Court File and Parties

COURT FILE NO.: CV-14-00497790 & CV-15-531391 DATE: 20220228

ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

2270752 ONTARIO INC. Plaintiff – and – CENTURY 21 NEW STAR REALTY INC., BALJIT DHALIWAL and ARVINDER DHALIWAL Defendants

Counsel: Michael Simaan, for the Plaintiff Mark A. Klaiman, for the Defendants Century 21 New Star Realty Inc. and Arvinder Dhaliwal Joel E. Levitt, for the Defendant Baljit Dhaliwal

AND BETWEEN:

2270752 ONTARIO INC. Plaintiff – and – BALJIT DHALIWAL, ARVINDER DHALIWAL and EQUITY FINANCIAL TRUST COMPANY Defendants

Counsel: Michael Simaan, for the Plaintiff Mark A. Klaiman, for the Defendants Century 21 New Star Realty Inc. and Arvinder Dhaliwal Joel E. Levitt for the Defendant, Baljit Dhaliwal

HEARD: June 14, 15,16, 17, 18, 21 & September 23, 2021

J. Steele J.

The Action

[1] Tried together, these two actions mainly involve the same two protagonists, the plaintiff, 2270752 Ontario Inc. (“227”), and the defendant, Baljit Dhaliwal (“Baljit”), whose joint real estate venture failed. 227 gave Baljit $600,000.00 towards their joint venture, the venture failed, and Baljit has not returned 227’s $600,000.00. Knowing 227 would sue for his breach of trust in not returning the $600,000.00, Baljit then fraudulently conveyed his matrimonial home to his wife, the co-defendant, Arvinder Dhaliwal (“Arvinder”). Thus, 227 claims judgment for the $600,000.00 not returned by Baljit (the “First Action”), and an order setting aside the fraudulent conveyance to his wife (the “Second Action”), a transaction that both Baljit and Arvinder engineered to deplete Baljit’s exigible assets, to prevent 227 from collecting any judgment in the First Action.

[2] The defendants, Century 21 New Star Realty Inc (“New Star”) and Arvinder, crossclaim against the defendant, Baljit, for contribution and indemnity under the common law and equity for any amounts which they may be found to be responsible to the plaintiff in the First Action.

[3] The action against Equity Financial Trust Company was discontinued on or about August 10, 2015.

The Result

[4] The plaintiff, 227, will succeed in both actions. The evidence in support of 227’s claim that Baljit committed breach of trust when he received the $600,000.00 to invest in the parties’ joint venture, then failed to return it when the venture failed, is overwhelming. I will discuss this in detail below.

[5] The evidence in support of 227’s claim that Baljit’s transfer of the matrimonial home to his wife, Arvinder, was a fraudulent conveyance is equally overwhelming. I will discuss this evidence in detail as well.

[6] The remaining defendants are not legally involved in either Baljit’s breach of trust or the fraudulent conveyance by Baljit and Arvinder.

[7] Arvinder was not involved in Baljit’s breach of trust, but she was certainly complicit in the fraudulent conveyance. This excuses her from the First Action but not the Second Action.

Background

[8] 227 was incorporated under Ontario law on January 13, 2011. The initial directors of 227 were Ashar Malik (“Ashar”) and his brother. Ashar owns 100% of the shares of 227.

[9] Kailash Kasal (“Kailash”), vice president of 227, was the person primarily negotiating with Baljit in respect of the Dundas Property venture and was authorized to sign all documents.

Arvinder and Baljit’s separation

[10] Arvinder and Baljit married in 1994.

[11] When the matrimonial home, located at 40 Daleridge Crescent, Brampton, (the “Matrimonial Home”) was purchased in 2008, it was purchased in Baljit’s name alone.

[12] Arvinder and Baljit executed an interim separation agreement dated November 12, 2014 (the “Separation Agreement”). It provided that the “separation date is to be determined.” The Separation Agreement addresses the sale of the Matrimonial Home by Baljit to Arvinder on the following terms:

Baljit to transfer his interest in the Matrimonial Home to Arvinder for $2.00.
The parties acknowledge that there is a first mortgage on title.
The parties acknowledge that there is a Canada Revenue Agency (“CRA”) lien in the approximate amount of $400,000.00.
The parties intend that Arvinder will take title to the Matrimonial Home in her name alone and will refinance it and pay off the CRA lien and the existing first mortgage.

[13] The only operative sections in the Separation Agreement are the matrimonial home provisions, waiver of financial disclosure, and certain provisions regarding debts, including that Arvinder and Baljit will be solely responsible for payment of their own personal debts and liabilities, except as otherwise noted in the agreement.

