



COURT OF APPEAL FOR ONTARIO

CITATION: Urbancorp Toronto Management Inc.
    (Re), 2019 ONCA 757

DATE: 20190927

DOCKET: C65891

van Rensburg, Hourigan and
    Huscroft JJ.A.

IN THE MATTER OF the
Companies Creditors
    Arrangement Act
, R.S.C. 1985, c. C-36, as amended

AND IN THE MATTER OF a plan of compromise or
    arrangement of Urbancorp Toronto Management Inc., Urbancorp (St. Clair Village)
    Inc., Urbancorp (Patricia) Inc., Urbancorp (Mallow) Inc., Urbancorp (Lawrence)
    Inc., Urbancorp Downsview Park Development Inc., Urbancorp (952 Queen West)
    Inc., King Residential Inc., Urbancorp 60 St. Clair Inc., High Res. Inc.,
    Bridge on King Inc. (Collectively the Applicants) and the affiliated entities
    listed in Schedule A hereto

Matthew Milne-Smith and Chantelle Cseh,
    for the appellant, KSV Kofman Inc., in its capacity as Monitor

Kevin D. Sherkin and Jeremy Sacks, for
    the respondent, Speedy Electrical Contractors Ltd.

Neil Rabinovitch, for Guy Gissin, the
    Israeli court-appointed Functionary and Foreign Representative of Urbancorp
    Inc.

Heard: March 28, 2019

On appeal from the order of Justice Frederick
    L. Myers of the Superior Court of Justice dated May 11, 2018, with reasons reported
    at 2018 ONSC 2965, 60 C.B.R. (6th) 241.

van Rensburg J.A.:

OVERVIEW

[1]

King Residential Inc. (KRI) is part of the
    Urbancorp group of companies, which are presently involved in proceedings under
    the
Companies Creditors Arrangement Act
, R.S.C. 1985, c. C-36
    (CCAA). Speedy Electrical Contractors Ltd. (Speedy) filed a claim against KRI
    pursuant to a secured guarantee given by KRI to Speedy for debts owed by Edge on
    Triangle Park Inc. (Edge) and Alan Saskin. KRIs monitor, KSV Kofman Inc.
    (the Monitor) argued that Speedys claim (which was in the amount of $2,323,638.54)
    should be disallowed, among other things, because the secured guarantee was a
    transfer at undervalue under s. 96 of the
Bankruptcy and Insolvency Act
,
    R.S.C. 1985, c. B-3 (the BIA) and a fraudulent conveyance under s. 2 of the
Fraudulent
    Conveyances Act
, R.S.O. 1990, c. F.29 (the FCA). The motion judge
    disagreed and dismissed the Monitors motion for an order disallowing Speedys
    claim. The Monitor appeals, with leave.

[2]

The Monitor challenges the motion judges finding,
    in relation to s. 96(1)(b) of the BIA, that the secured guarantee was between
    arms length parties. The Monitor says that the motion judge erred in law in
    focussing on the relationship between KRI and Speedy, rather than the
    relationships among KRI, Edge and Mr. Saskin. The Monitor also contends that
    there was reversible error in the motion judges conclusion that the fraudulent
    intent necessary under s. 96(1)(a) of the BIA and s. 2 of the FCA was not
    proved.

[3]

For the following reasons I would dismiss the
    appeal.

[4]

Briefly, as I will explain, the motion judge
    properly considered the relationship between KRI and Speedy, rather than the
    relationship between KRI, Edge and Mr. Saskin, in determining whether the
    impugned transfer was to a non-arms length party. Although Edge and Mr. Saskin
    were parties to, and beneficiaries of, the
transaction
that provided for
    the secured guarantee, the
transfer
sought to be impugned by the Monitor
    was KRIs secured guarantee in favour of Speedy. The issue, under a proper
    construction of s. 96(1)(b) of the BIA, is whether the transferee, Speedy, was
    dealing at arms length with KRI, the transferor, in relation to the impugned transfer,
    which is the secured guarantee.

[5]

The other main arguments on appeal challenge the
    motion judges finding that the transfer was for the purpose of facilitating a
    financing for the Urbancorp group and not with the intention to defraud, defeat
    or delay KRIs creditors. This is a finding of fact, supported by the evidence,
    that is entitled to deference and reveals no reversible error. This finding is
    determinative of the appellants claim for relief, whether under s. 96 of the BIA
    or s. 2 of the FCA.

[6]

Finally, the motion judges costs award against
    the Monitor, on behalf of the debtor, and not in its personal capacity, was a
    proper exercise of his discretion, and reveals no reversible error.

FACTS

[7]

The Urbancorp group consists of a number of corporations
    and business entities all ultimately owned by Alan Saskin, and principally
    involved in the development of residential real estate projects in the Greater
    Toronto Area.

[8]

Speedy operates an electrical contracting
    business and performed electrical services for members of the Urbancorp group.

[9]

In September 2014, Speedy made a personal loan
    to Mr. Saskin for $1 million, with interest at the rate of 12.5%, evidenced by
    a promissory note due in one year dated September 23, 2014 (the Promissory
    Note). In addition, Speedy completed electrical work for Edge (an Urbancorp
    entity) on Lisgar Street in Toronto, ultimately registering a construction lien
    against the project for $1,038,911.44 on September 30, 2015.

