NEWMARKET

COURT FILE NO.: CV-12-112112-00 and CV-12-111325-00
DATE: 20130916
CORRIGENDA: 20130924

ONTARIO
SUPERIOR COURT OF JUSTICE

BETWEEN:

799168 Ontario Limited, D.C. Badran Investments Ltd and Kamel Ken Badran

Plaintiffs

– and –

1797066 Ontario Inc., Keysar Nasr also known as Keyser Nasr, and Claude Marche

Defendants

Eric Nadler, for the Plaintiffs
Ronald Chapman, for the Defendants

AND BETWEEN:

HSBC Bank Canada

Plaintiff

– and –

Keysar Nasr also known as Keyser Nasr

and Amal Nasr

Defendants

Philip Polster, for the Plaintiff
Ronald Chapman, for the Defendants

HEARD: June 26, 2013

REVISED RULING ON MOTION FOR SUMMARY JUDGMENT

The text of the original judgment has been corrected with the text of the corrigendum (released today’s date)

gilmore J.:

Overview

[1] The defendants bring a motion in both actions for an order dismissing the plaintiffs’ claims on the basis that the limitation period under the Limitations Act 2002 S.O. 2002 c.24 (“LA”) for making the claims has expired.

[2] As the relief claimed was the same for both actions, the matters were heard together and a ruling will be made in the context of this motion in relation to both actions.

Factual Background

Facts Relating to Court File No. CV-12-112112-00 (799168 Ontario Ltd. action)

[3] In this action, the plaintiffs’ claims are for declarations that a conveyance made by the defendant, Keysar Nasr (“Nasr”), to 1797066 Ontario Inc. (“1797066”) of his one-third interest in a property in Gormley, Ontario (“the Gormley property”) was fraudulent and was designed to defeat his creditors. The Gormley property has already been sold by the plaintiffs, D.C. Badran Investments Ltd. (“Badran”), and the money from the sale is held in an interest bearing trust account by the solicitors for the plaintiffs. The action seeks to attach by reason of the judgment, the proceeds from sale representing the former one-third interest held by Nasr in the Gormley property.

[4] In November 2009, the plaintiffs obtained default judgment and later an execution against Nasr in connection with his guarantee on a $2,300,000 mortgage on a commercial property owned by a Nasr affiliated company, located in Scarborough. Another Nasr affiliated company, Nasr Foods Inc., operated a grocery business from the same property, but went bankrupt in October 2009, leaving $3,500,000 of unpaid creditors.

[5] In November 2010, the plaintiff, Badran, commenced power of sale proceedings with respect to Nasr’s default on the Gormley property and specifically in relation to Nasr’s one-third interest in that property. The property was sold on January 31, 2012, and the proceeds exceeded the amount outstanding on the Badran mortgage by $464,635.18 and are currently held by the plaintiff’s counsel, Eric Nadler, in trust.

[6] Coincident with commencing power of sale proceedings, title to the Gormley property was searched. At that time, it became apparent from the title abstract that Nasr had conveyed his one-third interest in the Gormley property to the co-defendant, Claude Marche, in June 2009. Nasr did not advise the plaintiffs of any change in ownership at any time.

[7] Corporate file searches show Nasr as the sole incorporator, officer and director of 1797066. An execution in relation to Nasr’s one-third interest in the one-third property had been filed in March 2010 and the statement of claim in the within action issued on September 4, 2012.

[8] In late 2011 or early 2012, the plaintiffs learned of the existence of a fraudulent conveyance action which had been commenced by another creditor of Nasr and Nasr Foods Inc. An action was brought by the Toronto Wholesale Produce Association (“Toronto Wholesale”) against 1797066, Nasr, his wife, his sister and another company owned by Nasr. That claim was issued on December 16, 2009.

