Court File and Parties
COURT FILE NO.: CV-20-4091-00 DATE: 2021 01 08 SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Kevin Fernandes, Plaintiff AND: Mohammad Salman Khalid, Ayesha Salman Khalid and Azra Khalid, Defendants
BEFORE: Doi J.
COUNSEL: Rahul Gandotra, for the Plaintiff Jaswant Mangat, for the Defendant, Ayesha Salman Khalid Joga S. Chahal, for the Defendants, Mohammad Salman Khalid and Azra Khalid Bruce Simpson, for the Trustee in Bankruptcy
HEARD: December 18, 2020
Endorsement
Overview
1The Defendants wish to set aside an ex parte order dated November 4, 2020 that granted the Plaintiff, Kevin Fernandes (“Kevin”), leave to issue a certificate of pending litigation (“CPL”) against a property located at 39 Braidwood Lake Road in Brampton.
2In the main action (CV-18-1115-00), Kevin sued the Defendant, Mohammad Salman Khalid (“Mohammad”), for his failure to complete the purchase of a property that Kevin had owned. Several months before the scheduled trial of that action, Mohammad declared personal bankruptcy. Kevin’s claim, which is estimated to be about $110,000.00, is listed in Mohammad’s statement of affairs as his single-largest debt claim.
3Subsequently, Kevin learned that Mohammad’s property interests had been transferred to his wife, the Defendant Ayesha Salman Khalid (“Ayesha”), and then to his mother, the Defendant Azra Khalid (“Azra”). Believing that the Defendants had tried to dispose of Mohammad’s assets to avoid the collection of damages in the main action, Kevin brought this second action (CV-20-4091-00) to set aside the transfers as fraudulent conveyances. He then obtained leave to issue and register a CPL against title to the property.
4For the reasons that follow, I am satisfied that the order granting leave to issue the CPL against the property should be maintained.
Background
a. The Main Action
5On May 6, 2017, Mohammad entered into an agreement of purchase and sale (“APS”) to purchase Kevin’s former home at 66 Tanager Square in Brampton. The APS had a purchase price of $760,000.00, and a closing date of July 15, 2017.
6Mohammad failed to close the transaction. On March 13, 2018, Kevin brought the main action (CV-18-1115-00) against Mohammad for damages due to his failure to close the transaction, and the release of a $15,000.00 deposit under the APS that a co-defendant in the action is holding.
7Mohammad retained counsel and defended the main action by alleging that Kevin had failed to mitigate his damages. Mohammad also brought a counterclaim in respect of the deposit, which Kevin defended. Examinations for discovery were completed on September 18, 2018. The parties attended a pre-trial conference on June 5, 2019, and a 2-day trial of the action was scheduled to start on February 10, 2020. As the key defence was Kevin’s alleged failure to mitigate, the pre-trial judge ordered Mohammad to serve his expert report on mitigation by December 10, 2019.
8Mohammad did not deliver his expert report. On December 18, 2019, he delivered a notice of intention to act in person. Although the notice listed his service address as 22 Langwith Court in Brampton, the record shows that Mohammad had sold 22 Langwith Court almost a year earlier on January 7, 2019.
9On or about January 22, 2020, and less than 3-weeks prior to the scheduled trial for the main action, Mohammad retained new counsel and served a notice of appointment of lawyer. He then successfully moved to adjourn the trial, which was rescheduled to start on December 7, 2020.
10On or about September 17, 2020, Mohammad ended his new counsel’s retainer and served another notice of intention to act in person that gave his address as 108 Wexford Road in Brampton. Mohammad now claims that he had moved to 108 Wexford Road in or about January 2019 in order to reside there with his parents and sibling after he separated from his wife, Ayesha.
