COURT FILE NO.: 15-64271 DATE: 2016-10-07 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

Bearsfield Developments Inc. and Mod-Aire Homes Limited Plaintiffs – and – Debra Ann McNabb Defendant

Counsel: David Debenham, for the Plaintiffs Applicants on this motion. Benoit Duchesne, for the Defendant Respondent on this motion

HEARD: 2016-08-25

REASONS FOR DECISION R.L. Maranger J.

Introduction

[1] This was a motion brought by the plaintiffs/applicants for a summary judgment. The moving party requests that a conveyance of RRSPs made by the defendant on April 12, 2012 in the amount of $206,587.15 be set aside pursuant to the Fraudulent Conveyances Act R.S.O. 1990, c. F.29.

Summary Judgment Motions

[2] Rule 20 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 stipulates that “a defendant may, after delivering his or her statement of defence, move with appropriate affidavit material or other evidence for summary judgment dismissing all or part of the claim in the statement of claim.” The court is mandated to grant summary judgment if it is satisfied that there is no genuine issue requiring a trial respecting a claim or defence.

[3] Rule 20.04 (2.1) provides that:

In determining under clause (2)(a) whether there is a genuine issue requiring a trial, the court shall consider the evidence submitted by the parties and, if the determination is being made by a judge, the judge may exercise any of the following powers for the purpose, unless it is in the interest of justice for such powers to be exercised only at a trial:

1. Weighing the evidence.
2. Evaluating the credibility of a deponent.
3. Drawing any reasonable inference from the evidence.

[4] The Supreme Court of Canada in the case of Hryniak v. Mauldin, 2014 SCC 7, [2014] 1 S.C.R. 87, set out the governing principles to be applied by trial judges respecting the determination of rule 20 summary judgment motions. At paras. 47, 49-51 and 66 Justice Karakatsanis indicated the following: …

[49] There will be no genuine issue requiring a trial when the judge is able to reach a fair and just determination on the merits on a motion for summary judgment. This will be the case when the process (1) allows the judge to make the necessary findings of fact, (2) allows the judge to apply the law to the facts, and (3) is a proportionate, more expeditious and less expensive means to achieve a just result.

[50] These principles are interconnected and all speak to whether summary judgment will provide fair and just adjudication. When a summary judgment motion allows the judge to find the necessary facts and resolve the dispute, proceeding to trial would generally not be proportionate, timely or cost-effective. Similarly, a process that does not give a judge confidence in her conclusions can never be the proportionate way to resolve the dispute. It bears reiterating that the standard for fairness is not whether the procedure is as exhaustive as a trial, but whether it gives the judge confidence that she can find the necessary facts and apply the relevant legal principles so as to resolve the dispute.

[51] Often, concerns about credibility or clarification of the evidence can be addressed by calling oral evidence on the motion itself. However, there may be cases where, given the nature of the issues and the evidence required, the judge cannot make the necessary findings of fact, or apply the legal principles to reach a just and fair determination.

[66] On a motion for summary judgment under Rule 20.04, the judge should first determine if there is a genuine issue requiring trial based only on the evidence before her, without using the new fact-finding powers. There will be no genuine issue requiring a trial if the summary judgment process provides her with the evidence required to fairly and justly adjudicate the dispute and is a timely, affordable and proportionate procedure, under Rule 20.04(2)(a). If there appears to be a genuine issue requiring a trial, she should then determine if the need for a trial can be avoided by using the new powers under Rules 20.04(2.1) and (2.2). She may, at her discretion, use those powers, provided that their use is not against the interest of justice. Their use will not be against the interest of justice if they will lead to a fair and just result and will serve the goals of timeliness, affordability and proportionality in light of the litigation as a whole.

Background and Findings of Fact

[5] The defendant is the former employee of the plaintiff. She was the treasurer of Mod-Aire Homes Limited and the secretary-treasurer of Bearsfield Developments Inc. She retired in August 2011. Following her retirement, the plaintiffs discovered that she embezzled $688,975 from Bearsfield Development Inc. The defendant was convicted of fraud in the amount of $308,690. A judgment was obtained against her for close to $1 million (including interest and costs). Shortly thereafter, the defendant declared bankruptcy. Prior to the fraud being discovered, the defendant conveyed approximately $206,000 into a creditor proof segregated mutual fund. The plaintiff wants the transfer set aside by way of summary judgment.

