Two or ten-year limitation period for fraudulent conveyance of real property?

Bank of Montreal v. Iskenderov, 2023 ONCA 528
What limitation period applies to a fraudulent conveyance action pertaining to real property?

Overview: In this case, the Ontario Court of Appeal clarified that the ten-year limitation period under s. 4 of the Real Property Limitations Act does not apply to an action to declare a fraudulent conveyance of real property void as against creditors. Rather, the two-year limitation period under the Limitations Act, 2002 applies to such an action.

Pursuant to a separation agreement dated January 10, 2008, Iskenderov transferred his interest in a jointly held matrimonial home to his wife, Lazareva (collectively, the “Appellants”). On April 28, 2008, Iskenderov defaulted on a $400,000 line of credit to the Bank of Montreal, which he had obtained fraudulently. After BMO obtained judgment against him for $483,449.89, he made an assignment into bankruptcy in March 2009. He was discharged on November 22, 2012, at which time the stay of proceedings resulting from the bankruptcy was lifted by court order to allow BMO to proceed to enforce its judgment against him under s. 178 of the Bankruptcy and Insolvency Act.

BMO commenced its action under s. 2 of the Ontario Fraudulent Conveyances Act to declare the transfer of the home a fraudulent conveyance and to set it aside in June 2013—two years but less than ten years after the transfer. The Appellants had argued that the claim was statute barred under the Ontario Limitations Act, 2002, but the motion judge found that, pursuant to the Court of Appeal’s decision in Anisman v. Drabinsky (ONCA), the ten-year limitation period under s. 4 of the Ontario Real Property Limitations Act (“RPLA”) applied to an action to declare a fraudulent conveyance of real property void as against creditors, and, accordingly, the claim was brought in time and could proceed.

On appeal, the Appellants argued that the motion judge erred in law by following Anisman for the principle that the RPLA ten-year limitation period rather than the Limitations Act two-year limitation period applies to an action to declare a fraudulent conveyance of real property void as against creditors.

Determining the limitation period applicable to fraudulent conveyance actions requires the Court to consider three factors:

1. the historical approach to the limitation period for these actions;

2. the nature of relief sought in a fraudulent conveyance action; and

3. the Court’s approach to interpreting s. 4 of the RPLA.

The limitation period for actions to “recover any land” currently enshrined in s. 4 of the RPLA has been in effect in England and in Ontario since the 19th century. However, before the new Limitations Act came into force in 2004, s. 4 of the RPLA had never been held to apply to a fraudulent conveyance action. Nor had any other section of the old Limitations Act been found to apply to a fraudulent conveyance action. Therefore, before the new Limitations Act came into force, there was no limitation period for bringing a fraudulent conveyance action.

It is necessary to understand the nature of the relief that is obtained in a fraudulent conveyance action when determining if it is “an action to recover land”. While some courts have ordered a reconveyance of the property that was the subject of the impugned transaction back to the transferor, in fact, s. 2 of the FCA does not afford that remedy. Because the fraudulent conveyance is void only “as against creditors or others”, the case law has made it clear that the transaction remains valid as between the transferor and the transferee. The purpose of declaring the conveyance void as against creditors or others is to allow them to execute against the property. Executions can be registered against the property by those creditors and their debts have priority to the proceeds of the sale of the property. No land is obtained by the judgment of the court.

Three conclusions flow from the case law interpreting s. 4 of the RPLA, the Limitations Act and s. 2 of the FCA:

1. 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.

2. 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.

3. 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.

These three propositions from the case law compel the conclusion that the ten-year limitation period under s. 4 of the RPLA does not apply to a fraudulent conveyance action under the FCA. Accordingly, to the extent that the Court of Appeal’s decision in Anisman confirmed the decision of the motion judge that the ten-year limitation period in s. 4 of the RPLA applied to the action to declare a fraudulent conveyance of real property void as against creditors, it was wrongly decided.

Finally, a fraudulent conveyance judgment is remedial. While it includes a declaration that a transfer is void, it also includes the consequence of that declaration, the remedy of setting aside the transfer as against creditors. Given the request for consequential relief, s. 16(1)(a) of the Limitations Act, 2002 is not applicable—leaving the general two-year limitation period in s. 4 to bring a proceeding in respect of a claim.

The Court concluded that the two-year limitation period in the Limitations Act, 2002 applied to this action, subject to a determination regarding discoverability of the claim.

Judges: Feldman, Lauwers, Huscroft, Roberts and Copeland JJ.A.

Counsel: Patrick Bakos of Friedmans for the Appellants

Joshua Siegel and Allyson Fox of Rubenstein, Siegal for the Respondent