[10]

On November 14, 2015, KRI, Speedy, Mr. Saskin
    and Edge executed a debt extension agreement (the DEA) under which:

·

Speedy agreed to extend the due date of the
    Promissory Note to January 30, 2016;

·

Edge confirmed its debt to Speedy and Speedy
    agreed to discharge its lien against the Edge project;

·

In consideration of the extension of the
    Promissory Note, the discharge of the lien, and payment by Speedy to KRI of $2.00,
    KRI agreed to guarantee the two outstanding debts, secured by a collateral mortgage
    in Speedys favour over 13 KRI condominium units and 13 parking spaces; and

·

KRI agreed to provide evidence showing that
    there were no common element arrears of the subject condominium units or to pay
    such arrears on closing, confirmed the taxes on the units were up to date, and
    agreed that it would obtain a discharge or postponement of a Travelers
    Guarantee Company of Canada mortgage registered on the subject units.

[11]

Pursuant to the DEA, on November 16, 2015, Speedy
    discharged its lien against the Edge property, and the collateral mortgage in
    favour of Speedy was registered on title to the KRI properties.

[12]

At the time of the DEA, the beneficial owners of
    the Urbancorp groups various development projects were three limited
    partnerships: TCC/Urbancorp (Bay) LP (Bay LP), Urbancorp (Bay/Stadium) LP
    (Bay/Stadium LP), and Urbancorp (Stadium Road) LP (Stadium Road). Typically,
    the Urbancorp group set up various single-purpose, project-specific
    corporations that acted as bare trustees or nominees for their beneficial
    owners. KRI was a wholly-owned subsidiary and nominee of Bay LP, while Edge was
    a wholly-owned subsidiary and nominee of Bay/Stadium LP. The Monitor emphasizes
    that each limited partnership had distinct ownership and different creditor
    groups.

[13]

Part of the impetus behind the DEA was to
    facilitate a financing of the Urbancorp group through a public bond issuance in
    Israel. In order to support the underwriting and to complete the financing, Mr.
    Saskin wanted to offer the unencumbered value of the Edge project property. And
    Speedy had threatened to bring legal proceedings against Mr. Saskin and was
    pressing forward with its lien.

[14]

The parties entered into the DEA shortly before
    the Urbancorp group initiated a corporate reorganization, which was completed
    on or around December 15, 2015. The reorganization was also required to
    facilitate the bond issuance.

[15]

According to the Monitor, as part of the
    reorganization, Urbancorp Inc. (UCI) was incorporated in June 2015 and
    several wholly-owned subsidiaries were formed. KRI, previously owned by Bay LP,
    became part of a wholly-owned subsidiary called Urbancorp Cumberland 1 LP.
    Edge, previously owned by Bay/Stadium LP, became part of a wholly-owned
    subsidiary called Urbancorp Cumberland 2 LP.

[16]

In December 2015, the Israeli bond issuance
    closed. UCI raised approximately $65 million, most of which it used to repay
    certain secured debt owed by various Urbancorp group members and for general
    working capital purposes. Speedy was not repaid.

[17]

Approximately five months after the Israeli bond
    funding, the Urbancorp empire collapsed and substantially all the Urbancorp
    group entities commenced insolvency proceedings. On May 18, 2016, KRI and the
    other Urbancorp entities involved in these proceedings were granted protection
    under the CCAA. There are other insolvency proceedings involving other
    Urbancorp entities, including Edge.

[18]

On September 15, 2016, Newbould J. made an order
    establishing a procedure to identify and quantify claims against the
    CCAA-protected entities and their current and former directors and officers.
    Speedy filed a proof of claim, dated October 19, 2016, against KRI in the
    amount of $2,323,638.54 pursuant to its secured guarantee. On November 11, 2016,
    the Monitor disallowed the claim on the basis that the granting of the
    guarantee could be voidable as a transfer at undervalue or as a fraudulent
    conveyance or preference. On November 25, 2016, Speedy filed a notice disputing
    the disallowance.

[19]

After some delay, the Monitor brought a motion
    on March 7, 2018, for an order declaring that Speedys claim be disallowed in
    full. Guy Gissin, in his capacity as the court-appointed functionary of UCI in
    proceedings in Israel (the Israeli Functionary) participated in the court
    below, and was represented in court in this appeal.
[1]
The Israeli Functionary was
    appointed in 2016 pursuant to an application under Israels insolvency regime.
    The Israeli Functionary supported the Monitor on its motions to disallow
    Speedys claim. The Israeli Functionary also sued Mr. Saskin and others in
    Israel, alleging, among other things, fraud and securities law violations in
    connection with the bond underwriting.

[20]

On May 11, 2018, the motion judge dismissed the Monitors
    motion for an order disallowing Speedys claim.

[21]

By the time of the hearing of the appeal, there
    was evidence that, shortly after executing the DEA, Speedy had waived KRIs
    mortgage in relation to Mr. Saskins personal debt, a fact that was not brought
    to the attention of anyone when the motion was heard, including the Monitor and
    the motion judge. After this information came to light, the motion judge varied
    his original order to exclude the loan from Speedys claim. At issue, therefore,
    is only the claim against KRI under the secured guarantee of Edges debt to
    Speedy. This does not affect the arguments made on appeal, except, according to
    the Monitor, in respect of the quantum of costs awarded by the motion judge.

RELEVANT STATUTORY
    PROVISIONS

[22]

Of relevance to this appeal, the Monitor challenged the secured guarantee
    under s. 96 of the BIA, and alternatively under s. 2 of the FCA.