[9] Toronto Wholesale obtained a judgment against Nasr Foods Inc. and sought to enforce the judgment by way of the fraudulent conveyance action against Nasr’s personal assets, including his personal residence at 14 Personna Drive, Markham, Ontario (the “Personna property”) and the Gormley property. A judgment in the fraudulent conveyance action was issued on September 26, 2011 and registered against the Gormley property on September 30, 2011. That judgment declared that the conveyances of Nasr’s residence from himself and his wife as joint tenants, to his wife alone on February 20, 2009 of the Personna property and the conveyance by Nasr to 1797066 of his one-third interest in the Gormley property were fraudulent conveyances designed to defeat his creditors. Those creditors included both the plaintiff and another creditor in the companion action herein, HSBC Bank Canada (“HSBC”). Those judgments restored Nasr’s one-third interest back from 1797066 to Nasr personally thereby leaving his interest in the Gormley property and his personal residence exigible for his creditors.

[10] In mid-2012, the plaintiffs learned that Nasr brought a motion to set aside the Toronto Wholesale fraudulent conveyance judgment to allow him to defend the action. As the judgment was set aside, the action remained outstanding and was set to proceed to trial in Toronto with a result that the original judgment could be restored. However, sometime during the summer of 2012, the plaintiffs learned that Toronto Wholesale had abandoned their action and agreed to a consent dismissal of it without costs. The plaintiffs did not participate, nor were they consulted or advised of Toronto Wholesale’s decision.

[11] The effect of the consent dismissal was to remove the challenge that had been asserted by Nasr’s creditors with respect to the one-third interest in 1797066 and the conveyance of his personal residence. As a result, the plaintiffs commenced this action in order to attach the power of sale proceeds from the Gormley property held by Eric Nadler, in trust.

[12] The defendants take the position that the plaintiffs knew or ought to have known prior to September 4, 2012 (i.e.: two years prior to the plaintiffs’ claim being issued) of the existence of the impugned conveyance and therefore their claim is now statute barred.

[13] The plaintiffs submit several arguments in relation to a dismissal of the motion for summary judgment.

(a) There is no explicit limitation period with respect to fraudulent conveyances in the LA and therefore section 4 of the LA does not apply;

(b) The plaintiffs’ claims were for declaratory relief and as no consequential relief is sought, no limitation period can be imposed (section 16(1)(a) of the LA);

(c) The plaintiffs were entitled to await the outcome of the Toronto Wholesale action as the judgment recovered in that action is in favour of Nasr’s creditors, which included the plaintiffs. It was reasonable for the plaintiffs to avoid a multiplicity of proceedings and when they became aware of the dismissal of Toronto Wholesale’s action, they took appropriate steps;

(d) It is not appropriate to dispose of an action on a motion for summary judgment involving a limitation period where there is an issue over the alleged circumstances necessary to trigger the presumption;

(e) The defendants were in breach of their mortgage obligations by deliberately concealing a transfer and such deliberate action would toll or suspend the operation of any limitation period; and,

(f) The action is governed by the ten year limitation period set out in the Real Property Limitations Act, R.S.O 1990, c. L-15 (“RPLA”) because it is an action for a declaration to recover money out of land.

Facts Relating to Court File No. CV-12-111325-00 (HSBC Bank Canada action)

[14] In this action the defendant, Keysar Nasr, was, at the material time, the guarantor of the indebtedness to the plaintiff of two companies, Nasr Foods Inc. and Sahara Foods International Inc. A demand for payment was sent by the plaintiff to Nasr for $1,350,000 on December 18, 2008. There was no response and a statement of claim was issued on January 20, 2009. Default judgment was granted to the plaintiff on April 22, 2009.

[15] Unbeknownst to the plaintiff, on February 20, 2009, the defendants transferred title of the Personna property from Keysar Nasr and his wife, Amal Nasr to Amal Nasr alone. The transfer was without consideration and the plaintiff’s action challenges it as being a fraudulent conveyance. The plaintiff became aware on December 16, 2009 that an action had been commenced by Toronto Wholesale in which, among other relief, a declaration was sought that the transfer of the Personna property be set aside as a fraudulent conveyance. A default judgment granted on September 26, 2011 in favour of Toronto Wholesale set aside the impugned transfer. Subsequently the default judgment was set aside and shortly thereafter, Toronto Wholesale consented to a dismissal of the action on July 30, 2012.

