Court File and Parties
COURT FILE NO.: CV-21-00673901
MOTION HEARD: 20230920
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Hands-On Capital Investments Inc. and IAM Investments Inc., Plaintiffs
AND:
Pradeep Kumar Matharoo and Tvinder Kaur Mahon, Defendants
BEFORE: Associate Justice B. McAfee
COUNSEL: L. Culleton, Counsel, for the Moving Parties, the Plaintiffs
B. Brooksbank and M. Kozycz, Counsel, for the Responding Parties, the Defendants
HEARD: September 20, 2023
REASONS FOR DECISION
[1] This is a motion brought by the plaintiffs Hands-On Capital Investments Inc. (HCII) and IAM Investments Inc., (IAM) (collectively the plaintiffs) for an order for the issuance of a certificate of pending litigation (CPL) with respect to a residential property located at 19 Bowhill Drive, Richmond Hill (the property). The plaintiffs rely on Rule 42 of the Rules of Civil Procedure and Section 103 of the Courts of Justice Act, R.S.O. 1990, c.C.43.
[2] The defendants Pradeep Kumar Matharoo (Matharoo) and Tvinder Kaur Mahon (Mahon) (collectively the defendants) oppose the motion.
[3] In this action the plaintiffs seek a declaration that the transfer of the property on January 13, 2017, from the defendants to Mahon alone, registered as Instrument No. YR2609493 (the transfer) is void as against the plaintiffs and all other creditors of the defendants and seek an order deleting the transfer from title. The action is brought pursuant to the provisions of the Fraudulent Conveyances Act, R.S.O. 1990, c.F.29 and the Assignment and Preferences Act, R.S.O. 1990, c.A.33.
[4] The applicable test for a CPL in a proceeding where a fraudulent conveyance is claimed and judgment has not yet been obtained in the underlying action is stated in Grefford v. Fielding, 2004 8709 (ON SC), [2004] O.J. No. 1210 (Ont. S.C.J.) at paragraph 26:
(i) The claimant must satisfy the court that there is a high probability that they would successfully recover judgment in the main action; and
(ii) The claimant must introduce 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.
(i) High Probability of Success
[5] In underlying proceedings, the plaintiffs seek to recover three unsecured demand loans dated September 20, 2019, referred to in the material as “Summary Promissory Notes” that have matured and upon which demand has been made. On September 21, 2021, the plaintiffs, by their lawyers, made demand for payment for the amounts then purported to be outstanding of CDN $4,710,268.90 and US$1,698,127.67.
[6] The Summary Promissory Notes summarized various outstanding loan advances. Each of the Summary Promissory Notes includes a schedule setting out the loan advances, the original due dates and, where applicable, the new due dates. The Summary Promissory Notes are signed on behalf of the DMCC Group and by Matharoo and his business partner Narinder Paul Seehra (Seehra) personally. The Summary Promissory Notes were drafted by the principal of the plaintiffs, Iqbal Moledina (Moledina) a non-lawyer. It is Moledina’s evidence that the Summary Promissory Notes were prepared at the request of Seehra.
[7] Matharoo and Seehra initially challenged the authenticity of their signatures on the Summary Promissory Notes. However, as noted by Justice Kimmel notes in Hands-On Capital Investments Inc. v. DMCC Holdings Inc., 2023 ONSC 2417 (Ont. S.C.J. – Comm.List) at para. 17, after the plaintiffs obtained an opinion from a handwriting expert indicating that the signatures and initials of Matharoo and Seehra were probably authentic, that challenge was dropped.
[8] The validity of the Summary Promissory Notes continues to be challenged on other grounds including irregularities and non-compliance with the Bills of Exchange Act, R.S.C., 1985, c. B-4. Even if the Summary Promissory Notes are not found to be bills of exchange, a valid contract may still be found (Wilson v. Medcap, 2021 ONSC 4048 (Ont. S.C.J.) at para. 49).
[9] There is evidence before me from the plaintiffs setting out the amounts of monies loaned that have not been repaid. There is evidence before me that payments to HCII stopped by April 2020 and that IAM received interest payments to October 2020, but no principal or interest payments thereafter.
[10] The evidence of Matharoo includes an acknowledgement that loan payments were still being made up to August 2021 and that loan interest payments ceased when the demand for payment was made.
[11] For the purposes of this motion, while there may be an issue of the specific amount owing, there is sufficient evidence before me to demonstrate a high probability of success that some amounts will be found to be owing by Matharoo and others.
(ii) Triable Issue
[12] All that is necessary to satisfy the second part of the Grefford test is to demonstrate that a triable issue exists that the impugned transaction was carried out with the intent to defeat or delay creditors, including the plaintiffs (Tibollo v. Robinson, 2023 ONSC 3492 (Ont. Div.Ct.) at para. 24).
