Court File and Parties

COURT FILE NO.: 6782/12 (Milton) DATE: 2016 05 26

ONTARIO SUPERIOR COURT OF JUSTICE

B E T W E E N:

MARYANN KUTLESA Plaintiff

Michael Clarke, for the Plaintiff

• and -

JOHN KOTSIOU, 1349241 ONTARIO INC. and JOZO KUTLESA, also known as JOSEPH KUTLESA Defendants

Robert Whitmore and Ceili Andrew, for the Defendants

HEARD: April 12-14 and 18, 2016

REASONS FOR JUDGMENT

Justice D.L. Edwards

Table of Contents

• Overview
• Review of the Evidence
  • Maryann Kutlesa
  • John Kotsiou
  • William Bastien
  • Aleni Kotsiou
• MARYANN’S CLAIM
  • A. FRAUDULENT CONVEYANCE CLAIM
    • Issues
    • ISSUE ONE: Has the plaintiff established that the Conveyance was made with the intent to defeat, hinder, delay or defraud an existing or future creditors?
      • The Effect of Noting Joe in Default
      • Analysis of Badges of Fraud
      • Conclusion on badges of fraud
      • Conclusion on Issue One
    • ISSUE TWO: Is the transfer protected under section 3 of the FCA?
      • 1. Good Consideration
      • 2. Good Faith
        • Consideration for Conveyance
        • Circumstances Surrounding Conveyance
        • Conclusion on Good Faith
      • 3. Notice or Knowledge of the “Intent”
        • Credibility
        • Conclusion on Notice or Knowledge of Intent
      • Conclusion on Whether the Transfer is Protected Under Section 3
  • B. TRUST CLAIM
• JOHN’S COUNTERCLAIM
  • Post Transfer Expenses
• JOHN’S CROSS CLAIM
• Summary

Overview

1From 2006 until 2012 Jozo (“Joe”) and Maryann Kutlesa were embroiled in a matrimonial dispute that culminated in a trial which was adjourned six times either at Joe’s request or due to his absence, and was finally heard on April 17-19 2012. On April 19, 2012 Justice Parayeski made a temporary order prohibiting Joe or his numbered company, 1349241 Ontario Inc. (“134”) from dealing with a cottage lot in Lake Muskoka owned by that corporation (“cottage lot”) [1]. On July 24 2012 a vesting order (“Vesting Order”) granted title to Maryann to the cottage lot, subject to any registered encumbrances.

2However, four months before, on March 26, 2012 Joe caused 134 to transfer to his uncle, John Kotsiou, an undivided 50 percent interest in the cottage lot as tenants in common for the sum of $300,000 (the “Conveyance”). Joe and 134 agreed that the FirstOntario Credit Union mortgage in the amount of $300,000 registered against the cottage lot would remain 134’s responsibility, and as between 134 and John, the mortgage would only apply to 134’s undivided 50 percent interest. Joe and 134 gave John an indemnity agreement to that effect (“Indemnity Agreement”).

3Maryann brings this action under the Fraudulent Conveyances Act to set aside the Conveyance. John brings a counterclaim against Maryann to recoup money that he has paid for expenses that he alleges Joe and 134 were responsible, and now pursuant to the Vesting Order, Maryann is liable. Also, John cross claims against Joe for damages that he has incurred in the event that the Conveyance is set aside, and for money owed to him from Joe under the Indemnity Agreement.

4The plaintiff, Maryann Kutlesa, was the sole witness for the plaintiff. John Kotsiou testified on his own behalf. In addition, his wife, Aleni, and William Bastien, who was John’s solicitor on the transaction testified.

5By the agreement of counsel many documents were entered as exhibits for the truth of their contents, without the necessity of proving those documents. Portions of the testimony of Maryann and John involved their review of documents through their counsel that included Transfers and Title PIN printouts. The witnesses had no specific knowledge of many of these documents. I confirmed with both counsel that, as these documents had already been introduced as exhibits, on consent, for the truth of their contents, the purpose of counsel reviewing these documents with the witness was to assist me, and to draw my attention to documents already admitted into evidence. It was not to prove the contents of the documents through the witness. However, that did not lessen or reduce the value of other documents in evidence that were not drawn to my attention through the witness.

6There were significant facts that are not in dispute and therefore it is useful to review those facts before analyzing issues in dispute.

Uncontested facts

7On consent a chart entitled Kutlesa Chronology was made Exhibit 2. It outlines the dates of various steps taken by the parties both in the matrimonial action, as well as relevant events with respect to the cottage property. For that reason, it is reproduced below with minor editing:

Kutlesa Chronology

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to the BNS account March 12, 2012 Letter from Mr. Hall to Mr. Bastien responding to requisition March 13, 2012 Maryann obtained parcel register of cottage property – no mention of John’s interest March 14, 2012 John pays $303,669.06 to his lawyer Mr. Bastien in trust March 15, 2012 John pays an additional $1,359 to Mr. Bastien trust March 19, 2012 Attendance before Justice Pazaratz---Mr. Jazvac was present for Joe and advise that Joe was out of hospital – Family Law matter remained on trial list March 26, 2012 Joe signs standard closing document March 26, 2012 Certified funds of $298,640 are paid to Joe's lawyers in trust March 26, 2012 Transfer from 134 to John is registered on title April 2, 2012 Attendance before Justice Pazaratz--- no attendance by Mr. Jazvac or Joe April 16, 2012 Attendance before Justice Pazaratz—Family Law trial order to proceed April 17-19, 2012 Family Law trial takes place before Justice Parayeski-- Joe did not participate April 19, 2012 Justice Parayeski makes temporary order prohibiting Joe or 134 from dealing with the cottage lot. April 20, 2012 Maryann through counsel when registering the order of Justice Parayeski discovers that on March 26, 2012 Joe had transferred through his company, a half interest in the cottage property to John for $300,000 April 20, 2012 Maryann obtains ex parte order for certificate of Pending Litigation which was registered on title to cottage lot on April 23, 2012 April 20, 2012 Joe divests himself of his interest in various corporate entities with the assistance of Mr. Jazvac July 24, 2012 Justice Parayeski delivers reasons and makes final order vesting ownership of the cottage property in Maryann “subject to registered encumbrances” August 21, 2012 Kotsiou files Notice of Appeal of the vesting order December 4, 2012 Maryann commenced these proceedings to set aside the transfer to Kotsiou as a fraudulent conveyance September 5, 2013 Kotsiou’s appeal of the Parayeski vesting order was dismissed without prejudice to his being permitted to address the vesting order December 18, 2014 On consent, Justice Parayeski ordered that parties to these proceedings shall be prohibited from transferring or encumbering the cottage property until further order or agreement May 12, 2015 Statement of Claim and Amended Statement of Claim were mailed to 1059 Upper James Street Suite 212 Hamilton Ontario which was the last mailing address on record with the Ministry for 134 May 27, 2015 Maryann obtain order for substituted service of Joe May 30, 2015 Statement of Claim and Amended Statement of Claim served on Joe pursuant to substituted service order January 27, 2016 The defendants Joe and 134 were noted in default by Maryann and John in this action April 12, 2016 This matter is called for trial in Brampton

8The parties agree that Joe was the sole officer and director and controlling mind of 134.

9The plaintiff concedes that the purchase price for the undivided 50 percent interest in the cottage lot in the amount of $300,000 was an appropriate amount, and that these funds actually transferred between the parties.

10There is also no dispute that until December 18, 2014 John was not a party to the family law proceeding between Joe and Maryann in the Unified Family Court in Hamilton. On December 18, 2014, on consent, Justice Parayeski ordered that the parties to this action were prohibited from transferring or encumbering the cottage lot.

11The non-dissipation order of March 2008 against Joe was not registered against any of his properties.

12At the family law trial in April 2012 the title abstract presented to the judge was dated March 13, 2012. As the Conveyance to John was registered March 26, 2012, Justice Parayeski had no knowledge of the transfer of the undivided 50 percent interest when he made the Vesting Order.

13As part of the closing documents for the purchase of the undivided 50 percent interest in the lot, John received from Joe, the Indemnity Agreement that on consent was marked as Exhibit 6, Tab 6. In that agreement Joe and 134 acknowledged that the FirstOntario Credit Union mortgage (“FOCU mortgage”) was 134’s responsibility. 134 and Joe agreed to indemnify John with respect to this mortgage.

