COURT FILE NO.: 00-CV-190536 DATE: 20120615
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
RELIABLE LIFE INSURANCE COMPANY
Plaintiff
- and -
MURIEL HELENA INGLE, DAVID BRUCE BLACK, BLACK SUTHERLAND CRABBE, INGLE MANOR FARMS INC., JANJA MARIA INGLE and 932129 ONTARIO INC.
Defendants
William G. Scott, for the Plaintiff Gordon Bent, for the Defendants Ingle Manor Farms and Janja Marie Ingle Philippa Geddie for the Public Guardian and Trustee on behalf of the Defendant Muriel Helena Ingle
HEARD: April 23 and 24, 2012
STEVENSON J.
REASONS FOR DECISION
Claim
[1] This trial involved two separate claims brought by the Plaintiff, Reliable Life Insurance Company ("Reliable"). The first action, ("the farm action") 00-CV-190536, involved the conveyances of farm property legally described as Lot 7, Concession 6, Township of Eramosa, County of Wellington, Province of Ontario ("the farm property"). The Plaintiff's claim is that certain conveyances of the farm property were made with the intent to defeat, hinder or delay creditors and are void as against the Plaintiff. The Plaintiff relies upon both the Fraudulent Conveyances Act, R.S.O. 1990 C. F.29 ) ("the Act") and the Assignment and Preferences Act, R.S.O. 1990 C. A.33 ("the AP Act") in support of its claim.
[2] The second action, ("the trademark action") 05-CV-302792PDI, involves claims made by the Plaintiff that trademarks and trade names registered in the name of John Wright Ingle at the time of his death were assets of the Estate of John Wright Ingle and are subject to the claims of the Plaintiff as creditor of the Estate. The claim is that the appropriation of the trademarks and trade names and the transfer to the Defendants was made with the intent to defeat, hinder or delay the Plaintiff's claim against the assets of the Estate of John Wright Ingle. The Plaintiff relies upon the Fraudulent Conveyances Act, R.S.O. 1990 C. F.29 in support of its claim.
Background
[3] Counsel for Reliable advised at the commencement of trial that it was no longer claiming any monetary relief from the Defendant Muriel Helena Ingle ("Muriel") who was represented at trial by her Litigation Guardian, The Public Guardian and Trustee. Counsel for Reliable also advised the court that it had settled its action against David Bruce Black ("David") and the law firm, Black Sutherland Crabbe.
Facts
[4] Reliable commenced two actions against M.H. Ingle and Associates Insurance Brokers Limited, Muriel H. Ingle, Robin Ingle and John W. Ingle on October 30, 1989. John W. Ingle ("John Sr.") passed away on May 22, 1992. An Order to Continue following John Sr.'s death was granted on December 22, 1993 and the title of proceedings was amended. Ultimately, Reliable received Judgments with respect to those actions after a trial, in the amount of $1,616,959.00, plus costs, on September 24, 1999.
[5] On May 20, 1981, the farm property was conveyed to John Sr. "In Trust" from a number of grantors. At the time of John Sr.'s death on May 22, 1992, he still owned the farm property. Probate was granted to John Sr.'s wife, Muriel, and to lawyer David, as executors on June 8, 1992. The value of the Estate's personalty was $503,000.00 and net real estate was listed at $524,000.00 for a total of $1,027,000.00.
[6] There was an opinion of value on the farm property completed on June 2, 1992 which gave a fair market value of $900,000.00. An estimate of the market value of the farm property was also completed on November 24, 1995 which estimated the value of the whole farm at $1,050.000.00. At the time of the death of John Sr. there were mortgages registered against the farm property.
[7] Between 1989 and 1992, several improvements were made to the farm property.
[8] On December 18, 1992 a Charge/Mortgage of Land was registered against the farm property in the amount of $400,000.00. The chargor was Muriel and the chargees were Ingle Manor Farms Inc. ("IMF") and North Canadian Insco Group ("NCI"). The document was prepared by lawyer Steven Troster (“Troster”).
[9] John Dwight Ingle ("John Jr."), son of John Sr. and Muriel, and his wife Janja Maria Ingle ("Janja") moved onto the farm property in May, 1993. John Jr. was involved in both IMF and NCI and Janja was involved with IMF as a shareholder and director.
[10] By letter written by Muriel to Janja dated September 30, 1995, Muriel offered to sell the farm property to Janja and John Jr.'s children for $900,000.00 upon an undertaking that Janja hold the property in trust for the children until they reached at least 25 years of age. A first mortgage of approximately $400,000.00 was to be arranged with the balance to be paid by a promissory note or security by the children, within the next 15 years. The existing mortgage was to be discharged on closing. Both Janja and John Jr. signed the letter. Janja signed as "Janja Ingle in trust for the children Chelsea and Alexandra Ingle" and John Jr. signed for "Ingle Manor Farms Inc. in trust for Chelsea and Alexandra Ingle."
[11] On November 14, 1995, an Agreement of Purchase and Sale was entered into with respect to the purchase of the farm property between the purchaser, IMF, and the vendors, Muriel and David as executors of the Estate of John Sr. The purchase price was $900,000.00 with no deposit and the purchaser agreeing "to pay the full amount of the purchase price in cash or certified cheque on closing, subject to adjustments."
[12] The Agreement of Purchase and Sale also had attached to it Schedule "A" which stated that: "On closing the purchaser will issue One Hundred Thousand Class A Shares in the capital stock of the Purchaser, to Muriel Helena Ingle, which shares have a paid up capital amount of $100,000.00, which shares shall be credited as against the purchase price."
