ONTARIO

SUPERIOR COURT OF JUSTICE

B E T W E E N:

LAWYERS PROFESSIONAL INDEMNITY COMPANY Plaintiff

• and -

EUSTACE CLARKE also known as EUSTACE SAMUEL CLARKE, NOVA BAILEY also known as NOVA TAYLOR and MARJORIE REID. Defendants

Allison Speigel, for the Plaintiff Eustace Clarke and Marjorie Reid in person.

HEARD: April 7, 2015 with subsequent written submission from the plaintiff received on April 14, 2015 and from the Defendants Clarke and Reid on April 22, 2015.

F.L. Myers J.

REASONS FOR decision

Background

[1] The plaintiff is a creditor of the defendant Clarke. It moves for summary judgment declaring that the defendant Nova Bailey holds title to the properties known as 504 Rushton Road, Toronto and 261 Arlington Avenue, Toronto, in trust for Mr. Clarke. Ms. Bailey admits that she does. Mr. Clarke claims that the beneficial owner of the properties is his common law spouse – the defendant Reid. The defendant Bailey is the daughter of the defendant Reid.

[2] As the defendant Clarke went bankrupt at a time when the plaintiff says he held beneficial title to the properties, the plaintiff asks for an order declaring that beneficial title to the properties remains vested in Mr. Clarke’s long-since discharged trustee in bankruptcy.

[3] In my view, for the reasons that follow, there is no issue requiring a trial in this action. I am confident that I can make the findings of fact and apply the relevant law on the material before the court. To the extent required to do so, I am very comfortable making credibility findings against the defendants Clarke and Reid on the current record.

[4] In Mr. Clarke’s case, as discussed below, his evidence does not fit with the contemporaneous documents that he had prepared to record the various transactions in issue. Moreover, the transcript of his cross-examination records numerous inconsistencies, convenient memory lapses, and statements that lack inherent probability. To the extent necessary, Rule 20.04(2.1)(2) entitles the court to make credibility findings on this motion. It is not necessary to see Mr. Clarke testify. He represented himself and Ms. Reid at the hearing of the motion. I have effectively heard him as if he were giving testimony. Nothing he said at the hearing altered the evidence or my view of the transcript of his cross-examination.

[5] In Ms. Reid’s case, sadly Ms. Reid suffers from several serious physical ailments. She attended the hearing and made brief submissions seeking an adjournment. It was apparent and she confirmed in paragraph 8 of her affidavit sworn March 30, 2015, that she suffers cognitive impairments including impairment of her memory. With the plaintiff’s consent, the court agreed that although Mr. Clarke is not a lawyer, he could represent Ms. Reid at the hearing as she sought.

[6] It was clear from hearing Ms. Reid that she had very little understanding of the transactions in issue. She did deliver two affidavits that were prepared with the assistance of a lawyer. One was sworn by a lawyer, Mr. Kisaka, who has been assisting Mr. Clarke throughout the years and transactions in issue. Ms. Reid refused to be cross-examined on her affidavits citing her health. Her medical evidence fell far short of justification. Were it necessary to do so, I would have struck Ms. Reid’s affidavits for this reason. However, her principal evidence (that she bought the properties and put title in her daughter’s name in trust for herself) does not survive a review of the prior transactions that show that beneficial title always remained with Mr. Clarke. That is, when Ms. Reid claims to have bought the properties (through her daughter) neither of her vendors had beneficial title to sell to her. Accordingly, even if admitted, Ms. Reid’s evidence cannot be given weight in light of her health difficulties, her refusal to be cross-examined, and the fact that it is erroneous on its face.

[7] For reasons delivered at the hearing, Ms. Reid’s request for an adjournment was denied. The matter had previously been adjourned to the hearing date on a peremptory basis. A further adjournment was unlikely to change the situation and I was not prepared to exercise the discretion to further delay the plaintiff.

Mr. Clarke’s Bankruptcy

[8] The defendant Clarke made an assignment in bankruptcy on May 31, 2005.

[9] Prior to Mr. Clarke’s bankruptcy, the plaintiff was the assignee of two costs orders against Mr. Clarke totaling $23,357. The plaintiff filed a proof of claim in the bankruptcy on one of the costs orders for $18,357. Total creditors’ claims accepted by the trustee amounted to approximately $58,000. Therefore, the plaintiff represented approximately one-third of the creditors’ claims by value in the bankruptcy.

