COURT FILE NO.: CV-18-592247 DATE: September 13, 2018
Superior Court of Justice - Ontario
RE: Jodi L. Feldman Professional Corporation v. Lynne Catherine Foulidis;
BEFORE: MASTER C. WIEBE
COUNSEL: Sean N. Zeitz for the plaintiff; Leslie Dizgun and Justin W. Anisman for the defendant.
HEARD: August 21, 2018.
Reasons for Decision
[1] The plaintiff (“Feldman”), a lawyer, is suing the defendant for unpaid legal accounts and now moves for an order granting it leave to amend its statement of claim to add a defendant, Konstantinos Foulidis (“Danny”), and claims for a certificate of pending litigation, a charging order, a declaration that a $525,000 second mortgage given by Ms. Foulidis to Danny on March 28, 2018 in relation to land municipally known as 17 Airley Crescent, Toronto (“the Property”) is fraudulent and void, and an order directing that this mortgage be deleted from title. The motion also seeks an order granting it leave to obtain a certificate of pending litigation (“CPL”) for registration on the title to the Property concerning this action.
[2] The motion for the amendments was not contested, and I herewith grant that relief.
[3] On the other hand, the motion for the CPL is opposed. Feldman seeks the CPL on the basis that the mortgage given to Danny Foulidis (‘the Mortgage”) was given with the intent to defeat, hinder, delay or defraud the claims of Feldman and Ms. Foulidis’ other creditors, or to unjustly prefer Ms. Foulidis over Feldman, and therefore should be declared void. It is well established that such claims of fraudulent conveyance and unjust preference can raise an interest in land for the purpose of granting a CPL. Ms. Foulidis opposes the motion arguing primarily that there is no triable issue that there was no fraudulent or unjust preference intent.
[4] For the reasons stated herein, I deny the motion.
Background
[5] Based on the evidence presented, I find the following relevant facts.
[6] Ms. Foulidis was married to George Foulidis, a restaurant owner, whose brother is Danny. While he was married to Ms. Foulidis, George had business ventures with Danny. One of these concerned the Property. In 2000 George bought the Property with his own money using his company, 1063935 Ontario Inc. (“106”). Danny asserts in his affidavit that he financed the construction of the house on that lot and the carrying costs in the total amount of $450,000. There was no security for this “financing.” In the motion there was no direct evidence of these payments by Danny. Ms. Foulidis and George moved into the Property in September, 2002.
[7] On May 18, 2006, Ms. Foulidis executed an Acknowledgment and Direction wherein she directed that George’s lawyer, Demetrius Pantazis, register a transfer of the Property in her name. The document stated that Ms. Foulidis acknowledged and agreed that Danny Foulidis lend Ms. Foulidis $450,000 for the development of the house, and that this loan was without interest and was payable on demand, with liability for the repayment arising on the demand.
[8] On May 23, 2006 the Property was transferred to Ms. Foulidis for $2. The Land Transfer Tax Statements include a statement that the nominal consideration was due to the fact that 106 was a trustee for Ms. Foulidis. Ms. Foulidis lived in this house thereafter, and it is her sole principal asset.
[9] The marriage between George and Ms. Foulidis broke down in 2015. At that time, Ms. Foulidis retained Ms. Feldman to represent her in her dispute with George. There were two written retainer agreements. Ms. Foulidis paid Ms. Feldman a deposit of $5,000.
[10] Ms. Feldman began working for Ms. Foulidis in July, 2015. She commenced a divorce proceeding for Ms. Foulidis on July 21, 2015. She continued working in this regard until February, 2018, 2 ½ years later. In that period Ms. Feldman rendered five large accounts dated November 23, 2016, April 12, 2017, August 8, 2017, September 25, 2017 and February 13, 2018. There was also a small disbursement account dated October 25, 2016. During that period, Ms. Feldman received $68,000 from George through settlements and court orders. The accounts show that the balance owing is now $664,323.38. During this period, Ms. Feldman obtained some 18 court orders which she asserts preserved property and assets for Ms. Foulidis’ benefit.
