Court File and Parties
Court File No.: CV-11-426998-00
Date: 20120523
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: BUSINESS DEVELOPMENT BANK OF CANADA
for itself and on behalf of all creditors of Pavel Samarsky
Plaintiff
and
PAVEL SAMARSKY also known as PAVAL SAMARSKY
Also known as PAVEL SAMARSKI also known as PAVAL SAMARSKI
And OLGA SAMARSKY also known as OLGA SAMARSKI
Defendants
BEFORE: S. Chapnik J.
COUNSEL:
Sean N. Zeitz , Counsel for the Plaintiff
Samil Chagpar , Counsel for the Defendant, Olga Samarsky
also known as Olga Samarski
HEARD: May 4, 2012
ENDORSEMENT
[ 1 ] The plaintiff, Business Development Bank of Canada (“the Bank”) seeks a declaration against the defendant, Olga Samarsky (“Olga”) setting aside Pavel Samarsky’s (“Pavel”) transfer of his interest in the matrimonial home (“the property”) to Olga, as a fraudulent conveyance.
[ 2 ] The Bank obtained default Judgment against Pavel on June 27, 2011.
BACKGROUND
[ 3 ] At the relevant time, Olga and Pavel were husband and wife.
[ 4 ] In July 2001, Pavel opened the company, S.P. Marble, Inc. (“the company”) and he was the 100% shareholder. Though Olga was listed as an officer and director of the company initially, she ceased to be an officer and director effective July 1, 2006.
[ 5 ] In June 2006, the company applied to the plaintiff for a loan in the approximate amount of $800,000.00. Pavel gave a personal guarantee for 50% of the outstanding balance on the loan as of the date of demand plus interest and costs. Both Pavel and Olga executed a Personal Financial Statement dated April 12, 2006, indicating that Olga was the company’s manager and Pavel was the registered owner of the property that had been purchased in 2003.
[ 6 ] It is important to note, however, that no documents relating to the loan or the guarantee were executed by Olga.
[ 7 ] The company required the loan to purchase equipment for the business. While such a loan is being disbursed in increments, the Bank regularly charges its customers a stand-by fee in order to cover the Bank’s administrative costs prior to full disbursement of the loan.
[ 8 ] In August 2006, as a result of delays in the manufacturing and delivery of equipment from overseas suppliers, the Bank confirmed a request by the company to extend its stand-by fee to December 19, 2006. At the time, the principal of the loan totalled $54,256.00.
[ 9 ] When the company continued to experience unforeseen delays in receiving new equipment from overseas, it requested a second loan amendment in February 2007 and the stand-by fee was further extended to May 19, 2007. The Bank stated, however, that the fee date would not be extended further. At that time, the principal outstanding on the loan was $627,243.00.
[ 10 ] On June 26, 2003, Pavel and Olga acquired title as joint tenants to the property where they lived as husband and wife.
[ 11 ] On January 24, 2007, Pavel transferred his interest in the matrimonial home to Olga for “natural love and affection” prior to the second loan extension agreement in February 2007.
[ 12 ] After Olga and Pavel separated in September 2009, Pavel took full responsibility for the company’s loan, which was in good standing. In their Separation Agreement, Pavel waived his claim for property equalization and Olga waived her claim for spousal support.
[ 13 ] The loan remained in good standing until March 2011, when the company defaulted on its payment obligations and the Bank demanded repayment of the loan from Pavel pursuant to his personal guarantee.
[ 14 ] It was after this that the Bank conducted an investigation and discovered the transfer.
RELEVANT LAW
[ 15 ] The statutory provisions of the Fraudulent Conveyances Act , R.S.O. 1990, c. F.29 (“the FCA ”) are as follows:
Section 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.
Section 3
Section 2 does not apply to an estate or interest in real property or personal property conveyed upon good consideration and in good faith to a person not having at the time of the conveyance to the person notice or knowledge of the intent set forth in that section. [Emphasis added.]
An abundance of jurisprudence in this area of law establishes the following general principles:
Where the result of an impugned transfer is to defeat, hinder, delay or defraud creditors, there is a presumption at law that the transfer was done with that intent. See, for example, Sun Life Assurance Co. of Canada v. Elliott (1900), 31 S.C.R. 91.
Certain “badges of fraud” indicate the debtor’s intent, namely secrecy, the transfer of all or substantially all of the debtor’s assets, continuance in possession of the debtor and some benefit retained under the settlement to the transferor. See Solomon v. Solomon , [1977] O.J. No. 2349, at para. 18 . A non-arms length relationship between the parties to the conveyance and inadequate consideration are additional badges.
As to the applicability and functions of ss. 2 and 3 of the FCA , a helpful summary is enunciated in the case of CIT Financial Ltd. v. Zaidi , 2006 8469 (ON SC) , [2006] O.J. No. 1073, at para. 21 :
Pursuant to section 3 , if the conveyance is made upon good consideration, it is not subject to section 2 , if the transferee was acting in good faith and without notice or knowledge of the fraudulent intent of the transferor. But if the conveyance was not made for good consideration it is not protected under section 3 and is subject to being set aside under section 2 regardless of the intent of the transferee. Accordingly, where a plaintiff establishes prima facie that a conveyance was made with fraudulent intent for purposes of section 2 and without good consideration for purposes of section 3 , the conveyance is subject to be set aside unless the defendant establishes either that the transferor lacked the fraudulent intent or else (as required by section 3 ) that the conveyance was made for good consideration and that the transferee acted in good faith and without notice or knowledge of the fraudulent intent of the transferor. [Emphasis added.]