[10] Mr. Clarke was discharged from bankruptcy on March 1, 2006.

[11] Mr. Clarke never informed his trustee in bankruptcy that he had an interest in either of the two properties in issue. He purports to have sold the properties prior to his bankruptcy.

[12] Mr. Clarke assigned himself into bankruptcy six days before the scheduled commencement of a civil trial arising from a motor vehicle collision in which Mr. Clarke was a defendant. At the time, the court found that his bankruptcy was a “plan to defeat the interests of his creditors” and a “perversion of justice”. The Court of Appeal agreed. In giving judgment against him in October, 2006, after Mr. Clarke had already been discharged from bankruptcy, the Court of Appeal awarded the plaintiff’s insured $18,000 in costs plus interest at 6% per year. This is a different costs award than the two that it held prior to Mr. Clarke’s bankruptcy. That is, the plaintiff is a creditor of Mr. Clarke both pre-bankruptcy and as subrogee of its insured, post-bankruptcy.

The Properties

(I) The Rushton Property

[13] Mr. Clarke and his then spouse bought the Rushton property in 1976. After he became involved in his civil litigation, on April 27, 1995, Mr. Clarke purported to sell this property to Mmes. Hakim, Hooper and Szilagi. The transfer was registered on May 2, 1995. Ms. Hooper was a friend of Mr. Clarke. The deal documentation recites consideration of $199,500. In his affidavit Mr. Clarke states that he and his ex-wife “divided the sale proceeds equally”. However, on cross-examination, he confirmed that the purchasers simply assumed the mortgage and there were no proceeds available for him or his ex-wife. On the date of the transaction however, the two pre-existing mortgages amounting to approximately $143,000 in the aggregate were discharged and a new mortgage for over $194,000 was registered in favour of National Trust. Thus it appears that $51,000 cash may have been available on the refinancing of the property.

[14] After the sale, Mr. Clarke says he remained in the property as tenant. He has no documentation to corroborate that claim. The plaintiff hypothesizes that whatever rent was paid by Mr. Clarke was simply a mortgage payment to be passed on to National Trust by the new “owners”.

[15] By agreement dated April 26, 1995, that is, the day before the purported sale to by Mr. Clarke and his ex-spouse to Mmes. Hakim, Hooper and Szilagi, the three of them purported to sell the property to Ms. Hooper and Ms. Alecia. The vendors did not yet have title to the property on the date that they purported to sell it. This transfer was not registered until five years later on December 27, 2000.

[16] Mr. Kisaka, the lawyer who swore Ms. Reid’s affidavit mentioned above, is described by Mr. Clarke as his “real estate lawyer”. The documents disclose that he acted for Mr. Clarke and his buyers Mmes. Hakim, Hooper and Szilagi on the first sale of Rushton and for all three vendors and the buyers Mmes. Hooper and Alecia on the second sale.

[17] At his cross-examination, Mr. Clarke brought with him the original transfer documents for the second sale i.e. the sale from Mmes. Hakim, Hooper, and Szilagi to Mmes. Hooper and Alecia with which he purportedly had no involvement. He says that Ms. Hooper simply gave him the originals.

[18] The registered version of the Affidavit of Residence and Value on the second sale (from Hakim, Hooper and Szilagi to Hooper and Alecia) recites that the transfer was to occur from “trustee to trustee.” However, those words are crossed out and consideration was inserted as the assumption of an existing mortgage. Yet the original produced by Mr. Clarke at his cross-examination does not have the interlineations. Rather, it continues to say that the transaction was a transfer from “trustee to trustee”; that no consideration was paid by Hooper and Alecia as purchasers,; and that the transfer was because “[t]wo existing Trustees are retiring to be replaced by a new trustee.”

[19] In his cross-examination, Mr. Clarke confirmed that Mmes. Hooper and Alecia did not pay any money for the property.

