BARRIE COURT FILE NO.: CV-18-00002054-0000

DATE: 20191128

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

LIAHONA MORTGAGE INVESTMENT CORP.

Applicant

– and –

PETER GERALD BAZINET and KAREN BAZINET

Respondents

C. Salazar, Counsel for the Applicant

R. Watson, Counsel for the Respondents

HEARD: November 22, 2019

REASONS FOR DECISION ON APPLICATION

CHRISTIE J.

Overview

[1] On May 5, 2016, the Respondent, Peter Gerald Bazinet, transferred title of a property located at 54 Angler Avenue, Port Dover, from himself, to his wife, the respondent, Karen Bazinet. The Applicant seeks the following relief from this court:

1. A declaration that the conveyance of the subject property from husband to wife was a fraudulent conveyance which is void as it relates to the Applicant; and

2. An order for a reference hearing to inquire and determine all issues relating to the conduct of the sale of the within property as a prerequisite for an Order for sale of the within property.

[2] The Applicant submitted that the title to this property in Port Dover was transferred in the face of a debt and formal proceedings initiated by the Applicant against the Respondent, Peter Gerald Bazinet, in relation to a mortgage that went into default and a judgment that was obtained by the Applicant in relation to a different property previously owned by Mr. Bazinet in South Porcupine, Ontario. The Applicant submitted that in transferring the Port Dover property, Mr. Bazinet relieved himself of the only asset he had, thereby preventing the Applicant from recovering on the judgment, as the sale of the mortgaged property in South Porcupine left a significant shortfall. This transfer, the Applicant suggested, has all of the badges of fraud associated with a fraudulent conveyance.

[3] The Respondents argued several grounds upon which this court should decline to entertain this Application, including:

1. The procedure by which Liahona brings these proceedings, as an application as opposed to an action, is not appropriate;

2. A limitation period applies and the claim is barred;

3. Liahona obtained default judgment by misleading the court and, therefore, the court should treat Liahona as if never having obtained default judgment;

4. Liahona has brought this application in the wrong jurisdiction, there being no connection to Barrie, therefore, the proceedings should be dismissed, stayed or transferred;

Further, the Respondents took the position that there was no fraudulent conveyance, but rather a bona fide transaction between husband and wife due to personal circumstances. Finally, the Respondent argued that, even if the court were to rule that the transfer was a fraudulent conveyance, the court should not order a reference.

Facts

[4] On or about December 11, 2013, Peter Bazinet obtained a mortgage from Liahona Mortgage Investment Corp., in the amount of $114,800.00, for a property municipally known as 199 Moore Street, South Porcupine, Ontario. Neither Peter nor Karen Bazinet have ever lived in that home. In fact, at that time, they were living in Keefer Lake, just outside of Timmins. The property was purchased as an investment property, to renovate and then rent out.

[5] In September 2014, Peter Bazinet bought a home, from a builder, located at 54 Angler Avenue, Port Dover, Ontario. Peter and Karen Bazinet have lived at the home in Port Dover since that time. Liahona does not hold a mortgage for this property.

[6] Mr. Bazinet defaulted on the mortgage in relation to the South Porcupine property on January 10, 2016.

[7] The Applicant commenced an action against Mr. Bazinet in the Parry Sound Superior Court of Justice by issuance of a statement of claim on April 18, 2016, under Court File No. CV-16-042.

[8] The statement of claim was personally served on Mr. Bazinet on April 22, 2016.

[9] Mr. Bazinet served a statement of defence, dated May 3, 2016, on the Applicant, which was acknowledged on May 10, 2016 by counsel who represented Liahona at the time. However, the statement of defence was never filed with the court.

[10] On May 5, 2016, title of the Angler Avenue property in Port Dover was transferred from Mr. Bazinet to his wife, Mrs. Bazinet.