[14] The Separation Agreement provides that both parties were advised by their lawyers to obtain financial disclosure from the other party, including sworn financial statements detailing the parties’ respective assets and liabilities. However, Baljit and Arvinder both waived financial disclosure and entered into the agreement without reviewing the other parties’ financial disclosure. The Separation Agreement also states “[t]he parties acknowledge that, aside from the issues dealt with in this Agreement, none of their respective legal rights and obligations relating to the dissolution of their marriage have been resolved and remain outstanding.”

[15] The evidence at trial regarding the date of separation of Arvinder and Baljit was a moving target, appearing to be sometime from 2010 to 2014.

[16] Although the Separation Agreement provides that either party may proceed to obtain a divorce judgment or order on an uncontested basis, the parties are still not divorced.

New Star

[17] New Star is a real estate brokerage registered under the Real Estate and Business Brokers Act, S.O. 2002, c. 30, Sched. C. Baljit incorporated New Star on or about April 8, 2008 and was the broker of record for New Star until March 30, 2012.

[18] On April 20, 2011, Baljit sold his New Star shares to Arvinder for nominal consideration and resigned as a director, president, secretary and treasurer of New Star.

[19] Arvinder is the current broker of record for New Star and has been so since March 30, 2012. At that time, she assumed control of the bank and trust accounts for New Star. Baljit continued to work for New Star as a real estate agent.

[20] Typically, in a real estate brokerage there are three accounts that a brokerage must maintain: the real estate trust account, where monies received from deposits are held (the “Trust Account”); the commission account, used to hold the commissions that are due and owing to their agents and third-party brokers (the “Commission Account”), and; the general account, which is used to pay business expenses (the “General Account”). New Star had a fourth account, which was used by Baljit for his own investments and development business purposes (“Development Account”).

[21] When Arvinder found out that Baljit was being sued for not returning the $600,000.00, she fired him as an agent at New Star. Arvinder also reported the issue to RECO, her governing body, pursuant to her professional obligations.

Business Ventures

[22] In or around 2010, Ashar and Kailash sought out Baljit to assist them with gas station business ventures. They developed a rapport with Baljit.

[23] Baljit showed them several properties around the Toronto area, including the property known municipally as 951 Dundas Street West in the Town of Whitby, Ontario (the “Dundas Property”).

[24] Ultimately, 227 invested in 3 ventures through Baljit: the Dundas Property transaction in Whitby, Fowlers Corner, and Dundalk. There was also an aborted transaction in Hamilton that involved a $50,000 deposit. With the various projects in and around the same time, there was a significant amount of money changing hands between the parties.

[25] The Fowlers Corner transaction was previously the subject of litigation between certain of the parties: see 2270752 Ontario Inc. v. 2071111 Ontario Inc., 2013 ONSC 2991 (the “Fowlers Corner decision”).

[26] The Dundalk deal also collapsed. The evidence was that Baljit paid 227 back the money it advanced in respect of that deal ($585,000.00) “in dribs and drabs.”

The Dundas Property Transaction

[27] The transaction in question was intended to be a joint venture between Baljit and 227. Each of Baljit and 227 committed to invest $800,000.00 toward the venture. The deal was structured such that 227 would invest $600,000.00 up front. The additional $200,000.00, which was not advanced, was to be paid once the construction of the gas station started. 227 advanced the funds to New Star in trust, assuming it would go, as was legally required, into the real estate brokerage trust account. It was instead appropriated by Baljit and placed in his own personal Development Account.

[28] The development of the Dundas Property could not proceed, as site plan approval was never obtained. Once it was clear that the venture was not going ahead, Kailash and Ashar on behalf of 227 asked Baljit on numerous occasions to return the $600,000.00. He did not.

[29] The statement of claim was issued on or about February 4, 2014.

Analysis

Timing of the Dundas Property joint venture

[30] As set out below, despite the admission by Baljit of the receipt of $600,000.00 from 227 towards the Dundas Property joint venture, significant time at trial was spent on 3 checks produced by 227. One of the checks, for $100,000.00, was dated in February 2011. Based on the date of the check and the timing of the transactions, Baljit claimed that this check was not in respect of the Dundas Property joint venture.

[31] The Dundas Property verbal agreement was struck sometime between February and May 2011. Accordingly, it is not clear whether this check was in respect of this transaction or another of the parties’ transactions. However, as set out below, I rely on the admission in the pleadings and other evidence in finding that 227 advanced the funds to Baljit to be applied toward the Dundas Property venture.

Did 227 advance $600,000.00 to Baljit and/or New Star in respect of the Dundas Property joint venture?