[20] The documents produced by Mr. Clarke on his cross-examination are effectively a second set of books. There were two sets of transaction documents prepared for Mr. Clarke. The real set disclosed that both purchasers, first Mmes. Hakim, Hooper, and Szilagi, and then Mmes. Hooper and Alecia, were trustees for the beneficial owner Mr. Clarke.[^1] The second set of documents were registered on title and appear to create a paper trail purporting to show sales to bona fide third parties.

[21] On April 1, 2010, Mmes. Hooper and Alecia purported to transfer the property to the defendant Bailey. Bailey did not pay any consideration for the purchase. The land transfer tax affidavit records that the transfer was from “Trustee to Trustee for the same beneficial owner.”

[22] Ms. Bailey has sworn an affidavit in which she says that Mr. Clarke asked her to allow the property to be transferred into her name for him. She agreed to do so as two of her daughters were living with the defendants Clarke and Reid at the time. Mr. Clarke asked Ms. Bailey to take out a mortgage in her name and to sign a number of documents for him. He said he would make the payments. He has always done so and continues to do so and to pay all expenses related to the property. Mr. Clarke currently resides there and is not a tenant. Ms. Bailey always understood that although the property is in her name, it belongs to Mr. Clarke.

[23] In the initial statement of defense that Mr. Clarke prepared for himself and Ms. Bailey, he alleged that “Defendant Bailey remains the sole beneficial owner of the said property.” It was only after Ms. Bailey began helping the plaintiff that Ms. Reid suddenly emerged as the alleged beneficial owner who bought the property from Mmes. Hooper and Alecia and put title in Ms. Bailey’s name.

[24] On his cross-examination, Mr. Clarke confirmed that he took Ms. Bailey to the lawyer for the transaction. He gave the lawyer the necessary documents. The lawyer reported to him only and not to Ms. Bailey.

[25] It is now Mr. Clarke’s and Ms. Reid’s position that the full chain of title making reference to trustee to trustee transfers all represent trusts for the same beneficial owner from 1995 to 2010, i.e. Ms. Reid. However, Mr. Clarke has no explanation for how Ms. Reid ever became beneficial owner prior to 2010. His position is completely inconsistent with Ms. Reid’s affidavit attesting to buying the property in 2010 from Mmes. Hooper and Alecia. Moreover, Ms. Reid purports to attach 2010 trust documents to her affidavits. Ms. Bailey denies that the signature is hers.

[26] It is patently obvious that Ms. Reid’s position cannot be right. Ms. Reid says she made all payments of mortgage insurance and utilities on the property. She’s produced no evidence to support these claims. By contrast, Ms. Bailey has produced bank statements for the account that Mr. Clark opened in her name which is near his house and not near Ms. Bailey’s house. These account statements show mortgage and insurance payments being made. Mr. Clarke deposits rents into the account. The telephone number on the account statements is Mr. Clarke’s telephone number. All of the statements on the account are sent to him.

[27] In all, I am left in no doubt that beneficial title always remained with and remains with Mr. Clarke. All of the transactions include badges of fraud. No money changed hands. Mr. Clarke never left possession. There are two sets of documents. The timing of the sales first to three owners and then by them to the next two is more than suspicious. The subsequent sale was signed prior to the earlier sale and was then held five years. All of the transactions were put in place by Mr. Clark’s lawyer, Mr. Kisaka, acting for everyone (except the 2010 transfer).

[28] The coup de grace however is the statement of defense prepared by Mr. Clarke in which he claims that Ms. Bailey bought the property on her own behalf as beneficial owner. Were Ms. Reid the true buyer, as Mr. Clarke and Ms. Reid now allege, it is impossible that Mr. Clarke would not have (a) known; and (b) been completely involved in preparing all of the documents and taking care of the transaction for her. Ms. Reid could not have done so by herself. Mr. Clarke has no explanation as to how he forgot about Ms. Reid’s purchase and made such a significant mistake in the statement of defence. He also has no explanation for his sudden change in position from Ms. Bailey having bought beneficial title from Mmes. Hooper and Alecia to Ms. Reid having bought beneficial title from them. The shift occurred only once Ms. Bailey swore that she held title in trust for him. Nor can Mr. Clarke explain his next shift from Ms. Reid buying in 2010 to Ms. Reid having been the one beneficial owner since 1995. The evolution of the story first after Ms. Bailey surprised Mr. Clarke by giving evidence against him, and then after Mr. Clarke (perhaps mistakenly) produced the second set of transaction documents on cross-examination, evokes Sir Walter Scott’s truism:

Oh what a tangled web we weave, When first we practise to deceive![^2]

(II) The Arlington Property

[29] The Arlington property is a boarding house that is near the Rushton property. Mr. Clarke bought it in 1987 for $165,500.

