ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
ISHVER LAD and SUMITRA LAD
Allison Speigel & Dora Konomi, allison@ontlaw.com, for the Plaintiffs
Plaintiffs
- and -
MANNY MARCOS also known as MANUEL MARCOS also known as MANUEL MARTINS MARCOS also known as MANNY MARTINS MARCOS also known as MANUEL M. MARCOS, JOE MARCOS also known as JOE LUIS MARCOS also known as JOSE LUIS MARCOS also known as JOSE MARCOS, ARLETE SUSANA MARCOS, CATARINA ARRUDA MARCOS and MARCOS LIMITED BUILDING DESIGN CONSULTANTS
Defendants
Ted Evangelidis, tevangelidis@pallettvalo.com, for the Defendants, Joe Marcos, also known as Joe Luis Marcos also known as Jose Luis Marcos also known as Jose Marcos, Arlete Susana Marcos and Catarina Arruda Marcos
Gregory Hemsworth (not appearing), ghemsworth@csllp.ca, for the Defendants, Manny Marcos, also known as Manuel Marcos also known as Manuel Martins Marcos also known as Manny Martins Marcos also known as Manuel M. Marcos, Marcos Limited Building Design Consultants noted in default
HEARD: June 29, 2020 at Brampton
REASONS FOR JUDGMENT
Trimble J.
THE MOTION
1Joe Marcos, Arlete Marcos and Catarina Marcos, and separately, Manny Marcos, seek an order striking out the Plaintiffs' claims for declaratory relief set out in paragraphs 1(a) and (b) of the Fresh as Amended Statement of Claim issued June I0, 2019, together with the consequential and ancillary relief set out in paragraphs 1(c) - (f), without leave to amend. The effect of this relief, if granted, would end the Plaintiffs’ claim.
2The corporate defendant has been noted in default.
3In the alternative, the Defendants seek a determination under Rule 21.01(1)(a) that the Plaintiffs cannot seek and are not entitled to the declaratory relief sought in paragraphs 1(a) and (b) of the Fresh as Amended Statement of Claim, and therefore are not entitled to the ancillary and consequential relief arising therefrom sought in paragraphs 1 (c) - (f).
4The Plaintiffs have brought a counter motion for an order for a Discovery Plan, which the Defence has resisted pending this motion.
5The Defendant, Manny Marcos, did not appear although he filed a factum and motion record that parroted that filed by the Defendants.
6I have largely ignored the material filed by Manny Marcos. Mr. Hemsworth filed no confirmation of motion confirming whether he would attend the hearing nor how long he would need for submissions. This mirrors his failure to respond to requests made of him as how long he might need for the motion when the issue was addressed before Miller, J., on 4 June, although he is shown as being present before Miller, J. His factum added nothing substantive. The only import of the material Manny filed was to bind him to any order made.
7Paragraph 1 of the Lads’ Statement of Claim reads:
- The plaintiffs, lshver Lad and Sumitra Lad (collectively, the "Lads"), claim against the defendants, Manny Marcos also known as Manuel Marcos also known as Manuel Martins Marcos also known as Manny Martins Marcos also known as Manuel M. Marcos ("Manny"), Joe Marcos also known as Joe Luis Marcos also known as Jose Luis Marcos also known as Jose Marcos ("Joe"), Catarina Arruda Marcos ("Catarina"), Arlete Susana Marcos ("Arlete") and Marcos Limited Building Design Consultants ("Marcos"), as follows:
a) Declarations as follows:
Nashville Property
i) Catarina holds the property (the "Nashville Property") municipally known as 16 Nashville Avenue, Toronto, Ontario and legally described below, in trust for Marcos or Manny or both by virtue of an express trust, resulting trust, or constructive trust.
Lot 532-533, Plan 2008, City of Toronto [Property Identifier Number: 10499-0249 (LT)]
ii) Catarina depleted $660,000 in equity in the Nashville Property.
Line Property.
iii) Catarina holds at least 50% of the property (the "Line Property") municipally known as 714513 pt Line EHS, RR1, Mono, Ontario and legally described below, in trust for Manny or Marcos or both by virtue of an express trust, resulting trust, or constructive trust (and in connection with a tracing remedy).
Part of Lot 19, Concession 2 EHS Designated as Part 2, Reference Plan 7R2682 Town of Mono, County of Dufferin. [Property Identifier Number: 34099-0065 (LT)]
iv) The proceeds from the 2001 Nashville Mortgage (defined below) that was granted by Marcos Development Inc. ("MDI") and registered against the Nashville Property in the amount of $70,000.00 funded, in part, Catarina's purchase of the Line Property.
Horseshoe Property
v) Arlete holds at least 50% of the property (the "Horseshoe Property") municipally known as 19129 Horseshoe Hill Road, Caledon, Ontario and legally described below, in trust for Joe or Marcos or both by virtue of an
express trust, resulting trust, or constructive trust.
The Payments
Part of Lot 19, Concession 4 EHS Caledon as in VS311500 Save and Except Parts 1, 2, & 3 Reference Plan 43R29950 Town of Caledon, Regional Municipality of Peel [Property Identifier Number: 14285-0210 (LT)]
vi) Manny is holding at least $173,322.59 (the "Manny Funds") in trust for Marcos by virtue of an express trust, resulting trust, or constructive trust.
vii) Joe is holding at least $103,200.00 (the "Joe Funds") in trust for Marcos by virtue of an express trust, resulting trust, or constructive trust.
viii) Catarina is holding at least $71,859.48 (the "Catarina Funds") in trust for Marcos by virtue of an express trust, resulting trust, or constructive trust.
b) In the alternative to any subparagraph of paragraph l(a), declarations as follows:
Nashville Property
i) The transfer (the "Nashville Transfer") of the Nashville Property pursuant to which Catarina became the sold registered owner of the Nashville Property is fraudulent and void.