[13] On December 21, 1995, the farm property was transferred from the Estate of John Sr. by his executors/estate trustees, Muriel and David to IMF. The consideration in the Affidavit of value of consideration was stated to be $400,000.00 cash, $100,000.00 in security and $400,000.00 in other valuable consideration which was the discharge of instrument No. 684682 (the mortgage of December 18, 1992 referred to above).
[14] On the same day, an Assignment of Mortgage was registered on the farm property assigning the mortgage to Janja. The documents were prepared by Troster. Also on the same day, a Discharge of Charge/Mortgage with respect to that mortgage was registered.
[15] Additionally, a Charge/Mortgage of Land in the amount of $475,000.00 was registered with IMF as chargor and the Bank of Montreal as chargee. Janja also personally guaranteed the mortgage.
[16] Upon closing and using the funds from the Bank of Montreal mortgage advance, CIBC mortgages registered against the farm property were paid in full in the amounts of $288,486.00, $23,455.17, and $92.45. $12,208.00 was paid to the Minister of Finance; $118,743.73 was paid to David's law firm in trust (with $100,00.00 of those funds being paid to Muriel); $9,500.00 paid to the realtor; $16,711.86 was paid for tax arrears and $3,983.04 was paid to the lawyer, Troster. The balance of funds was $1,819.75. The balance of funds to the estate account out of the $118,743.73 was $15,387.86.
[17] On June 11, 1998, the farm property was transferred from IMF to Janja as trustee. The consideration was $2.00 as this was described as a transfer from trustee to trustee.
[18] The farm property was eventually divided into two parts, Part I 61R9737 and Part 2 61R9737. A portion of Part I was sold by Janja to Peter and Janet Steffens for $449,000.00 and Janja retained a portion of Part I. Part 2 was retained by Janja. Both properties are subject to encumbrances.
[19] With respect to the trademarks, in the Statement of Estate Accounting of the Estate of John Sr., the trademarks and copy were valued at $1,000.00. The rights to the trademarks were purportedly assigned from John Sr. and son Robin Ingle to Muriel and then assigned from Muriel to 932129 Ontario Inc. ("932129"). All parties in this litigation conceded that the trademarks were owned by John Sr. at the time of his death and should have gone to his estate and not Muriel.
[20] 932129 subsequently commenced an action against Trent Health Insurance Services Corp. with respect to the use of those trademarks and sought damages of $3,000,000.00 in May 2002. The Defendant in that action ceased using the trademarks and the action is in abeyance.
The Plaintiff's Position
[21] Reliable presented no viva voce evidence in this trial and relied upon a Request to Admit dated February 9, 2009 in the farm action, a Request to Admit dated February 9, 2009 in the trademark action and the numerous documents contained within those Requests to Admit. The Plaintiff also relied upon the transcript of evidence of the examination of David which was held on October 26, 2011. Upon agreement of the parties, each counsel read in their portion of the examination of David. I was also provided with a video recording of the examination which I watched prior to writing this decision. Counsel for the Plaintiff also chose to read in parts of the transcript from the examination for discovery of Janja, which was held on September 22, 2004.
[22] It is Reliable's position that pursuant to the Act and the AP Act, the conveyances of the farm property from the Estate of John Sr. to IMF and from IMF to Janja should be found to be contrary to both those Acts and that the farm property still owned by Janja should be sold and eighty percent of the proceeds distributed to Reliable. There are many "badges of fraud" including the $400,000.00 mortgage registered against the property initially in December 1992. The mortgage, which was part of the consideration for the purchase by IMF in 1995, is itself fraudulent and was part of the fraudulent intent to defeat the rights of Reliable as creditor.
[23] The mortgage was purportedly for loans made to John Sr. and Muriel for improvements to the farm property which improvements were made over a number of years. The evidence of John Jr. was that these loans were to be re-paid at the agreed interest rate of prime plus two percent. He and Janja further testified that their companies' accountant kept meticulous records of these advances to John Sr. and Muriel. However, there was no promissory note or mortgage evidencing these loans until the mortgage was registered after John Sr.'s death.
[24] Reliable's concern is that in the three volumes of documentation presented at trial to evidence the loans provided by John Jr. and Janja, there is only one cheque payable to John Sr. and no invoices. There are numerous invoices to John Jr.'s companies and to John Jr.
[25] In the letter from Muriel to Janja, prepared almost three years after the mortgage was registered on title and signed by Muriel, Janja and John Jr., there is no mention of the mortgage and the terms of the letter are Reliable states, contrary to that mortgage. The parties to the mortgage from 1992 are effectively treating it as non-existent in 1995.
[26] Additionally, Reliable states that the mortgage is legally invalid as it was executed by Muriel in her personal capacity and not by the Estate of John Sr. The effect of the mortgage was to provide Janja and John Jr. a preference of $400,000.00 and the purported consideration (money for farm property improvements) was advanced prior to the execution of the mortgage.
[27] Reliable states that there are other badges of fraud but that the court only needs to find one badge of fraud and then the onus shifts to the Defendants to adduce evidence showing an absence of fraudulent intent. Reliable relies on the decisions of Conte (Executrix and trustee of) v. Alessandro, 2002 CanLII 20177 (ON SC) and Shaher er al. v. Rasheed et al, 2011 ONSC 3679 in support of its position.