[11] In October 2016 Danny Foulidis issued a demand to be paid on his alleged loan. On November 15, 2016, he commenced an action pursuant to that demand (“Danny’s Action”). He retained lawyer Carmine Scalzi in this regard. The Statement of Claim claimed damages of $450,000 on account of the May 18, 2006 “agreement” or on account of quantum meruit. It also claimed an equitable interest in the Property due to constructive trust, resulting trust and implied or expressed trust, and a CPL.
[12] Ms. Feldman referred Ms. Foulidis to a lawyer named Jonathan Rosenstein, whose fees she guaranteed. In her Statement of Defence (which bears Mr. Rosenstein’s name) Ms. Foulidis alleged that the Property was redeveloped by George and Danny initially for commercial sale and was then allowed to be occupied by George and Ms. Foulidis as a matrimonial home. She alleged that the Acknowledgment and Direction she signed in 2006 was signed by her under duress from George who insisted that the document be signed for “legal reasons” and to assist him. She denied agreeing to the alleged loan. She pleaded that George assured her that the alleged loan “would never be called.” She pleaded that Danny’s action was designed to pressure and bully Ms. Foulidis in the divorce proceedings.
[13] On December 23, 2016, using yet another lawyer referred to her by Ms. Feldman, Howard Manis, Ms. Foulidis commenced a Third Party Claim against George and Mr. Pantazis claiming contribution and indemnity. She repeated the allegations in her Statement of Defence. She added the allegation that the alleged “loan” was really between George and Danny and that this was the reason George should indemnity Ms. Foulidis.
[14] On November 27, 2017 Ms. Feldman emailed Ms. Foulidis a statement of account showing a total of $627,491.13 owing. Ms. Feldman asserts that the two then agreed that Ms. Feldman would bring an action for the outstanding accounts which Ms. Foulidis would not defend, thereby triggering a default judgment and a judicial sale of the Property to pay for the accounts and avoiding the need for George’s consent to the sale. Ms. Foulidis did not confirm this alleged agreement at the time. She now denies it.
[15] The relationship between Ms. Feldman and Ms. Foulidis broke down in January and February, 2018. Ms. Feldman alleges the breakdown happened because Ms. Foulidis consulted a third party, a non-lawyer named Anthony Kalentzis. Mr. Kalentzis had written several anonymous letters to Ms. Feldman and Ms. Foulidis claiming inside knowledge of George’s hidden assets. On February 14, 2018, without involving Ms. Feldman, Ms. Foulidis signed an assignment assigning the first $1.3 million of the proceeds of the divorce proceeding to Mr. Kalentzis. Ms. Feldman denies this allegation, and asserts that Ms. Feldman ended the relationship unilaterally.
[16] Ms. Feldman rendered her final account on February 13, 2018, and commenced the within action (the “Feldman Action”) on February 15, 2018 seeking payment of the unpaid accounts. On March 1, 2018, Ms. Feldman served the Statement of Claim in the Feldman Action. On March 8, 2018 Ms. Feldman obtained an order removing her firm from the record in the divorce proceeding. On or about March 19, 2018 Ms. Foulidis, using her present lawyers, delivered a Notice of Intent to Defend in the Feldman Action.
[17] In the meantime, Danny brought a motion for summary judgment in Danny’s Action. On February 23, 2018 Justice Firestone issued an order in Civil Practice Court scheduling the motion to be heard on April 12, 2018 for three hours. His Honour imposed a schedule for the motion, which schedule required that cross-examinations be done by March 23, 2018.
