COURT FILE NO.: 11-CV-435614
MOTION HEARD: May 17 and October 15, 2013
SUPERIOR COURT OF JUSTICE - ONTARIO
Re: Mary DiSano and Steven DiFlorio
Plaintiffs
v.
Santino DiFlorio, Sheila DiFlorio and Sandy DiFlorio (also known as Santino DiFlorio and as Sante-Carlo DiFlorio and as Sandy Carlo DiFlorio)
Defendants
BEFORE: Master Thomas Hawkins
COUNSEL: Neal H. Roth for moving plaintiffs F (416) 351-7684
Armen Karapetyan for responding defendant Santino DiFlorio F (416) 398-7396
Daniel F. Chitiz for responding defendant Sheila DiFlorio F (416) 368-0300
Sandy DiFlorio, responding defendant, in person 52 Jay Street, Toronto, Ontario M6L 2M1
REASONS FOR DECISION
Nature of Motion
[1] This is a motion by the plaintiffs in part for leave to issue a certificate of pending litigation against the title to lands municipally known as 104 Jay Street, Toronto, Ontario.
[2] The plaintiffs’ motion for leave to issue and register a certificate of pending litigation is brought under section 103 of the Courts of Justice Act R.S.O. 1990, c.C.43 and rule 42.01 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194.
[3] Section 103 of the Courts of Justice Act provides as follows.
- – (1) The commencement of a proceeding in which an interest in land is in question is not notice of the proceeding to a person who is not a party until a certificate of pending litigation is issued by the court and the certificate is registered in the proper land registry office under subsection (2).
(2) Where a certificate of pending litigation is issued under subsection (1) it may be registered whether the land is registered under the Land Titles Act or the Registry Act.
(3) Subsections (1) and (2) do not apply to a proceeding for foreclosure or sale on a registered mortgage or to enforce a lien under the Construction Lien Act.
(4) A party who registers a certificate under subsection (2) without a reasonable claim to an interest in the land is liable for any damages sustained by any person as a result of its registration.
(5) The liability for damages under subsection (4) and the amount thereof may be determined in the proceeding in respect of which the certificate was registered or in a separate proceeding.
(6) The court may make an order discharging a certificate,
(a) where the party at whose instance it was issued,
(i) claims a sum of money in place of or as an alternative to the interest in the land claimed,
(ii) does not have a reasonable claim to the interest in the land claimed, or
(iii) does not prosecute the proceeding with reasonable diligence;
(b) where the interests of the party at whose instance it was issued can be adequately protected by another form of security; or
(c) on any other ground that is considered just,
and the court may, in making the order, impose such terms as to the giving of security or otherwise as the court considers just.
(7) Where a certificate is discharged, any person may deal with the land as fully as if the certificate had not been registered.
[4] Rule 42.01 provides as follows.
42.01 (1) A certificate of pending litigation (Form 42A) under section 103 of the Courts of Justice Act may be issued by a registrar only under an order of the court.
(2) A party who seeks a certificate of pending litigation shall include a claim for it in the originating process or pleading that commences the proceeding, together with a description of the land in question sufficient for registration.
(3) A motion for an order under subrule (1) may be made without notice.
(4) A party who obtains an order under subrule (1) shall forthwith serve it, together with a copy of the notice of motion and all affidavits and other documents used at the hearing of the motion, on all parties against whom an interest in land is claimed in the proceeding.
Interim Order
[5] I first heard oral argument of this motion on May 17, 2013. Argument was not completed that day and an adjournment became necessary. On May 17, 2013 I made an order that dealt with all the relief the plaintiffs sought on this motion with two exceptions. My May 17, 2013 order did not dispose of (a) the plaintiffs’ motion for leave to issue and register a certificate of pending litigation against the title to lands municipally known as 104 Jay Street, Toronto and (b) the plaintiffs’ motion for an order striking out the statement of defence of the defendant Sandy DiFlorio for failure to pay the costs of two prior motions in this action which costs were payable by Sandy DiFlorio to the plaintiffs.
[6] On May 17, 2013 I also made an order granting an adjournment of this motion to October 15, 2013 subject to the term that the defendants not sell, deal with or encumber 104 Jay Street, Toronto and the mortgage on that property, subject to further order of this court.
[7] Rule 1.05 gives me jurisdiction to make orders on terms. Rule 1.05 provides as follows.
When making an order under these rules the court may impose such terms and give such directions as are just.