[28] The conveyance of the farm property was not arm's length and the consideration was inadequate which partly consisted of the fraudulent mortgage. The only money put into the purchase by the Purchasers was the borrowed funds from the Bank of Montreal of $475,000.00. Even if the court accepts that the $475,000.00 is new money from the Purchasers or money they contributed, it is still only one-half of the appraised value of the farm property. Additionally, Reliable submits that even if the court were to accept that the $400,000.00 mortgage was a bona fide mortgage, this was money which was all advanced prior to John Sr.'s death.
[29] The rest of the consideration consisted of 100,000 shares in IMF (representing $100,000.00 on the sale of the farm property) which were delivered to Muriel and should have been to the Estate of John Sr. Additionally, the request from the estate lawyer David via letter that the shares be delivered to the Estate of John Sr. and not to Muriel, was not responded to by the Defendants' lawyer Troster.
[30] As a result of the conveyance of the farm property, the Estate of John Sr. had no assets to pay its creditor Reliable or any other creditor. The only money left in the Estate was $15,000.00. The only asset of the Estate which could be realized for any money was gone. This was all done despite the fact that at the time of the conveyance, there was an action against the Estate for an amount of money in excess of the net value of the farm property.
[31] Reliable also submits that another badge of fraud is the fact that David, the Estate lawyer, testified that he did not prepare the Affidavit of value of consideration sworn by Janja. He indicated that often the Purchaser's lawyer would complete this document but he verified that he had not. Troster commissioned the Affidavit of Janja and there was no direct evidence of Troster. Reliable states that this was an essential part of the transaction but that the Purchasers went to their own family lawyer and not to the estate lawyer to complete the Affidavit which is concerning.
[32] Reliable submits that the relevance of the evidence regarding the trademarks and trade names is that this is similar fact evidence which is the intent to defeat the claims of the creditors. The issue of credibility of the Defendants is paramount.
[33] David testified that the trademarks and trade names were valued at $1,000.00 for the purposes of the Estate of John Sr. His evidence was that this was on the advice of Muriel and son Robin Ingle who worked in the family business. These trademarks and trade names were transferred to John Jr.'s company in October of 1998 on the basis of an Affidavit sworn by John Jr. Reliable submits that in this Affidavit, John Jr. failed to address the issue that the trademarks and trade names were properly the assets of the Estate of John Sr. and not Muriel's to transfer.
[34] The result of the transfers was clearly to John Jr.'s benefit. Thereafter, John Jr.’s company commenced litigation concerning infringement and passing off of those trademarks and trade names. Reliable submits that neither the transfer of the trademarks nor the litigation would have been warranted if the trademarks and trade names were of nominal value. They were of considerable value as evidenced by the pleading in the litigation concerning those trademarks and trade names.
[35] Reliable also relies on the AP Act for its position that both the conveyance of the farm property and the mortgage for $400,000.00, are unjust preferences. They submit that the test is whether at the time of the conveyance of the farm property and the registration of the mortgage, the Estate of John Sr. was in insolvent circumstances or knew itself to be on the eve of insolvency. The litigation involving Reliable was before the court at the time. There was no doubt on the part of the Defendants what the ultimate result would be and that the Estate would not have the assets to pay the amounts claimed by Reliable.
[36] Reliable submits that the evidence of John Jr. that he thought the Reliable lawsuit had no merit and was not a concern is not credible. The matter went to trial and it was contested over a number of days. The fact that Judgments were received in favour of Reliable and that the appeal of those Judgments was dismissed, speaks to the merits of the claim made by Reliable.
[37] Reliable's position is that it would have been entitled to $500,000.00 with respect to the farm property taking into consideration encumbrances at the time and setting aside the fraudulent conveyance. As the farm property has been divided and some parts sold to innocent third parties, it is not possible to set the conveyance aside. Reliable submits that there should be a sale of the property owned by Janja being Part 2 - 61R9737 and Part I - 61R10475. The net proceeds of sale after payment of encumbrances and other subsequent liens, would be distributed proportionately to Reliable and Janja, eighty percent to Reliable and twenty percent to Janja, to a maximum of $500,000.00. Any amount over that would be distributed to Janja.
Evidence of David
[38] David was the lawyer for the Estate of John Sr. and one of the executors of the estate along with Muriel. He stated that the farm property was originally registered in the name of John Sr. "in trust." He did not know of the mortgage registered against the property on December 18, 1992 and prepared by Troster. He does not think that Muriel discussed this with him.
[39] The fact that the 100,000 Class A shares, part of the consideration for the 1995 purchase of the property, were not issued to the Estate of John Sr. did not register with him at the time of the sale of the farm property. He wrote a letter to Troster on February 13, 1996 regarding this issue but he does not have any record of a response. He did receive the share certificate. He does not think that he prepared the Affidavit of value for consideration with respect to the sale and it was common practice for the purchaser's lawyer to prepare this document.
[40] The value of the trademarks and copy of $1,000.00 of the Estate was a result of a meeting with Muriel and Robin, her son. He was not aware that the Estate transferred the trademarks and copy to Muriel.
[41] He was not involved in the negotiations with respect to the terms of sale of the farm property to IMF. He did not have any meetings with Janja and cannot recall any meetings or discussions with John Jr. regarding the transaction. He was assured by Muriel that all the Ingle family members knew of the deal of IMF to purchase the farm property and that they were all satisfied with the terms of the sale. He does not recall discussing with Muriel the circumstances or the basis for the $400,000.00 mortgage. He did hear from some source that the mortgage was for improvements to the farm property. His concern at the time was to be sure that all the members of the family were satisfied with the terms of the sale of the farm property and the mortgage. His mind did not go to Reliable Life. David did not recall if he had any concerns about the assumption of the mortgage as part of the credit for the purchase price.