[18] On the day before the deadline date for the cross-examinations, March 22, 2018, Ms. Foulidis signed Minutes of Settlement with Danny settling Danny’s Action. The Minutes specified that Danny would receive a second mortgage of $525,000 on the Property (“Danny’s Mortgage”) plus a payment of $15,000. In return, he agreed to pay the $20,000 of outstanding property taxes on the Property and $40,000 to Ms. Foulidis directly, and essentially gave Ms. Foulidis five years to live in the Property and repay the $450,000 loan without interest, with the full amount of the mortgage and 4% interest to become due on the fifth anniversary. Ms. Foulidis had a lawyer at this time, one Imtiaz Ahmad. There was a declaration of independent legal advice in the Minutes. The Minutes were signed by Danny and Ms. Foulidis and their lawyers. The parties executed a mutual release. There were consents signed by all parties, including George, to orders dismissing the action and the third party claim. Danny’s Mortgage was registered on March 28, 2018.
[19] On or about April 23, 2018, Ms. Foulidis served Ms. Feldman with a Notice of Preliminary Appointment for a solicitor client assessment of Ms. Feldman’s accounts. Ms. Feldman subsequently consented to the assessment process.
[20] Ms. Feldman retained a lawyer to pursue a charging order in the Feldman Action. In the course of preparing the motion, this lawyer discovered Danny’s Mortgage on July 12, 2018. Ms. Feldman obtained an appraisal of the Property on July 17, 2018 which showed that it was valued at that time at between $1,275,000 and $1,350,000. There is a first RBC mortgage of $1,035,000 which secures a line of credit frozen by court order at about $500,000.
[21] On July 17, 2018, Ms. Foulidis delivered her Statement of Defence and Counterclaim in the Feldman Action. This pleading denied that the plaintiff was entitled to the claimed amounts on account of negligence and excessive billing. A major complaint in this pleading was that Ms. Feldman unreasonably relied on the Kalentzis letters in devising strategy, and did not warn Ms. Foulidis about the unreliability of these letters. Ms. Foulidis asserted a $2 million counterclaim based largely on the February 14, 2018 assignment in favour of Mr. Kalentzis.
[22] On July 27, 2018, Ms. Feldman brought the within motion before Master Abrams without notice. The motion material contained an affidavit sworn by Ms. Feldman. Master Abrams was not prepared to grant the order without notice particularly since the Feldman Action was defended with a lawyer of record. She adjourned the motion to August 9, 2018 and ordered that in the interim Ms. Foulidis not sell, transfer, encumber or otherwise deal with the Property. On July 27, 2018 Ms. Feldman registered a Caution on the title to the Property.
[23] Just prior to August 9, 2018, Ms. Foulidis delivered a Responding Record and a Factum. The Responding Record contained an affidavit sworn by Ms. Foulidis and an affidavit sworn by Danny. On August 9, 2018 Master Abrams adjourned the motion further to August 21, 2018. On August 16, 2018 Ms. Feldman served her Factum and Mr. Dizgun delivered a supplementary affidavit sworn by Ms. Foulidis. There were no cross-examinations.
Issues to be determined
[24] Based on the submissions, I find that the following issues need to be determined:
a) Is there a “high probability” that the plaintiff will get judgment in the Feldman Action? b) Is there evidence demonstrating that Danny’s Mortgage was given with the intent to defeat, hinder, delay or defraud Ms. Foulidis’ creditors? c) Is there evidence demonstrating that Danny’s Mortgage is an unjust preference? d) What is the balance of convenience?
Analysis
a) Is there a “high probability” of plaintiff’s success?
[25] The jurisdiction to grant CPLs is anchored in Courts of Justice Act, R.S.O. 1990, c. C.43 (“CJA”) section 103. It is well established that the test on a motion on notice for a CPL, which is what this motion is now, is the same as specified in CJA section 103(6) for a motion to discharge a CPL. It is also well established that the first test on a motion for a CPL is the requirement on the moving party to show a triable issue as to a reasonable claim to an interest in the land.
[26] This motion, however, is not about a direct claim to an interest in the Property. Mr. Zeitz confirmed that at the beginning of the argument. The plaintiff seeks to establish a reasonable claim to an interest in the Property by showing through the pleading amendments that Ms. Foulidis transferred an interest in the Property, namely Danny’s Mortgage, with the intent to defeat, hinder, delay or defraud Ms. Foulidis’ creditors pursuant to section 2 of the Fraudulent Conveyances Act, R.S.O. 1990, c. F. 29 (“FCA”). Under that section, such a transfer, if established, is void as against the creditors. It is well established that such a claim of a fraudulent conveyance creates a reasonable claim to an interest in land for the purposes of CLA section 103.