11Mohammad took no further steps to progress the main action. He did not deliver an expert report on mitigation, which remains outstanding.
b. Properties
12As set out below, the Defendants have had dealings with several properties in Brampton.
i. 108 Wexford Road
13Azra, alone, is listed as having purchased the property at 108 Wexford Road in Brampton on March 11, 2014. Since then, she has been the sole registered owner for the property. As stated earlier, Mohammad now claims that he has resided at this property since January 2019.
ii. 22 Langwith Court
14On December 17, 2012, Mohammad and a non-party purchased 22 Langwith Court in Brampton for $309,000.00. On January 7, 2019, it sold for $525,000.00. In the transfer registered for the sale, Mohammad indicated that he was not separated from his spouse, among other things.
iii. 41 Horne Drive
15On or about February 28, 2018, about seven (7) months after not closing on the APS with Kevin for 66 Tanager Square, Mohammad solely purchased 41 Horne Drive in Brampton for $508,000.00.
16On November 29, 2018, Mohammad conveyed 41 Horne Drive to Ayesha for a nominal $2.00. According to the transfer registered on title, Mohammad and Ayesha were spouses, their address for service was 41 Horne Drive, and the transfer was done for nominal consideration because it had been an “ [i]nter-spousal transfer for natural love and affection .”
17On February 5, 2019, Ayesha conveyed 41 Horne Drive back to Mohammad. The transfer registered on title stated that consideration for the conveyance was $2.00, that both persons were spouses having the same address, and that nominal consideration was given as the transfer had been an “ [i]nter-spousal transfer for natural love and affection .”
18Shortly thereafter, on February 20, 2019, Mohammad again conveyed 41 Horne Drive over to Ayesha for $2.00. Like before, the same particulars for the conveyance, including the identical “ [i]nter-spousal transfer for natural love and affection ” explanation for its nominal consideration, were recorded in the transfer registered on title.
19On June 20, 2019, Ayesha sold 41 Horne Drive for $660,00.00 to non-parties. The purchase price was $152,000.00 more than what Mohammad had paid to buy the property about 16 months earlier. The transfer registered for the sale listed Ayesha’s address as being 108 Wexford Road, which is Azra’s property where Mohammad now claims to reside. According to bank records disclosed by Ayesha, a $247,111.00 deposit was made to her bank account on June 20, 2019 that seems to reflect the sale proceeds for 41 Horne Drive.
iv. 39 Braidwood Lake Road
20On or about April 17, 2019, Mohammad entered into an agreement of purchase and sale to buy 39 Braidwood Lake Road in Brampton for $685,000.00. However, after he apparently became unable to obtain mortgage financing to close the deal, an amendment to the agreement of purchase and sale was executed on June 7, 2019 for Azra to replace Mohammad as the purchaser.
21It appears that Azra, alone, bought 39 Braidwood Lake Road in Brampton for $685,000.00 on June 20, 2019. She did so on the same day that Ayesha sold 41 Horne Drive. Ayesha provided $74,302.92 from her bank account to close the 39 Braidwood Lake Road purchase, and Computershare Trust Company of Canada registered a $635,611.50 charge on title to the property. The same lawyer who acted for Ayesha on the sale of 41 Horne Drive also acted for Azra on the purchase of 39 Braidwood Lake Road.
22According to Azra, 39 Braidwood Lake Road was bought for Ayesha and her two children, who apparently have resided at the property since the June 20, 2019 date of purchase. Azra claims to hold this property in trust for Ayesha, who pays all of the ongoing carrying costs and claims a 100% beneficial interest in the property. Neither have explained why Azra is holding the property in trust, and why Ayesha did not purchase the property by herself.
c. Mohammad filed for Bankruptcy
23On October 5, 2020, Mohammad filed for personal bankruptcy. In his statement of affairs that accompanied his notice of bankruptcy, Mohammad gave his address as 108 Wexford Road and listed his marital status as “separated” with a separation date of September 2018. In answering whether he had sold or disposed of any property within the past five (5) years, and whether he had made any gifts to relatives or others in excess of $500.00 during this period, Mohammad stated that, “ [i]n September 2019 as part of our marital separation, I surrendered my half-interest in the marital home to my ex-wife in lieu of support. The approximate value was $45,000.00. ”
24Notably, Mohammad’s statement of affairs did not mention the January 7, 2019 sale of 22 Langwith Court for $525,000.00, or disclose the multiple transfers of 41 Horne Drive between Mohammad and Ayesha on November 29, 2018, February 4 and 20, 2019, respectively. It also did not mention the sale of 41 Horne Drive on June 20, 2019 for $660,000.00.
d. Marital Separation and Social Media Posts
25Although Mohammad’s statement of affairs indicates that he separated in September 2018, both Mohammed and Ayesha now claim in affidavits on this motion that they actually separated in January 2019. Neither have made any efforts to explain the apparent discrepancy between the separation dates in his statement of affairs and in their affidavits.