Line Property
ii) The transfer (the "Line Transfer") of the Line Property pursuant to which Catarina became the sole registered owner of the Line Property is fraudulent and void.
Horseshoe Property
iii) The transfer (the "First Horseshoe Transfer") of the Horseshoe Property pursuant to which Arlete became the sole registered owner of the Horseshoe Property is fraudulent and void.
iv) The transfer (the "Second Horseshoe Transfer") of the Horseshoe Property pursuant to which Joe transferred his 50% interest in the Horseshoe Property to Arlete is fraudulent and void.
The Payments
v) The transfer of the Joe Funds from Marcos to Joe is fraudulent and void.
vi) The transfer of the Manny Funds from Marcos to Manny is fraudulent and void.
vii) The transfer of the Catarina Funds from Marcos to Catarina is fraudulent and void.
c) An order:
Nashville Property
i) transferring the registered ownership of the Nashville Property to Marcos or Manny or both.
ii) requiring Catarina to execute any and all documents necessary to effect the transfer set out above.
iii) directing the Land Registrar to enter Marcos or Manny or both (in the percentage that the court deems proper) as owners of the Nashville Property upon registration in the Land Titles Division of the Toronto Registry Office (No. 66) of an "application to amend based on court order" in a form prescribed by the Land Titles Act or the Land Registration Reform Act.
Line Property
iv) transferring at least 50% of the registered ownership to Manny or Marcos or both.
v) requiring Catarina to execute any and all documents necessary to effect the transfer set out above.
vi) directing the Land Registrar to enter Manny or Marcos or both (in the percentage that the court deems proper) as owners of the Line Property upon registration in Land Registry Office for the Land Titles Division of Dufferin (No. 7) of an 11application to amend based on court order" in a form prescribed by the Land Titles Act or the Land Registration Reform Act.
Horseshoe Property
vii) transferring at least 50% of the registered ownership to the Horseshoe Property to Joe or Marcos or both.
viii) requiring Arlete to execute any and all documents necessary to effect the transfer set out above.
ix) directing the Land Registrar to enter Joe or Marcos or both (in the percentage that the court deems proper) as owners of the Horseshoe Property upon the registration in Land Registry Office for the Land Titles Division of Peel (No. 43) of an "application to amend based on court order" in a form prescribed by the Land Titles Act or the Land Registration Reform Act.
d) A declaration that:
i) Joe and Manny (the "Brothers") and Catarina were in knowing receipt of fraudulently obtained funds.
ii) Catarina knowingly assisted the Brothers in intercepting money otherwise due to Marcos.
iii) the Brothers' breaches of trust resulted in debts or liabilities arising out of fraud, embezzlement, misappropriation or defalcation while acting in a fiduciary capacity.
iv) the Brothers and Catarina conspired to act in a manner that was oppressive or unfairly prejudicial to the Lads or unfairly disregarded their interests.
v) the Brothers and Catarina are liable to pay Marcos' debt to the Lads in full or in part.
vi) the Brothers and Catarina are not released from their debts or liabilities to the Lads or Marcos or both if they become bankrupt and then obtain an order of discharge under the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B.3.
e) The issuance of a certificate of pending litigation against title to the Nashville Property, the Line Property, and the Horseshoe Property.
f) As against all parties:
i) punitive damages of $40,000.00;
ii) pre-judgment interest on all damages in accordance with the Courts of Justice Act;
iii) their costs of this action; and
iv) any further relief this Honourable Court deems just.
FACTS
1. The Judgment
8In 2011, Marcos Limited Building Design Consultants sued the Lads claiming damages of $523,068.00 in connection with the construction of the Lads’ house. They registered a lien. Manny Marcos and Joe Marcos1, brothers and principals of Marcos Limited were not Plaintiffs, nor were their spouses, Arlete and Catarina. The Lads counterclaimed for, amongst other things, damages for Marcos' deficient work.
9In her Reasons for decision of 29 May 2018 Seppi J, dismissed the Marcos Limited’s action in its entirety, discharged its lien, and awarded the Lads judgement against Marcos Limited on their counterclaim for $71,177.28 on account of Marcos Limited’s deficient work.
10In her Reasons, Seppi, J. harshly criticized Marcos Limited and Manny (and, to a lesser degree, Joe). She found that the Marcos’ claim was a fraud. He held that Manny, in particular, was a fraud, having altered documents such as invoices, to insert false dates, to replace pages of documents, and to prepare backdated invoices to create a false paper trail for court after the dispute arose. She said: "The extent and degree of lies and false documentation from [Manny] … is exceptionally egregious …."
11On 3 October 2018, Seppi, J. ordered Marcos Limited and Manny (a non-party) to pay the Lads their full indemnity costs fixed at $578,793 on a joint and several basis citing Manny’s reprehensible and dishonest conduct in advancing the fraudulent claim. She concluded that when the fair, honest and functional administration of justice is overtly and deliberately thwarted by a litigant, full indemnity costs is the appropriate sanction.
12The Lads also sought costs from Joe Marcos based on the fact that Manny and Joe were equal partners in the action and in the egregious conduct throughout the action. Seppi, J., rejected this argument, holding that the fraud and gross misconduct on the part of the non-party “must relate to conduct during the litigation for the costs to be awarded against the non-party.” She held that Joe’s involvement in this action was not nearly to the same degree as Manny’s misconduct in the litigation. Seppi, J. commented that although there was evidence of dishonesty on the part of Joe as it relates to his taxes and financial dealings, there was none with respect to dishonesty in pursuit of the claim against the Lads. On the evidence, it was Manny who orchestrated the scheme to deceive the Court. Joe, however, as an operator and principal of Marcos Limited as not merely a witness. Therefore, the unsuccessful claim against him for costs reasonably advanced.
