Court File and Parties

COURT FILE NO.: CV-15-537558 MOTION HEARD: 20160818 REASONS RELEASED: 20150912

SUPERIOR COURT OF JUSTICE – ONTARIO

BETWEEN:

GAMBLE & ROGERS LIMITED Plaintiff

- and-

HORIZON MEAT PACKERS INC., DANNY MARCOS CARVALHO, MICHAEL KIKKERT, ROSA SOUSA CARVALHO and JOSE MARCOS CARVALHO Defendants

BEFORE: MASTER D. E. SHORT

COUNSEL: Howard D. Gerson, & Fax: (647) 792-0425 Tiffany Tulshi, Student at Law -for the Plaintiff/Moving Party

Geoffrey Janoscik Fax: (905) 273-6920

• for the Responding Individual Defendants

REASONS RELEASED: September 12, 2016,

Reasons for Decision

I. Overview

[1] The Plaintiff Gamble & Rogers Limited seeks leave to register a certificate of pending litigation ("CPL") as against property located on the 7th Line, Amaranth, Ontario (the "Property"). The title abstract discloses that the current registered owners of the Property are Rosa Carvalho ("Rosa") and Jose Carvalho ("Jose").

[2] Rosa and Jose are the wife and father of Dany Carvalho ("Dany"), who was one of the principals of an insolvent company, Horizon Meat Packers Inc. Horizon was indebted to the Plaintiff at the time of its insolvency.

[3] Gamble moves for a CPL on notice to the defendants based upon an alleged fraudulent conveyance of an interest in the subject property by Dany to Rosa.

[4] While applications for such Certificates are generally made on the basis of an alleged agreement to convey or to provide a security interest in property owned by a defendant, no such allegation is relied upon by the plaintiff in this case.

[5] Rather the plaintiff ultimately seeks to set aside a conveyance made by the husband to his wife after he had made certain representations that were relied upon by Gamble.

II. The Meeting

[6] The plaintiff asserts that Dany made a promise at a meeting on July 21, 2014, to provide a collateral mortgage against the Property to secure accounts receivable owed by the defendant, Horizon.

[7] The expectation of a mortgage being provided was confirmed in writing by Gamble's CFO, Michael Nephew in a letter emailed and couriered to Dany on July 23, 2014.

[8] At the time, Dany did not disclose that Horizon did not own the Property. The plaintiff’s Claim asserts that Dany intended the promise to provide a mortgage to induce Gamble to advance credit to Horizon and Gamble relied on the promise to its detriment.

[9] Gamble claims as well that thereafter Dany operated Horizon in a manner that disregarded the plaintiff's interest as a creditor, causing it to make purchases from the plaintiff when he knew Horizon was insolvent and could not pay for the purchases.

[10] Gamble claims that Dany's failure to disclose, and the conduct referred to above makes Dany personally liable to Gamble.

III. The Transfer

[11] On July 31, 2014, 8 days after the plaintiff's letter confirming the promise to give the mortgage, Dany conveyed his one quarter interest in the Property to Rosa. The transfer document states that it was for "natural, love and affection".

[12] Gamble says the conveyance of the property was a fraudulent conveyance made for no consideration (when Dany knew he could not honour the promise to give the mortgage) and was intended to defeat it as a creditor.

[13] Horizon ceased carrying on business in July 2014 and made an assignment in bankruptcy on October 15, 2015.

[14] The defendants allege in response to this motion, that the conveyance was made for good consideration because 5 years earlier (in 2009), Rosa had transferred her shares in Horizon in exchange for Dany's agreement to convey his interest in the Property to her.

[15] Gamble says this evidence is self-serving, long after the fact, and conflicts with the Land Transfer Tax Statements made contemporaneously with the conveyance.

[16] Rosa's evidence is that the shares she transferred to Dany in 2009, allegedly in consideration for the conveyance, might have been worthless at the time.

[17] If a CPL is not granted, Rosa intends to encumber the property as security for a $90,000.00 loan to pay debts, property tax arrears, and future expenses.

[18] Gamble says it has made out a prima facie case of fraud, that an interest in land is in question in this proceeding, and that it is therefore entitled to a CPL.

