Court File and Parties
COURT FILE NO.: 33-2391513 DATE: 2022/04/13
ONTARIO SUPERIOR COURT OF JUSTICE IN BANKRUPTCY and INSOLVENCY
IN THE MATTER OF THE BANKRUPTCY OF THOMAS GREGORY ASSALY OF THE CITY OF OTTAWA IN THE PROVINCE OF ONTARIO
BEFORE: Mr. Justice Robert Smith
HEARD IN OTTAWA: March 4th, 2022, by Zoom
APPEARANCE: Percy Ostroff, for the Trustee, Baker Tilly Ottawa Ltd. Rodrigo Escayola and Martin Black, for Robert C. Assaly, as Estate Trustee for the Estate of Thomas G. Assaly Thomas Gregory Assaly
Reasons for Decision
[1] This motion involves a consideration of the Law of Assent with regards to an undischarged Estate. The Estate Trustee paid $380,000 to a beneficiary's lawyer in trust on the condition that the beneficiary provide a letter of credit in favour of the Estate, before the funds could be released. The letter of credit was never provided and the lawyer for the intended beneficiary subsequently paid the money into court. In these circumstances, did the Estate Trustee assent to transfer the bequest to the beneficiary.
[2] Robert C. Assaly, as the Estate Trustee for the Estate of Thomas C. Assaly (the “Estate Trustee”) and the Trustee in Bankruptcy for Thomas G. Assaly (the “Trustee in Bankruptcy”) have brought motions seeking an order directing the payment of the funds held in court, of about $469,000 (the “Funds”), to be paid out in accordance with a settlement they have reached.
[3] Thomas G. Assaly (“Tom” or the “Bankrupt”) is an undischarged Bankrupt and one of Thomas C. Assaly’s (“Tom Sr.”) three children. The Funds were initially paid to Tom’s lawyer in trust as part of his share of Tom Sr.'s Estate, subject to a condition that he provide a letter of credit to cover a potential claim against the Estate. Tom failed to provide the letter of credit and eventually his lawyer paid the Funds into court. Tom argues that before he declared bankruptcy, he assigned his interest in the Funds to the Thomas C. Assaly Charitable Foundation (the “Foundation” or the “Charitable Foundation”) in Florida, for the benefit of his children. As a result, he argues that the Funds should be paid out to the Foundation.
Issues
[4] The following issues must be decided:
a. Does the Charitable Foundation or Tom have any standing on this motion?
b. Should the Funds be paid to the Estate Trustee because he never assented to the transfer of the Funds to Tom?
c. Is Tom's purported assignment of his interest in the Funds to the Foundation a reviewable transaction?
Background Facts
[5] This matter has a lengthy history, the details of which are not contested. As a result, I have taken some uncontested background facts from the materials filed by the moving parties.
[6] Tom Sr. passed away on July 9, 2007, without a will.
[7] Gloria Assaly (“Gloria”) was the spouse of the deceased at the time of his death.
[8] Tom is one of the three children of Gloria and Tom Sr.
[9] Tom is a bankrupt and Baker Tilly Ottawa Ltd. is the licensed insolvency Trustee in Tom’s Estate in Bankruptcy.
[10] Robert is also one of the children of Gloria and Tom Sr., and he is the Estate Trustee for the Estate of Tom Sr., without a will.
[11] In 2007 and 2008, Tom commenced two proceedings against his father’s Estate:
a. The first, in 2007, was for injunctive relief essentially to freeze the Estate’s assets. This motion was originally brought ex parte on an allegedly urgent basis. The motion judge directed that the motion be brought on notice (the “2007 motion”); and,
b. The second, in 2008, was an application in which he sought, amongst other relief, to have Robert removed as the Trustee of the Estate. Thomas had previously consented to this appointment. (“2008 Application”).
[12] In March 2008, Justice Polowin presided over the proceedings and, ultimately, the parties settled both proceedings in March 2008.
[13] As part of the settlement, Tom executed minutes of settlement and a deed of indemnity (the “2008 Minutes of Settlement”).
[14] The 2008 Minutes of Settlement provided that “Thomas is to sign a deed of indemnity in the same form as Gloria and Douglas [two other beneficiaries], and [is to] provide security as stated therein”.