26Following his purported separation from Ayesha in January 2019, Mohammad claims that he moved to 108 Wexford Road where he resides with Azra, his father, and his sibling.
27After learning of Mohammad’s bankruptcy filing and purported marital separation, Kevin found several social media profiles that belong to the Defendants.
28Between October 4, 2018 and May 10, 2020, Ayesha posted multiple pictures of herself and Mohammed, including some featuring them with other family members or friends, to her Instagram account which bears her name and photo. Her posts were made after September 2018 when she allegedly separated from Mohammad according to his statement of affairs. The posts show Ayesha and Mohammad together at various community events, holiday activities, family outings, and an event with the brokerage where Ayesha works as a realtor.
29Until October 24, 2020, Mohammad had been re-posting a number of Ayesha’s real estate listings to his Facebook account, which bears his photo and surname. Notably, his re-posts made on July 23, 2020 and August 2, 2020 had included a listing for 39 Braidwood Lake Road. Kevin later confirmed through his realtor that Ayesha had listed 39 Braidwood Lake Road for sale in July 2020, but removed the listing after only 8 days.
30Kevin reportedly has observed two vehicles in the driveway of 39 Braidwood Lake Road, being a silver SUV with a large photo image of Ayesha on its side advertising her realty business, and a white sedan. A Facebook post by Mohammad on May 11, 2020 shares a digital picture of a white sedan that seems to have been taken from inside 39 Braidwood Lake Road.
31A further Facebook post by Mohammad on September 6, 2019 at 8:24 am shows a broken rear window of a white sedan and a fairly large rock left on the trunk of the car, with the caption, “ Early morning present from a resident in heart lake area .” In a comment to the post, Mohammad identified the damaged white sedan as being his car. In another comment for the same post, Ayesha wrote, “ Just moved here not even 2 months ago … I thought HEART LAKE area was a good and SAFE place to live in … Avoiding little things happening and now this!!! I am SCARED now … my kids are outside playing sometimes. ” Subsequently, in a later comment to the post, Mohammad states, “ No cameras at my house . I was under the impression that heartlake is a safe place to live in. ” [Emphasis added]
32In their affidavits, Mohammad and Ayesha are entirely silent on the social media content that Kevin has adduced into evidence. Neither has denied his claim that the content is theirs, and neither has tried to explain or refute any of it.
Legal Principles
33A CPL may be issued in an action if title to or interest in land is called into question. An action to set aside a fraudulent conveyance is an action in which an interest in land is brought into question: Di Trapani v. 9706151 Canada Ltd., 2019 ONSC 7311 at para 8; York University v. Markicevic, 2014 ONSC 3227 (Div Ct) at para 8; Financialinx Corporation v. K & D Auto Ventures Inc. (Oakville Mitsubishi), 2009 ONSC 55320 at para 27; Bank of Montreal v. Ewing (1982), 35 OR (2d) 225 (Div Ct).
34A CPL may issue in an action to set aside a fraudulent conveyance, even if the plaintiff has no interest in the land and is not yet a judgment creditor. The standard to meet for obtaining a CPL in an action to set aside a fraudulent conveyance is a prima facie case of fraud: Thomsen v. O’Callaghan, 2019 ONSC 6947 (Master) at para 12; Financialinx at para 28; Nordic Insurance Co. of Canada v. Harkness, [2001] OJ No 1123 (SCJ) at para 17; Vettese v. Fleming, [1992] OJ No 1013 (Gen Div).
