Court File and Parties

Court File No.: CV-18-00606216 Date: 2024-06-06 Ontario Superior Court of Justice

Between: Infolink Technologies Corp., Plaintiff And: Punit Lala, Punit Lala a.k.a. Peter Lala, Rani Lala, Pawan Lala and Kishore Lala, Defendants

Counsel: Ashley Ferguson and Norman Groot, for the Plaintiff Ronald Sleightholm, for the Defendants Rani Lala, Pawan Lala and Kishore Lala

Heard: February 26-29, 2024

Reasons for Decision

P.T. Sugunasiri, J.:

Overview:

[1] This is a fraudulent conveyance action with respect to a transfer of 5415 Middlebury Drive in Mississauga (“Middlebury”) from Punit and Pawan Lala to Pawan and Rani Lala as joint tenants. The transfer occurred at a time when Punit was a defendant in a fraud action commenced by Infolink and had been served with a motion for summary judgment. Infolink served its motion on May 26, 2017. On August 24, 2017, The Lala sons (Punit and Pawan) transferred Middlebury to Pawan and their mother, Rani, for nil consideration noted on the transfer document. On August 25, 2017, their late father, Kishore, paid a company operated by Punit, $68,000 and $6000 in cash to Punit. Rani and Pawan maintain that the payment was to buy out Punit so that he would leave Middlebury where they all resided because Punit was causing trouble. Ultimately, Infolink obtained judgment against Punit on July 3, 2018, in the amount o $751,659.88 plus $150,000 in punitive damages. Infolink commenced this action on October 2, 2018.

[2] Punit is nowhere to be found and has not responded to this lawsuit. Infolink has noted him in default. Kishore is now deceased, as is Solicitor Weir who acted for the family on the transactions.

[3] Section 2 of the Fraudulent Conveyances Act, R.S.O. 1990, c. F.29 (“FCA”) voids a transaction against “creditors or others” when a conveyance of real property is made with intent to defeat, hinder, delay or defraud them of their just and lawful actions, suits, debts, accounts, damages, penalties or forfeitures. Section 3 of the FCA states that section 2 does not apply to an estate or interest in real property that was conveyed upon good consideration, in good faith and without notice or knowledge of the intent to hinder, defeat or delay creditors.

[4] I conclude that Punit conveyed title to Middlebury to Pawan and Rani to defeat Infolink’s ability to collect on a potential judgment against him. I find that Pawan, Rani and Kishore knew about Punit’s troubles with Infolink and that they sought to protect a potential execution against their property by removing it from Punit’s name. Kishore had direct knowledge of Punit’s dispute with Infolink and Pawan and Rani either had knowledge or were wilfully blind to the issue so that they could later claim ignorance. The transaction is void as against Infolink and they are entitled to execute against Punit ¼ interest in Middlebury to collect on its judgment.

[5] If I am incorrect in finding that Punit’s conveyance of legal title was fraudulent, I find that Infolink retains a right of execution against Middlebury in any event because the 2017 Agreement to pay Punit to move out did not extinguish his equitable interest as set out in the family’s August 28, 2003, Trust Agreement. Punit retains a 25% interest in Middlebury regardless of title.

Issues and Brief Conclusions:

[6] The three issues that determine this trial are:

a. Does Infolink have standing to sue the Lala family pursuant to the Fraudulent Conveyances Act? Yes because the term “creditors or others” in section 2 of the FCA is wide enough to include future creditors.

b. Did Punit intend to defeat Infolink’s potential judgment by conveying Punit’s legal title to Pawan and Rani? Yes. There are sufficient badges of fraud to infer this intent and the Lala family’s counterevidence does not rebut the inference.

c. Were Rani and Pawan bona fide purchasers for value without notice such that the transaction is not void as against Infolink? No. Rani and Pawan either knew the purpose of the transfer or were wilfully blind to Punit’s situation. Further, the property was not transferred at fair market value.

Analysis:

Issue #1 - Infolink has standing

[7] A brief history of the Lala family’s purchase of Middlebury is warranted to provide the context within which Infolink brings this action and to explain why I conclude that Infolink has standing under section 2 of the FCA.

[8] Punit and Pawan Lala lived with their parents Rani and Kishore from birth and since 1997 when they first resided at 4133 Uxbridge Lane and Middlebury. As at September 10, 2001, Pawan, Rani and Kishore owned Uxbridge as joint tenants. On September 2, 2003, they sold Uxbridge and bought Middlebury. Just prior to the sale, Punit, Pawan, Kishore and Rani signed a Trust Agreement drafted with the help of their solicitor, Mr. Weir, indicating that Pawan and Punit would be the titled owners of Middlebury but that all four would be the beneficial owners. I accept that Punit’s interest is limited to ¼. All were to contribute to the purchase price, registration, and maintenance of Middlebury. The purchase was largely financed by the sale of Uxbridge and a CIBC mortgage for $309,366. The mortgage obligation was solely in Pawan and Punit’s name. Pawan attests that in 2016 and 2017, Punit did not make regular payments on the mortgage nor payments to maintain the home as promised in the Trust Agreement.