13On 2 October 2018, judgment was signed dismissing Marcos Limited’s action, discharging the Lien, and ordering that (a) Marcos Limited pay the Lads $71,177 and (b) Marcos Limited and Manny pay the Lads’ costs of $578,793, on a joint and several basis.
2. Attempts to Enforce
14Manny (but not Marcos Limited) brought a motion for leave to appeal the costs portion of the Judgment. The Leave Motion was twice struck from the list because Manny failed to perfect his motion. It was to be heard on July 29, 2020. The status of that proceeding is unclear.
15Writs have been filed. It appears that neither judgment debtor has easily eligible assets.
16In 2019, the Lads commenced this action to collect on the Judgment.
17Catarina is Manny’s spouse.
18Marcos Development Inc. (“MDI”) purchased 6 Nashville Avenue. on April 20, 1998 for $125,000. On February 16, 2004 Catarina purchased the Property from MDI for $395,000.00. Title to the Property is held by Catarina in trust for herself and Joe, pursuant to an express trust. The Trust Agreement specifies that the Property is beneficially owned by Catarina and Joe, each having a 50% interest as tenants in common.
19In their statement of Defence, the Defendants take issue with the Lads’ allegation in paragraph 34 of the Statement of Claim, namely that Manny and Marcos Limited used the Nashville Property as an office save and except for approximately one year following February 16, 2004.
20I ignored this statement as I am bound to accept the facts as the Lads plead them.
21The Lads argue that Catarina holds the Nashville property in trust for Marcos Limited and Manny. In the alternative, the Lads claim that the transfer from Marcos Limited to Catarina is fraudulent and void.
22On March 14, 2001, Catarina became the registered owner of 714513 1st Line EHS. She and Manny live there. Manny’s only interest, says Manny, is his interest as a spouse under the Family Law Act.
23The Lads argue that Catarina holds 50% of that property in trust for Marcos and Manny. In the alternative, the Lads argue that the transfer pursuant to which Catarina became the registered owner is fraudulent and void.
24Arlete is Joe’s spouse.
25Arlete is the registered owner of 9129 Horseshoe Hill Road. Arlete and Joe live there. Joe says that his interest in the home is as a spouse under the Family Law Act.
26The Lads argue that she holds the Horseshoe Property in trust for Marcos and Joe. In the alternative, transfers pursuant to which Arlete became the registered owner are fraudulent and void.
27The Lads also argue that Marcos Limited transferred funds to Manny, Joe, and Catarina, to which they were not entitled, and which were fraudulent transfers, and are therefore void. Further, the Lads allege that Manny, Joe, and Catarina conspired to act in a manner that was oppressive to the Lads by arranging their assets in a way to permit them to improperly divert funds rightfully due to Marcos Limited to themselves when they had no right to these funds. The funds were used to purchase properties. The purpose of this scheme was do defeat the valid claims of creditors such as the Lads.
28Marcos Limited did not defend this Action and was noted in default on November 29, 2019.
THE ISSUES
29The Defendants seek both the declaration that the relief set out in paragraphs 1(a) and (b) of the Fresh as Amended Statement of Claim be struck out and, in the alternative, a determination under rule 21.01 that the relief sought in paragraph 1(a) and (b) of the Fresh as Amended Statement of Claim cannot be pursued.
30All parties acknowledge that if the Defendants are successful, the action will have to be dismissed.
POSITIONS OF THE PARTIES
31The Defendants say that the Lads do not plead a sustainable cause of action. They claim that if this Fresh as Amended Statement of Claim is permitted to stand on these facts, it will eviscerate legal creditor protection plans that businesses, and individuals involved in business, have used for decades. It will threaten the use of holding companies and the entire regime of legitimate financial planning involving isolating assets which may be seized by a judgment creditor.
32In addition, they argue that Catarina and Arlene were never parties to the initial action from which the judgment arises nor were they witnesses. Joe was a witness but not a party. Seppi, J., specifically refused to hold Joe liable for the costs order. The plaintiffs, as judgment creditors, are trying to hold 3 people liable, one, whose liability was dismissed, and the other 2, against whom liability was never sought.
33The Defendants claim, further, that if the Lads have viable causes of action, they have not pleaded them correctly. The action is an abuse, and if it is found wanting in any way, no leave should be given to amend the Fresh as Amended Statement of Claim.
34The Lads argue that the Defendants, as a group, created a complex system designed to defraud innocent parties such as the plaintiff’s by removing money from the corporation and paying it to themselves when they were not entitled to such payments, and using such payments to purchase land and other assets in their spouses’ names, thereby isolating assets from seizure by judgment creditors.
35The Lads say that they have advanced arguable causes of action, and properly supported them with allegations in the pleading. The Defendants have not met their high onus to show that it is plain and obvious that the claims cannot succeed.
RESULT
36For the reasons that follow, the motion is dismissed. In reaching this result, I make no comment of the viability of the causes of action either as pleaded, or as determined on a full record, or with respect to the eloquence with which they are pleaded. I merely hold a) that it is not plain and obvious that the causes of action have no merit, and b) they are properly pleaded.
ANALYSIS
1. The Grounds for the Motion
37The Defendants do not state clearly the basis on which their motion is brought. In paragraph (a) of their prayer for relief, they seek a declaration without stating the statutory, regulatory, or Rule basis for this relief. Under paragraph (b) of the prayer for relief, they seek “…a determination under Rule 21.01(1)(a) that the Plaintiffs cannot seek and are not entitled to the declaratory relief sought in paragraphs 1(a) and 1(b) of the Fresh as Amended Statement of Claim (and thereby are not entitle to the ancillary and consequential relief arising therefrom sought in paragraphs 1(c) to (f))…”
38I interpret the Notice of Motion to seek relief under Rule 21.01(1)(a).
