Court File and Parties

COURT FILE NR. CV-20-83739

SUPERIOR COURT OF JUSTICE – ONTARIO

RE: Jennifer Horrocks, Plaintiff

AND:

Bruce McConville, May Hachem, 1270349 Ontario Inc., McConville’s Garage LTD., and 11567551 Canada Inc., Defendants

BEFORE: Master Kaufman

COUNSEL: Matthew Smith, for the Plaintiff

Jason Rabin, for the Defendants May Hachem, 1270349 Ontario Ltd., McConville’s Garage Ltd. and 11567551 Canada Inc.

HEARD: December 3, 2020

REASONS FOR DECISION

[1] The defendants, May Hachem, 1270349 Ontario Inc., McConville’s Garage LTD., and 11567551 Canada Inc. (the “defendants”), bring this motion for an Order discharging the certificates of pending litigation (“CPL”) registered against their properties pursuant to my order of June 22, 2020. They contend that the plaintiff failed to make full and fair disclosure of all material facts in the ex parte motion for leave to register these certificates. In the alternative, the defendants argue that the balance of convenience militates in favour of these certificates’ discharge.

[2] This motion raises the following issues: 1) Did the plaintiff make full and frank disclosure on an ex parte motion when she failed to disclose (i) discussions between her counsel and counsel for the defendants and (ii) the existence of a settlement agreement dated March 26, 2020? And 2) Does the balance of convenience favour the preservation of the CPLs or their discharge.

Background

[3] On June 18, 2020, I granted the plaintiff leave to register CPLs against various properties formerly owned by the defendant, Bruce McConville. The plaintiff and Mr. McConville are former spouses and are currently involved in divorce proceedings.

[4] Between June 16, 2019 and October 29, 2019, Mr. McConville sold his business (McConville’s Garage Ltd.) and the shares in his holding company, 1270349 Ontario Inc. (which owned 8 residential properties) to May Hachem. He also sold a property adjacent to McConville’s Garage, 240 Ste-Anne Street, to 11567551 Canada Inc., a corporation whose directors are May Hachem and her brothers Fadi and Hadi Hachem.

[5] The plaintiff alleges that Mr. McConville fraudulently conveyed these properties to the defendants in order to defeat her claims for equalization, spousal and child support. In her statement of claim, she alleges that Ms. Hachem is effectively a “straw woman” who acquired title for the purpose of concealing Mr. McConville’s interest in these properties. Mr. McConville and May Hachem have defended the action and plead that they entered into these transactions in good faith, for fair value and at arms’ length.

The ex parte motion

[6] Where a plaintiff has yet to obtain judgment in a fraudulent conveyance action, the test to obtain leave to issue a CPL is set out in the decision of R. Smith J. in Grefford v. Fielding (2004), 2004 8709 (ON SC), 70 O.R. (3d) 371 (Ont. S.C.) (“Grefford”). The CPL claimant must satisfy the court that:

i) there is high probability that he would successfully recover judgment in the main action (i.e. the divorce proceedings);

ii) there is evidence demonstrating that the transfer was made with the intent to defeat or delay creditors; evidence that the transfer was for less than fair market value lightens the burden; and

iii) the claimant must demonstrate that the balance of convenience favours issuing a CPL in the circumstances of the particular case.

[7] The material presented to me on the ex parte motion for leave to issue the CPL included an affidavit from the plaintiff and the affidavit of Ronald Warman, both sworn on June 4, 2020. In response to certain questions concerning the estimated value of the plaintiff’s equalization payment in the divorce proceedings, the plaintiff filed a supplementary affidavit sworn June 21, 2020.