Review of the Evidence

Maryann Kutlesa

14Maryann was the first witness. She testified about the chronology referred to above. She clarified that the order of March 25, 2008 prohibiting the dissipation of assets was only against Joe, and not against 134, the owner of the cottage lot.

15She stated that on February 27, 2012 when Mr. Jazvac, acting as agent for Joe, requested an adjournment, the Court was advised that Joe was in hospital.

16She testified that Joe's mother, Flora, was aware of the matrimonial issues between her son and Maryann and that she was aware that Maryann was claiming the cottage lot. Further, Maryann stated that she had an encounter in church with Flora, who was angry, and stated that MaryAnn would have nothing once the marriage was dissolved. This encounter occurred at Easter 2012 between March and April.

17Before the matrimonial dispute arose, Joe and Maryann, lived at 4 Efferding, Dundas. John and Aleni lived around the corner on 19 Parkway, which was about five minutes from their home.

18Maryann testified that John and Joe were very close; they played soccer together; John rented space in a plaza owned by Joe; and there were many events where there was a bonding between the two.

19Maryann said that she has known the Kutlesa family for many years, going back to the time that she was a teenager.

20Maryann testified that John and Aleni moved from Fort Erie because of a failed business, and that Joe provided an apartment for them to live in for about a year before they purchased their home on Parkway. She thought that initially the rent was free, but later rent was paid. In addition, Joe obtained a job for Aleni as a cook in his retirement home at Yorkville Place.

21Maryann testified that she and Aleni were best of friends; they worked together at Yorkville Place; they spent lunches and coffee breaks together; they walked the dog together; they had barbecues, weddings in other family events together.

22Maryann said that she shared with Aleni the fact that she was having marital problems, and Aleni advised her to leave because it was affecting her health.

23After Joe and Maryann separated December 18, 2006 Maryann said that she went once to Aleni's house at lunchtime for a coffee. Only Aleni was present. This occurred shortly after the house was sold which occurred in June 2010.

24There was no further communication between Aleni and Maryann until the end of February or the beginning of March 2012. At that time Maryann went to the Yorkville Place retirement home and spoke with Aleni in the lunch room. Maryann said that she was concerned because she had heard that Joe was sick and had not appeared for trial. She told Aleni that she would not go after Joe's businesses, but only wanted the cottage lot.

25Maryann testified that Aleni was not responsive and was quiet. As a result, she has had no further contact with her.

26In cross-examination Maryann acknowledged that the Yorkville Place retirement home was sold October 2011, but she assumed that the money was sitting in Joe’s account.

27Dr. Toffolo’s letter of April 13, 2013 was introduced as an exhibit on consent, and marked Exhibit 1, Tab 13. In that letter the doctor expressed concerns that he had with respect to Joe's mental health, and he stated that Joe had been in hospital from February 27, 2012 until March 2, 2012 under observation with respect to his mental health.

28Maryann testified that when the cottage lot was purchased in 2005, it was a lot on an island and it was vacant. She understood that the plan was to construct a cottage that would be used for family use, and as a perk for employees. She said that in 2005 she went to the lot and helped clear the land and debris, and she slept in a “bunky” on the next door property. In 2005 she went there almost every weekend, but not in the winter. In 2006 she only went there once and saw that the foundation and exterior were built, but the interior was untouched. She stayed that weekend by herself and has not been back to the property since.

29Maryann testified that Joe had various businesses over the years. For example, he owned the property on York Road in Dundas which was composed of a retail section with apartments above and a retirement home section. She is unclear as to the exact date when it was purchased or when it had been sold.

30As well, she said that Joe had an interest, together with Effort Trust, in an apartment at Augusta and James in Hamilton.

31She said that in the early part of their marriage Joe shared many details about his businesses, but as the marriage went on, he shared less and less. She did confirm that while they were married he would acquire new businesses from time to time, and during the marriage sold properties, such as those at Limeridge and at Westmount.

32The Limeridge property contained a retirement home with a medical centre. Joe bought the building, fixed it up and put on an addition.

33There was a medical building on Rymer Road that was called Westmount Terrace and during the marriage Joe sold that.

34Joe was also involved in the construction of churches. He built a Croatian church and a Polish church in Brampton, as well as he assisted in finishing a Macedonian church.

35The Yorkville Place senior home was another example where Joe purchased an older plaza, renovated it, and added an addition to it. Ultimately the building contained retirement units, apartments and a retail section. It was at this location that Maryann worked as a bookkeeper and Aleni worked as a cook. This property was sold October 6, 2011 for $3,500,000.

36Maryann testified that she did not give John or Aleni a copy of the March 2008 non-dissipation order against Joe, nor did she advise them about the order.

37Maryann acknowledged that since the Vesting Order she has not contributed in any way to the expenses of the cottage, nor has she made any payments on the FOCU mortgage.

38Maryann testified that she requested a key to the cottage from John and that was denied. She said that John has had exclusive possession of the cottage since the Vesting Order.

John Kotsiou

39John testified on his own behalf. He currently resides with his wife, Aleni, at 19 Parkway Place. He was born in Greece and married there in 1976. He has a son and a daughter both of whom have left home. He came to Canada in 1980.

40He was first employed at Firestone in Hamilton. After five years he went into the tavern business with his brother in Fort Erie. That business was unsuccessful, and eventually he declared personal bankruptcy.

41He returned back to Hamilton and Joe offered John and his wife an empty apartment to live in for free. However, John helped with the conversion of units from January until March on a full-time basis, until he got his job at National Steel Car, and after that he helped on a part-time basis. As well, when Joe purchased the Rymer Road property he helped clear the trees.

42He started working at National Steel Car March 15, 1994. He still works there as a Director of the Wheel and Axle shop. He supervises about 40 people.

43John earns approximately $80,000 plus a bonus of approximately $20,000 per year. His wife works part-time at Shalom Village and earns approximately $30,000 a year.

44On December 1, 1995 they purchased 19 Parkway Place, and title was placed in Aleni’s name. At the time the purchase price was $160,000.

45Flora is John’s sister and Joe’s mother.

46John was aware that Joe and Maryann were having matrimonial problems. He thought they separated in 2007 or 2008. He stated that he did not discuss with Joe or Maryann their marital situation. Rather, he obtained that information from third parties such as workers at the Yorkville Place.

47About five or six years ago Joe played with John for half a season on a soccer team. He also said that once they moved into their own home they saw the Kutlesa’s three to four times for social events over the two to three years that they lived there. He said that he did not walk a dog with Maryann.

48John stated that he got together with Joe for business reasons occasionally. For example, he was the landlord for John's gym. Also, John asked Joe to assist when the president of the Macedonian church requested his help with respect to the construction of the church.

49He said that Maryann occasionally stopped by his house to talk to his wife.

50John testified that he first learned about the cottage property in the spring of 2005. He and his wife were in Mexico with Joe and Maryann when Joe received a call that his offer to purchase had been accepted.

51He said that he visited the cottage property twice before he acquired his interest in it. In 2005 he went up there to cook for a birthday party for a neighbour. This was a day trip with Aleni. Both Joe and Maryann were present. There was no construction on the property at that time.

52His second visit occurred the following year. He and his son went up north to unload a barge of drywall for the cottage. Joe was there, but Maryann was not. At that time the shell of the building was up, but the inside had not been completed.

53John testified that prior to considering purchasing the cottage lot, his attitude was anti-cottage. He did not think it was a vacation to be there because you still needed to cook and make your bed. He preferred to be down south in an all-inclusive resort.

54As well, before making the purchase he had not made any other investments in real estate.

55John testified that he visited with Joe when Joe was in the hospital somewhere in the period between February 27, 2012 and March 2, 2012. He said that they discussed Joe's health, and that Joe said that he was mad at someone and wanted to kill that person. John was unclear who that it might have been. It may have been a lawyer or an appraiser. It had something to do with his business.

56John said that he did not discuss Joe's family law court proceedings during his visit at the hospital. He stated that at the time of the visit in the hospital no agreement to purchase the interest in the cottage lot had been reached.

57John testified that Aleni never spoke to him about Maryann’s visit to her work, nor did she tell him that Joe was in the hospital. John became aware that Joe was in the hospital because his sister, Flora, called him. John stated that he did not tell his wife that he had visited Joe in the hospital. He thinks he spoke to Flora and told her that Joe was okay and to not worry.

58John stated that Flora never spoke to him about Joe's matrimonial problems, and in particular about Maryann’s claim to the cottage lot.