[23]

Section
    96 of the BIA provides for the challenge of pre-bankruptcy transfers at
    undervalue made by a debtor. Section 96 is applicable in CCAA proceedings
    pursuant to s. 36.1 of the CCAA. Subsections 96(1) to (3) of the BIA provide as
    follows:

(1) On application by the trustee, a court may declare
    that a transfer at undervalue is void as against, or, in Quebec, may not be set
    up against, the trustee  or order that a party to the transfer or any other
    person who is privy to the transfer, or all of those persons, pay to the estate
    the difference between the value of the consideration received by the debtor
    and the value of the consideration given by the debtor  if

(a) the party was dealing at arms length with the debtor
    and

(i) the transfer occurred during the
    period that begins on the day that is one year before the date of the initial
    bankruptcy event and that ends on the date of the bankruptcy,

(ii) the debtor was insolvent at the
    time of the transfer or was rendered insolvent by it, and

(iii) the debtor intended to defraud,
    defeat or delay a creditor; or

(b) the party was not dealing at arms length with the
    debtor and

(i) the transfer occurred during the
    period that begins on the day that is one year before the date of the initial
    bankruptcy event and ends on the date of the bankruptcy, or

(ii) the transfer occurred during the
    period that begins on the day that is five years before the date of the initial
    bankruptcy event and ends on the day before the day on which the period
    referred to in subparagraph (i) begins and

(A) the debtor was insolvent at the
    time of the transfer or was rendered insolvent by it, or

(B) the debtor intended to defraud,
    defeat or delay a creditor.

(2) In making the application referred to in this section, the
    trustee shall state what, in the trustees opinion, was the fair market value
    of the property or services and what, in the trustees opinion, was the value
    of the actual consideration given or received by the debtor, and the values on
    which the court makes any finding under this section are, in the absence of
    evidence to the contrary, the values stated by the trustee.

(3) In this section, a
person who is privy
means
    a person who is not dealing at arms length with a party to a transfer and, by
    reason of the transfer, directly or indirectly, receives a benefit or causes a
    benefit to be received by another person.

[24]

A transfer at undervalue is defined as
a disposition of property or provision of services for which no
    consideration is received by the debtor or for which the consideration received
    by the debtor is conspicuously less than the fair market value of the
    consideration given by the debtor: BIA, s. 2. Related persons is defined,
    and includes entities that are controlled by the same person: BIA, s. 4(2). It
    is a question of fact whether persons not related to one another were at a
    particular time dealing with each other at arms length: BIA, s. 4(4). Persons
    who are related to each other are deemed, in the absence of evidence to the
    contrary, not to deal with each other at arms length: BIA, s. 4(5).

[25]

The FCA

is provincial legislation that is
    also available in insolvency proceedings for the declaration of fraudulent
    transfers as void. Sections 2 to 4 provide as follows:

2. Every conveyance of real property or
    personal property and every bond, suit, judgment and execution heretofore or
    hereafter made with intent to defeat, hinder, delay or defraud creditors or
    others of their just and lawful actions, suits, debts, accounts, damages,
    penalties or forfeitures are void as against such persons and their assigns.

3. Section 2 does not apply to an estate or
    interest in real property or personal property conveyed upon good consideration
    and in good faith to a person not having at the time of the conveyance to the
    person notice or knowledge of the intent set forth in that section.

4. Section 2 applies to every conveyance
    executed with the intent set forth in that section despite the fact that it was
    executed upon a valuable consideration and with the intention, as between the
    parties to it, of actually transferring to and for the benefit of the
    transferee the interest expressed to be thereby transferred, unless it is
    protected under section 3 by reason of good faith and want of notice or
    knowledge on the part of the purchaser.

DECISION OF THE
    MOTION JUDGE

[26]

The motion judge considered the Monitors motion
    for an order disallowing Speedys claim as filed against KRI on three bases: as
    a transfer at undervalue under s. 96 of the BIA, as a fraudulent conveyance
    contrary to s. 2 of the FCA, and as oppression under the
Business
    Corporations Act
, R.S.O. 1990, c. B.16. Only the first two grounds are relevant
    to this appeal.

[27]

The motion judge noted that the motion resolved
    to two findings. The first was that Speedy and KRI were operating at arms
    length when KRI gave its guarantee. As such, it would be necessary under s. 96
    of the BIA for the Monitor to prove, among other things, that the guarantee was
    given by KRI to Speedy with the intent to defraud, defeat or delay a creditor.

[28]

On the arms length question, the motion judge
    rejected the Monitors argument that Speedy had leverage to subvert normal
    economic incentives because of Speedys long-term relationship with Mr. Saskin
    and the personal loan it made to him. The motion judge explained that there was
    no evidence that Speedy and KRI were acting in concert, and that contemporaneous
    written communications indicated they were adverse in interest. He rejected the
    Monitors argument that Mr. Saskin had acted in bad faith by offering the
    guarantee to remove what the Monitor argued was an untimely and therefore
    invalid lien. Speedys witness had testified the lien was timely and, contrary
    to the rule in
Browne v. Dunn
(1893), 6 R. 67 (H.L.), he was not
    confronted with the document said to suggest the lien was registered late. As a
    result of all of these circumstances, the motion judge found that Speedy and
    KRI were operating at arms length.

[29]

The second finding of the motion judge was that
    the Monitor had failed to prove that the guarantee was given by KRI with the
    intent to defraud, defeat or delay its creditors. He recognized that such
    intent could be inferred from badges of fraud, including where the
    consideration is grossly inadequate. Here he noted that the adequacy of
    consideration was disputed. He then stated that the only apparent badge of
    fraud was that the transaction was made in [the] face of threatened legal
    proceedings. The fact that Speedy registered its mortgage on title  as one
    would expect any
bona fide
commercial creditor to do  further
    undermined the suggestion of fraudulent intent. The motion judge concluded at
    para. 24: [t]here is nothing about the facts of this transaction that leads me
    to infer that it was made with a fraudulent intent rather than to obtain Speedys
    cooperation to allow Urbancorp to refinance as intended at the time.