[16] The plaintiff was not consulted or advised of Toronto Wholesale’s intention to consent to a dismissal before it did so. Only after the plaintiff became aware of the dismissal of the Toronto Wholesale action did it become reasonable or necessary for the plaintiff to commence this proceeding and seek to set aside the transfer of the property as being a fraudulent conveyance. Until the Toronto Wholesale proceeding was dismissed, HSBC and other creditors of Keysar Nasr, including the creditors in the accompanying action, would have been the beneficiaries of any order obtained in that proceeding. The plaintiff takes the position that it would have been unreasonable and an unnecessary duplication of legal proceedings for the plaintiff to have commenced its proceeding at any prior time.

[17] The plaintiff’s arguments in defending the motion for summary judgment are similar to those in the 799168 action and are as follows:

(a) The Fraudulent Conveyances Act, R.S.O. 1990, c. F-29 (“FCA”) does not impose any limitation period on when an action may be brought nor is there any limitation period under the LA;

(b) The FCA is remedial legislation to assist a creditor in recovering property where the debtor has conveyed or transferred property to others with an intention to defeat the rights of creditors; and,

(c) If any limitation period applies, it is either:

(i) the ten year limitation period in the RPLA;

(ii) section 16(1)(a) of the LA because only declaratory relief is sought; or,

(iii) if the two year limitation period under the LA applies, the claim was not discovered until after the dismissal of the Toronto Wholesale action.

[18] The defendant takes the position that the plaintiff knew or ought to have known the existence of the impugned conveyances and therefore their claims are now statute barred. The registration of the impugned conveyances was open and available to be known by the plaintiffs with a minimum of investigation. It was reasonable for the plaintiffs to have done a title search to determine the status of matters and they cannot rely on the Toronto Wholesale action as a form of tolling. Further, the plaintiffs are seeking consequential relief, being the payout of funds being held in trust to them and therefore the exception in the LA for declaratory relief does not apply.

Is an action to set aside a fraudulent conveyance subject to the LA?

Section 4

[19] Section 4 of the LA states as follows:

Unless this act provides otherwise, a proceeding shall not be commenced in respect of a claim after the second anniversary of the day on which the claim was discovered.

[20] The defendants rely on Frank Bennett’s text on Creditors and Debtors Rights and Remedies[^1] for the proposition that there is no limitation period on actions brought under the FCA, nor is there any limitation period under the LA.

[21] The defendants also rely on the case of Perry, Farley and Onyschyk v Outerbridge Management Ltd.[^2]. Unfortunately, that case was decided prior to the new LA legislation in 2002 and deals with specific exceptions in the old legislation which no longer apply.

[22] The defendants’ position is that neither action was commenced within the two year limitation period and both actions are therefore statute barred and should be dismissed.

Section 16 (1)

[23] Section 16(1)(a) of the LA sets out as follows:

There is no limitation in respect of a proceeding for a declaration if no consequential relief is sought.

[24] Section 16(1)(b) of the LA sets out as follows:

A proceeding to enforce an order of the court, or any other order that may be enforced in the same way as an order of a court.

[25] The plaintiffs submit that they are seeking declaratory relief because they are simply asking the court to pronounce on a legal relationship, but do not seek any order which can be enforced against the defendant. No further legal proceedings are required to implement the declaration as the funds are held in trust and can be distributed without further legal proceeding or intervention of the court. The plaintiffs also submit that even if their claims are found to include claims for consequential relief, those claims relate to the enforcement of a judgment and pursuant to section 16(1)(b) no limitation period precludes that action.

[26] The defendants take the position that consequential relief is being sought. They rely on Toronto Standard Condominium Corp. No 1703 v. 1 King West Inc.[^3]. In that case, the plaintiff sought a declaration that mortgages had been fraudulently conveyed. Master Glustein found that the LA applied because “a court order for priority over a mortgage is more than declaratory relief. It is a claim for consequential relief, i.e.: relief that has consequences for the proposed defendant”.[^4] The master’s decision on that point was upheld by the Divisional Court.[^5]

Section 5(1)(b)

[27] Section 5(1)(b) of the LA sets out as follows:

A claim is discovered on the earlier of:

(a) The day on which the person with the claim first knew, (1) that the injury, loss or damage had occurred; (2) that the injury, loss or damage was caused by or contributed to by an act or omission; (3) that the act or omission was that of the person against whom the claim was made; (4) that, having regard to the nature of the injury, loss or damage, a proceeding would be an appropriate means to seek to remedy it; and,

(b) The day on which a reasonable person with the abilities and in the circumstances of the person with the claim first ought to have known of the matters referred to in clause (a).