35A separate line of cases seems to require a plaintiff to meet a higher threshold in order to obtain a CPL in a fraudulent conveyance action, where the plaintiff has not yet obtained judgment for damages and claims no interest in the land in the main action. This jurisprudence adopts the following test for obtaining a CPL: (i) the claimant must satisfy the court that there is a high probability that judgment will be successfully recovered in the main action; (ii) the claimant must introduce evidence to show that the transfer was made with the intent to defeat or delay creditors, with this burden being lightened by evidence that the transfer was for less than fair market value; and (iii) the claimant must demonstrate that the balance of convenience favours issuing a CPL in the circumstances of the particular case: Grefford v. Fielding (2004), 2004 ONSC 8709, 70 OR (3d) 371 (SCJ) at para 26; Botiuk v. Campbell, 2015 ONSC 694 (Div Ct) at para 18; Jodi L. Feldman Professional Corporation v. Foulidis, 2018 ONSC 121633 at para 11.
36In the absence of direct evidence of an intent to defraud, courts have relied on surrounding circumstances or “badges of fraud” as establishing prima facie the intent to defraud based on suspicious fact situations. Proof of one or more badges of fraud will not necessarily result in a finding for a plaintiff, but may raise a prima facie evidentiary case that a defendant prudently should rebut. Traditional badges of fraud include, among other things, the donor continuing to possess and use the property as his own, the transfer being made in the face of threatened legal proceedings, transfer documents containing false statements as to consideration, the consideration being grossly inadequate, some benefit being retained under a settlement by a settlor, and a close relationship existing between parties to a conveyance: Indcondo v. Sloan, 2014 ONSC 4018 at paras 50-55; affirmed 2015 ONCA 752.
37Although badges of fraud are signs of fraudulent intent, their presence does not require an inference of fraud to be drawn. An intent to defraud is to be found on a contextual analysis of all the facts, and badges of fraud must be considered in the context of the entire record. The existence of one or more badges of fraud may infer an intent to defraud in the absence of an explanation from the defendant: Urbancorp Toronto Management Inc. (Re), 2019 ONCA 757 at para 52; Re Fancy (1984), 1984 ONSC 2031, 46 OR (2d) 153 (HCJ) at 159; Indcondo at para 55; Beynon v. Beynon, 2001 ONSC 28147 at para 52.
Analysis
38Based on the materials before the court, I am satisfied that leave to issue and register a CPL against title to 39 Braidwood Lake Road was warranted on either test.
39I find that Kevin has shown a prima facie case of fraud to warrant a CPL being issued in this fraudulent conveyance action: Thomsen at para 12; Financialinx at para 28; Nordic at para 17. As set out below, Kevin has shown a number of badges of fraud that, in my view, raise compelling suspicions for a case of fraud that largely was unrebutted by the Defendants.
40On January 7, 2019, Mohammad and a non-party sold 22 Langwith Court for $525,000.00. For unexplained reasons, Mohammad did not disclose the sale of this property in his statement of affairs in bankruptcy dated October 5, 2020. He was required to disclose all sales or dispositions of any property within the past five (5) years in the statement of affairs. His failure to disclose his sale of 22 Langwith Court is concerning.
41Although Mohammad claims in his statement of affairs that his marital separation occurred in September 2018, Mohammad and Ayesha now claim in their affidavits on this motion that they actually separated in January 2019. But in the transfer registered on the sale of 22 Langwith Court, Mohammad states that he was not separated at the time of the sale on January 7, 2019. Moreover, in the transfers registered on 41 Horne Drive for their “inter-spousal” conveyances on November 29, 2018, and February 5 and 20, 2019, Mohammad and Ayesha claim that they were spouses when the transfers took place. These discrepancies are suspicious and unexplained.
42Following his purported separation from Ayesha in January 2019, Mohammad claims that he moved to 108 Wexford Road. However, records for the sale of 22 Langwith Court on January 7, 2019, the transfers for 41 Horne Drive on November 29, 2018 and February 5 and 20, 2019, and his notice of intention to act in person dated December 18, 2019 give Mohammad’s address as either 41 Horne Drive or 22 Langwith Court. Only after serving his second notice of intention to act in person dated September 17, 2020 (shortly before he filed for bankruptcy on October 5, 2020) did Mohammad begin giving his address as 108 Wexford Road.