[19] The Defendants point out that Dany had not given, at any time, any personal guarantee to Gamble and the debtor Horizon had never had any ownership interest in the Property from which it carried on its meat packing business. Thus they assert there is no interest in land in play to support the granting of a CPL.

[20] To properly weigh these arguments it is necessary to review the facts in more detail.

IV. Background Facts

i. Background and Agreement to give the Mortgage

[21] Gamble also known as Brussels Livestock, is in the business of selling livestock. Prior to its bankruptcy on October 15, 2015, Horizon carried on business as a meat packer that purchased livestock from Gamble and sold fresh meat to end users.

[22] By July 2014, Horizon's payables to Gamble for livestock sold and delivered had climbed to $870,869.95 and Gamble required that arrangements be made to pay the outstanding account receivable debt ("A/R debt").

[23] Gamble's CFO, Nephew, requested a meeting with Horizon's directors, Dany and Michael Kikkert to establish a repayment plan and to obtain security for the A/R debt.

[24] The meeting took place between Nephew and Dany on July 21, 2014 without Kikkert, who was not available to attend the meeting (the "meeting").

[25] The Plaintiff’s evidence is that at the meeting, Nephew and Dany agreed that in consideration for Gamble continuing to sell to Horizon, certain payments would be made by specific dates to reduce the A/R debt, and Gamble would receive a mortgage against the property to secure the balance of the A/R debt. Specifically, it was agreed that:

a) $126,791.42 would be paid by Horizon delivering three cheques totaling this amount by July 25; 2014; b) A payment of at least $300,000.00 would be made by August 8, 2014. c) Interest on the debt, would accrue-at the rate of 8 percent per annum. d) Gamble would receive a collateral mortgage against the property to secure the remaining A/R debt (disputed by Dany); and e) A repayment plan would be proposed by August 8, 2014 to retire the remaining A/R debt (which would be $444,078.53 based on the payments in (a) and (b) being made) over a 24 to 36 month period

[26] It seems to me that an assurance of providing a mortgage might not necessarily have meant that Horizon would be the party granting the mortgage and where a closely held corporation was owned in part by owners of the land that “providing” a mortgage might have a number of possible meanings.

ii. Confirming Letter

[27] On July 23, 2014, Nephew emailed and couriered a letter to Dany and Kikkert, confirming the agreement, including that a collateral mortgage against the property would be provided to secure the A/R debt (the "letter"). The Defendants did not respond to the letter.

[28] I find it significant that, following receipt of the letter, it would appear that Horizon partially performed the asserted agreement, when it' made the payments referred to in the letter on the allegedly agreed dates:

• On July 25, 2014, Horizon paid (to the penny) the $126,791.42 reterred to in item (a)
• On August 8, 2014, it paid $322,208.65, a sum greater than the $300,000.00 minimum referred to in item (b).

[29] For its part, Gamble continued to advance credit to Horizon, I hindsight detrimentally relying upon the apparent promise to give the mortgage.

[30] The plaintiff’s evidence is that although Horizon did not provide the mortgage, Dany repeatedly assured Nephew during telephone conversations in August and September 2014 and between November 1, 2014, and July 31, 2015, that the mortgage would be given.

[31] I note in this regard that prior to the commencement of Dany's cross examination, his counsel advised that Dany's affidavit evidence on this point to the effect that he and Nephew discussed providing a mortgage to Gamble was incorrect. What counsel advised was that he wished to correct the evidence on the record by stating what had been discussed was a third party mortgage loan in order to pay Gamble, not that Gamble would receive a mortgage.

iii. Property Ownership and Fraudulent Conveyance

[32] Dany did not disclose at the meeting or thereafter, that the property was not owned by Horizon, but rather was owned by Dany, Rosa, Dany's father, Jose Carvalho ("Jose"), and by the estate of Dany's mother, Maria Edite Carvalho ("Maria"), each as to a one-quarter interest.

[33] Conversely no title search was undertaken at the time on behalf of Gamble.

[34] Nephew’s evidence is that he believed that Horizon owned the property and that Dany was able to provide the promised mortgage to secure Horizon's A/R debt, and Gamble continued to sell to Horizon, relying on Dany's promise to give the mortgage.