[8] I concluded that the plaintiff satisfied all three branches of the Grefford test. I was satisfied that the plaintiff would obtain judgment in the family law proceedings, although the exact amount of the equalization payment was uncertain. I was also satisfied that the plaintiff’s fraudulent conveyance action raised triable issues as several badges of fraud appeared to be present. Finally, Mr. McConville allegedly advised Ronald Warman, one of Ms. Hachem’s tenants, that the condominium in which he resided would be sold. Relying on this evidence, I concluded that the balance of convenience favoured the issuance of a CPL.

[9] The defendants do not challenge any of my findings.

Alleged failure to make full and fair disclosure

Disclosure obligations on an ex parte motion

[10] Rule 39.01(6) of the Rules of Civil Procedure provides that where a motion is made without notice, the moving party shall make full and fair disclosure of all material facts, and that failure to do so is in itself sufficient ground for setting aside any order obtained on the motion.[^1]

[11] The onus upon a moving party to make complete disclosure has been described as “heavy”[^2] and “very strong”.[^3] When a party opposite in interest is not given the opportunity to present evidence or to cross-examine, the moving party must ensure that the facts before the Court are complete, true and plain.[^4]

[12] Material facts are those which the Court must be made aware of in arriving at a decision, the non-disclosure of which may have affected the Court’s approach to the motion, made the decision doubtful or affected the outcome of the motion.[^5] The test as to whether full and fair disclosure is made on an ex parte motion turns on whether the omitted disclosure “might” have impacted the original granting of the order.[^6] A fact that would have been weighed or considered by the motions judge in deciding the issues is material, regardless of whether its disclosure would have changed the outcome.[^7] The test for materiality is an objective one.[^8]

Material facts allegedly omitted

[13] The defendants argue that the plaintiff should have disclosed the contents of the communications between the plaintiff’s family law lawyer, Mr. Whyte, and Ms. Hachem’s counsel in this proceeding, Mr. Gibson. They also argue that the plaintiff ought to have disclosed the existence of a settlement agreement that provided the plaintiff some security.

i) Discussions among counsel

[14] On December 11, 2019, Mr. Whyte wrote to Ms. Hachem, and her brothers Fadi and Hadi Hachem to allege that Mr. McConville fraudulently conveyed his business and real estate holdings to them, and that these transactions were accordingly void and of no effect. Mr. Whyte requested information about these transactions.

[15] After receiving this letter, Ms. Hachem retained Russell G. Gibson. Mr. Gibson and Mr. Whyte spoke on January 21, 2020. Mr. Gibson informed Mr. Whyte that Ms. Hachem was prepared to render all cooperation to prove that she acquired the properties from Mr. McConville for good and valid consideration.

[16] On January 22, 2020, Mr. Whyte again requested documentary evidence surrounding the transactions. Mr. Gibson replied the same day. He advised that he was compiling documents of the consideration exchanged, and that he was awaiting further documents from a Gatineau notary. Mr. Gibson offered to share this information once it was compiled. Mr. Gibson asked that to be served with any motion which involved Ms. Hachem so that he may appear.

[17] On January 27, 2020, Mr. Gibson provided Mr. Whyte with a summary of the payments made in respect of the transactions. Ms. Hachem apparently deposited the closing funds in the target companies directly as opposed to through her solicitor’s trust account. Mr. Gibson provided Ms. Hachem’s solicitor’s contact information as he could confirm these details. Mr. Gibson attached copies of the two bank drafts Ms. Hachem used to pay for the McConville’s Garage and the statement of adjustments relating to the purchase of the Ste-Anne property. Finally, Mr. Gibson invited Mr. Whyte or a member of his staff to attend his offices and review these documents. Mr. Whyte responded that he would review this information with his client.

[18] On January 31, 2020, Mr. Whyte requested copies of the bank records and cheques, referred to in Mr. Gibson’s letter of January 27, 2020, that show Ms. Hachem’s payments to Mr. McConville. Mr. Gibson responded within the hour and offered to make an office or boardroom available and allow Mr. Whyte to review the bank statements, cross-reference them with the payments made to Mr. McConville and to make redacted copies of the bank statements.

