DATE: 20050706

DOCKET: C41870

COURT OF APPEAL FOR ONTARIO

WEILER, SIMMONS and GILLESE JJ.A.

B E T W E E N :

PILOT INSURANCE COMPANY

Gary M. Caplan and

Theresa M. Hartley

for the appellant

Plaintiff (Respondent)

• and -

Sharon E. Warden

for the respondent

JOHN FOULIDIS

Defendant (Appellant)

Heard: June 15, 2005

On appeal from the judgment of Justice Romain W. M. Pitt of the Superior Court of Justice dated May 3, 2004.

GILLESE J.A.:

OVERVIEW

[1] On October 16, 2001, Pilot Insurance Company obtained judgment against Filomeni Foulidis for $125,440.54. In September 2002, Pilot commenced a second action in which it sought to have Filomeni Foulidis’s husband, John Foulidis, held liable in damages for a portion of that judgment.

[2] By judgment dated May 3, 2004, Pitt J. ordered John Foulidis to pay damages in an amount equivalent to the judgment that Pilot obtained against Filomeni Foulidis. Liability was based on a combination of his finding that John Foulidis and Filomeni Foulidis had transferred title in their jointly held matrimonial home to John Foulidis alone, with the intent of defeating the judgment that Pilot had obtained against Filomeni Foulidis, and the application of s. 2 of the Fraudulent Conveyances Act, R.S.O. 1990, c. F.29 and s. 4(1) of the Assignments and Preferences Act, R.S.O. 1990, c. A.33. The trial judge also ordered that John Foulidis’s assets be traced “with respect to the quantum of the benefit conveyed to [him] by virtue of the fraudulent conveyance of July 28, 1995.”

[3] John Foulidis appeals, asking that judgment below be set aside and the action against him be dismissed.

BACKGROUND

[4] On September 28, 1983, Filomeni Foulidis sustained serious injuries in a car accident. She received benefits under her Pilot insurance policy from the date of the accident until January 1992.

[5] At all relevant times, Filomeni Foulidis was married to John Foulidis. Their son, George Foulidis, gave them financial advice. On July 4, 1990, Filomeni Foulidis gave George a general power of attorney as he was helping her with insurance and Workers’ Compensation Board (“WCB”) matters.

[6] On January 27, 1992, Pilot sent George a letter advising him that if his mother received workers’ compensation benefits, she was ineligible to receive benefits under the Pilot insurance policy.

[7] The WCB approved Filomeni Foulidis’s claim and she received benefits of $149,462.18 in 1993 and $116,495.76 in 1994. Based on George’s advice, Filomeni Foulidis placed these funds into guaranteed investment certificates (“GICs”), which she held jointly with her husband, John Foulidis.

[8] On September 6, 1994, Pilot commenced an action against Filomeni Foulidis and George Foulidis for repayment of benefits of $76,171.56 that it alleged had been mistakenly paid to her given her receipt of WCB benefits (the “first action”).

[9] Filomeni Foulidis and George Foulidis delivered their statement of defence in the first action on October 24, 1994.

[10] John Foulidis and Filomeni Foulidis held title to their Scarborough home as joint tenants. On July 27, 1995, they transferred title to the property to John Foulidis for $2 and natural love and affection (the “1995 conveyance”). They retained their solicitor, Demetrius Pantazis, to register the transfer, which he did on July 28, 1995. Mr. Pantazis was unaware of the first action at the time that he registered the transfer.

[11] In December 1995, in addition to the GICs, John and Filomeni Foulidis held in excess of $445,000.00 in a Royal Bank of Canada joint bank account. They transferred control of the Royal Bank funds to John Foulidis and George Foulidis. Between December 1995 and September 1998, all of the money held in GICs and in the Royal Bank account was spent on the Foulidis’ personal expenses, real estate in Greece, and gifts for their children and grandchildren.

[12] On February 9, 2000, John Foulidis sold the Scarborough matrimonial home to a bona fide purchaser for value without notice and gave the proceeds to George Foulidis to manage. Filomeni Foulidis signed the transfer document. Many months later, she asked John Foulidis for her share of the sale proceeds. On September 21, 2001, John Foulidis wrote her a cheque for $187,500, the amount of her one-half interest in the net proceeds of the sale of the property. The cheque cleared John Foulidis’s bank account on October 2, 2001. Filomeni Foulidis immediately endorsed the cheque in favour of George who arranged for the bulk of the money to be transferred to Greece to invest in family property there.