43On this motion, Ayesha produced a document that purports to be her separation agreement with Mohammad dated September 1, 2019. I have concerns with the reliability of this document as its signature page bears a template footer stating, “ Copyright 2002- 2020 . LegalContracts.com ” [Emphasis added]. In my view, this footer strongly suggests that the document likely was prepared sometime in 2020 and back-dated to reflect a September 1, 2019 execution date.
44The purported separation agreement is also inconsistent with Mohammad’s statement of affairs in bankruptcy, which claims:
In September 2019 , as part of our marital separation, I surrendered my half interest in the marital home [i.e., presumably being 41 Horne Drive] to my ex-wife in lieu of support. The approximate value was $45,000.00.
[Emphasis added]
But in her affidavit, Ayesha states that, “ Mohammad transferred his interest in 41 Horne to me on February 20, 2019 as part of his separation from me in lieu of support payments. ” [Emphasis added] To this end, Mohammad now claims in his affidavit that he transferred his interest in the property to Ayesha on February 20, 2019 as part of their separation agreement in lieu of making support payments. Neither gave any explanation for the clear discrepancy between the September 2019 and February 20, 2019 transfer dates.
45Mohammad’s claim that he ultimately conveyed his interest in 41 Horne Drive to Ayesha in lieu of making support payments is not independently corroborated by any records. The purported separation agreement itself does not mention this property transfer. While Muhammad and Ayesha mutually waived any claims to spousal support under the terms of their separation agreement, the agreement expressly requires Mohammad to pay Ayesha child support in the amount of $500.00 per month, or as otherwise payable under Federal Child Support Guidelines, starting on October 1, 2019. As both now claim to have signed the separation agreement on September 1, 2019, it seems odd that Mohammad’s interest in 41 Horne Drive which he conveyed to Ayesha on February 20, 2019 to satisfy his child support obligation is not mentioned in the agreement. Neither Mohammad nor Ayesha have explained this omission.
46Moreover, neither Mohammad nor Ayesha gave any evidence to meaningfully explain why their interests in 41 Horne Drive were conveyed to each other for nominal consideration on several occasions. Mohammad gave a bald assertion in his affidavit that these multiple transfers arose in the course of negotiating terms with Ayesha for their marital separation, leaving it unclear as to why Ayesha transferred her interest in the property back to him. Similarly, Ayesha stated that the final February 20, 2019 transfer from Mohamad was done as part of their marital separation in lieu of support payments. Although she flatly denied transferring assets to conceal them, or to prevent damages in the main action from being collected, Ayesha gave no reason beyond these denials to meaningfully explain the transfers. Neither Mohammad nor Ayesha gave any contemporaneous records or evidence of their separation negotiations to support the transfers. In addition, neither explained why the transfers registered on title for the multiple transfers of 41 Horne Drive between themselves each state that both were spouses who had consented to an “ inter-spousal transfer for natural love and affection .”
47Mohammad claims in his statement of affairs in bankruptcy that his half-interest in the marital home (i.e., 41 Horne Drive) was worth about $45,000.00 when he conveyed it to Ayesha in September 2019. However, the estimated $45,000.00 value of his half-share in the property does not reconcile with the $247,000.00 deposit made to Ayesha’s bank account after the property was sold to a non-party on June 20, 2019. The variance between these figures is unexplained. In addition, a discrepancy remains as to when his interest in the property actually was transferred.
48On or about April 17, 2019, Mohammad claims that he entered into an agreement to buy 39 Braidwood Lake Road, but has not explained why he did so. Although he claims that he was unable to obtain mortgage financing to close the transaction, he has produced no records to corroborate this. Moreover, none of the Defendants have explained why Azra, his mother, replaced Mohammad as the purchaser under the agreement, why his wife, Ayesha, used $74,302.92 from her bank account (i.e., from the $247,111.00 in proceeds that she apparently received from the sale of 41 Horne Drive) to close Azra’s purchase of 39 Braidwood Lake Road on June 20, 2019 after 41 Horne Drive was sold that day, or why Azra purportedly ended up holding 39 Braidwood Lake Road in trust for Ayesha who is said to be paying all of the carrying costs for the property. Neither Ayesha nor Azra have produced a trust agreement, or explained why Ayesha did not simply buy 39 Braidwood Lake Road in her own name.
