SUPERIOR COURT OF JUSTICE

IN BANKRUPTCY AND INSOLVENCY

ESTATE NO.: 31-1092451
HEARD: 20121221
RELEASED: 20130903

In the Matter of the Bankruptcy of

Arthur Haroutioun Adourian,

of the City of Markham
Province of Ontario

(Summary Administration)

APPEARANCES:
K. Page -for the Trustee fax 416-595-1731

A. Potasky -for the Bankrupt and
Rita Adourian, (appealing
creditor) fax 416-489-2378

BEFORE: MASTER D. E. SHORT, Registrar in Bankruptcy

HEARD: December 21, 2012

REASONS FOR DECISION

I. Appeal from Disallowance of Property Claim

[1] Arthur Haroutioun Adourian filed for bankruptcy on July 25, 2008. Kevin Thatcher & Associates Ltd. was appointed as Trustee of the estate. To date there has not been a hearing with respect to the Bankrupt’s discharge.

[2] A Notice of Opposition to his discharge was filed by the Bank of Nova Scotia in 2009 which indicated in part that:

The Bankrupt refinanced his principal residence for the purpose of supporting his business. However, funds from the refinancing were directed to payments on credit cards held by his spouse and a joint line of credit. The bankrupt has failed to provide evidence in support of his claim that his spouse incurred those debts on behalf of the business;

[3] The Bank’s opposition also addressed what became the key issue at the hearing before me:

The Bankrupt has alleged that his 50% interest in his principal residence was transferred to his spouse pursuant to a domestic contract but the said transfer was not registered on title and the said domestic contract has material inconsistencies that call into question its veracity, being executed as of April 1 2005 but referring therein to a re-negotiation of a first mortgage that took place in April 2005 and was registered on title on or about April 26, 2005.

[4] In its Notice of Opposition the Bank asserted that granting the bankrupt an automatic discharge would cause the bankruptcy system to fall into disrepute in the eyes of the reasonable observer who was fully informed of the circumstances in this case.

[5] Those considerations will have to be left for another day as it is premature to address the discharge until the claims of his spouse have been addressed.

[6] In the circumstances it would seem appropriate that I remain seized of this bankruptcy such that, pending any future order to the contrary, the ultimate discharge hearing will be heard by me.

[7] On September 30, 2010 Registrar Mills made an endorsement based upon her decision in Charlestown Residential Schools, 2010 ONSC 4099 which dealt with the appropriate approaches to an appeal from a Trustee’s disallowance. She noted that on consent the matter was to proceed as a true appeal as opposed to a trial de novo. The affidavit says filed were to stand as examinations in chief of the affiants with minimal supplementation, if necessary, and the witnesses “will be subjected to cross-examination in the usual course”.

[8] This approach mirrors the simplified procedure rules under the Ontario Rules of Civil Procedure and was used effectively for the hearing of this matter before me.

[9] I should note as well that one of my predecessors commenced the hearing of the appeal but as that Registrar was not in a position to complete the hearing, I undertook a fresh hearing on the above basis.

II. Nature of Appeal

[10] The Bankrupt at all material times remained married to Rita Adourian (“Rita”). In her affidavit evidence she asserts that she advanced money, belonging to her, to the business of her husband, Nino Karina Leather Goods Inc. (“Karina”).

[11] Cases such as this present great difficulty for trustees in bankruptcy who are endeavouring to establish the true ownership of assets. Here both spouses filed affidavits setting out the facts relating to the home in which they both continued to reside.

[12] Their evidence is that Arthur and Karma could not assure Rita of re-payment of monies advanced by her and this created conflict between Rita and Arthur. In settlement of this issue, Rita and Arthur sought the advice of a lawyer, Mr. Colin James and the assistance of the Canadian Imperial Bank of Commerce (“CIBC”) in March 2005.

[13] Mr. James acted for both parties with respect to the negotiation of a settlement agreement with respect to the financial obligations apparently owing from the husband and his business to his wife.

[14] As a consequence, in this case, we have as well an affidavit filed by the solicitor detailing his understanding of the situation at the time the agreement was entered into.

III. Settlement Agreement

[15] The evidence of all three parties is that the Adourians executed a Settlement Agreement ,stated on its face to be “as of ” April 1, 2005 transferring Mr. Adourian’s 50% of the equity of their matrimonial home at 60 Upton Crescent, Markham Ontario (the “Property”) in satisfaction of the monies totalling $73,200.

[16] As well, according to Rita, there were additional monies lent to Karma and Arthur by Rita totalling another $37,823.52 for which she was not repaid.