[30] On May 2, 1995, the same day that Mr. Clarke purported to transfer the Rushton property, he purported to sell the Arlington property to Mr. and Mrs. Sharma. Mr. Sharma was Mr. Clarke’s auto mechanic. Consideration is recited as the assumption of a mortgage in the amount of approximately $80,000. Mr. Clarke produced no documentation to show that the Sharmas actually did so or that they made any mortgage payments.

[31] In 1998, Mr. Clarke’s lawyer in his motor vehicle litigation demanded that he provide her with security for payment of her fees. The Sharmas granted a $40,000 mortgage in favour of Mr. Clark’s lawyer. Mr. Clarke says that his mechanic, whom he knew only in that capacity, did him a $40,000 favour.

[32] On March 2, 2000, the Sharmas transferred the Arlington property to Ms. Arnon. She is a friend of Mr. Clarke and Ms. Reid. She paid no money for the transfer. The documentation indicates that she assumed a mortgage of $72,000. Mr. Clarke produced no documents establishing that Ms. Arnon actually did so or made any payments against the mortgages. Mr. Kisaka, Mr. Clarke’s real estate lawyer, acted as lawyer for both the Sharmas and Ms. Arnon.

[33] On February 13, 2006 Ms. Arnon transferred the property to Ms. Bailey. Consideration of $87,880 is recited in the documents. Mr. Kisaka acted for both sides of the transaction. Ms. Bailey swears she did not pay anything. Ms. Bailey swears she has never received rental income from the property. Mr. Clarke collects the rents and he pays the expenses.

[34] In the statement of defense that Mr. Clarke prepared for himself and Ms. Bailey, Mr. Clarke alleges that Ms. Bailey bought the property from Ms. Arnon who was having financial difficulties. Paragraphs 15 and 17 of the pleading recites that Ms. Bailey became the sole beneficial owner of the property in 2006.

[35] After Ms. Bailey gave evidence that the property was always in fact Mr. Clarke’s property, Ms. Reid once again stepped forward to claim that she had purchased the property and that her daughter merely holds it in trust for her. Ms. Bailey produced a document purporting to be a trust agreement for the Arlington property. The document is dated in 2010. Ms. Bailey also produced a letter allegedly signed by Mr. Kisaka confirming that Ms. Bailey signed the agreement. Ms. Bailey denies signing it. Mr. Kisaka did not swear an affidavit in this proceeding notwithstanding his involvement in the multitude of transactions and the fact that he swore Ms. Reid’s March 30, 2015 affidavit as Commissioner. I draw an inference that he was not willing or able to do so.

[36] Neither Mr. Clarke nor Ms. Reid were able to explain the evolution of their positions from the statement of defence to Ms. Reid’s affidavit. Nor could they explain why Ms. Reid’s trust agreement is dated 2010 when Ms. Bailey bought this property in 2006.

[37] As with the Rushton property, Ms. Reid swears that she has paid all of the mortgage, insurance, taxes, and expenses on this property. However, she has not produced any evidence to support this claim. Ms. Bailey however has produced bank records for the account that Mr. Clarke manages and controls from which the bulk of expenses are paid.

[38] Mr. Clarke argues that Ms. Bailey must be the owner of the properties because she has taken tax benefits associated with them. It is not clear what the “benefit” may be if there is net income being added to her income tax returns. Regardless however, it is clear that Mr. Clarke has all of the documentation; he provides it to the accountant; and Ms. Bailey attended and signed when told to do so.

[39] In all, on this property too, I am left in no doubt that beneficial title always remained with and remains with Mr. Clarke.

Law

[40] It is important to point out that I am not asked to nor do I void the various and sundry transactions that are discussed above. The plaintiff seeks only a declaration that beneficial title remains with Mr. Clarke. That would make his interest exigible to his creditors.