[32] The Dundas Property agreement was initially a verbal one. The defendants now dispute whether 227 advanced funds to Baljit toward the Dundas Property joint venture. Baljit now says he received money from 227, but not for the Dundas Property venture. As discussed further below, it seems that Baljit recently changed his mind when he realized that 227 had erroneously produced a check in respect of a different deal.

[33] The viva voce evidence at trial regarding whether $600,000.00 was advanced from 227 to Baljit toward the Dundas Property venture was from Baljit, Kailash and Ashar. I found both Baljit and Kailash to be inconsistent and evasive. At times, I found Baljit’s evidence to be completely unbelievable and tailored to the moment. For example:

On October 30, 2013, after the Fowlers Corner decision, the parties executed minutes of settlement providing for a payment to 227, in exchange for all rights to the Fowlers Corner property. Baljit signed an acknowledgement the same day, which stated: “Baljit Dhaliwal and Century New Star Realty Inc. hereby acknowledge receipt of the sum of $600,000.00 from 2270752 Ontario Inc. in connection with the development and sale of a gas station located at 951 Dundas Street West, Whitby” (the “Acknowledgement”). Kailash’s evidence was that this was done in conjunction with the settlement to ensure that Baljit acknowledged the $600,000.00 debt re the Dundas Property. When asked about this, Baljit’s evidence was “I don’t remember” and that “[t]here was no discussion at all re Whitby property [Dundas Property].”
Baljit’s evidence was that he did not want to ask for the return of $550,000.00 he says he advanced to the Guptas because he wanted to keep the business relationship.
Baljit changed his story on the $50,000.00 referral fee and said that it was not a commission or referral fee. He said that he had made a mistake.

[34] Baljit’s use of the Development Account in New Star’s name was, at best, misleading.

[35] Ashar’s evidence was straightforward and sensible. Where viva voce evidence conflicts, I have given the most weight to Ashar’s evidence where he has first-hand knowledge.

[36] While the initial agreement was verbal, there was a subsequent shorthand written ‘agreement’ scrawled on a napkin, dated March 5, 2012 (the “Napkin Agreement”). Ashar, Baljit and Kailash met at Tim Hortons on or about March 5, 2012 when the agreement was papered on the napkin, as they had no paper. The Napkin Agreement contains the main components of the “deal.” It refers to the project of cost of $1.6 million, Whitby, and 50/50 share for Baljit and 227. Baljit says that the Napkin Agreement did not happen as he would not do business that way. I note that Baljit’s claim that he would not do business on a napkin flies in the face of his other evidence at trial where it is clear that he would sometimes use no or inadequate documentation or maintain poor recordkeeping. Ashar’s evidence was that he wrote out the agreement on the napkin, which was also signed by Baljit. I accept Ashar’s evidence on the Napkin Agreement.

[37] Ashar was also consistent in his evidence that 227 advanced $600,000.00 to Baljit in respect of the Dundas Property venture. He stated:

“But the whole payment, total amount we paid him for the, it was $600,000.00.”
“Respect to Whitby, we gave him [Baljit] $600,000. This is for sure.”

[38] However, Kailash, not Ashar, was present for most of 227’s dealings with Baljit.

[39] The evidence included two bank drafts to “Century 21 New Star Realty Inc. in Trust”: (i) a bank draft for $100,000.00, dated February 1, 2011, which Ashar stated was paid by him in respect of the Dundas Property transaction, and; (ii) a bank draft receipt for $200,000.00, dated May 26, 2011, which Kailash paid as Ashar’s power of attorney. The $200,000.00 bank draft receipt has a handwritten notation on the bottom left corner that states “Re Purchase Whitby [Dundas Property] Ultramar.” Kailash’s evidence was that he wrote that on the draft as it was in relation to the Dundas Property, which makes sense. The $100,000.00 bank draft was from Ashar’s personal account with Scotiabank. The $200,000.00 was from 227’s account with CIBC.

[40] The timing of the $100,000.00 check is such that it is unclear whether it was in respect of this transaction or another of the multiple transactions pursued by the parties.

[41] Very confusingly, the evidence included another CIBC bank draft on 227’s account for $300,000.00 to “Century 21 New Star Reality Inc.” However, this bank draft was not paid toward the Dundas Property. This bank draft was paid in respect of the Fowlers Corner venture. I accept the plaintiff’s evidence that this was erroneously included by 227 in these proceedings. The problem was that by including this erroneous document, significant time at trial was spent on this largely irrelevant bank draft.