[15] A Deed of Indemnity was executed by Tom on March 25, 2008 (“Deed of Indemnity”). This Deed of Indemnity provided, inter alia, that Tom unconditionally and irrevocably agreed to indemnify Robert from all indebtedness, liabilities and obligations of the Estate and of Robert, arising out his actions as Estate Trustee.
[16] As part of the Deed of Indemnity, Tom was also to provide Robert with a security acceptable to Robert, in the latter’s discretion, to secure the obligations under the 2008 Deed of Indemnity. The parties then agreed that various mortgages would be provided as the required security.
[17] However, subsequent title searches revealed that the properties on which Tom was proposing to provide mortgages could not, in fact, be used as securities and would therefore not suffice.
[18] Tom never did provide a proper security. As a result, the parties were forced to enter into a further settlement, which formed part of a subsequent Full and Final Mutual Release.
[19] The financial terms of this settlement included the payment of $775,645.32 to Tom. These Funds were to be made payable as follows:
a. The sum of $384,190.37 was payable to Tom, immediately;
b. A further $11,454.95 was payable to Tom, immediately; and
c. A further $380,000, was to be paid to Tom, but only upon Tom obtaining and providing an irrevocable letter of credit in favour of the Estate by April 17, 2008.
[20] The first two payments were made to Tom on or around April 14, 2008.
[21] The third payment ($380,000) was paid to the law firm then representing Tom, Low Murchison in trust, on the express condition that the firm and the partner involved, Peter Hargadon, would hold it in escrow pursuant to a lawyer’s undertaking that the Funds would not be released without the aforesaid letter of credit having been delivered within three (3) days.
[22] Tom did not provide the letter of credit within the agreed 3 days, nor to this day.
[23] Robert’s lawyers requested on numerous occasions that the $380,000 be returned to the Estate, but to no avail.
[24] Eventually, Low Murchison and Peter Hargadon brought an interpleader application (in this Honourable Court under file no. 08-CV-41456) seeking leave to pay the $380,000 to the Accountant of the Ontario Superior Court of Justice.
[25] On March 31, 2009, an Order was issued by Justice David Aston in the said interpleader application, directing payment into court of the sum of $380,000 held by the said law firm in trust. This amount was paid into court on or around April 5, 2010.
[26] Justice Aston left it to the parties to either resolve or litigate the issue of the entitlement to these Funds. Tom has taken no steps to claim these Funds since then.
[27] A number of subsequent claims, proceedings, and collateral attacks against the Estate (all in the breach of the 2008 Minutes of Settlement) have been initiated by Tom, his associated entitles, foundations, and alter egos against Gloria, Robert, and the Estate. The proceedings brought by Tom (and entities or parties he controls) have all been dismissed and costs awards have been rendered against Tom and/or the entities that have brought these proceedings. Most of the costs awards remain outstanding.
[28] In 2015, Gloria and Robert in his capacity as Estate Trustee brought an Action against Tom for damages resulting from these champertous and vexatious proceedings. This action bears court file number 15-66598 (the “2015 Civil Action”).
[29] Tom attempted to stay and evade the consequences of the 2015 Civil Action by:
a. Filing a Chapter reorganization in the United States Bankruptcy court in the Southern District of Florida on November 28, 2017;
b. Making a Consumer Proposal on March 22, 2018; and,
c. Filing for bankruptcy on June 21, 2018.
[30] Gloria and Robert, as Plaintiffs in the 2015 Civil Action, sought (and partly lifted) the automatic stay of proceeding resulting from Tom’s bankruptcy. In the context of this contested motion, Tom declared having assigned the Funds in Court to “the Thomas C. Assaly Charitable Foundation,” a foundation set up for his children.
[31] Tom’s defence to the 2015 Civil Action was ordered struck in April 2019 by Justice Corthorn, with an uncontested trial to be held before Her Honour, who remained seized of that matter.