[6] After reviewing the material filed including the affidavits and documentary evidence, I make the following material findings of fact:

• The defendant while in the employment of the plaintiff embezzled $688,968.75. This embezzlement occurred between the years 2006 and 2011.
• The defendant retired from the plaintiffs company in August 2011 after many years of service. She was replaced by Carolyne Theil who worked with the defendant for one week to transition and learn her role and responsibilities with the companies.
• The defendant’s responsibilities with the companies included the following: a) Opening and closing bank accounts in Canada and United States. b) All banking completed in person at branches including deposits, bill payments transfers and wires. c) Receiving bank statements. d) Maintenance of monthly bank accounts and accounting records for both companies. e) Having online access to the plaintiff’s bank accounts. f) Creating transaction journals on Excel spreadsheets. g) Transcribing bank balances to an Excel spreadsheet on a monthly basis.
• In March 2012, Carolyne Theil first discovered fraudulent transactions that took place during the defendant’s employment with the plaintiff. Inquiries were made at the Bank of Montréal branch in March 2012, where the defendant’s friend and daughters worked at that time.
• Affidavit evidence from the daughters supports the proposition that they were unaware of the inquiries from Ms. Theil.
• The defendant knew she stole a large sum money from her employer. It is reasonable to infer that she would have had fears and worries about being caught and would have been on guard about information concerning her transgressions.
• On April 11, 2012 the defendant signed an individual annuity contract on the recommendation of a financial advisor resulting in the transfer of $206,559.15 from the defendants RSP account into a Sun Life financial investments instrument which resulted in those funds being exempt from seizure or execution by creditors because of Section 157 of the Insurance Act of New Brunswick.
• The defendant was confronted by Carolyne Theil in December 2012 and voluntarily repaid $66,227.14.
• On January 24, 2014 a default judgment against the defendant was obtained for over $1 million.
• On February 25, 2014 the defendant declared bankruptcy.
• On May 1, 2015 the defendant was found guilty in the Ontario Superior Court of Justice of embezzling $308,690.44 between January 1, 2006 and December 31, 2011. This fraud involved cheques from the company made payable to the defendant’s Visa credit card.
• Although plausible, the evidence presented does not allow me to conclude on a preponderance of probabilities that the defendant was aware in April 2012 that the fraud committed against her employer was on the cusp of being discovered. That conclusion would call for a significant amount of speculation on the part of the court. That being said however, there can be no doubt that the defendant knew that she was placing money obtained through fraud into a creditor proof RSP.

The Law of Fraudulent Conveyance

[7] The Fraudulent Conveyances Act RSO 1990, c.F-29, section 2 provides the following:

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 unlawful actions, suits, debts, accounts, damages penalties or forfeitures are void as against such other persons and their assigns

[8] The legal test to find a fraudulent conveyance was set out in Indcondo v. Sloan, 2014 ONSC 4018 (SCJ) by Penny J, at paras 44 to 51:

[44] Thus, in order for this section to apply so as to void a transaction, there must be:

(a) a “conveyance” of property; (b) an “intent” to defeat; and (c) a “creditor or other” towards whom that intent is directed,

see Bank of Nova Scotia v. Holland, [1979] O.J. 1190 at para. 12.

[45] The courts have interpreted the words “or others” broadly to include potential beneficiaries under a guarantee (where demand has not been made) and subsequent creditors. Indeed, courts have found that, in some circumstances, it is not necessary for there to be any creditors at all at the time of a transaction in order to conclude that it was done with the intent to defeat creditors.

[46] Galligan J. held in Bank of Nova Scotia, supra, that, although the holder of a guarantee upon which no demand has been made may not be a “creditor,” the beneficiary of a guarantee is an “other” within the meaning of s. 2 and entitled to the protection of the Act. He cited May’s Laws of Fraudulent and Voluntary Conveyances, 3rd ed. at p.2:

The words “creditors and others” are wide enough to include any person who has a legal or equitable right or claim against the grantor or settler by virtue of which he is, or may become, entitled to rank as a creditor of the latter.

[47] It is also not necessary for a party, in attempting to impeach a conveyance, to demonstrate that it had an actual debt owing to it at the time of the conveyance. In Benyon v. Beynon, [2001] O.J. 3653, the court noted that “creditors and others” is broad enough to contemplate a person who, while not a creditor at the time of the conveyance, may become one in the future.

[48] If there was an intention to defeat creditors, then it does not matter whether it was to defeat present or future creditors, see CIBC v. Boukalis, 1987 CarswellBC 513 (B.C.C.A.). If an intent to defraud existed at the time of the conveyance, it does not matter that the person attacking it was not a creditor at the time, Iamgold v. Rosenfeld, [1998] O.J. 4690 (S.C.J.).