59John denied that there was a close relationship between the two couples. He said that a month could pass without them seeing each other.

60John testified that in late December 2011 a cousin from Australia was visiting. Joe stopped by at John’s home to visit with the cousin. During the discussion Joe indicated that he was having some cash flow problems, as he was not getting paid on the Polish Community Church project in Brampton. This meeting occurred at John's home. John offered to help him, but nothing specifically was discussed.

61John testified that he had no knowledge of the actual state of the Brampton church project other than what Joe advised him.

62Sometime after the meeting John went to Joe and offered to help him with his cash flow issue. He offered to buy the cottage lot from him. John said that there was no discussion about Joe's marital issues at this time.

63Marked as Exhibit 8 is the parcel register for 1252 Steeles Avenue West Brampton, being the address of the Polish church. That abstract reveals a lien and certificate of action filed by Jomar Building Corporation Ltd. As well, marked as Exhibit 9 is a corporate profile for that corporation showing that the director and officer of the corporation was Joe. These two documents were made exhibits on consent.

[64] John stated that the two reasons that he wanted to purchase the cottage lot were:

1. to help his nephew, Joe, with his cash flow issues, and
2. to acquire a good investment in a cottage lot on Lake Muskoka.

65John testified that he did not do any due diligence regarding investing in Muskoka properties, but thought that it was a good investment, nor did he get any specific information about Joe’s business and his cash flow issues.

66John stated that he initially offered to purchase the entire cottage lot for $600,000, with Joe taking back a $300,000 mortgage.

67John said that when he approached Joe with the offer, Joe said he wanted time to think about it. A few weeks later Joe phoned him and told him about the FOCU mortgage. Joe said that if John was still interested he could purchase a 50 percent interest in the property for $300,000, and the FOCU mortgage would remain Joe's responsibility.

68Although the original closing date was set for March 16, it was ultimately extended until March 26 because Joe was out of the country. John said that there was no urgency from his point of view to close the transaction.

69John testified that Joe did not give any other reason to sell other than the need for cash, and that he did not discuss at all the family court proceedings. John said that he was unaware of the family court proceedings.

70John said that Aleni never told him that Maryann had told her that she wanted to get the cottage lot.

71John testified that before the purchase actually closed no one told him that Maryann was making a claim against the cottage lot. Further, he was unaware of the non-dissipation order.

72John testified that the first time he became aware of any issue with respect to the cottage lot was when the Vesting Order was served on him. He believes it was July 28, 2012.

73John said that, based upon a referral from a co-worker, he retained Mr. William Bastien to represent him in this transaction, and that Mr. Bastien did not advise him of any issues with respect to the transaction. Joe hired John Hall, a lawyer at Ross and McBride to represent him on the real estate transaction.

74On consent a memo drafted by Joe and directed to his lawyer was marked as Exhibit 6, Tab 13. That memo contained the basis of the business transaction. That memo specifies that it is the purchase of a 50 percent interest in the cottage lot for $300,000. It confirms that the FOCU mortgage would be a charge against the 50 percent interest owned by 134.

75As part of this litigation John commissioned an appraisal, which was entered into evidence as Exhibit 6, Tab 14. The value of the entire lot as of March 26, 2012 is set at $790,000.

76John testified that until August 2012 Joe arranged for the FOCU mortgage payments to be paid, but since then he has not done so.

77In order to partly finance the purchase, a mortgage in the amount of $288,000 was registered in favour of Scotia Bank on March 13, 2012 against 19 Parkway. As title to the property was registered in Aleni’s name, she granted the mortgage. Prior to placing this mortgage, only approximately $15,000 remained outstanding on the old mortgage.

78John stated that he did not discuss the idea of purchasing an interest in the cottage lot with his wife. He stated that in his culture the man does not ask the wife's approval. He simply advised that they were helping Joe by buying half interest in the cottage lot. He said that she was not agreeable to purchasing the cottage lot interest or placing a mortgage on their home, but she did it because he wanted it to happen.

79John testified that he also had a Euro account and took from it $38,154 Canadian. Using these funds, plus the mortgage proceeds from 19 Parkway, he bought a bank draft in the amount of $303,669.06 that was payable to the lawyers in trust. In addition, a second bank draft in the amount of $1,359.16 payable to his lawyers was obtained. These drafts were given to Mr. Bastian in order to close the transaction.

80At that time John had two Euro accounts: one in his name alone and one held jointly with his father. At the time of the transaction he transferred €30,000 into his personal account from the joint account. Then these funds were transferred into his chequing account. He testified that the source of the funds in the joint account were from Greece. They had family property there that was sold and the funds were transferred here. He said that the sale happened in the summer of 2011, and since then they had attempted to transfer the funds to Canada. The transfer finally occurred in February 2012.

81John's counsel refused to produce the records from the Bank of Greece to show the ultimate source of these funds.

82John stated that had the funds in the Euro account not been transferred from Greece in time for the closing of the transaction, he would have used his line of credit to finance the balance of the purchase.

83In late 2012 somewhere between August and October FOCU advised John that the mortgage payments were not being made. At that point Joe had disappeared from the jurisdiction. John made the mortgage payments for a while, but eventually he stopped. As the mortgage went into arrears, FOCU issued a Notice of Power of Sale. John brought the mortgage back into good standing with a payment of $14,423.23.

84John testified that since Joe disappeared he has met with him twice. The first time was in the summer of 2015 at a Starbucks across the street from McMaster. The meeting was about 15 to 20 minutes long. At that time John said the only discussion involved Joe apologizing for missing John's daughter’s wedding and the funeral of John's father. There was no discussion about the cottage property.

85The second meeting occurred on the Monday prior to the commencement of the trial.

86John stated that on August 15, 2012 a deposit was made into his chequing account in the amount of $15,000. He said that he thought it was from his daughter who knew that he was having financial difficulties. He thought that she was repaying him part of her post-secondary education. John said that he contacted his daughter and thanked her for the money.

87However, at the second meeting with Joe, John raised the issue of money. Joe told him that he had given $15,000 to John’s daughter and told her to transfer it to John. John said that the next day he spoke with his daughter who confirmed that had occurred.

88John knows an individual named Ivan Knezovic. Ivan had played soccer with John and Joe on the same team for one season. Ivan had a machine shop in Stoney Creek. At one time there was the possibility that he could produce material for National Steel Car. As a result, John met with Ivan to discuss this possibility.

89At the meeting John mentioned the lawsuit and the fact that he had hired a lawyer to defend his interest, and that they were expensive. John understood that in the past Joe had loaned Ivan money.

90In the spring John received a telephone call from Ivan's wife who asked to meet with him. They met in front of an A&P on Barton Street across from a beer store and she handed him $10,000 in cash. She did not explain why she was doing that. John's belief was that this money came from Joe to help pay for legal expenses.

91As a result of the most recent meeting with Joe, Joe confirmed that the money came from him as part of a repayment of money owed to him.

92John testified that he has not received any other money from Joe.

93John said that on March 11, 2015 there was a deposit of $11,000 into his bank account. He understood that his son Tom was repaying him for part of his post-secondary education.

94John testified that he uses the cottage property when he has a vacation. However, as it is an island, he does not use it in the winter. He and his family use the property. No one else uses it. He acknowledged that the cottage is almost twice the size of his home on Parkway.

95John stated that when he acquired his interest in the cottage lot, the cottage was under construction. In the summer of 2012 the interior had not been completed, but since then significant interior renovations have been completed.

96John stated that he has paid for all of the costs related to the ongoing operation of the cottage since he acquired the interest, and that there has been no contribution by Joe, 134 or Maryann.

97John testified in order to finance those payments the balance of his line of credit has increased by approximately $20,000, that he has exhausted is TFSA, and that there is nothing left in his Euro account.

98John agrees now that he is aware that $25,000 has indirectly been received from Joe, that his claim for reimbursement should be reduced by that amount.

William Bastien

99Mr. Bastien is a lawyer with the law firm of McHugh and Whitmore who was retained by John to act on his behalf with respect to the real estate transaction.

100He confirmed that he received a copy of the memo written by Joe to John Hall marked as Exhibit 6 tab 13, and that this formed the basis of the transaction. He stated that John Hall is a lawyer with the law firm of Ross McBride, and that he acted on behalf of Joe in the real estate transaction.