[30]

The motion judge contrasted the case of
XDG
    Ltd. v. 1099606 Ontario Ltd.
(2002), 41 C.B.R. (4th) 294 (Ont. S.C.), affd
    (2004), 1 C.B.R. (5th) 159 (Ont. Div. Ct.), which similarly involved a
    challenge to a guarantee by an insolvent affiliate for debts that did not
    relate to the specific business of the guarantor. In that case, the parties
    entered into the impugned transaction in great haste and the lender knew or
    ought to have known that the debtor was insolvent. The motion judge noted that
    here, by contrast, the solvency of the debtor depended on whether one looked at
    the debtor on its own or as part of the broader business of Bay LP, and that in
    any event, the Monitor accepted that the business was solvent on a balance
    sheet basis at the relevant time. He noted that he was simply pointing out
    that the situation in
XDG
was quite different from this case in which
    the debtor was undertaking obligations to support the refinancing of the
    overall business within a few weeks time and the refinancing occurred: at
    para. 25.

[31]

Having found that the necessary intention was
    not proved, the motion judge held that the remedies under s. 96 of the BIA and s.
    2 of the FCA could not apply.

[32]

As for the oppression claim, the motion judge
    concluded that, assuming that such a claim could be raised in response to a
    debt in a CCAA claim process without an oppression claim being separately heard
    and an appropriate remedy granted, there was no basis on the evidence for an
    oppression remedy to lie.

[33]

Finally, the motion judge noted that he had
    decided the motion based solely on the arms length relationship and lack of
    fraudulent intent, and that it was not necessary to deal with a number of other
    issues raised by the parties orally and in their factums: at para. 30.

[34]

In dismissing the motion, the motion judge
    ordered costs of $25,000 to be paid to Speedy by the Monitor on behalf of the
    debtor, and not in its personal capacity.

ISSUES

[35]

I would frame the issues on appeal as follows:

1.

Did the motion judge err in focussing on the
    relationship between Speedy and KRI rather than between Edge and Mr. Saskin (as
    beneficiaries of the secured guarantee) and KRI?

2.

Did the motion judge err by failing to consider the
    record as a whole, including all of the potential badges of fraud, when he refused
    to find fraudulent intent?

3.

Did the motion judge err in misapplying the rule
    in
Browne v. Dunn
?

4.

Did the motion judge err in his award of costs
    of the motion against the Monitor?

ANALYSIS

(1)

Did the motion judge err in focussing on the
    relationship between Speedy and KRI rather than between Edge and Mr. Saskin (as
    beneficiaries of the guarantee) and KRI?

[36]

As noted, the motion judge concluded that KRI and Speedy were acting
    at arms length when the secured guarantee was given. As such, s. 96(1)(b) did
    not apply and the secured guarantee, provided that it was made within one year
    of the CCAA proceedings, could only be impugned as a transfer at undervalue under
    s. 96(1)(a) if: (i) KRI
was insolvent at the time of the transfer or was
    rendered insolvent by it, and (ii) KRI intended to defraud, defeat or delay a
    creditor.

[37]

The motion judges conclusion that Speedy and
    KRI were acting at arms length in respect of the transaction is a finding of
    fact under s. 4(4) of the BIA, which is subject to a palpable and overriding
    error standard of review:
Montor Business Corp. (Trustee of) v. Goldfinger
,
    2016 ONCA 406, 58 B.L.R. (5th) 243, at para. 66, leave to appeal refused,
    [2016] S.C.C.A. No. 361;
Piikani Nation v. Piikani Energy Corp.
, 2013
    ABCA 293, 86 Alta. L.R. (5th) 203, at para. 17. The Monitor does not challenge
    this finding. Rather, its main argument on appeal is that, in determining
    whether the parties were acting at arms length, the motion judge considered
    only the relationship between Speedy and KRI, instead of the relationship
    between KRI and the other parties to the DEA, namely Edge and Mr. Saskin. The Monitor
    says that, because KRI, Edge and Mr. Saskin were related parties, and clearly
    non-arms length, the entire DEA was void as against the Monitor, including the
    secured guarantee that was provided to Speedy as a term of the DEA. According
    to the Monitor, the motion judge failed to make any finding on this central
    issue. It is unclear whether any such argument was advanced before the motion
    judge.

[38]

The Monitor submits that, in contrast with s. 95
    of the BIA, which deals with fraudulent preferences and requires a transfer
    from an insolvent debtor to a creditor, s. 96 does not explicitly use the
    word creditor and is therefore intended to encompass a broader set of
    relationships and harm. Edge and Mr. Saskin, in addition to Speedy, benefited
    from the DEA, and since Edge and KRI are both controlled by Mr. Saskin, these
    parties are related and presumed not to be operating at arms length pursuant
    to the BIA. As such, the transfer was between non-arms length parties, and
    can be voided without any determination of the debtors fraudulent intent or
    insolvency under s. 96(1)(b)(i) since it occurred less than one year before the
    date of the initial bankruptcy event. The Monitor argues that this
    interpretation is consistent with the objective of s. 96 which is to provide a
    remedy for asset-stripping by insolvent debtors.

[39]

Speedy asserts that the plain wording of s.
    96(1)(b) does not support the Monitors interpretation. For the purpose of this
    section, in determining whether a non-arms length relationship existed, such
    that it is unnecessary to establish fraudulent intent for a transfer within one
    year of the initial bankruptcy event,
[2]
the court must consider the parties to the transfer, and not whether other
    parties to the overall transaction may have benefited.