[42] I am satisfied that 227 gave Baljit $600,000.00 towards the Dundas Property joint venture. In fact, Baljit admitted receiving the $600,000.00 from 227 in his statement of defence in this action, where he pleads: “[t]he Plaintiff provided Baljit with the total sum of $600,000.00, which Baljit in turn paid to the owner of the Property [defined as the commercial property located at 951 Dundas Street West, Whitby, Ontario] in connection with the Plaintiff’s purchase less his agreed upon commission.” The lawsuit, obviously, was in respect of the Dundas Property and his admission in the pleadings that he received the $600,000.00 is clearly incontrovertible.

[43] Baljit’s admission in the pleadings is a judicial admission, which has not been withdrawn. The following quote from Canada Permanent Mortgage Corp. v. Toronto (City), [1951] O.R. 726 (Ont. C.A.), at para. 7 , was recently cited in two decisions from this court: Banihashemi v. Behshad, 2021 ONSC 1145 and Forestall v. Carroll, 2015 ONSC 2732:

Admissions made in pleadings or otherwise for the purpose of trial are judicial admissions. The vital feature of a judicial admission is universally conceded to be its conclusiveness upon the party making it, i.e., the prohibition of any further dispute of the effect by him and by any use of evidence to dispute or contradict it. [emphasis added]

[44] This should have ended the story. However, because of the erroneous bank draft produced at some point in these proceedings (but related to another one of the ventures between the parties), Baljit’s narrative shifted. He said that he was bad with recordkeeping (notwithstanding that in respect of the Napkin Agreement he said that he would never do business this way) and there were so many transactions going on that now he did not think that he received $600,000.00 from 227 for this deal. Despite this, there was overwhelming other evidence before me to support 227’s assertion that $600,000.00 was paid to Baljit in furtherance of the Dundas Property joint venture, including:

i. Baljit signed the Acknowledgement referred to earlier, pursuant to which he acknowledges receipt of the $600,000.00 towards the Dundas Property venture. Baljit signed this document in his personal capacity and on behalf of New Star (although he did not have the authority to execute on behalf of New Star at the time). ii. There are a series of text messages from Ashar to Baljit and, then, Arvinder where Ashar is trying to meet with Baljit and discuss the Dundas Property venture and Baljit is giving him the runaround. Ashar’s evidence was also that he called Baljit many times. iii. The Napkin Agreement. iv. In cross-examination, Baljit was read a portion of the cross examination on his own affidavit which occurred on April 24, 2015, which closely mirrors the plaintiff’s recollection: A. So with $1.2 million, we supposed to get this property with the site plan approved. So the 50 percent from their share was – that’s why they gave $600,000. Q. The plaintiff? A. Mr. Kasal and Mr. Malik. Five hundred and fifty thousand dollars was given to the vendor, and the rest, my share was supposed to be paid once the site plan is approved by the time of closing, which never happened. Q. So the sale never closed? A. Because they have some issues with the city, they never was able to get the site plan approved. Q. And who was supposed to get the site plan approved? A. The vendor. Q. The vendor? A. Yeah. Q. So the plaintiff paid the full amount that they were going to pay towards the property, is that right, towards this purchase according to this plan? A. Yes. There was only -- $200,000 they supposed to be paying towards the construction. Q. After the purchase was gone through? A. Right. v. The undertakings and answers included the following: Specific undertaking: To advise the date in which the plaintiff’s $600,000.00 were received by Baljit Dhaliwal, the dates they were deposited and the dates they were withdrawn and transferred to the numbered company. Answer: The $600,000.00 was received by Mr. Dhaliwal and deposited on or about February 1, 2011, May 26, 2011 and June 23, 2011. Mr. Dhaliwal paid out $500,000.00 to the vendor of the subject property on May 31, 2011, prior to receiving the final $300,000.00 from the plaintiff, as an advance towards their venture. An additional $50,000.00 from these funds was paid to the vendor on August 24, 2011. As noted above, Mr. Dhaliwal retained $50,000.00 as a referral fee. vi. The plaintiff’s read-ins included a portion of the transcript from the examination of Baljit, dated August 26, 2016 where he was being questioned about the $50,000.00 out of the $600,000.00 that Baljit said he kept: Q. You were a 50/50 partner on the deal? A. Yes. Q. $600,000.00 comes in. $550,000.00 goes out is what you’ve shown. What happened to the other $50,000.00? A. I kept it. B. … Q. It said, “The Plaintiff provide…” The Plaintiff, and that’s Mr. Kasal and Mr. Malik’s company. It said, “The Plaintiff provided Baljit with a total sum or $600,000.00, which Baljit in turn paid to the owner of the property, in connection with the Plaintiff’s purchase, less his agreed upon commission. That’s wrong, right? A. Yeah, it wasn’t commission, no.