[13] On October 16, 2001, Filomeni Foulidis signed a consent judgment in the first action in favour of Pilot for $125,440.54, representing the $76,171.56 in benefits mistakenly paid out, and $49,268.98 in prejudgment interest.

[14] In September 2002, Pilot started an action against John Foulidis, arguing that the 1995 conveyance contravened the Fraudulent Conveyances Act.

[15] The main issue at trial was whether the 1995 conveyance was made with the intent to defeat, hinder, delay or defraud Pilot’s judgment in the first action. John Foulidis argued that the conveyance was made with the intent of facilitating a sale of the matrimonial property because of Filomeni Foulidis’s longstanding intention to live in Greece for extended periods of time or permanently.

[16] The trial judge found that the 1995 conveyance was made with fraudulent intent. He granted Pilot judgment against John Foulidis for the full sum of the judgment that Pilot had against Filomeni Foulidis and made a tracing order.

ISSUES

[17] The appellant argues that the trial judge erred in:

a) misapplying the legal test in determining the intention of John Foulidis and Filomeni Foulidis in respect of the 1995 conveyance;

b) misapprehending the evidence of “other circumstances” in determining the Foulidis’ intent in making the 1995 conveyance; and

c) finding that Pilot suffered damages as a result of the 1995 conveyance.

APPLICATION OF THE TEST FOR DETERMINING FRAUDULENT INTENT

[18] In his factum, the appellant argued that the trial judge failed to consider the “badges of fraud” when determining the Foulidis’ intention in making the 1995 conveyance. However, in oral argument, counsel for the appellant acknowledged that there were a number of “badges of fraud” surrounding the 1995 conveyance. He conceded, based on Koop v. Smith (1915), 1915 26 (SCC), 51 S.C.R. 554, that the circumstances surrounding the conveyance were sufficiently suspicious that the burden had shifted to John Foulidis to establish the bona fides of the conveyance.

[19] The appellant argues that the trial judge erroneously rejected the uncontradicted evidence led by the appellant that the Foulidis’ intention in making the 1995 conveyance was to facilitate the sale of the property. The appellant submits that the trial judge misdirected himself by focussing on whether the conveyance was appropriate to accomplish the Foulidis’ objective. He argues that the solicitor’s failure to employ the appropriate technique to accomplish that objective was not evidence of the client’s intention but evidence of the solicitor’s negligence.

[20] At para. 23 of the reasons for judgment, the trial judge stated that the question he had to answer was whether the 1995 conveyance was made with the intention of defeating Pilot’s claim or with the intention of facilitating the sale of the property because of Filomeni Foulidis’s intention to spend long periods in Greece. At paras. 24 – 32 of the reasons, the trial judge explains why he rejected the Foulidis’ explanation for the transfer:

I noted earlier that the lawyer who prepared the Power of Attorney in July 1990 was the same lawyer who prepared the conveyance in July 1995. He was an experienced conveyancer. He did not have his files pertaining to the subject property during his testimony. The subject property was, however, sold in February 2000 for cash. Unless the lawyer was made aware of litigation, there would have been little need to have considered the contents of those files significant and, therefore, worthy of preservation, after the sale.

The lawyer testified that he did not remember or think of the existing Power of Attorney when he did the conveyance. While that testimony is understandable, it is difficult to accept that if he were told that some instrument were needed in 1995 to accept offers to purchase or sell property, a Power of Attorney rather than a transfer would not have occurred to him. While it may not be obvious to some litigators, conveyancers know that transfers of family dwellings to third parties cannot be effected without the involvement of both spouses.

I am not sure that anyone noted until later in the proceeding that the transfer from the defendant, John, to the purchaser of Brenda Crescent in February 2000 was consented to by Filomeni. If the subject 1995 transfer were done to effect a sale without the need for Filomeni’s further involvement, it could not achieve its objective.

