Background

COURT FILE NO.: 31-1811122

DATE: 20140819

SUPERIOR COURT OF JUSTICE – ONTARIO (COMMERCIAL LIST)

RE: MNP Ltd., Applicant

AND:

Davis Lam and Quang Lam, Respondents

BEFORE: Penny J.

COUNSEL:
Richard Howell and Davis Schatzker for the Applicant

Matthew Harris for the Respondents

HEARD: August 11, 2014

ENDORSEMENT

Background

[1] In the Matter of the Bankruptcy of Quang Lam, D. Brown J. ordered the trial of an issue on a motion by MNP Ltd. (the Trustee) for a declaration that Davis Lam holds his interest in 96 Ashburnham Road, Toronto (the Property) in trust for the Bankrupt, Quang Lam. The Trustee also seeks an order for partition and sale, if necessary, and vacant possession of the Property.

[2] The parties agree that in August, 2003 the Bankrupt took title to the Property by way of a purchase from third parties. Davis Lam, who is the Bankrupt’s younger brother, was not registered on title and the purchase solicitors’s reporting letter made no mention of him.

[3] The purchase price for the property was $235,000. The Bankrupt financed the acquisition with a cash advance of $74,274.78 and a mortgage. Of the $74,274.78 equity portion, $15,000 came from Davis and $59,274.78 came from the Bankrupt.

[4] On July 6, 2009, the Bankrupt conveyed part of his interest in the Property to Davis. The transfer states, erroneously, that Davis was the spouse of the bankrupt, and provides that the Bankrupt and Davis would be joint tenants. There was no consideration paid for that transfer and, at the time, the transfer was made for financing purpose only.

[5] At the time of his assignment in bankruptcy, which took place in November 2013, the bankrupt swore and, on several occasions thereafter confirmed, that Davis was only put on title to obtain a mortgage, i.e., for financing purposes.

[6] In his Form 79, the Bankrupt swore his oath to the following:

In order to obtain refinancing in respect of the property, in July 2009, I transferred a half interest in my property located at 96 Ashburnham Rd., Toronto, ON to my brother Davis Lam for nil consideration.

[7] The evidence is also clear that at the first meeting of creditors in December 2013, the Bankrupt stated that it was “his understanding that his brother, Davis Lam (a 50% owner of the Property) does not consider himself to be a beneficial owner of any interest in the Property” because the transferred interest was made to Davis “only to have the intended mortgagee obtain Davis Lam’s personal obligation under a proposed mortgage.”

[8] In a meeting with the Trustee, Mr. Shier, and the Estate Manager, Ms. Gulja, in January 2014, the Bankrupt stated that he paid the mortgage payments and utilities but that his brother “resided with him and pays him $500 per month for room and board.” During this meeting, the Bankrupt continued to affirm that Davis had no beneficial interest in the Property and was put on title “for mortgage renewal purposes only.”

[9] Importantly, the Bankrupt was represented by counsel, Mr. Catre.

[10] In April 2014, the Trustee brought a motion to remove Davis from title and thus open the path to a sale of the Property. This had been discussed with and explained to the Bankrupt in advance. Indeed, on April 29, 2014, the Bankrupt signed a consent in which he affirmed that “Davis Lam has no interest in” the Property.

[11] Both Mr. Shier and Ms. Gulja testified in the trial. They identified and confirmed contemporaneous documents recording the above facts as true. Both Mr. Shier and Ms. Gulja testified in a clear and straightforward manner. Their evidence was not seriously challenged in cross-examination. I accept their evidence.

[12] Both Mr. Shier and Ms. Gulja testified that they dealt with the Bankrupt extensively throughout the process. The Bankrupt was anxious, they said, to get the bankruptcy process underway quickly in order to save his RRSP from attachment by his creditors. This objective was accomplished. They also testified that, throughout their dealings with the Bankrupt, he appeared to understand, in English, what they were saying and that the Bankrupt, although he spoke with an accent, was articulate and made himself clearly understood, in English, to them. They both took pains to make sure he understood exactly what was going on and what they were asking him to sign. At no time did the Bankrupt tell them that he did not understand or seek the opportunity to have anything translated for him into Vietnamese. It was, they said, only quite recently (after this motion was initiated) that the Bankrupt’s story changed and he took the position that Davis had a valid half interest in the Property.

[13] The Bankrupt and Davis also testified, using a Vietnamese interpreter. In essence, their position is that there was a language difficulty, that the Bankrupt did not understand the implications of documents he was asked to sign and things he said. They say, as well, that Davis was never consulted throughout the bankruptcy process. Davis claims that, in addition to his initial $15,000 contribution to the acquisition of the Property, he paid half the mortgage each month. Davis takes the position that he contributed at least $80,000 toward the purchase and maintaining the mortgage. Davis claims a half interest in the Property, in accordance with the title document, or at least an interest proportionate to his $80,000 contribution.