[35] On July 31, 2014, eight days after he received the letter, Dany transferred his one-quarter interest in the property to Rosa (the "conveyance"). The Land Transfer Tax Statements prepared at the time of the conveyance, indicate it was made for "natural love and affection."

[36] Dany and Rosa now allege that the actual consideration for the conveyance was Rosa's transfer of her shares in Horizon to Dany in 2009, some 5 years earlier, on the understanding that Dany would convey his interest in the family property to her.

[37] No documentary or corroborating evidence, of this alleged agreement has been produced, including from the lawyers who acted on the share transfer and on the conveyance. The plaintiff’s factum notes that if such an agreement existed, the conveyance was made 3 years after the limitation period had elapsed to enforce it.

[38] When cross-examined, Rosa stated she did not know the value of the Horizon shares in 2009 and admitted the shares may have had a zero value.

iv. Detrimental Reliance

[39] Nephew’s evidence is that had he been aware that Dany and the personal defendants owned the property and that Dany was about to convey his one quarter interest, Gamble would not have continued to advance credit to Horizon. Nephew learned about the transfer from Gamble's lawyer after the bankruptcy when Horizon's lawyer searched title to the property.

v. The Bankruptcy of Horizon and this Action

[40] Horizon ceased slaughtering livestock at the end of July 2015, (1 year after the conveyance) and made an assignment in bankruptcy on October 15, 2015. At the time of the bankruptcy, Horizon's debt to Gamble was approximately $400,000.00, about the same amount to be secured by the promised mortgage.

V. Claims Asserted

[41] The foregoing factual matrix lead to the plaintiff making these assertions in its Statement of Claim:

“8. The Plaintiff made inquiries of Horizon's financial resources because it had been slow to repay credit and had requested credit increases.

9. The representations made by Danny [sic] and Michael regarding Horizon's financial circumstances were false.. At the very time that they were seeking additional credit from the Plaintiff and persuading it to forbear on collecting outstanding debt by making the false representations, Horizon was in fact insolvent.

10. As a further fraud against the Plaintiff, Danny and Michael assured the Plaintiff that Horizon was the owner of the Horizon Property when this was in fact false. The Horizon Property was actually owned by the Carvalho Defendants rather than by Horizon.

11. Danny and Michael knew the representations were false and intended that the Plaintiff rely on them which the Plaintiff did, acting reasonably. But for the false representations, the Plaintiff would not have continued to extend credit to Horizon and would have taken steps to require repayment of the debt. …

12. In or about July of 2014, Danny and Michael promised the Plaintiff that it could register a mortgage on the Horizon Property to secure the debt.

13. However, shortly thereafter, Danny, secretly and fraudulent transferred his interest in the Horizon Property to Jose and Rosa without consideration. He did so in order to defeat the claims of his creditors as well as Horizon's creditors to whom he had fraudulently promised that the Horizon Property could be used as security for various debts contrary to the provisions of the Fraudulent Conveyances Act. The Plaintiff seeks a reconveyance of title to the Horizon Property from Jose and Rosa to Jose, Rosa and Danny.”

[42] Based on its understanding of the facts, Gamble has pleaded that:

a) Dany and Kikkert are personally liable in damages to Gamble in the amount of $400,000.00 for fraudulent misrepresentation or unjust enrichment. b) Dany and Kikkert caused Horizon to carry on business and to purchase livestock on credit from Gamble, knowing Horizon was insolvent and could not pay for the purchases and are therefore personally liable to Gamble. c) Dany knew his promise to give the mortgage was fraudulent and was made with the intention that Gamble would rely on it by continuing to grant credit to Horizon. d) The conveyance of Dany's interest was fraudulent, was made with the intention of defeating Gamble as a creditor, contrary to the provision of the Fraudulent Conveyances Act and should therefore, be set aside and conveyed back into Dany's name. e) Due to the facts in (a) to (d) above, the conveyance is fraudulent, Gamble has a claim to an interest in the property, and is entitled to a Certificate of Pending Litigation.