[42] David drafted the will for John Sr. The Estate either did not have any bank accounts or had an insignificant amount of money in them. He heard that Muriel was making the mortgage payments on the farm property and agreed these were properly liabilities of the Estate.
[43] At the time of John Sr.'s death, David's law partner Mr. Crabbe was counsel of record and at trial involving the litigation with Reliable. He was aware when John Sr. died in 1992 that the lawsuit by Reliable had been commenced in 1989. He did not have any concerns in 1992 that the sale of the farm property would appear to be defeating any rights of Reliable. He had been advised by Mr. Crabbe that Mr. Crabbe was very confident that the Reliable lawsuit had no merit and that the counterclaim was likely to prevail.
[44] At no time did he have any discussions with anyone that the purpose of transferring the farm property was to defeat creditors. David by that point had practiced law for 34 years with no disciplinary hearings taken against him. He did not feel that anything he was doing with respect to the probate of the Estate or the transfer of title was improper in any way.
[45] David and his firm were sued by Reliable in his capacity as executor of the Estate. That matter has settled.
The Defendants' Position
[46] Reliable must show fraudulent intent of both the Estate and Janja to defeat the interests of Reliable and there is no evidence of that in this case.
[47] The fact that there is a transfer of the farm property from Muriel to John Jr. and his company is not relevant as this was the family homestead for 150 years and there was a desire to keep the farm property in the family.
(i) Evidence of John Jr.
[48] The following is a summary of the evidence of John Jr.
[49] John Jr. is 68 years old and married to Janja. They have two children, Chelsea and Alexandra. John has three siblings: Heather, Gaile and Robin. Robin and John Sr. were involved in M.H. Ingle and Associates and were involved in the litigation with Reliable.
[50] He first became aware of the Reliable legal action in approximately 1990 to 1991. His understanding was that there was "sour grapes" between the parties. None of the Ingle family viewed the lawsuit as serious.
[51] He has been involved in three companies: NCI, IMF, which also involved his wife Janja and daughter Tamara from a previous marriage, and Manswood Town Industrial Estates Ltd. ("Manswood") , a subsidiary of NCI. Neither John Jr.s' parents nor siblings are or were involved in any of these companies.
[52] The farm property was mainly used by the family for weekend retreats and entertainment. The first time family members lived on the property was when he and Janja moved there in 1993 after John Sr.'s death.
[53] John Sr. loved to build and design and he and Muriel asked John Jr. to lend them money for improvements to the farm property. He agreed to do so through his companies, IMF, NCI and Manswood. There were no fixed payment terms and no formal agreement in writing. Interest was at the rate of prime plus two percent. The bookkeeper of John Jr.'s companies, John Lenny, who passed away in 1996, kept track of the loans and expenditures. Accounting ledgers and other information were provided to John Sr. and Muriel. After John Lenny passed away, Janja was involved with the bookkeeping.
[54] He and Janja were not involved in the administration of John Sr.'s estate or probate. Months after John Sr.'s death, there were discussions with Muriel regarding the farm property. Muriel did not have the same interest in the farm property as John Sr. John Jr.'s siblings were interested but they did not want to "carry the load" as the costs to run the farm were substantial.
[55] All of John Jr.'s siblings, Muriel and John Jr. were involved in the decision-making regarding the farm property. Within three months of John Sr.'s death, John Jr. started to press for security for the loans advanced to his parents as the parties were going to look for a third party purchaser. There was no discussion of the Reliable claim.
[56] All of the siblings, Muriel and John Jr. discussed the monies owing to John Jr.’s companies and ledger sheets were produced along with invoices which had been paid. John Jr. and Janja agreed to deduct a large amount of interest after pressure from brother Robin. The parties arrived at the figure of $400,000.00.
[57] The family thought that it was obvious that Muriel should be giving the mortgage as she was the sole beneficiary of the Estate. No issue was raised by the lawyers. The mortgage was registered on December 18, 1992.
[58] Meetings were held with the family including Robin's wife and finally in September 1995 it was agreed that the farm property would be sold to John Jr.'s family. Muriel wrote a letter to Janja on September 30, 1995 indicating that the farm property could be sold as long as the property was held in trust for John Jr. and Janja's children. His siblings were aware of the letter.
[59] The sale of the farm property closed on December 21, 1995. The Assignment of the mortgage registered on the same day was to compensate Janja as in 1990 Janja and John Jr. transferred assets between them shortly after marriage. Janja was owed approximately $400,000.00 due to the differences in the values of the properties exchanged. The $400,000.00 mortgage was discharged as part of the purchase of the property. A new mortgage was put on the property with the Bank of Montreal which Janja personally guaranteed.
[60] The total amount given in cash for the purchase of the farm property was $447,500.00. Muriel also received all of the $100,000.00 for the shares of IMF. All of the family members were satisfied that proper payments were made and that Muriel was paid for the shares.
[61] The farm property was transferred from IMF to Janja as trustee for the children Chelsea and Alexandra on June 11, 1998 based on tax advice received.
[62] The trademark action John Jr. commenced has not been dismissed but it is not moving ahead. His name was being used without a legal right to do so therefore his company commenced litigation. It did not occur to him that the trademarks belonged to the Estate and not to Muriel. The lawyers did not realize this error either. The trademarks in that litigation are expunged and no money was made on the trademarks by John Jr. or his companies. Nothing was done regarding the trademarks to defeat any rights of Reliable.