[11] The Applicant obtained default judgment in relation to the South Porcupine property on June 16, 2016, and obtained possession of said property. In July 2016, an appraisal was obtained for the property, concluding the property to be valued at $110,000.00. The property was listed for sale from September 2016 to September 2018, starting at a sale price of $129,900.00, but being reduced over time to $44,900.00. The property was ultimately sold for $40,000.00.

[12] The Applicant takes the position that as of December 15, 2018, $153,457.97 was still owing against the judgment. The Respondents take issue with this total.

[13] Mr. Bazinet has not taken any steps to set aside the default judgment in relation to the South Porcupine property.

[14] The Applicant also pointed out that, at the cross-examination, Mr. Bazinet refused to answer a question relating to whether he, at that time, owned any real property.

Issues

[15] In my view, this matter can be disposed of by this court by dealing with two questions:

1. Where should this matter be heard?

2. Should this be an action as opposed to an application?

Issue 1: Where should this matter be heard?

[16] The property at issue in these proceedings is located in Port Dover, Ontario, which is located in the Central South Region.

[17] Rule 13.1.01(3) of the Rules of Civil Procedure state:

Mortgage Claims

(3) In the case of an originating process, whether it is brought under r. 64 (Mortgage Actions) or otherwise, that contains a claim relating to a mortgage, including a claim for payment of a mortgage debt or for possession of a mortgaged property, the proceeding shall be commenced in the county that the regional senior judge of a region in which the property is located, in whole or in part, designates within that region for such claims. O. Reg. 259/14, s. 4.

[18] In the Consolidated Practice Direction for the Central South Region, it states at clause 186:

E. Mortgage Proceedings

Pursuant to r. 13.1.01(3), Brantford, Cayuga, Hamilton, Kitchener, St. Catharines, Simcoe, and Welland are designated as places where mortgage proceedings may be commenced for property located anywhere in the Central South Region.

[19] This court appreciates that this matter is not strictly a mortgage claim or proceeding, as that matter has already been dealt with by the Parry Sound court in the default judgment referred to above. However, this fraudulent conveyance application is directly linked to that mortgage proceeding, in that the Applicant is attempting to satisfy the default judgment that they previously obtained on the mortgaged property, with this property that was the subject of the transfer. Certainly, this would be characterized as a “claim relating to a mortgage”. There appears to be no logical reason for this application to be brought in Barrie. The property at issue is located in Port Dover. Further, this court is being asked to consider ordering a reference hearing, with the possibly that the court would need to supervise the sale. Given the relief being sought, to ensure a fair hearing, it is desirable in the interests of justice that this matter should properly be heard in the region where the property is located.

[20] This matter is stayed, without prejudice to the Applicant bringing this matter in the appropriate region. Having said that, however, I see it as necessary to provide some guidance to the parties as discussed below.

Issue 2: Should this be an action as opposed to an application?

[21] With respect to whether a proceeding such as this may be commenced by an application, the Fraudulent Conveyances Act, R.S.O. 1990, c. F. 29 is silent: See also Rule 14.05(2) of the Rules of Civil Procedure. However, one must keep in mind Rule 14.05(3), which sets out a number of proceedings that may be brought by application, none of which this is, and specifically (h) which states:

(h) in respect of any matter where it is unlikely that there will be any material facts in dispute.

[22] The applicable principles to be considered are set out in Przysuski v City Optical Holdings Inc., 2013 ONSC 5709, at paras. 5-10:

[5] It is a well-established general principle that an application should be used when there is no matter in dispute and when the issues to be determined do not go beyond the interpretation of a document: see Collins v. Canada (Attorney General) (2005), 2005 28533 (ON SC), 76 O.R. (3d) 228 (S.C.), at para. 28; Marten Falls First Nation v. Ontario (1994), 1994 7555 (ON SC), 31 C.P.C. (3d) 149 (Ont. C.J. (Gen. Div.)), at paras. 7, 17; Re City of Burlington v. Clairton Village (1979), 1979 2059 (ON CA), 24 O.R. (2d) 586 (C.A.), at pp. 588-90; and Re Acumen Investments Ltd. v. Williams (1985), 1985 2068 (ON SC), 53 O.R. (2d) 247 (H.C.), at p. 250. This is not an application concerning the interpretation of a document.