[8] Had any of the defendants objected to my imposing such a term, on May 17, 2013 I would have granted the plaintiffs’ motion for leave to issue a certificate of pending litigation with reasons for decision to follow. None of the defendants so objected.
[9] Argument of this motion was not completed on October 15, 2013. Rather than wait several months for another hearing date to complete oral argument, counsel decided that they would complete their submissions by way of written argument. I gave directions that the last of the written submissions be exchanged and filed with me by December 7, 2013. No one exceeded this deadline. I then reserved my decision.
Background Facts
[10] All five parties to this action are members of the same family. Their relationships to one another are as follows. (This is based on a chart which plaintiffs’ counsel prepared and handed to me without objection from the other counsel or from Sandy DiFlorio, the self-represented defendant. Without the assistance of this chart it would have been very easy to become confused about the relationships between the five parties.)
[11] The plaintiffs Mary DiSano (“Mary”) and Steven DiFlorio (“Steven”) are brother and sister. They are also siblings of the defendant Sandy DiFlorio (“Sandy”). Sandy is also known as Santino DiFlorio. However to avoid confusion with his son the defendant Santino DiFlorio (“Santino”), I shall refer to Sandy as Sandy.
[12] Sandy and Sheila DiFlorio (“Sheila”) are husband and wife. At the time this motion was argued they claimed to be separated. Sandy and Sheila have another son, Joseph DiFlorio (“Joseph”) who is not a party to this action.
[13] On May 18, 2011 Mary and Steven obtained a judgment from Cumming J. after trial against Sandy and others. Mary obtained judgment against Sandy and others for $163,291.19 for claim while Steven obtained judgment against Sandy and others for $138,291.19 for claim. In addition, Sandy and the other defendants were ordered jointly and severally to pay Mary and Steven costs of $116,939.26.
[14] In his judgment of May 18, 2011, Cumming J. also declared several transfers of assets to Sandy and to a corporate defendant operated by Sandy to be fraudulent and set them aside.
[15] Steven and Mary have collected only $8,234.30 of the May 18, 2011 judgment debt.
[16] On March 27, 2012 Sandy filed an assignment under the summary administration provisions of the Bankruptcy and Insolvency Act, R.S.C. 1985 c.B-3, (the “BIA”). In his statement of affairs under Form 79 of the BIA, Sandy listed Mary and Steven as unsecured creditors in the sum total of $549,660.90.
[17] On October 2, 2012 Master Jean, sitting as a registrar in bankruptcy, made an order under section 38 of the BIA. Master Jean’s order authorized Mary and Steven to commence proceedings
(a) to set aside Sandy’s alleged fraudulent conveyance to Sheila of his interest in 52 Jay Street, Toronto, Ontario (“52 Jay Street”), and
(b) to realize by way of sale Sandy’s interest in 52 Jay Street.
[18] Master Jean’s order also authorized Mary and Steven to continue prosecution of this action.
[19] None of the other creditors of Sandy has joined in this action under section 38 of the BIA.
[20] Section 38 of the BIA provides as follows.
- (1) Where a creditor requests the trustee to take any proceeding that in his opinion would be for the benefit of the estate of a bankrupt and the trustee refuses or neglects to take the proceeding, the creditor may obtain from the court an order authorizing him to take the proceeding in his own name and at his own expense and risk, on notice being given the other creditors of the contemplated proceeding, and on such other terms and conditions as the court may direct.
(2) On an order under subsection (1) being made, the trustee shall assign and transfer to the creditor all his right, title and interest in the chose in action or subject-matter of the proceeding, including any document in support thereof.
(3) Any benefit derived from a proceeding taken pursuant to subsection (1), to the extent of his claim and the costs, belongs exclusively to the creditor instituting the proceeding, and the surplus, if any, belongs to the estate.
(4) Where, before an order is made under subsection (1), the trustee, with the permission of the inspectors, signifies to the court his readiness to institute the proceeding for the benefit of the creditors, the order shall fix the time within which he shall do so, and in that case the benefit derived from the proceeding, if instituted within the time so fixed, belongs to the estate.
[21] The central issues in this action concern the following transactions.
[22] On October 27, 2009, while the action by Mary and Steven against Sandy and others was pending (which action led to the judgment of Cumming J. mentioned in paragraph [13] above), Sandy or Sandy and Sheila advanced $300,000 to Santino, from their joint bank account. Santino used these funds together with a much smaller amount of his own funds to purchase a home at 104 Jay Street, Toronto (“104 Jay Street”), for $395,000.
