In Bank of Montreal v. Iskenderov, 2023 ONCA 528, the Ontario Court of Appeal held that actions to set aside a conveyance under section 2 of the Fraudulent Conveyances Act are subject to the basic two-year limitation period under the Limitations Act, 2002 – not the ten-year period prescribed by section 4 of the Real Property Limitations Act. In coming to a unanimous decision, the five-judge panel of the Court of Appeal not only overturned the decision of the motion judge, but impugned their own Court’s relatively recent decision in Anisman v. Drabinsky, 2021 ONCA 120 (Anisman). This result is somewhat counter-intuitive and a trap for the unwary.
Facts
In accordance with a separation agreement, Iskenderov (the Debtor) transferred his interest in his home to his wife. Iskenderov soon thereafter defaulted on his loan to the bank and assigned himself into bankruptcy. More than two years after the transfer, the bank sought to set aside the transfer as a fraudulent conveyance under section 2 of the Fraudulent Conveyances Act (FCA). The Debtor moved for summary judgment on the basis that it was statute barred by Ontario’s Limitations Act, 2002 (Limitations Act). The motion judge followed the Court of Appeal’s decision in Anisman and found that the ten-year limitation period under the Real Property Limitations Act (RPLA) applied. Accordingly, the Debtor’s motion was dismissed. The Debtor appealed.
Determination
In determining whether the two-year limitation period under the Limitations Act or the ten-year period under the RLPA applied, the Court of Appeal considered whether an action under the FCA was “an action to recover any land” as contemplated by section 4 of the RPLA. This involved a historical analysis of section 4 of the RPLA, the Court of Appeal’s interpretation and application of the section, and whether these aligned with the nature of relief sought in fraudulent conveyance actions. The Court of Appeal’s key findings are set out below:
- The ten-year limitation period was not historically applied to actions involving fraudulent conveyances:
The ten-year limitation period imposed on “an action to recover any land” under section 4 of the RPLA has been enshrined in Ontario law since pre-confederation (1834) when it was imported from an English statute. Though it has migrated through several pieces of legislation, the wording of the section remains virtually unchanged. Until the enactment of the Limitations Act, 2002, the RPLA had never been applied to fraudulent conveyances – there was simply no limitation period for such claims.[1]
- The ONCA’s interpretation of “an action to recover any land” under section 4 of the RPLA is inconsistent with fraudulent conveyance actions:
An “action to recover any land” within the meaning of section 4 of the RPLA requires the court to grant a right to land or money that was paid for land. No property rights are granted when a conveyance is set aside as fraudulent.[2]
- An order under section 2 of the FCA does not lead one to “recover any land”:
When a conveyance is declared fraudulent under the FCA, it is void as against creditors. Creditors may register executions against the land, but they do not recover any rights to the land in title or possession. The conveyance remains valid between the transferor and transferee and the land is never recovered, not even by the transferor.[3]
- The Court of Appeal‘s 2021 decision in Anisman was wrongly decided: the ten-year limitation period under section 4 of the RPLA does not apply to actions under the FCA.[4]
Commentary
The Court of Appeal briefly discussed the application of Section 16(1)(a) of the Limitations Act, under which there is “no limitation period for a declaration if no consequential relief is sought.” Ultimately, the court rejected this argument, finding that a declaration of a fraudulent conveyance included the consequence of the transfer being void against creditors. Therefore a two-year limitation period applies, per section 4 of the Limitations Act.[5]
This decision has important ramifications for creditors who are faced with a potential fraudulent conveyance. While the issue of when the claim in respect of the property in question ought to have been discovered was not addressed, creditors and court-appointed officers must be much more mindful of the running of time in the context of potentially fraudulent conveyances, and attentive to the traditional hallmarks of discoverability that have been recognized by the Court. These hallmarks include:
- An action under the FCA is discoverable when the party bringing the action knows, or ought to know of the underlying facts: i.e., that property was transferred in want of good consideration or good faith.[6]
- [7] This is true even where a creditor or the Proposal Trustee is already aware of a possible transfer of property at undervalue prior to the date of bankruptcy.[8]
- Where a creditor brings an action in its own right under Section 38 of the Bankruptcy Insolvency Act (BIA), the claim is discoverable on the earlier of:
- The date of the bankruptcy filing, at which point the claim was discoverable by the trustee; or
- The date the creditor knew or ought to have known about the fraudulent conveyance.[9]
The above conclusion stems from the Court of Appeal’s decision Indcondo Building Corp v. Sloan, 2010 ONCA 890 (Indcondo), in which the appellant creditor brought a Section 38 action to impugn a transfer as a fraudulent conveyance more than two years after the assignment into bankruptcy. The Court of Appeal found that a Court Order under Section 38 of the BIA assigns all rights, title and interests in the claim from the Trustee to the creditor, meaning Section 12 of the Limitations Actapplied. Section 12 prevents the unfair extension of limitation periods by restricting the discoverability date of a claim to the earlier of (1) the predecessor in right, title or interest; or (2) the person or entity bringing the claim.
Accordingly, an action under Section 38 of the BIA does not restart the limitation period.[10] Normally this works to the benefit of the bankrupt party. However, the facts in Indcondo led to a unique outcome. Since the creditor had discovered the fraudulent conveyance before Ontario’s current Limitations Act came into effect, the outcome of that case was governed by a previous statute, which did not provide for a limitation period for a fraudulent conveyance action.
Creditors should exercise diligence in discovering claims, but are generally not expected to actively investigate unless there is a signal that the property in question has been transferred.[11]
For more information on this topic, please reach out to the author, Fraser MacKinnon Blair.
[1] 2023 ONCA 528 at paras 14-34.
[2] Ibid at paras 35-44.
[3] Ibid at paras 45-51.
[4] Ibid at para 56.
[5] Ibid at paras 57-66.
[6] Limitations Act, 2002 c 24, Sched B at s 5.
[7] Pantzrisis v 1529439 Ontario Ltd, 2021 ONCA 784 at para 13, aff’g Albert Gelman Inc v 1529439 Ontario Limited, 2020 ONSC 7917 in which the motion judge stated at para 114 “the knowledge of a creditor cannot be imputed to a trustee in bankruptcy,”
[8] Ibid; Re Saran, 2018 ONSC 2998 at paras 40, 50; AssessNet Inc v Taylor Leibow Inc, 2023 ONCA 577 at para 33 [“AssessNet”].
[9] Indcondo Building Corp v Sloan, 2010 ONCA 890, paras. 14-20.
[10] Ibid; Ridel v Goldberg, 2018 ONSC 3113 aff’d 2019 ONCA 636 at para 84.
[11] See Midland Resources Holdings Ltd v Bokserman, 2021 ONSC 3077 at para 47, aff’d 2022 ONCA 73, leave to appeal to SCC refused.
