Court File and Parties
COURT FILE NO.: CV 8/21
DATE: 2021-09-16
SUPERIOR COURT OF JUSTICE - ONTARIO
RE:
HER MAJESTY THE QUEEN IN RIGHT OF ONTARIO as represented by THE ATTORNEY GENERAL FOR ONTARIO Plaintiff/Moving Party
– and –
THE CHURCH OF GOD (RESTORATION) AYLMER, and THE CHURCH OF GOD (RESTORATION) LETHBRIDGE Defendant/Responding Party
BEFORE: Regional Senior Justice B. G. Thomas
COUNSEL: Antonin I. Pribetic and Adam Mortimer, Counsel for the Applicant/Moving Party
No one appearing as Counsel for the Defendant/Responding Party
HEARD: September 15, 2021 (in writing)
ENDORSEMENT
[1] This is a motion for judgment. The plaintiff seeks the following:
(a) a declaration that the conveyance of the lands from the Church of God (Restoration) Aylmer (“Aylmer Church”) to the Church of God (Restoration) Lethbridge (“Lethbridge Church”) under Instrument No. CT198513 in the Land Registry Office 3 No. 11 is fraudulent and void as against the Crown and other creditors of the Aylmer Church, pursuant to the Fraudulent Conveyances Act, R.S.O. 1990, c. F.29, (“FCA”); and
(b) a declaration that the lands set out in Instrument No. CT198513 are subject to execution at the instance of the Crown as a creditor of the Aylmer Church; and
The costs of this action on a full indemnity scale, or on the alternative, on a substantial indemnity scale;
Background
[2] On February 5, 2021, the Crown commenced an application in the Ontario Superior Court of Justice bearing Court File Number CV-21-000008-00, seeking an order (“the restraining order”) restraining the Aylmer Church and its directors Henry Hildebrandt, Abram Bergen, Jacob Hiebert, Peter Hildebrandt, Susan Mutch, Elvira Tovstiga and Trudy Wiebe from directly or indirectly contravening Ontario Regulation 82/20 (the “Stage 1 Regulation”), enacted in response to the COVID-19 pandemic.
[3] The restraining order was granted on February 12, 2021.
[4] On April 30, 2021, the Court found that the Aylmer Church, Pastor Henry Hildebrandt, and Assistant Pastor Peter Wall were in contempt of the restraining order.
[5] On May 14, 2021, the Court ordered that the Aylmer Church pay a fine of $35,000. and ordered that the Aylmer Church was jointly and severally liable to pay the Crown’s costs of $69,000. The amounts were ordered payable within 90 days, becoming due on August 12, 2021.
[6] On May 31, 2021, the Court found the Aylmer Church, Henry Hildebrandt, and Peter Wall in contempt of court for a second time.
[7] At the same time, the Court ordered the Aylmer Church to pay a fine of $35,000. for contempt and ordered that the Aylmer Church was jointly and severally liable for the Crown’s costs of $5,000. The amounts were ordered payable forthwith.
[8] On June 11, 2021, the Court found the Aylmer Church and Henry Hildebrandt in contempt of court for a third time, in respect of gatherings held on May 23, 30, and June 6, 2021. The Court additionally found Peter Wall and Herbert Hildebrandt in contempt in respect of their active participation in the gathering on May 23, 2021.
[9] On June 18, 2021, the Court ordered the Aylmer Church to pay a fine of $45,000. for contempt and ordered that the Aylmer Church was jointly and severally liable for the Crown’s costs of $5,000. The amounts were ordered payable forthwith. No fines or costs have been paid.
The Conveyance
[10] On May 21, 2021, in the middle of contempt proceedings, the Aylmer Church conveyed to the Lethbridge Church the property municipally described as 751 John Street North, Aylmer, Ontario and described as follows on Instrument No. CT198513 in the Land Registry Office #11 (the “Subject Lands”):
PIN35304 – 0025 (LT)
PT LT 84 CON NTR MALAHIDE PT 2 11R5836 & PT 1 11R7903; AYLMER
[11] The conveyance occurred less than seven days after one fine and costs order had been issued and ten days before a second fine and costs order was issued. The conveyance occurred the very same day that the Aylmer Church attended court to seek an adjournment of the second contempt motion.
This Action
[12] On June 21, 2021 the Crown commenced the within action.
[13] On June 23, 2021 the Crown obtained leave of the Court to issue a certificate of pending litigation and register it on title to the Subject Lands. The certificate was issued the same day and registered on title on June 24, 2021.
[14] On June 28, 2021 the defendant Aylmer Church was personally served with the Crown’s statement of claim. At the same time, the defendant Aylmer Church was personally served with the order granting leave to issue the certificate, together with a copy of the notice of motion and all affidavits and other documents used on the motion.
[15] On June 28, 2021 the defendant Lethbridge Church was personally served with the Crown’s statement of claim. At the same time, the defendant Lethbridge Church was personally served with the order granting leave to issue the certificate, together with a copy of the notice of motion and all affidavits and other documents used on the motion.
[16] The defendants did not defend the action and have been noted in default. The Crown filed requisitions to have the defendants noted in default on July 20, 2021.
[17] Pursuant to r. 19.02(1)(a) the defendants are deemed to admit the allegations of fact made in the statement of claim.