[32] On March 30, 2021, Kershman J. refused Tom’s application to discharge him from bankruptcy for a number of reasons including that:
a. Tom either did not disclose to the Trustee in Bankruptcy or severely undervalued assets he held;
b. Tom failed to disclose the now alleged assignment of the monies held in court to the Foundation, despite the alleged assignment having taken place within 5 years of the date of his bankruptcy;
c. Tom failed to disclose several businesses he operated within the 5 years preceding his assignment in bankruptcy;
d. Tom failed to disclose a prior US bankruptcy proceeding dated November 28, 2017;
e. Tom failed to disclose a Chapter 11 Bankruptcy filing in the United States;
f. Tom failed to disclose a later claim interest in his father’s estate;
g. Tom failed to list all creditors in a prior Consumer Proposal;
h. Tom failed to disclose documentation pertaining to the US bankruptcy filing despite having been ordered to do so by Master Champagne (as she then was) on November 29, 2017;
i. Tom failed to disclose all of his current income and to pay surplus income to the Trustee in Bankruptcy; and,
j. Tom failed to perform duties under the BIA.
Analysis
Issue #1 - Does the Charitable Foundation or Tom have any standing on this motion?
[33] Notice of Motion was served on Tom and the Charitable Foundation in December of 2021. The motion was returnable on January 27, 2022. Mr. Diegle appeared at the motion on behalf of both Tom and the Charitable Foundation and requested an adjournment. The request for an adjournment was granted for the Charitable Foundation on the condition that it, as an impecunious corporation from a foreign jurisdiction, pay $15,000 as security for costs by February 11, 2022.
[34] The Charitable Foundation failed to pay the security for costs and did not appear on this motion. Tom was not granted standing as he is an undischarged bankrupt and any property interest he may have to the Funds is vested in his Trustee in Bankruptcy. Nonetheless, Tom did attend the motion and made submissions.
[35] Tom also filed a motion on behalf of the Charitable Foundation and an affidavit in which the Foundation sought leave to appeal my decision of January 22, 2022, granting an adjournment on conditions. I stated that I could not deal with the Foundation's motion as it sought leave to appeal my decision.
Disposition of Issue #1
[36] For the above reasons, I find that neither the Charitable Foundation nor Tom have standing on this motion. Notwithstanding this fact, I will address the legal issues raised by the Charitable Foundation with regards to the Funds.
Issue #2 - Should the Funds be paid to the Estate because the Estate Trustee Never Assented to the Transfer of the Funds to Tom?
[37] The Charitable Foundation’s position is that the Funds should be paid to it. The Foundation submits that Tom assigned his interest in the Funds to it by an e-mail sent to his lawyer dated January 23, 2013. In this e-mail, Tom stated that he intended to assign his right, title, and interest in the Funds to his children to an entity that had yet to be established.
[38] The Charitable Foundation was incorporated in the State of Florida in April of 2013. On January 31, 2014, an assignment agreement was executed by Tom personally and on behalf of the Charitable Foundation assigning all of Tom's right, title, and interest in the Funds to the Foundation. The assignment was for $10 and was for the benefit of Tom’s children, who are related parties.
[39] The Estate's position is that Tom did not have any interest in the Funds to assign because the Estate Trustee had never assented to the transfer of the Funds to Tom. As such, no transfer ever occurred and the Funds continue to belong to the Estate.
[40] The Law of Assent was described by Professor Emeritus Albert Oosterhof, in his paper “Locus of title in an Unadministered Estate and the Law of Assent” (October 2017). The theory of Assent underscores the very basis of an Estate Trustee’s abilities and duties to administer assets on behalf of the Estate:
An assent is a statement or act of a personal representative by which he indicates that certain property that forms part of the assets of the estate is not, or is no longer needed to discharge the estate’s debts, funeral expenses, or general pecuniary legacies. The effect of the assent is to release the property to the beneficiary to whom it was left in the will. This suggests, therefore, that until the assent is given, the beneficiary’s title is incomplete. And this is, indeed so. For the personal representative holds the complete, unfragmented title to the estate to permit him property to administer it. Thus, the beneficiaries do not have access to the property the testator left to them in her will until the persona representative gives his assent or transfers the property to them.