[6] Where the legislature has stipulated that a proceeding may be brought by application, there is a prima facie right to proceed by application and the matter should not be converted into an action without good reason: see Sekhon v. Aerocar Limousine Services Co-Operative Ltd., 2013 ONSC 542, at paras. 48-49; and College of Opticians (Ontario) v. John Doe, 2006 42599 (Ont. S.C.), at paras. 18-21.

[7] A good reason to convert an application into an action is when the judge who will hear the matter cannot make a proper determination of the issues on the application record: see Collins, at para. 29.

[8] When issues of credibility are involved the matter should proceed by way of action: see Gorden Glaves Holdings Ltd. v. Care Corp. of Canada (2000), 2000 3913 (ON CA), 48 O.R. (3d) 737 (C.A.), at para. 30; and Cunningham v. Front of Yonge (Township) (2004), 73 O.R. (3d) 721 (C.A.), at para. 20.

[9] A factual dispute simpliciter in itself is not sufficient to convert an application. The fact(s) in dispute must be material to the issues before the court: see Niagara Air Bus Inc. v. Camerman (1989), 1989 4161 (ON SC), 69 O.R. (2d) 717 (H.C.), at pp. 725-26; and BPCO Inc. v. Imperial Oil Ltd. (1993), 17 C.P.C. (3d) 130 (Ont. C.J. (Gen. Div.)), at para. 13.

[10] In determining whether to convert an application into an action, Collins sets out the following factors that are relevant at para. 5:

• Whether material facts are in dispute;

• The presence of complex issues that require expert evidence and/or a weighing of the evidence;

• Whether there is a need for pleadings and discoveries; and

• The importance and impact of the application and of the relief sought.

[23] There is fairly wide discretion given to the court in considering whether to convert an application into an action. Applications can usually be dealt with more expeditiously and with less cost than would an action, which is both in the interests of the parties as well as in the interests of the administration of justice.

[24] In order to apply the guidance provided in r. 14.05(3)(h) and Przysuski v City Optical Holdings Inc., this court must look at what it is being asked to do – which is to determine whether or not this was a fraudulent conveyance.

[25] The Fraudulent Conveyances Act, R.S.O. 1990, c. F. 29, specifically s. 2, requires this court to determine the intent of the person conveying the property. Whether that intent is to defeat, hinder, delay or defraud, it is still essential that this court determine the intent behind the conveyance.

[26] In Indcondo v. Sloan, 2014 ONSC 4018 (S.C.); affirmed 2015 ONCA 752, [2015] O.J. No. 5768 (C.A.), Justice Penny analyzed the test required for establishing a fraudulent conveyance, including the requisite intent. The court stated in part:

[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.

[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…

[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.

[52] The badges of fraud derive from Twyne's Case (1601) 76 E.R. 809. As interpreted by modern courts, the badges of fraud include:

(d) the donor continued in possession and continued to use the property as his own;

(e) the transaction was secret;

(f) the transfer was made in the face of threatened legal proceedings;

(g) the transfer documents contained false statements as to consideration;

(h) the consideration is grossly inadequate;

(i) there is unusual haste in making the transfer;

(j) some benefit is retained under the settlement by the settlor;

(k) embarking on a hazardous venture; and

(l) a close relationship exists between parties to the conveyance.

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

[56] The transfer of property to a person in a close relationship is, of course, itself a badge of fraud. In such cases the testimony of the parties as to their subjective intent must be scrutinized with care and suspicion; it is very seldom that such evidence can be safely acted upon as in itself sufficient. In cases involving a transfer to near relatives, as matter of prudence the court should most often require corroborative evidence of the bona fides of the transaction.

