Court File and Parties
Court File No.: CV-22-748 Date: 2022-03-04 Ontario Superior Court of Justice
Between: Brookfield Residential (Ontario) Limited, Plaintiff – and – Chang Jiu Chen and Chun Yan Zheng, Defendants
Counsel: Dan McConville, for the Plaintiff No one appearing for the Defendants
Heard: March 2, 2022
Reasons for Decision
DE SA J.:
[1] The defendant Chang Jiu Chen (“Chen”) defaulted on an agreement of purchase and sale for the purchase of a home from the plaintiff Brookfield Residential (Ontario) Limited (“Brookfield”). Litigation ensued in which Brookfield claimed damages for losses caused by Chen’s breach of contract. On February 15, 2022 Justice Lack granted judgment to Brookfield in the amount of $387,459.13 plus interest and costs following a summary judgment motion.
[2] Following Justice Lack’s judgment, Brookfield conducted a title search on Chen’s property, 10 Boland Court, Aurora (the “Property”) and discovered that Chen had transferred title to the Property to his spouse, the defendant Chun Yan Zheng (“Zheng”) on July 6, 2021. The transfer occurred six weeks after cross-examinations at which Chen advised that he owned the Property and in the face of Brookfield’s pending summary judgment motion.
[3] The Defendants did not advise Brookfield that the transfer of 10 Boland Court had occurred or was going to occur. The first time Brookfield learned of the transfer was upon conducting the PIN search dated February 17, 2022 following Justice Lack’s judgment.
[4] The Property was initially purchased by Chen on March 23, 2020 for $1,245,000. The transfer of the property was for the nominal amount of $2.
[5] Brookfield commenced a fraudulent conveyance action to set aside the transfer and now seeks leave to register a CPL on the Property.
[6] Brookfield now brings this motion for leave to register a certificate of pending litigation (“CPL”) against title to the defendants’ property at 10 Boland Court, Aurora.
Certificates of pending litigation in fraudulent conveyance actions
[7] A certificate of pending litigation (“CPL”) may be issued in an action to set aside a fraudulent conveyance. The standard for issuing a CPL in these circumstances is a prima facie case of fraud. As set recently out in Fernandes v. Khalid, 2021 ONSC 190 [^1]:
[34] A CPL may issue in an action to set aside a fraudulent conveyance, even if the plaintiff has no interest in the land and is not yet a judgment creditor. The standard to meet for obtaining a CPL in an action to set aside a fraudulent conveyance is a prima facie case of fraud: Thomsen v. O’Callaghan, 2019 ONSC 6947 (Master) at para. 12; Financialinx at para. 28; Nordic Insurance Co. of Canada v. Harkness, [2001] OJ No 1123 (SCJ) at para. 17; Vettese v. Fleming, [1992] OJ No 1013 (Gen Div).
[8] Section 2 of the Fraudulent Conveyances Act provides as follows:
Where conveyances void as against creditors
- 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. R.S.O. 1990, c. F.29, s. 2.
[9] A fraudulent conveyance can be shown by establishing the existence of “badges of fraud”. [^2] Proof of one or several badges of fraud raises a prima facie case. Potential badges of fraud were set out in Incondo v. Sloan, 2014 ONSC 4018, aff’d 2015 ONCA 752 [^3]:
[52] The badges of fraud derive from Twyne’s Case (1601), 76 E.R. 809. As interpreted by modern courts, the badges of fraud include
(a) the donor continued in possession and continued to use the property as his own; (b) the transaction was secret; (c) the transfer was made in the face of threatened legal proceedings; (d) the transfer documents contained false statements as to consideration; (e) the consideration is grossly inadequate; (f) there is unusual haste in making the transfer; (g) some benefit is retained under the settlement by the settlor; (h) embarking on a hazardous venture; and (i) a close relationship exists between parties to the conveyance.
[10] In this case, the plaintiff is a judgment creditor. Numerous badges of fraud have been established by the facts of this case. The badges of fraud include:
(a) The consideration for the transfer ($2) was grossly inadequate. (b) A close, non-arm’s length relationship (a spousal relationship) exists between Chen and Zheng. (c) Chen has continued to be in possession of the property in the sense that he still lives in and enjoys full use of the property despite the transfer. (d) The transaction was secret in the sense that Chen did not advise Brookfield of the transfer. (e) The transfer was made six weeks after cross-examinations in the face of an upcoming summary judgment motion.
[11] The Respondent sent a letter indicating that he was unable to attend because of a work engagement and is in the process of retaining a lawyer. In the letter, the Respondent indicates that he had no intention to evade payment. He maintains that he had to transfer the Property in his wife’s name because they changed the mortgage on the Property.
[12] I do not find the Respondent’s explanation compelling.
[13] In the letter, the Respondent acknowledges that the Property is his home.
[14] The Applicant has satisfied me that a CPL is warranted.
Disposition
[15] The Applicant is granted leave to obtain and register a Certificate of Pending Litigation with respect to 10 Boland Court, Aurora, more particularly described as:
PIN 03642-4050 (LT)
Description LOT 21, PLAN 65M4462; SUBJECT TO AN EASEMENT FOR ENTRY AS IN YR2437751; TOWN OF AURORA
Address 10 Boland Court Aurora ON L4G 0W6
[16] Costs of this motion are reserved to the outcome of the proceeding.
Justice C.F. de Sa Released: March 4, 2022
Footnotes
[^1]: Fernandes v. Khalid, 2021 ONSC 190, at para. 36. [^2]: Thomsen v. O’Callaghan, 2019 ONSC 6947, at para. 13. [^3]: Indcondo v. Sloan, 2014 ONSC 4018, at para. 52; aff’d 2015 ONCA 752.