[41] Professor Oosterhof stated that secondary beneficiaries did not have a property interest in any Estate assets until the Trustee assents or transfers the assets to the beneficiaries. At paragraph 64, he stated as follows:
Residuary beneficiaries do not have a property interest in any specific assets until administration is complete and specific beneficiaries have only inchoate interest in the property left to them until administration is complete, or the personal representative gives her assent, or when she transfers the assets to the beneficiaries. The assent, when made, releases the property that the testator left to the beneficiaries in his will. An assent is required for gifts of both personal and real property.
[42] In Dushinsky Estate v. Minister of National Revenue, 1990 CarswellNat 387 at para 9, the court cited Halsbury's Laws of England, 4th ed, vol 17 at paras. 1345 and 1347, where the court held that an executor’s assent was necessary to render a bequest on a legacy complete and perfect. The court stated as follows:
The general principles of law which govern this case are doubtful. The position of an executor is a peculiar one. He is appointed by the will, but then, by virtue of his office, by the operation of law and not under the bequest in the will, he takes a title to the personal property of the testator, which vests with the plenum dominium over the testator’s chattels. He takes that, I say, by virtue of his office. The will becomes operative so far as its dispositions of personal property are concerned only if and when the executor assents to those dispositions.
[43] In this case, the Estate Trustee transferred the remainder of Tom’s interest in Tom Sr.'s Estate to his solicitor in trust on the condition that Tom provide a letter of credit within 3 days as security for a potential claim against the Estate. Tom failed to comply with the condition and never provided the required letter of credit. After some time, Tom's lawyer paid the money into court as the condition that had not been fulfilled.
[44] The Estate Trustee never unconditionally transferred to Tom the remaining share that he was to receive his father’s will. The Estate Trustee imposed a condition that a letter of credit be provided as security for the Estate before the Funds were released to Tom.
[45] In this situation, the Estate Trustee never assented to the transfer of the Funds to Tom. As a result, the Funds have remained the property of the Estate of Thomas Sr. As a result, Tom never received any interest in the Funds that he could assign to the Foundation until the Estate Trustee assented to their transfer to him.
[46] A Deed of Indemnity was signed between Tom and the Estate Trustee which stated at paragraph 10 that Tom would provide “security acceptable to him (the Estate Trustee) in his discretion”. Tom was unable to provide the mortgage security and the parties further agreed that Tom’s lawyer Peter Hargadon would undertake to hold the amount of $380,000 in trust and to release the said $380,000 only to obtain the said letter of credit all of which were “to be concluded within three business dates”.
[47] The terms of the Deed of Indemnity allowed the Estate Trustee to require security for the Estate that was acceptable to him in his discretion before releasing and transferring the remainder of Tom’s beneficial share to him. The Estate Trustee agreed to release and transfer the balance of Tom’s share upon receipt of a letter of credit. Tom failed to comply with the condition and never provided a letter of credit as security for the Estate. The Estate Trustee never assented to the transfer of the Funds to Tom.
Disposition of Issue #2
[48] For the above reasons, I find that the Estate Trustee never assented to the transfer of the Funds to Tom. Tom failed to fulfill the condition imposed on the transfer and as a result, the Funds remain the property of the Estate of Thomas C. Assaly.
Issue #3 - Is Tom's purported assignment of his interest in the Funds to the Foundation a reviewable transaction?
[49] The assignment agreement made as of January 31, 2014, assigning all of Tom’s right, title, and interest in the Funds to the Foundation was made within 5 years of Tom's assignment in bankruptcy. Tom’s assignment in bankruptcy occurred on June 20, 2018. The consideration for the assignment of Tom’s interest in the Funds was $10, which was undervalued. The assignment was also not an arm’s length transaction, as the Foundation is for the benefit of Tom’s children.
[50] Section 96 of the Bankruptcy and Insolvency Act (“BIA”) provides that the Trustee may apply to a Court for a declaration that a transfer that is undervalued is void as against the Trustee, if made to a party that was not at arm’s length and the transaction occurred within 5 years of bankruptcy and:
a. The debtor was insolvent at the time of the transfer or was rendered insolvent by it, or
b. The debtor intended to defraud, defeat, or delay a creditor.
[51] A fraudulent intent can be inferred where certain “badges of fraud” are present. There are two badges of fraud present in Tom’s assignment of his interest in the Funds. Firstly, the consideration was grossly inadequate and secondly, the assignment was for the benefit of the Bankrupt’s children. Bank of Montreal v. Bibi, 2020 ONSC 2948.