It might have been possible to prepare a document of transfer that would have clearly demonstrated that Filomeni had completely divested herself of her spousal interest in the property sufficient to satisfy a prospective purchaser. That certainly was not attempted. Indeed if we accept the evidence of the defendant, there was never any intention to transfer the beneficial interest in the subject property to the defendant, John.

In fact, the issuance of the cheque for one-half of the net proceeds of the sale some 19 months after the sale was done, no doubt to demonstrate that the defendant, John, had never ceased to acknowledge his spouse's interest in the property.

A Power of Attorney, on the other hand, would be a perfect solution to the problem at hand. It was what was prepared in 1990 when Filomeni first went to Greece. It would require only the signature of Filomeni. There would be no need for a land transfer tax affidavit, nor indeed registration (until used to effect a conveyance), and generally speaking, it could be prepared more quickly and less expensively than a transfer.

In addition, the litigation was still underway and the Power of Attorney would have been useful also in that regard, and unless revoked, the involvement of Filomeni in dealing with the property would no longer be required. Defence counsel has argued that the court should recognize the imperfection of lawyers who, therefore, do not always follow the most logical step to achieve an objective. I do not disagree.

However, I see no reason to believe that there was an error. Obviously, the lawyer was told to transfer the title to the defendant, John. However, I am not satisfied that he remembers what he was told about the reason for the transfer or whether he was told the reason.

In fact, Filomeni spent a much longer time in Greece on her visit in 1990 (September 5, 1990 to December 11, 1991) for which visit the lawyer prepared a Power of Attorney, than on her 1995 visit (July 20, 1995 to December 17, 1995) for which visit he prepared the transfer. In fact, it was in 1990 that she acquired the status of a permanent resident in Greece. Of the two alternative purposes offered for the subject conveyance, only blind faith could lead to the choice that the defendant urges the court to accept. On the basis of the evidence before me, I cannot accept that the property was transferred so that the defendant, John, could deal with it in his spouse’s absence.

[21] At para. 37 of the reasons, the trial judge found that the Foulidis family, which he described as “close-knit”, made the decision in June or July 1995 to attempt to preserve the family home by transferring title to John Foulidis, who was not a defendant in the first action. He concluded, at para. 38, that:

It is clear that the defendant could not sell or transfer the property after the impugned transfer, in his spouse’s absence. The lawyer who did the transfer knew this. That being the only explanation offered, that defence must fail.

[22] This court is to accord deference to a trial judge’s findings of fact; it is not to interfere absent a palpable and overriding error. See Housen v. Nikolaisen (2002), 2002 SCC 33, 211 D.L.R. (4th) 577 (S.C.C.).

[23] In the case at bar, the trial judge’s findings are amply supported by the record. The record reveals that there was a close personal relationship between John Foulidis and Filomeni Foulidis, the 1995 conveyance took place in a hurry and at a time when Pilot’s first action was underway, and there was no meaningful consideration paid for the conveyance. By the end of 1995, Filomeni Foulidis was either insolvent or had relinquished control over her liquid assets to John and George Foulidis, and by September 1998, the money had either been invested in property in Greece or otherwise disposed of. Finally, the property was not sold for a significant time after the 1995 conveyance, and the sale of the property could not have been undertaken without Filomeni Foulidis’s consent.

[24] The trial judge did not misdirect himself when he assessed the utility of the 1995 conveyance as a mechanism for achieving the objective of facilitating the sale of the property. He was obliged to determine intention and in doing so, he considered (and rejected) the explanation for the conveyance offered by the appellant.

THE EVIDENCE OF OTHER CIRCUMSTANCES

[25] The trial judge found that there were other circumstances that corroborated the finding of fraudulent intent. The appellant says that the trial judge misapprehended this evidence when he found that George managed his parents’ assets and that Filomeni Foulidis disposed of her assets before the end of 1995. He contends that the evidence was that George was only involved in managing his mother’s assets after the 1995 conveyance and that Filomeni Foulidis did not spend the money until after the 1995 conveyance.

[26] It will be apparent from the foregoing that, in my view, the trial judge considered these circumstances and was fully justified in concluding that the conveyance was fraudulent. The trial judge did not misapprehend the evidence when he concluded that George managed his parents’ assets. There was ample evidence upon which the trial judge could make that finding, including testimony by John Foulidis that George was “always in control of [the Foulidis’] financial affairs”.

