Newest Ontario cases: badges of fraud
In Brookfield Residential (Ontario) Ltd. V. Chen [2022] OJ NO 1016, Chen had defaulted on a purchase and sale agreement with Brookfield. Chen refused to close. Brookfield sued and obtained judgement February 15 2022 for $387,459. (1)
Meanwhile Chen had been busy. A title search revealed that Chen had transferred title in Chen’s property (10 Boland Court) to Chen’s spouse for the nominal amount of $2. (2)
Brookfield sought a certificate of pending litigation on the basis of fraud (7)
The motion judge cited Fernandes v. Khlid 2021 ONSC 190 for the granting of a CPL where there is no interest in land but where these is fraud. (7)
The motions judge cited Twyne’s Case (previously cited in Incondo v. Sloan 2014 affirmed in ONCA 2015) for the following rules:
[52] The badges of fraud derive from Twyne’s Case (1601), 76 E.R. 809. As interpreted by modern courts, the badges of fraud include
(a) the donor continued in possession and continued to use the property as his own;
(b) the transaction was secret;
(c) the transfer was made in the face of threatened legal proceedings;
(d) the transfer documents contained false statements as to consideration;
(e) the consideration is grossly inadequate;
(f) there is unusual haste in making the transfer;
(g) some benefit is retained under the settlement by the settlor;
(h) embarking on a hazardous venture; and
(i) a close relationship exists between parties to the conveyance.[3]
Applying the rules in Twyne’s Case the Brookfield judge found:
[10] The badges of fraud include:
(a) The consideration for the transfer ($2) was grossly inadequate.
(b) A close, non-arm’s length relationship (a spousal relationship) exists between Chen and Zheng.
(c) Chen has continued to be in possession of the property in the sense that he still lives in and enjoys full use of the property despite the transfer.
(d) The transaction was secret in the sense that Chen did not advise Brookfield of the transfer.
(e) The transfer was made six weeks after cross-examinations in the face of an upcoming summary judgment motion.
CPL was ordered.
___________________
ECC on debtors transferring asssets into their wife’s name:
The tactic of putting assets into the wife’s name on the eve of creditors being at the front door, is a maneuver seen often in creditor situations. Often the debtor and his wife simply laugh at the creditor because the law presuming to protect the spouse’s interest in the asset is such that the creditor must take extraordinary steps to liquidate the asset while worrying about the spouse’s possible interest. The imposing of a CPL in Brookfield in precisely this spousal transfer situation is an excellent forward step in credit recovery in Ontario.
___________________
more creditor recovery commentary