[27] The test for getting a CPL based on an alleged fraudulent conveyance was outlined in a leading case in this area, Grefford v. Fielding, 2004 CarswellOnt 1181 (SCJ). In this case, the plaintiff was suing on a loan. In the course of this action, the plaintiff became aware that the defendant had transferred his half interest in the matrimonial home to his wife. Before obtaining judgment in the first action, the plaintiff commenced a second action to have the transfer declared void by virtue of FCA section 2, and obtained an ex parte CPL. The defendant moved to discharge the CPL. Justice R. Smith found at paragraph 26 that where the main action does not contain a claim to an interest in land and where there is no judgment, the applicable test for a CPL is the following: (1) the claimant has to satisfy the court that there was a “high probability” that it will recover judgment; (2) the claimant has to “introduce evidence” demonstrating the intent under FCA section 2; (3) the claimant must demonstrate that the balance of convenience favours the CPL.
[28] Concerning the first test, the need to satisfy the court of a “high probability” of success in the main action, there was some debate. Mr. Dizgun argued that there is evidence that the plaintiff will receive nothing given the allegations of negligence and overbilling in the Statement of Defence and Counterclaim in the Feldman Action. I agree that the total of the alleged outstanding accounts, $664,323.38, seems excessive for essentially 2 ½ years of work on a matrimonial dispute where the main asset appears to be the matrimonial home. I am also mindful that the total Feldman charges exceed $700,000 for this time period, as the plaintiff has already been paid over $70,000 by Ms. Foulidis and George.
[29] Having said that, though, I am satisfied by the evidence that the plaintiff will, with high probability, receive a judgment for something. The evidence indicates that Ms. Feldman did a considerable amount of work, which no reasonable lawyer would do without reasonable expectation of a retainer and compensation. There is no evidence that she undertook this work pro bono. Ms. Foulidis herself indicated in paragraph 8 of her affidavit that there was to be a payment of Ms. Feldman’s services in the end depending on the result. There is evidence as well that Ms. Feldman succeeded in obtaining 18 court orders that may have preserved property and assets for Ms. Foulidis. This proposition was not seriously contested by Mr. Dizgun. While Ms. Foulidis in her pleading asserts that the Feldman retainer documents are invalid, the plaintiff has at minimum asserted a quantum meruit claim which may well apply in that case.
[30] Furthermore, there is evidence that suggests that the retainer agreements will be enforced. I note that Ms. Foulidis received the five large Feldman accounts as they were rendered, and there was no evidence that she complained about them at the time she received them. It was only when Ms. Feldman commenced this action that Ms. Foulidis triggered an assessment in April, 2018.
[31] Furthermore, there is evidence that suggests that the assignment given to Mr. Kalentzis on February 14, 2018 will not be enforceable. Ms. Foulidis herself states in her defence in the Feldman Action that the assignment is invalid, void and unenforceable. There is evidence to support this position. It appears that Ms. Foulidis was not given proper independent legal advice by Mr. Kalentzis when she signed the document. As to the other Foulidis allegations of negligence and overbilling, there was minimal evidence in this regard.
[32] For these reasons, I conclude that the plaintiff, with “high probability,” will obtain judgment for a lesser amount than the claimed $664,323.38, but nonetheless for some amount.
b) Is there evidence demonstrating a fraudulent intent?
[33] Authorities have clarified the second branch of the test. In York University v. Markicevic, 2014 CarswellOnt 7212 (Div. Ct.), the creditor had obtained judgment and the Divisional Court held at paragraph 8 that a CPL was available to such a creditor, “provided that the creditor shows that there is a triable issue respecting the fraudulent nature of the conveyance.” In Claireville Holdings Ltd. v. Botiuk, 2015 CarswellOnt 1241 (Div. Ct.) Justice Sachs in paragraph 18 distinguished the test described in York University from the test described in Grefford on the basis that the test described in Grefford applied to cases where the creditor had not obtained judgment.