Analysis

[14] It was established in cross examination that both the Bankrupt and Davis obtained their high school diplomas, in English, after arriving in Canada. The Bankrupt became a licensed mortgage broker in 2012 and admitted that he took courses at George Brown College, in English, to obtain the prerequisites for that license. The Bankrupt also admitted that he established a mortgage brokerage business and created a website for his business, entirely in English. Although the Bankrupt said he obtained a lot of the content from other sources, he admitted that he read those sources in English, understood the content and selected what he wanted for his own website. The Bankrupt admitted knowing that when you swear an affidavit, you have to tell the truth. He also admitted that he spoke to his lawyer, Mr. Catre, in English and that he trusted his lawyer, and trusted what he said.

[15] I reject the Bankrupt’s claim that he had language difficulties that prevented him from understanding what he signed or what he told the Trustee and Ms. Gulja. In my view, the Bankrupt took positions that he considered in his interests to obtain protection from his creditors, understanding fully what he was saying and doing. Having obtained his principal objective, the Bankrupt has now changed his story to try to preserve a portion of a further asset through the trumped up, revisionary claim that his brother was, in fact a beneficial owner of the Property all along.

[16] The Bankrupt was not a credible witness. I found him evasive and argumentative. He understood clearly the implications of many of Mr. Howell’s questions and struggled, through arguing with the questioner, to avoid being drawn into those implications. I accept the Trustee and Ms. Gulja’s evidence, as well, that the Bankrupt understood what he was doing and what was going on during the bankruptcy process. Most importantly, the Bankrupt’s evidence is directly at odds with contemporaneous, documentary evidence. I prefer that evidence to the new, contradictory oral evidence advance by the Bankrupt at trial.

[17] I accept that Davis was not consulted by the Trustee or Ms. Gulja during the bankruptcy process. However, I find that the Bankrupt’s statements to the Trustee and at the meeting of creditors were an accurate description of the true position. The Bankrupt knew he was in a formal legal process and understood the importance of being truthful and accurate. I find that, with respect to the Property at least, he was truthful and accurate in the initial documents he signed and representations he made.

[18] The Bankrupt told the Trustee and the creditors that Davis paid room and board while he was living in the Property. Davis says the payments he made were on the mortgage.

[19] I do not accept Davis’s evidence. His counsel entered into evidence Davis’s notices of assessment for 2002 to 2013. Those notices reveal that Davis made claims for Ontario tax credits based, among other things, on the assertion that he paid rent during those years. Such credits were not available for mortgage payments. I find Davis’s monthly payments were in the nature of room and board.

[20] Also entered into evidence were “receipts” written out by the Bankrupt to Davis, one for each month for many years, noting the payment of $500 as a “mortgage” payment. These are highly suspicious documents for a variety of reasons. First, the brothers admitted that they trusted each other and did not otherwise document Davis’s alleged interested in the Property. They said it was not necessary due to familial relations in Vietnamese culture. The receipts are totally inconsistent with that assertion. These “receipts” also have no official status or notation – they were not processed through a financial institution nor, apart from the Bankrupt’s handwriting, is there any indication of when they were made or issued. Finally, the documents bear a remarkable consistency of appearance to one another – a consistency one would not expect to find in dozens of documents written out over the course of many years. I place no reliance whatsoever on these receipts.

[21] For these reasons, I find that Davis has no legal interest in the Property. The 2009 transfer of a 50% interest in joint tenancy to Davis is nul and void and shall be set aside.

[22] I find, however, that Davis’s $15,000 contribution to the acquisition was held by the Bankrupt in trust for Davis. Thus, subject to the final issue below, out of the proceeds of disposition of the Property, $15,000 belongs to Davis.

[23] In light of this conclusion it does not appear to me that an order for partition and sale is required. The Trustee, standing in the Bankrupt’s shoes, is entitled to list and sell the Property. If I am wrong about this, it can be spoken to in writing or, if necessary, by way of a further attendance. There shall, however, be an order for vacant possession of the Property within 30 days.

Costs

[24] The Trustee claims costs. He says that Davis has put the Trustee to considerable expense in this matter and should be liable for at least some of the Trustee’s costs, given Davis’s limited success on the motion (which appears to have been conceded by the Trustee in any event). Those costs total $45,000 on a full indemnity basis.

[25] The respondents seek costs of $6,500 on a substantial indemnity basis.

[26] I agree with the Trustee that Davis must bear some responsibility for the costs of this motion. The creditors should not have to bear the entire risk of Davis’s unmeritorious claims. However, in the circumstances of this case, I find that recovery of the entire, full indemnity bill advanced would be excessive and not consistent with the well-established requirements for determining costs, including the important factor of what the losing party might reasonably have expected to pay.

[27] I find that Davis shall bear responsibility for the Trustee’s costs to the extent of $7,500. Thus out of the proceeds of sale otherwise payable to Davis of $15,000 there shall be deducted, in favour of the Trustee, the sum of $7,500.

Penny J.

Date: August 19, 2014