Domus Financial Corporation v. Sutharvili Thirukumar et. al., 2013 ONSC 3123
2013 ONSC 3123
ONTARIO – SUPERIOR COURT OF JUSTICE
Domus Financial Corporation v. Sutharvili Thirukumar et. al.
John Lo Faso for the plaintiff
Thirunavukarasu Thirukumar in person
ENDORSEMENT
Master R.A. Muir -
1This is a motion brought by the plaintiff in connection with both of the above actions. The plaintiff seeks the following relief:
(a) leave to amend its statement of claim in action no. 08-CV-350934 to include a claim for a declaration that the transfer by the defendant Sutharvili Thirukumar (“Sutharvili”) and her husband, the defendant Thirunavukarasu Thirukumar, also known as Tom Thiru (“Thiru”), of certain property known as 4724 Carpenter Court, Claremont, Ontario (the “Claremont Property”) is void, along with other related relief;
(b) leave to issue a certificate of pending litigation (“CPL”) over the Claremont Property pursuant to section 103 of the Courts of Justice Act, R.S.O. 1990, c. C.43 (the “CJA”) and Rule 42.02 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 (the “Rules”);
(c) an order for tracing and accounting in respect of any sale proceeds from the Claremont Property;
(d) partial summary judgment for the payment of certain “reinvestment costs”;
(e) relief from the deemed undertaking rule; and,
(f) an order consolidating these two actions.
BACKGROUND
2The plaintiff’s 2008 action was commenced for the purposes of obtaining a declaration that the defendant Sutharvili had made an improvident sale of a property located at 7398 Yonge Street, Suite 31D, Vaughan, Ontario (the “Vaughan Property”). The plaintiff was a second mortgagee in respect of the Vaughan Property. Sutharvili was originally a third mortgagee on the Vaughan Property but at some point she purchased the first mortgage and took an assignment of that mortgage. Sutharvili then sold the Vaughan Property in her capacity as first mortgagee pursuant the power of sale provisions contained in the first mortgage. The plaintiff alleges that Sutharvili’s sale of the Vaughan Property was improvident and resulted in no monies being recovered by the plaintiff under its second mortgage. The plaintiff also alleges that Sutharvili improperly withheld funds from the sale of the Vaughan Property which should have been paid to the plaintiff in its capacity as second mortgagee. The plaintiff has described these funds as the “reinvestment costs”.
3On February 24, 2009, while the 2008 action was pending, Sutharvili and Thiru transferred the Claremont Property to the defendant 1791298 Ontario Inc. (“179”) for no consideration. 179 is a corporation controlled by Sutharvili and Thiru. These defendants claim that the transfer was made for no consideration because it was a transfer from trustee to beneficial owner. They take this position despite the fact that Sutharvili and Thiru took title to the Claremont Property 14 months before 179 was even incorporated. The responding defendants explain this anomaly by alleging that the Claremont property was actually purchased on behalf of Sutharvili’s brother and father as they were unable to obtain mortgage financing on their own. They were the actual beneficial owners and not 179 despite what was stated on the land transfer tax declarations. However, no evidence has been provided by Sutharvili’s brother or father and the plaintiff was frustrated in its efforts to examine those individuals as witnesses on this motion.
4Following the 2009 transfer, Sutharvili, Thiru and their family continued to reside at the Claremont Property.
5After the plaintiff learned of the transfer of the Claremont Property, it commenced the 2011 action seeking a declaration that the transfer was void and constituted a fraudulent conveyance designed by Sutharvili to defeat the claims of her creditors, including the plaintiff.
THE MOTION
6This motion was originally scheduled to be heard on April 3, 2012 by Master Hawkins. The motion was adjourned from that date on the basis of an undertaking given by Sutharvili that she would advise counsel for the plaintiff if the Claremont Property was listed for sale or became the subject of an agreement of purchase and sale. This motion then came before me on October 18, 2012. It was adjourned again due to the fact that the plaintiff had served an amended notice of motion on short notice and Sutharvili wished to file additional responding materials and perhaps conduct cross-examinations. As a condition of the adjournment, I ordered that the plaintiff pay the costs thrown away of the defendant Sutharvili in the amount of $3,000.00, within 30 days.
