As the terms suggests, a “fraudulent conveyance” of a matrimonial home is a transfer, gift, bargain or other arrangement intended to perpetuate a fraud – most often to defeat or hinder creditors of the person doing the conveying. The most common scenario sees one spouse transferring his or her interest in the matrimonial home to the other spouse, but in shady circumstances, often abruptly and involving little or no legal consideration. It’s usually orchestrated at a time when the transferring spouse’s creditors are looming.
Not surprisingly, in Ontario the Fraudulent Conveyances Act allows a court to declare that this type of conveyance as being void against those creditors, if it finds it was made with the intent “to defeat, hinder, delay or defraud creditors of their just and lawful actions, suits, debts, accounts, damages, penalties or forfeitures”.
In two recent Ontario cases, both of which ended up before the Court of Appeal, a husband had fraudulently transferred his interest in the matrimonial home to his wife – but the outcomes of the two cases were markedly different.
The first case involved Baljit and his wife Arvinder. Baljit had received $600,000 from a Company as part of a planned joint venture to build a gas station – but the plan never came to fruition. Yet Baljit kept the money, and – knowing the Company was on the verge of rightly suing him for its return – he wanted to thwart those efforts by putting his main assets out of reach. Under an alleged temporary separation agreement with Arvinder, he purported to transfer full title to their matrimonial home to her, in exchange for $2.00.
The Company applied to the court to have this purported transfer declared to be a fraudulent one. The trial judge readily did so, concluding concluded Arvinder had been fully aware of Baljit’s nefarious intent. The judge also pronounced that for a transfer of this nature, $2.00 was not considered good consideration made in good faith.
The Appeal Court later agreed. It gave full credence to the trial judge’s fact-finding on the fraud, based on evidence she found was “overwhelming”. Baljit was evasive and his evidence was “completely unbelievable and tailored to the moment”. There were multiple badges of fraud, including Arvinder’s own unwillingness to produce her family law file, bank statements, and accounting records that apparently formed the basis for the alleged separation agreement. The trial judge had made no error, the Appeal Court found. Baljit’s assets would still include the matrimonial home, when it came time to answer the Company’s lawsuit for the return of the $600,000 debt he owed.
On the other hand – and despite similar basic facts – the decision in Bank of Montreal v. Iskenderov had a very different outcome. In this case the creditor was a Bank, and the entire matter hinged on a deadline that the Bank failed to meet.
The facts involved a husband, Roufat, and his wife, Elena; they owned their matrimonial home jointly. Three months before defaulting on his $400,000 line of credit with the Bank, Roufat transferred his interest to Elena, allegedly in keeping with a separation agreement they signed. Roufat then declared bankruptcy, which by law stalled the Bank on realizing on a judgment it had obtained against him for nearly $500,000 including interest. It took a few years for Roufat’s bankruptcy proceedings to wind up; when they did, the Bank began an action to declare that his transfer of the matrimonial home to Elena was a fraudulent conveyance and should be set aside. However it took a long time for the Bank to commence those proceedings for various reasons.
Unfortunately, as the court found, the Bank had entirely missed the two-year deadline for bringing these kinds of claims, and was now precluded from pursing the Roufat’s financial interest in the matrimonial home at all.
The Bank wrongly assumed its action to set aside Roufat’s fraudulent conveyance was subject to a 10-year deadline, under the Ontario Real Property Limitations Act, which deals with actions “to recover any land”. However that did not cover this scenario, the court said. The Bank was merely asking the court to declare Roufat’s transfer was intended to perpetuate a fraud, and that it was void against his creditors (only). Any such declaration would not operate to undo the transfer, or give the home back to Roufat; no title was actually changing hands. The Bank was not bringing an action to “recover” land.
With that in mind, and as the Appeal Court later confirmed, the correct deadline governing the Bank’s claim was the two-year one found in the Ontario Limitations Act, 2002 which covers “a claim to remedy an injury, loss or damage that occurred as a result of an act or omission”. Clearly, the Bank had let that slide; however there was still a question over exactly when that two-year clock began to tick. The Appeal Court sent the matter back for a trial on that narrow issue.
For the full text of the decisions, see:
2270752 Ontario Inc. v. Century 21 New Star Realty Inc., 2024 ONCA 444
Bank of Montreal v. Iskenderov, 2023 ONCA 528
