ONTARIO – Limitation Periods – Real Estate – The 10-year limitation period in s. 4 of the Real Property Limitations Act, (“RPLA”) does not apply to an action to declare a fraudulent conveyance of real property void as against creditors under s.2 of the Fraudulent Conveyances Act (“FCA”).The two-year limitation period from the date the claim was discovered under s. 4 of the Limitations Act, 2002 applies. ONCA’s decision in Anisman v. Drabinsky, 2021 ONCA 120 was wrongly decided.
Bank of Montreal v. Iskenderov
2023 ONCA 528 (CanLII) (August 4, 2023)
Ontario Court of Appeal
(Feldman, Lauwers, Huscroft, Roberts, and Copeland JJA)
In this appeal, Feldman JA, writing the unanimous decision of a five-judge panel, allowed an appeal from the decision of M. Kurz J., reported at 2021 ONSC 5723, which held that the 10-year limitation period in s. 4 of the RPLA applies to an action under s.2 of the FCA to declare a conveyance of real estate void against creditors. In doing so, the Court held that its decision in Anisman v. Drabinsky, 2021 ONCA 120 was wrongly decided.
In January 2008, the Appellant, Iskenderov, transferred his interest in a jointly held matrimonial home to his wife pursuant to a separation agreement. In April 2008, he defaulted on a $400,000 line of credit to the Bank of Montreal (the “Bank”), which he had fraudulently obtained. After the Bank obtained judgment for $483,449.89 in January 2009, the Appellant made an assignment into bankruptcy.
He was discharged from bankruptcy on November 22, 2012, at which time the stay of proceedings resulting from his bankruptcy was lifted by court order to allow the Bank to proceed to enforce its judgment against him pursuant to s. 178 of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (“BIA”). (para. 4)
The Bank commenced its action to declare the transfer of the home a fraudulent conveyance and to set aside the transfer in June 2013. In February 2015, pursuant to an application under BIA s. 38, the Bank acquired the right to commence this action from the Trustee and on March 4, 2015, the Bank obtained an Assignment of Claim from the Trustee. The Bank obtained and registered a certificate of pending litigation against the property on March 11, 2015. (paras. 5-6)
In November 2017, the Appellant moved for summary judgment dismissing the Bank’s action and discharging the CPL. Due to delay by both parties, the motion was heard in July 2021. On the motion, the motion judge considered four issues: (para. 7)
- Whether the motion judge was bound by the ONCA decision in Anisman v. Drabinsky, 2021 ONCA 120(“Anisman (ONCA)”), which held that the 10-year limitation period under RPLA s. 4 applies to an action to declare a fraudulent conveyance void against creditors;
- If the two-year limitation period under the Limitations Act, 2002 applies, whether there was a genuine issue for trial regarding when the Bank’s claim was discoverable;
- Whether the certificate of pending litigation should be discharged for delay; and
- Whether the action should be dismissed for delay under Rule 48.14 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194.
Kurz J. was not asked to determine whether the impugned transfer was a fraudulent conveyance. That issue was left for trial if the action was not dismissed as statute barred or for delay. Kurz J. held that Anisman (ONCA) was binding and accordingly, that the 10-limitation period applied. The other three issues were largely moot, but the motions judge did make comments about them to which the ONCA briefly refers. (paras. 9-11)
ONCA considered the following factors to determine the limitation period applicable to fraudulent conveyance actions: (para. 13)
- The historical approach to the limitation period for these actions;
- The nature of relief sought in a fraudulent conveyance action; and
- ONCA’s previous approach to interpreting RPLA s. 4.
Historical approach to limitation periods for FCA actions
ONCA noted that the limitation period for actions to “recover any land” currently enshrined in RPLA s. 4 has been in effect in England and in Ontario since the 19th century. However, before the new Act came into force, s. 4 of the RPLA had never been held to apply to a fraudulent conveyance action. (para. 18)
Feldman JA referred to Brown v. Weil 1927 CanLII 437 (ON CA), where the ONCA refused to dismiss a fraudulent conveyance action for delay, which was commenced more than ten years after the conveyance on the basis that the plaintiff was enforcing a legal rather than an equitable right.