[28] The plaintiffs argue that they must know all of the matters referred to in sub-clauses (a)(i through iv), including information that the limitation period would start running on the day that the plaintiff first knew that the proceeding would be an appropriate means to remedy the injury, loss or damage. The plaintiffs argue that they were entitled to await the outcome of the Toronto Wholesale action as the judgment covered in that action was in favour of Nasr’s creditors which included all of the plaintiffs. The plaintiffs argue that it would have been improper for them to commence further proceedings while the Toronto Wholesale action was pending, as that action sought exactly the same relief as these actions do. It was only when the plaintiffs became aware of the dismissal of the Toronto Wholesale action in July 2012 that they knew, pursuant to section 5(1)(a)(iv), that commencing a new proceeding would be an appropriate remedy.

[29] On the issue of discoverability, the plaintiffs argue that they must have knowledge that some injury, loss or damage has occurred. In the 799168 case, the plaintiff first learned of the impugned transfer on November 16, 2010, which was the date of the title search for the purpose of issuing the power of sale. Their claim, having been issued on September 4, 2012, was therefore in time. With respect to the HSBC plaintiff, it does not deny that it was aware of the state of title to the subject property by June 2, 2009 and its statement of claim was issued on September 6, 2012. However, they relied on the Toronto Wholesale action, which sought a declaration that the transfer of the Personna property be set aside as a fraudulent conveyance. Further, the order of September 26, 2011 granted judgment to Toronto Wholesale, resulting in the transfer of the property being set aside. The plaintiff, HSBC, was not consulted or advised of Toronto Wholesale’s intention to dispense with the dismissal of the action before it did so. Only after it became aware of the dismissal of the Toronto Wholesale action did it become reasonable or necessary for HSBC to commence its proceeding and seek to set aside the transfer of the property as a fraudulent conveyance. Until then, HSBC was the beneficiary of any order obtained in the Toronto Wholesale proceedings, since it requested the setting aside of the impugned transfer of the Personna property.

[30] The plaintiffs deny that there is any authority which requires a creditor to continually search a debtor’s property to see if the debtor has conveyed it away fraudulently. They argue that if that were the case, it would be impossible to know when the limitation period would start running.

[31] The defendants’ central argument is that the plaintiffs ought to have searched the properties when they filed their executions, and if they had done so, they would have discovered the impugned conveyance. However, the plaintiffs argued that there was no reason for them to conduct a search because (a) they had no reason to believe that their execution had not attached to the defendants’ interest; (b) they had no reason to believe that the defendant would attempt to fraudulently convey his interest in order to avoid his creditors; and (c) they were entitled to rely on the Toronto Wholesale proceedings, and when this proved not to be the case, they were forced to commence their own proceedings. The plaintiffs argue that there is a genuine issue of discoverability, which must be deferred to trial.

[32] The defendants argue that the registration of the impugned conveyance was open and available to be known by the plaintiffs with a minimum of investigation and that title searches should have been done when executions were registered. As such, with respect to the 799168 action, the latest date of March 9, 2010, being the filing of the writ of execution against the subject property, would commence the running of the limitation period, which would expire on March 9, 2012. With respect to the HSBC action, it issued a notice of sale under mortgage on June 2, 2009 and the defendants argue that title should have been searched at that point, which would result in the limitation period ending in June 2011.

[33] As the plaintiffs were aware of the impugned transfers, they could have taken certain steps, such as implementing a bilateral tolling agreement, which would have resulted in the suspension of the limitation period. The defendants argue the plaintiffs cannot rely on the Toronto Wholesale action as a form of tolling, as tolling requires a signed bilateral agreement. Therefore there is no basis for the plaintiffs to argue that the limitation period is somehow suspended as a result of the Toronto Wholesale action.

Equitable Fraud

[34] The plaintiffs in the 799168 action argue that the mortgage contractually obligated the defendants to notify the plaintiffs of any change in legal or beneficial ownership of the land. The onus was on the defendants to do so, and there was no evidence that they ever did, for obvious reasons. The defendants are in breach of their mortgage obligations by deliberately concealing the transfer. Such transfer results in a fraudulent concealment of their action which would toll or stay the operation of any limitation period.