49There is compelling social media evidence to suggest that Mohammad and Ayesha are co-habiting at 39 Braidwood Lake Road, and are not really separated. As set out earlier, Mohammad made a revealing early-morning Facebook post on September 6, 2019 in which he clearly states that 39 Braidwood Lake Road is his house. Mohammad has not refuted or explained his statement published on social media. Other social media posts suggest that he and Ayesha continue to have close interactions, and seem to put Mohammad at 39 Braidwood Lake Road outside his scheduled parenting times under the purported separation agreement, which gives the impression that he may be residing at the property with Ayesha and their children.
50In my view, the above-mentioned factors raise badges of fraud that support an inference to defraud, particularly in the absence of any meaningful explanations by the Defendants: Urbancorp at para 52. Other badges of fraud in this case include the Defendants’ close familial relationships with each other, the misleading listing of Mohammad’s addresses which led to confusion as to his place of residence, and the unexplained transfers of 41 Horne Drive and 39 Braidwood Lake Road between the Defendants in the face of Mohammad’s ongoing litigation with Kevin in the main action. The Defendants gave only limited and largely self-serving explanations, and did not share any corroborating records to support their positions. In addition, there are fairly strong indications that Mohammad may retain an ongoing interest in 39 Braidwood Lake Road given the compelling social media evidence which suggests that he may be residing there with Ayesha and their children, and that he is using the property as his home. These circumstances raise obvious concerns.
51Based on the foregoing, I am satisfied that Kevin has demonstrated a prima facie case of fraud by the Defendants to defeat creditors.
52Even on the more stringent Grefford test, I would find in the circumstances of this case that the CPL should issue. On the first arm of the test, I find a high probability that Kevin likely will recover judgment in the main action for Mohammad’s failure to close on the sale of the subject property. This seems apparent as the only defence to the main action is Kevin’s alleged failure to mitigate, for which Mohammad still has not served a defence expert report on mitigation.
53From the record before me, I find that the badges of fraud discussed earlier raise sufficient evidence to show triable issues as to whether the transfers of 41 Horne Drive and 39 Braidwood Lake Road were carried out by the Defendants with the intent to defeat or delay creditors, including Kevin. I add that the multiple transfers of 41 Horne Drive between Mohammad and Ayesha for nominal consideration should alleviate Kevin’s burden on this arm of the Grefford test.
54With respect to the third arm of the Grefford test, I find that the balance of convenience favours maintaining the order granting leave for the CPL to issue. In light of the various badges of fraud in this matter, including multiple unexplained discrepancies which raise serious questions as to the credibility of the Defendants, I am persuaded by the submissions made by Kevin and the Trustee in Bankruptcy that the CPL order should be maintained until appropriate inquiries are made into the transactions and conveyances at issue. I accept from the evidentiary record that the 39 Braidwood Lake Road property is a substantial asset, and a potentially important one to satisfy Mohammad’s estimated $110,000.00 debt to Kevin in the main action. There is no evidence before the court that issuing and registering a CPL against the property would cause the Defendants any prejudice at this time (e.g., by frustrating a refinancing or sale), and future concerns regarding any prejudice to them may be addressed in due course should any arise. In contrast, setting aside the CPL order now would risk the dissipation of Mohammad’s alleged interest in 39 Braidwood Lake Road to the prejudice of Kevin, who is Mohammad’s largest single creditor. Given that Ayesha had listed 39 Braidwood Lake Road for sale in July 2020, albeit for only 8 days, I find that the dissipation risk is a factor that warrants serious consideration in this case.
55Accordingly, having regard to the context of this case and the entire record before the court, I am satisfied that the equities favour a CPL on title to 39 Braidwood Lake Road.
Outcome
56Based on the foregoing, I find that the CPL order for 39 Braidwood Lake Road should be maintained.
57In the event that the parties cannot agree on costs, the Plaintiff may deliver written costs submissions of no more than 2 pages (excluding any costs outline or offer(s) to settle) within 15 days, and the Defendants may deliver responding written costs submissions on the same terms within a further 15 days. Reply submissions shall not be delivered without leave.
Doi J.
Date: January 8, 2021