However, the court in Brown v. Weil did not discuss s. 5 of An Act Respecting the Limitation of Actions, R.S.O. 1914, c. 75, now s. 4 of the RPLA, which provided a ten-year limitation period for actions to recover land. If that section had applied, the action would have been statute barred. Feldman JA inferred that it was because the section did not apply to bar the claim that the argument based on laches was pursued, although unsuccessfully, as an alternative. (paras. 23-24)
Prior to the enactment of the new Act, s. 4 of the RPLA or its equivalent provisions were never applied to an action for a fraudulent conveyance of land. Also, the six-year limitation period in the old Act did not apply to actions for the fraudulent conveyance of chattels or personal property. There was therefore no limitation period applicable to fraudulent conveyance actions. (para. 25)
Despite this history, prior to ONCA’s decision in Anisman (ONCA) but after the new Limitations Act came into force in 2004, not all judges of the Superior Court agreed on which limitation period applied to a fraudulent conveyance action. Feldman JA referred to several cases that show different approaches and conclusions. (paras. 26-34)
In Anisman (ONCA), the Court of Appeal upheld the decision of Morgan J. that the 10-year limitation period applied to FCA actions. However, in the present appeal, Feldman JA notes that neither Morgan J. nor the ONCA considered the earlier cases or referred to the ONCA decision in Indcondo Building Corporation v. Sloan, 2010 ONCA 890, which held, without discussion or analysis, that the two-year limitation period under s. 4 of the Limitations Act 2002 would apply to a fraudulent conveyance action. Because of the application of the transition provisions of the new Act, the applicable limitation period in that case was the former one, i.e., no limitation period. (paras. 30-32)
No recovery of any land in an FCA action
Feldman JA noted that the mechanism of the FCA, which results in a declaration that the fraudulent conveyance is void against creditors, does not refer to a reconveyance. The transaction remains valid between the parties. However, the defrauded creditor is permitted to execute against the transferred portion of the land.
Therefore, Feldman JA concluded that an FCA action is not a claim for recovery of land. (para. 36-37)
Feldman JA stated: (para. 42)
I agree with the analysis and conclusion reached by Newbury JA, [in Guthrie v. Abakhan & Associates Inc., 2017 BCCA 102,] that the effect of an order under the Fraudulent Conveyances Act declaring the fraudulent conveyance void against creditors is not that the property is transferred back to the transferor. Title does not change because of the declaration. But the creditors may treat the property registered in the name of the transferee as exigible for the debts owed to them by the transferor. Executions can be registered against it by those creditors and their debts have priority to the proceeds of the sale of the property.
ONCA’s previous approach to interpreting RPLA s. 4
After reviewing several cases, Feldman JA held no court applied s. 4 of the old Act (now s. 4 of the RPLA) to an action to set aside a fraudulent conveyance of real property. Because no other section of the old Act applied, there was no limitation period for a fraudulent conveyance action. An order declaring a conveyance of real property void as against creditors or others does not return the property to the transferor. The transaction between the parties to the conveyance remains in place. (para. 51)
Feldman JA concluded that: (para. 52)
- Before the new Limitations Act, 2002, no court applied s. 4 of the old Act (now s. 4 of the RPLA) to an action to set aside a fraudulent conveyance of real property. Because no other section of the old Act applied, there was no limitation period for a fraudulent conveyance action.
- An order declaring a conveyance of real property void as against creditors or others does not return the property to the transferor. The title to the property remains with the transferee but because the transfer is set aside as against creditors or others, they may execute against the property in the hands of the transferee.
- In an action to “recover any land”, within the meaning of s. 4 of the RPLA, the judgment of the court must grant a property right. It is not enough that the subject matter of the action is real property.
Each of these factors supported the same conclusion on this issue: the two-year period in the Limitations Act, 2002, not the ten-year period in the RPLA, applies to fraudulent conveyance actions under the Fraudulent Conveyances Act. (para. 53)
The five-judge panel of the ONCA concluded that Anisman (ONCA) was wrongly decided and allowed the appeal. (paras. 65-67)