Sean N. Zeitz practices commercial litigation with an emphasis on bankruptcy and insolvency matters. He is not a disinterested commentator as he acted for the Bank on this matter.

This article originally appeared in an issue of The Lawyers Weekly published by LexisNexis Canada Inc.