[19] Because he had not heard from Mr. Whyte, Mr. Gibson followed up on his offer to share Ms. Hachem’s records and he requested once again to be provided with notice of any proceedings involving the plaintiff and Mr. McConville. The salient portions of Mr. Gibson’s letter, dated March 25, 2020, read as follows:

Further to our telephone conversation of January 21, 2020, emails of January 24, 27 and 31st, and my two letters dated January 27, 2020 and February 14, 2020, please advise whether you wish to avail yourself and your client of the evidence that I have assembled at my office from the bank records of my client regarding payments made in respect of McConville Garage share purchase and related transactions.

However, if you would like to view this information, my client’s offer to make this information available remains open for acceptance if it is your intention to do so, please contact me so that we can make arrangements for you to do so. Although you initially indicated to me that you would like to view this information, I have not heard from you since.

Given the current challenges that my client is facing from the COVID-19 pandemic and the continued suggestions made to my client that you are attempting to add my client as a party to the matrimonial proceedings involving your client and Mr. McConville, I would ask that you advise me, as I have requested on prior occasions, of any proceedings contemplated in this regard so that my client may arrange for us to appear.

I am sharing this letter with counsel for Mr. McConville so that as an Officer of the Court my client’s offer of assistance in this regard may be considered in the event that it is not otherwise brought to the attention of the Court.

[20] In her affidavit sworn June 4, 2020 filed in support of the ex parte motion, the plaintiff stated that Mr. McConville fired his bookkeeper Ms. Wilson and replaced her with Ms. Hachem because Ms. Wilson was unwilling to under-report income from his business. In the supplementary affidavit she swore on June 21, 2020, the plaintiff states that she “has been advised by James Whyte that he received a letter from Russel G. Gibbons [sic], a lawyer acting on behalf of May Hachem, providing records of some payments but the records of the sales are incomplete” (emphasis added).

[21] The Court finds that the plaintiff failed to provide full and fair disclosure of material facts. First, the plaintiff painted a portrait of Ms. Hachem as a dishonest “close friend” of Mr. McConville’s who provided incomplete records when requested. That portrayal was one-sided and imbalanced. A review of the correspondence between counsel indicates that Ms. Hachem offered to cooperate on multiple occasions and had invited Mr. Whyte or members of his staff to his office to review her records. The plaintiff did not avail herself of these opportunities and she should have told the Court as much.

[22] Moreover, Mr. Gibson had twice requested notice of any motion that involved his client so that he may appear and went as far as copying Mr. McConville’s counsel to ensure that the Court be made aware of Ms. Hachem’s offer of assistance. Non-disclosure of material facts can take the form of a failure to disclose that opposing counsel has specifically asked to be notified so that he can put a full record before the court.[^9] Mr. Gibson also told Mr. Whyte that the scheme he alleged “appeared baseless”. A reasonable statement of the positions known or likely to be taken by the defendants have been held to constitute material facts.[^10]

[23] While the plaintiff did attach Mr. Gibson’s letter of January 27, 2020 as an exhibit to her affidavit, she did not draw the Court’s attention to Mr. Gibson’s first offer to view evidence from bank records or mention Mr. Gibson’s subsequent offers. Instead, in the body of her affidavit, she characterized Mr. Gibson’s disclosure as incomplete. A party moving ex parte should highlight relevant facts in the body of the affidavit to ensure that they come to the attention of the Court.[^11]

[24] The correspondence between counsel was material because it would have affected the Court’s approach to the motion. The plaintiff knew that Ms. Hachem denied colluding with Mr. McConville, that she offered to assist by providing documentary evidence and continuously asserted that she paid good and valuable consideration for the assets she purchased. Pursuant to r. 37.07(5), where it appears to the court that a notice of motion ought to have been served on a person who has not been served, the court may adjourn the motion and direct that the notice of motion be served on the person.[^12] Had I been made aware of Ms. Hachem’s offers of assistance, denials of collusion and repeated requests to be put on notice, the motion would have likely been adjourned to enable her to appear. If that had occurred, Ms. Hachem would have presented the evidence she presented on this motion which casts doubt on the motion’s outcome.