7No further material was filed and no cross-examinations were conducted. Instead, Sutharvili, or Thiru, caused 179 to transfer the Claremont Property on December 31, 2012, without advising counsel for the plaintiff. This transfer may have been in breach of Sutharvili’s undertaking. I make no finding in that regard as the transfer is the subject of a pending contempt motion, which I will address below.
8The parcel register for the Claremont Property sets out the details of the December 31, 2012 transfer. The sale price was $1,170,000.00. The property was subsequently mortgaged for a total of $1,227,500.00. It appears that part of this was a $350,000.00 second mortgage registered on March 7, 2013 in favour of Sutharvili’s mother. The current first mortgage in the amount of $877,500.00 appears to be an arms’ length institutional mortgage in favour of Home Trust Company. There is no evidence to suggest that the current owner of the Claremont Property is anyone other than an arms’ length purchaser.
9The responding defendants have been represented by counsel throughout most of these proceedings. However, in March 2013, Sutharvili and Thiru filed notices of intention to act in person and counsel for 179 obtained an order removing himself as lawyer of record for the corporation. 179 has yet to retain new counsel or obtain an order permitting a person other than a lawyer to act on its behalf.
ADJOURNMENT REQUEST
10At the outset of the argument of this motion, the defendant Tom Thiru advised the court that Sutharvili was ill and unable to attend. He indicated that he wished to make submissions on her behalf. I advised Mr. Thiru that it was improper for him to do so. He then requested an adjournment to allow Sutharvili to be present. I declined to grant the adjournment request for several reasons. The May 24, 2013 return date for this motion was scheduled with the agreement of all parties in November 2012. Overall, this motion has been pending for more than one year. A further transfer of the Claremont Property has taken place since the last return date of this motion. Finally, Thiru presented no medical evidence substantiating Sutharvili’s condition. Given those circumstances, I was not prepared to grant a further adjournment and I ordered that the motion proceed as scheduled on May 24, 2013. I did, however, indicate to Thiru that I would consider any submissions he wished to make to the court in response to the plaintiff’s motion.
MOTION TO AMEND AND CONSOLIDATION
11I see no basis for refusing to grant the plaintiff leave to amend the statement of claim in the 2008 action and consolidate that claim with the 2011 action. The relief being requested in the amendments to the 2008 action is the same relief that has already been claimed in the 2011 action. The 2011 action was commenced within two years of the transfer of the Claremont Property to 179. No limitation issues arise. There will be no prejudice to the defendants given the existence of the 2011 action. The other remaining defendants in the 2008 action are not opposed to the relief sought in this regard. I am therefore granting this relief.
DEEMED UNDERTAKING RULE
12I am also granting the relief sought by the plaintiff with respect to the deemed undertaking rule. The plaintiff is seeking this relief because it learned of the address of the Claremont Property during the course of its discovery of the defendants in the 2008 action. It then used that information to commence the 2011 fraudulent conveyance action. However, it is clear from the evidence before me that such information would have been readily available from other public sources. A simple driver’s licence search with the appropriate Ministry shows the Claremont Property as Sutharvili’s address. The deemed undertaking rule does not apply to information that is otherwise accessible to the public. See Lac d'Amiante du Québec Ltée v. 2858-0702 Québec Inc., 2001 SCC 51, [2001] 2 S.C.R. 743 at paragraph 78.
PARTIAL SUMMARY JUDGMENT
13I am also prepared to grant partial summary judgment to the plaintiff for the so-called “reinvestment costs” retained by Sutharvili from the proceeds of sale of the Vaughan Property. It is clear from the evidence that when Sutharvili sold the Vaughan Property, she not only kept the amounts owing under the first mortgage, but she also retained certain other amounts relating to her costs associated with her purchase of the first mortgage. Those costs are in the nature of interest paid to borrow the necessary purchase funds and legal fees associated with the purchase of the first mortgage. In my view, neither of those amounts are properly owing under the first mortgage. They certainly would not have been payable had the original first mortgagee completed the power of sale. The interest claim would appear to amount to double collecting on Sutharvili’s part. She collected all of the interest owing on the first mortgage and then collected additional interest she paid to purchase the first mortgage.