[49] The Fraudulent Conveyances Act was enacted to prevent fraud. It is remedial legislation and must be given as broad an interpretation as its language will reasonably bear. The purpose of the Act was expressed by Prof. Dunlop in Creditor-Debtor Law in Canada, 2nd ed. at p. 598:

The purpose of the Statute of Elizabeth and of the Canadian Acts based on it, as interpreted by the courts, is to strike down all conveyances of property made with the intention of delaying, hindering, or defrauding creditors and others except for conveyances made for good consideration and bona fide to persons not having notice of such fraud. The legislation is couched in very general terms and should be interpreted liberally.

[50] Prof. Dunlop also considered the judicial difficulties in establishing fraud by ascertaining the state of mind of the debtor; that is, the dominant motive for effecting the impugned transaction. In the absence of direct evidence of intent, he said, “courts have been ready to rely on the surrounding circumstances as establishing prima facie the intent to defraud or delay… the so-called badges of fraud being nothing more than typical and suspicious fact situations which may be enough to enable the court to make a finding.”

[51] In most cases, a finding concerning the necessary intention to defeat creditors cannot be made except by drawing an inference from the circumstances. If existing creditors are well secured, it may be that one is unlikely to infer that the conveyance was made in order to defeat them. Of course, the time for considering intent is the time of the conveyance, CIBC v. Boukalis, supra, at p. 4.

Position of the Parties / Analysis

[9] Counsel for the defendant argued that the motion must fail on the basis that the plaintiff has not advanced any tangible evidence upon which a court could infer that the intent or state of mind of the defendant was to avoid a judgment when transferring the RRSPs into a creditor proof account. It was further submitted that the plaintiff could only offer speculation as to the issue of the defendant being aware that her fraud was about to be discovered.

[10] The plaintiff argues that the evidence of the circumstances surrounding the transfer of the RSP allow for the inference that the transfer was for the purposes of avoiding the repayment of the stolen money. The plaintiffs submit that at the time of the transfer, the defendant had the specific intent of avoiding having to repay the defrauded money to the plaintiff. In the alternative, it was submitted that the legislation is remedial and should be broadly interpreted to capture this specific situation. The plaintiffs explain that it would constitute a great injustice to allow the defendant to declare bankruptcy and avoid repaying money that was fraudulently taken from the plaintiff.

[11] While I agree in general terms with counsel representing the defendant that the precise state of mind of the defendant when transferring the RSP into a creditor proof fund has not been made out on the evidence, I have little difficulty in concluding that the defendant knew the money was stolen when she made the transfer, and was aware of the fact that there was a risk at some future date that she was going to get caught and could have to repay what was embezzled. It is inconceivable that the legislation does not apply to a situation where a person embezzles money from another individual, puts it into a creditor proof fund, when the fraud is discovered and a judgment is obtained declares bankruptcy and is allowed to retain part of the fruits of the embezzlement.

[12] The Fraudulent Conveyances Act is remedial legislation and is to be given the broadest possible interpretation.

[13] In my view section 2 of The Fraudulent Conveyances Act captures this specific situation. The state of the law on fraudulent conveyances recognizes the possibility of inferring prima facie intent from the circumstances where there is no direct evidence of intent, as is the case here. I have no difficulty in inferring from the circumstances that the defendant intended to defraud the plaintiffs by placing the stolen money beyond their reach.

[14] The transfer into a creditor proof mutual fund of stolen money and the subsequent bankruptcy is, by its very nature, a fraudulent conveyance and should be set aside pursuant to that legislation.

Conclusion

[15] The motion is granted and an order is hereby granted for summary judgment ordering the transfer back of CI investments RRSPs from a segregated fund to a general fund so that they can be executed upon by the plaintiffs.

[16] With respect to the issue of costs, if the parties are unable to agree, I will allow two pages of written argument on this issue to be first delivered by counsel for the plaintiff within 15 days of the release of this decision. Counsel for the defendant will be allowed seven days thereafter to deliver their submissions.

Mr. Justice Robert L. Maranger

Released: October 7, 2016

COURT FILE NO.: 15-64271 DATE: 2016-10-07 ONTARIO SUPERIOR COURT OF JUSTICE BETWEEN: Bearsfield Developments Inc. and Mod-Aire Homes Limited Plaintiffs – and – Debra Ann McNabb Defendant REASONS FOR decision Maranger J. Released: October 7, 2016