In 2014, we reported on the Ontario Superior Court of Justice’s decision in Indcondo Building Corporation v. Sloan (“Indcondo“), which strengthened the position of plaintiffs seeking to set aside fraudulent conveyances in Ontario. In the Indcondo case, Mr. Justice Penny analyzed the substantive test for establishing fraudulent conveyance and in particular the demonstration of whether a defendant had the requisite intent to defeat creditors or others.Ā In addition to identifying the badges of fraud frequently considered by our courts when reviewing circumstantial evidence of fraudulent intent, Justice Penny highlighted the importance of focusing on the debtor’s particular circumstances at the time of the conveyance.Ā In Indcondo, the debtor had high hopes as to the prospects of his business enterprise as the time of one transfer, but was clearly in fear of a sinking market and increasing liabilities at the time of a subsequent transfer (with the latter judged a fraudulent conveyance and the former an innocent transfer).
In an important recent decision in Ahmed v. Rowe, Mr. Justice Gray considered whether it is appropriate and fair to require defendants in a personal injury claim to respond to fraudulent conveyance allegations in advance of a finding of underlying liability.Ā Early in the underlying personal injury ligation in Ahmed v. Rowe, the plaintiff amended the Statement of Claim to add allegations that a matrimonial home had been fraudulently conveyed to the defendant’s wife (and adding the defendant’s wife to the litigation). Justice Gray considered a motion to dismiss the fraudulent conveyance claim or stay it pending the outcome of the personal injury litigation.
The defendants argued that a fraudulent conveyance action does not become relevant or crystalize unless and until the plaintiff is able to establish liability, and that any work conducted (and all expenses incurred) in furtherance of that claim becomes moot if the plaintiff fails in the main action. The defendants argued that it would be unfair to put them to the added and separate expense (productions, examinations, expert witnesses, etc.) of defending the fraudulent conveyance allegations when those allegations might be rendered moot.
Justice Gray disagreed with the defendants, ruling that section 2 of the Fraudulent Conveyances Act, R.S.O. 1990, c. F.29, does not require a plaintiff to be a creditor in order to pursue a claim:
2. 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 persons and their assigns.
Justice Gray confirmed that “creditors or others” includes a plaintiff whose claim has not yet crystalized by way of judgment and that the trial judge has at his or her disposal various mechanisms to “minimize, if not eliminate” any prejudice experienced by a defendant (by, for example, ordering that no evidence on the fraudulent conveyance component of the case be adduced until liability is established or awarding costs to the defendants for any wasted expenses). More importantly, Justice Gray noted that the limitation period arises once a plaintiff discovers that a fraudulent conveyance has occurred and so has a positive obligation to commence the claim promptly. Finally, dismissing or staying such a claim would unfairly delay enforcement efforts by forcing a plaintiff into a two stage litigation process which would entail conducting another set of discoveries and a full additional trial.
This decision confirms that a party does not have to, and in fact should not, wait until obtaining judgment to initiate fraudulent conveyance proceedings.