39Rule 21.01(2)(a) provides that no evidence is permitted under sub-rule 1(a) except with leave. Both parties provided evidence. Neither sought leave, nor objected to the other’s evidence. Leave to submit evidence is granted.
2. Legal Principles
40The following legal principles apply to motions under Rule 21.01(1)(a):
Under both branches of Rule 21.01(1), a pleading will only be struck if it is "plain and obvious" that the claim is certain to fail because it contains a radical defect. A claim must be permitted to proceed to trial if there is even a faint chance of success.(see: MacDonald v. Ontario Hydro (1994), 19 O.R.(3d) 528 (Gen. Div.), at para. 11; 2130679 Ontario Inc. v. Cora Franchise Group Inc., 2013 CarswellOnt 6960 (SCJ) at para. 8; O'Farrell v. Canada (Attorney General), 2016 ONSC 6342, at para. 36).
A court will only strike a claim without leave to amend if the radical defect is incapable of being cured by an amendment (see: Indal Metals v. Jordan Construction Management Inc., 1994 CarswellOnt 556 (OCJ), at para. 13). The onus is on the moving party to establish this.
The Court must read the pleadings generously, providing reasonable allowances for any inadequacies due to drafting deficiencies. (see: O'Farrell, supra, at para 32). The reading of the pleading, however, must not be tortured.
A party may not adduce evidence on a motion under 21.01(1)(a) (except with leave of the Court or consent of the parties) or Rule 21.01(1)(b) at all. The Court may, however, rely on any documents referred to in the pleadings (see: Rule 21.0(2)(a) and Rule 21.0(2)(b); Cora Franchise, supra, at para. 8 dealing with both branches of Rule 21). Accordingly, the Court may rely on the Reasons, the Costs Reasons, the Judgment, and any other document referred to in them or in the Fresh as Amended Statement of Claim.
The Court must accept the facts alleged in the responding party’s pleading (in this case, the Fresh as Amended Statement of Claim) as true unless they are patently ridiculous or incapable of proof (see: CC&L Dedicated Enterprise Fund (Trustee of) v. Fisherman, 2001 CarswellOnt 500 (SCJ) at para. 10; Cora Franchise, supra, at para. 8; Web Offset Publications Limited v. Vickery (1999), 1999 CanLII 4462 (ON CA), 43 O.R. (3d) 802, (ONCA) at para. 5, Gronka v. Canadian Surety Co., 1991 CarswellOnt 981 (Gen. Div.) at para. 6).
Matters of law which have not been settled fully should not be disposed of on a motion under Rule 21.01(1) (see: Falloncrest Financial Corp. v. Ontario, 1995 CanLII 2934 (ON CA), 1995 CarswellOnt 910 (ONCA), at para. 11; Folland v. Ontario, 2003 CanLII 52139 (ON CA), [2003] O.J. No. 1048 (ONCA), at para. 11, leave to appeal refused 2003 CarswellOnt 3811 (SCC); Succar v. Wawanesa Mutual Insurance Co, 2006 CarswellOnt 7266 (SCJ), at para. 9; Rhone-Poulenc Canada Inc. v. Reichhold, 1998 O.J. No. 2531 (OCJ), at para. 15). Therefore, the motion must fail if the cause of action is novel or if there is disagreement on the law in the jurisprudence.
41What follows is my analysis of the claims the Lads advance.
3. Express Trust Claims
The Claim
42With respect to each of the Nashville, Line and Horseshoe Properties, the Plaintiffs allege in para. 1a) that the properties are held in trust for the judgment debtors Marcos or Manny, or for Marcos or Joe, by virtue of an express trust.
The Positions of the Parties
43The Defendants argue that tor a trust to come into existence, it must have three certainties: certainty of intention, certainty of subject matter, and certainty of objects. If any one or more of these are lacking, the trust fails to come into existence or is void (see: Waters’ Law of Trusts in Canada, 4th ed., 5.I).
44With respect to certainty of intention, the court must be satisfied that the settlor, by conduct, word, or a trust agreement, intended to create a trust by intending that the trustee be required to hold the trust property for the benefit of the beneficiary. A trust will only exist where the trustee is obliged to deal with the property on the beneficiary’s behalf. If the purported trustee is permitted, but not required, to deal with the property for the benefit of the beneficiary, then a trust relationship does not exist. (see: Rubner v. Bistricer, 2019 ONCA 733 at para 52).
45The Defendants also argue that for trusts that pertain to land, sections 9 to 11 of the Statute of Frauds require that the trusts be in writing. There is no allegation of a written trust agreement concerning the properties between the Moving Parties and Manny or Marcos.
46With respect to certainty of subject matter, there must be certainty as to the trust property and the shares in which beneficiaries are each to take. The trust property must either be clearly described in the trust instrument or must be clearly calculatable or identifiable by objective standards (see: Waters’ Law of Trusts in Canada, 4th ed., 5.III).
47The Defendants argue that the Lads plead that Arlete and Catarina lacked sufficient funds to make the purchases but have not stated or plead with any specificity what amount was contributed by the judgment debtors and therefore, what amounts Marcos, Joe, or Manny would have intended are held in trust for them by each of Arlete and Catarina.
48Finally, with respect to certainty of objects the court must be satisfied that there is sufficient description of the purpose of the trust that it can be executed (see: Waters’ Law of Trusts in Canada, 4th ed., 5.I) The Defendants say that fact that Lads allege the properties in question are to be held in trust for either of two persons, expressly, shows that there is a lack of certainty of objects. The Lads state, with respect to the Nashville Property, that Catarina holds that property in trust for Marcos or Manny or both. As Marcos is a separate entity, this is unclear.
49Additionally, the lack of evidence of one of the certainties can reinforce the conclusion that another certainty is not established (see: Angus v. Port Hope (Municipality), 2017 ONCA 566 at para 121).