[40]

I agree with Speedy. While s. 96 no doubt is a
    tool to address asset stripping by a debtor, as the Monitor contends, a bankruptcy
    trustee or CCAA monitor that seeks to impugn a transfer under that provision
    must nevertheless meet the requirements of the section to establish that the
    transfer in question is void. The point of departure is to consider the
    specific words used in this section of the BIA
.

[41]

Section 96 provides for a court order to declare void as against
    the trustee (in this case the Monitor) a transfer at undervalue or to require
    the party to the transfer or any other person who is privy to the transfer
    to pay
to the estate the difference
between the value
    of the consideration received by the debtor and the value of the consideration
    given by the debtor.

[42]

Transfer at undervalue
is
defined in s. 2 of the BIA to mean:

A
disposition of property or provision of
    services
for which no consideration is received by the debtor or for which
    the consideration received by the debtor is conspicuously less than the fair
    market value of the consideration given by the debtor. [Emphasis added.]

[43]

A transfer
is defined
    in Blacks Law Dictionary
, 11th ed.
    (Saint Paul: Thomson Reuters, 2019) as a
ny mode of
    disposing of or parting with an asset or an interest in an asset, including a
    gift, the payment of money, release, lease, or creation of a lien or other
    encumbrance. A transaction, by contrast, is defined as something performed
    or carried out, a business agreement or exchange. While the DEA was a
transaction
between KRI, Speedy, Edge and Mr. Saskin, the transaction contemplated a
transfer
,
    which was the secured guarantee given by KRI to Speedy. The only parties to the
    transfer, as opposed to the transaction, were KRI and Speedy.

[44]

The DEA is not the transfer  the transfer
    sought to be impugned by the Monitor is the secured guarantee provided to
    Speedy. The overall agreement pursuant to which the guarantee and security were
    provided to Speedy does not make the entirety of the DEA the transfer for the
    purpose of s. 96.

[45]

I also disagree with the Monitors argument
    that, because s. 96 uses the term party rather than creditor, the court is
    not limited to considering the relationship between KRI and Speedy, but should
    also consider the relationship between KRI and other parties to the DEA (Edge
    and Mr. Saskin). The reason that s. 96 uses the term party rather than
    creditor is that it applies to a broader range of dealings than s. 95,
    including gratuitous transfers to persons who are not creditors of the debtor.

[46]

The distinction between a person who is a party
    to the transfer and a person who is privy to the transfer underscores that
    the focus in determining whether the dealing was non-arms length is on the
    relationship between the parties to the particular transfer. If the transfer is
    between non-arms length parties, then a person who is privy to the transfer
    (defined under s. 96(3) as a person who is not dealing at arms length with a
    party to a transfer and, by reason of the transfer, directly or indirectly,
    receives a benefit or causes a benefit to be received by another person) may
    be ordered, together with the transferee, to pay the difference between the
    value of the consideration received by the debtor and the value of the
    consideration given by the debtor. In this case, if the secured guarantee were
    impeachable (whether because KRI and Speedy as the parties to it were non-arms
    length, or because fraudulent intent and insolvency were established), then
    Edge, as KRIs privy, and beneficiary of the transfer, could be subject to an
    order for a remedy in favour of KRI. Edge is a privy to KRI, but not a party to
    the transfer.

[47]

In argument, the Monitor asserted that the
    transfer here is in fact the transfer by Edge to KRI of Edges indebtedness
    to Speedy. If this is the transfer sought to be impugned, then the remedy is
    properly sought against Edge itself. The non-arms length relationship between
    Edge and KRI, as entities under common control, would be relevant if the relief
    sought by the Monitor were against Edge. To the extent that Edge received value
    from KRI for no consideration, Edge, as a non-arms length party, would be
    liable to account for such value to KRI. The problem, of course, is that Edge
    is insolvent and also under CCAA protection. However, it would be an
    unwarranted interpretation of s. 96(1)(b) to void the guarantee KRI provided to
    Speedy on the basis that KRI and Edge (the beneficiary of the transaction) are
    related. Indeed, the Monitor has cited no case or commentary to support this interpretation
    of s. 96(1)(b), which ignores its plain meaning.

[48]

In conclusion, s. 96 is a remedy to reverse an
    improvident transfer that strips value from the debtors estate, where its
    conditions are met. The interpretation of the section must be considered in
    relation to the remedy that is sought. The remedy in this case is to prevent
    Speedy from enforcing its secured guarantee against KRI. While the reason KRI
    provided the guarantee was to accommodate its related party Edge, this does not
    transform the transfer sought to be impugned  the secured guarantee  into a
    transfer between non-arms length parties. The focus of the motion judge was
    properly on the relationship between KRI and Speedy, not between KRI and the
    beneficiary of the transaction, its related party Edge. As such, I would
    dismiss this ground of appeal.

(2)

Did the motion judge err by failing to consider
    the record as a whole, including all of the potential badges of fraud, when he refused
    to find fraudulent intent?

[49]

The motion judge concluded that the Monitor had
    failed to prove that KRI held a fraudulent intention when it granted the
    secured guarantee. He began his analysis by stating that it was the intent of
    the transferor (i.e., KRI), and not that of the transferee (i.e., Speedy) that
    was relevant. Noting the difficulty for an applicant to prove a debtors
    subjective intention to defeat creditors, the motion judge referred to badges
    of fraud from which the court can infer the existence of the necessary
    intention. Relying on
Indcondo v. Sloan
, 2014 ONSC 4018, 121 O.R. (3d)
    160, affd 2015 ONCA 752, 31 C.B.R. (6th) 110, he explained that, [i]f the
    court draws the inference of fraudulent intent due to the existence of badges
    of fraud, then an evidentiary burden will fall to the respondent to explain its
    conduct to try to rebut the inference of fraudulent intent. The ultimate
    persuasive burden remains on the applicant throughout: at para. 22.