[45] It is unfortunate that one or 2 of the checks produced by 227 in this action were not in respect of this transaction. However, Baljit admitted in the pleadings, and on several other occasions, that he received $600,000.00 from 227 in respect of the Dundas Property. It appears that he changed his story at trial to attempt to capitalize on 227’s error.

[46] I am satisfied that Baljit received $600,000.00 from 227, which was to be used for the Dundas Property joint venture, which did not proceed. Baljit kept $50,000.00. The other $550,000.00 was transferred by him to the owner of the property. There is one check, dated August 26, 2011, from New Star to 2276951 Ontario Inc. [the registered owner of the Dundas Property] in the amount of $50,000.00 that states it is re 951 Dundas. There is a second check, in the amount of $500,000.00, dated May 31, 2011, to James and Associates in Trust from New Star. Baljit’s evidence was that James and Associates is the law firm that was working for Mr. Gupta (Ray Gupta and Wally Gupta owned the shares of 2276951 Ontario Inc., the registered owner of the Dundas Property). His evidence was that he has not received these monies back from the Guptas or the law firm, nor did he ever seek the return of the money. Baljit said that the Guptas are a well-known family and he wanted to maintain his relationship with them in order to get more business deals from them.

[47] Baljit submits that if the court finds that 227 gave him $600,000.00 towards the Dundas Property venture, 227’s action with respect to $550,000.00 of those funds ought to be against the owner of the Dundas Property and not him. I disagree. 227’s only direct dealings were with Baljit. 227 provided the $600,000.00 to Baljit. Baljit was dealing with the owner. There was no agreement between 227 and the owner of the Dundas Property.

[48] 227’s claim was for breach of trust and breach of contract. The parties had a verbal agreement and the written Napkin Agreement. For obvious reasons, I conclude that the agreement between the parties contained an implied term that if the joint venture did not proceed, Baljit would return 227’s money. The inclusion of this term in the agreement would be “obvious to an officious bystander” and “necessary for business efficacy:” Canadian Pacific Hotels v. Bank of Montreal, [1987] 1 S.C.R. 711.

[49] In addition, 227 trusted Baljit, as a real estate agent and broker, to hold the money in trust and use it for the plaintiff’s benefit investing in the Dundas Property joint venture. Baljit did not do this. The trust fails and there is a presumption of a resulting trust. The $600,000.00 results back to the settlor (227): Kerr v. Baranow, 2011 SCC 10, [2011] 1 S.C.R. 269.

[50] In either case, Baljit breached the implied term that the $600,000.00 was to be refunded if the deal did not proceed.

Did Arvinder have any involvement in the Dundas Property joint venture?

[51] No. The evidence is clear that Arvinder was not aware of or involved in the transaction.

Was New Star involved in the Dundas Property Joint Venture?

[52] Based on the evidence, I am satisfied that the joint venture was a private transaction entered into between 227 and Baljit in his personal capacity.

[53] For New Star to be liable as a result of Baljit’s actions, the court must determine that New Star was vicariously liable for Baljit’s actions. New Star would be vicariously liable for Baljit’s actions, if there was a sufficient nexus between the wrongful act and the actions of the employee in the course of their duties as an agent, in furtherance of their duties as a real estate agent. In 561895 Ontario Inc. v. Metropolitan Trust Co. of Canada, [2001] O.J. No. 2162, the court stated, at paras. 172, 173:

In B. (P.A.) v. Curry, [1999] 2 S.C.R. 534 (S.C.C.), McLachlin J., in considering the issue of vicarious liability of any employer, stated at p. 559:

The fundamental question is whether the wrongful act is sufficiently related to conduct authorized by the employer to justify the imposition of vicarious liability. Vicarious liability is generally appropriate where there is a sufficient connection between the creation or enhancement of a risk and the wrong that accrues therefrom, even if unrelated to the employer’s desires.

An employee’s wrongful conduct falls within the scope of his or conduct where it consists of either acts authorized by the employer or unauthorized acts that are so connected with acts that the employer had authorized that they may readily be regarded as modes, although improper modes, of doing what has been authorized. (see Lockhart v. Canadian Pacific Railway, [1942] A.C. 591 (Canada P.C.) at 599.)

[54] There is no written agreement of purchase and sale related to the Dundas Property, nor is there any confirmation of cooperation and representation document binding New Star. Baljit was not authorized by New Star to engage in these development activities in his capacity as a real estate agent. He was acting in his personal capacity.