[27] Nor do I accept that the trial judge erred by finding that Filomeni Foulidis’s liquid assets were disposed of prior to 1995. The trial judge found such a disposition occurred by the end of 1995. In the concluding sentence of para. 35 of the reasons, the trial judge stated:

By the end of 1995, most of the liquid assets of Filomeni seemed to have been invested in Greece or provided to her sons for expensive consumption and investment.

[28] Accordingly, I see no basis upon which to interfere with the trial judge’s finding that the 1995 conveyance was undertaken with the intent of defeating Pilot’s claim.

WHETHER PILOT SUFFERED DAMAGES

[29] The appellant makes two arguments in support of the proposition that John Foulidis ought not to be liable in damages. First, he argues that had the 1995 conveyance not taken place, Pilot would be in the same position as it was on October 16, 2001, when it obtained judgment against Filomeni Foulidis in the first action. Thus, he says, Pilot suffered no damages as a result of the 1995 conveyance and the 1995 conveyance cannot have had the effect of hindering, impeding or delaying Pilot, as creditor. Second, the appellant submits that, even if he had been a trustee of the sale proceeds, his obligations as trustee ceased when he transferred Filomeni’s share of the sale proceeds to her. He argues that the transfer to Filomeni was sufficient to discharge any statutory trust that might have been imposed upon him and that it would be unfair to find him in breach of trust for having returned the proceeds to their rightful owner.

[30] In my view, both arguments are misconceived. On a plain reading of s. 2 of the Fraudulent Conveyances Act, a conveyance is void if made with the intent to defeat, hinder, delay or defraud creditors; it is not a question of whether the conveyance had the effect of hindering creditors. Section 2 of the Fraudulent Conveyances Act, reads as follows:

2. Every conveyance of real property or personal property and every bond, suit, judgment and execution heretofore or hereafter made with intent to defeat, hinder, delay or defraud creditors or others of their just and lawful actions, suits, debts, accounts, damages, penalties or forfeitures are void as against such persons and their assigns [emphasis added].

[31] Furthermore, it is incorrect to say that the 1995 conveyance had no effect on Pilot’s rights as a creditor. Prior to the conveyance, Filomeni Foulidis’s interest in the property was capable of attachment. After the conveyance, she had no interest available for attachment by creditors.

[32] In my view, the appellant’s second argument is met by this court’s decisions in Westinghouse Canada Ltd. v. Buchar et al. (1975), 1975 638 (ON CA), 9 O.R. (2d) 137 and Allen v. Hennessey (1997), 1997 1182 (ON CA), 107 O.A.C. 69.

[33] In Buchar, a husband and wife jointly owned property. Westinghouse Canada Ltd. sued the husband. Before it obtained judgment against him, the husband conveyed the property to his wife who then sold the property to a bona fide purchaser for value without notice.

[34] At first instance, the trial judge found the conveyance to the wife was fraudulent and void, as against Westinghouse, pursuant to s. 2 of the Fraudulent Conveyances Act. However, he refused to order the wife to account for the money from the sale of the property. Westinghouse appealed.

[35] This court allowed the appeal. It held that the conveyance to the wife was “invalid against creditors” because it had been fraudulently conveyed. It further held that the tracing provisions in s. 12 of the Assignments and Preferences Act, were available where a conveyance was void under the Fraudulent Conveyances Act. At p. 141 of the reasons, the court stated:

A remedial statute for the protection of creditors’ rights should receive a fair, large and liberal interpretation to ensure the attainment of its object; the plain intention of the statutes, to be read together, is to constitute the fraudulent transferee a trustee of the proceeds replacing the lands, for the benefit of the defrauded creditors.

[36] The court ordered judgment against the wife “for an amount equivalent to one-half of the net proceeds of the sale to Gibbons of the land…not to exceed the amount recoverable under the plaintiff’s judgment in the former action”.