50The Defendants say that the Express Trust claim must fail.
51The Plaintiffs do not take issue with respect to the Defendants’ statement of the law but adds that an express trust may be created by agreement between the parties (see: LPIC v. Clarke, 2015 ONSC 2643, para. 43. They say, however, that they have properly pleaded express trust, as far as they can.
The Law
52I accept the law as stated by the parties.
Result
53This aspect of the motion is dismissed.
Analysis:
54The Defendants allege four deficiencies in the claim regarding express trust:
a. the Plaintiffs have not pleaded the elements of an express trust,
b. they have not pleaded the facts that support the cause of action,
c. the trust, concerning real estate, is not reduced to writing, and
d. the Plaintiffs have not pleaded the amount that the judgment debtor contributed to the purchase of the three properties, and hence the trust property is not certain.
e. The certainty of objects is not present as the Plaintiffs plead that Catarina and/or Arlete hold the property in trust for Manny and/or Marcos Limited.
55I disagree.
56First, while it is always better to have a pleading that is well organized, full and complete, and sets out the claim in detail, both in fact and law, the law does not require a party to plead the constituent elements of a cause of action, merely the facts that support it (see: Domain Consulting Group Inc. v. Jouaneh, 2011 ONSC 5095 at para. 3).
57In this case, I am satisfied, on a broad (but not tortured) reading of the pleading, that the Plaintiffs have pleaded sufficient facts. If there are deficiencies in the facts, those deficiencies appear to arise because of evidence not within the Plaintiffs’ knowledge or possession.
58With respect to the defence that the trust agreement must be in writing, this is a defence which is not pleaded, and therefore, cannot be the subject of this motion (see: Williams v. Copperfields Hotels Ltd., 1996 CarswellOnt 1029 (ONCA) at para. 2; Severin v. Vroom, 1977 CarswellOnt 207 (ONCA) at 4 and 7).
59The Plaintiffs also raise the fact that the equitable doctrine of part performance of an agreement involving land is and exception to the requirement that the agreement be in writing. Given my finding above, I do not need to consider this argument. However, the Plaintiffs have leave to amend the claim as set out in para. 47 of their factum.
60Finally, there is the issue that the alleged pleading lacked certainty of object because the Amended Statement of Claim pleads that Catarina and/or Arlete held the properties in trust for Manny and/or Marcos Limited. This is of no moment for three reasons: 1) trusts often leave discretion in the trustee to make payments to some but not all beneficiaries, 2) pleading is permitted in the alternative, and 3) it appears that the Plaintiffs cannot plead with greater specificity at this time.
4. Resulting Trust
The Claim:
61With respect to each of the Nashville, Line and Horseshoe Properties, the Lads allege in para. 1a) that the properties are held in trust for Marcos or Manny, or for Marcos or Joe, by virtue of a resulting trust.
Positions of the Parties:
62The Defendants say that the Plaintiffs claim for a resulting trust is based on Joe and/or Manny’s status as spouses and the presumption of a resulting trust found in s. 14 of the Family Law Act. This is so because the Lads cannot prove that the Marcoses contributed funds received from the Lads to the properties since the properties were acquired by their current owners long before the Lads became involved with Marcos Limited, Manny, or Joe, and neither of Manny or Marcos Limited are claiming a trust interest in the properties.
63The Defendants argue that s. 14 is not available to strangers to the marriage, especially a creditor who wishes to execute against one of the spouses. They rely on Vandokkumberg v. H. Meyer Construction Ltd., 2007 BCSC 1341.
64The Lads argue that they have status to advance the resulting trust claim, or at least the issue is novel or in dispute and should be allowed to continue.
Result
65The Motion is dismissed in this respect.
Analysis
66In Vandokkumberg v. H. Meyer Construction Ltd., 2007 BCSC 1341, on which the Defendants principally rely, the Plaintiff obtained judgment against the defendant in a summary trial but could not collected on the judgment. The Plaintiff amended his enforcement action and brought a motion for summary judgment or a declaration concerning title to the matrimonial home occupied by the judgment debtor and his wife. The plaintiff argued that, as a judgment creditor, it was entitled to assert a beneficial interest in the matrimonial home on behalf of Mr. Meyer against the legal ownership of Mrs. Meyer by reason of an alleged resulting trust.
67The issue appears to have been one of first impression, the learned summary judgment judge having distinguished the two English and two B.C. cases proffered by the Plaintiff. He held at para. 22(5):
While proceedings between the defendants under the Family Relations Act or the Divorce Act in the event of their separation could possibly result in a determination that as between them Mr. Meyer may have some share of matrimonial property, it would in my view be contrary to public policy to allow an execution creditor to stand in the shoes of a judgment debtor to trigger that determination in the absence of an established fraudulent conveyance or preference of that property.
68This case is of marginal assistance. It is unclear what sections of the Family Relations Act were in issue. It does not appear that the B.C. legislation contains an equivalent to s. 14 of the Family Law Act.
69The Defendants also rely on Avan v. Benarroch, 2017 ONSC 4729 at para 23 where the Court held that if the husband was successful in his claim for a constructive or resulting trust over two properties the other litigant owned, then that interest was subject to execution by the Plaintiff, one of the husband’s judgment creditors. The Defendants argue that by saying this, the court acknowledged that the judgment creditor had no independent right to access the interest of the judgment debtor in the lands as the judgment creditor was a stranger to the marriage.
70I disagree.
