COURT FILE AND PARTIES

COURT FILE NO.: C-311-12
DATE: 2012-09-21

SUPERIOR COURT OF JUSTICE – ONTARIO

RE: Gerger Mechanical Ltd., Plaintiff

and

Daniel Kostas Salvarinas and Mary Salvarinas

BEFORE: The Honourable Mr. Justice G.A. Campbell

COUNSEL: C.D. Clemmer, for the Plaintiff

W. Ribeiro, for the Defendant, Daniel Kostas Salvarinas

R. Y. Moubarak, for the Defendant, Mary Salvarinas

HEARD: September 20, 2012

ENDORSEMENT

[ 1 ] Although most of the day was consumed by argument on the defendants’ Notice of Motion to dismiss the plaintiff’s claims (for damages and a declaratory order setting aside a transfer of title between the defendants) as being statute-barred, significant argument was heard regarding the plaintiff’s Notice of Motion for a Certificate of Pending Litigation (“C.P.L.”) with regard to the property transferred by the defendant, D. Salvarinas to his wife, M. Salvarinas.

[ 2 ] Before the Court rose for the lunch break, I rendered a decision on the defendants’ Motion to dismiss. I gave brief oral reasons then for that decision.

[ 3 ] I accept that, as gate-keeper, I was perhaps remiss by allowing the extent of argument that I did on the C.P.L. issue, since, by Rule 42.01 (3), a motion for a C.P.L. may be brought without notice to any of the defendants and one might assume that such a request was pro forma.

[ 4 ] The only requirement that a moving party need establish under the Rule is that a claim for a C.P.L. is included in the originating process, together with a description of the land against which a C.P.L. is intended to be registered, if issued

[ 5 ] That requirement has been met. Accordingly, pending trial of the issue of the allegation of a fraudulent conveyance levelled by the plaintiff against the defendant, D. Salvarinas, it would appear that a C.P.L. should issue in the usual course of an action such as this. Argument on the continuation or viability of a C.P.L. would occur if/when a defendant sought to have the C.P.L. discharged pursuant to s.103 (6) of the Courts of Justice Act , R.S.O. 1990, c.C-43, after a finding was made that the allegation had not been proven.

[ 6 ] In any event, I recite here some of the relevant facts that lead to the extent of the argument on the plaintiff’s motion for a C.P.L.

[ 7 ] In October 2004 this plaintiff issued a Construction Lien Act trust action against the defendant, D. Salvarinas and others. In June 2005, Mr. Salvarinas transferred his joint legal interest in his home to his wife, the other defendant in this action. The first action was settled in November 2007 by Mr. Salvarinas and some of the other defendants. Those defendants who settled agreed to pay this plaintiff $300,000 in monthly payments until that obligation was discharged.

[ 8 ] The defendants to that first action eventually defaulted in those payments and this plaintiff obtained a judgment in January 2011 against all three defendants. That judgment provided that they were each jointly and severally obliged to pay $181,249.88 plus costs and interest

[ 9 ] The plaintiff took steps to collect that judgment. To date it has been unsuccessful.

[ 10 ] One step in that collection effort was to examine Mr. D. Salvarinas in February 2012 as a judgment debtor. On that occasion, the plaintiff discovered that although Mr. Salvarinas is a) employed full time; b) has an annual salary of $43,000; c) by a corporation of which he is President; d) he denied being paid any present income therefrom; e) he denied that he has any ownership in the corporation; f) he refused to disclose who owns shares in that corporation; g) he has no other income or assets; and h) he conceded that the corporation “owes” him “arrears of wages” of $80,000 for the years 2010 and 2011.

[ 11 ] As a result of that information, it became patently evident to this plaintiff that a) having disposed of his equity in the matrimonial home to his wife in 2005 “for $2.00 and natural love and affection” (some eight months after this plaintiff had sued him) and b) Mr. Salvarinas has no present income or other assets, the plaintiff’s only recourse was to seek to set aside that 2005 transfer from husband to wife, since it is the only potentially exigible asset by which the plaintiff might obtain satisfaction of its judgment against Mr. Salvarinas.

[ 12 ] Accordingly, the plaintiff started this action in April 2012 against both Mr. & Mrs. Salvarinas to try to persuade this court to set aside the 2005 transfer as void as against this plaintiff.

[ 13 ] In those circumstances it appears to me, given Rule 42.01,, s.103 of the Courts of Justice Act and the existence of a judgment against Mr. Salvarinas, that the plaintiff does indeed have an existing interest (not just a potential claim) in the transferred property (the matrimonial home). Accordingly, it is entitled to an order for a C.P.L. It is exactly in these circumstances that such a certificate was created and intended to address in order to preserve an asset, pending trial, so that it is not further encumbered or disposed of.

[ 14 ] As s. 103 (1) of the Courts of Justice Act sets out, the mere existence of an interest or “the commencement of a proceeding in which an interest in land is in question ...” is insufficient notice to any third party of such interest or claim “... until a certificate of pending litigation is issued ... and registered ...”. Accordingly, the plaintiff needs a C.P.L. registered on title to give notice of its claim.

[ 15 ] Much argument was heard and case law tendered regarding what is necessary before a moving party may obtain a C.P.L.

[ 16 ] Three of those cases relied upon by the defendants are:

Grefford v. Fielding (2004) , 70 O.R. (3d) 371 R. Smith J.

Ni v. Zheng 2010 ONSC 4049 Allen J.

