Court File and Parties

COURT FILE NO.: CV-20-83739 MOTION HEARD: 20200618 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Jennifer Horrocks, Plaintiff AND: BRUCE MCCONVILLE, MAY HACHEM, 1270349 ONTARIO INC., MCCONVILLE'S GARAGE LTD. and 11567551 CANADA INC., Defendants

BEFORE: Master Kaufman

COUNSEL: Michael J.A. Beeson, Counsel, for the Plaintiff

HEARD: June 18, 2020 with additional affidavits received on June 22, 2020

REASONS FOR DECISION

[1] While family law proceedings were ongoing, the defendant Bruce McConville sold his business, the family cottage and all his investment properties to his bookkeeper May Hachem. He did not disclose these sales to his spouse in advance. He violated an Order of Ryan Bell J. when he sold one of the properties when she explicitly ordered him not to. When he appeared before Justice Phillips to show cause why he should not be found in contempt, Mr. McConville said he burned the sale proceeds from these transactions: over one million dollars in cash.

[2] The plaintiff Jennifer Horrocks alleges that the sale of these properties was fraudulent within the meaning of the Fraudulent Conveyances Act, RSO 1990 c. F. 29 because they were designed to defeat her family law claims. On June 18, 2020, she brought this motion ex parte for leave to register certificates of pending litigation against the properties Mr. McConville sold. I received further affidavits on June 22, 2020. That same day, I allowed the motion with reasons to follow. These are my reasons.

Background

[3] The plaintiff and the defendant Bruce McConville have been married since December 2009. They have a 10-year-old daughter. On September 4, 2018, they separated and Ms. Horrocks commenced a divorce application. In that proceeding, she claims an equalization of net family property, spousal and child support.

[4] Throughout their relationship, Mr. McConville owned McConville’s Garage, an automotive repair shop as well as several residential and vacant properties. Most of the properties were owned through 1270349 Ontario Inc., a holding company. Mr. McConville was the holding company’s sole shareholder. The family cottage was transferred to the holding company in July 2015. Mr. McConville also owned a property located at 240 Ste-Anne Avenue in Ottawa in his own name.

[5] Without notice to the plaintiff and while the family proceedings were ongoing, Mr. McConville sold the holding company on June 16, 2019 and McConville’s garage on April 1, 2019. He also sold the Ste-Anne property on October 29, 2019 in direct violation of Justice Ryan Bell’s order of September 24, 2019 which specifically ordered him not to sell this property. Mr. McConville sold the shares in the holding company, and the garage to his bookkeeper, May Hachem. He sold the Ste-Anne property to 11567551 Canada Inc., a corporation whose directors are May Hachem and her brothers.

[6] The plaintiff alleges that these transactions were fraudulent and designed to defeat her family law claims. She commenced this proceeding by way of notice of action against the defendants to have these transactions declared void pursuant to the Fraudulent Conveyances Act.

Applicable legal principles

[7] The plaintiff seeks leave to obtain certificates of pending litigation but has yet to obtain judgment in the family proceeding. In these circumstances, a plaintiff must meet the following test:

1. The claimant must satisfy the court that there is high probability that she would successfully recover judgment in the main action; and
2. The claimant must introduce evidence demonstrating that the transfer was made with the intent to defeat or delay creditors; evidence that the transfer was for less than fair market value lightens the burden; and
3. The claimant must demonstrate that the balance of convenience favours issuing a Certificate of Pending Litigation in the circumstances of the particular case. [1]

[8] I am persuaded that all three branches of the test have been met, and that the plaintiff should have leave to register certificates of pending litigation against the properties in question.

The plaintiff has established a high probability of recovery in the family proceedings

[9] To satisfy the first branch of the test, the plaintiff must show that there is a high probability that she would successfully recover judgment in the family proceeding. In her supplementary affidavit sworn June 21, 2020, the plaintiff attached her draft net property statement where she calculates an equalization payment of $810,029.50 in her favour. She lists very few assets while Mr. McConville owned several properties. While the exact amount of the equalization payment is uncertain, there can be no doubt that one will be ordered in Ms. Horrocks’ favour.

[10] Mr. McConville admitted as much when he told Justice Phillips, that the “net family settlement is less than […] [his] share of the equity in the matrimonial home would be”. In other words, Mr. McConville believes that his share of the equity in the matrimonial home would cover the equalization payment. The exact amount of his equalization payment to Ms. Horrocks is in dispute and it will be determined in the family law proceeding, but it can be safely determined that there is a high probability that the plaintiff will recover judgment in the main action. Where a plaintiff can show that a judgment in her favour is highly likely, the first branch of the test will be satisfied even though the exact amount of the judgment is uncertain. [2]

There is evidence that the transfers were made with the intent to defeat her claim

[11] The second branch of the test requires evidence demonstrating that the transfer was made with the intent to defeat or delay creditors. Unlike the first branch of the test which requires a higher onus of proof (“high probability”), the second branch of the test merely requires one to lead “evidence to show the existence of a triable issue”. [3] I am satisfied that the plaintiff’s fraudulent conveyance action raises triable issues.

