CITATION: Bank of Montreal et al v. Amer Javed et al., L.P. 2015 ONSC 1229
COURT FILE NO.: CV-14-511201
DATE: 20150311
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
BANK OF MONTREAL for itself and on behalf of all creditors of AMER JAVED, ILESHKUMAR SHAH also known as ILESHKUMARPADM SHAH and MAYABEN ILESHKUMAR SHAH
Plaintiffs
– and –
AMER JAVED, ILESHKUMAR SHAH also known as ILESHKUMARPADM SHAH and MAYABEN ILESHKUMAR SHAH
Defendants
Ian Klaiman for the Plaintiffs
Shahzad Siddiqui for the Defendants Ileshkumar Shah and Mayaben Illeshkumar Shah
No one appearing for the Defendant Amer Javed
HEARD: February 4, 2015
FAIETA, j
reasons for decision
[1] The plaintiff brings this motion for summary judgment against the defendants Ileshkumar Shah (“Ilesh”) and Mayben Ileshkumar Shah (“Mayaben”). Collectively I will refer to Ilesh and Mayaben as the “Shahs.” The plaintiff seeks:
(a) Judgment against Ilesh for the full amount due and owing pursuant to his personal guarantee;
(b) An order setting aside the transfer of Illesh’s undivided half-interest in 36 Mount Pleasant Avenue, Whitby, Ontario L1N 0C8 to Mayaben that occurred on May 23, 2014
[2] The affidavit evidence of the plaintiff’s two account managers and the defendant Ilesh were filed.
Background
[3] 7596308 Canada Inc. (the “Company”) operated a Country Style franchise in Newcastle, Ontario.
[4] In January 2011 the Company opened a business account with the plaintiff (the “Account”).
[5] Pursuant to a promissory note dated February 24, 2011 the plaintiff lent the Company the principal amount of $213,486.00 with interest accruing at the Prime Rate plus 3.0% per annum (the “Loan”)
[6] Ilesh and the defendant Amer Javed (“Javed”) delivered a joint and several personal guarantee in respect of the Loan, dated February 9, 2011, limited to the amount of $53,371.50 plus interest to accrue from the date of demand at Prime Rate plus 3% per annum (the “Guarantee”).
[7] In early 2013 Ilesh contacted Andrew Ashbee, an account manager who works for the plaintiff, seeking access to the Company’s Account. Mr. Ashbee declined to provide access to Ilesh because he was no longer an authorizing signing officer for the Account. Ilesh advised Mr. Ashbee that he did not want to be responsible for the Loan. Mr. Ashbee advised Ilesh that he would be responsible under the Guarantee until the Loan was repaid.
[8] The Company is in default of its obligations under the Loan having made its last payment in January 2014.
[9] On or about May 21, 2014 an account manager for the plaintiff, Jennifer Scrivens, spoke with Illesh by telephone. Ms. Scrivens states that:
a. Ilesh advised Ms Scrivens that he had not been a part of the Company’s business since 2011;
b. he no longer had access to its bank accounts;
c. the franchisor was running the Company’s store;
d. Ilesh asked Ms. Scrivens “what needed to be done” and Ms. Scrivens advised him that the Loan needed to be brought up to date or else the plaintiff would be issuing demands for payment.
[10] On May 23, 2014 Ilesh transferred his undivided half-interest in a property municipally known as 36 Mount Pleasant Avenue, Whitby, Ontario (the “Property”) to his spouse, Mayaben (the “Transfer”). The instruments related to the Transfer indicate that the consideration for the transaction was $2.00, from husband to wife. The Company remained in default under Loan at the time of transfer.
[11] Ms. Scrivens does not believe that the timing of the Transfer was a coincidence but rather was a transparent attempt by Ilesh to put the Property out of reach from the plaintiff knowing that the plaintiff would imminently be calling on the Guarantee.
[12] The amount due on the Loan as of May 29, 2014 was $94,732.06 inclusive of principal and interest.
[13] A demand for payment was made upon the Company, Illesh and Javed by letter dated June 3, 2014.
[14] There have been no further payments made to the plaintiff with respect to the Loan.
[15] On August 28, 2014 the plaintiff commenced this action. The plaintiff claims against Javed and Shah payment of the sum of $53,371.50 plus interest. As against the Shahs the plaintiff seeks a declaration setting aside the Transfer as null and void on the basis that it was a fraudulent conveyance and an order directing the Ilesh be reinstated as a registered joint owner of the Property.