71In that case, the Plaintiff sought a CPL on properties owned by the Defendant’s wife, purchased with money the Plaintiff loaned to the Defendant. Therefore, the issue was whether there was a triable issue that the Plaintiff/judgment creditor had an interest in the lands. The spouses were in the middle of an acrimonious divorce. The Plaintiff had judgment against the Defendant. The wife/owner of the land agreed that the Plaintiff had loaned the Defendant the money that was used to buy the home. The learned Master held:
I note further the case of West v. West 1997 CarswellOnt 1670 which held at paragraph 18 that where a claim alleges a beneficial interest in land, that allegation constitutes a sufficient interest to support the issuance of a certificate of pending litigation. Similarly, a claim based on the doctrine of constructive trust in respect of property, including the right to trace funds, may give rise to an interest in land (Roseglen Village for Seniors Inc. v. Doble 2010 ONSC 3239, affirmed 2010 ONSC 4680; HarbourEdge Mortgage Investment Corporation v. Community Trust Co. 2016 ONSC 488).
72The action did not resolve the issue of whether the judgment creditor had independent status to access the value of land held by the spouse allegedly held in trust for the judgment debtor.
73Ontario cases suggest that a judgment creditor at least has standing to move for a declaration of a trust interest to the benefit of the judgment debtor, and to challenge a transfer from the debtor to his spouse as being a fraudulent conveyance ( see: Cambone v. Okoakih, 2016 ONSC 792, at paras. 2, 172, 173, 176 and 211-213; LPIC v. Clark, supra, at para. 42-43).
74At minimum, this issue is not yet determined in Ontario. Pleadings based on novel or uncertain legal principles should not be struck.
5. Constructive Trust Claims
The Claim
75With respect to each of the Nashville, Line and Horseshoe Properties, the Plaintiffs allege in para. 1a) that the properties are held in trust for the judgment debtors Marcos or Manny, or for Marcos or Joe, by virtue of a constructive trust.
The Positions of the Parties
76The Defendants advance two positions.
77First, they argue that judgment creditors have no status to advance a constructive trust claim for the same reasons that they have not status to advance a resulting trust claim.
78Second, they argue, based on Moore v. Sweet, 2018 SCC, that the Lads have no right of action, having not pleaded unjust enrichment, which gives rise to a possible remedy of constructive trust.
Result
79The motion is dismissed in this respect.
Analysis
80I have already addressed the issue of the Lads’ standing to bring a trust claim.
81Moore v. Sweet does not assist the Defendants.
82In that case, during the marriage, Moore’s husband purchased a term life insurance policy and designated Moore as revocable beneficiary. They separated, and agreed orally, that Moore would pay the policy premiums. In exchange, the husband would maintain Moore as the beneficiary. Without telling Moore, the husband designated his new common law spouse as the irrevocable beneficiary of the policy. When the husband died, the policy’s proceeds were paid to the husband’s common law spouse. There were no other assets in the estate. Moore, who had paid about $7,000 in policy premiums since separation, brought an application claiming entitlement to the $250,000 policy proceeds.
83The application judge held that the common law spouse had been unjustly enriched at Moore’s expense and impressed the proceeds with a constructive trust in Moore’s favour. The Court of Appeal allowed the common law wife’s appeal and set aside the judgment of the application judge.
84The Supreme Court of Canada allowed the appeal, confirming the law that a constructive trust is an equitable remedy imposed in the court’s discretion, where the plaintiff has succeeded in showing (1) that the defendant was enriched; (2) that the plaintiff suffered a corresponding deprivation; and (3) that the defendant’s enrichment and the plaintiff’s corresponding deprivation occurred in the absence of a juristic reason. Further, the plaintiff must show that a monetary remedy would not be sufficient.
85The Defendants in this claim that none of them owed a duty of loyalty to the Lads, nor was there any allegation of wrongful conduct in the form of fraud. Further, there is no allegation of unjust enrichment between the moving parties and the Lads. Therefore, the Lads cannot succeed in their constructive trust claim.
86I agree with the Lads that the Defendants have mischaracterized the nature of Lads’ claim in this aspect. The Lads do not claim that Catarina and/or Arlete were enriched at the Lads’ expense. Rather, the Lads, as creditors of Marcos Limited and Manny, argue that Catarina and/or Arlete were unjustly enriched at Marcos Limited and Manny’s expense, and hold property in trust for Manny and/or Marcos.
87I find that it is at least arguable that the Lads’ Fresh as Amended Statement of Claim raises a tenable plea with respect to constructive trust. It is not plain and obvious that it is bound to fail. The Defendants really argue the merits of the claim.
6. Fraudulent Conveyance
The Claim
88The Plaintiffs seek to set aside the transfers from Marcos Limited and/or Manny to the Defendants of the Nashville Property, Line Property and Horseshoe Property as fraudulent conveyances.
The Positions of the Parties
89The Defendants argue that there is no basis to attack the three transfers of real estate that the Lads seek to attack for the following reasons:
a. The property transfers were completed years before the Lads became judgment creditors. In other words, there could have been no transfer with the specific intent to defeat the Lads’ interest.
b. There were no unpaid creditors at the time of any of the transfers, other than the Canada Revenue Agency (which the Plaintiffs plead via an answer to a demand for particulars but the Defendants dispute), and the CRA is not a party to these proceedings.
c. There were no badges of fraud in the transactions.
90The Lads say that the badges of fraud are present, that they have standing, and that there was an unpaid creditor at the time that the Lads became creditors to Marcos Limited and Manny. Further, they say that their claim is unique. They claim not that the transfers should be set aside because they are fraudulent attempts to defeat their claim; rather, the transfers should be set aside because they are fraudulent in that they were part of a business plan by Manny and/or Joe and/or Marcos Limited to defraud creditors generally, not just the Lads.