[63] On cross-examination, John Jr. admitted that the value of the trademarks was probably $5,000.00. The transfer of the trademarks was part of a much broader transaction with BMO Nesbitt Burns. He believed that the trademarks devolved to Muriel and not to the Estate of John Sr. The litigation involving the trademarks was commenced in order to have the Defendants in that litigation stop using his name as his name has value to him.
[64] With respect to the loans to his parents for farm improvements, most monies were paid directly to the contractors or the individual doing the labour. Only one cheque was written to his father. There was no promissory note or mortgage and only after his father's death was a mortgage registered. There was a period of advances from 1988 to 1992 and no set amount. After his father's death, a mortgage was necessary as his siblings were examining everything and they all had different interests. He had to prove what he had advanced to his siblings and then he obtained the security.
[65] The mortgage document guaranteed twenty percent interest but he is confident that is a typographical error. He waived interest at the end. He went to Troster to prepare the mortgage documents as he was familiar with him.
[66] With respect to the shares, he does not believe that Troster ever answered David's letter regarding the shares being given to Muriel and not the Estate.
[67] The Estate received more than $15,000.00 as the mortgages and tax arrears were paid off and over $400,000.00 made in improvements to the farm property.
[68] The farm property was divided and Janja retained fourteen acres of Part I 61R10475. That piece is subject to two encumbrances, a first mortgage to Bank of Montreal for $412,000.00 and a second mortgage of $250,000.00 to Mr. Horowitz. Janja also retained Part 2 61R9137, which is one hundred acres, subject to the same encumbrances.
(ii) Evidence of Janja
[69] She was a shareholder in IMF in 1992 and the sole director in March of 1994. She was never a director or shareholder of NCI. John Jr. also had the company Manswood and her involvement in Manswood was only to assist the bookkeeper John Lenny. None of John Jr.'s siblings or his parents ever had any involvement in IMF, NCI or Manswood.
[70] Janja was not involved in the companies' bookkeeping from 1989 to 1992. During these years many improvements were made on the farm property. Some of these improvements included: grading of the roadway, renovating the farm house heating systems, replacing windows, foundations repaired on structures but not the farm house, renovations to the arena, bank barn and loafing barn, living quarters were built for the manager of the property, fencing was erected around seventy acres, and seven large paddocks were constructed.
[71] All of the improvements were paid for through her husband John Jr.'s companies. She was not personally involved with the payments.
[72] She first became aware of the Reliable court action in the year 2000 when she was served with a Statement of Claim against her personally. Her husband had not been involved in her father-in-law's insurance business.
[73] After John Sr. died in 1992, she and John Jr. discussed the need for security for the loans they had advanced to John Sr. and Muriel for the improvements on the farm property. They wanted to be paid back the money which was owed to them and wanted a "sense of security" for their own family's future.
[74] She was not involved in the discussions concerning the mortgage securing their loans with John Jr.'s siblings. The Reliable litigation was "absolutely not" a reason for obtaining the security in 1992 for the loans advanced previously.
[75] Janja was personally involved in trying to reconstruct the accounting with respect to the improvements on the property. She compiled three volumes of backup documents for trial which she completed over ten to eleven years. She used Lenny's records including summaries, general ledgers, disbursement journals, Visa summaries, cancelled cheques and any invoices she could find or cheques to support the invoices for all three of the companies, IMF, NCI and Manswood. She would crosscheck these items and when she could not locate these documents as back up, she referred to the stamp placed on the documents by Lenny's assistant, Ms. Torrance. Many documents had Ms. Torrance's handwritten notes or stamp. Janja also summarized all of this for trial and did not add any notes to the documents. The calculations completed by Janja were completed by year.
[76] She concluded that the total advanced by the three companies to John Sr. and Muriel was $416,215.45 and the interest was $242,566.43. The interest was calculated based on Lenny's calculations and interest table he utilized which was the bank prime interest rate plus two percent. One payment was received for approximately $77,000.00 from John Sr. All interest was waived after John Jr. negotiated with his siblings and Muriel.
[77] The letter from Muriel to her dated September 30, 1995 was given to her by John Jr. When she signed the letter she was accepting that she would hold the property in trust for her children, Chelsea and Alexandra. She has established a trust for the children. In 1998 she wanted to wind up IMF and transfer the property to the children. Title to the farm property was changed to Janja Ingle in trust for tax purposes as well.
[78] Under cross-examination, Janja stated that she did not think that Muriel was asking for her and the children to pay the balance for the farm property over fifteen years. She felt that the proposal from Muriel was "heartfelt" and that Muriel wanted the legacy to continue. This letter was initially a proposal from Muriel but no arrangements had been negotiated as of the date of the letter.
The Law
[79] The relevant sections of the Fraudulent Conveyances Act, R.S.O. 1990, c. F-29 are as follows:
- In this Act,
“conveyance” includes gift, grant, alienation, bargain, charge, encumbrance, limitation of use or uses of, in, to or out of real property or personal property by writing or otherwise; (“cession”)
“personal property” includes goods, chattels, effects, bills, bonds, notes and securities, and shares, dividends, premiums and bonuses in a bank, company or corporation, and any interest therein; (“biens meubles”)
“real property” includes lands, tenements, hereditaments and any estate or interest therein. (“biens immeubles”) R.S.O. 1990, c. F.29, s. 1.
Where conveyances void as against creditors
- 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. R.S.O. 1990, c. F.29, s. 2.
Where s. 2 does not apply
- 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. R.S.O. 1990, c. F.29, s. 3.