101He stated that he performed all of the steps that he would normally do when acting for a purchaser in a real estate transaction, and that nothing out of the ordinary arose to cause him concern, with the exception of the FOCU mortgage. Because of that mortgage he drafted the Indemnity Agreement to protect his client from that obligation. As well, consent to the transaction from FOCU was obtained.

102He testified that even though the vendor was a corporation he was concerned about ensuring compliance with the Family Law Act. He therefore requested that the Standard Sale Closing Document be amended. The following was inserted: “4a) I am the sole officer, shareholder and director of 1349241 Ontario Inc. I am separated from my spouse. The property was not ordinarily occupied by us at the time of our separation as our family residence.”

103He said that he was satisfied that this statement complied with the Family Law Act, and that it did not raise any concerns that would cause him to undertake further inquiries. He said that John did not direct them to make any inquiries about the state of any marital dispute between Maryann and Joe.

104He testified that he could not recall whether he reviewed this amended Standard Sale Closing Document with John.

105He confirmed that he received the sale closing proceeds from John and that they were transferred to the solicitor acting for Joe.

106The closing date was set for March 16. He stated that this was a short closing schedule, but not out of the ordinary. He was advised that the vendor was out of the country, and would return on March 25 to sign the documents. The closing was deferred until March 26, 2012.

107He said that no one pressured him to close the deal on an urgent basis and that he had no recollection of the defendant contacting him to pressure him to close.

108He said that he was unaware of any family law proceedings between Joe and Maryann. He was unaware that Joe had been in the psychiatric ward in the hospital in early March.

109He testified that the title insurance was obtained. He said that it is optional, but is preferred.

Aleni Kotsiou

110She confirmed that she is the wife of John and that they live at 19 Parkway in Dundas.

111She agreed that Joe and Maryann lived on Efferding until they separated, and that this was one street away from her home on Parkway.

112She stated that she was employed at the retirement home called Yorkville Place beginning in 1994, working in the kitchen until 2014.

113She testified that initially when she worked at Yorkville Place, Joe owned the business and sold it a couple of years before she left working there, likely in 2011.

114In 2014 she began working at Shalom Village on a part-time basis.

115She said that while she and Maryann worked together at Yorkville Place they would often have a coffee break together. They also walk their dogs together sometimes. She described her relationship with Maryann as friendly, but not as best friends.

116Aleni testified that after Maryann’s home on Efferding was sold, she did not see Maryann until the day of the trial.

117She said that after Joe and Maryann separated, Maryann and she sometimes spoke about her marital issues, including that she wanted her share from the marriage, but that she never told her husband, John, about what was said.

118She said that the conversation where Maryann said that she wanted her share of the marriage occurred at Yorkville Place around lunchtime in January or February 2010. She said that Maryann did not go inside, and just had a few words with her. Aleni had been off work sick, and Maryann had heard that she was back working and wanted to enquire about her health. Aleni stated that it was at that time that Maryann said that she wanted her share from the marriage.

119Aleni denied ever telling Maryann to leave Joe because staying was affecting her health.

120She acknowledged that she was aware that Joe and Maryann were going through a divorce, but she denied any knowledge that there was an ongoing court action.

121She testified that prior to the purchase of the 50 percent interest in the cottage lot by John, no one told her about any order preventing Joe from selling or disposing of his assets, and no one told her that there was a court proceeding in family court between Joe and Maryann.

122She said that after Joe and Maryann separated, Maryann never visited her home for a coffee, nor did Maryann come to visit her around February 2012, either at her home or work.

123Aleni testified that she was not aware that Joe had been in the psychiatric ward of the hospital, or that her husband had visited him there.

124She confirmed that she has been married to John for approximately 40 years and that they do communicate effectively about family matters. She was unaware that either child had given money to John until recently. A couple of weeks prior to trial she was looking at John's bank statement and saw the transfer to John of $11,000. She asked John where the $11,000 came from, and he said it was from Tom and that the $15,000 was from Debbie.

125She stated that neither Debbie nor Tom advised her that they had transferred money to John. She acknowledged that she sees her children every week.

126She denied ever speaking to Joe's mother, Flora, about her son Joe's matrimonial issues.

127She testified that John did not mention about the possibility of purchasing the cottage lot, but rather told her that it was going to happen. She did not want to do that for two reasons. First, she did not want to be in partnership and particularly, she did not want to be in a partnership with Joe. Second, she did not want to mortgage their home that was almost mortgage free.

128She said that Joe is very tough when it comes to business as she had seen that through working for him. He is sometimes difficult to deal with.

129She acknowledged that title to the home was in her name and that it was necessary for her to sign the mortgage document for a mortgage to be placed on it. However, she signed these documents even though she did not want to, because John was her husband and that was the way it works.

130She said that when she signed the mortgage documents it never crossed her mind that Maryann might have a claim to the cottage. She had no knowledge of the status of their family issues.

MARYANN’S CLAIM

131Maryann submits that the Conveyance to John was a fraudulent conveyance as defined by the Fraudulent Conveyances Act (“FCA”) and therefore is a void transaction. Alternatively, she asserts that John holds title to the undivided 50 percent interest in trust for Joe, and pursuant to the Vesting Order, now in trust for her.

132I will first deal with the claim under the FCA and examine the necessary elements of a fraudulent conveyance.

A. FRAUDULENT CONVEYANCE CLAIM

133The three relevant sections of the FCA reads follows:

2. Every conveyance of real property or personal property and every bond, suit, judgment and execution heretofore or hereinafter made with intent to defeat, hinder, delay or defraud creditors or others of their just and lawful actions, suits, debts, accounts, damages, penalty or forfeitures are void as against such persons and their assigns.

3. Section 2 does not apply to an estate or interest in real estate or personal property 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 set forth in that section.

4. Section 2 applies to every conveyance executed with the intent set forth in that section despite the fact that it was executed upon valuable consideration and with the intention, as between the parties to it, of actually transferring to and for the benefit of the transferee the interest expressed to be thereby transferred, unless it is protected under section 3 by reason of good faith and want of notice or knowledge on the part of the purchaser.

Issues

134As Justice Belobaba noted in Feher v. Healey, 2006 CarswellOnt 5203 the issues that need to be resolved mirror the language of section 2 and section 3 of the FCA:

1. Has the plaintiff, Maryann, established that Conveyance was made with the intent to defeat, hinder, delay or defraud an existing or future creditor?

2. If so, can the defendant, John, nonetheless show that the Conveyance was made: i. for good consideration, ii. in good faith, and iii. without knowledge of the intent set out in section 2?

ISSUE ONE: Has the plaintiff established that the Conveyance was made with the intent to defeat, hinder, delay or defraud an existing or future creditors?

135For section 2 of the FCA to have application there must be a “conveyance”, an “intent” and a “creditor or others” towards whom that intent is directed.

136There is no dispute that a “conveyance” occurred. That conveyance occurred when 134 transferred an undivided 50 percent interest in the cottage lot on March 26, 2012.

137The courts have interpreted the words “creditor or others” quite broadly. Indeed those words are broad enough to include a person who, although not a creditor at the time of the conveyance, may become one in the future. Benyon v. Benyon, [2001] O.J. 3653.

138During the trial, John did not dispute that Maryann's claim would fall within the meaning of the words “creditor or others” in the FCA.

139I find that there was a conveyance and that Maryann's claim through her family law proceeding is one encompassed within the words “creditor or others”.

140Therefore, for the purpose of the analysis of section 2, the remaining issue that I must determine is whether the conveyance was made with the intent to defeat, hinder, delay or defraud Maryann (“intent”).

141For the purposes of section 2 it is the intent of the transferor that one must determine, and it is at the time of the conveyance.

142The courts have grappled with the type of evidence required to determine such intent. In Indcondo v. Sloan, 2014 ONSC 4018 Justice Penny discusses this issue.

143He states that determining the necessary intention to defeat creditors often cannot be made, except by drawing an inference from the circumstances. As well, he identified certain facts that have been referred to as badges of fraud.

144This concept originated in Twyne’s Case (1601) 76 E.R. 809. The courts have interpreted those badges to include:

1. the donor continued in possession and continued to use the property as his own;
2. the transaction was secret;
3. the transfer was made in the face of threatened legal proceedings;
4. the transfer documents contain false statements as to consideration;
5. the consideration is grossly inadequate;
6. there is unusual haste in making the transfer;
7. some benefit is retained under the settlement by the settlor;
8. embarking on a hazardous venture; and
9. a close relationship exists between parties to the conveyance.