[50]

The Monitor does not take issue with the motion
    judges statement of the law; rather it argues that the motion judge erred by
    failing to consider the record as a whole, including all of the potential
    badges of fraud, when he concluded that there was no fraudulent intent.

[51]

I would not give effect to this ground of
    appeal.

[52]

Badges of fraud can provide an evidentiary
    shortcut that may help to establish the subjective intention of a transferor
    both under s. 96 of the BIA and s. 2 of the FCA: see e.g.,
Goldfinger
,
    at para. 72
; Purcaru v. Seliverstova
, 2016 ONCA 610, 39 C.B.R. (6th)
    15, at para. 5. In
Re Fancy
(1984), 46 O.R. (2d) 153 (H.C.J.),
    Anderson J. explained the role of badges of fraud in the determination of
    fraudulent intent under s. 2 of the FCA
.
He stated at p. 159:

Whether the [fraudulent] intent exists is a
    question of fact to be determined from all of the circumstances as they existed
    at the time of the conveyance. Although the primary burden of proving his case
    on a reasonable balance of probabilities remains with the plaintiff, the existence
    of one or more of the traditional "badges of fraud" may give rise to
    an inference of intent to defraud in the absence of an explanation from the
    defendant. In such circumstances there is an onus on the defendant to adduce
    evidence showing an absence of fraudulent intent. Where the impugned
    transaction was, as here, between close relatives under suspicious
    circumstances, it is prudent for the court to require that the debtor's
    evidence on bona fides be corroborated by reliable independent evidence.

[53]

The burden of proving fraudulent intent is on
    the party seeking to avoid the transfer. While badges of fraud are indicia of
    fraudulent intent, their presence does not mandate an inference of fraud to be
    drawn. The alleged badges of fraud must be considered in the context of the
    entire record. Whether the intent exists is a question of fact to be
    determined from all of the circumstances as they existed at the time of the
    conveyance:
Goldfinger
, at para. 72.

[54]

In
Goldfinger
, as in this case, the
    appellant argued that the trial judge had failed to identify and to consider
    the badges of fraud that were present: at para. 50. The court found that the
    trial judge had assessed the evidence and made findings of fact that supported
    his reasons for finding an absence of intent. The findings were available on
    the record: at para. 75.

[55]

Badges of fraud are non-exhaustive and may or
    may not be applicable to a given fact situation: see e.g.,
FL Receivables
    Trust 2002-A (Administrator of) v. Cobrand Foods Ltd.
, 2007 ONCA
    425, 85 O.R. (3d) 561, at para. 39;
Indcondo
, at paras. 52-53. Since
    badges of fraud are an evidentiary shortcut, and the analysis requires taking
    into account all of the circumstances as they existed at the time of the
    conveyance (
Fancy
, at p. 159), it follows that the failure to
    identify any particular badge of fraud and to undergo a mechanical analysis
    does not justify appellate intervention.

[56]

The Monitor accepts that the failure to consider
    a particular badge of fraud is not, in itself, a legal error justifying review
    on a correctness standard. The real issue here is whether the trial judge
    failed to take into account the entirety of the fact situation, and made
    conclusions of fact, or mixed fact and law, that were not supported by the
    record. In other words, was the motion judges refusal to find that the
    transfer from KRI to Speedy was made with fraudulent intent adequately
    supported by the entirety of the record?

[57]

The motion judge set out a non-exhaustive list
    of badges of fraud referred to in the case law, including in
Indcondo
,
    at para. 52. He stated that the adequacy of consideration is disputed and
    that [t]he only apparent badge of fraud is that the transaction was made in
    face of threatened legal proceedings. He noted that that particular badge of
    fraud was barely impactful as it was consistent with a
bona fide
transaction in circumstances such as those before the court. He went on to
    state:

Of greater impact, in my view, is the fact
    that Speedy registered its mortgages on title. It gave notice to the world as
    one would expect any
bona fide
commercial creditor to do.
There is
    nothing about the facts of this transaction that leads me to infer that it was
    made with a fraudulent intent rather than to obtain Speedys cooperation to
    allow Urbancorp to refinance as intended at the time.
[Emphasis added.]

[58]

The Monitor submits that the motion judge erred
    by failing to recognize various badges of fraud that were present in this case.
    It emphasizes that the consideration for the guarantee was nominal, so that the
    adequacy of the consideration was not in fact disputed. It also submits that the
    motion judge ought to have accepted the uncontroverted evidence that KRI was
    insolvent on a cash flow basis, rather than refusing to make any determination
    of the issue of KRIs insolvency. Moreover, it argues that, when the motion
    judge concluded that the lien was registered and therefore not concealed, he
    overlooked the fact that the secured guarantee was not disclosed in the
    prospectus for the Israeli bondholders. According to the Monitor, all of these
    factors were important badges of fraud that were ignored by the motion judge.

[59]

I disagree. First, as already explained, the
    relevant intent is that of KRI in relation to the transfer with Speedy. While
    there is no question that the $2 Speedy paid to KRI is a nominal sum, Speedy also
    gave up its construction lien claim against Edge. Whether this abandonment of
    the construction lien constituted consideration of value to KRI is disputed. This
    is what prompted the motion judges observation that the adequacy of
    consideration was disputed.