[80] The relevant sections of the Assignments and Preferences Act, R.S.O. 1990, c. A.33 are as follows:
Nullity of gifts, transfers, etc., made with intent to defeat or prejudice creditors
- (1) Subject to section 5, every gift, conveyance, assignment or transfer, delivery over or payment of goods, chattels or effects, or of bills, bonds, notes or securities, or of shares, dividends, premiums or bonus in any bank, company or corporation, or of any other property, real or personal, made by a person when insolvent or unable to pay the person’s debts in full or when the person knows that he, she or it is on the eve of insolvency, with intent to defeat, hinder, delay or prejudice creditors, or any one or more of them, is void as against the creditor or creditors injured, delayed or prejudiced. R.S.O. 1990, c. A.33, s. 4 (1).
Unjust preferences
(2) Subject to section 5, every such gift, conveyance, assignment or transfer, delivery over or payment made by a person being at the time in insolvent circumstances, or unable to pay his, her or its debts in full, or knowing himself, herself or itself to be on the eve of insolvency, to or for a creditor with the intent to give such creditor an unjust preference over other creditors or over any one or more of them is void as against the creditor or creditors injured, delayed, prejudiced or postponed. R.S.O. 1990, c. A.33, s. 4 (2).
When there is presumption of intention if transaction has effect of unjust preference
(3) Subject to section 5, if such a transaction with or for a creditor has the effect of giving that creditor a preference over the other creditors of the debtor or over any one or more of them, it shall, in and with respect to any action or proceeding that, within sixty days thereafter, is brought, had or taken to impeach or set aside such transaction, be presumed, in the absence of evidence to the contrary, to have been made with the intent mentioned in subsection (2), and to be an unjust preference within the meaning of this Act whether it be made voluntarily or under pressure. R.S.O. 1990, c. A.33, s. 4 (3)….
[81] The Ontario Court of Appeal, in the decision of FL Receivables Trust 2002-A v. Cobrand Foods Ltd., 2007 ONCA 425, (2007), 85 O.R. (3d) 561 (C.A.) at paras. 39 and 40 stated:
[39] The crucial question in any fraudulent conveyance action is whether the plaintiff has proved the fraudulent intent of the debtor. While the legal burden to prove fraudulent intent remains on the plaintiff throughout the trial, the plaintiff can raise an inference of fraud sufficient to put a “burden of explanation” on the defendant debtor. The plaintiff typically raises an inference of fraud by putting forward “badges of fraud.” These “badges of fraud” vary from case to case. They are no more than typical and suspicious facts that may allow the court to make a finding of fraud absent an explanation from the debtor. See C.R.B. Dunlop,Creditor-Debtor Law in Canada, 2d ed. (Toronto: Thomson Canada, 1995) at 613-15.
[40] The court, however, is not compelled to draw this inference of fraudulent intent from badges of fraud pleaded by the plaintiff. See Koop v. Smith 1915 CanLII 26 (SCC), (1915), 51 S.C.R. 554 at 558-59. The court may dismiss a fraudulent conveyance action because it has decided that the surrounding circumstances taken as a whole explain away the plaintiff’s evidence.
[82] As stated by Quinn J. in Bank of Montreal v. Peninsula Broilers Limited, [2009] O.J. No. 2129 (S.C.J.) at paras. 75 to 76:
¶75 "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": see CIT Financial Ltd. v. Zaidi, (2006), 2006 CanLII 8469 (ON SC), 24 R.F.L. (6th) 78 (Ont. S.C.J.) at para. 21.
¶76 Where the conveyance was made for good consideration, "the plaintiff must show the fraudulent intent of both parties to the conveyance": see Commerce Capital Mortgage Corp. v. Jemmett, [1981] O.J. No. 1242, 1981 CarswellOnt 147 (S.C.) at para. 41.
[83] Justice Quinn also summarized the law in relation to fraudulent conveyances at paras. 78 to 82 as follows:
¶78 When determining whether a conveyance is fraudulent, "the applicable standard of proof is proof on a balance of probabilities, but to a higher degree of probability than would apply in an ordinary civil case. Where misconduct such as fraud is alleged, the degree of proof required must be commensurate with the gravity of such allegations. Proof commensurate with the occasion requires particular attention to the cogency of the evidence of fraud offered against the defendant": see CIT Financial Ltd. v. Zaidi, supra, at para. 23, citing Continental Insurance Co. v. Dalton Cartage Co. Ltd. (1982), 1982 CanLII 13 (SCC), 131 D.L.R. (3d) 559 at 563 - 564 (S.C.C.).
¶79 "In other words, 'clear and sufficient proof' is required": see CIT Financial Ltd. v. Zaidi, supra, at para. 24, citing Hickerson v. Parrington, [1891] 18 O.A.R. 635 at 643 (C.A.).
¶80 "This may be equated with 'substantial evidence' ": see CIT Financial Ltd. v. Zaidi, ibid, at para. 24, citing Dwyer v. Fox (1996), 1996 CanLII 10477 (AB KB), 43 Alta. L.R. (3d) 63 at 73-74 (Q.B.).
¶81 The court "is not compelled to draw this inference of fraudulent intent from badges of fraud pleaded by the plaintiff ... The court may dismiss a fraudulent conveyance action because it has decided that the surrounding circumstances taken as a whole explain away the plaintiff's evidence": see FL Receivables Trust 2002-A v. Cobrand Foods Ltd. (2007), 2007 ONCA 425, 85 O.R. (3d) 561 (C.A.) at para. 40.