[23] Also on October 27, 2009 Santino gave a mortgage in the sum of $300,000 to Sandy and Sheila. On its face this mortgage was interest free and called for monthly payments of $1,000 with the balance of the principal being due on October 27, 2014.
[24] Mary and Steven have taken a variety of positions with respect to this advance of funds and mortgage. The strongest position is that Sandy owns half of the mortgage on 104 Jay Street and half the $1,000 monthly payments.
[25] When he completed his Form 79 statement of affairs on March 27, 2012 Sandy did not mention as his assets this advance of his funds, the mortgage payments and his interest in the mortgage on 104 Jay Street. In my view he should have done so. The only asset which Sandy disclosed was $1,000 in personal belongings.
[26] Mary and Steven had the sheriff of the City of Toronto seize the $300,000 mortgage on 104 Jay Street pursuant to the provisions of the section 23 of the Execution Act, R.S.O. 1990 c. E-24. The sheriff registered notice of this seizure against the title to 104 Jay Street on June 6, 2011.
[27] Section 23 of the Execution Act provides as follows.
(1) If a sheriff is informed on behalf of the execution creditor that the execution debtor is a mortgagee of land and that the mortgage is registered, or that the debtor is entitled to receive a sum of money charged upon land by virtue of a registered instrument, and, if the sheriff is required on behalf of the execution creditor to seize the mortgage or charge and is furnished in writing with the information necessary to enable him or her to give the notice hereinafter mentioned, he or she shall, upon payment of the proper fees, forthwith deliver or transmit to the land registrar in whose office the mortgage or other instrument is registered, who shall forthwith register it, a notice in the form or to the effect following:
To the Land Registrar of ………………..
By virtue of an execution issued out of the Ontario Court (General Division) ….. (or as the case may be) whereby I am commanded to levy of the goods and chattels of A. B. $..... for debt, and $... for costs lately adjudged to be paid by A.B. to C.D., besides the costs of execution, I have this day seized and taken in execution all the estate, right, title and interest of A. B. in a mortgage made by X. Y. to A. B., bearing date the …. day of , 19 …., and registered in the Land Registry Office for the Land Registry Division of … (or as the case may be ) on the ….. day of …, 19…., as number …. (or the said mortgage or other instrument may be described in any other manner by reference to dates, parties and the land covered as will enable the notice to be registered against the land therein described) and in the money secured thereby, and this notice is given for the purpose of binding the interest of A. B. under sections 23 to 26 of the Execution Act.
Dated this …. day of …., 19…..
(Signed) …………………………
Sheriff …………………………..
(2) Upon registration of the notice, the interest of the execution debtor in the mortgage or other instrument and in the land therein described and in the money thereby secured and in all covenants and stipulations for securing payment thereof is bound by the execution, and such registration is notice of the execution and seizure to all persons who may thereafter in any way acquire an interest in the mortgage, land, money or covenants, and the rights of the sheriff and the execution creditor have priority over the rights of all such persons subject, as regard the mortgagor or person liable to pay the money secured by the mortgage or charge, to section 24.
[28] The defendants have taken a variety of positions with respect to this mortgage transaction which are at variance with the written terms of the mortgage as registered.
[29] A person reading the mortgage as registered would come to the conclusion that the entire $300,000 loan was repayable by Santino by October 27, 2014.
[30] Sandy and Santino say that the true nature of this transaction was as follows. The entire $300,000 was intended to be a gift of $150,000 to each of Sandy’s and Sheila’s two sons, Santino and Joseph. When the funds were initially advanced, Joseph was estranged from his family. Sandy and Sheila therefore advanced the entire $300,000 to Santino to enable him to buy a home at 104 Jay Street. However this was subject to the condition that when Joseph returned to the family, Santino would repay $150,000 so that these funds could be given to Joseph.
[31] The true nature of this transaction according to Sandy, Sheila and Santino is completely adverse to the interests of Mary and Steven as judgment creditors of Sandy when compared to the terms of the transaction set out in the mortgage as registered. If I were to dismiss this motion Sandy and Sheila would be in a position to instruct Santino to pay $150,000 directly to Joseph and defeat the claims of Mary and Steven in this action.
[32] Joseph returned to the family in April 2011. He has been living at 52 Jay Street since then. Santino has not repaid the $150,000.
