COURT FILE NO.: CV-18-592247

DATE: 20181214

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

JODI L. FELDMAN PROFESSIONAL CORPORATION for itself and on behalf of all creditors of Lynne Catherine Foulidis

Plaintiff

– and –

LYNNE CATHERINE FOULIDIS and KONSTANTINOS FOULIDIS also known as DANNY FOULIDIS

Defendants

Sean N. Zeitz, for the Plaintiff

L. Leslie Dizgun and Justin W. Anisman, for the Defendants

HEARD: December 6, 2018

ENDORSEMENT

diamond J.

Overview

[1] The plaintiff is an Ontario professional corporation providing legal services through Jodi L. Feldman, a lawyer practicing since April 1984. The plaintiff alleges that the defendant Lynne Catherine Foulidis (“Lynne”) was a client of the plaintiff between August 2015 and February 2018, during which time the plaintiff represented Lynne’s interests in a family proceeding.

[2] By Statement of Claim issued on February 15, 2018 the plaintiff sued Lynne for $664,323.38 representing the sum of various invoices for services rendered during the lifespan of the plaintiff’s retainer. Lynne was served with the Statement of Claim on March 1, 2018, and delivered a Notice of Intention to Defend on March 19, 2018.

[3] Lynne delivered her Statement of Defence and Counterclaim in mid-July 2018. Around the same time, the plaintiff came to learn that on March 28, 2018 (shortly after being served with the Statement of Claim), Lynne granted her former brother-in-law Konstantinos Foulidis also known as Danny Foulidis (“Danny”) a $525,000.00 mortgage (the “mortgage”) registered against title to a property owned by Lynne and municipally known as 17 Airley Crescent, Toronto, Ontario (“the property”).

[4] The plaintiff then brought a motion seeking:

a) leave to amend her Statement of Claim to inter alia (i) add Danny as a defendant, and (ii) seek a declaratory Order that the mortgage was void as being contrary to the provisions of the Fraudulent Conveyances Act R.S.O. 1990 c. F29; and,

b) leave to issue and register a certificate of pending litigation (“CPL”) against title to the property.

[5] The plaintiff’s motion proceeded before the learned Master on August 21, 2018. By Reasons for Decision released on September 13, 2018, the Master granted the plaintiff leave to amend its Statement of Claim (as that relief was not opposed), but denied the plaintiff leave to issue and register a CPL against title to the property.

[6] The plaintiff now appeals the Master’s decision. The appeal was argued before me on December 6, 2018. At the conclusion of the hearing, I took my decision under reserve.

[7] These are my reasons.

Standard of Review

[8] As recently held by Justice McArthur in Hassoun v. Molu 2018 ONSC 6781, “a Master’s decision should not be interfered with unless the Master made an error in law, exercised his/her discretion on the wrong principles, or misapprehended the evidence such that there was a palpable and overriding error.”

[9] For questions of law, the standard of review is correctness. For questions of mixed fact and law, the standard of review is palpable and overriding error unless there is an extricable question of law, to which the correctness standard would apply.

The Test for a CPL

[10] Traditionally, when a fraudulent conveyance is alleged, title to a property is brought into question. In Keeton v. Cain 1986 CanLII 2854 (ONSC), Justice Scott held that a creditor need not have a personal interest in a property, but merely “need to claim title”. As long as there are more than bare allegations supporting a fraudulent conveyance, a sufficiently reasonable claim to an interest in land will exist and warrant the issuance of a CPL.

[11] The jurisprudence has since adapted to situations like the one before the Master, namely where a plaintiff is not yet a judgment creditor of the defendant who has alleged to have participated in a fraudulent conveyance. Where a plaintiff has yet to obtain judgment in the underlying/main action, the test for a CPL is set out in the decision of Justice Smith in Grefford v. Fielding 2004 CanLII 8709 (ONSC):

a) has the plaintiff satisfied the Court that there is a high probability that it will successfully recover judgment in the underlying/main action?

b) has the plaintiff introduced evidence demonstrating that the impugned transaction was made with the intent to defeat or delay creditors?

c) has the Plaintiff demonstrated that the balance of convenience favours the issuance of the CPL in the circumstances of the case?

[12] As held by Justice Sachs in Claireville Holdings Ltd. v. Votiuk 2015 ONSC 694, the Grefford test “applies when the plaintiff has not yet obtained judgment in the underlying action.”

The Master’s Reasons

[13] Dealing with the first part of the Grefford test, the Master concluded that while the plaintiff would not necessarily obtain a judgment for the full amount claimed, there was nevertheless a high probability that the plaintiff will obtain a judgment for a lesser amount. This finding is not subject to any appeal.

[14] With respect to the second part of the Grefford test, the Master embarked upon a detailed analysis of the evidentiary record before him, and concluded that “given the higher standard of proof outlined in Grefford”, he was not satisfied that there was evidence in the record from which a trial judge could conclude that there was a fraudulent intent on Lynne’s part in granting the mortgage…”at least not enough to justify CPL”.