¶82 In cases where there are badges of fraud or suspicious circumstances surrounding a conveyance, "there is no 'onus' shift, but simply a question of legitimate explanation that may be required in circumstances of suspicion": see Park v. Bhandari, [2007] O.J. No. 2237, 2007 CanLII 20981 (On S.C.) at para. 38, aff'd 2008 ONCA 884.
Disposition
[84] On the evidence before me, I do not find that there is clear and sufficient proof or substantial evidence that the mortgage registered on December 18, 1992 or the transfer of the farm property on December 21, 1995 from the estate of John Sr. to IMF were fraudulent conveyances made in an attempt to defeat the claims of Reliable. There was no fraudulent intent on the part of Muriel, John Jr. or Janja or any fraudulent activity through their companies. I find that the death of John Sr. was the triggering event for the mortgage in December 1992 and the transfer in 1995, not the lawsuit brought by Reliable in 1989.
[85] The claim brought by Reliable in 1989 was made against John Sr., Muriel, Robin and the company M. H. Ingle and Associates Insurance Brokers Limited. The claim did not involve Janja or John Jr. At the time of the transfer of the farm property in 1995, the Reliable action had been outstanding for six years and was still three years from trial.
[86] There seems to be no dispute that major improvements were made to the farm property between the years 1989 to 1992. There were three volumes of documents presented by Janja through her direct examination which evidenced that these improvements were made to the farm property. While counsel for the plaintiff submitted that only one of these invoices was directed to John Sr., I accept that these improvements were completed via advances from John Jr.'s companies and accurate records were kept by Mr. Lenny, the companies' accountant. It is entirely conceivable that the contractors involved in the improvements would have been billing John Jr. or his companies directly as he or his companies were advancing the funds. The fact that there was only one invoice directed to John Sr. does not prove that these advances were not legitimately made.
[87] I accept that at the time of John Sr.'s death in May of 1992, Janja and John Jr. would have been extremely concerned that they had no security with respect to the monies advanced to John Sr. and Muriel with respect to the improvements on the farm property. It is not unreasonable to infer that these advances were made in good faith and without the need for a promissory note or mortgage given the relationship between John Jr. and his parents. I also accept John Jr.'s evidence that after the death of his father, he and his mother along with his siblings were all discussing what was to happen to the farm property. John Jr.'s evidence was that the parties were contemplating at the time a potential sale to a third party and it is apparent that John Jr. and Janja wanted to ensure that they had security for the monies which they had advanced with respect to the improvements on the farm property.
[88] I also accept the evidence of John Jr. and Janja that they wanted to ensure that they had security with respect to the monies which were advanced by John Jr.'s companies because they wanted to protect their interests with respect to the potential competing interests of John Jr.'s siblings. The fact that Muriel in her letter to Janja in September of 1995 did not mention the existing mortgage registered in 1992, does not lead me to conclude that there was in fact no mortgage in existence or no debt owing. It was clear that the letter was a starting point for the negotiations which ultimately led to the purchase of the farm property by IMF. The failure to mention the mortgage in that letter by Muriel does not prove fraudulent intent or prove that the mortgage was not legitimate. Clearly these funds were advanced as evidenced by the records kept by Mr. Lenny.
[89] I found the evidence of David to be extremely helpful. I found that his answers to the questions put to him were answered in an honest and forthright manner. David testified that at the time of John Sr.'s death, his law partner Mr. Crabbe was counsel of record and eventually was trial counsel with respect to the litigation with Reliable. David testified that he was aware that the lawsuit by Reliable was commenced in 1989. While he did admit that he did not have any knowledge of the mortgage transaction in 1992, he stated that he did not have any concerns that the sale of the farm property would appear to be defeating any rights of Reliable. He admitted that he had been advised by Mr. Crabbe that Mr. Crabbe was very confident that the Reliable lawsuit had no merit and that the counterclaim was likely to prevail.
[90] David was the lawyer for the estate and was also one of the estate trustees. He testified that at no time did he have any discussions with anyone with respect to transferring the farm property in order to defeat creditors. He also testified that he did not feel that anything he was doing with respect to the probate of the estate or the transfer of title was improper in any way. At that point David had practiced law for over 34 years and no disciplinary hearings had been taken against him.
[91] David also testified that he was not involved in the negotiations with respect to the terms of sale of the farm property to IMF. He did not have any meetings with Janja and he could not recall any discussions with John Jr. regarding the transaction. Most importantly, he was assured by Muriel that all the Ingle family members knew of the deal of IMF to purchase the farm property and that they were all satisfied with the terms of the sale. He stated that his concern at the time was to be sure that all the members of the family were satisfied with the terms of the sale of the farm property and the mortgage and that his mind did not go to Reliable. He did not recall if he had any concerns about the assumption of the mortgage as part of the credit for the purchase price. Even though many years have passed and memories have faded, if this were a significant concern to David, surely there would have been a note in his file or he would have recall of that significant issue. I accept that the family did not raise a concern regarding the mortgage nor the sale of the farm property to IMF. I also accept that the mortgage transaction and the transfer of the property to IMF in 1995 were not completed for the purpose of defeating any creditor.
[92] David's evidence corroborates the evidence of John Jr. and Janja that they all thought the lawsuit brought by Reliable was without merit and it was apparent that they did not pay much heed to the lawsuit by Reliable. I do not find that Reliable was in the forefront of the discussions within the family as to what was to happen to the farm property. The discussions which took place within the family appear to be normal discussions that would take place in any family after the death of a father in order to assist their mother and to ascertain what was to happen to a significant family property. It is apparent that a number of discussions were held between the siblings and that the transfer of the farm property did not even take place until approximately three years after the death of John Sr. If there was a serious concern about the Reliable lawsuit, and there was a desire to fraudulently convey the farm property, one would expect that that conveyance would have taken place much earlier than three years after the death of John Sr.
