Legal Blog

Interpleader

There are times when we have money that we do not want. Really! For example, when we sell a property under a power of sale contained in a mortgage, the net proceeds sometimes exceed the amount necessary to repay the mortgage debt and all costs associated with the sale. We want to pay the money to the person to whom it is due, but there may be a dispute between, say, the mortgagor and an execution creditor. If the two claimants cannot resolve their dispute, we prefer simply to pay the money into court and let them fight over it.

The process whereby someone, who claims no interest in a sum of money, is allowed to pay it into court is called interpleader. Once the person pays the money into court pursuant to an order of the court, the responding parties to the application can no longer claim against the payer for those monies; they can only claim against the money paid into court.

What happens when a financial institution, or its lawyer, wants to pay money into court, but one of the claimants claims that the money being paid into court is not enough? This question was answered in Marks & Marks LLP v. Galetta, a 2008 decision of the Ontario Superior Court of Justice.

Surprise 

A law firm sought an interpleader order to pay $90,000 into court. The judge granted the order, but increased the amount that the firm had to pay into court to $140,000, the extra $50,000 being the amount that the law firm had deducted to pay its outstanding legal fees (i.e. not just those fees that it may have expended in the application to pay the money into court). The law firm was not pleased and appealed the order.

Result 

The Court of Appeal, in a short endorsement, allowed the appeal. The Court confirmed that interpleader applies only if the applicant is a disinterested stakeholder. Although the law firm was disinterested in the $90,000, it claimed a beneficial interest in the $50,000 that it had retained to pay its fees and disbursements. Accordingly, the Court allowed the lawyers to pay the $90,000 into court and to retain the remainder. Of course, anyone claiming rights to the remaining $50,000 still had their remedies against the law firm in the normal course.