14In my view, those additional costs were only incurred because Sutharvili decided to step in and control the sale of the Vaughan Property. Those amounts should not have been retained by Sutharvili. They should have been paid to the plaintiff as second mortgagee pursuant to section 27 of the Mortgages Act, R.S.O. 1990, c. M.40. In my view, there is no genuine issue requiring a trial with respect to this aspect of the plaintiff’s claim. See Rule 20.04. There will be judgment for the plaintiff against Sutharvili in the amount of $36,526.55 plus interest from the date of Sutharvili’s transfer of the Vaughan Property.
LEAVE TO ISSUE CPL
15It is clear that an action to set aside a fraudulent conveyance is an action in which an interest in land is brought into question. See Bank of Montreal v. Ewing (1982), 35 O.R. (2d) 225 (Div. Ct.) at 225. However, it would appear that there are two separate lines of authority with respect to the applicable test the court must apply when deciding whether to grant leave to issue a CPL in the circumstances of an alleged fraudulent conveyance. The first line of authority is known as the prima facie test. This test only requires a plaintiff to demonstrate a prima facie case of fraud with respect to the transfer in question. Ordinarily, this test would involve a review of the so-called “badges of fraud”. See Nordic Insurance Co. of Canada v. Harkness, [2001] O.J. No. 1123 (S.C.J.) at paragraphs 16 and 17.
16The second line of authority can be described as the underlying action test. This approach adds an additional requirement. A plaintiff must also show that its underlying action has a high probability of success. See Grefford v. Fielding (2004), 70 O.R. (3d) 371 (S.C.J.) at paragraph 26.
17In my view, the plaintiff has met both of these tests. Obviously, the plaintiff’s claim has a high probability of success, at least in part. I have, after all, granted judgment to the plaintiff for the so-called “reinvestment costs” in the amount of $36,526.55 plus interest. In addition, the circumstances surrounding the transfer of the Claremont Property reveal several indicators of potential fraud. The transfer from Thiru and Sutharvili to 179 involved closely related parties. 179 is controlled by Thiru and Sutharvili. Thiru and Sutharvili continued to live at the Claremont Property after the transfer to 179. The transfer was made for no consideration. Finally, the transfer was made less than one year after the plaintiff had commenced the 2008 action. Although the responding defendants argued that the Claremont Property was always held in trust for Sutharvili’s brother and father, I am troubled by the lack of direct evidence from those individuals. In my view, it is appropriate for the court to draw an adverse inference from the lack of direct affidavit evidence from the alleged beneficial owners of the Claremont Property.
18If it were not for the December 31, 2012 transfer of the Claremont Property, I would grant the plaintiff leave to issue a CPL. However, it must be remembered that the decision of whether or not to grant leave to issue a CPL is a discretionary one. The court must exercise its discretion in equity and look at all relevant factors. See Clock Investments Ltd. v. Hardwood Estates Ltd. (1977), 16 O.R. (2d) 671 (Div. Ct.) at 674. It would seem that by all appearances, the transfer on December 31, 2012 was made to an arms’ length party for sufficient consideration. It would appear that a conventional institutional first mortgage has now been placed on the Claremont Property. Moreover, the purchaser and the first mortgagee were not given notice of this motion and nor has a claim been issued naming them as parties and seeking such relief against those parties. As a result, potentially innocent parties may be harmed by the registration of a CPL on the Claremont Property. Under these circumstances, it is my view that no CPL should issue at this time. However, I make this order without prejudice to the plaintiff’s right to bring a further motion seeking such relief on notice to the purchaser and the existing mortgagees, when and if a claim is made against those parties.
CONTEMPT MOTION
19The plaintiff has filed a supplementary motion record containing a notice of motion dated May 14, 2013 (the “Contempt Motion”). That motion seeks, among other things, a declaration that Sutharvili breached her undertaking and a finding that Sutharvili is in contempt of court. That motion was made returnable before me. I do not have jurisdiction to deal with most of the relief sought on that motion. Such relief must be obtained from a judge. The only portion of the Contempt Motion I am prepared to deal with is the relief related to 179’s failure to appoint a lawyer of record, as set out in my order below. I am therefore adjourning the balance of the relief set out in the plaintiff’s notice of motion dated May 14, 2013 to be heard by a judge on a date to be fixed by the motion scheduling unit. Under the circumstances, it would be helpful if the earliest possible date could be provided.