[15] Numerous “badges of fraud” were raised by the plaintiff, including (a) the inadequacy of the consideration for the mortgage, (b) the close relationship between Lynne and Danny, (c) the proximity and time between Lynne’s delivery of a Notice of Intent to Defend and the granting of the mortgage, (d) the fact that Lynne and Danny continued to have an involvement with each other after the mortgage was granted, and (e) the fact that the mortgage was allegedly security for “past consideration”. The Master undertook a meticulous and comprehensive assessment of these alleged “badges of fraud” which the plaintiff contended laid a foundation to support an ultimate finding at trial that the mortgage was carried out with the intent to delay or defeat creditors, including the plaintiff. The Master weighed the evidence, rejected the plaintiff’s arguments and found that there were no facts capable of permitting a trial judge to conclude that there was a fraudulent intent on Lynne’s part in granting the mortgage.

[16] With respect to the third part of the Grefford test, having found that the plaintiff failed to satisfy the second part of the Grefford test, the Master stated that it was “unnecessary for him to go further into the equities of the case”. However, he nevertheless rejected the plaintiff’s argument that Lynne would likely convey whatever equity remained in the property, finding that the mortgage did not per se indicate that Lynne would “quickly convey any remaining interest she may have in the property”. As such, and on a limited analysis, the Master found that the balance of convenience did not favour the granting of leave to issue the CPL.

Decision

[17] In my respectful view, the learned Master made an error in law. I agree with the plaintiff that in satisfying the second element of Grefford test, a moving party must lead positive evidence to show the existence of a triable issue. At paragraph 51 of his Reasons, the Master imported the “high probability” requirement from the first part of the Grefford test into the second part of the Grefford test. There is no requirement to prove the existence of a triable issue on a higher standard of proof, and I find that error in law infected the Master’s analysis of the evidentiary record before him.

[18] Counsel for the defendants submit that the Grefford test does require a higher evidentiary standard when assessing the second element of the test. In support of this position, the defendants rely upon the comments of the Court of Appeal for Ontario in G.P.I. Greenfield Pioneer Inc. v. Moore 2002 CanLII 6832 (ONCA), and in particular the following passage:

“It follows that on the motion to discharge the CPL the onus was on the moving party, Ms. Moore, to demonstrate that there was no triable issue in respect to whether the respondent had "a reasonable claim to the interest in the land claimed". As such, the onus is analogous to that of a defendant seeking a summary judgment dismissing a plaintiff's claim under Rule 20 of the Rules of Civil Procedure. As on a Rule 20 motion, the role of the motion judge was not to find as a fact whether the respondent had, or did not have, "a reasonable claim to the interest in the land" which was the subject of the claim in his action against Ms. Moore. That issue remained to be determined at the trial of the pending action. Just as the finding of a motion judge on a Rule 20 motion that a genuine issue for trial exists in respect to a plaintiff's claim cannot support a plea of res judicata at the trial of that issue, neither can a finding of a motion judge on a s. 103(6) motion to discharge a CPL that there is a triable issue in respect to whether the registrant has a reasonable claim to the interest in the land support a plea of res judicata at the trial of a claim for damages under s. 103(4) of the CJA. This is because no adjudication of the registrant's interest in the land is required on a motion to discharge a CPL.”

[19] The defendants submit that as the test for granting a CPL is the same as the test for discharging a CPL, it was open to the Master to assess the evidentiary record before him through the lens of a trier of fact deciding motion for summary judgment. I disagree. To begin, the G.P.I. case was decided well before the amendments to Rule 20 of the Rules of Civil Procedure which empowered the Court with enhanced fact finding powers when assessing whether a genuine issue requiring a trial exists (a different test then when G.P.I. was decided). In addition, litigants now live in a post-Hryniak world where the Court must decide whether to grant summary judgment by, inter alia, considering the efficiency and proportionality of a summary process versus a full trial.

[20] Under the old summary judgment regime, contested issues of fact would themselves create a triable issue. That old reality is what informed the Court of Appeal for Ontario’s decision in G.P.I. as, back in 2002, the presence of a genuine issue for trial would defeat a summary judgment motion. This is simply no longer the Rule 20 reality, as the Court may now use its enhanced fact finding powers in deciding whether summary judgment is appropriate in light of the litigation as a whole. In ThyssenKrupp Elevator (Canada) Limited v. Amos 2014 ONSC 3910, my colleague Justice Myers summarized the Hryniak roadmap as follows:

“Under the roadmap provided starting at para. 66 of Hryniak the Court is to consider first whether the motion provides sufficient evidence required to fairly and justly adjudicate the dispute and is a timely, affordable and proportionate procedure. If not, the Court should consider if it can reach the required result (to fairly and justly adjudicate the dispute in a timely, affordable and proportionate procedure) by exercising the discretion to weigh evidence, evaluate credibility of witnesses and drawing reasonable inferences from the evidence now rather than at trial (Hryniak, at para. 67). If that does not provide the requisite degree of assurance, the Court should consider exercising the discretion to order presentation of some limited oral evidence (Hryniak, at para 68). If even a mini-trial will not provide a fair and just adjudication of the dispute in a timely, affordable and proportionate procedure, then the motion should be dismissed but the judge is required to craft a trial process to do so while remaining seized of the matter (Hryniak, at para 77). The last fallback is to simply dismiss the motion in exceptional cases where it is clearly inappropriate either to grant summary judgment (Hryniak, at para. 68) or to remain seized (Hryniak, at para. 78).”