VI. Defendants’ Position

[43] Counsel for the Defendants forcefully asserts in the opening of his factum that this motion clearly ought to fail. It is argued that:

“2. The Plaintiff seeks a CPL despite having no interest in the Property. Rather, being dissatisfied with the insolvency process and the principles of company law, the Plaintiff seeks a CPL to exert pressure on the defendants to settle a poorly conceived action as a mechanism of recovering some of its unsecured debt. Indeed, the Plaintiff has already arbitrarily registered an interest in the Property on title on the basis of an equitable claim, despite section 62 (1) of the Land Titles Act, R.S.O. 1990, c. L.5 expressly precluding such registration. The Plaintiff did so arbitrarily and without notice to the owners of the Property and has refused to withdraw the notice despite request.

3. The Plaintiff appears to have two arguments as to why it has a reasonable interest in the Property. One argument is that it allegedly obtained an oral commitment for a charge from a non-owner of the Property, namely Horizon, and that this somehow created an interest in the Property. The lack of an interest in the Property being granted to the Plaintiff by the owners of the Property is fatal to the first argument, along with the fact that even if a charge was promised (and the evidence suggests that one was not promised), it was done so orally contrary to the Statute of Frauds, R.S.O. 1990, c. S.19, as amended.

4. The second argument relates to an allegedly fraudulent transfer of a one-quarter interest in the Property by a party, Dany, who at no time was a debtor of the Plaintiff. The fact that Dany was at no time a debtor of the Plaintiff is fatal to the second argument, irrespective of whether the conveyance was made for good consideration (which it was).

5. These two fatal flaws serve to deny the Plaintiff the legal nexus to the Property entitling it to a CPL, even if its fantastic version of the facts is accepted.

6. It should be stressed that not only would the granting of a CPL in these circumstances enable the Plaintiff to tie-up property that it has no interest in, but it would also set a precedent that property rights can be affected by the actions of strangers to the ownership of property.”

[44] It is also argued that:

“11. Moreover, the cover email from Nephew which attached the "confirming letter" expressly stated: "I look forward to setting a mutually acceptable repayment plan", clearly contemplating that an agreement had not been reached.

12. Nephew admitted in cross examination that the parties never came to terms on a repayment plan that was to form the consideration for the granting of a charge on the Property.”

[45] The plaintiff admits the lack of agreement on the repayment terms but asserts that it detrimentally relied upon the representations on Dany who then transferred his assets to protect them from a potential judgment in an action against him for damages.

[46] Thus, with respect, I have concluded that while the defendants’ arguments could have great merit with an appropriate factual matrix; particularly having regard to the underlying specific causes of action asserted and the unique facts of this case I am not inclined towards the conclusion sought by the defendants.

[47] In coming to this conclusion my analysis reverts to the central statutory provisions of The Fraudulent Conveyances Act, R.S.O. 1990, c. F.29 which provide in part:

Where conveyances void as against creditors

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

Where s. 2 does not apply

3. Section 2 does not apply to an estate or interest in real property 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. [my emphasis]

[48] Here there was a conveyance by Dany and it was arguably made for the purpose of at least hindering or delaying a creditor. Whether section 3 will ultimately be found to protect the conveyance to Rosa is a determination for a later stage of this litigation. What I am required to do, on motions such as this, is to preserve the status quo in appropriate circumstances. I am of the view that this is such a situation.

VII. Caselaw

[49] In fraudulent conveyance actions, where judgment has not been granted in the underlying damages claim, the main focus of the court, when deciding whether to issue a CPL, is the merits of the fraudulent conveyance case, not the merits of the underlying claim. [see Xerox Canada v. Sterling et al. 2006 ONSC 60993, para. 8 and Nordic Insurance Co. of Canada v. Harkness [2001] O.J. No. 1123 (S.C.J.), para. 17.]

[50] The test to be applied by the court to determine whether to grant leave to register a CPL, is whether a prima facie case of fraud has been established, or whether a triable issue exists as to an interest in the lands in question. [See also Bank of Montreal v. Ferri, [2011] O.J. N. 4284, paras. 35 to 41].