[57] At the end of the day, however, the court must act on such a preponderance of evidence as to show whether the conclusion the plaintiff seeks to establish is substantially the most probable of the possible views of the facts; mere suspicion is not sufficient, Clarke v. The King (1921), 1921 603 (SCC), 61 S.C.R. 608 at 616.

[58] This raises the question of the standard of proof in fraudulent conveyance actions. …

[59] The Supreme Court of Canada in C. (R.) v. McDougall, 2008 SCC 53, [2008] 3 S.C.R. 41 put this issue to rest. That case involved a civil action for damages for sexual assault. Although some cases involve more serious consequences by the nature of the allegations made in them, the seriousness of the allegations does not alter the standard of proof in civil cases. The majority held that there is only one standard of proof in all civil cases and that standard is 'proof on a balance of probabilities.'

[27] Mr. and Mrs. Bazinet have both filed affidavits and have been examined on September 11, 2019 in preparation for this application.

[28] In summary, Mr. and Mrs. Bazinet take the position that the transfer of the Port Dover property occurred because of personal difficulties they were having in their life, and that it had nothing to do with the litigation in relation to the South Porcupine property. Mr. Bazinet claims that, in mid 2015, he ran into serious personal problems and was in and out of hospital several times. He twice went into rehab facilities to try to deal with his problems abusing alcohol and being addicted to opioids, including an extended stay at Homewood Health in Guelph. He suffered from depression and anxiety and was often suicidal. He claims that these issues took a serious toll on his marriage, and that, in February 2016, his wife asked him to transfer the Port Dover home to her. Given the instability of Mr. Bazinet, they both felt that this was the prudent thing to do. They claim that in February 2016, they contacted a law firm to arrange to get the transfer accomplished. The draft transfer was prepared on March 21, 2016. The transfer was registered on May 5, 2016. Mr. Bazinet takes the position that his wife did not receive this house without consideration, but that in fact, she assumed the credit union debt that came with the property which was in the amount of $379,772.00. Mr. and Mrs. Bazinet take the position that there was no intent to defeat, hinder, delay or defraud creditors.

[29] Liahona takes the position that even if the Bazinets took the steps to transfer the property in February 2016, they did this in the face of knowing that they were in default on the mortgage for the South Porcupine property, and the actual transfer of the property occurred only 13 days after Mr. Bazinet was served with the statement of claim. Liahona takes the position that badges of fraud are clear in this transaction, including the fact that there was no good consideration. Further, they take the position that the intent is clear from the words of Mr. Bazinet in his affidavit wherein he states, “I wanted Karen to have the benefit of what little equity existed in our matrimonial home”. They state that what he is really saying is that he wanted his wife to have this, as opposed to Liahona.

[30] It is the view of this court that there are material facts in dispute. The material fact in dispute in this case is also the crucial determination to be made in this case – what was the intent of Peter Bazinet and Karen Bazinet in transferring this property. As suggested in Indcondo, the subjective intent of Peter and Karen Bazinet must be scrutinized with care. This means that there must be a credibility determination. When issues of credibility are involved the matter should proceed by way of action. In addition, both parties have urged the court to consider the significant consequences that will result from any judgment the court will make, specifically, Mr. and Mrs. Bazinet will lose their home, or creditors, more broadly, will be impacted in their ability to recover. The potential consequences and impact suggest that this should be an action as opposed to an application.

[31] This application should be converted to an action.

Other Issues

[32] This court has not made any determination on the limitation period. The parties will be permitted to raise this in the appropriate jurisdiction.

[33] As to the validity of the default judgment, there has been no attempt to set the default judgment aside, therefore, this court has no ability to question its validity.

[34] With respect to whether this is a fraudulent conveyance and, if so, whether a reference should be ordered, this is left for the court in the appropriate jurisdiction.

[35] If the parties are unable to agree as to costs of this application, the court will accept written submissions on costs, which shall be no more than three pages in length, excluding supporting documentation, and which shall be provided to the court office in hard copy or by email no later than December 3, 2019.

Justice V. Christie

Released: November 28, 2019