Legal Blog

Intention

Debtors who have fraudulently conveyed their property, usually to their spouses, often claim that they had always intended to transfer the property and, in doing so, they were not trying to defeat their creditors; they were simply trying to give effect to pre-made plans. The latest case in which this defence was used is Royal Bank of Canada v. Clarke, a 2009 decision of the British Columbia Supreme Court.

Story 

Husband and wife purchase their property in 2003 and build a house on it. They take title in their joint names. The bank is the first mortgagee. In December 2004, husband takes out business loans with the bank. In 2006, after placing a second mortgage for additional financing for husband’s business, the couple list the property for sale. The real estate agent opines to them that it is unusual for the property to be held jointly, given that husband has a business. Husband tells the agent that husband had always intended to put the property in wife’s name alone, but the bank, in its capacity as first mortgagee, said that wife did not have sufficient income to carry the mortgage alone and therefore the property had to be in joint names. As an aside, we rather doubt that the bank said this, but let us assume that it is true.

It seems that the couple do not sell the property. In March 2008, they consolidate their debts and take out a new first mortgage with CIBC, who does not object to the property being in wife’s name alone. Therefore, in March 2008, husband transfers his interest to wife for a dollar. At the time of the transfer, husband owes the bank $147,000 and, after the transfer, makes no further payments on the loan.

Separation 

We have not heard of the-real-estate-agent-made-me-do-it defence before, but it is a variation on a theme. Somebody else always suggests that they do it; it is never the debtors’ idea.

The B.C. Fraudulent Conveyance Act differs from Ontario’s, but they both have the same message: a transfer made to delay, hinder, or defraud creditors is void. Husband and wife transferred the property to wife alone to insulate it from husband’s business creditors. The fact that the couple had previously contemplated doing so – if that were true – is irrelevant. What they did was exactly the mischief that the statute was enacted to counteract.

The judge therefore declared that the transfer was void and that the bank was entitled to pursue its remedies as a creditor of husband as if he were a joint owner.

ANNOUNCEMENT 

Jeffrey Tighe has joined our litigation department.

Jeff  has a B.Sc. from Queen’s University, an MBA from Wilfrid Laurier University, and a law degree from University of Manitoba. He was called to the Bar in Ontario in 1999. Since then, he has practised in commercial litigation and construction law.

In his spare time, of which there may be little, he is currently researching and writing a book in the field of military history.