[9] Punit’s business partner, Mr. Grabenheimer, states, and I accept, that at the same time, he and Punit were having legal difficulties with Infolink. On March 16, 2016, they were served with a statement of claim from Infolink. They met with a lawyer on March 20, 2016, to discuss the claim. Mr. Grabenheimer states that at that meeting, Punit inquired about the impact of the lawsuit on Middlebury and was worried about losing it. I accept Mr. Grabenheimer’s evidence that he heard Punit inquire about the impact of Infolink’s lawsuit on Middlebury. He was not shaken on cross-examination on this point despite there being ample fodder to test his motives. He candidly admits that he and Punit were at odds in the lawsuit and he ended up assisting and supporting Infolink in the lawsuit. This admission and possible motive to fabricate due to his distaste for Punit did not shake his credibility.

[10] I also accept that in or around March 10, 2017, Mr. Grabenheimer delivered his sworn affidavit in support of Infolink’s summary judgment against Punit and that the affidavit pointed strongly towards the possibility of Infolink obtaining a significant judgment against Punit. By June 19, 2017, Punit had been served with Infolink’s motion for summary judgment which included Mr. Grabenheimer and Mr. Correia’s affidavits. Mr. Correia was the President of Infolink at the time and he levelled serious allegations against Punit.

[11] Some time in 2017, the family retained Solicitor Weir which according to Pawan and Rani, was to deal with the transfer of Punit’s interest in Middlebury. Mr. Weir opened the file on August 14, 2017, at the behest of Kishore from whom he took instructions. Pawan and Rani’s evidence was that Punit was causing trouble at home, with numerous calls to the police and destructive behaviour. They needed him out. Solicitor Weir was provided with an Agreement dated August 22, 2017 that Punit, Pawan and Rani ultimately signed. He has no notes in his file from his review of this proposed agreement. Solicitor Weir was examined on this point prior to his death. He first remembers its purpose being to get Punit out of the house and later said that it was to remove Punit’s legal title. In the 2017 Agreement, Pawan, Rani and Punit agreed to the following:

1. We hereby agree to pay Punit Lala the amount of $74,000.00;
2. Punit Lala must move out of the property within 30 days of the payout, including all personal belongings; and
3. Punit Lala cannot move back in the above property without all parties consent.

[12] Kishore, a ¼ interest holder, did not sign the 2017 Agreement. Despite having the advice of a lawyer, the 2017 Agreement does not expressly extinguish Punit’s interest in Middlebury. However, on the same date – August 22, 2017, Pawan and Punit transferred legal title of Middlebury to Pawan and Rani. The transfer prepared by Mr. Weir’s office listed the transfer as one from trustee to beneficiary for nil consideration. Kishore caused $68,000 to be paid to Leadgency, a company owned and operated by Punit, and $6000 to Punit in cash.

[13] Does Infolink have standing to challenge this transfer? Yes. Infolink’s litigation with Punit was well under way and directed solely towards Punit when he transferred legal title of Middlebury to his brother and mother. At the time of the transfer, Infolink had a legal claim against Punit and was a potential creditor. As recently confirmed by the Court of Appeal for Ontario in Ontario Securities Commission v. Camerlengo Holdings Inc., 2023 ONCA 93, 478 D.L.R. (4th) 185, at para. 11, a claimant who was not a creditor at the time of transfer can attack the transfer and seek the protection of section 2 of the FCA. It is enough that at the time of the conveyance the settlor perceived a risk of claims from a general class of future creditors and conveyed the property with the intention of defeating them: See also Indcondo Building Corporation v. Sloan, 2014 ONSC 4018, 121 O.R. (3d) 160, at para. 45. Infolink’s standing is even stronger in this case – it was not merely part of a general class of future creditors but was a specific future creditor that Punit was concerned about.

Issue #2 - Punit intended to defeat Infolink by transferring title to Middlebury

[14] Punit has disappeared, has not defended, and is deemed to admit the allegation of facts in the Fresh as Amended Statement of Claim by virtue of r. 19.02(1)(a) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194. Two relevant admitted facts are: 1) as at May 26, 2017 he knew that Infolink would inevitably obtain judgment against him (para. 13); and 2) that he transferred Middlebury with the intent to defeat, hinder or delay Infolink of its lawful actions, suits, debts etc. (para. 16). In addition to this admission from the settlor himself, there are badges of fraud from which I infer his intent. Those include a) the transfer was made to family members; b) there was a known potential liability facing Punit; c) the transfer was made near in time to notice of the potential liability; d) the transfer document showed the transfer for nil consideration; and e) Punit retained beneficial ownership of Middlebury after he transferred legal title by operation of the Trust Agreement.

[15] With respect to e), I do not find that the 2017 Agreement removed Punit’s equitable interest. This is supported by the wording of the 2017 Agreement itself, Solicitor Weir’s transcript evidence that the purpose of the Agreement was to remove legal title from Punit (with no mention of equitable title) and by the fact that Kishore was not a signatory to the 2017 Agreement. As an equitable title holder, one would have expected his signature to confirm the full transfer of Punit’s interest (legal and equitable) in Middlebury to Pawan and Rani. Other suspicious circumstances are the contemporaneous payment to Leadgency instead of Punit himself, and the fact that Punit closed his personal TD bank account on the same day that he signed the transfer of title documents.