[25] It is not my role in this motion to determine if Ms. Hachem colluded with Mr. McConville, but on the record before me, it is certainly possible that she did not. She provided evidence that, to buy McConville’s Garage, she took out a $400,000 private loan, secured against one of the properties, that carries a 15% annual rate of interest. She has been paying interest payments on a monthly basis since then. To purchase 240 Ste-Anne, she paid $41,907.15 from her personal account and her brothers Fadi and Hadi paid $110,000 and $126,860.72, respectively. When she purchased Mr. McConville’s condominiums, she became his landlord and she made him sign a lease. She collects rent from him and the other three tenants. She was able to name every one of her tenants when cross-examined. She visits the cottage property every week or 10 days to manage it. Before purchasing the property at 240 Ste-Anne, she arranged and paid for an inspection. She also retained an environmental engineering firm to conduct an environmental assessment of 240 Ste-Anne Street and on the property on which McConville’s garage is situated. It is possible that she made an investment in Mr. McConville’s assets and is now being dragged into this litigation at great personal cost. In assessing the balance of convenience portion of the test, the Court must balance her rights against the plaintiff’s. Her offers to provide evidence, her denials of any collision and her request to be notified of any motions, had they been disclosed, would have resulted in her attendance at the motion to present evidence relevant to this balancing exercise, which will be discussed below.

ii) Settlement agreement of March 26, 2020

[26] After Mr. McConville was released from custody after being found in contempt, the plaintiff brought an urgent motion to find Mr. McConville in further contempt of several of Ryan Bell J.’s orders. That motion was scheduled to be heard on March 31, 2020, two weeks after the pandemic caused all Superior Court matters to be adjourned except for urgent ones. Justice Shelston arranged for an informal telephone call between Mr. Whyte and Mr. Loder, Mr. McConville’s former family law lawyer. Justice Shelston suggested that the parties resolve the urgency so that the motion could be scheduled when regular court operations resumed. This phone call led to Minutes of Settlement dated March 26, 2020. These minutes provide that, in exchange for withdrawing the contempt motion:

a. Mr. McConville would designate the plaintiff as a beneficiary on his life insurance policy in the amount of $750,000;

b. The parties would sign a joint direction to the Gibson law firm to the effect that Ms. Hachem’s holdback of $525,000 on the garage’s purchase price would be held in trust and not released without the consent of the parties or a court order;

c. Mr. McConville would consent to the registration of a security interest against the matrimonial home; and

d. Mr. McConville would pay the plaintiff’s $7,500 towards the $18,500 costs award that had been made in her favour.

[27] It is not disputed that the plaintiff did not disclose this agreement in the ex parte motion. The plaintiff says that she did not have to. She argues that the $750,000 insurance policy would only have benefited her in the unlikely event of Mr. McConville’s death. She adds that only the portion of the $525,000 holdback that exceeds the environmental remediation costs that Ms. Hachem incurs (if she ever incurs them) would be held in trust. Ms. Hachem has not set these funds aside, and she has not taken any steps towards remediating environmental damage. The remediation costs could exceed $525,000, and nothing may ever be paid. Finally, the registration on title to the matrimonial home provides notice to prospective buyers / encumbrancers, but Mr. McConville was not legally entitled to sell or encumber the home without the plaintiff’s consent in any event because it was a matrimonial home.

[28] According to Mr. Whyte, the March 26, 2020 agreement disposed of the contempt motion’s urgency but was otherwise worthless as a form of security. When cross-examined, he conceded that the registration on title to the matrimonial home gave the plaintiff security she did not have before the agreement, that the insurance policy was “worth something” and that there was a possibility that some portion of the $525,000 holdback would become payable to Mr. McConville.