[55] The money Baljit received in connection with the Dundas Property was not deposited in New Star’s Trust Account, Commission Account or General Account. This was confirmed by Baljit and Arvinder. In addition, Arvinder, as the broker of record of New Star, wrote to Royal Bank of Canada (“RBC”) to verify New Star’s accounts. RBC confirmed, by letter dated June 15, 2015, that New Star had banked with RBC since April 2008. The letter further confirmed that the 3 typical real estate accounts were the only accounts operated by New Star.

[56] Baljit’s Development Account, where Baljit deposited the checks in respect of the Dundas Property, was the off-book account that he used personally for his investment and development activities. It appears that Baljit may have placed this fourth account improperly in New Star’s name, enabling Baljit to deposit checks made out to New Star in trust to this account. However, the account was completely separate from New Star’s other 3 accounts and was used solely by Baljit for his personal development and investment activities, including the Dundas Property joint venture. There was no evidence that New Star was involved in real estate development. This was Baljit’s side business to his job as an agent with New Star. Arvinder’s evidence was that she was not aware of the Development Account until this litigation.

[57] I am satisfied that New Star was not involved in the Dundas Property venture.

Transfer of the Matrimonial Home by Baljit to Arvinder

[58] 227 claims that the transfer of the Matrimonial Home on or about June 10, 2015 from Baljit to Arvinder was an attempt to avoid a pending judgment. 227 had a motion for default judgment set to be heard eight days following the transfer. Baljit had a motion at the same time to set aside the noting in default.

[59] Baljit and Arvinder’s evidence was that their marriage started to deteriorate in 2009, 2010 or 2011, at least in part because of the stress of the brokerage. At some point between 2009 and 2012, Baljit moved into the Matrimonial Home basement. He stayed there until around 2014 when he moved to Arvinder’s Front Street condo. Baljit lived there rent free for about 3 years.

[60] Baljit and Arvinder agreed that she would buy the Matrimonial Home from Baljit. Their evidence was that the process started sometime in 2013, however, it was delayed. The closing was originally scheduled for April 19, 2013. However, just prior to closing, their lawyer found certain executions on title to the property that were in the same name as Baljit, but not his. Their lawyer had to clean the title, which caused a delay. Then there was a further delay due to 2 CRA liens against the property. The first lien was approximately $36,000.00. Arvinder paid this lien. The second lien was for around $406,000.00. When this was discovered, Arvinder registered a matrimonial home designation on title to the Matrimonial Home. Baljit entered into negotiations with CRA to see if he could reduce this significant lien liability. After some period of time, CRA determined its final position regarding the second lien. As set out below, when Baljit sold the home to Arvinder for $2.00, she paid off this lien.

[61] After the transfer of the Matrimonial Home, Baljit had no assets.

[62] Under section 2 of the Fraudulent Conveyances Act, R.S.O. 1990, c. F-29 (the “FCA”):

Every conveyance of real property or personal property and every bond, suit, judgment and execution heretofore or hereafter made with intent to defeat, hinder, delay or defraud creditors or others of their just and lawful actions, suits, debts, accounts, damages, penalties or forfeitures are void as against such persons and their assigns.

[63] Arvinder argues that the exception in section 3 of the FCA is applicable in this case. That section provides that section 2 does not apply when the conveyance is made:

For good consideration;
In good faith; and
To a person not having at the time of the conveyance notice or knowledge of the intent of the transferor in that section.

[64] I am not satisfied that section 3 of the FCA applies in this case. The circumstances of the Separation Agreement, which deals only with the Matrimonial Home and debts, with both parties waiving financial disclosure, strongly suggests that Arvinder was aware of Baljit’s situation. Further, in all the circumstances (described below), the consideration of $2.00 and assumption of certain debts was not good consideration.

Was there an intent to defeat or defraud creditors?

[65] Whether there was a fraudulent intent is a question of fact to be determined from all the circumstances as they existed at the time of conveyance. 227 argues that the existence of one or more of the traditional badges of fraud may give rise to an inference of intent to defraud in the absence of an explanation from the defendant.

[66] In DBDC Spadina Ltd. v. Walton, 2014 ONSC 3052 the court set out the circumstances that may give rise to a badge of fraud, at para. 67:

The case law has identified the following circumstances as constituting “badges of fraud” for purposes of ascertaining the intention of a debtor: (i) the transferor has few remaining assets after the transfer; (ii) the transfer was made to a non-arm’s length person; (iii) there were actual or potential liabilities facing the transferor, he was insolvent, or he was about to enter upon a risky undertaking; (iv) the consideration for the transaction was grossly inadequate; (v) the transferor remained in possession or occupation of the property for his own use after the transfer; (vi) the deed of transfer contained a self-serving and unusual provision; (vii) the transfer was effected with unusual haste; or, (viii) the transaction was made in the face of an outstanding judgment against the debtor.