The Law
91The following propositions apply:
a. Section 2 of the Fraudulent Conveyances Act provides that "[e]very conveyance of real property or personal property … made with intent to defeat, hinder, delay or defraud creditors or others of their just and lawful actions, suits, debts, … [and] damages … are void as against such persons ... and their assigns."
b. The FCA is remedial in nature and is to be given broad interpretation (see: Bearsfield Developments Inc. v. McNabb, 2016 ONSC 6294 at paras. 11 and 12; Cambone, supra at paras. 166 and 16).
c. In order to void a transfer under section 2, there must be a ‘conveyance’ of property, an ‘intent’ to defeat, and a ‘creditor or other’ towards whom that intent is directed.”(see: Bearsfield, supra, at para. 8; EnerWorks Inc. v. Glenbarra Energy Solutions Inc. 2012 ONSC 414 at para. 51).
d. A creditor subsequent to the transfer may set aside a conveyance as fraudulent where (i) there remains unpaid a creditor from the time of the conveyance who would have been entitled to impeach the conveyance; or (ii) where the debtor’s purpose in making the conveyance is to defraud present and future creditors generally (see: Gauthier v. Woollatt, 1940 CanLII 351 (ON SC), [1940] 1 DLR 275 (ONSC). In this respect, a general intent to defraud anticipated creditors may be sufficient (see: IAMGOLD Ltd. v. Rosenfeld, 1998 CarswellOnt 4388 (Gen. Div.) at para.
e. The subjective intent to defeat creditors may be inferred where some of the ‘badges of fraud’ are present (see: Indcondo Building Corp. v. Sloan, 2014 ONSC 4018 at paras. 52-53).
Result
92The motion is dismissed in this respect.
Analysis
93On this issue, the Defendants have failed to meet their onus to show it is plain and obvious that this claim cannot succeed. Instead, the Defendants argue the merits of the claim. They fail for the following reasons:
a. The Defendants argue that the allegation that at the time of the impugned transfers Manny and Marcos Limited owed money to the CRA is a “bald allegation”, and therefore the factual basis or the claim is not pleaded. I disagree. The allegation that the CRA was an existing creditor is a factual plea. That the CRA is not a party to this proceeding is not required by the jurisprudence as developed to date.
b. In Wilfert v. McCallum, 2017 ONSC 3853, the judgment creditors pleaded that the transfer of the property (11 years earlier) was done to defeat them and future creditors. The facts pleaded only addressed their loss, and they did not plead the badges of fraud. The Court held that they had no status. In the Lads’ case, they plead more broadly that the transfers by the debtors were done to defeat all creditors who may arise by virtue of their high risk venture (see: IAMGOLD, supra, at para. 11).
c. Whether at the time of the impugned conveyance the debtor had the general intent to defraud anticipated creditors is a question to be decided upon the evidence, and if there was the intention to defeat creditors, then it does not matter whether it was to defeat present or future creditors (see: IAMGOLD, supra, at para. 16).
d. The Lads have pleaded some of the badges of fraud. Whether they are sufficient to carry the day is a question for trial.
e. In large measure, the Defendants have attempted to turn this pleadings motion into a summary judgment motion. This is impermissible (see: Fisherman, supra, at para. 26; Boutin v. Co-Operators Life Insurance Co, 1999 CarswellOnt 18 (CA) at para. 21).
7. Valid Creditor Proofing
94The Defendants claim that they were merely trying to isolate assets from future liabilities. They argue that this motion ought to be allowed and rely on Duca Financial Services Credit Union Ltd. v. Bozzo, 2010 ONSCC 3104, at para. 54, in this respect.
95This is another example of the Defendants trying to turn this pleading motion into a summary judgment motion. They really seek a finding that their actions of which the Lads complain are really valid steps in asset protection.
96The Lads do not oppose steps taken that are proper creditor protection. They assert, however, that the actions taken by the Defendants are not proper creditor protection. They assert that the Defendants’ actions are improper since they were taken with the intent of defeating or defrauding existing or future creditors.
97Whether the Defendants have properly isolated assets is the very heart of this action, and the answer is a question of fact.
98Cumming, J.,’s decision in Duca is instructive as it sets out the definition of a sham trust (see: Duca, supra, para. 42 & 54, appr’d, Duca Financial Services Credit Union Ltd. v. Bozzo, 2011 ONCA 455, at para. 2 & 3). That case, however, was the trial of part of a bifurcated trial.
99The question before Cumming, J. was whether the trust by which Mr. Bozzo held shares in trust for his wife was a sham trust. Cumming, J. held, as a question of fact, that while there were some suspicious circumstances, on all of the evidence, Mr. Bozzo intended to establish the trust to preserve the asset for his wife and family, and not to keep the property for himself and create a roadblock for creditors (para. 45 & 46).
100His Honour was reversed on appeal on the facts. The Court of Appeal reviewed the evidence and, referring to evidence Cumming, J. did not consider, said that the totality of the evidence conclusively demonstrated that Mr. Bozzo intended to retain control of the assets purportedly held in trust. In his own mind, he did not separate himself from the beneficial interest in the shares. Accordingly, there was no intention to create a valid trust as one of the three certainties was missing, and the trust was void (C.A., at para 4 to 6).
101Whether the Defendants, here, had the requisite intent to form a trust is a valid issue for trial and should not be decided at an interlocutory motion.
8. Abuse of Process
102The Defendants also attack the Lads’ Fresh as Amended Statement of Claim on the basis that it is an abuse of process. They say that the Lads are not factually or legally entitled to the relief sought, and if this claim were permitted to proceed, it would turn the entire system of prudent creditor-protection planning on its head. To permit this claim to go forward would be inconsistent with public policy perspective that private individuals should have the right to structure their financial affairs in any prudent matter they see fit as long as this is done legally and in a manner that has not sought to defraud actual creditors.
103The Defendants argue that if the Lads wanted to obtain and enforce a judgment against the Moving Parties, they should have named them as defendants to their counterclaim in the underlying action. They chose not to do so, likely because it was obvious that there was no factual or legal basis for pursuing a claim against them given the matters in dispute in that proceeding.