Thompson v. 1465491 Ontario Inc. (2011), ONSC 1546 Stinson J.

[ 17 ] It is important to note that no finding has been made (nor was I asked to make such a finding) at this early stage of the action that a fraudulent conveyance either occurred or did not occur. Hence there is a need for a trial to hear evidence that will either form the basis for such a finding or that there was no such (or insufficient) evidence for same and therefore insufficient basis upon which the transfer should be set aside and for a discharge of the C.P.L.

[ 18 ] The motion for summary dismissal that I decided earlier in the day was based entirely on the effect of the Statute of Limitations on this action and not on the evidence before me by affidavit, as was the circumstance of the Thompson case ( supra ).

[ 19 ] As well, the Ni v. Zheng decision to vacate the existing C.P.L. by Allen J. was only after trial and after the Justice found that the evidence was insufficient to establish fraudulent intent. As a result Justice Allen declined to set aside the conveyance and vacated the C.P.L.

[ 20 ] On that basis I distinguish both of those cases as unhelpful in these circumstances.

[ 21 ] Regarding the Grefford case, I have re-read the relevant parts of Justice Stinson’s Reasons (Issue #2 is not relevant in this case) and find that, after a hearing , that the Greffords’ evidence did

“not demonstrate that they have a reasonable claim to an interest in the land ... as the property was not the subject of any claim in their main action ... based on s.2 of the Fraudulent Conveyances Act where no reasonable claim to an interest in land is made in the main action ...”

[ 22 ] I was directed by Mr. Ribeiro specifically to para. 26 of Stinson J.’s reasons which reads:

I have reviewed the relevant cases provided by counsel, and I find that in order to obtain a CPL in an action claiming to set aside an alleged fraudulent transfer pursuant to the Fraudulent Conveyances Act , i) before obtaining judgment in the main action, and ii) where the claim in the main action does not concern an interest in the land allegedly fraudulently transferred, the following legal tests should be met:

(i) The claimaint must satisfy the court that there is high probability that they would successfully recover judgment in the main action and

(ii) The claimant must introduce evidence demonstrating that the transfer was made with the intent to defeat or delay creditors; evidence that the transfer was for less than fair market value lightens the burdern; and

(iii) The claimant must demonstrate that the balance of convenience favours issuing a CPL in the circumstances of the particular case.

[ 23 ] Mr. Ribeiro concedes that this plaintiff does indeed already have a judgment against Mr. Salvarinas and hence meets the first factor of the test. He, however, argues that the plaintiff does not meet the second two criteria and therefore the request for a C.P.L. is “premature”. I disagree.

[ 24 ] Mr. Ribeiro and Mr. Moubarak’s arguments may resonate better on their future motion to vacate or discharge an existing C.P.L. after the allegation, denials and explanations have been examined, cross-examined and findings made by the court. At this stage of this litigation, the plaintiff has already established the two criteria that the Legislation and the Rule require.

[ 25 ] What is actually premature are their arguments, since the timing of the transfer and the less-than-market-value-consideration for the transfer raise sufficient evidence upon which a court (with the “lighter burden” or onus of proof upon the plaintiff) could find that there was indeed the requisite intent to divest the asset and to put it out of reach of this plaintiff with regard to that first action (which clearly pre-dated the transfer).

[ 26 ] I have also re-read two other cases upon which Mr. Ribeiro relies, namely:

Optrust East Industrial Inc. v. Syke (2010), ONSC 6989, Bielby J.; and

Vettese v. Flemming (1992), 8 C.P.C. (3d) 237 , Chapnik J.

[ 27 ] In Optrust , the motion was to seek a discharge of a C.P.L. on the evidence that was before the court and upon which Justice Bielby made findings of fact. None of that has occurred here. Indeed, in this case pleadings are not yet closed and questioning under oath has not occurred.

[ 28 ] Therefore, I distinguish the Optrust case and cannot fathom how the Vettese case supports the defendants’ arguments when Justice Chapnik overturned the Master’s discharge of the C.P.L. She restored the original order for the C.P.L. to be registered.

[ 29 ] Under section 103 of the Courts of Justice Act , R.S.O. 1990, c. C.43, a certificate of pending litigation may be issued by the court where a proceeding is commenced in which an interest in land is in question. The authorities cited above confirm the principle that if reasonable claims are put forward in an action for a fraudulent conveyance in respect of a property, a certificate of pending litigation may issue, pending trial. The party seeking the certificate need not prove its case at this point. The test to issue a C.P.L. is met where there is sufficient evidence to establish a reasonable claim to an interest in the land based upon the facts, and on which the plaintiff could succeed at trial: Vettese v. Fleming, supra , at p.p. 244-245 (per Chapnik J.); 931473 Ontario Ltd. v. Coldwell Banker Canada Inc. (1991), 5 C.P.C. (3d) 238 (Ont. Gen. Div.)

[ 30 ] Accordingly, for these reasons a Certificate of Pending Litigation shall issue forthwith.

[ 31 ] Costs are granted to the plaintiff.

[ 32 ] I await counsel’s resolution of costs for both this motion and the defendant, D. Salvarinas’ Notice of Motion for Dismissal based upon the Statute of Limitations, which motion was dismissed

[ 33 ] If no resolution of costs is achieved after 10 working days from the release of this endorsement, I will accept the plaintiff’s written submissions within 20 days and both defendants’ responses within 20 days thereof. The plaintiff’s may then reply thereto within 10 days thereof.

G.A. Campbell J.

Released: September 21, 2012