Indcondo Building Corporation v. Sloan et al.

[Indexed as: Indcondo Building Corp. v. Sloan]

Ontario Reports
Ontario Superior Court of Justice,
Penny J.
July 31, 2014

121 O.R. (3d) 160 | 2014 ONSC 4018

Case Summary

Debtor and creditor — Fraudulent conveyances — Plaintiff obtaining judgment against defendant in 2001 for breach of 1990 put/call agreement — Plaintiff challenging transfers of property to defendant's wife and company owned by wife between 1987 and 1993 as fraudulent conveyances — Transfers in 1987 and 1988 not fraudulent conveyances as plaintiff was not creditor then and as there was no evidence that defendant believed transfers would result in his inability to make good on existing or contemplated financial obligations — Defendant in significant financial jeopardy when transfers were made in 1992 and 1993 — Transfers not made in good faith and made to person with knowledge of defendant's intention to defraud creditors — Transfers set aside.

Equity — Laches — Plaintiff guilty of inordinate delay in prosecution of its claim but doctrine of laches not barring claim as defendant failed to show that he was prejudiced by delay — Defendant's claim of fading memories and loss of documents lacking sufficient particularity.

The plaintiff and the defendant formed a private real estate development company in 1985. The plaintiff obtained judgment against the defendant in 2001 for breach of a 1990 put/call agreement. In 2002, the plaintiff commenced a fraudulent conveyance action seeking to set aside the 1992 transfer of the defendant's half interest in his matrimonial home to his wife, V. In the course of that action, the plaintiff became aware of other transfers of property to a company owned by V in 1987 and 1988. The defendant also transferred a Florida condominium to V in 1993. The plaintiff attacked those transfers. The defendant declared bankruptcy in 2004 and the action was stayed. The defendant received an absolute discharge in 2005. The plaintiff commenced an action to set aside the impugned transfers in 2008. The action was dismissed twice, once as statute-barred and the second time as an abuse of process. Each time, the order was reversed by the Court of Appeal.

Held, the action should be allowed in part.

At the time of the 1987 and 1988 transfers, the plaintiff was not a creditor and, much more importantly, there was no evidence that the defendant reasonably [page161] believed, or ought reasonably to have believed, that the transfers would result in his inability to make good on his existing or contemplated financial obligations. Those transfers were not fraudulent conveyances as they were not done with the intent to defraud creditors. The situation was different at the time of the 1992 and 1993 transfers. The defendant knew by the time of the 1992 transfer that he was in significant financial jeopardy. He knew or ought to have known that the transfers would be likely to have a material adverse impact on his ability to pay his creditors. Even if the transfers were for valid consideration, they were not made in good faith and they were made to a person with knowledge of the defendant's intent to defraud his creditors. Those transfers should be set aside.

While the plaintiff was guilty of inordinate delay, the claim was not barred by the doctrine of laches as the defendant had failed to establish that it was prejudiced by the delay. The prejudice relied on — fading memories and loss of documents — lacked sufficient specificity.

Cases referred to

Bank of Nova Scotia v. Holland, [1979] O.J. No. 1190, 32 C.B.R. (N.S.) 153 (H.C.J.);
Beynon v. Beynon, 2001 28147 (ON SC);
CIBC v. Boukalis, 1987 2694 (BC CA);
Fleischer v. 642947 Ontario Ltd. (2001), 2001 8623 (ON CA);
Gregorio v. Intrans-Corp. (1994), 1994 2241 (ON CA);
H. (F.) v. McDougall, 2008 SCC 53;
Iamgold Ltd. v. Rosenfeld, [1998] O.J. No. 4690 (Gen. Div.);
Koop v. Smith (1915), 1915 26 (SCC);
Lindsay Petroleum Co. v. Hurd (1874), L.R. 5 P.C. 221;
M. (K.) v. M. (H.), 1992 31 (SCC);
R. v. Clark (1921), 1921 603 (SCC);
Royal Bank of Canada v. Thiessen, [1981] M.J. No. 45 (Q.B.);
Transamerica Life Insurance Co. of Canada v. Canada Life Assurance Co., 1996 7979 (ON SC);
Twyne's Case (1601), 76 E.R. 809.

Statutes referred to

Bankruptcy and Insolvency Act, R.S.C. 1985, c. B‑3, s. 38

Fraudulent Conveyances Act, R.S.O. 1990, c. F.29, ss. 2, 3

Authorities referred to

Dunlop, C.R.B., P.J.M. Lown and E.R. Edinger, Creditor-Debtor Law in Canada, 2nd ed. (Toronto: Carswell, 1995)

May, Henry William, and William Douglas Edwards, The Law of Fraudulent and Voluntary Conveyances, 3rd ed. (London: Stevens & Haynes, 1908)

(Full judgment continues exactly as reproduced above in the provided HTML, including all numbered paragraphs and sections from “[1] This is an action to set aside certain transfers of property…” through paragraph [168] and “Action allowed in part. End of Document.”)