[60]

Second, with respect to the question of
    insolvency, the Monitor misinterprets para. 25 of the motion judges reasons.
    At para. 25, the motion judge noted that the solvency of the debtor depends
    upon whether one looks at the debtor on its own behalf (as Speedy submits) or
    considers the position of the beneficial owner [Bay LP] as a whole (as the
    Monitor submits). He did not resolve that question. Rather, he stated that
    even if one looks at the financial position of the broader business of [Bay
    LP], with all of its various nominees and buildings, the Monitor accepts that
    the business was solvent on a balance sheet basis at the relevant time. This
    was not a finding that KRI was, in fact, solvent, but was a factor that
    distinguished this case from the
XDG
case relied on by the Monitor,
    where the insolvency of the transferor was readily apparent to the lender. The
    motion judge stated, I am simply pointing out that the situation in
XDG
was quite different from this case in which the debtor was undertaking obligations
    to support the refinancing of the overall business within a few weeks time and
    the refinancing occurred: at para. 25.

[61]

The fact that the motion judge did not determine
    whether or not KRI was insolvent is confirmed by his later observation, at para.
    30 of the reasons, that he decided the motion based solely on the arms length
    relationship and lack of fraudulent intent, and that he did not have to deal
    with the other arguments raised. Since s. 96(1)(a) of the BIA requires both
    fraudulent intent and insolvency, it was open to the motion judge to decline to
    make a determination as to whether KRI was insolvent given that he was not
    satisfied that KRI provided the secured guarantee with the intent to defraud,
    defeat or delay its creditors.

[62]

While the Monitor concedes that the motion judge
    was not required to determine whether KRI was insolvent for the purpose of s.
    96 of the BIA, it nonetheless argues that he erred in law in failing to make
    that determination for the purpose of s. 2 of the FCA. The Monitor submits that
    there was uncontradicted evidence that KRI was insolvent on a cash-flow basis
    at the time of the transfer. It relies on
Sunlife Assurance Co. v. Elliott
(1900), 31 S.C.R. 91, to argue that KRIs insolvency is a persuasive if not
    determinative consideration under the FCA.

[63]

In
Sunlife Assurance Co.
, a debtor made
    a gratuitous settlement of all of his property on his family before his death,
    thus rendering his estate insolvent. The Supreme Court set aside the settlement
    under the Statute of Elizabeth, 13 Eliz. I, c. 5, legislation to which the FCA
    traces its roots: see
Perry, Farley & Onyschuk v. Outerbridge
    Management Ltd.
(2001), 54 O.R. (3d) 131 (C.A.), at para. 29. In setting
    aside the settlement, the Supreme Court stated the principle that where at any
    time a person is solvent and then makes a voluntary settlement the effect of
    which is to make him insolvent, the settlement is void, and that too no matter
    what the intent of the settlor was: at pp. 94-95.

[64]

Despite this one broad statement, however, there
    is no special rule that makes evidence of a debtors insolvency determinative
    as opposed to one factor that may be considered. The common issue under s. 2 of
    the FCA and s. 96 of the BIA is whether the debtor made the conveyance or
    transfer with the intent to defraud, delay or defeat creditors. A number of the
    authorities referred to earlier in these reasons relating to the role in the
    analysis of badges of fraud, including the debtors insolvency, were in the
    context of the provincial legislation. Insolvency can be a factor, but is not sufficient
    or decisive. Instead, the crucial question remains whether the applicant has
    proved the fraudulent intent of the debtor.

[65]

Finally, the motion judge was well aware of the
    Monitors argument that the secured guarantee was not disclosed to the Israeli
    bondholders. I agree that concealment of a transfer may be consistent with
    fraudulent intent. An alleged badge of fraud, however, must be considered in
    context, and in relation to how it relates to the question of the intention of
    the debtor at the time of the transfer. Here the motion judge noted that the
    discharge of the lien and the registration of the mortgages were public. The
    fact that the secured guarantee, while a matter of public record, was not disclosed
    in the prospectus in relation to the Israeli funding, may well have been a
    wrong against the Israeli investors. Indeed, the motion judge explained that
    the Israeli bondholders (who, with Speedy are the only creditors of KRI in the
    CCAA proceedings) have their own remedies, which they are pursuing.

[66]

Ultimately, the issue was whether the Monitor
    had established that, in giving the secured guarantee, KRI (or arguably Bay LP)
    intended to defraud, defeat or delay its creditors. The overall context was the
    impending Israeli bond financing. There was uncontroverted evidence that
    Speedys lien had to be discharged in order to facilitate the financing, and
    that the lawyers for Speedy and the Urbancorp group were seeking alternative
    security for Speedys debt. This was accommodated by the secured guarantee and
    mortgages on KRIs completed units and parking spaces. The bond funding was
    expected to be available to discharge debts of the Urbancorp group. Instead,
    the funding was used for other purposes, and ultimately the Urbancorp group
    defaulted on its obligations to the Israeli bondholders and others. In my view,
    the motion judges finding that the Monitor had not established the debtors fraudulent
    intent, or that it was anything other than to obtain Speedys cooperation to
    allow Urbancorp to refinance and to support the refinancing of the overall
    business, were available on the record and did not ignore any relevant
    evidence.

(3)

Did the motion judge err in misapplying the rule
    in
Browne v. Dunn?

[67]

This issue will be addressed only briefly, as in
    my view its determination has no effect on the outcome of the appeal.