[34] I view these cases as standing for the proposition that the test for demonstrating fraudulent intent sufficient to justify a CPL in cases where the creditor has not obtained judgment is higher than the test of “triable issue” which, according to York University, applies to cases where the creditors has obtained judgment. In the case before me, the plaintiff has not obtained judgment and, therefore, the higher standard of proof applies. I view this higher test as one requiring that the plaintiff show some positive evidence of the fraudulent intent. Counsel agreed that the standard is as follows: evidence from which a trial judge “could” conclude that there was a fraudulent intent; see Gamble & Rogers Ltd. v. Horizon Meat Packers Inc., 2015 ONSC 5681 (SCJ) at paragraph 51.
[35] It is well established that the courts make the necessary finding of fraudulent intent based on inferences from the circumstances at the time of the conveyance; see Indcondo Building Corp. v. Sloan, 2014 CarswellOnt 10946 (SCJ) at paragraph 51. The so-called “badges of fraud” derive from Twyne’s Case, Re (1601), 76 E.R. 809 (Eng. K.B.), and can include many factors, such as the inadequacy of the consideration, the close relationship between the parties, and the secrecy and haste of the transaction.
[36] The “badge of fraud” the plaintiff relies heavily upon is the alleged gross inadequacy of the consideration for Danny’s Mortgage. Mr. Zeitz argued that Ms. Foulidis never disavowed her defences in Danny’s Action, namely that the “loan” agreement in the Acknowledgment and Direction dated May 18, 2006 did not bind Ms. Foulidis as she executed that document under duress from George. As a result, so the argument went, there was no consideration for Danny’s Mortgage, or at least there was totally inadequate consideration.
[37] I do not accept that argument. First, in paragraph 36 of her affidavit, Ms. Foulidis acknowledged that Danny lent her the $450,000, and she was not cross-examined on that affidavit. Statements made in a pleading are not evidence.
[38] Second, and more importantly, the evidence indicates that Danny did indeed finance the construction of the house with his money. Ms. Foulidis never denied that proposition, not even in her pleadings in Danny’s Action when Mr. Rosenstein was acting for her. In fact, in her Third Party Claim Ms. Foulidis comes out with the statement that there was a loan from Danny for the construction of the house, and that it was from Danny to George. The only evidence that Danny did not advance monies for the construction appears in paragraph 28 of Ms. Feldman’s affidavit; but this is a bald and self-serving assertion by Ms. Feldman that she says is “based on my personal knowledge of this matter.” There is no substantiation for this statement, and I do not accept it as credible. I conclude that the evidence on the motion indicates that Danny indeed financed the construction of the house. As a result, the foundation for the alleged 2006 loan agreement with Ms. Foulidis, namely Danny’s financing of the construction, was established or the purpose of this motion.
[39] As a result of Danny’s financing, in my view it was quite an open question at the time of the settlement on March 22, 2018 as to whether a trial judge would or would not have enforced the loan agreement as against Ms. Foulidis, the person who signed the document acknowledging the loan and who benefited from the financing. With this uncertainty and in light of Ms. Foluidis’s present evidence, I fail to see how a trial judge “could” conclude that Ms. Foulidis’ settlement of this loan on terms that gave Ms. Foulidis the benefit of staying in the house and repaying the loan in five years showed fraudulent intent. There was consideration.
[40] I note incidentally that, as pointed out by Mr. Dizgun, there was evidence of other consideration in the Minutes of Settlement. Danny agreed to pay outstanding property taxes, and gave Mr. Foulidis a further small loan for expenses. This just bolsters my conclusion on this point.
[41] As a result, I do not find that this alleged “badge of fraud,” namely the alleged inadequacy of consideration, forms a basis on which a trial judge “could’ find Danny’s Mortgage fraudulent.