[12] The plaintiff will be required to prove in the fraudulent conveyance action that Mr. McConville transferred his assets with the intent to defeat her claim, not just that it had this effect. The Courts have developed a list of indicia of fraudulent intent, from which the debtor’s subjective intention may be inferred from objective “badges of fraud”. [4] As interpreted by modern courts, the badges of fraud include:

(a) the donor continued in possession and continued to use the property as his own; (b) the transaction was secret; (c) the transfer was made in the face of threatened legal proceedings; (d) the transfer documents contained false statements as to consideration; (e) the consideration is grossly inadequate; (f) there is unusual haste in making the transfer; (g) some benefit is retained under the settlement by the settlor; (h) embarking on a hazardous venture; and (i) a close relationship exists between parties to the conveyance. [5]

[13] I am satisfied that several of these badges of fraud appear to be present here, and that they raise triable issues.

[14] On September 18, 2019, Mr. McConville’s lawyer advised that an income determination report was not necessary because Mr. McConville was selling his garage. This was Ms. Horrocks’ first indication that Mr. McConville was disposing of his assets. She instructed her counsel to bring an emergency motion to prevent the sale of Mr. McConville’s properties.

[15] Justice Ryan Bell heard that motion on September 24, 2019. In that motion, Mr. McConville disclosed that the shares in the holding company and McConville’s garage had already been sold, and that the Ste-Anne property’s sale was closing the following day. Justice Ryan Bell ordered that Mr. McConville was “not to proceed with the sale of the Ste Anne Avenue property pending further order of this Court or consent of the parties”. She also ordered Mr. McConville to pay the net proceeds of the sale of the holding company and McConville’s garage, approximately $300,000 into Court.

[16] Mr. McConville sold the Ste-Anne property on October 29, 2019 and did not pay the holding company and the garage’s proceeds of sale into Court as ordered. On January 28, 2020, he appeared before Justice Phillips where he was given an opportunity to respond to the allegation that he was in contempt of Court. Mr. McConville told Justice Phillips that he received legal advice that Justice Ryan Bell’s endorsement was invalid and that he could proceed with the sale. He confirmed that Ms. Hachem bought his assets. He told Justice Phillips that he deposited the proceeds into six different bank accounts, withdrew about one million and thirty-nine thousand dollars in cash, and set that money on fire.

[17] Mr. McConville received a 30-day jail sentence and he was ordered to pay a $2,000 fine for each day that he does not file an affidavit setting out exactly what became of the moneys obtained from the disposition of his assets. Six days after he was released from jail, Mr. McConville served an affidavit in which he maintains that he burned $1,029,541 in cash. He states that Ms. Horrocks is not entitled to these funds and that it is not illegal to burn one’s money. He reaffirmed that he received legal advice that Justice Ryan Bell’s endorsement was not legal and that he was entitled to sell the Ste-Anne property. He also states that Ms. Horrocks had planned for several years to defraud him of his wealth.

[18] These facts raise several apparent badges of fraud. For one, Mr. McConville sold his assets without notifying the plaintiff. Secondly, these transactions were undertaken in the midst of legal proceedings. Thirdly, there appears to be unusual haste in selling his assets. Under normal circumstances, one would expect a person selling real estate and a business to put his properties on the market and to negotiate with multiple prospective buyers in order to obtain the highest price. Mr. McConville sold all of his various assets within a few months to one buyer, Ms. Hachem. Fourthly, Ms. Hachem is a close friend of the family who attended the couples’ family home and cottage and the parties’ daughter’s sacrament. According to the plaintiff, Ms. Hachem socialized “a lot” with Mr. McConville and attended social functions together, and she often stayed at Mr. McConville’s condominium on weekends. Fifthly, it appears that Mr. McConville initially retained some benefit after the sale of the garage as he was offered an employment contract. Finally, Mr. McConville’s allegation that he set fire to over one million dollars in cash because there is no law that prevents him from doing so strikes me as implausible. That course of action would be more congruent with an attempt to defeat a creditor’s claims.

The balance of convenience favours the issuing of a CPL

[19] The plaintiff filed the affidavit of Ronald Warman, a tenant residing in one of the condominiums formerly owned by Mr. McConville’s holding corporation. Mr. Warman deposes that he has always dealt with Mr. McConville on matters relating to the tenancy. On May 13, 2020, Mr. McConville advised him that the holding company was sold to May Hachem, and that the condominium would likely be sold because it was unprofitable.

[20] In light of this evidence, I am satisfied that the balance of convenience favours the plaintiff. If the properties were sold again for good consideration and in good faith to a purchaser who did not have notice of the alleged fraudulent conveyance, then the plaintiff would be left without recourse. [6]

[21] Based on the foregoing, the plaintiff shall have leave to issue certificates of pending litigation on the properties owned by 1270349 Ontario Inc. and 11567551 Canada Inc. The plaintiff shall serve a copy of these reasons on the defendants forthwith.

Master Kaufman Date: July 23, 2020

Citations

[1] Grefford v Fielding, 70 OR (3d) 371, [2004] OJ No 1210, at para 26. [2] Jodi L. Feldman Professional Corporation v. Foulidis, 2018 ONSC 5368 (Ont. Master), at para 29, reversed on other grounds: Jodi L Feldman Professional Corp v Foulidis, [2018] OJ No 6641, 2018 ONSC 7766. [3] Jodi L Feldman Professional Corp v Foulidis, [2018] OJ No 6641, 2018 ONSC 7766, at para 17. [4] Anisman v. Drabinsky, 2020 ONSC 1197, at paras 65-66. [5] Indcondo v. Sloan, 2014 ONSC 4018, at para 52. [6] Fraudulent Conveyances Act, RSO 1990 c. F. 29, s.3.