Legal Blog: Collections

Guarantee

Zurich Insurance Company Ltd. v. Aquino 2025 Ont SCJ

John Aquino, a former director of Bondfield Construction Company Limited, provided an unlimited personal guarantee for Bondfield’s credit facility agreement with Bridging Finance Inc. Bondfield defaulted, leading Zurich Insurance Company Ltd. (who acquired the debt) to sue Aquino on the guarantee. Aquino argued against summary judgment, claiming the matter was too complex, key documents were missing, and partial summary judgment was inappropriate given his third-party claims against other Bondfield officers. The court disagreed, finding the guarantee’s enforceability was straightforward despite the insolvency’s complexity. The motion judge rejected Aquino’s claims of creditor misconduct, including impairing security, and altering priority interests; the guarantee explicitly permitted these actions. The court granted summary judgment for $40.8 mil plus interest of $27.8 mil. Aquino has appealed. SNF acted for Zurich.

CPL

Nedaneg Financial Corporation v. Talebzadeh 2025 Ont SCJ

Creditor had a consent judgment against debtor. After the judgment, the debtor’s wife, son, and non-arms length corporation bought real properties. The creditor alleged that the debtor beneficially owned the properties and moved for a certificate of pending litigation (CPL). The associate judgment dismissed the motion. The Superior Court judge granted the appeal and allowed the CPL. The judge held that the associate judge failed to account for the constellation of facts typical of machination that debtors pursue to avoid paying a judgment – using layers of different entities and related individuals and corporations to shield them from judgment creditors while the debtors continue to carry on business.

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Privies (BIA)

Ernst & Young Inc. v. Anwar 2025 Sask KB

Trustee in bankruptcy applied to void transactions as transfers at undervalue (s. 96) or preferences (s. 95) under the Bankruptcy and Insolvency Act. Investigations revealed $1,383,800 in questionable transactions, primarily involving transfers to family members and associated entities of the bankrupts’ principal. The court found that several payments totaling $1.013 mil to the principal and his spouse were transfers at undervalue that diminished the bankrupts’ estates; the bankrupts received insufficient or no consideration,. Two payments to the principal’s nephew, totaling $140,000, were deemed voidable preferences. The court also declared several individuals and entities privy to and liable for these transfers. A privy is someone who benefits directly or indirectly from, and has knowledge of, the transaction for less than fair market value.

Norwich Order (2)

Does an aggrieved party have any recourse when it suspects that it has been wronged, but needs information from a third party to either confirm or allay its suspicions? Under the right circumstances, the creditor can obtain a Norwich order, named after the plaintiff in a 1974 English case.

We first discussed this concept in a February 2009 newsletter discussing Isofoton v. TD Canada Trust, a 2007 decision of the Ontario Superior Court of Justice. Until the Isofoton decision, in Canada there had been a 2002 Alberta decision and that was about it. In our newsletter, we noted that the Norwich order remedy had not been used extensively in Ontario or Canada but suspected that it would have far more use because of the Isofoton decision. We were not wrong. In the past 18 years, the Isofoton decision has been cited seventy times in reported cases and articles and, in 2018, the Supreme Court of Canada examined and applied the concept.

The latest case to deal with a Norwich order is Taylor v. Metrolinx a 2024 decision of the Ontario Superior Court of Justice.

Privileged Production

Sakab Saudi Holding Company v. Al Jabri 2025 Ont SCJ (Div Ct)

The plaintiff claimed a massive fraud and had already obtained a Mareva injunction and a Norwich order. The plaintiff brought a motion for production of law firm trust ledgers and for an order by which copies of foreign bank statements would not be redacted. The court refused production of the trust ledgers because the plaintiff did not show either that (i) there was no reasonable possibility that disclosure of the information would lead, directly or indirectly, to the revelation of confidential solicitor-client communications or (ii) the requested information was not linked to the merits of the case and its disclosure would not prejudice the client. Note the difference between the facts in this case and the case in which a judgment has already been obtained and the plaintiff is merely moving to find where a judgment debtor moved its money. The court did allow an order un-redacting the foreign bank statements, but still left open the possibility that if any of the redacted items could be linked to a lawyer, those items would remain redacted.