[17] Significantly, subsequent to the execution of the Settlement Agreement, the CIBC advanced $70,969.62 as the result of Rita pledging a secured interest in the Property and in order to “monetize her acquired interest” and satisfy her own liabilities that had arisen as the result of monies she had advanced from her own monies, to the business.

[18] On April 8, 2005 the mortgage transaction closed and monies were advanced on or about that date to Rita by credit and debit through their joint account to ultimately her account. As evidenced by the Parcel Register the mortgage was actually registered on April 26, 2005 and there was no subsequent registrations regarding any re-financing by her of the home.

[19] The couple each deposed that subsequent to the Agreement, which on its face is stated to be made as of April 1, 2005, the Adourians have acted upon the Settlement Agreement as if it was in full force and effect, each contributing their respective contributions under Clauses 5.0 and 6.0 with respect to the joint upkeep and maintenance of the home.

[20] The couple were married in 1991. One of the recitals at the commencement of the 27 paragraph agreement notes that the objective of the Husband and Wife was to adjust the ownership interest in the Subject Property in order to fairly reflect the monies that “have been applied from the equity contained therein to the benefit of the husband”

[21] Paragraph 2.3 of the agreement reads in part:

“The Husband hereby waives any further interest that he may have in the Subject Property and transfers same to and in favor of the Wife. The Wife shall be entitled to require the execution and delivery of a transfer in her favor at any time from the Husband at any time.”

[22] In paragraph 3 of the agreement the wife agreed that she would have no claim against the husband or the business in the event of marriage breakdown.

[23] In the agreement the husband agreed to remain on title to the subject property “for so long as the wife reasonably requires for the purpose of providing his credit support to the current and any replacement mortgages, provided that he shall not be required to guarantee or otherwise covenant any mortgage that represents an increase in the amount secured as against the Subject Property.”

[24] In paragraph 5 of the agreement the parties agreed that:

The Wife shall be primarily responsible for all financial arrangements with respect to the Subject Property. The Husband may make contributions to such expense without liability upon the way for repayment thereof, unless other specific arrangements have been made in respect thereto. Such arrangements to be made in writing, executed by the parties and witnessed in accordance with the provisions of Section 54 of the Family Law Act.

[25] I think it is also of importance to note the reciprocal agreements contained in paragraphs 7 and 8 of the Settlement Agreement. In the first of those paragraphs the parties acknowledge that the subject property may be utilized as a matrimonial home of the husband and wife. The agreement continues:

Notwithstanding such usage, it is agreed that the subject property, even if so utilized shall not be deemed an asset of the husband and shall not be included in the calculation of their net family property as that term is defined in the Family Law Act. Similarly it shall not be included, to the extent permitted by law, in the calculation of the wife’s assets or obligations vis-à-vis the husband under the divorce act or the Succession Law Reform Act. [my emphasis throughout]

[26] Paragraph 8 is a reciprocal clause with respect relating to the business of the husband which similarly shall not be deemed as an asset of a husband and shall not be included in the calculation of the net family property.

[27] The agreement appears to have been carefully drafted and to have taken into account a wide range of Family Law Act concerns. Understandably the trustee needed to be concerned in this case with a couple continued to live in the house after the agreement was entered. In the agreement they specifically provide:

9. In accordance with the provisions of Part II of the Family Law Act, the parties acknowledge that, should the Subject Property be utilized as the Matrimonial Home, the rights of the Wife with respect to thereto shall not encumber or mitigate the Husband’s rights under the part under that part, including his rights:

10. of equal possession occupation;

11. the right to veto it sale or the encumbrancing thereof; and

12. the right to relieve [sic] against forfeiture.

[28] The lawyer who assisted the parties in the early 2005 transaction, Mr. Colin James swore a detailed affidavit on September 23, 2010, which document was filed on behalf of the Appellant.

[29] In the affidavit Mr. James outlines his understanding of the transaction:

“4. On or about March 2005 I was approached by Arthur and Rita Adourian who were in a serious disagreement over funds advanced to the business of Nino Karina Leather Goods Inc. (“Karina”) that the business was unable to re-pay. This disagreement was causing great distress to both Adourians and appeared to be endangering their matrimonial relationship. It was particularly worrisome to Rita Adourian who no longer shared her husband’s hopeful optimism for the prospects of the business.

5. In the context of advice that I was advised that they had received from the Canadian Imperial Bank of Commerce (“CIBC”), they came to an agreement that the funds would be repaid to Rita Adourian by means of her acquiring Arthur Adourian’s interest in the family home at 60 Upton Crescent. For that reason my advice as a lawyer had been sought. Concurrently, in accordance with the advice they had received from the CIBC, they arranged for a mortgage through CIBC in an amount that was equal to approximately one-half of what they considered to be the net value of the property at that time.”