[67] As set out in Conte Estate v. Alessandro, [2002] O.J. No. 5080, at para. 44, “[t]he presence of one or more of these badges of fraud raises a presumption of fraud.” This shifts the burden of “explaining the circumstantial evidence of fraudulent intent” to the defendants.

[68] There are multiple badges of fraud present with regard to the transfer of the Matrimonial Home. Specifically, Baljit had few, if any, assets following the transfer and Arvinder was aware of this. In addition, there were potential liabilities facing Baljit, namely this claim, and, as set out below, the consideration for the transfer was grossly inadequate. As Baljit and Arvinder are still married, this was a transfer to a non-arm’s length person.

[69] The presence of these badges of fraud raises a presumption of fraud and the burden shifted to the defendants to explain the circumstantial evidence of fraudulent intent. The defendants have not done this. There has been no independent evidence adduced that the transfer of the Matrimonial Home was bona fide.

[70] Arvinder submits that because certain of Baljit’s creditors were paid off as a result of the deal (CRA and RBC mortgage), it cannot be said that the conveyance was to defeat creditors. This is an interesting argument. The mortgage was transferred to Arvinder and then replaced with a new mortgage. The evidence was that they wanted to complete the transaction quickly because the CRA lien was incurring interest at a very high rate, which was eating into the equity of the property. The CRA lien was going up and up and needed to be addressed. In my view, the fact that this was paid off, in light of the other evidence, including the terms of the Separation Agreement and the lack of any equalization payment, does not mean that there was not an intent to defeat other creditors.

[71] Baljit points to the timing of the transfer and argues that there was no fraudulent intent. He and Arvinder had started the process to transfer the Matrimonial Home sometime in 2013. This was before this claim was issued in February 2014. However, prior to the claim being issued, Baljit knew that he had received $600,000.00 from 227 and had been hounded by calls and texts from Kailash and Ashar on behalf of 227 regarding the status of the deal. Arvinder also was aware of Baljit’s issues, having also received texts from Kailash and Ashar and having met with Ashar and Kailash who informed her of the business dealings and Baljit’s evasiveness. When the claim was finally issued in 2014, this would not have been a surprise to Baljit, who had not returned the $600,000.00 to 227 when the deal cratered.

Sale of the Matrimonial Home

[72] The land registry transfer of the Matrimonial Home from Baljit to Arvinder states that the consideration was $2.00. However, the trust ledger statement from the real estate lawyer and the commitment letter from the Equity Trust support Arvinder’s evidence that she paid $33,000.00 from her own account and took out a new mortgage for approximately $863,000.00. In addition, Arvinder paid off the outstanding RBC mortgage (which she had assumed) in the amount of $496,861.13 and the CRA Lien in the amount of $395,687.60. Baljit’s half of the RBC mortgage would have been approximately $248,430.00. The Matrimonial Home was appraised at about $1,135,000.00 as of March 30, 2015. Arvinder says that the consideration for the transfer of the Matrimonial Home was her paying off Baljit’s debts.

[73] However, this does not resolve the issue. Baljit and Arvinder say that they had separated. Typically, on separation there would be an equalization payment, which has not occurred in this case. The wording of the Separation Agreement seems to leave open the possibility of that payment still being determined. As set out above, the only asset that is addressed in the Separation Agreement is the matrimonial home. The Separation Agreement also makes clear that each party is responsible for their personal debts and liabilities and states that “aside from the issues dealt with in this Agreement, none of their respective legal rights and obligations relating to the dissolution of their marriage have been resolved and remain outstanding.” Interestingly, the Separation Agreement defines “equalization payment,” however the term is not otherwise used in the document.

What would equalization have looked like?

[74] When this issue is explored further, it becomes clear that the transfer of the Matrimonial Home, leaving Baljit with zero assets, was done with an intent to defraud other creditors of Baljit.

[75] There has not been an equalization payment. The Separation Agreement addressed only the Matrimonial Home and debts. Typically, when dealing with a division of assets upon a separation or divorce, the spouse whose net family property is the lesser of the two net family properties is entitled to one half of the difference between them: Family Law Act, R.S.O. 1990, c. F.3 (“FLA”), section 5(1). Each spouse’s assets less their liabilities at the date of separation are their net family property. However, in determining each party’s net family property, their assets at the date of marriage (other than the matrimonial home if held at the date of marriage) are excluded: FLA, section 4.