[16] On August 29, 2014 the plaintiff obtained leave to register a Certificate of Pending Litigation against the Property.
[17] On October 9, 2014 the Shahs filed a Statement of Defence and Crossclaim which denies that the Transfer is a fraudulent conveyance and also alleges that the plaintiff’s demand for payment under the Guarantee is unconscionable.
[18] As of February 4, 2015 the amount owed by Ilesh pursuant to the Guarantee, inclusive of principal and interest accruing, is $55,529.76.
Issues
[19] This motion for summary judgment raises the following issues:
Is the demand for payment under the Guarantee unconscionable?
Was the Transfer a fraudulent conveyance?
[20] Motions for summary judgment are governed by Rule 20 of the Rules of Civil Procedure, R.R.O., Reg. 194. A plaintiff may move with supporting affidavit material or other evidence for summary judgment on all or part of the claim in the statement of claim. The moving party bears the onus of establishing that there is no triable issue. The responding party must present specific facts and coherent, organized evidence demonstrating a genuine issue. A responding party must “lead trump or risk losing.” The motion judge is entitled to assume that the record contains all of the evidence that the parties will present if there is a trial. The court must take a “hard look” at the evidence to determine whether there is a genuine issue for trial.
Issue #1: Is the Demand for Payment Unconscionable?
[21] Ilesh states that the demand for payment under the Guarantee is unconscionable for two reasons: (1) the plaintiff denied him access to the Account after he resigned as a director of the Company; (2) had he been aware of the Company’s financial problems he might have been able to convince Javed to repay some or all of the Loan and thereby reduce his liability under the Guarantee.
[22] In order to establish that the Guarantee is unconscionable the onus is on Shah to prove on a balance of probabilities that:
(1) there was an inequality of bargaining power;
(2) the stronger party took advantage of, or preyed upon the weaker party, and
(3) the resulting contract was improvident.[^1]
[23] Ilesh states that “the Plaintiff bank wishes to hold Ilesh responsible for the personal guarantee by stating that he was intimately involved in the Corporation.” That is not the case. Whether or not Ilesh was an officer or director of the Company is irrelevant in these circumstances.
[24] Ilesh has not shown that BMO preyed upon him. Illesh gave the guarantee in order to obtain the Loan. He did so successfully.
[25] Illesh has not shown that the Loan was improvident. For instance, he has not established that any of the terms of the Guarantee were improvident. To the contrary, Illesh’s Factum suggests that “unconscionability was not present at the outset, it crept into the relationship as soon as Ilesh resigned as a director of the Corporation.” Ilesh did not resign as a director until after the Guarantee was signed.
[26] Ilesh submits that this defence raises a “difficult and important point of law” and, relying on Hunt v. Carey Canada Inc.,[^2] submits that this matter should proceed trial in order to provide an opportunity for the common law to respond. Even if Hunt were to apply, it is “plain and obvious” that the defence of unconscionability is certain to fail in these circumstances.
[27] There is no genuine issue for trial with respect to whether the Guarantee is unconscionable.
Issue #2: Was the Transfer a Fraudulent Conveyance?
[28] According to the Fraudulent Conveyances Act[^3] sections 2 and 3, every conveyance of real property made with intent to defeat, hinder, delay or defraud creditors or other of their just and lawful actions, suits, debts, accounts, damages, penalties or forfeitures are void as against such person and their assigns unless the real property was conveyed upon good consideration and in good faith to a person not having at the time of the conveyance to the person notice or knowledge of the intent described above.
[29] As stated by the court in CIT Financial Ltd.v. Zaidi,[^4] at para. 21, “where a plaintiff establishes prima facie that a conveyance was made with fraudulent intent for purposes of section 2 and without good consideration for purposes of section 3, the conveyance is subject to be set aside unless the defendant establishes that either the transferor lacked the fraudulent intent or else (as required by section 3) that the conveyance was made for good consideration and that the transferee acted in good faith and without notice or knowledge of the fraudulent intent of the transferor.”
