Tag: fraudulent conveyance

10 Mar

Fraudulent Conveyances and Actions to Recover Land under the Real Property Limitations Act

Christina Canestraro Estate Litigation Tags: , , , , , 0 Comments

An important and useful tool in any estate planning toolkit is the ability to transfer title to real property between spouses, which typically occurs for nominal consideration and/or natural love and affection. These types of transfers are recognized at law. In certain circumstances, transfers of this nature may be used by spouses seeking to defeat, hinder, delay, or defraud creditors. The Fraudulent Conveyances Act (“FCA”) provides the legislative authority to set aside transfers of property that are entered into with the intent to defeat the claims of a creditor.

Such was the case in Anisman v Drabinsky, 2020 ONSC 1197. On September 11, 2015, Mr. Drabinsky and his wife, Ms. Winford-Drabinsky, transferred their joint ownership of their home to Ms. Winford-Drabinsky alone (the “Drabinsky Property”). At the time of said transfer, Mr. Drabinsky had several unpaid judgments against him as well as ongoing monthly debt payments that were nearly double his monthly income. One such judgment, dated November 2018, was in favour of the Plaintiff for monies owed by Mr. Drabinsky.

In an effort to recover monies owed to him, the Plaintiff obtained a Certificate of Pending Litigation against the Drabinsky Property. It was not until April 2019 that the Plaintiff testified that he learned of the transfer through a title search conducted on Mr. Drabinsky in preparation for his examination in aid of execution respecting the unpaid judgment. On June 18, 2019, some three years and nine months after the impugned transfer of title, the Plaintiff commenced an action seeking to reverse the transfer of title in the Drabinsky Property.

In his defence, Mr. Drabinsky argued that the transfer itself was not fraudulent, but that in any event, the Plaintiff’s claim was statute barred given that the 2-year limitation period provided for in the Limitations Act, 2002, SO 2002, c. 24 (“Limitations Act”) had expired.

In considering the validity of Mr. Drabinsky’s limitation defence, the court considered two key principles regarding limitation periods: discoverability of claims and the applicable statutory authority. With respect to the latter, the court considered whether it was the 2-year limitation period pursuant to the Limitations Act, or the 10-year limitation period in the Real Property Limitations Act (RPLA”), that applied. The RPLA applies to actions to “recover” land. The question then became, does an action to set aside a conveyance of real property fall within the category of claims to “recover land”?

The court ultimately found that it was the 10-year limitation period in the RPLA that applied to the present action. In reaching its decision, the court relied on the case of Conde v Ripley, 2015 ONSC 3342, which found that claims made to set aside a conveyance of real property under the FCA are on their face, a claim to recover land. The court went further to say, “the Legislature has seen fit to… differentiate between actions involving recovery of land and other types of actions” given that the Limitations Act addresses claims in contract or tort, while the FCA addresses the recovery of real property.

However, as identified in this article, this line of reasoning contradicts earlier decisions that differentiated between the recovery of land itself and the recovery of debts connected to that land (see Wilfert v McCallum, 2017 ONSC 3853 and the Ontario Court of Appeal case of Zabanah v Capital Direct Lending Corp, 2014 ONCA 872), leaving the law in a state of uncertainty.

Thanks for reading!

Christina Canestraro

25 Jun

Who Can Set Aside a Transaction Under the Fraudulent Conveyances Act?

Kira Domratchev Estate & Trust Tags: , , 0 Comments

The Fraudulent Conveyances Act, RSO 1990, c F.29 (the “FCA”) is designed to prevent a debtor from hiding assets from creditors by fraudulently transferring the assets to a third party. If the FCA applies, the Court shall make the property that was fraudulently conveyed available for creditors of the transferor.

Based on the general description and purpose of the FCA, it would appear as though it is a means of redress for frustrated creditors, only. However, that is not the case.

In accordance with section 2 of the FCA, the Court is authorized to set aside transactions that are entered into with the intent to defeat an action (amongst other things), for the benefit of “creditors and others”. The specific wording of this section of the FCA is as follows:

“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 action, suits, debts, accounts, damages, penalties or forfeitures are void as against such persons and their assigns.”

Although the FCA does not define what is meant by “others”, it is clear that the statute specifically delineates “others” to signify that it is a group of entities that could otherwise not be defined as “creditors”.

The Ontario Court of Appeal in Hopkinson v Westerman (1919) 45 OLR 208, 48 DLR 597 (ONCA) defined “others” as those persons who, though not judgment creditors, had pending actions in which they were sure to recover damages.

Since then, the definition of “others” has been used in many cases, including in the family law context, such that, a spouse could qualify as a person who is intended to be protected from conveyances of property made with the intent to defeat his or her interest.

The court in Robins v Robins Estate [2003] OTC 285, 121 ACWS (3d) 1104 (ONSC) held that a spouse who brought a claim against her husband’s Estate could not make a claim under the FCA.