[13] In Szymanski v. Lozinski, 2019 ONSC 6968 (Ont. S.C.J.) Master Sugunasiri, as she then was, states as follows at para. 7:
[7] The underlying principle of the Grefford test is that simply alleging a fraudulent conveyance does not entitle a plaintiff to a CPL. The onus is on the Plaintiff to introduce evidence that suggests that the transfer was made with the intent to defeat creditors (often the Plaintiff will not have direct evidence but rather “badges of fraud” that can lead to an inference). This is a low threshold given the importance of reserving findings of fact that go to the heart of the case to the trial judge. In my view, the evidence need only demonstrate some basis to support the allegation beyond a bald statement. I also accept the Plaintiff’s submission that he can assert a fraudulent conveyance even though Mr. Lozinski conveyed the matrimonial home two years before the loan agreement. (see Miller v. Debartolo-Taylor, 2015 ONSC 2654).
[14] As stated by Justice Diamond in Jodie L. Feldman Professional Corporation v. Foulidis, 2018 121633 (Ont. S.C.J.) at para. 21:
[21] …On a motion seeking leave to issue a CPL, the Court may not avail itself of the enhanced fact finding powers in Rule 20. The Court must simply be satisfied that a triable issue exists based on the evidentiary record.
[15] I am satisfied that the plaintiffs have demonstrated a triable issue with respect to whether the transfer was carried out with the intent to defeat or delay creditors.
[16] It is the defendants’ position that at the time of the transfer, there was no default of any required payment and that all amounts owing were being paid or extensions of time to pay had been agreed to. Although the loans may not have been default at the time of the transfer, that is not determinative (Ontario Securities Commission v. Camerlengo Holdings Inc., 2023 ONCA 93 at para. 11).
[17] The defendants’ evidence is that the transfer was made for estate planning purposes as a result of Matharoo’s health issues. There is an issue with respect to why the transfer was necessary for estate planning purposes if the defendants held title to the property as joint tenants.
[18] Matharoo provided Moledina with a personal financial statement (PFS) dated August 20, 2018, wherein the property is included as an asset, stating that title to the property was in the name of the defendants and that Matharoo’s interest was 50%. The PFS further indicates that the market value of the property was $3,000,000 with a mortgage of $658,797. The transfer had taken place 20 months before the date of the PFS. Moledina’s evidence is that he relied on the PFS. Matharoo explains that the PFS had not been updated since June 2016 and incorrectly listed the property as an asset. However, the PFS does contain a reference to properties acquired in March and July of 2017.
[19] Matharoo asserts that notwithstanding the PFS, he orally advised Moledina that he had transferred his interest in the property. Moledina denies that he was advised by Matharoo that Matharoo had transferred his interest in the property.
[20] The defendants are spouses and were not therefore at arm’s length. The transfer was made after over 11 years of joint ownership. The consideration for the transfer was $2.00 and did not correspond with the value of the property. Matharoo continued to live at the property. The transfer divested Matharoo of a significant asset. There is evidence before me that Matharoo’s indebtedness increased after the transfer.
[21] For the purposes of this motion, there are sufficient “badges of fraud” present to demonstrate a triable issue with respect to whether the transfer was carried out with the intent to defeat or delay creditors.
(iii) Balance of Convenience
[22] As further stated by Justice Diamond in Jodie L. Feldman Professional Corp. at para. 25, “… the Court has a broad discretion when examining the equities between the parties to determine the balance of convenience.” (See also Tibollo at para. 28)
[23] The property is a substantial asset. There is evidence before me that Matharoo, through two Ontario corporations, disposed of four properties in 2021. Not granting the CPL would risk the dissipation of Matharoo’s alleged interest in the property to the prejudice of the plaintiffs. There is no evidence of prejudice to the defendants if the CPL is granted. At paragraph 59 of his affidavit, Matharoo states: “My wife and I are not seeking to dispose of the Property – it has been our home for many years and we plan to remain there for years to come. We have never marketed the Property and have no intention of doing so in the foreseeable future.” I am satisfied that the balance of convenience favours the granting of a CPL.
[24] For these reasons, the motion is granted.
Costs
[25] If successful, the plaintiffs seek costs of the motion on a substantial indemnity basis in the all-inclusive amount of $16,803.88, payable within 30 days. If successful, the defendants seek costs of the motion on a partial indemnity basis in the all-inclusive amount of $25,085.57, payable within 30 days. The plaintiffs are successful and are entitled to costs. However, I am not satisfied of circumstances that would entitle the plaintiffs to costs of this motion on a substantial indemnity basis. Having regard to all of the circumstances of this motion, in my view a fair and reasonable amount that the defendants could expect to pay for the plaintiffs’ costs on a partial indemnity basis is the all-inclusive amount of $10,000.00, payable by the defendants to the plaintiffs within 30 days.
Summary of Order
[26] Order to go as follows:
A certificate of pending litigation shall be issued against the property municipally known as 19 Bowhill Drive, Richmond Hill, Ontario, more fully described in Schedule “A” to the notice of motion.
Costs of the motion are fixed on a partial indemnity basis in the all-inclusive amount of $10,000.00 payable by the defendants to the plaintiffs within 30 days.
Associate Justice B. McAfee
Date: December 20, 2023