[30] In July 2009 Mr. James had written to counsel for the trustee setting out the circumstances surrounding the execution of the settlement agreement. He described the arrangements between the parties and their subsequent actions with respect to the Leather company in these terms:

“6. The deal struck as between the Adourians was intended to permit Mrs. Adourian and her children to remain in the house and allow her estranged husband to take his share of the equity therefrom and invested in his business. Mrs. Adourian had evidently lost interest in that undertaking and Mr. Adourian was prepared to waive any further interest that he had in the home. Since the program was initiated by Mr. Adourian’s cash requirements, the transactional costs, both actual and pro forma were agreed to be borne by him.

7. Your client is in possession of the documentation tracing the funds that were generated by the mortgage and invested in Mr. Adourian’s business. I understand that this totals more than $110,000. In light of the Agreement and evidence of the actual disposition of funds generated by the mortgage granted in accordance with the terms thereof, it would hardly lie in the mouth of Mr. Adourian -and through him your client -to repudiate its terms.”

[31] I find that this version of the facts is more consistent with what was intended by the parties and that as a consequence the trustee ought not to have disallowed the property claim in the circumstances of this case.

[32] However, the trustee had numerous concerns about funds which were not answered on a prompt basis of a supplementary affidavit sworn December 18, 2012 was filed with respect to this motion that was heard on December 21, 2012. I suspect that had the trustee had this material prior to a couple of days before the scheduled for the hearing on a 2010 claim, it might not have been necessary to proceed with this appeal.

[33] The Ontario Court of Appeal in Trang v. Nguyen, 114 O.R. (3d) a decision released 4 days before this motion was heard by me addresses resulting or constructive trust in matrimonial situations. There the court held that a spouse’s unregistered equitable interest could take priority over the Crown’s subsequent legal interest in real property.

IV. Property Held in Trust

[34] Section 67 of the BIA deals with the property of the bankrupt. The relevant portions read:

67. (1) The property of a bankrupt divisible among his creditors shall not comprise

(a) property held by the bankrupt in trust for any other person;…

but It shall comprise…

(d) such powers in or over or in respect of the property as might have been exercised by the bankrupt for his own benefit.

[35] Based upon this section, counsel for Rita made a number of submissions in the alternative. Relying upon Carter v. Carter (1969) 1969 756 (BC SC), 70 W.W.R. 237 and Re Roberts Estate [1996] O.J. No.3101, paragraphs 26 and 27 counsel for the wife submitted:

The creation of either an automatic or a presumed resultant trust was brought about as soon as the Settlement Agreement was executed and remains in place until the transfer is registered.

[36] Alternatively it is submitted that if a resultant trust has not been created, a constructive trust has been created. Counsel submits that to hold otherwise, where there has been a purchase for good and valid consideration within the transaction contemplated by the Settlement Agreement of April 1, 2005, would be to have unjustly enriched Mr. Adourian and now, indirectly, the creditors of his estate.

[37] After reviewing all the evidence and circumstances of this case I agree.

[38] I find the Bankrupt had no surviving power over the real property which would give rise to a property interest to which the Trustee would hold any entitlement.

V. Disposition

[39] I am therefore satisfied that, on the facts before me, Rita Adourian is the sole beneficial owner of the real property that was registered in her name and the name of her, now bankrupt, spouse.

[40] That being determined, I hold that the Bankrupt’s estate has no interest in the property at 60 Upton Crescent.

[41] I have considered the appropriate disposition of costs in this matter. Mr. James says he advised the parties to register a proper conveyance to the wife. They say they didn’t have enough money to do so. It is clear that whatever monies available to do other things with respect to the business and in many ways the couple are the authors of their own misfortune with respect to this litigation.

[42] As well I am cognisant that the couple may well, at least to a degree, been attempting to make it appear (to lenders to either of them) that the husband continued to hold an equity interest in the home. This possibly deliberate failure to have the registered title reflect reality certainly is not in keeping with this Court’s expectations.

[43] Moreover, as indicated above, I am not satisfied that information was provided to the Trustee in a fulsome and prompt manner which would’ve potentially avoided this delay and disruption.

[44] The Bankrupt’s discharge still remains to be addressed in the near future before me.

[45] Taking all the foregoing into consideration, with respect to the successful appeal from the Trustee’s disallowance of the reclamation of property claim, there will be no order as to costs.

Master D. E. Short
Registrar in Bankruptcy

September 3, 2013

DS/ B.19