[93] I also find that based on the evidence before me that there was appropriate consideration with respect to the purchase of the farm property by IMF from the estate of John Sr. The documentation produced with respect to the sale of the farm property to IMF, clearly shows that not only the mortgages which were registered against the property by CIBC which totalled $312,033.62 were paid, but an additional $12,208.00 was paid to the Minister of Finance, $118,743.73 was paid to David's law firm in trust (with $100,000 of those funds being paid to Muriel), $9,500.00 was paid to the realtor, $16,711.86 was paid with respect to tax arrears on the farm property and $3,983.04 was paid to the lawyer Troster. It was clear that adequate consideration was paid for the farm property.
[94] The plaintiff submits that the mortgage executed by Muriel in her personal capacity is legally invalid as it should have been given by the Estate of John Sr. It was clear from the evidence that this was an error that was not caught and that family members assumed that as Muriel was the sole beneficiary of the estate she could execute the mortgage as they had also assumed with respect to the transfer of the trademarks. The plaintiff's submission that the effect of the mortgage was to provide Janja and John Jr. a preference of $400,000.00 and that the purported consideration was advanced prior to the execution of the mortgage, does not render these transactions invalid or fraudulent. These badges of fraud as alleged by the plaintiff do not create an inference of fraudulent intent in this situation. The surrounding circumstances taken as a whole defeat the plaintiff's claim that these were fraudulent activities.
[95] The plaintiff also submits that the $475,000.00 which was advanced by IMF was all borrowed money from the Bank of Montreal. This, the plaintiff claims, shows that this was not money put in personally by the purchasers. However, this mortgage was personally guaranteed by Janja and I do not accept the position taken by the plaintiff that the consideration was as a result inadequate. If there was fraudulent intent on the part of Janja, it would make no sense for her to personally guarantee the Bank of Montreal mortgage.
[96] The fact that the rest of the consideration for the purchase of the farm property in 1995 by IMF consisted of 100,000 shares in IMF, which were delivered to Muriel and should have been to the estate of John Sr., does also not render the transaction fraudulent. It was apparent from the testimony of David as well as the testimony of John Jr. that all members of the family were unaware that Muriel was not the rightful owner of the shares. Neither David the estate lawyer, nor any lawyer or member of the Ingle family was aware that this transaction was improper at the time. I accept that the members of the Ingle family as well as David assumed that the transfer of the shares to Muriel was valid as she was the sole beneficiary of the estate of John Sr. As David testified, the members of the Ingle family were satisfied with the terms of the sale of the farm property in December 1995. David testified that he later realized that the shares should not have been issued to Muriel but rather they should have been issued to the estate of John Sr. and he wrote a letter to Troster on February 13, 1996 regarding this issue. There is no doubt that he should have received a response from Troster as a professional courtesy, however, the lack of a response does not create fraudulent intent on the part of John Jr. and Janja.
[97] The fact that John Jr. and Janja chose to use Troster as their lawyer to complete the Affidavit of value and consideration and for other transactions also does not create fraudulent intent. As David testified, it is often the purchaser's solicitor who completes this affidavit with respect to the sale. Although it might have made more sense for the estate lawyer to complete this affidavit it was not a requirement. I accept that John Jr. and Janja were familiar with Troster and wanted to use his services.
[98] David testified that the trademarks and trade names were valued at $1,000.00 for the purposes of the estate. His evidence was that this figure was given to him by Muriel and Robin. The failure of John Jr. to acknowledge that these trademarks were the property of the estate and not Muriel, in an affidavit sworn by him in October of 1998, was once again a failure to understand that all of the assets of the estate did not pass to Muriel upon the death of John Sr. I accept that there was no fraudulent intent. The subsequent lawsuit involving the use of those trademarks and trade names by a third-party was brought for the purpose of having a third-party cease from using John Jr.'s name. The lawsuit is now in abeyance and the fact that the lawsuit was brought seeking a substantial amount of money does not confirm that these trademarks and trade names were of substantial value.
[99] I also do not find that the mortgage transaction in 1992 and the transfer in 1995 are unjust preferences under the AP Act. At the time of both the mortgage and the transfer, there was no evidence that the Estate of John Sr. was insolvent or knew itself to be on the eve of insolvency. There was a lawsuit by Reliable against John Sr. and his company, however, this was a contingent claim and one which John Sr.’s own lawyer was confident would be dismissed and the counterclaim would prevail.
[100] For all of the above reasons, I dismiss the two actions brought by Reliable against the remaining Defendants.
Order
[101] The claims brought by the Plaintiff Reliable Life Insurance Company, in action 00-CV-190536 against Muriel Helena Ingle, Ingle Manor Farms Inc., Janja Maria Ingle and 932129 Ontario Inc. and in action 05-CV-302792PDI against 932129 Ontario Inc. and Ingle Insurance Brokers Inc., and Muriel Helena Ingle are dismissed.
[102] I urge the parties to agree on costs but if they are unable to do so, the Defendants, shall serve and file written costs submissions no longer than 3 double-spaced pages, along with a Costs Outline within 20 days and the Plaintiff shall serve and file written costs submissions, no longer than 3 double-spaced pages along with a Costs Outline 20 days thereafter.
Stevenson J.
Released: June 15, 2012