[42] The plaintiff also relies upon the “badge of fraud” of the alleged close relationship between the parties. I do not accept that argument as being sufficient to demonstrate a fraudulent intent. It is clear that Danny was at all times the brother-in-law of Ms. Foulidis. However, by March, 2018, Ms. Foulidis’ marriage to George had broken down some three years earlier, and the two had been in a hotly contested divorce proceeding for some time. In the context of the evidence, it seems unlikely to me that George’s bother, Danny, would have gone to the trouble and expense of initiating and prosecuting Danny’s Action just to assist Ms. Foulidis in avoiding her creditors. Danny’s affidavit made it clear that he took the steps he took in suing Ms. Foulidis in order to protect his, Danny’s, interest, and the evidence indicates that he settled with her on that basis.
[43] The plaintiff relies on the “badge of fraud” of the proximity in time between the date Ms. Foulidis delivered a Notice of Intent to Defend in the Feldman Action, namely March 19, 2018, the date of the Minutes of Settlement, namely March 22, 2018, and the date of Danny’s Mortgage, namely March 28, 2018. The argument is that this proximity creates the inference that the events are related, namely that Ms. Foulidis conveyed Danny’s Mortgage to avoid a judgment in the Feldman Action.
[44] I do not accept this argument. As Mr. Dizgun argued, there is stronger evidence that the proximity is mere happenstance. Danny’s Action was commenced 16 months before the alleged settlement. There is no doubt that Danny had commenced a motion for summary judgment. This is confirmed by the Civil Practice Court scheduling order of February 23, 2018. This order scheduled the motion for three hours on April 12, 2018 and imposed a deadline of March 23, 2018 for cross-examinations. The cross-examination deadline in the scheduling order lends credence to Mr. Dizgun’s point that the real reason the settlement and mortgage took place when they did was the proximity to the ordered cross-examinations. Ms. Foulidis would understandably have been reluctant to undergo cross-examination, particularly when she was without counsel.
[45] The plaintiff also argued for another “badge of fraud,” namely that the effect of the transaction was to deny or diminish the Property equity that would otherwise be available to the plaintiff in the event it succeeds in this action. This argument is not persuasive. Yes, given the valuations Ms. Feldman obtained and the frozen limit on the RBC line of credit, there would appear to have been in excess of $800,000 of equity in the Property before Danny’s Mortgage. With Danny’s Mortgage that equity would be reduced to about $300,000. But if there really is a conspiracy between George, Danny and Ms. Foulidis to defraud the plaintiff, as Mr. Zeitz urges, one would have thought that all of the equity would have been conveyed. It was not.
[46] The plaintiff also argued that there is evidence of another “badge of fraud,” namely that Danny and Ms. Foulidis continue to have involvement with each other. One piece of evidence in this regard was, according to Mr. Zeitz, Danny’s apparent “cooperation” with Ms. Foulidis in this motion. Even though he is a party to the motion, Danny did not deliver separate motion material. He simply provided Ms. Foulidis with an affidavit in support of her position.
[47] Following the argument of this motion, Mr. Dizgun uncovered the affidavit of service of the plaintiff’s motion record on Danny. This showed that Danny had not in fact been served with the plaintiff’s motion record, which was wrong. By letter, Mr. Dizgun asked for an opportunity to make further submissions, and I convened a telephone conference call in this regard that took place on August 28, 2018. At this time, a lawyer named Robert Cohen, lawyer for Danny, participated. Mr. Cohen confirmed that Danny did not want to have the motion adjourned to allow Danny to appear and make submissions. The call then boiled down to whether I should draw an adverse inference against Danny for not appearing on the motion, namely an inference that his failure to appear shows a cooperation between Ms. Foulidis and Danny that evidences an underlying conspiracy between the two. Because of Mr. Zeitz’s failure to properly serve Danny with the plaintiff’s motion record, I am not prepared to draw this adverse inference. Without proper service, Danny may well have assumed that the only way to defend his mortgage was to give Ms. Foulidis his evidence.