[33] Counsel for Mary and Steven submitted that the advance of $300,000 to Santino on October 27, 2009 was a fraudulent conveyance within the meaning of section 2 of the Fraudulent Conveyances Act, R.S.O. 1990 c.F.29. This section provides as follows.
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.
[34] The following evidence before me supports the conclusion that this advance of funds and the related mortgage were a fraudulent conveyance.
(a) The transaction took place when the action by Mary and Steven against Sandy was pending. This action led to a substantial judgment in favour of Mary and Steven against Sandy on May 18, 2011.
(b) That judgment also set aside a number of fraudulent conveyances involving Sandy.
(c) The transaction of October 27, 2009 was not between persons dealing at arms’ length.
(d) The transaction was not disclosed to Sandy’s trustee in bankruptcy.
(e) The true nature of the transaction is not disclosed in the mortgage as registered.
(f) The transaction was at least in part a gift from Sandy and Sheila to Santino according to them.
(g) Given the extent to which Sandy’s liabilities exceeded his assets when Sandy made an assignment in bankruptcy on March 27, 2012 there is good reason to believe that Sandy was insolvent at the time of this transaction.
(h) When Sandy made an assignment in bankruptcy on March 27, 2012 he disclosed assets of only $1,000 (which was exempt property) and liabilities of $1,055,439. This does not include Sandy’s indebtedness to Sheila, if any.
(i) Unless this transaction is set aside, it will have the practical consequence of placing a substantial asset of Sandy beyond the reach of Mary and Steven who are judgment creditors of Sandy.
Legal Test for Granting Leave to Register a Certificate of Pending Litigation
[35] In Chippewas of Kettle & Stoney Point v. Canada (Attorney General), [1994] O.J. No. 1073, 17 O.R. (3d) 831 (Ont. Ct. (Gen.Div.)) Killeen J. held that when a motion for leave to issue a certificate of pending litigation is made on notice to the defendant (as is the case here) the court applies the same criteria and test as the court uses on a motion to discharge a certificate that had been issued after a motion made without notice.
[36] Much of the test and several of the criteria are set out in subsection 103(6) of the Courts of Justice Act quoted in paragraph [3] above.
[37] The first criterion set out in this subsection is whether the party who is seeking leave to issue a certificate of pending litigation (here Mary and Steven) claims a sum of money in place of or as an alternative to the interest in the land claimed (here 104 Jay Street).
[38] A review of the statement of claim in this action makes it clear that Mary and Steven do not claim a sum of money in place of or as an alternative to the interest in 104 Jay Street and the mortgage on that property which they claim. That being so, this motion should not be dismissed on the basis of the first criterion in subsection 103(6) of the Courts of Justice Act.
[39] The second criterion set out in subsection 103(6) is whether the party seeking leave to issue a certificate of pending litigation (again Mary and Steven here) has a reasonable claim to the interest in land claimed.
[40] In my view ( and for the purposes of this motion only) the advance of funds from Sandy and Sheila to Santino and the true terms on which the mortgage on 104 Jay Street was granted according to Sandy, Sheila and Santino constitute a fraudulent conveyance for the reasons set out in paragraph [34] above.
[41] That being so, this motion should not be dismissed on the basis that Mary and Steven do not have a reasonable claim to an interest in 104 Jay Street and in the mortgage on that property. They do have such a reasonable claim.
[42] The third criterion in subsection 103(6) of the Courts of Justice Act is whether the party seeking leave to issue a certificate of pending litigation has not prosecuted the proceeding with reasonable diligence.
[43] Here the defendants did not argue that Mary and Steven have not prosecuted this action with reasonable diligence. Therefore this motion should not be dismissed on the basis of the third criterion in subsection 103(6).
[44] The fourth criterion in subsection 103(6) of the Courts of Justice Act is whether the interests of the party seeking leave to issue a certificate of pending litigation can be adequately protected by another form of security.
[45] Here the defendants did not offer Mary and Steven any alternative form of security. Therefore this motion should not be dismissed on the basis of the fourth criterion in subsection 103(6).
[46] The list of criteria set out in subsection 103(6) of the Courts of Justice Act is not an exhaustive list. Under clause 103(6)(b) the court may consider “any other ground that is considered just”.