COSTS
20The court’s general authority to award costs as between parties to litigation is found in section 131(1) of the CJA. That section provides that costs are in the discretion of the court. Rule 57.01(1) sets out a non-exhaustive list of factors the court is to consider when awarding costs. Rule 1.04(1.1) is also applicable. It requires the court when applying the Rules to make orders that are proportionate to the importance and complexity of the issues and to the amount involved in the proceeding. In general terms, the overall objective for the court is to fix an amount that is fair and reasonable for the unsuccessful party who generally must pay the costs of the successful party. See Zesta Engineering Ltd. v. Cloutier, [2002] O.J. No. 4495 (C.A.) at paragraph 4. In Clarington (Municipality) v. Blue Circle Canada Inc., 2009 ONCA 722 the Court of Appeal stated as follows at paragraph 52:
Rather than engage in a purely mathematical exercise, the judge awarding costs should reflect on what the court views as a reasonable amount that should be paid by the unsuccessful party rather than any exact measure of the actual costs of the successful litigant.
21In my view, the plaintiff has been entirely successful on this motion and is entitled to costs. Although I did not grant leave to issue the CPL, I would have done so if it were not for 179’s transfer of the Claremont Property on December 31, 2012. I did grant all of the other relief sought by the plaintiff on this motion.
22The plaintiff seeks costs in the amount of $60,000.00. This was a complicated motion from a factual and legal perspective. Several appearances were necessary and a great volume of materials were prepared and filed with the court. The motion took several hours to argue.
23I also note that in an earlier and similar motion before Justice Hainey, the responding defendants sought $62,215.22 in costs from the plaintiff on a full indemnity scale and $35,000.00 on a partial indemnity scale. Justice Hainey determined that partial indemnity costs were appropriate and awarded $35,000.00 in costs for that motion. The plaintiff ultimately paid that amount to Sutharvili and Thiru.
24I have carefully reviewed the plaintiff’s costs outline and considered the factors and principles set out above. In my view, the amounts claimed are somewhat excessive but certainly within the general contemplation of the responding defendants given the order made by Justice Hainey. In addition, Thiru advised the court that he incurred similar costs in connection with this motion prior to parting ways with his counsel in March 2013.
25In my view, it is fair and reasonable that the defendants Sutharvili, Thiru and 179 pay the plaintiff’s costs of this motion on a joint and several basis, fixed in the amount of $40,000.00 inclusive of HST and disbursements, payable within 30 days.
ORDER
26I therefore order as follows:
(a) the plaintiff is hereby granted leave to amend its statement of claim in the 2008 action in accordance with the draft amended statement of claim marked as Schedule “A” to the plaintiff’s notice of motion dated October 30, 2012;
(b) action no. 08-CV-350934 and action no. 11-CV-419599 are hereby consolidated and shall be continued under court file no. 08-CV-350934;
(c) the plaintiff shall have leave to file a fresh consolidated statement of claim;
(d) the plaintiff is hereby granted leave to use in action no. 11-CV-419599 the information obtained in action no. 08-CV-350934 (being the fact that the responding defendants resided at the Claremont Property) and that such use is not in breach of the deemed undertaking rule;
(e) the plaintiff is hereby granted partial summary judgment and the defendant Sutharvili shall pay the plaintiff the sum of $36,526.55 plus pre-judgment interest from December 13, 2007 at the rate prescribed by the CJA;
(f) the plaintiff’s request for leave to issue a CPL in respect of the Claremont Property is hereby dismissed, without prejudice to the plaintiff’s right to bring a further motion seeking such relief on notice to the purchaser and the existing mortgagees, when and if a claim is made against those parties;
(g) the defendants Sutharvili, Thiru and 179 shall pay the plaintiff’s costs of this motion on a joint and several basis, fixed in the amount of $40,000.00 inclusive of HST and disbursements, payable within 30 days;
(h) in the event that the plaintiff has not yet paid the costs order of October 18, 2012, such amount shall be deducted from the costs order made on this motion;
(i) the registrar shall not dismiss these actions for delay before December 31, 2013;
(j) 179 shall appoint a new lawyer of record or obtain an order granting it leave to be represented by a person other than a lawyer within 60 days;
(k) approval as to form and content of the formal order from this endorsement is hereby dispensed with;
(l) the plaintiff shall submit any draft order to me for signing; and,
(m) the balance of the relief sought on this motion and the Contempt Motion is hereby adjourned without a date to be heard by a judge on a date to be fixed by the motion scheduling unit.
Master R.A. Muir
DATE: May 29, 2013