[51] To meet the test, the moving party must only show that on the evidence, a trial judge could conclude that the transfer was made to defeat creditors for no real consideration. I accept that an action which on its face seeks to set aside a fraudulent conveyance, such as this one, is an action in which “title to an interest in land” is brought in question.

[52] At trial a court could find, on the evidence before me, that Dany promised the mortgage knowing Horizon did not own the property without disclosing this fact to Nephew.

[53] The plaintiff’s factum contains the following:

“53. It is submitted that in offering the mortgage, Dany either represented that he and/or Horizon could bind the owners to give the mortgage against the entire property, or that the owners had agreed to give the mortgage. In either case, the representation was false, was made by Dany with the intention that Gamble would rely upon it to its detriment, and Rosa and Jose are vicariously liable as a result.

54. Dany's conveyance of his one-quarter interest to Rosa was a fraudulent conveyance intended to take the interest in the property out of his name in circumstances in which Dany's conduct, made him personally liable to creditors, including Gamble.”

[54] The plaintiff seeks a CPL based on the assertions by Danny that the mortgage would be given on the property. It may be that it was never made specifically clear whether the property was owned by Horizon. Arguably the crucial question was whether or not a mortgage would be given or arranged, in any event.

[55] I acknowledge the plaintiff’s arguments on these points:

• Danny asserts that he is a procrastinator. For whatever reason he never seemed to get around to delivering the mortgage that was referred to.
• On the other hand, he moved very quickly, within eight days of entering into the agreement outlined above, to transfer his one quarter interest in the property to his spouse.
• The land transfer tax affidavit indicates that the transfer was done “for natural love and affection”.
• The address of the lawyer filing the transfer to the spouse for natural love and affection, of the quarter interest, is the same as another lawyer who was involved in the transfer of the shares from the wife to her husband of six years earlier.
• No one seems to know what the value of the shares was.

[56] Certainly no one seems to have made any indication as to any reporting of the gain or loss on the transfer of the shares.

[57] When asked on cross examination for details of these transactions from the solicitors’’ files, counsel for the couple refused to answer questions put to Rosa seeking clarification:

“Q201. Did you tell anybody, anybody that the reason for this transaction at the time, anybody, the lawyer, anybody at all, okay, could be all inclusive, that the reason for this transaction was because you had given Dany shares in the company and he had agreed that in exchange for that, to give you a quarter interest in this property?”

[58] While there may well be a protection by virtue of solicitor client privilege, I find it noteworthy that there was a reluctance to provide evidence that might have assisted the position of the couples.

[59] While I perhaps cannot draw a negative inference from the failure to make disclosure, I do note the absence of any specific evidence supported by any documentation that would support the basis asserted for the expedited transfer of the share of the Property after a hiatus of over five years.

[60] I note, based upon Crawford v. Fielding (2004) 2004 ONSC 8709, 70 OR (3d) 371, that to obtain a certificate in a fraudulent conveyance action, where no judgment has been obtained in the main action and the claim in the main action does not directly concern an interest in land, the plaintiff must show

(a) that a there is a high probability of success in the main action, (b) the conveyance was intended to defeat creditors and (c) the balance of convenience favours issuing a certificate.

[61] The test of a certificate of pending litigation is well established, namely, whether the plaintiff has a reasonable claim to an interest in land. Roseglen Village for Seniors Inc. v Doble, 2010 ONSC 3239, at paragraph 11.

[62] The defendants factum points out:

22. In assessing the appropriateness of a certificate o pending litigation, it is important to keep in mind that the Plaintiffs claim at its core is a claim for misrepresentation against the directors of an insolvent company. A claim for misrepresentation cannot create an interest in land. The remedy for a misrepresentation is damages. The following authorities speak to this basic proposition:

a. In Xer ex Exploration Ltd. v. Petro-Canada, 2005 ABCA 224, the court cited Professor Waddams at paragraph 95 as follows: "[w]here the defendant makes a statement knowing it to be false or makes a statement not caring whether it is true or false, the defendant commits a tort known as deceit or fraud and is liable to pay damages to the person who relies on the statement." b. In Rainbow Industrial Caterers Ltd v. Canadian National Railway, 1991 SCC 27 the court discussed the assessment of damages in the following way at paragraph 20: "[t]he plaintiff seeking damages in an action for negligent misrepresentation is entitled to be put in the position he or she would have been in if the misrepresentation had not been made." c. In Fracassi v. Cascioli, 2011 ONSC 178, the court stated at paragraph 263 as follows:" ... in an action for fraudulent misrepresentation, the Plaintiffs are entitled to be put in the same position they would have been in if the representations had not been made."

