SUPERIOR COURT OF JUSTICE - ONTARIO

COURT FILE NO.: CV-15-523310
MOTION HEARD: AUGUST 31, 2015

BEFORE: MASTER R.A. MUIR

COUNSEL:
Ian Klaiman for the moving party/plaintiff
Kenneth H. Page for the responding parties/defendants

ENDORSEMENT

[1] The plaintiff brings this motion pursuant to section 103 of the Courts of Justice Act, R.S.O. 1990, c. C.43 (the “CJA”) and Rule 42.01 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 (the “Rules”) for an order granting it leave to issue a certificate of pending litigation (“CPL”) in respect of certain lands and premises known municipally as 54 Citation Crescent, Whitby, Ontario (the “Property”).

[2] Between 2010 and 2013, the plaintiff made a small business loan and provided other credit to a corporation controlled by the defendant Donald McCallen (“Donald”). Donald provided the plaintiff with a partial guarantee of both the loan and the credit facility. In October 2014, the corporation defaulted on its obligations to the plaintiff and ceased operations. The plaintiff made demand on Donald’s guarantees in February 2015.

[3] The Property was purchased by Donald and the defendant Rosemary McCallen (“Rosemary”) on July 30, 1999. Title was taken in both of their names as joint tenants. In the fall of 2013 Donald attended a seminar at which he received advice that “anyone who is in any entrepreneurial business should not have title to their house in their own name”. On November 8, 2013, title to the Property was transferred from Donald and Rosemary to Rosemary alone, for no consideration.

[4] The defendants’ evidence is that at the time of the transfer, the corporation was meeting all of its financial obligations and its debts were being paid in accordance with their terms.

[5] Section 103(1) of the CJA provides that a CPL may be issued in a proceeding in which an interest in land is in question. The applicable test is not in dispute. The moving party must demonstrate a high probability of recovering judgment in respect of the underlying claim. The moving party must introduce evidence demonstrating that the conveyance was made with the intention to defeat or delay creditors. Finally, the moving party must demonstrate that the balance of convenience favours issuing the CPL. See Grefford v. Fielding, 2004 8709 (ON SC), [2004] OJ No 1210 (SCJ) at paragraph 26.

[6] Having considered the evidence before me, and the submissions of counsel, I have come to the conclusion that the plaintiff has met the burden placed upon it on this motion.

[7] In my view, the guarantee portion of this claim stands a high chance of success, based on the evidence before me on this motion. The evidence shows that the monies were advanced, the guarantees were provided by Donald and the corporation defaulted on its obligations to the plaintiff. The defendants have not provided any evidence to support any defence Donald may have to the enforcement of his guarantees.

[8] I accept the defendants’ evidence that the corporation and Donald were current with all creditors at the time of the transfer of the Property. However, there would appear to be ample authority to support a finding of a fraudulent conveyance in circumstances where the defendant’s intention in making a transfer was to put his assets out of reach of future creditors. See Indcondo Building Corp. v. Sloan, 2014 ONSC 4018 at paragraph 48. The party attacking the transfer need not be a creditor at the time of the transfer. See Indcondo at paragraph 48.

[9] It is also my view, that the transfer to Rosemary bears several “badges of fraud”. Donald transferred his interest to his spouse for no consideration. The effect and intent of the transfer was to shelter a portion of Donald’s assets from potential creditors. Donald continues to benefit by residing at the Property.

[10] Finally, the balance of convenience favours the plaintiff. A CPL will protect the asset from being transferred or encumbered while this action proceeds. The defendants have stated in evidence that they do not intend to sell or mortgage the property. A timetable order will ensure that this action proceeds to trial as quickly as possible.

[11] I see no relevance to the fact that the bank chose not to take security over the Property when it advanced credit to the corporation. Such is the case in all fraudulent conveyance actions. It is not a defence.

[12] I therefore order that the plaintiff be granted leave to issue a certificate of pending litigation in respect of the Property. The following timetable will apply to this simplified procedure action.

(a) statement of defence to be served by September 25, 2015;

(b) reply, if any, to be served by October 15, 2015;

(c) plaintiff to advise defendants if it intends to bring summary judgment motion by November 16, 2015;

(d) affidavits of documents to be served by December 16. 2015;

(e) examinations for discovery completed by February 29, 2016;

(f) undertakings answered by May 31, 2016;

(g) discovery motions brought by June 30, 2016;

(h) action to be set down for trial by August 31, 2016; and,

(i) this timetable, other than the set down date, may be varied on consent without further court order.

[13] The plaintiff seeks its costs on a substantial indemnity basis. Although the contracts between the plaintiff and Donald allow for substantial indemnity costs, there has been no final determination on the merits of the guarantee action. Costs are in the discretion of the court. In my view, partial indemnity costs are appropriate in the circumstances. I agree with the defendants that there should be some reduction to the costs requested in connection with the ex parte court appearance. It is also my view that the costs requested are somewhat excessive for a simple motion of this nature in this simplified procedure action. In my view, it is fair and reasonable for the defendants to pay the plaintiff’s costs of this motion fixed in the amount of $3,500.00, inclusive of taxes and disbursements. These costs shall be paid within 30 days.

Master R.A. Muir

DATE: August 31, 2015