In the recent decision Anisman v. Drabinsky, 2020 ONSC 1197 Justice Morgan voided a transfer of a $2.625 million Toronto home for the nominal sum of $2 by Garth Drabinsky to his wife as a fraudulent conveyance as against Drabinsky’s former lawyer and other creditors. This summary judgment decision provides important guidance for creditors on how to approach issues relating to discoverability and limitation periods in the context of real property that may have been fraudulently conveyed.
The property in question was transferred to Drabinsky’s wife in September 2015. The Plaintiff was the lawyer who represented Drabinsky in Ontario Securities Commission proceedings between April 2013 and June 2014. At the time of the transfer, Drabinsky had substantial debts, including to the Plaintiff for whom he had missed several monthly payments due under a settlement agreement. The Plaintiff brought an action with respect to the debt owed to him in January 2018 that resulted in a consent judgment against Drabinsky in the amount of $47,727.56, plus costs of $14,000.00. The Plaintiff became aware of the transfer in June 2019 when he conducted a search for title to the property in preparation for an examination in aid of execution.
The Badges of the Fraud
The test for whether the transfer of property is rendered void under section 2 of the Fraudulent Conveyances Act, (“FCA”) is one of intent: was the transfer of title done in order to defeat creditors? The analysis of this question is based on a list of factors or “badges of fraud” summarized in Incondo Building Corporation v Sloan, 2014 ONSC 4018 that must be considered as at the time of the impugned transaction. In voiding the conveyance, Justice Morgan concluded that “…the transfer can only be explained as an effort to put the Property beyond the reach of Mr. Drabinsky’s creditors. The transaction is replete with the badges of this kind of surreptitious creditor-proofing.” In his reasons, Justice Morgan noted:
- Although the conveyance was registered with the Land Registry Office, none of Drabinsky’s creditors were alerted to it.
- The transfer was made in the face of threatened legal proceedings.
- The property was of significant value but the consideration for the transfer was nominal.
The Limitation Period Issues
Justice Morgan also rejected Drabinsky’s contention that because the statement of claim was issued in June 2019, some 3 years and 9 months after the impugned transfer of title, the action was barred by the 2 year limitation period in the Limitations Act, 2002.
Justice Morton accepted the Plaintiff’s position that it was the 10-year Real Property Limitations Act (“RPLA”) period that applied and followed Justice Dunphy’s reasoning in Conde v Ripley, 2015 ONSC 3342 that “if a claim is brought under the FCA to set aside a conveyance of real property, such a claim is on its face a claim to ‘recover any land’ to which the RPLA applies…” On this basis, the action was commenced well within the 10-year period following the transaction. Justice Morton explained that the nature of the claim under the FCA made the application of the RPLA logical and reflected the legislature’s intent to differentiate between actions involving the recovery of land and other types of actions.
Even if the shorter 2 year limitation period in the Limitations Act, 2002 had applied, the Court also found that the claim was neither discovered nor discoverable until the Plaintiff searched title to the Property in 2019. Justice Morgan noted that a creditor must use due diligence in discovering the facts giving rise to his legal rights; which requires that the creditor “behaved as a reasonable person in the same or similar circumstances using reasonable diligence in discovering the facts relating to the [claim]”. As set out in Fennell v Deol, 2015 ONSC 4835, there is only a duty to investigate when there is something that leads one to investigate. Justice Morgan found that although Drabinsky was a “renowned debtor” who was “very much in the public eye“, discovering the conveyance would have required a creditor required multiple searches on an ongoing basis, which “would be to require a level of diligence well beyond what is reasonable.”
Key Take Aways
- A creditor must use due diligence in discovering the facts giving rise to his legal rights. However, “there is only a duty to investigate when there is something that leads one to investigate.”
- If a claim is brought under the FCA to set aside a conveyance of real property, it is a claim to ‘recover any land’ to which the 10-year RPLA limitation period applies.
- When a limitation defence is pleaded, it is not necessarily incumbent upon a plaintiff to serve a Reply pleading in accordance with Rule 25.08.