145The badges of fraud represent evidentiary rules, which when considered in all the circumstances, may enable the court to make a finding, unless the proponents of the transaction can explain away the suspicious circumstances. The legal or persuasive burden remains with the plaintiff throughout. However, the plaintiff may raise an inference of fraud sufficient to shift the evidentiary burden to the defendant if the plaintiff can establish that the transaction has characteristics that are typically associated with fraudulent intent. Proof of one or more of the badges of fraud will not compel a finding for the plaintiff, but it may raise a prima facie evidentiary case which would be prudent for the defendant to rebut: Indcondo, para 53.

146In Benyon, supra, at paras. 49 and 52 Kruzick J. stated:

I am mindful of the fact that I must be very careful to avoid using badges of fraud doctrine mechanically… Fraudulent assignment depends not so much on the tally of the “badges” but upon the view of all of the facts…

Although the primary burden of proving the case remains with the plaintiff, the evidence of one or more of the traditional “badges of fraud” may give rise to an inference of intent to defraud in the absence of an explanation from the defendant. In such circumstances, there is an evidentiary onus on the defence to adduce evidence showing an absence of fraudulent intent.

The Effect of Noting Joe in Default

147Maryann noted Joe in default on the main action and John noted Joe in default under the cross-claim.

148The admissions that Joe is deemed to have made by not defending the main action are binding on him, but they are not binding upon John: Commerce Capital Mortgage Corp. v. Jemett, [1981 O.J. No. 1242 (Ont. H.C.) at para 49.

149The admissions that Joe is deemed to have made by not defending the cross claim are binding upon him in relation to the cross-claim, and as between himself and John.

150This means that, in her claim against John, Maryann must prove Joe's intent and may not rely upon Joe's deemed admissions.

151Joe did not participate in the trial. Therefore, we do not have his direct evidence. I must therefore examine the surrounding circumstances to determine his intent, and I will do so through the lens of the badges of fraud.

Analysis of Badges of Fraud

1. Did the donor continue in possession and continue to use the property as his own?

152Based upon our fact situation this badge of fraud is of no assistance. After the conveyance occurred, 134 and John each owned a 50 percent interest as tenants in common, and therefore both were entitled to occupy the land.

2. Was the transaction secret?

153In order to answer this question, a second question must be asked and that is: A secret from whom?

154The transferee and the transferor to the conveyance each retained independent lawyers to represent them on the real estate transaction. FOCU’s consent to the transaction, as mortgagee, was obtained. Mr. Bastien undertook the normal searches for a real estate purchase.

155It is clear therefore that this transaction was not a secret transaction known only to the transferor and the transferee. They involved their respective solicitors, FOCU and the land registry office. However, the more relevant person to consider is whether the transfer was kept secret from the “creditor or others”, namely Maryann.

156Maryann testified that she had no knowledge of the transfer; however, she also testified that near the end of her marriage she normally had little knowledge of Joe's business dealings.

157For example, she was uncertain as to whether Joe had sold certain business assets, and, in some instances she was aware that the business asset had been sold, but was unaware as to when it occurred.

158However, this transfer was made in the context of litigation between Joe and Maryann, and it is agreed that Joe was the directing mind of 134. There was a non-dissipation order against Joe. Joe through his agent was requesting adjournments of his family law litigation, while roughly at the same time was undertaking this transfer. He had a duty to disclose. He failed to disclose the Conveyance to Maryann.

159I am satisfied that by inferring from the circumstances on how this transaction unfolded, it was kept secret by Joe from Maryann.

3. The transfer was made in the face of threatened legal proceedings.

160The evidence is overwhelmingly clear that Joe was in the midst of a family law matter with Maryann, and that the trial was imminent at the time that the transfer occurred.

161Joe and Maryann had an ongoing family law proceeding at the time that the conveyance was made. The matter had been called for trial and on six occasions Joe, either by directly requesting or by not being present, had the trial postponed.

162Further, on the day after the trial ended, April 20, 2016, Joe sold significant business assets and those sales are referred to in Exhibit 1 tab 14.

4. The transfer documents contain false statements as to consideration

163It is not suggested that there were any false statements as to the consideration in the transfer documents. The actual consideration was listed and Land Transfer Tax and HST were paid.

5. The consideration is grossly inadequate

164It is conceded by Maryann that the consideration was not grossly inadequate. She takes no issue with the consideration that was paid.

6. There is unusual haste in making the transfer

165There is disagreement between the parties as to whether there was unusual haste in making the transfer.

166John testified that he approached Joe with an offer to purchase the entire lot sometime after they met with a cousin from Australia in December 2011. He said that Joe took some time to think about it, and a few weeks later came back offering the revised transaction, whereby John would purchase a 50 percent interest.

167The memo that Joe sent to his lawyer was dated March 5, 2012 and provided for a closing date of March 16 2012. However, the transaction did not close until March 26, 2012 because Joe was out of the country and was not able to sign the documents.

168Mr. Bastien testified that the initial time frame with the closing of March 16 was tight, but was not unusual. He said that no one contacted him advising him that there was urgency to having the transaction completed as soon as possible.

169John testified that there was no urgency on his part, other than the fact that he wanted to provide cash to assist his nephew in his business.

170I am satisfied that in the circumstances it cannot be said that there was unusual haste in making the transfer.

7. Some benefit is retained under the settlement by the settlor

171134 conveyed a 50 percent interest in the cottage lot. It cannot be said to have retained a benefit under that conveyance. It is true that the remaining 50 percent interest continues to be owned by 134. However, no benefit was retained under the transfer that is in question.

8. Embarking on a hazardous venture

172The acquisition of a 50 percent interest in a cottage lot in Lake Muskoka cannot be construed to be embarking upon a hazardous venture. In retrospect and in light of this litigation, that step has become an expensive one, but not one that was contemplated at the time of the conveyance to be a “hazardous venture”.

9. The close relationship exists between parties to the conveyance

173There is a close relationship between the transferor and the transferee, as it was a non-arm’s length transfer between a nephew to uncle.

Conclusion on badges of fraud

174I am satisfied that Maryann has proven three badges of fraud and that there are other suspicious circumstances at the time of the conveyance. They raise a prima facie evidentiary case that Joe had the necessary intent at the time he made the conveyance, which would be prudent for John to rebut.

175Joe was noted in default in the main action and he did not testify.

176I have John’s evidence that Joe told him that his purpose for the conveyance was to get cash to alleviate a cash flow crunch caused by issues at the Brampton church construction project.

177I am satisfied that John has adduced sufficient evidence to require me, as the trier of fact, to make my decision based upon the entire evidence.

Conclusion on Issue One

178There is no dispute that Joe was the controlling mind of 134. Therefore, Joe’s intent is 134’s intent.

179It is clear that 134 made the Conveyance in the face of significant ongoing litigation between Joe and Maryann where the division of family assets, including the cottage lot was at issue. Further, Joe’s conduct in selling significant business assets the day that the trial ended adds to the suspicious circumstances from which I can infer “intent”.

180By examining the surrounding circumstances, and making inferences, I find, based upon a balance of probabilities, that on March 26, 2012 when 134 conveyed an undivided 50 percent interest in the cottage lot, it did so with the intent to defeat, hinder, delay or defraud Maryann, and as such the conveyance is void as against Maryann, unless saved by the provisions of section 3 of the FCA.

ISSUE TWO: Is the transfer protected under section 3 of the FCA?

181Section 3 provides that section 2 does not apply to a conveyance where it is:

1. Executed upon good consideration;
2. In good faith; and
3. the transferee did not have notice or knowledge of the intent set forth in section 2.

1) Good Consideration

182The plaintiff does not dispute that the conveyance was for good consideration. There is no need for me to make a finding as to the adequacy of the consideration. However, I will comment upon the amount later when I consider the element of good faith.

2) Good Faith

183I will examine a number of facts to review whether John made the transaction in good faith.

Consideration for Conveyance

184Although Maryann was not disputing that valuable consideration was paid, the amount and how it was paid forms part of the circumstances from which inferences can be drawn.

185The purchase price for a 50 percent interest was $300,000. Based upon the appraisal for the cottage lot marked as Exhibit 6, Tab 14, after considering real estate fees and the fact that only an undivided 50 percent interest was purchased, rather than the complete lot, the purchase price is close, if not, actual fair market value.

186In order to finance the purchase, John caused Aleni to place a mortgage on their matrimonial home in the amount of $288,000. This is an arm’s length mortgage, and one that the Kotsiou family continues to pay.