[52] I find that the assignment of Tom’s interest in the Funds, made by him on January 31, 2014, was void as against the Trustee in Bankruptcy because it was made within 5 years of his bankruptcy, it was an undervalued non arms length transaction, and was made with the inferred intent to defraud creditors.
Does the e-mail Tom sent to his lawyer on January 23, 2013, indicating his intention to assign his interest in the Funds to his children, through an entity that had not yet been established, constitute a valid assignment to the Foundation?
[53] I find that Tom's e-mail to his lawyer dated January 23, 2013, did not constitute a valid assignment of his interest in the Funds for the following reasons:
a. In the e-mail Tom stated that he transferred all rights, title, and interest to his children; However, the Foundation had not been formed to receive the transfer of the Funds on the date of this e-mail;
b. The e-mail also stated that a more formal assignment would be signed and sent to his lawyer at a later date;
c. The Foundation was only incorporated in April of 2013 and did not exist when the e-mail was sent;
d. The e-mail shows an intention to assign his interest in the Funds at a future date to an entity to be created and as such did not constitute a completed assignment.
[54] The e-mail purporting to assign Tom’s right to the Funds to an entity to be created for nominal consideration is a purported gift of the Funds for the benefit of Tom’s children. To effect a gift, three things are required: there must be an intention to make a gift, the delivery of the gift and an acceptance of the gift.
[55] Tom's e-mail is evidence of his intention to gift his interest in the Funds by assigning them for the benefit of his children. However, there is no evidence of a delivery of the gift or an acceptance of the gift when the e-mail was sent. The gift was only delivered and accepted on January 31, 2014, when the assignment agreement was prepared and signed by Tom personally and agreed to by the Foundation. The assignment agreement dated January 31, 2014, constitutes the delivery and the acceptance of the gift of Tom’s interest in the Funds.
[56] The assignment of the Funds was only completed on January 31, 2014, and as such is a transfer that is reviewable under section 96 of the BIA as it occurred within 5 years of Tom's bankruptcy.
Disposition of Issue #3
[57] For the above reasons, I find that Tom’s purported assignment of his interest in the Funds was only effective on January 31, 2014, when the assignment agreement was executed by both parties. The assignment was made for nominal consideration to a Foundation for the benefit of non arm’s length parties, namely Tom’s children within 5 years of Tom’s bankruptcy and, if Tom had any interest in the Funds to assign, is therefore a reviewable transaction by the Trustee in Bankruptcy.
Disposition of the Motions
[58] Leave is granted to bring these motions. For the above reasons, the motions are granted and an order to go as follows:
The Minutes of Settlement dated and effective as of March 31, 2021 between the Trustee in Bankruptcy and the Estate Creditors (Gloria Assaly, Robert Assaly, in his capacity as the Estate Trustee of the Estate of Thomas C. Assaly, and creditors of the Bankrupt) are hereby approved.
The Accountant of the Superior Court of Justice shall pay the totality of the Funds in Court to the credit of Court File No. 08-CV-41456 at Ottawa, together with any and all interest or other revenue accrued on the original funds as follows:
a) $50,000 to the Trustee, as property of the Bankruptcy Estate by cheque payable to Baker Tilly Ottawa Ltd., as Trustee in the Bankruptcy of Thomas Gregory Assaly, and delivered to Baker Tilly Ottawa Ltd., 301 Moodie Drive, Suite 400, Ottawa, Ontario, K2H 9C4, to the attention of Julie Merkley; and
b) The remainder to the Estate creditors by cheque payable to The Estate of Thomas C. Assaly, and delivered to Robert Assaly (Estate Trustee), 99 Range Road, Unit 105, Ottawa, Ontario, K1N 0C4.
- The purported assignment of the Funds by the Bankrupt in favour of the Thomas C. Assaly Charitable Foundation Inc. is and was null and void, and that the said foundation has no right to interest in or to any of the funds.
Costs
[59] The moving parties shall have 10 days to make written submissions on costs not exceeding 10 pages.
Mr. Justice Robert Smith