[63] In my view these authorities support a right to damages if the plaintiff makes out its claim that the defendant made a statement knowing it to be false or makes a statement not caring whether it is true or false, and is found liable to pay damages to the entity that relied on the statement.

[64] The defendants argue that contrary to the basic proposition that the remedy for a misrepresentation is for the court to place the plaintiff in the position they would have been in if the representation had not been made, the Plaintiff in this case is asking that the court put it in the position it would have been had the representation been true (i.e. that Horizon owned the Property and could grant the Plaintiff a charge on it). There is no authority for the Court to grant such an interest.

[65] This submission however misconstrues the pith and substance of the plaintiffs claim. They seek damages first and then relying upon that claim seek to set aside the allegedly fraudulent conveyance to preserve an asset to possibly satisfy that judgment.

[66] Similarly the defendants argue that “regardless of the fact that the evidence suggests that a charge was not granted, regardless of the fact that Horizon was incapable of granting a charge …the Plaintiff would still not have a reasonable interest in the Property because the alleged commitment to grant the charge was not in writing.” The resisting parties rely section 4 of the Statute of Frauds, asserting that such an interest could only have been created in writing:

4. No action shall be brought …. to charge any person upon any special promise to answer for the debt, default or miscarriage of any other person, or to charge any person upon any contract or sale of lands, tenements or hereditaments, or any interest in or concerning them, unless the agreement upon which the action is brought, or some memorandum or note thereof is in writing and signed by the party to be charged therewith or some person thereunto lawfully authorized by the party. R.S.O. 1990, c. S.19, s. 4; 1994, c. 27, s. 55.1

[67] Again this argument focuses on the non-existent mortgage rather that the allegedly false representation by Dany that one would be provided which is the basis of the initial claim.

[68] The Ontario Superior of Justice stated as follows in Genereux v. Carlstrom, [2002] O.J. No. 1841 at paragraph 46:

In the authorities cited to me, I see nothing to prevent a person from reordering his affairs to isolate his personal assets from future, as opposed to present, liabilities to creditors generally provided it is not established that the settler had reason to believe at the time of the settlement that his creditors at the time or within the near to intermediate future in respect of a specific risk or risky enterprise would cease to be able to look to the settled assets. [my emphasis]

[69] While in Montuori v. McAlpine, 1996 CarswellOnt 2231, the Ontario Court of Justice denied a CPL in circumstances in which a husband had received an actual demand letter and 19 days later transferred an interest in property to his wife on the basis that the wife had no knowledge of the demand letter. Importantly the court found that the wife had received consideration for the transfer as part of an oral separation agreement. The court noted at paragraph 18 that "The adequacy of the consideration, other than nominal consideration is irrelevant." [my emphasis]

[70] Here the consideration for the registered conveyance is simply stated as being for natural love and affection.

[71] Having considered the skilful arguments of both counsel feel that this is an appropriate situation to justify the issuance of a CPL and that to the extent there is some uncertainty as to the ultimate result, the balance of convenience, at this interlocutory stage, tips the scales in the plaintiff’s favour.

[72] Rule 1.04 (2) provides that

“Where matters are not provided for in these rules, the practice shall be determined by analogy to them.”

[73] To the extent only a quarter interest in the property may be issue, the other owners are not without remedies at this point. Section 103 of the Courts Of Justice Act, and in particular, subsection 6 provides that:

(6) the court may make an order discharging a certificate,

(a) where the party at whose instance it was issued, (i) claims a sum of money in place of or an alternative to the interest in land claimed (ii) does not have a reasonable claim interest in land claimed, or (iii) does not prosecute the proceeding with reasonable diligence; (b) where the interests of the party at whose instance it was issued can be adequately protected by another form of security; or (c) at any other ground that is considered just,

and the court may, in making the order, impose such terms as to the giving of security or otherwise as the court considers just.