[37] I accept that Buchar offers no explanation for limiting recovery to one-half of the net proceeds of sale and that, arguably, the court was holding the wife liable only for the husband’s one-half interest in the net proceeds of sale. Nonetheless, I do not accept the appellant’s argument that he ought not to be held liable for one-half of the net sale proceeds because he has paid his wife that amount. I reject that argument based on the wording of s. 12 of the Assignments and Preferences Act, and this court’s decision in Allen v. Hennessey.

[38] Section 12(1) of the Assignments and Preferences Act, reads as follows:

12.(1) In the case of a gift, conveyance, assignment or transfer of any property, real or personal, that is invalid against creditors, if the person to whom the gift, conveyance, assignment or transfer was made has sold or disposed of, realized or collected the property or any part thereof, the money or other proceeds may be seized or recovered in an action by a person who would be entitled to seize and recover the property if it had remained in the possession or control of the debtor or of the person to whom the gift, conveyance, transfer, delivery or payment was made, and such right to seize and recover belongs not only to an assignee for the general benefit of the creditors of the debtor but, where there is no such assignment, to all creditors of the debtor.

[39] The applicable portion of s. 12 provides that where a conveyance of real property is made that is invalid against creditors and the property is sold, the money may be recovered in an action by a person who would be entitled to seize and recover the property if it had remained in the possession or control of the debtor.

[40] Section 12 refers to the conveyance of “any property”. Had the legislature wished to limit the scope of s. 12 to property owned solely by the debtor, it could easily have said so. The absence of such limiting language, coupled with the remedial nature of the legislation and its objects, as discussed in Buchar and quoted above, lead me to conclude that the intent of s. 12 is to capture any property in which the debtor has an interest. As already noted, the conveyance to John Foulidis was invalid against Pilot, as creditor, by virtue of the trial judge’s finding that it was made with fraudulent intent. Section 12 goes on to provide Pilot with the right to recover “the money” from the appellant because, had the property remained in Filomeni Foulidis and John Foulidis’s joint possession, Pilot would have been entitled to seize and sell the property and realise upon that portion attributable to the debtor, in satisfaction of its judgment.

[41] This view of s. 12 is implicitly supported by Allen v. Hennessey. In Allen v. Hennessey, one defendant made a fraudulent conveyance to the second defendant. The transferee conveyed the property to an innocent purchaser for value without notice and then used the sale proceeds to purchase a second property. The second property was sold to an innocent purchaser. This court held, following Buchar, that the creditors were entitled to the proceeds of the second sale. It ordered a monetary judgment in lieu of an order setting aside the fraudulent conveyance, relief that was no longer available. At para. 5 of the reasons, this court said:

A creditor is entitled to invoke the Fraudulent Conveyances Act to recover the proceeds of a conveyance void under the statute from a fraudulent transferee. The fraudulent transferee is and bears all the liability of a trustee of the property or its proceeds for the benefit of creditors.

[42] There is no indication in Allen v. Hennessey as to what part of the original property, if any, was owned by the transferee. However, the result is clear: the creditors were entitled to the proceeds of sale. There is nothing in the judgment to suggest that the creditors were precluded from recovering any part of the sale proceeds that might be attributable to the transferee’s ownership interest in the original property. Had that been of concern to the court, one would have expected to see a discussion of the matter.

[43] John Foulidis accepted a voluntary conveyance of property in fraudulent circumstances. He had knowledge of the true nature of the conveyance. He cannot, with impunity, sell the property and give to the debtor that part of the sale proceeds attributable to the debtor’s ownership when the conveyance was fraudulent. To permit such a result would undermine the purpose of the Fraudulent Conveyances Act and the Assignments and Preferences Act.

[44] John Foulidis received the proceeds of sale, at least up to the amount of Filomeni Foulidis’s interest in those proceeds, in trust for Pilot as creditor. Payment to the person who made the original fraudulent conveyance could not amount to a discharge of his obligations as trustee. Payment of those funds to anyone other than creditors amounts to a breach of trust for which he is liable.

DISPOSITION

[45] Accordingly, I would dismiss the appeal with costs to the respondent fixed at $5,000, inclusive of GST and disbursements.

RELEASED: July 6, 2005 (“KMW”)

“E. E. Gillese J.A.”

“I agree K. M. Weiler J.A.”

“I agree J. Simmons J.A.”