[41] I make no findings as to the propriety of anything done or not done by the people who held legal title to the properties prior to Ms. Bailey. I see no reason to require any of them to have been named as parties in this action. None has any current interest in the equity of the properties which may be affected by this decision. Mr. Clarke argues that my findings may put one or more of the former titleholders at risk to mortgagees. First, this assumes that any of them actually assumed mortgages personally. There was no evidence to that effect before me. Moreover, as I make no findings against them, were a lender concerned about something done some time ago by someone who is not a party to this proceeding, it will have to go and prove its claims. Nothing done in this decision affects any of those persons in their legal rights.

[42] The plaintiff relies upon the presumption of resulting trust. There is a presumption that a resulting trust arises on a gratuitous transfer of property. Pecore v. Pecore, 2007 SCC 17, at para.4. The onus is on the transferee to demonstrate that a gift was intended to defeat the presumption of resulting trust. None of the transactions as registered claims appear to be gratuitous. I am asked to infer that they were gratuitous given the badges of fraud, the lack of evidence of bona fide assumption of mortgages, and the disclosure of the second set of documents on the Rushton property showing that all of the transactions were intended to be trustee to trustee transactions.

[43] It seems to me that the better fit is an inference that all of the transactions were expressly made in trust for Mr. Clarke whatever their form. This is consistent with the holdings above. The transactions were not gratuitous transfers of equitable title. They were expressly intended to be transfers of legal title to one or more trustees. To the extent that the publicly filed documents say otherwise, they appear to be shams. However, if necessary to do so, I would find that Mr. Clarke provided all of the consideration for all of the transactions (to the extent that ongoing mortgage payments may be seen to be consideration) and therefore, if no express trust was created, in each of the transactions beneficial title resulted back to Mr. Clarke. Sistem Muhendislik Insaat Sanayi Ve Ticaret Anonim Sirketi v. Kyrgyz Republic, 2014 ONSC 2407.

[44] At the hearing, I called for written submissions concerning the effect of Mr. Clarke’s bankruptcy on the relief requested by the plaintiff. I have now received those submissions from the parties.[^3] The findings that Mr. Clarke was the beneficial owner of the two properties at the time of his bankruptcy necessarily leads to the conclusion that his beneficial title vested in and remains vested in the trustee in bankruptcy. Pursuant to section 71 of the Bankruptcy and Insolvency Act R.S.C., 1985, c. B-3, the vesting of title in the trustee occurred by operation of law when Mr. Clarke assigned himself into bankruptcy. Beneficial title to both properties remains vested in the trustee in bankruptcy although the trustee was discharged long ago. There is no automatic re-vesting in the bankrupt of unrealized property on the trustee’s discharge. MLA Northern Contracting Ltd. v. Lebrun, [2007] O.J. No. 3938 (S.C.J.), at para. 65, aff’d [2008] O.J. No. 1658 (C.A.).

[45] Having determined that the trustee in bankruptcy remains the owner of unrealized assets, it is necessary to reappoint the trustee to complete the administration of the estate of the bankrupt under section 41(11) of the BIA. The trustee has consented to act. While this relief was not sought expressly in the notice of motion, I note that the notice of motion does contain the usual basket clause seeking further relief as is just. This relief is necessary to ensure that there is no hiatus in title. Subject to whatever other steps it may determine to be appropriate, the trustee is, at minimum, entitled to act as necessary to preserve and protect the property.

[46] I decline to order any further relief at this time. Rather, the parties should proceed in the bankruptcy court in the ordinary course.

[47] The plaintiff may file up to five pages of submissions as to costs plus a costs outline by May 8, 2015. Mr. Clarke and Ms. Reid may file up to five pages of responding submissions by May 22, 2015.

[48] I dispense with any requirement for any of the defendants’ approval of the form and content of the formal order.

F.L. Myers, J.

DATE: April 24, 2015

[^1]: Mr. Clarke bought out his wife’s interest in the divorce settlement. [^2]: Sir Walter Scott, Marmion, Canto vi. Stanza 17 [^3]: The submission delivered by Mr. Clarke and Ms. Reid was submitted by a lawyer on their behalf. Counsel did not appear at the hearing.