[76] The defendants did not provide evidence of their assets on the date of marriage. Arvinder mentioned an inheritance but did not provide the amount or any information regarding whether the funds had been kept separate or spent. Further, there was no independent evidence of the inheritance.

[77] As set out above, the date of separation was a moving target. There was no independent evidence of the date. Arvinder was asked to produce her family law files but refused. Arvinder was cross-examined regarding the inconsistent evidence she has provided about the date of separation. This included her prior evidence that:

She became estranged from Baljit on September 2, 2014 (cross-examination dated April 24, 2015);
Separation date was early 2012 (affidavit sworn on October 7, 2015);
Separation date was early 2013 around the time she purchased the Front Street condo (plaintiff read-ins); and
The date was “to be determined” on the 2014 Separation Agreement.

[78] Based on the evidence, Arvinder either had the money earned and saved during the marriage or she had the property she purchased (as discussed below), whether the separation date was in 2012 or 2014. This was not a matrimonial proceeding. The court was not tasked with determining the date of Arvinder and Baljit’s separation. In Walkiewicz v. Walkiewicz, [2007] O.J. No. 2249, where there was a dispute on the date of separation for equalization purposes, the court determined that the date of separation was when one spouse left the matrimonial home, terminating their economic relationship. In the circumstances, it is reasonable to conclude for the purposes of this analysis that Arvinder and Baljit’s separation date was on November 12, 2014 when the Separation Agreement was struck and around the time that Baljit moved out of the Matrimonial Home.

[79] The Matrimonial Home was owned by Baljit and so it would be included in his valuation date assets on separation. Although we do not know the precise date of separation, we know that Arvinder had significant assets when the parties separated. We also do not have fulsome evidence of Arvinder’s assets at separation. Arvinder failed to produce her financial records detailing her assets as of the date of separation, her income tax returns and her family law records.

[80] We know that Arvinder owned New Star, the shares of which had been purchased by her from Baljit for nominal consideration. Her assets included a condominium on Front Street in Toronto purchased for about $445,000.00 in January 2014 (with a mortgage of approximately $370,000.00), a property in Elmvale purchased by a company owned 100% by Arvinder on January 31, 2013 for $425,000.00 (free and clear with no mortgage), two condominiums in Brampton purchased on or about March 2, 2012 for $377,000.00, valued at approximately $699,000.00 as of December, 2014 (free and clear with no mortgage as of December 2014). The evidence was that Arvinder bought these properties from money earned and saved during the marriage. Among other things, the couple had owned several pizza franchises prior to going into real estate. Arvinder’s evidence at trial was that as of December 2014, the retail value of the holdings in her company was approximately $1.5 million.

[81] If Arvinder held approximately $1.5 million of assets on the date of separation, and Baljit held the Matrimonial Home, worth about $1.135 million and debts (CRA lien and mortgage on the Matrimonial Home), Arvinder would have owed Baljit a substantial equalization payment. It certainly would have been enough to pay off his CRA lien and leave him equity in the house.

[82] I am satisfied that the transfer of the Matrimonial Home was a fraudulent conveyance and was void against Baljit’s creditors, including 227. My reasons for this finding include:

The circumstances of the interim Separation Agreement, addressing only the Matrimonial Home and the debts, but leaving equalization open;
The fact that Arvinder would have owed Baljit a substantial equalization payment had one been done;
The fluidity surrounding the date of separation and the fact that the parties are still married; and
The fact that Arvinder refused to produce her family law file, bank statements and accounting records.

Disposition and Costs

[83] Judgment in the First Action is granted to the plaintiff, 227, against Baljit for $600,000.00 plus pre-judgment interest based on the Courts of Justice Act, R.S.O. 1990, c. C.43.

[84] The First Action against Arvinder is dismissed. And accordingly, the cross claim against Baljit is moot.

[85] Judgment will issue in the Second Action against Baljit and Arvinder, setting aside the transfer of the Matrimonial Home from Baljit to Arvinder as being a fraudulent conveyance.

[86] The action against New Star is dismissed.

[87] 227 is entitled to costs. The parties are encouraged to settle the issue of costs. If they cannot do so by March 18, 2022, the plaintiff shall notify my judicial assistant. 227 may file its costs submissions of up to 5 pages (plus Bill of Costs and any settlement offers) by April 1, 2022. The defendants may file their costs submissions of up to 5 pages (plus Bill of Costs and any settlement offers) by April 19, 2022.

J. Steele J. Released: February 28, 2022

ONTARIO SUPERIOR COURT OF JUSTICE