Fraudulent Preference

RPG Receivables Purchase Group Inc. v. American Pacific Corporation 2025 Ont CA

Trustee in bankruptcy moved to set aside, under s. 95(1)(a) and (2) of the Bankruptcy and Insolvency Act (BIA). The bankrupt had paid $400,000 to one of its major suppliers approximately one month before it assigned itself into bankruptcy. The bankrupt was insolvent when it made the payment. The bankrupt stated that it made the payment so that it could get more supply from that creditor that it would use to produce product to satisfy its major customer. The court held that paying past indebtedness to enable the continuation of the business is inconsistent with a preference only if the plan to continue in the business had a reasonable basis and, in this case, it did not. The payment was set aside.

Undervalue Transfer – Trust

E. Sands & Associates v. Gidda 2025 Ont SCJ

Trustee in bankruptcy moved to set aside, under s. 96(1)(b) of the Bankruptcy and Insolvency Act (BIA), a previous house transfer from the bankrupt to a non-arms length transferee. The transfer was under value. The transferee argued that the bankrupt had been a trustee under an express trust in favour of the transferee and was merely transferring the legal interest back to the transferee. The alleged express trust was not in writing and was therefore invalid pursuant to s. 9 of the Statute of Frauds. The transferee wanted the trustee to reimburse it for paying mortgage and other expenses to maintain the property while she lived there; however, the judge noted that these expenses did not increase the capital value of the property and that, therefore, the bankrupt was never enriched and the transferee never suffered a detriment because of those payments.

Resulting Trust (2)

We have previously discussed resulting trusts several times (e.g. see February 2025 and October 2023 newsletters) – because a trust normally means that what a creditor sees does not reflect the true state of affairs. A creditor will be disappointed if the debtor is shown to be an owner on title, but, because of a trust, is not the true owner. Conversely, a creditor will be pleased if it can demonstrate that a debtor, though not shown on title, is the true beneficial owner because of a trust.

When a purchaser or transferor gratuitously arranges for the registration of another person on title, the law presumes that this person, who has contributed nothing, holds the property in trust for the purchaser or transferor who paid everything. This is known as a resulting trust.

The concept of resulting trust was discussed in two 2024 cases in the Ontario Court of Appeal: Bradshaw v. Hougassian and Falsetto v. Falsetto.

Reliance

This is a tale of two reliances.

Sole practitioners, or small law firms, dealing in real estate work often rely heavily on conveyancing staff. These are the people who do the yeoman’s work in ensuring that a real estate file is properly documented and that money flows properly from purchasers and mortgagees to vendors and mortgagors. Why do sole practitioners and lawyers in small firms do this? Because if they were to delve into the nitty gritty of conveyancing, they could not make a decent living; they need to leverage their non-lawyer staff. Unfortunately, some lawyers rely too heavily on their staff and, in doing so, abrogate their responsibilities to their clients.

Clients rely on their lawyers to ensure, for purchaser clients, that they get what they are paying for and, for vendor clients, that they get their money from the sale of their properties. Sometimes, fortunately only seldomly, that reliance is misplaced.

These reliances were dealt with in Pallotta v. Cengarle, a 2024 decision of the Ontario Superior Court of Justice.

Severance (2)

In our August 2011 newsletter, we discussed the severance of a joint tenancy and stated:

“Two or more people may own property together in one of two ways: as joint tenants or as tenants in common. On death, the interest of one joint tenant passes to the other joint tenant whereas the interest of a tenant in common passes to that person’s heirs in the normal course. Joint tenants acting together may, if they wish, choose to convert (or sever) a joint tenancy to a tenancy in common. Indeed, one joint tenant can unilaterally sever a joint tenancy. Is there ever a circumstance in which a third party can sever a joint tenancy?”

The answer to the last question was yes. If a creditor moves to have a joint tenant’s interest sold under a writ of seizure and sale and the sheriff advertises the property for sale, that is sufficient to sever the joint tenancy.

What happens when a joint tenant applies for an order taking back a full interest in the property, but, in the meantime, a creditor has filed a writ of seizure and sale against the other joint tenant. This situation arose in Brunton v. Lanzarotta, a 2024 decision of the Ontario Superior Court of Justice.