[48] The plaintiff also argues that George’s consent to Danny’s Mortgage was inconsistent with George’s heated dispute with Ms. Foulidis in their lengthy divorce proceeding. Mr. Dizgun rightfully responded on this point that, as George had been third partied by Ms. Foulidis in Danny’s Action, his consent was necessary to conclude the settlement. I do not find this point persuasive.
[49] I make a further point here, one that Mr. Dizgun made. The Minutes of Settlement and Danny’s Mortgage had none of the secrecy and haste that usually accompany fraudulent conveyances. These were carefully prepared documents made openly with the assistance of lawyers.
[50] Mr. Zeitz made another argument, namely that Danny’s Mortgage was security for “past consideration” given 12 years earlier. This doctrine of “past consideration,” he argued, rendered the mortgage unenforceable for lack of consideration. I do not find this argument persuasive. Under the terms of the 2006 loan agreement, Ms. Foulidis became liable to repay upon demand. This means that she was potentially liable to repay as of October, 2016 when Danny made his demand. The forbearance of enforcement was the consideration Danny gave in return for the mortgage.
[51] As a result, given the higher standard of proof outlined in Grefford, I am not satisfied that there is evidence in this motion from which a trial judge “could” conclude that there was a fraudulent intent in granting Danny’s Mortgage, at least not enough to justify a CPL.
c) Is there evidence demonstrating an unjust preference?
[52] The plaintiff also relies on section 4(2) of the Assignment and Preferences Act, R.S.O. 1990, c. A. 33 (“APA”). This section specifies that, “any gift, conveyance, assignment or transfer, delivery over or payment made by a person being at the time in insolvent circumstances, or unable to pay his, her or its debts in full, or knowing himself, herself or itself to be on the eve of insolvency, to or for a creditor with the intent to give such creditor an unjust preference over other creditors or over any one or more of them is void as against the creditor or creditors injured, delayed, prejudiced or postponed.” The plaintiff has included reference to the APA in its amended pleading.
[53] There was little argument as to the test to be applied when determining whether to grant a CPL based on an alleged unjust preference. Logically there is no reason to draw a distinction between what is required to establish the plaintiff’s claim for a CPL based on an unjust preference and what is required to establish its claim to a CPL based on a fraudulent conveyance. In both cases, the claims are not based on a proprietary claim. Therefore, the plaintiff should have to meet the higher evidentiary onus described in Grefford in both cases, namely whether there is evidence from which a trial judge “could” conclude that there was an unjust preference.
[54] Was there such evidence on this motion? I have concluded that there was not.
[55] First, there was no clear evidence that Ms. Foulidis was insolvent or was aware of being on the eve of insolvency at the time of the settlement for the purposes of the APA section 4(2). Mr. Zeitz argued that Ms. Foulidis admitted insolvency in her affidavit. I disagree. The only debts she admitted to in her affidavit were Danny’s loan and property tax arrears of $6,919.49. She admitted that the sheriff had served her with a Warrant to Distrain for the taxes. She denied owing the plaintiff anything. As I noted earlier, there was equity in the Property at the time of the settlement. This equity was sufficient to cover both Danny’s loan and the tax arrears. Therefore, Ms. Foulidis arguably had the means to pay the debts she admitted in addition to what she might eventually be found to owe the plaintiff.
[56] I do note that Ms. Foulidis said in paragraph 4 of her affidavit that she was under significant economic strain, “impoverished,” “desperate,” without sources of income, and with only one significant asset, the Property. In paragraph 41 she stated that at the end of February, 2018 she was “desperate, broke, alone . . .” Do these statements denote insolvency or an awareness of insolvency, by which I mean an inability to pay debts as they come due? These words are not clear in meaning. Without a clarification of what Ms. Foulidis meant by them through a cross-examination, I am not prepared to draw that conclusion, particularly given the apparent equity in the Property. The plaintiff chose not to cross-examine Ms. Foulidis when it had the primary evidentiary onus on this motion, and it must live with the consequences of that decision.