[29] I agree with the plaintiff that the March 26, 2020 agreement did not provide the plaintiff meaningful security. The most meaningful part of the agreement is that any portion of the holdback owed to Mr. McConville would be held in trust, but the defendants acknowledge that remedial costs could exceed the $525,000 holdback. Had this agreement been disclosed, it would have been a relevant fact to consider, but it would not have moved the needle meaningfully in Ms. Hachem’s favour.

Remedy

[30] There are sound policy reasons to set aside ex parte orders obtained without providing full and fair disclosure of material facts. The Court must be made aware of all material facts known to the party bringing the motion. The administration of justice depends on it. There must be a strong incentive on moving parties to meet the high onus expected of them. A long line of cases holds that failure to make complete disclosure on an ex parte motion will generally result in the order being set aside, even if this means depriving a party of a remedy they otherwise deserved.[^13] Rule 39.01(6) makes it clear that failure to make full and fair disclosure is in itself a sufficient ground for setting aside the order.

[31] That said, it has also been held that the nature of the error (deliberate, unintentional, careless, negligent, reckless or inadvertent) plays a role in the Court’s response.[^14] The defendants acknowledge that the Court is not stripped of its discretion to maintain the certificates whenever a finding of material non-disclosure is made.

[32] Mr. Beeson, who argued the ex parte motion, was not the plaintiff’s family lawyer. He was relying on the evidence and information that Mr. Whyte provided to him. Mr. Whyte testified that he provided the plaintiff’s civil litigation counsel what he thought was “of significance” and, because his area of practice is limited to family law, he was not specifically aware of the plaintiff’s obligations in an ex parte motion to register CPLs under the Rules of Civil Procedure.

[33] I am satisfied that the plaintiff’s counsel did not deliberately withhold information. The plaintiff was also justifiably distrustful of Mr. McConville and Ms. Hachem. Mr. McConville had testified that he burned the proceeds of sale and the 240 Ste-Anne Street property was sold in violation of a Court Order. The plaintiff was understandably concerned that notice of her motion could lead to a further sale of these properties. However, more care should have been taken to fairly present Ms. Hachem’s evidence and positions, and to ensure that Mr. Whyte was either aware of the plaintiff’s onus on the motion, or that his entire file be provided to Mr. Beeson. I am also mindful that and that badges of fraud appear to be present and raise triable issues.

[34] Because the Court finds that the CPLs should be discharged, it is unnecessary to consider the defendants’ alternative argument that the balance of convenience favours their discharge. However, in selecting a just remedy, the Court will seek to balance the parties’ respective interests.

Disposition

[35] I order that the CPLs be discharged. I also order pursuant to r. 1.05 that, during the life of this action, the defendants shall not further encumber or sell the properties that were the subject of the CPLs without 1) the plaintiff’s consent or, 2) 45 days’ prior notice of any further encumbrance or sale. These orders are effective without further formality. I make these orders for the following reasons:

[36] I have found that the plaintiff failed to make full and fair disclosure of material facts, which of itself is a sufficient ground for setting aside my previous order. In addition, it is undisputed that there is at least $220,000 of equity in the matrimonial home which would satisfy a quarter of her the plaintiff’s equalization claim. This figure is based on a real estate appraisal dated from 2018 and the home’s value has likely increased since then.

[37] Ms. Hachem argues that the CPLs have caused her severe prejudice. Because the CPLs are registered on the properties, she was unable to obtain competitive rates of interest on her mortgages. She was forced to renew several of the mortgages for 6-month terms with annual rates of interest ranging between 8.99% and 9.99%. She provided evidence that she has received a preliminary approval from mortgage broker in the range of 5% for the commercial property and 3% for the residential ones, but she is unable to obtain these rates while the CPLs are registered. This evidence is not challenged.