187The balance of the funds of approximately $38,000 came from a Euro account that John had. He testified that these funds in turn came from a joint Euro account held with his father. The funds in the joint Euro account came by way of a transfer from Greece. John said that his family had sold property in Greece and the proceeds had finally been transferred to the join Euro account in February 2012.

188John testified that if the funds from Greece had not come through, he would have used his line of credit for the balance of the closing funds.

189Maryann alleges that the funds purportedly coming from Greece actually came from Joe who had business in Bosnia.

190I find that the fact that John arranged for an arm’s length mortgage to be placed upon his matrimonial home in order to finance the most significant portion of the purchase, is a factor in favour of concluding that he was acting in good faith. I am not troubled by the small portion of the purchase price derived from the Euro account and which could have been replaced from John’s line of credit if necessary. As well, for the reasons stated below I have found John to be credible. I accept John’s evidence on this point.

191The purchase money was real funds. They did not mysteriously appear in John’s hands only to disappear into Joe’s hands. John obtained a mortgage for the most significant portion of the purchase price. These funds left John’s hands and were ultimately transferred to 134 through their respective solicitors. John and Aleni continue to pay the mortgage on their home.

Circumstances Surrounding Conveyance

192The transaction was undertaken in the same fashion as a normal arm’s length purchase and sale would have occurred.

193Each party retained a lawyer to represent his interest.

194John retained Mr. Bastien and instructed him to protect his interests on the purchase, just as any purchaser would do. Joe retained John Hall.

195Mr. Bastien undertook the normal searches and made the usual requisitions. The usual documents were exchanged, except for the Indemnity Agreement that Mr. Bastien drafted to protect his client’s interests because of the FOCU mortgage. The consent of FOCU was obtained for the conveyance.

196The closing date initially was relatively quick, but Mr. Bastien testified that it was not unusual. In any event, the closing was postponed and Mr. Bastien testified that no pressure was put on him by anyone to close the transaction on an urgent basis.

197The way that the transaction was undertaken is a factor that supports that the Conveyance was executed in good faith.

Conclusion on Good Faith

198I am satisfied that the circumstances surrounding the actual conveyance including the consideration paid, demonstrate that John completed the conveyance in good faith, unless I conclude that he had notice or knowledge of the “intent” at the time that he completed the conveyance.

199In that event it would be impossible to conclude that he acted in good faith.

3) Notice or Knowledge of the “Intent”

200I have concluded that 134, through Joe, had the “intent” at the time of the Conveyance. I must now determine whether John had notice or knowledge of that “intent” at the time of the Conveyance.

201Maryann submits that John and Aleni were aware of the ongoing matrimonial dispute between herself and Joe, and that she only wanted the cottage lot and that she was not pursuing an interest in the business ventures.

202She asserts that John and Joe had a close personal bond and together they devised this plan to hinder or defeat her claim to the cottage lot. She asserts that he would have had notice or knowledge of that “intent”.

203John submits that he was unaware that Maryann and Joe had an ongoing matrimonial legal action, and that he offered to buy the cottage lot to assist his nephew, Joe, with a cash flow crunch in his business, and because he thought cottage property was a good investment.

204I will review the issue of notice or knowledge of the “intent’ by analyzing the credibility of the witnesses.

Credibility

205Determining the credibility is a difficult task. One can compare the internal consistencies of the witness’s evidence. Also, one can look to corroborative documents. Demeanour of the witness is also a factor to consider in assessing credibility.

206Four people testified during the trial. Their credibility is critical to the issue of determining whether John had notice or knowledge of Joe’s ”intent”.

207I accept without reservation the testimony of William Bastien. I am satisfied that his evidence was consistent, was supported by documentary evidence, and was unshaken on cross-examination. I am satisfied that he testified truthfully and completely about what for him was a normal real estate transaction, and one which, with the exception of the FOCU mortgage, did not raise any out of the ordinary concerns for him in his solicitor’s role.

208The credibility of Maryann, John and Aleni can be best determined by examining their evidence in the context of certain relationships. I will examine the evidence with respect to:

1. Maryann and Aleni’s relationship;
2. Aleni and John’s relationship; and
3. John and Joe’s relationship.

Maryann and Aleni

209Maryann testified that she was best of friends with Aleni; that they had lunch together at work; walked the dog together; and that she shared with Aleni details of her matrimonial issues. She said that they had barbecues and family events together.

210Aleni said that they were friendly, but not best friends. She agreed that they did have coffee and lunch together when they both worked at Yorkville.

211Maryann said that after she separated from Joe in December 2006, until this trial, she saw Aleni twice. She went to Aleni’s home once for coffee, and then in March 2012 she went to Aleni’s place of work, Yorkville Place and told her that Joe was sick and she was worried about him. At that time, she told Aleni that she did not want Joe’s businesses, only the cottage lot.

212Aleni said that after Maryann sold her home on Efferding in 2010 she did not see Maryann until the day of the trial.

213Aleni stated that in January or February of 2010 Maryann came to Yorkville Seniors complex, stood at the door and briefly spoke to her. Aleni remembers this because she had been sick and off work. She said that Maryann knew about this and came to ask her how she was feeling. At this time, Maryann said that she wanted her share of the marriage.

214Maryann testified that she spoke about her matrimonial problems with Aleni, and in fact, Aleni had advised her to leave Joe for the sake of her health. Aleni agreed that Maryann told her about their marital issues occasionally when they were together, but denied advising her to leave for the sake of her health.

215Aleni denied that Maryann ever came to visit at her home for coffee after her separation.

216I accept Aleni’s evidence that she and Maryann were friendly, but not best friends. By Maryann’s own evidence they only saw each other twice since 2006. This is not the conduct that one would expect of best friends when one was going through a traumatic event.

217Where Maryann and Aleni’s evidence conflict, I accept Aleni’s evidence.

218I accept that a conversation occurred in January or February 2010 where Maryann told Aleni that she wanted her share from the marriage. Aleni was able to specifically tie this event to her return to work after being sick. I accept that there was no discussion at that time of Maryann’s interest in the cottage lot.

219I reject Maryann’s evidence that in March 2012 she went to see Aleni because she was worried about Joe’s health and at that time she told Aleni that she wanted the cottage lot and she would let Joe keep the businesses. I do not accept that after six years with only one contact with Aleni during that time, that Maryann would contact Aleni about Joe’s health, and would conveniently speak to her about her property claim in the cottage lot

220I find that at no time did Maryann advise Aleni that she had a claim against the cottage lot, or that she was in litigation with Joe over family assets.

John and Aleni

221The determination of credibility is made more difficult when it is the uniqueness of a relationship that informs the evidence.

222For example, to some it would come as a surprise that Aleni, who was the sole registered owner of the matrimonial home, would put a mortgage on it to finance the purchase of the cottage lot, when she did not want to do it. She did not want to go into partnership in general, and she specifically did not want to go into partnership with Joe. Further, she did not want to mortgage their almost mortgage-free matrimonial home.

223However, Aleni testified that she put the mortgage on the home because her husband told her that he was buying the interest in the cottage lot, and she needed to mortgage the home. That was the way things worked in their household.

224I accept John and Aleni’s testimony on this issue. Both were clear and consistent; John made the decision to purchase the cottage interest and Aleni, despite being against it, mortgaged their matrimonial home to provide the purchase funds.

225Similarly, Aleni testified that she never advised her husband of any discussions that she had with Maryann about Maryann’s marital issues, and John testified that he did not share with Aleni that Joe was in the hospital, or that he visited Joe there.

226Further, John testified that when $11,000 was put into his bank account, he assumed that his son was paying him back for his education; he was proud of that; but he did not speak with his son about it.

227John and Aleni both portrayed their relationship as a strong, long term one, but one where information was compartmentalized.

228John said that he never shared with Aleni the unexpected deposits into his account, which at the time he thought came from their son and daughter. Aleni said that she did not learn about them until she specifically asked about them.

229These facts seem to be inconsistent with a long-term marriage. However, it is consistent with John and Aleni’s testimony regarding the process surrounding purchase of the interest in the cottage lot, and the placing of a mortgage on their home. There was no sharing of information or a discussion. John made the decision and advised Aleni, who then mortgaged their matrimonial home.

230Although the compartmentalization of information, and the failure to share information may seem foreign to some, I accept that this was in fact the situation in John and Aleni’s relationship.

231I accept that John told Aleni that they were buying an undivided 50 percent interest in the cottage lot; he did not discuss it with her.