[21] In my view, the Master usurped the function of a trial judge, or at the very least a judge hearing a motion for summary judgment. On a motion seeking leave to issue a CPL, the Court may not avail itself of the enhanced fact finding powers in Rule 20. The Court must simply be satisfied that a triable issue exists based on the evidentiary record.

[22] A review of the Master’s Costs Decision supports my conclusion. While the Costs Decision may not technically form part of the Order under appeal, the Master’s reasoning in awarding Lynne her costs of the motion highlights the legal error. At paragraph 9 of his Costs Decision, the Master stated as follows (my emphasis in bold):

“Second, I also accept Mr. Zeitz’s argument that an alleged fraud under the FCA and APA does not necessarily involve the kind of moral turpitude seen in cases where there are unfounded allegations of dishonesty and fraud that impugned the character and reputation of a party. That is the case here. This was a “close call.” There was evidence that appeared on the surface to point to “badges of fraud”, such as the relationship between the Defendant, Danny and George and the proximity and time between the pleadings and the Feldman Action and a settlement of Danny’s Action. In the end, I found that there was not enough evidentiary substance to these apparent badges on this motion. Such a “close call” does not justify a deviation from the normal standard of costs, namely partial indemnity costs.”

[23] In my view, the Master exceeded the jurisdiction afforded him on a motion for leave to issue a CPL, and applied incorrect principles in his assessment of the second part of the Grefford test. On the record before him, there was and remains triable issues with respect to whether the impugned transaction was carried out with the intent to defeat or delay creditors, including the plaintiff.

[24] While it may be that a trial judge, or perhaps a judge hearing a motion for summary judgment (as that option is still available to the defendants) could conclude that there is insufficient evidence to support the plaintiff’s claims, such a determination ought not to have occurred at this preliminary stage in the absence of clear, cogent, and convincing evidence that the evidence supporting the plaintiff’s claims was devoid of merit. As the Master already found that this was indeed a “close call”, triable issues exist and the plaintiff has thus satisfied the second part of the Grefford test.

[25] Finally, with respect to the third part of the Grefford test, the Court has a broad discretion when examining the equities between the parties to determine the balance of convenience. As the Master himself admitted, he did not delve very far into the equities between the parties once he came to the conclusion that the plaintiff failed to satisfy the second part of the Grefford test.

[26] The Master did find that there was a high probability that the plaintiff would obtain a judgment for some amount against Lynne. The evidence discloses that the services provided by Lynne (whatever they may be worth) had a likely direct causal link to Lynne’s ability to preserve her equity in the property during the course of the family litigation. While Lynne has defended this proceeding on the basis that she never agreed that the property would be used to secure and pay for the plaintiff’s accounts, that is an issue yet to be decided on the merits of this case.

[27] Lynne has effectively admitted on this motion that her only substantive asset is the property. There is no evidence in the record that the issuance and registration of a CPL would cause any actual prejudice to Lynne (such as a contemplated refinancing or sale), and a term of the mortgage provides Lynne five additional years in which to continue to live in the property.

[28] Considering all the relevant factors (an exercise which the Master did not complete), I find that the balance of convenience favours the issuance of a CPL.

[29] The appeal is therefore allowed, and the Plaintiff is granted leave to issue and register a CPL against title to the property.

Costs

[30] I would urge the parties to attempt to resolve the issues of the costs of this appeal and of the motion before the Master. If such efforts prove unsuccessful, the parties may exchange written costs submissions (totaling no more than five pages including a Costs Outline) in accordance with the following schedule:

a) the plaintiff may serve and file its costs submissions within 10 business days of the release of this Endorsement, and

b) the defendants shall thereafter have an additional 10 business days from the receipt of the plaintiffs’ costs submissions to deliver its responding costs submissions.

Diamond J.

Released: December 14, 2018

COURT FILE NO.: CV-18-592247

DATE: 20181214

ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

JODI L. FELDMAN PROFESSIONAL CORPORATION for itself and on behalf of all creditors of Lynne Catherine Foulidis

Plaintiff

– and –

LYNNE CATHERINE FOULIDIS and KONSTANTINOS FOULIDIS also known as DANNY FOULIDIS

Defendants

ENDORSEMENT

Diamond J.

Released: December 14, 2018