[74] This a payment into court could potential enable a mortgage being placed against the entire Property

VIII. Conclusion

[75] Earlier this year the Court of Appeal dealt with a case where assets were transferred in questionable circumstances in Meridian Credit Union Ltd. v. Baig, 2016 ONCA 150, [2016] O.J. No. 947; 2016 ONCA 150; 346 O.A.C. 57; 35 C.B.R. (6th) 158; 2016 CarswellOnt 2664; 262 A.C.W.S. (3d) 934; 63 R.P.R. (5th) 179; 394 D.L.R. (4th) 601.

[76] There G.R. Strathy C.J.O., H.S. LaForme and G. Huscroft JJ.A. dealt with an appeal from a motion judge in a situation where the appellant, agreed to purchase a building located on Bay Street in Toronto from the court appointed receiver and manager of the Property for $6.2 million. Unknown to the Receiver and prior to closing, the appellant agreed to re-sell the property for $9 million. Had it known, the Receiver claimed it would not have recommended approval of the sale to the court in the receivership proceeding.

[77] The motion judge found the appellant liable for two reasons. First, he concluded that the appellant was liable for misrepresentations made by his lawyers. The documents delivered as part of closing contained untrue statements. Kiborn knew that these statements were false and he intended for the Receiver to rely on them. The motion judge noted a concession by the appellant's counsel that the appellant could be held liable for tortious misrepresentations by his solicitors.

[78] Second, the motion judge found the appellant liable for his own personal conduct. In particular, while acknowledging that the appellant did not have an obligation to disclose the agreement with Yellowstone, the motion judge concluded that the failure to correct the misimpression that Yellowstone was a corporation created by the appellant amounted to a fraudulent misrepresentation. [my emphasis]

[79] The appellant's arguments asked that this court reconsider and reweigh the evidence that was before the motion judge and reach a different conclusion.

[80] The court held that “Absent an obvious error of law, the motion judge's findings are subject to a palpable and overriding error standard of review: Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235.”

[81] In the reasons delivered by Justice LaForme he sets out this summary of the analysis with respect to the question of the appellant's personal liability:

25 The appellant advances three arguments. First, there is no evidence that supports finding the appellant liable. Second, in finding the appellant personally liable, the motion judge pierced the corporate veil without justification. Third, the motion judge erred by holding a client liable for unauthorized and unknown fraud committed by an innocent client. I disagree with all three arguments.

(a) Sufficiency of evidence

26 The Supreme Court of Canada recently affirmed in Hryniak v. Mauldin, 2014 SCC 7, [2014] 1 S.C.R. 87, at para. 87, that a plaintiff asserting a claim for civil fraud must prove the following on a balance of probabilities:

1. A false representation by the defendant;
2. Some level of knowledge of the falsehood of the representation on the part of the defendant (whether knowledge or recklessness);
3. The false representation caused the plaintiff to act;
4. The plaintiff's actions resulted in a loss.

27 In my view there was sufficient evidence to prove all four elements and to find the appellant personally liable.

[82] Applying those tests to this case at this stage I am satisfied that Gamble established a prima facie case of a fraudulent conveyance and that a transfer was made of an interest in land that may well have been contrary to the applicable statues. I am satisfied that a strong enough case has been made on behalf of the plaintiff to entitle it to a CPL.

IX. Disposition

[83] An order shall go granting leave to the plaintiff to register a Certificate of Pending Litigation against title to the property municipally known as, 335424 - 7th Line, Amaranth, Shelburne, Ontario, and as legally described on schedule "A" to the Statement of Claim.

[84] The Plaintiff is entitled to Costs on a partial indemnity basis which in light of the significantly higher amounts sought by the defendants justifies me awarding the sum sought by the plaintiff of $16,792.56.

[85] I have difficulty in making such an interim cost award payable at this stage in cases such as this. I am therefore making the awarded costs payable to the plaintiff, but in any event of the cause.

Released: September 12, 2016

Master D. E. Short DS/R.153