[35] The 799168 plaintiffs rely on Manitoba Metis Federation Inc. v. Canada (Attorney General)[^6]. They rely on this case for the proposition that, “it is well established that where there has been a fraudulent concealment of the existence of a cause of action, the limitation period will not start to run until the plaintiff discovers the fraud, or until the time when, with reasonable diligence, he ought to have discovered it. The fraudulent concealment necessary to toll or to spend the operation of the statute need not amount to deceit or common law fraud. …“‘Fraud’ does not necessarily imply moral turpitude: it is enough if the conduct of the defendant or his agent is so unconscionable that it would be inequitable to allow him to rely on the limitation period”.[^7]

[36] The defendants’ response to this argument is the same as on the issue of discoverability. The defendants argue that a reasonable person with some amount of diligence could have discovered the impugned transfers with a minimum amount of effort.

Is the action governed by sections 4 and 23 of the RLPA?

[37] Section 4 of the RLPA 1990 c.L-15:

Limitation where the subject interested

No person shall make an entry or distress, or bring an action to recover any land or rent, but within ten years next after the time at which the right to make such entry or distress, or to bring such action, first accrued to some person through whom the person making or bringing it claims, or if the right did not accrue to any person through whom that person claims, then within ten years next after the time at which the right to make such entry or distress, or to bring such action, first accrued to the person making or bringing it.

[38] Section 23 of the RLPA 1990 c.L-15:

Limitation where money charged upon land and legacies

No action shall be brought to recover out of any land or rent any sum of money secured by any mortgage or lien, or otherwise charged upon or payable out of the land or rent, or to recover any legacy, whether it is or is not charged upon land, but within ten years next after a present right to receive it accrued to some person capable of giving a discharge for, or release of it, unless in the meantime some part of the principal money or some interest thereon has been paid, or some acknowledgment in writing of the right thereto signed by the person by whom it is payable, or the person’s agent, has been given to the person entitled thereto or that person’s agent, and in such case no action shall be brought but within ten years after the payment or acknowledgment or the last of the payments or acknowledgements if more than one, was made or given.

[39] The plaintiffs argue that the declarations sought in their actions relate to recovering money out of land or money or payable out of land and the sum of money to be recovered is secured by a lien, which in this case is an execution. The plaintiffs rely on Equitable Trust v. Marsig[^8]. In that case, the Ontario Court of Appeal determined that a claim on a guarantee given with respect to a mortgage was not governed by the LA, but was governed by section 23 of the RPLA. The Court of Appeal concluded that the LA was an enacted to deal with limitation periods other than those affecting real property. The plaintiffs emphasize that this decision postdates the Toronto Standard Condominium Corp decision.

[40] The defendants argue that the RPLA does not apply as the plaintiffs are not seeking to recover land or rent. They are seeking to set aside a transfer so they can obtain sale monies. They do not want the land as the land has already been sold in both cases. The defendants rely on the Toronto Standard Condominium case and emphasize that this case was upheld on appeal to the Divisional Court.

Analysis and Ruling

[41] The test for summary judgment is set out by the Ontario Court of Appeal in Combined Air Mechanical Services v. Flesch[^9]. It is now well accepted that the motions judge on a summary judgment motion must have a full appreciation of the evidence on the motion for summary judgment. If this cannot be achieved, the matter must go on to trial. In this case, I do not find that a full appreciation of the evidence can be achieved by way of this motion. I agree with the findings of the Court of Appeal in Alexis v. Darnley[^10];

Because discoverability is a factual analysis, it will often be inappropriate to dispose of the issue on a motion for summary judgment.[^11]

[42] It is trite to say that on the issue of discoverability, the facts will necessarily be contradictory. The real issue in this case is whether or not the plaintiffs have discharged their onus in providing sufficient evidence with respect to the date of discoverability. In my view, some very legitimate issues have been raised by the plaintiffs which lend themselves to an argument that the limitation period either does not apply, or started on a date later than that submitted by the defendants.