[57] Second, Mr. Dizgun cited a British Columbia decision, Van Duzen v. Van Duzen, [2001] B.C.J. 2725 (BCSC), for the following propositions: that only a creditor has the status to challenge an unjust preference (see paragraph 16); that both the debtor and transferee must be proven to have the unjust preference intention (see paragraph 20); and that pressure by the transferee is not enough to create an inference that the transferee has the requisite intention to unjustly prefer (see paragraph 22). I was not made aware of Ontario authority on this point; however, the British Columbia statute discussed in the case is quite similar to APA section 4(2).
[58] The propositions in Van Duzen militate against the requested order. The plaintiff is not a proven creditor of Ms. Foulidis. There is no evidence in the motion that Danny was aware of the plaintiff’s unpaid accounts at the time of Danny’s Mortgage. Again, Danny was not cross-examined on his affidavit. Finally, Danny’s Action is the normal step any creditor would take to get paid when the subject matter of the loan, the house, is under dispute in a divorce proceeding. I take these propositions into consideration.
[59] Therefore, I do not conclude that there was sufficient evidence on the motion from which a trial judge “could” conclude that Danny’s Mortgage was an unjust preference, at least not sufficient to justify a CPL.
d) What is the balance of convenience?
[60] Having determined that the plaintiff has failed to establish the basis for a CPL based on alleged fraudulent conveyance and unjust preference, it is unnecessary for me to go further into the equities of the case. I will, however, make a brief point on this topic.
[61] Mr. Zeitz argued that the balance of convenience favours the plaintiff as Ms. Feldman’s work preserved the Property and the amount of her work creates a reasonable expectation in Ms. Feldman that the Property, apparently the only substantial asset of Ms. Foulidis, should remain available to satisfy the entirety of any judgment Ms. Feldman obtains. He argued that without the CPL Ms. Foulidis will probably just convey whatever equity remains of the Property.
[62] I am not convinced by this argument. There is no evidence that Ms. Foulidis will convey the remaining equity in the Property during the currency of the Feldman Action and the assessment. As stated earlier, Ms. Foulidis appears to have granted Danny’s Mortgage to settle on the merits of Danny’s Action in the context of a motion for summary judgment. This per se does not indicate to me that she will quickly convey away any remaining interest she may have in the Property. She has after all lived in the Property for over twelve years. I note that Danny’s Mortgage gives Ms. Foulidis effectively a term of a further five years in which to continue to live in the Property.
[63] In these circumstances, I do not find that the balance of convenience favours the CPL.
[64] Mr. Dizgun argued at some length that I should deny the motion entirely on the basis of an alleged lack of forthright disclosure by the plaintiff at its ex parte appearance before Master Abrams on July 27, 2018. He also argued that the plaintiff should not have registered the Caution in light of Master Abrams ruling, and that this should be used to discount the motion. Because I have dismissed the motion for other reasons, I do not have to and I do not address these arguments.
[65] Mr. Zeitz argued at some length that Ms. Foulidis’ introduction of issues concerning Ms. Feldman’s disciplinary proceedings before the Law Society of Upper Canada were unfair and prejudicial, and should not be considered. I have not relied on these submissions in making my ruling.
Conclusion
[66] For the reasons stated above, I dismiss the motion.
[67] As required, the parties filed costs outlines for the motion at the end of the argument. The plaintiffs’ costs outline shows $22,014.72 in partial indemnity costs, $27,232.76 in substantial indemnity costs, and $29,825.28 in full indemnity costs. Ms. Foulidis’ costs outline shows an amount of $20,797.47.
[68] Ms. Foulidis is clearly the successful party in this motion, and as a result deserve costs. The parties are encouraged to resolve the costs issue. If they cannot, Ms. Foulidis may deliver further written submissions on costs of no more than three pages on or before September 24, 2018; the plaintiff may deliver responding written submissions on costs of no more than three pages on or before October 4, 2018; and Ms. Foulidis may deliver reply submissions of no more than one page on or before October 9, 2018.
DATE: September 13, 2018
MASTER C. WIEBE