[30] Where the result of a voluntary impugned transfer is to defeat, hinder, delay or defraud creditors, there is a presumption in law that the transfer was done with that intent.[^5] Certain badges of fraud indicate the debtor’s intent. These badges of fraud include continuance and possession of the debtor and some benefit retained, the non-arm’s length relationship between the parties, inadequate consideration and knowledge of a pending action. The fact that the transaction is between near relatives and is made in suspicious circumstances is sufficient to impose an evidentiary burden on the defendants to prove the bona fides of the transaction. In such case, the testimony and explanation of the defendants must be scrutinized with care and suspicion; and it is very seldom that such evidence can be safely acted upon as in itself sufficient.[^6]
[31] The defendant has provided the following affidavit evidence to explain the timing of the Transfer:
I have a legitimate reason for transferring the matrimonial home to Mayaben for natural love and affection. This was not a transfer of my “only significant asset” as I am an active businessman and remain so despite the demise of the Country Style franchise from which Amer Javed has enjoyed the primary benefit.
My legitimate reason is this: I booked a property on December 2013, well in advance of the Plaintiff’s bank’s demand letter and, indeed, without any knowledge of the financial problems of the Corporation. I had to ensure that I qualified for a mortgage on my own for that property.
[32] Ilesh’s affidavit contains only the cover page of the agreement of purchase the house in Clarington. It shows that the agreement is dated December 5, 2013. His affidavit does not provide a copy of his mortgage application or the mortgage commitment obtained for the Clarington house which he says triggered the need to transfer the half-interest he owned in the Property to his wife. An abstract of title shows that Ilesh and Shah purchased the house in Clarington one year later on December 1, 2014, which is seven months after the date of the Transfer. It does not make commercial sense that Ilesh applied and obtained a mortgage for the purchase of the Clarington property seven months prior to closing.
[33] Further, there are about five months between the date of the purchase agreement for the Clarington property and the date of the Transfer, but only two days between the Transfer and the date he was advised by Ms. Scrivens that he would receive a demand for payment would be issued if the Loan was not brought up to date.
[34] Ilesh’s suggestion that he needed to qualify for the purchase of the Clarington property on his own does not make sense, as the abstract of title for the property shows that it is owned by the Shahs and that they have given a mortgage on that property.
[35] There are various badges of fraud with respect to the Transfer:
(1) It was between spouses who are not at arm’s length;
(2) There was no consideration for the Transfer;
(3) Ilesh contined to reside in the Property after the Transfer; and
(4) The Transfer took place at a time when the Company was three months in arrears of its loan payments and just days after Ms. Scrivens had called Ilesh and informed him that the Loan needed to be brought up to date or else it would be issuing demands for payment.
[36] Ilesh submits that he should be given the opportunity to give viva voce evidence with respect to the property transfer and access to banking information. Ilesh was obliged to put his best evidentiary foot forward on this motion. He filed an affidavit and if he had anything to say that would have better explained the Transfer or why the Guarantee was unconscionable, then he should have put his best foot forward and done so. He did not. His request seems merely designed to unnecessarily delay the inevitable outcome of the plaintiff’s claim. I find that there is no genuine issue for trial regarding whether the transfer of the Property was a fraudulent conveyance.
Conclusion
[37] This motion for summary judgment is granted on the terms sought by the plaintiff.
[38] Costs of all steps in this action, including this motion, are awarded to the plaintiff in the amount of $10,941. This costs award is on a partial indemnity basis.
Mr. Justice M. Faieta
Released: March 11, 2015
CITATION: Bank of Montreal et al v. Amer Javed et al., L.P. 2015 ONSC 1229
COURT FILE NO.: CV-14-511201
DATE: 20150311
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
BANK OF MONTREAL for itself and on behalf of all creditors of AMER JAVED, ILESHKUMAR SHAH also known as ILESHKUMARPADM SHAH and MAYABEN ILESHKUMAR SHAH
Plaintiffs
– and –
AMER JAVED, ILESHKUMAR SHAH also known as ILESHKUMARPADM SHAH and MAYABEN ILESHKUMAR SHAH
Defendants
REASONS FOR JUDGMENT
Mr. Justice M. Faieta
Released: March 11, 2015
[^1]: Teitelbaum v. Dyson, [2000] O.J. No. 4583, 7 C.P.C. (5th) 876, aff’d [2001’ O.J. No. 3483 (C.A.), at para. 40.
[^2]: 1990 90 (SCC), [1990] 2 S.C.R. 959.
[^3]: R.S.O. 1990, c. F. 29.
[^4]: 2006 8469 (ON SC), [2006] O.J. No. 1073, 19 C.B.R. (5th) 204.
[^5]: Business Development Bank of Canada v. Samarsky, 2012 ONSC 3002, at para. 15.
[^6]: 633746 Ontario Inc. (Trustee of) v. Salvati, (1990), 1990 6740 (ON SC), 73 O.R. (2d) 774, at para. 51.