232I find that Aleni did not share with John any information that she might have had about Joe and Maryann’s marital issues.

233I find that John did not discuss his visit with Joe at the hospital or his two meetings with Joe after Joe had disappeared from the jurisdiction.

234I find that John did not receive via Aleni notice or knowledge about Joe’s “intent”.

John and Joe

235Because Joe did not testify I must examine John and Joe’s relationship without any evidence from him.

236Maryann testified that Joe and John had a tight bond. She said that they played soccer together, worked together and socialized together.

237John said that Joe played on his team for half of a season. He said that they only socialized three or four times in the two to three years after Maryann and Joe moved to Efferding. He said that he met with Joe because he was the landlord for his gym. He also assisted in the construction of the Macedonian church with Joe.

238John testified that he did not discuss Joe’s marital issues with him.

239I accept John’s evidence that he did not have a close social relationship with Joe. I have found John to be a credible witness with respect to this evidence regarding his interactions with Aleni. I have found Maryann to not be credible with respect to her testimony regarding Aleni. I prefer John’s evidence to Maryann on these issues. I find that John and Joe were friendly, but not best friends.

240For example, although Maryann said that Joe and John played soccer regularly, I accept that Joe played on the same team as John for only half of a season.

241I have found that in their relationship Aleni and John did not share much information. I accept John’s evidence that he did not discuss Joe’s personal life with him. This is consistent with John’s approach; he did not discuss that type of thing.

242John said that he became aware of Joe’s cash flow shortage when Joe came to his house to visit with a cousin from Australia. Sometime after the meeting, John said that he went to Joe and offered to buy the cottage lot to help him with his cash flow and also to make a good investment.

243John testified that Joe told him that he had a cash shortage because of problems with the construction of the Polish Church in Brampton. John said that he was not aware of any other reason that Joe would want to sell the cottage lot.

244Exhibit 8 is a Certificate of Action with respect to a lien filed against the Polish Church by Jombar Building Corporation Ltd. and Exhibit 9 is a profile for Jombar showing Joe as the sole officer and director.

245Although John would not have been aware of these two documents at the time of the Conveyance, they do provide collateral support to his testimony that Joe told him that he had a cash flow issue because of problems with the construction of that church.

246I find that John accepted that Joe had a financial cash flow crunch at the time that he offered to assist Joe by purchasing an interest in the cottage lot.

247John has testified that he received indirectly $25,000 from Joe; $15,000 via his daughter; and $10,000 via Ivan’s wife. He said that at the time he received the money from his daughter, he did not know that it was from Joe. It was only after his recent meeting with Joe, that he determined that the money originated from Joe.

248John said that he thought that the $10,000 received from Ivan’s wife was from Joe to assist with legal fees.

249From the time of the Conveyance Joe or 134 had an obligation to pay the FOCU mortgage. Joe or 134 did that for a few months, and then no further payments were made. In order to not lose the property under power of sale, John assumed those payments, as well as 100 percent of the ongoing expenses of the cottage.

250The $25,000 cash from Joe comes nowhere close to paying the obligations that Joe or 134 had to John with respect to the cottage lot.

251I am satisfied that these payments do not assist me in determining John’s intent at the time of the Conveyance.

252John testified that he had two meetings with Joe after Joe had disappeared from the jurisdiction. These were secret meetings. No one else was aware of these meetings, including Aleni. John testified about these meetings during his examination in chief.

253John stated that the first meeting was short and there were only two subjects of discussion.

254Initially I had difficulty believing that Joe and John did not discuss the cottage lot at their first meeting, but only spoke about Joe’s apology for missing John’s father’s funeral and his daughter’s wedding. However, this is consistent with the compartmentalization that is a way of life with John, and I accept this evidence.

255Whether they discussed the litigation and the cottage lot at that time is not directly material to the issues before me, as I must determine issues as of the date of the Conveyance. However, if I had concluded that John was lying about the subject of the discussion, it would have impacted upon my determination of credibility.

256John also testified in chief about his second meeting with Joe on the eve of trial. No one else was aware of it. John volunteered that Joe advised him that the money he received via Ivan’s wife and via John’s daughter, originated from Joe.

257These are admissions that could be construed as against interest, but is consistent with what I have found to be John’s testimony, namely credible and truthful.

258I also note that Aleni was not aware of either of these conversations; something that is consistent with their compartmentalized lives and further supports my finding that they did not share information relevant to these proceedings at or prior to the time of the Conveyance.

259I find that prior to the Conveyance John did not discuss Joe’s marital issues with him, and that at the time of the Conveyance he was unaware of the ongoing contest over family assets, and specifically he was unaware of Maryann’s claim to the cottage lot.

260I find that John believed that Joe’s reason for selling the interest in the cottage lot was due to a cash crunch arising from the construction of the Polish Church in Brampton. Whether there was an actual cash crunch or not is not relevant. John believed Joe when he told him there was and he acted on that belief.

261I accept John’s evidence that he believed that cottage lots in Muskoka were good investments.

Conclusion on Notice or Knowledge of Intent

262I find that at the time of the conveyance from 134 to John, John had no notice or knowledge of Joe’s “intent”.

Conclusion on Whether the Transfer is Protected Under Section 3

263I find that at the time of the conveyance from 134 to John of a 50 percent interest in the cottage lot, John executed it with good consideration, in good faith, and he did not have notice or knowledge of the intent set forth in section 2.

264I find that the Conveyance from 134 to John of an undivided 50 percent interest in the cottage lot is protected by section 3 of the FCA, and the Maryann’s action under the FCA is dismissed.

B. TRUST CLAIM

265As an alternative relief Maryann claimed that John is holding a portion of the undivided 50 percent interest in the cottage lot in trust for Joe, and therefore pursuant to the Vesting Order, now in trust for her.

266She asserts that there are three examples of where John received money from Joe with respect to the cottage lot.

267First, when John acquired the undivided 50 percent interest the proceeds from the mortgage that his wife placed on their home was less than the purchase price. Maryann alleges that the funds that were transferred into John’s joint Euro account actually came from Joe who had business in Bosnia. These funds were approximately $36,000 Cdn.

268Second, John received $10,000 from Joe, via Ivan’s wife. John testified he thought these funds were from Joe for legal fees.

269Third, John received $15,000 from Joe, via his daughter, Debbie. John testified that initially he thought that this daughter was repaying him for her education, but just before trial learned from Joe that the money had originated from Joe.

270These funds collectively total approximately $61,000. Maryann asserts that there has been an enrichment in John and a detriment to Joe. Pursuant to the principles of constructive trust, she asserts that John is holding all or a portion of his interest in trust for Joe. Because of the Vesting Order, that interest is now held in trust for Maryann.

271Of the three, the most important with respect to a trust claim is the first amount: the amount that Maryann asserts formed part of the purchase price and that she submits came from Joe.

272I am satisfied that the evidence does not establish on a balance of probabilities that the Euro account funds came from Joe. I have accepted that John’s evidence is credible. He testified that his family had sold property in Greece, and that they were finally able to transfer the cash to Canada in February. He also testified that in the event that transfer had not occurred in time, he would have used his line of credit for the balance of the purchase price.

273The balance of the funds that Maryann asserts support her claim for a trust, are funds that John has admitted he now knows came to him indirectly from Joe.

274To argue that these funds create some type of unjust enrichment fails to consider the obligations that Joe has to John under the Indemnity Agreement. 134 and Joe ceased to make those mortgage payments in late summer of 2012 and John has made them since.

275Given that obligation, I am satisfied that those funds do not represent an enrichment of John and a detriment to Joe. They are a partial satisfaction of Joe’s obligations under the Indemnity Agreement.

276I dismiss Maryann’s claim that John is holding a portion of his undivided 50 percent interest in trust.

JOHN’S COUNTERCLAIM

Post Transfer Expenses

277John claims against Maryann costs arising from the date she acquired an undivided 50 percent interest in the cottage lot pursuant to the Vesting Order. He also seeks general damages.

278It is the undisputed evidence that Maryann has not been to the cottage since the Vesting Order. It is also undisputed that Maryann requested a key to the cottage from John and never received it. It is also undisputed that in reality John has had exclusive possession of the cottage since the Vesting Order.

279John claims reimbursement for 50 percent of the costs paid to maintain the cottage since the Vesting Order. Those costs include Insurance, construction/repairs/out of pocket, Hydro, boat/marina expenses and realty taxes, (collectively “Operational Costs”). They are more specifically described in Exhibit 22.