[ 16 ] The test for summary judgment under Rule 20 of the Rules of Civil Procudure , R.R.O. 1990, Reg. 194 has been re-articulated by the Ontario Court of Appeal in Combined Air Mechanical Services Inc. v. Flesch , 2011 ONCA 764 , [2011] O.J. No. 5431.
[ 17 ] The “full appreciation test” provides a benchmark for determining whether a trial is required in the interests of justice.
[ 18 ] The core question the court must answer is whether the moving party has established that there is no fact or issue requiring a trial for its disposition. However, an evidentiary burden remains on the responding party to delineate a genuine issue of material fact that requires a trial for its resolution and to establish its claim as being one with a real chance of success. See, for example, Canadian Imperial Bank of Commerce v. Mitchell , 2010 ONSC 2227 , [2010] O.J. No. 1502, at para. 18 .
ANALYSIS
[ 19 ] According to the defendant, the separation agreement in addition to “natural love and affection” at the time of the transfer constitutes good and valuable consideration, and there was no intent or knowledge on Olga’s part of an intent by Pavel to defraud creditors. In fact, the loan itself remained in good standing until more than four years after the conveyance. This would show without doubt a lack of intent to defraud on the part of Pavel.
[ 20 ] That is a difficult argument to make in these circumstances, however, given that Pavel is presumed to admit the allegations of fact in the statement of claim, including that:
a) he surreptitiously transferred his joint interest in the property to Olga for nominal consideration;
b) the impugned transfer was made with the intent to defeat, hinder, delay and/or defraud the Bank and Pavel’s other creditors within the meaning of the FCA ;
c) the said transfer was done at a time when Pavel (the judgment debtor) reasonably contemplated that the Bank would be taking steps to recover the outstanding indebtedness due and owing by the company;
d) the relationship between the parties was non-arms length and there was no consideration for the transfer which had the effect of disposing of Pavel’s equity in the property;
e) Pavel continued to use, occupy and pay the property’s expenses after the transfer; and
f) the transfer put Pavel’s only significant exigible asset beyond the reach of the Bank and his other creditors.
[ 21 ] At the same time, this motion relates to Olga who did not give the Bank a personal guarantee or execute any documents related to the home and who was not a shareholder in the company. She argues that the transfer for “natural love and affection” represented good consideration and that she had no notice or knowledge of Pavel’s intent at the time other than that of love further manifested by their separation terms and the fact that the loan did not default until over four years after the transfer.
[ 22 ] I agree with the plaintiff, however, that the subsequent events have little relevance to the assessment of Pavel’s intention at the time of the transfer. As noted by the court in Son v. Kim, [1994] O.J. No. 2713, at para. 27 , citing Frank Bennett, Bennett on Creditors’ and Debtors’ Rights and Remedies , 3d ed. (Scarborough, Ont.: Carswell, 1992), at p. 120: “The intention of the parties is always determined from antecedent and contemporaneous circumstances rather than from subsequent acts.”
[ 23 ] At the time the impugned transfer was made, the total sum of approximately $531,313.23 had been advanced to the company, so that Pavel was exposed to obligations of approximately $265,656.61, being 50% of the total sum advanced.
[ 24 ] At that time, Olga was also reflected as an officer and director of the company.
[ 25 ] Pavel transferred his interest in the propety to Olga during the time the company requested the Bank’s accommodation to extend the stand-by fee for a second time, and he had no assurances that the waiver would be granted.
[ 26 ] When asked on cross-examination why the parties transferred a joint interest to Olga solely on January 24, 2007, Olga responded:
A. Pavel decided so ...
Q. It was Pavel’s decision?
A. Probably, yes.
[ 27 ] When asked if she gave him anything in return, she responded:
A. Yes, my love.
Q. Did you ask him any questions as to why he wanted to transfer the house to you on January 24, 2007?
A. I don’t ask questions of the kind.
[ 28 ] Given Olga’s testimony, the timing of the transfer, the respondent Pavel’s deemed admissions, and all the other circumstances, I am satisfied that Pavel made the transfer with the intent to defeat, hinder, delay and defraud the Bank and his other creditors within the meaning of the FCA . The impugned transfer is, therefore, fraudulent, and thus is null and void as against the Bank.
[ 29 ] I am also satisfied that there are no material facts or issues that require a trial for their disposition, that this court has a “full appreciation” of the evidence and that the defendant, Olga, has little or no chance of success in the action. The plaintiff’s motion is, therefore, allowed.
[ 30 ] Order to go in terms of paras. (a), (b) and (d) of the Notice of Motion.
[ 31 ] The plaintiff claims $16,653.04 in costs on a partial indemnity basis. In my view, an appropriate amount for costs in the reasonable contemplation of the parties, and taking into
account the factors set out in rule 57.01 of the Rules of Civil Procedure , would be the all-inclusive amount of $10,000.00. Order to go granting the plaintiff costs in the all-inclusive sum of $10,000.00 as against the defendant Olga.
S. Chapnik J.
DATE: 20120523