[43] On the issue of whether or not the plaintiffs’ claims are for declaratory relief alone, I find that there is a triable issue as to whether or not the collection of funds held in trust by way of execution on the part of the plaintiffs can be considered consequential relief. While the Toronto Standard Condominium Corp. case supports an argument that consequential relief is being sought in the case at bar, I am also mindful of the decision in Yellowbird v. Samson Cree Nation[^12] in which the court found that the test for determining whether a remedy was declaratory or remedial should be viewed in the context of whether or not the plaintiff could enjoy the benefits of the declaration without further resort to the judicial process. There is a good argument that enforcement of the judgment is not a further resort to the legal process, and that even if it were, enforcement of the judgment does not attract a limitation period as per section 1(b) of the LA.

[44] With respect to the Toronto Wholesale action, I find there is a triable issue as to whether or not the plaintiffs could rely on that as a form of suspending the limitation period. It seems reasonable in all of the circumstances that the plaintiffs would be entitled to rely on a judgment for exactly the same relief they are now seeking and remain as judgment creditors with respect to that judgment. I accept as reasonable their submission that a multiplicity of proceedings was to be avoided and that they acted promptly upon discovering that the Toronto Wholesale action had been dismissed on consent.

[45] Further, there is unchallenged evidence that the plaintiff in the 799168 case learned of the impugned transfer on November 16, 2010, which was the date of search of title for the purpose of issuing the power of sale. Therefore the September 4, 2012 claim may well have been in time with respect to the two year limitation period if the LA applies. This evidence cannot be ignored with respect to the plaintiffs discharging their onus.

[46] While the defendants insist that the plaintiffs should have searched title at the time of registration of their writ of seizure and sale, the defendants did not present any law to support the degree of diligence the plaintiffs must exercise in similar circumstances. Indeed, the plaintiffs raised the issue of how often they would otherwise be required to search title and whether or not imposing such obligations results in an inability to determine the start date of the limitation period.

[47] The plaintiffs argue that the defendants were engaged in fraudulent concealment of the impugned transfer, thereby breaching their mortgage contract with 799168. Such a fraudulent concealment would result in the suspension of the operation of any limitation period. It is clear from the standard charge terms provided that the defendants were in breach of those terms. This again raises evidence which the plaintiffs would be able to rely on with respect to discharging their onus in relation to the limitation period.

[48] The plaintiffs also raise an argument that these actions are subject to the provisions of the RLPA. Given the very clear comments of the Court of Appeal in Equitable Trust v. Marsig with respect to the RLPA dealing with limitation periods affecting real property, the plaintiffs have provided some evidence which may rebut the presumption that the LA applies. There may well be a triable issue as to whether or not the fact that the subject lands have now been sold means that the actions are no longer subject to the provisions of the RLPA.

[49] Given all of the above, I find that the plaintiffs have provided evidence which, if believed, would rebut the presumption that the two year limitation period applies to their actions. As such, the defendants’ motion is dismissed.

[50] If the parties cannot agree on costs, I will receive written submissions on a seven day turnaround, commencing with the moving party, fourteen days from the date of release of this Ruling , followed by responding submissions, then reply submissions, if any. Cost submissions shall be no more than two pages in length, exclusive of any costs outline or offers to settle. All costs submissions shall be delivered via email through my assistant at jennifer.beattie@ontario.ca.

Justice C.A. Gilmore

Released: September 24, 2013

CORRIGENDA

1. Paragraph [23] – The text of this paragraph has been corrected to read, “There is no limitation in respect of…”.

[^1]: F. Bennett, Bennett on Creditors and Debtors Rights and Remedies, 5th ed, (Toronto: Carswell, 2006) at p. 92
[^2]: (2001), 87 O.R. (3d) 131 (ONCA).
[^3]: 2009 55330 (ON SC), [2009] O.J. No. 4216.
[^4]: Ibid at para. 117.
[^5]: Toronto Standard Condominium Corp No. 1703 v 1 King West Inc., 2010 ONSC 2129 (Div. Ct.) at para.38.
[^6]: 2010 MBCA 71.
[^7]: Ibid at para. 301.
[^8]: 2012 ONCA 235.
[^9]: 2011 ONCA 764.
[^10]: 2009 ONCA 847.
[^11]: Ibid at para. 12.
[^12]: 2008 ABCA 270.