[18] The facts pleaded in the statement of claim and deemed to be admitted by the defendants demonstrate the following:
(a) The Aylmer Church and Lethbridge Church are corporations operating as religious organizations. They are both part of the Church of God religious group. Until March 16, 2021, they shared corporate directors, namely Susan Mutch, Elvira Tovstiga, and Trudy Weibe.
(b) The Aylmer Church was until May 21, 2021, the sole registered owner of the Subject Land.
(c) By Transfer dated the May 21, 2021 and registered as Instrument No. CT198513 in the Land Registry Office #11 the Aylmer Church conveyed the Subject Lands to the Lethbridge Church in exchange for one dollar ($1).
(d) At the time of the Conveyance, the Aylmer Church knew that fines and costs orders ordered on May 14, 2021 would come due in less than 90 days, and that further fines and costs were imminent.
(e) The Conveyance was made with the intent of defeating, delaying, or defrauding the Crown, and had the effect of removing the Subject Land out of the reach of the Crown by way of execution. The Lethbridge Church knew or had notice of this intention.
(f) Notwithstanding the Conveyance, the Aylmer Church has continued to operate on and enjoy the Subject Land. The Lethbridge Church has never used the Subject Land and is the owner in name only. The Aylmer Church remains the beneficial owner of the premises.
(g) Despite a demand letter sent on June 14, 2021 requiring payment of the contempt fines and costs orders outstanding, the Aylmer Church failed to respond to the Crown and the fines and costs remain unpaid.
Analysis
[19] Section 2 of the FCA provides that a conveyance is void against creditors if it was made “with intent to defeat, hinder, delay or defraud creditors or others of their just and lawful actions, suits, debts, accounts penalties or forfeitures”.
[20] Where the result of an intentional impugned transfer is to defeat, hinder, delay or defraud creditors, there is a presumption in law that the transfer was done with that intent. (Business Development Bank of Canada v. Samarsky, 2012 ONSC 3002 at para 15; Bank of Montreal v. Javed, 2015 ONSC 1229 at para 30).
[21] I find the following badges of fraud to be present:
The conveyance had the effect of defeating, hindering, delaying, or defrauding creditors: As a result of the conveyance, the Crown has been prevented from executing against the Subject Land by way of execution.
The conveyance Was to a Non-Arms Length Party: The Lethbridge Church is closely associated with the Aylmer Church. They are congregations of the same Church of God religious group. Susan Mutch, Elvira Tovstiga, Trudy Wiebe are directors of the Lethbridge Church and were directors of the Aylmer Church until March 16, 2021 (when the directorship of the Aylmer Church was suddenly reorganized).
The conveyance was made with suspicious timing and in the face of an outstanding liability: The conveyance occurred just seven days after one set of fines and a costs order had been issued against the Aylmer Church for contempt, which it knew would become due in less than 90 days. The conveyance occurred ten days before a second fine and costs order was issued, which the Aylmer Church knew was imminent. The conveyance occurred the very day that the Aylmer Church attended court to seek an adjournment of the second contempt motion that resulted in further fines.
The conveyance was made for grossly inadequate consideration: The Subject Land had, mere weeks prior to the conveyance, been subject to charges of $225,000 and $790,000. Nevertheless, the Land Transfer Tax Statements in respect of the conveyance indicate that the Lethbridge Church paid the nominal sum of $1. as sole consideration for the transaction. The land transfer tax statement contains an explanation that the grossly inadequate consideration was because the conveyance was a “donation to a charity”.
The Aylmer Church retained beneficial use of the Subject Land after the conveyance: Notwithstanding the conveyance, the Aylmer Church has continued to operate on and enjoy the Subject Land. The Lethbridge Church has never used the Subject Land and is the owner in name only.
[22] Based upon the foregoing, the presumption that the conveyance was made with fraudulent intent within the meaning of s. 2 of the FCA is clearly supported.
[23] Section 3 provides the primary defence against a fraudulent conveyance action. It codifies the equitable concept of a “bona fide purchaser for value without notice”:
- Section 2 does not apply to an estate or interest in real property or personal property conveyed upon good consideration and in good faith to a person not having at the time of the conveyance to the person notice or knowledge of the intent set forth in that section.
[24] However, where a conveyance is made without “good consideration” s. 3 does not apply as the Court’s analysis does not proceed beyond consideration of the intentions of the transferor under s. 2. “Good consideration” in the context of a fraudulent conveyance means valuable and adequate consideration.
[25] Section 3 does not assist these defendants as there was no adequate consideration here.
[26] I am satisfied that the conveyance here was made with fraudulent intent to defeat the plaintiff’s just and lawful actions to enforcement of the debt award. Relief consistent with s. 2 of the FCA is granted.
Conclusion
[27] As a result, there will be judgment against the defendants including:
(i) a declaration that the conveyance of the lands from Aylmer Church to the Lethbridge Church under Instrument No. CT198513 in the Land Registry Office No. 11 is fraudulent and void as against the Crown and other creditors of the Aylmer Church, pursuant to the FCA; and
(ii) a declaration that the lands set out in Instrument No. CT198513 are subject to execution at the instance of the Crown as a creditor of the Aylmer Church.
[28] The costs of this action on a full indemnity scale in an amount to be fixed by this Court upon receipt of a bill of costs from the plaintiff’s counsel. If no bill of costs is received within 30 days of the release of this endorsement, there will be no order as to costs.
Regional Senior Justice B. G. Thomas
Date: September 16, 2021.