Legal Blog:

Trust & Fraud

Debtors often try to stymie their creditors from seizing their assets in payment of their debts. The most prevalent means to do this is to transfer real property to a non-arm’s-length person. In that way, the debtor can enjoy the use of the property and keep it out of the hands of the creditors. Creditors can attack this transfer, known as a fraudulent conveyance, by way of the Fraudulent Conveyances Act (Ont) and the undervalue provisions (s. 96) of the Bankruptcy and Insolvency Act (BIA). Once a creditor proves that a debtor transferred the property for no or inadequate consideration, the transferee has very little ammunition left to fend off the attack. One defence is a claim that the debtor’s transfer was only made to return legal title to the transferee, which the debtor held by way of a trust, whether express, resulting, or constructive. That was the defence in E. Sands & Associates v. Gidda a 2025 Ontario Superior Court of Justice decision.

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Drafting

We have written about contract interpretation and contract drafting on a number of occasions. Of course, lawyers will continue to draft almost unintelligible provisions and leave them for courts to attempt to interpret what the drafter never really understood in the first place. We have concluded that the longer a sentence is, the more likely it is badly drafted. As a case in point, we will discuss Paloma Resources LLC v. Axis Insurance Company, 2025 decision of the United States Court of Appeals, for the Fifth Circuit.

The Issue

A plaintiff sued the insured, claiming that the insured’s employee colluded with two of the plaintiff’s employees to steal confidential information so that the insured could unfairly compete with the plaintiff. The insured settled the action with the plaintiff and then turned to its insurer to recover its defence costs and fund the settlement. The insurer declined coverage; in doing so, it relied on an exclusion clause in the insurance policy. The question for the court was the interpretation of that exclusion clause.

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