280Maryann did not dispute that John had paid the Operational Costs, but she did dispute that she was responsible for any of those costs. She asserted that because John has had exclusive possession since the Vesting Order, he should be responsible for the costs of the cottage since then.

281John also claims reimbursement of 100 percent of the mortgage payments that he has paid in regards to the FOCU mortgage and which amount is set out in Exhibit 22. This is an interest only mortgage. Maryann’s position is that if I found that the Conveyance to John was valid, then the FOCU mortgage binds the entire property, and not just her interest. She asserts that any arrangement, including the Indemnity Agreement, between John and Joe is not binding upon her.

282The evidence is clear that as between John and 134 and Joe, the FOCU mortgage was secured only against 134’s undivided 50 percent interest in the cottage lot, notwithstanding that as between FOCU, John and 134, FOCU’s mortgage was secured against the entire lot. This was corroborated by the evidence of Mr. Bastien, the memo from Joe to his lawyer instructing him upon the business points to the transaction, and the Indemnity Agreement.

283The Vesting Order purports to vest in Maryann the entire cottage lot subject to registered encumbrances. John was not a party to that proceeding. The information upon which Justice Parayeski made that order was that 134 was the sole owner of the cottage lot, subject to the FOCU mortgage.

284I have found that the Conveyance by 134 to John of an undivided 50 percent interest in the cottage lot was a valid conveyance.

285When the Vesting Order was made, the information upon which Justice Parayeski made his order was not accurate. Rather than 134 owing the entire cottage lot, subject to the FOCU mortgage, in fact 134 only had an undivided 50 percent interest in the cottage lot, which was subject to the Indemnity Agreement.

286The Ontario Court of Appeal discusses the origin and nature of a vesting order in HSBC Bank of Canada v. Deloitte & Touch Inc. at para 32. Vesting orders, although now creatures of statute, have their origin as equitable concepts where the Court of Chancery made personam orders, directing parties to deal with property in accordance with the judgment.

287Justice Parayeski issued the Vesting Order under the statutory authority of the Family Law Act. There were three parties before him: Maryann, Joe and 134. His order was in personam and affected only the rights of those parties. Further, the Vesting Order is effective from its date, being July 24, 2012 see: Maroukis v. Maroukis, [1984] 2 S.C.R. 137 p114.

288The Vesting Order can only vest in Maryann 134’s interest in the cottage lot. At the time of the Vesting Order 134’s property rights in the cottage lot consisted of its registered interest subject to the Indemnity Agreement.

289The Indemnity Agreement was not registered on title. However, section 68(2) of the Land Titles Act permits the creation of unregistered interest and section 69(1) states that the registered owner is deemed for the purposes of that Act to remain owner of the property until an application to be registered as owner is made by the person in whom the land has been vested by court order. For the purposes of the Act 134 retains its interest until registration of the Vesting Order.

290The fact that the Indemnity Agreement was not registered is not relevant to the issue of John and Maryann respective rights.

291Maryann cannot stand in a better position than 134. To find otherwise would result in a legal action, to which John was not a party, and of which he had no notice, depriving him of a portion of his property. Justice Parayeski had no knowledge of the Conveyance or the Indemnity Agreement. His Vesting Order can not affect the rights of a non-party.

292For the Vesting Order to affect John’s property rights, it would have been necessary for a claim to have be made in the family action, and John made a party to that action pursuant to Rule 7 of the Family Law Rules.

293The evidence is clear that as between 134 and John, the FOCU mortgage was the obligation of 134 and secured only against 134’s interest. As well, the Indemnity Agreement that John and 134 signed is binding upon heirs, administrators, successors and assigns

294Therefore, Maryann acquired the interest in the cottage lot that 134 had at the time of the Vesting Order. She is bound by the terms of the Indemnity Agreement. As between Maryann and John, Maryann’s undivided 50 percent interest is subject to the FOCU mortgage and John’s undivided 50 percent interest is un-encumbered.

295I have found that Maryann was denied access to the cottage lot. She requested a key and was never given one. The cottage is on an island. 134 sold its 100 percent interest in the boat by which access to the property is made. Although John now seeks to be reimbursed for 50 percent of the boat and marina expenses, he never granted Maryann access to either the boat or the cottage.

296In Rice v. George 1873 CarswellOnt 36, [1873] O.J. No. 163, 20 Gr. 221 Spragge C., in reference to a claim by one co-owner against another, stated that the co-owner “… is not entitled to be allowed for repairs and improvements unless on the other hand he is charged with occupation rent”. John was not charged occupation rent.

297I note that John has acknowledged that Joe has contributed $25,000 cash to him. I find that these funds were made to offset, in part, the obligation that Joe had to John. At the time that John received the money, the only obligation that Joe had to John was under the Indemnity Agreement; John through 134 no longer had an interest in the cottage lot.

298Because John had exclusive possession of the cottage lot from the date of the Vesting Order and because of the $25,000 contribution by Joe to the FOCU mortgage payments, it would be inequitable to require Maryann to pay any of the Operational Costs, or the FOCU interest only mortgage payments from the date of the Vesting Order until today.

299I dismiss John’s claim for reimbursement of the Operating Costs and for reimbursement of the FOCU mortgage payments.

300I also dismiss John’s claim for general damages. It was not pursued at trial, and I find that there is no basis for it.

301I order that:

1. John shall give Maryann a key to the cottage. How she accesses the island shall be a matter that she determines;
2. The Indemnity Agreement is binding upon Maryann who shall pay 100 percent of the FOCU mortgage payments and indemnify John with respect to the FOCU mortgage, principal and interest from June 1, 2016, onward;
3. John and Maryann shall each pay 50 percent of the Operating Costs, minus the Boat and Marina expenses, from June 1, 2016 onward. They are free to make whatever agreement they wish regarding the Boat and Marina expenses.

JOHN’S CROSS CLAIM

302John has cross claimed against Joe for operational costs of the cottage lot up to the Vesting Date and for payments that John has made on the FOCU mortgage, and for which he alleges that Joe is obligated to reimburse him pursuant to the Indemnity Agreement.

303John also cross-claimed against Joe for damages in the event that the Conveyance was set aside.

304Joe was noted in default.

305I have no evidence with respect to the operational costs of the cottage prior to the vesting order.

306John has provided evidence that from August 2 2012 until March 4 2916 he has paid $42,628.56 to FOCU with respect to the FOCU mortgage. I have found that Joe indemnified John with respect to the FOCU mortgage and is obligated to reimburse John for these payments minus the $25,000 that John acknowledged that Joe had given to him, and which I have found were on account of Joe’s obligation under the Indemnity Agreement.

307In addition, John is responsible for paying the mortgage payment for April and May, each in the amount of $863.02.

308I therefore grant judgment to John against Joe in the amount of $19,454.60 and dismiss the balance of the cross claim.

Summary

309I find that, although the Conveyance contravened section 2 of the FCA, it was protected under section 3 of the FCA. Maryann’s claim is dismissed.

310I dismiss John’s claim for reimbursement of the Operating Costs and for reimbursement of the FOCU mortgage payments.

311I order that:

1. John shall give Maryann a key to the cottage. How she accesses the island shall be a matter that she determines.
2. The Indemnity Agreement is binding upon Maryann who shall pay 100 percent of the FOCU mortgage payments and indemnify John with respect to the FOCU mortgage, principal and interest from June 1, 2016 onward.
3. John and Maryann shall each pay 50 percent of the Operating Costs, minus the Boat and Marina expenses, from June 1, 2016 onward.

312I grant judgment to John against Joe in the amount of $19,454.60 and dismiss the balance of the cross claim.

313If the parties cannot agree upon costs, they both may make costs submissions within 14 days. Both parties may reply within seven days. Cost submissions shall be limited to three pages.

Edwards J. Dated: May 26, 2016

COURT FILE NO.: 6782/12 (Milton) DATE: 2016 05 26 ONTARIO SUPERIOR COURT OF JUSTICE BETWEEN: MARYANN KUTLESA Plaintiff - and - JOHN KOTSIOU, 1349241 ONTARIO INC. and JOZO KUTLESA, also known as JOSEPH KUTLESA Defendants REASONS FOR JUDGMENT Edwards J. Released: May 26, 2016

1The Cottage lot is municipally known as 726 Browning Island, Bracebridge, Ontario with a PIN 48172-0086 LT