The Court held that if the spouse was found to be a “creditor” it would have to be based on the Deceased’s obligation to support her as a spouse. The Court held that “[B]oth spouses have an obligation to support themselves and each other” and if the theory of the surviving spouse was accepted, spouses in a marriage would be in a “constant creditor-debtor relationship throughout cohabitation and marriage unable to alienate any property, the result of which may leave them unable to pay support at a later time.”

In deciding that the spouse in this matter was not a “creditor” the Court gave particular weight to the fact that the relationship was relatively short-term and that the spouse was able to support herself. In addition to that, the conveyance in question took place before the date of marriage, which reasonably made the surviving spouse’s argument that it was made with a fraudulent intent of defeating her support claim, all the more difficult.

In contrast, the Ontario Court of Appeal in Stone v Stone, 55 OR (3d) 491, [2001] OTC 412 (ONCA), in interpreting the same obligation of spouses to support themselves and each other, found, in the context of an election under section 6 of the Family Law Act, following the Deceased’s death, that the FCA did apply. Particular weight was placed on the fact that the Deceased did know that his wife would survive him and was aware that the value of her assets was less than the value of his and that she would not accept her legacy under the Will.

The Court in Robins v  Robins Estate found that the Stone v Stone decision was different because it addressed the claim of equalization of property rather than the issue of support under the Family Law Act. The Court further held that unlike the conveyance of property accumulated during a 24 year marriage in Stone v Stone, the case of Robins v Robins Estate addressed an asset owned by the Deceased before the cohabitation date and the marriage.

Of interest is the fact that the courts do not seem to significantly distinguish between the category of “creditors” and the category of “others”. Perhaps, if more of a difference is seen between the two, concerns regarding creating an overarching creditor-debtor relationship between spouses would not seem as significant.

The question remains whether the FCA category of “others” could extend to a spouse in the context of a claim as against an Estate? That remains to be seen, however, based on the assessment made by the courts in the two cases discussed, it very well could – it just depends on the factual circumstances.

Thanks for reading.

Kira Domratchev

Find this blog interesting? Please consider these other related posts:

Fraudulent Conveyance and The Estate Planning Defence

When is a Transfer of Property a Fraudulent Conveyance?

Hull on Estates #342 – Estate Freeze Considered as Fraudulent Conveyance

05 Dec

Fraudulent Conveyance and The Estate Planning Defence

David M Smith Estate & Trust, Estate Planning, Executors and Trustees, General Interest, In the News, Litigation, Public Policy Tags: , , , , 0 Comments

We have previously blogged on Fraudulent Conveyance.  This cause of action can, on occasion, be met with a defence that the conveyance of property was in furtherance of an estate plan and, therefore, without fraudulent intent.  As with most cases, the specific facts of the case will determine whether the defence can succeed.

In Bank of Montreal v. Real Marleau, the Saskatchewan Court of Queen’s Bench was prepared to entertain the notion that the defendant’s assertion might actually be true, but nonetheless, determined that the conveyance ought to be aside.

The estate planning defence was considered and again rejected in Re Whetstone, 1984 CarswellOnt 157.  In this case, the estate planning defence relied on evidence from the family’s solicitor.  The court noted, at paragraph 28,

“In the circumstances, it is not material that the family’s solicitor recommended the conveyance based on general principles and not on actual knowledge of the company’s financial position; the intent we are concerned with is not that of the family’s solicitor, but of [the defendant].”

Lastly, in an unreported decision of the Ontario Superior Court of Justice, RBC v. Nicolau, the defence was considered but not accepted:

“In this case, Mr. Nicolau testified that the transfer was for estate planning purposes.  He submits that there was therefore no fraudulent intent.

RBC referred the Court to jurisprudence in which the estate planning defence was raised.  I agree with the submissions of RBC that this defence must fail.  While the transfer may have also satisfied Mr. Nicolau’s estate planning goals, this explanation is not, in my view, sufficient to displace the inference of fraudulent intent given the timing of this estate planning and the presence of the badges of fraud.  Accordingly, I find that the April 16, 2012 conveyance of 1 Lister Drive to Gabriel Nicolau was fraudulent, and the provisions of the Act are therefore applicable.”

Thanks for reading,

David Morgan Smith

08 Aug

Hull on Estates #342 – Estate Freeze Considered as Fraudulent Conveyance

Hull & Hull LLP Hull on Estates, Podcasts, Show Notes, Show Notes Tags: , , , , , , , 0 Comments

Listen to: Hull on Estates Episode #342 – Estate Freeze Considered as Fraudulent Conveyance

Today on Hull on Estates, David Smith and Holly LeValliant discuss whether an estate freeze can be considered a fraudulent conveyance.  David and Holly discuss the Ontario Superior Court of Justice case Reisman v. Reisman 2012 ONSC 3148 and compare it to the Ontario Court of Appeal’s decision in Stone v. Stone 2001 CanLII 24110 (ON CA)

If you have any questions, please e-mail us at hull.lawyers@gmail.com.

Click here for more information on David Smith.

Click here for more information on Holly LeValliant.

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