[38] In the initial decision granting leave to register the CPLs, the Court found that many badges of fraud appeared to be present. Those findings were primarily based on Mr. McConville selling these properties in the midst of legal proceedings and his allegation that he has burned the proceeds of sale. But the plaintiff’s action to void the transactions will not succeed if it can be proved that Ms. Hachem purchased the properties in good faith and upon good consideration and that she did not have prior notice or knowledge of Mr. McConville’s fraudulent intent.[^15] The evidence on this motion satisfies me that Ms. Hachem may have paid good consideration for these properties. Whether Mr. McConville had a fraudulent intention, and whether Ms. Hachem had notice or knowledge of that intention, will have to be determined at trial. Ms. Hachem should not be forced to pay thousands of dollars per month in additional interest while this action is ongoing. Moreover, it would also be in the plaintiff’s interest that Ms. Hachem keep up with her mortgage payments and avoid foreclosure.

[39] Ms. Hachem did not indicate in this motion that she intended to sell any of these properties. The only prejudice she claims relates to the increased mortgage payments. My order that she refrain, during the life of this action, from selling or further encumbering the properties without agreement or after providing the plaintiff 45 days’ notice will allow her to significantly reduce her monthly interest payments while giving the plaintiff the opportunity to seek injunctive relief should that be necessary.

COSTS

[40] Because the defendants were successful on this motion, I grant them their costs of the motion, in any event of the cause. If the parties cannot agree on scale or quantum, I will entertain submissions in writing. Counsel may obtain further directions on costs submissions from my office within 30 days should that be necessary.

Master Kaufman

Date: January 21, 2021

[^1]: Rules of Civil Procedure, R.R.O. 1990, Reg. 194, r. 39.01(6). [^2]: 830356 Ontario Inc. v. 156170 Canada Ltd., [1995] O.J. No. 687 (Ct. J. (Gen. Div.)), at para. 18. [^3]: J & P Goldfluss Ltd. v. 306569 Ontario Ltd., [1977] O.J. No. 1438 (H. Ct. J.), at para. 4. [^4]: Rosenhek v. Kerzner, [1997] O.J. No. 2831 (Ct. J. (Gen. Div.)), at para. 19. [^5]: Bennett Estate v. Islamic Republic of Iran, 2013 ONSC 6832, 368 D.L.R. (4th) 500, at para. 18 (“Bennett Estate”). [^6]: 830356 Ontario Inc. v. 156170 Canada Ltd., [1995] O.J. No. 687 (Ct. J. (Gen. Div.)), at para. 17. See also K.A. v. Mitchell, 2013 ONSC 4051, at para. 20 (“Mitchell”). [^7]: Forestwood Co-operative Homes Inc. v. Pritz, [2002] O.J. No. 550 (Div. Ct.), at para. 26. [^8]: Bennett Estate, at para. 18. [^9]: Natale v. Testa, 2018 ONSC 4541, 295 A.C.W.S. (3d) 653, at para. 16. [^10]: Newtec Print & Copy Inc. v. Woodley, [2001] O.J. No. 4180 (Ont. S.C.), at para. 23. [^11]: 830356 Ontario Inc. v. 156170 Canada Ltd., [1995] O.J. No. 687 (Ct. J. (Gen. Div.)), at para. 23. [^12]: Rules of Civil Procedure, r. 37.07(5). [^13]: Herman v. Klig (1938), 1938 294 (ON SC), 3 D.L.R. 755 (H. Ct. J.); Chitel v. Rothbart (1982), 1982 1956 (ON CA), 39 O.R. (2d) 513 (C.A.), at para. 18; Mitchell, at paras. 20-21; Bennett Estate, at para. 18. [^14]: Bank of Montreal v. Juroviesky, 2014 ONSC 1560, 238 A.C.W.S. (3d) 23, at para. 33. [^15]: Fraudulent Conveyances Act, R.S.O. 1990, c. F.29, s. 3.