[16] With Infolink having raised an inference of fraud, Punit has the “burden of explanation” to rebut the inference. Punit did not participate. Instead, Pawan and Rani seek to fulfill this burden. They have failed to do so. I do not accept Pawan and Rani’s evidence that the sole reason for the transfer was because Punit was causing problems and they wanted to buy him out. I do not accept that the transfer had anything to do with Punit’s behaviour. I think it had everything to do with protecting Middlebury from execution. The timing is simply too coincidental and the evidence is clear that Kishore knew about Punit’s “debt” to Infolink. Pawan and Rani tried to distance themselves from Kishore’s knowledge but it does not ring true. It is hard to imagine that Kishore did not discuss Punit’s situation with his wife or other son. Even if he did not, I find that Pawan and Rani were wilfully blind to Punit’s financial problems with Infolink. I find that Pawan and Rani have not rebutted the inference that Punit’s transfer was intended to defeat Infolink’s future collection efforts.

Issue #3 - Pawan and Rani are not bona fide purchasers for value

Pawan and Rani did not act in good faith

[17] This takes me to my conclusion that Pawan and Rani are not good faith purchasers for value. If they were, it would neutralize section 2 of the FCA. They lack good faith because they were at arms length with Punit and either knew about his troubles with Infolink or were wilfully blind to it. I find that they knew that Punit was having financial difficulties and a debt issue with Infolink but purposely funnelled any details to Kishore so that they could claim ignorance. Pawan described his brother as a suspected fraudster and thief. They described Punit’s dire financial circumstances, his lack of contribution to the family expenses, how he stole from their wallets and had regular creditor calls. I adopt Justice Lederman’s description of a “good faith purchaser” in Bank Leu Ag v. Gaming Lottery Corp. (2001), O.T.C. 854 (S.C.), at para. 75, when he states: “While mere negligence, commercial stupidity or unreasonableness will not be sufficient to negative good faith on the part of the plaintiff, wilful blindness amounting to dishonesty and refusal to ask obvious questions will suffice.” In this case, Rani repeatedly testified that she had no idea what Punit’s financial situation was. I find that she purposely asked no questions. She also testified that she blindly signed documents that were put in front of her. Pawan testified that creditors called the house and process servers came to the property. I find that he purposely asked no questions despite Pawan and Rani admitting that Punit’s financial issues caused family tension. Their version of events is not credible. Pawan and Rani knew that Middlebury was in jeopardy and that Punit intended to put it out of reach of Infolink.

Pawan and Rani did not buy Punit’s interest at fair market value

[18] I also find that Rani and Pawan are not purchasers for value because $74,000 was less than the fair market value of Punit’s ¼ interest at the time of transfer. Pawan provided a convoluted calculation of what he says formed the basis of the $74,000 payment which I characterize as further gymnastics to justify an already untenable position. I prefer Infolink’s calculation of Punit’s interest in Middlebury as being $141,106 as at August 24, 2017 taking into account the expert valuation of Mr. Cupido of $950,000 less $143,787 owing on the CIBC mortgage and accepting that Punit should be responsible for repayment of the $60,000 TD line of credit.

Section 4 of the FCA voids the transfer even if Rani and Pawan did pay FMV

[19] Even if I am incorrect in preferring Infolink’s calculation of value, section 4 of the FCA voids the transaction as against Infolink. Section 4 states that:

Section 2 applies to every conveyance executed with the intent set forth in that section despite the fact that it was executed upon a valuable consideration and with the intention, as between the parties to it, of actually transferring to and for the benefit of the transferee the interest expressed to be thereby transferred, unless it was protected under section 3 by reason of good faith and want of notice or knowledge on the part of the purchaser.

[20] In other words, even if $74,000 was valuable consideration for the transfer of Punit’s interest in Middlebury to them, the transaction is still void as against Infolink where, as I have found, Punit intended to defraud Infolink as set out in section 2 of the FCA, Rani and Pawan were not acting in good faith, and they had notice or knowledge of Punit’s problems and intent to creditor proof himself.

Conclusion:

[21] The 2017 transfer of Punit’s legal title to Pawan and Rani is void as against Infolink. Punit retains a ¼ legal and equitable interest in Middlebury.

[22] Infolink’s claim for punitive damages is dismissed as no argument was offered at trial to pursue this head of damage.

Costs:

[23] Infolink is entitled to recover its costs. I invite Infolink to deliver its updated Bill of Costs and costs submissions of no more than three pages, double-spaced by June 17, 2024. Counsel can email those items to my assistant Jessica.Crispo@ontario.ca in addition to serving the defendants and filing with the court. Pawan and Rani may respond in kind no later than June 28, 2024. There shall be no right of reply.

Justice P. Tamara Sugunasiri Released: June 6, 2024