104Moreover, this action is abusive in that it seeks to re-litigate Joe’s liability for costs in the underlying action after the Lads discovered that Marcos Limited and Manny have insufficient assets to pay the Trial award and Costs Order. In that regard, the Court already considered Joe’s liability and declined to make any finding of liability against Joe including awarding any damages against him in the Trial Decision or costs against him personally in the Costs Order. Hence, this issue is res judicata where Joe is concerned.
105While the Plaintiffs assert new causes of action and seek new remedies pursuant to new theories of liability, their attempt is to do an end-run on the Trial Decision and Costs Order, with this proceeding resulting in a de facto collateral attack on both decisions. This can only be described as an abuse of process and should not be permitted by this Honourable Court.
The Law
106The doctrine of abuse of process is part of the inherent power of the court to prevent the misuse of its procedure in a way that would be manifestly unfair to a party to the litigation or would in some other way bring the administration of justice into disrepute. It is a flexible doctrine unencumbered by the specific requirement of concepts such as issue estoppel (see: John v. Samuel, 2018 ONSC 5651 at para. 25).
107The doctrine of abuse of process protects the public interest in the integrity and fairness of the judicial system by preventing the employment of judicial proceedings for purposes which the law regards as improper, which include harassment and oppression of other parties by multifarious proceedings brought for purposes other than the assertion or defence of a litigant's legitimate rights. Such abuse of process interferes with the business of the Courts and tarnishes their image in the administration of justice (see: Foy v. Foy (No. 2) (1979), 1979 CanLII 1631 (ONCA); Thelwell v. Elaschuk et al, 2020 ONSC 340 at para. 42).
108One of the most frequent circumstances in which abuse of process is found (although not limited to this circumstance) is one in which the claimant brings a multiplicity of proceedings or re-litigates of issues already decided.
109Abuse of process, however, is a discretionary principle that is not limited by any set number of categories. It is an intangible principle that is used to bar proceedings that are inconsistent with the objectives of public policy. The doctrine can be relied upon by persons who were not parties to the previous litigation but who claim that if they were going to be sued, they should have been sued in the previous litigation (see: Kenderry-Esprit (Receiver of) v. Burgess, MacDonald, Martin & Younger, 2001 CanLII 28042 (ON SC) at para. 30 – 31).
Result
110The motion is dismissed in this respect.
Analysis
111More often than not, parties advance the abuse of process argument as the “Hail Mary pass” of their motion, as the Defendants have here.
112In their submissions on abuse of process, the Defendants adopt characteristic hyperbole. They plead that if this action is allowed to proceed, the whole system of asset isolation and creditor proofing will fall.
113The hyperbole rings hollow. The sky will not fall.
114Abuse of process has no application to this pleading. It is a debt collection action. The creditors claim novel causes of action or apply existing causes of action novelly. They have done so adequately. There is no abuse of the court’s process in allowing this claim to continue. I make no comment on whether, on a full record, a court might find that the action is an abuse of process.
THE LADS’ COUNTERMOTION
115The Defendants do not oppose entering into a Discovery Plan; they oppose the imposition of one before their motion to attack the pleadings. They view the motion for a Discovery Plan as “simply as a reprisal for and in response to” the Defendants’ motion. The Defendants end their factum for the Lads’ Discovery Plan motion by saying:
This motion was/is entirely unnecessary, contrived, unreasonable, premature and a complete waste of the all of the parties’ time and resources including, most importantly, this Honourable Court’s resources. This is particularly troubling during a time where the administration of justice is challenged as a result of this public health crisis and where court resources are spread thin. Wasting valuable and sparse judicial resources on such an unnecessary motion should be sanctioned with an award of full indemnity costs.
116Rule 29.1.03 requires that where a party intends to obtain evidence under the oral or documentary discovery rules, they must try to agree to a Discovery plan 60 days after the close of pleadings or another date as agreed to.
117I agree that pursuing the Discovery Plan motion was unnecessary pending the determination of the motion to strike. It is now necessary. A more prudent and cost effective course would have been for the Defendants to agree to a Discovery Plan on the assumption that the motion to strike was not successful, then revise it based on any ruling in the motion to strike.
118I note that the Defendants’ only submissions on the countermotion was that it should be dismissed. It made no suggestion as to what the Discovery Plan ought to say depending on the success of the Defendants’ pleading motion. I expect that the costs to the clients of their strategy on the Discovery Plan motion far exceeds the cost of negotiating a Discovery Plan to be used if the pleadings motion was unsuccessful.
119The Discovery Plan shall apply as attached as Schedule B to the Lads’ Amended Notice of Motion.
COSTS
120If the parties cannot agree as to who pays whom costs, on what scale, and in what amount, I will decide the issue based on written submissions. Submission are limited to three double-spaced, typed pages, excluding offers and Bills of Costs. The Lads’ submissions are to be served and filed by 4 pm, 16 October 2020, and the Defendants’ by 4 pm, 30 October 2020. There will be no right of reply.
Justice Trimble
Released: October 14, 2020
COURT FILE NO.: CV-19-0111-00
DATE: 2020 10 14
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
ISHVER LAD and SUMITRA LAD
- and -
MANNY MARCOS also known as MANUEL MARCOS also known as MANUEL MARTINS MARCOS also known as MANNY MARTINS MARCOS also known as MANUEL M. MARCOS, JOE MARCOS also known as JOE LUIS MARCOS also known as JOSE LUIS MARCOS also known as JOSE MARCOS, ARLETE SUSANA MARCOS, CATARINA ARRUDA MARCOS and MARCOS LIMITED BUILDING DESIGN CONSULTANTS
REASONS FOR JUDGMENT
Trimble J.
Released: October 14, 2020