[47] One such other ground considered in cases like 572383 Ontario Inc. v. Dhunna, [1987] O.J. No. 1073, 24 C.P.C. (2d) 287 (Master Donkin) is the harm to each party if the certificate is or is not removed (here, is or is not issued and registered) with or without security.
[48] Santino has sworn two affidavits in response to this motion. He does not say that his plans for 104 Jay Street are such that granting Mary and Steven leave to issue and register a certificate of pending litigation against the title to that property will work a hardship for him.
[49] On the other hand dismissing this motion will place a significant asset of Sandy beyond the reach of Mary and Steven as Sandy’s judgment creditors with significant adverse consequences for them.
[50] I have not forgotten that Santino claims that the mortgage on 104 Jay Street is not an asset of Sandy because, as one of the terms of the separation agreement between Sandy and Sheila (made February 1, 2011), Sandy released to Sheila his interest in that mortgage.
[51] There is no claim in this action that Sandy’s release to Sheila of his interest in the mortgage on 104 Jay Street under the terms of the separation agreement of February 1, 2011 was another fraudulent conveyance. When Mary and Steven sought leave from Master Jean on October 2, 2012 to continue this action and leave to commence a new action, they did not seek leave to commence any action to set aside as a fraudulent conveyance Sandy’s release to Sheila of his interest in the mortgage on 104 Jay Street under the terms of the separation agreement.
[52] I assume this is because Mary and Steven were not aware of all the terms of the separation Agreement. Sandy’s Form 79 statement of affairs states that in the separation agreement of February 1, 2011 Sandy transferred his half interest in 52 Jay Street. He did not disclose that in this agreement he also released to Sheila his interest in the mortgage on 104 Jay Street.
[53] My order disposing of the motion by Mary and Steven for leave to issue and register a certificate of pending litigation is made subject to the following term. First Mary and Steven are to move promptly for leave to amend the statement of claim in this action or in the other action which Master Jean gave them leave to commence, to allege that the provision of the separation agreement under which Sandy released to Sheila his interest in the mortgage on 104 Jay Street constitute a fraudulent conveyance, together with such other relief as they are advised to seek by way amendment. Secondly, if it is necessary for them to do so, Mary and Steven are to move promptly before the registrar in bankruptcy to vary Master Jean’s order of October 2, 2012 to permit them to bring the motion to amend pleadings I have just mention. If Mary and Steven fail so to move promptly without a reasonable excuse, the defendants or one or more of them may move to vary or set aside the provision for the formal order disposing of the motion by Mary and Steven for leave to issue and register a Certificate of Pending litigation and for an order discharging any such certificate.
[54] For all the above reasons, and subject to the term set out in paragraph [53], I grant Mary and Steven leave to issue and register a certificate of pending litigation against the title to 104 Jay Street. Upon registration of that certificate, the provisions of my interim order of May 17, 2013 restricting the right of the defendants to sell, deal with, or encumber 104 Jay Street and the mortgage on that property expire.
Motion to Strike Sandy’s Statement of Defence
[55] Mary and Steven also move for an order striking out Sandy’s statement of defence based on Sandy’s failure to pay the costs of two uncontested motions. On January 10, 2013 Master Graham ordered Sandy to pay costs of $1,000 to Mary and Steven within 30 days. On February 8, 2013 Master Graham ordered Sandy to pay costs of $750 to Mary and Steven within 30 days. Both of these orders were interlocutory orders.
[56] Rule 60.12 is relevant. This rule provides as follows.
Where a party fails to comply with an interlocutory order, the court may, in addition to any other sanction provided by these rules,
(a) stay the party’s proceeding;
(b) dismiss the party’s proceeding or strike out the party’s defence; or
(c) make such other order as is just.
[57] At the time this motion was argued, some but not all of these costs remained unpaid. Sandy said he was unemployed. In these circumstances I am not prepared to strike out Sandy’s statement of defence at this time. If these costs are not fully paid within 90 days of service on Sandy of the formal order disposing of this motion, Mary and Steven may renew this sanctions motion against Sandy. Sandy must realise that this is a last chance order and that absent highly unusual circumstances, a second sanctions motion is likely to succeed.
Costs
[58] I direct that any party who wishes to receive the costs of this motion to exchange with the other parties their costs outline (Form 57B) and file such outline with me within 30 days. I will then make a costs ruling.
Approval of Order
[59] I dispense with the requirement that Sandy approve any formal order disposing of this motion.
(original signed)_
Date: February 27___, 2014 Master Thomas Hawkins