The recent case of Anisman v. Drabinsky is a summary judgment decision from the Ontario Superior Court (ONSC) with guidance for creditors on how to approach issues relating to discoverability and limitation periods if they suspect their debtors’ real property has been fraudulently conveyed.

Debtor Transfers Property to Spouse for Nominal Amount

The plaintiff, a lawyer and creditor, was owed money from his client for whom he had provided legal representation before the Ontario Securities Commission (OSC). The parties settled but the defendant client did not make all the required payments. The plaintiff sued in January 2018 for the balance and the parties eventually agreed to a consent judgment for $47,727.56 plus costs of $14,000.

The plaintiff prepared to collect and arranged an Examination in Aid of Execution to assess the defendant’s assets. On searching the title to the defendant’s home the plaintiff discovered that it had been transferred from the defendant to his spouse in September 2015. At the time of the transfer, the defendant owed money to several parties, including the plaintiff. The house had a fair market value of $2.625 million at the time of the transfer but was sold for only two dollars.

Was the Transfer Fraudulent?

The Plaintiff commenced an action to reverse the transfer of title to the property in May 2019. The plaintiff then brought a motion for summary judgment. The defence responded with a summary judgment motion of its own, seeking a dismissal of the action based on the expiry of the limitation period.

The issues considered by the court were as follows:

1. Was the transfer made with the intent to defeat, hinder, delay or defraud the defendant’s creditors, making the transfer void under section 2 of the Fraudulent Conveyances Act (FCA)?
2. Is the action barred by the two-year limitation period found in the Limitations Act?

Fraudulent Conveyances

The FCA at section 2 provides that:

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 other persons and their assigns.

The test for determining intent in such cases was established in the 2014 ONSC decision of Incondo Building Corporation v. Sloan. Was the transfer made with the intention to avoid outstanding debt? Incondo set out the badges of fraud that help answer the key question of the intent at the time of the transfer. In this case there were several, including:

1. Although the conveyance was registered with the Land Registry Office, none of the defendant’s creditors were alerted to it.
2. The transfer was made in the face of threatened legal proceedings.
3. The property was of significant value, but the consideration for the transfer was nominal.

The Incondo decision ultimately held that they had made the transfer with fraudulent intent and it was therefore voidable subject to the limitations period defence.

In the case at hand, the defendant’s creditors were not alerted to the transfer of property at the time it occurred. Further, the defendant had several debts at the time of the transfer, which was completed for nominal consideration, despite the fact that the home was worth over 2 million dollars.

The Limitations Defence

The action was commenced three years and nine months after the transfer. If the two year limitation period applied, then subject to a discoverability analysis, the action might be barred.

The Court did not accept that there was a limitation defence, as the claim was not discoverable until the time of the title search. The duty to investigate only required the plaintiff to behave as a reasonable person in the same or similar circumstances would behave. The duty to investigate only arises based on some event or act which then behooves the claimant to exercise reasonable diligence in discovering facts relating to the claim. Here, there was no duty to constantly monitor the debtor and the title to his real property.

Secondly, the court found that the Limitations Act did not apply here, but instead the Real Property Limitations Act (RPLA). This meant the plaintiff had ten years in which to bring his claim to recover the land. The court followed the 2015 ONSC decision Conde v. Ripley, which held that a claim based on the FCA to set aside a transfer is on its face a claim to recover land, and therefore the 10-year limitation period under the RPLA applied.

Without a limitation defence, and because the transfer of property from the defendant to his spouse contained several hallmarks of a fraudulent transfer, the Court found in favour of the plaintiff.

If you have a question about civil fraud, employee fraud, or similar issues, the highly skilled Toronto corporate lawyers at Milosevic & Associates can help. We can provide you with advice and guidance suited to your unique situation. Call us at 416-916-1387 or contact us online to learn more about how we can help.