[68]

At the hearing of the motion, the Monitor argued
    that the construction lien that Speedy agreed to discharge under the DEA was
    invalid because it was registered out of time. The Monitor relied on a copy of
    the statutory declaration filed by Speedy which indicated October 22, 2014 as
    the date of last supply of goods or services. Contrary to s. 31(3) of the
Construction
    Lien Act
, R.S.O. 1990, c. C.30, as it provided at the relevant time, the
    lien was registered on September 30, 2015, more than 45 days after the last
    supply. The lien itself stated that the contract price was $6,159,625, and that
    services and materials were supplied between August 1, 2012 and August 31,
    2015.

[69]

The statutory declaration was contained in a
    report of the Israeli Functionary dated February 27, 2018. In its own reports,
    which were filed with the court as evidence, the Monitor had not questioned the
    validity of the lien. The Monitor also did not put the statutory declaration to
    Speedys witness, Albert Passero, when it cross-examined him on his affidavits,
    which, among other things, attested to ongoing work up to the end of August.

[70]

The motion judge noted that Speedys witness had
    testified that the lien was timely, and that he was not confronted with the
    document on cross-examination to enable him to explain any apparent
    inconsistency. Absent compliance with the rule in
Browne v. Dunn
, the
    motion judge was not prepared to make a credibility finding against Speedy.

[71]

The Monitor says that the motion judges
    reliance on
Browne v. Dunn

was in error, that the statutory
    declaration was conclusive, and that it was beyond question that the lien was
    out of time.

[72]

The problem with the Monitors argument that the
    motion judge misapplied the rule in
Browne v. Dunn

is its
    apparent lack of relevance to any issue that continues to be in dispute in this
    appeal.

[73]

Before the motion judge, the Monitor argued that
    the invalidity of the lien called into question Mr. Saskins
bona fides

which was relevant to whether Speedy and Mr. Saskin were acting at arms
    length when the secured guarantee was given. The motion judges finding that
    Speedy on the one hand and Mr. Saskin and Edge on the other were at arms
    length is not in dispute in this appeal.

[74]

On appeal, the Monitor makes a different
    argument. At para. 70 of its factum, the Monitor states:

But for his error in applying the rule in
Browne
    v. Dunn
, the Motion Judge should properly have concluded that the Lien was
    not registered on a timely basis and was accordingly invalid. If the Lien was
    invalid, then the Secured Guarantee did not provide any value to Edge (because
    there was no Lien that needed to be discharged and the underlying unsecured
    debt was not released). The Monitors principal position, as argued above, is
    that it does not matter whether Edge received any consideration. KRI was the
    entity that granted the Secured Guarantee, it was not at arms length with Mr.
    Saskin, and it did not receive consideration. However, even if one focusses, as
    the Motion Judge did on the relationship between Speedy and Edge, the Lien was
    invalid and therefore there was no consideration to Edge for the Secured
    Guarantee. This further supports the Monitors submission, above, that there
    was no consideration for the Secured Guarantee and it is void as a transfer at
    undervalue.

[75]

According to the Monitor, the relevance of the
    lien being out of time is simply that it would support the Monitors submission
    that there was no consideration for the secured guarantee and it is void as a
    transfer at undervalue. Whether the secured guarantee was or was not a transfer
    at undervalue as defined in s. 2 of the BIA was not the question on which the
    motion judges disposition of the motion turned. At para. 30 of his reasons he
    noted that he decided the motion based solely on the arms length relationship
    and lack of fraudulent intent and that it was not necessary to deal with a
    number of other issues raised by the parties orally and in their factums.

[76]

I have determined that the motion judge made no
    error in his factual conclusions that the transfer in question  the secured
    guarantee  was between arms length parties, and was for the purpose of
    obtaining Speedys cooperation to allow the Urbancorp group to refinance, and
    not with a fraudulent intent. Whether or not the secured guarantee was a
    transfer at undervalue is not a question that was definitively answered by the
    motion judge; nor does it fall to be determined in this appeal.

(4)

Did the motion judge err in awarding costs of
    the motion against the Monitor?

[77]

The motion judge awarded Speedy $25,000 in costs
    payable by the Monitor on behalf of KRI, and not in its personal capacity.

[78]

An award of costs, as an exercise in
    discretion, is entitled to deference. This court will interfere where the costs
    award reveals
an error in principle or where it is plainly
    wrong: see
Hamilton v. Open Window Bakery Ltd.,
2004 SCC 9,
[2004] 1 S.C.R. 303
, at para. 27. The Monitor says there were two such errors
    here.

[79]

First, the Monitor says that it had no
    alternative but to make an application to the court after Speedy objected to
    the disallowance of its claim. The Monitor asserts that the motion judge erred
    in awarding costs in circumstances where he had concluded that it was
    reasonable and appropriate for the matter to be brought to the court. The
    Monitor asserts that policy considerations should have militated against an
    award of costs in this case.

[80]

The motion judge considered the Monitors
    request that, as in
XDG
, the court should award no costs. He noted that,
    while in some ways the facts of the case resembled those in
XDG
, there
    were important differences that he had already noted in his reasons. The motion
    judge rejected the Monitors argument that there should be no costs unless it
    was found to have been unreasonable, and he applied the normative approach
    that costs follow the event: at para. 33.

[81]

The Monitor argues that
    there was an error in principle in this case because
the motion judge departed from the general rule that costs should
    not be awarded against unsuccessful parties in the context of motions in CCAA
    proceedings. The Monitor relies on the observation of this court in
Re
    Indalex Ltd.
, 2011 ONCA 578, 81 C.B.R. (5th) 165, at para. 4, revd on
    other grounds 2013 SCC 6, [2013] 1 S.C.R. 271, that the conventional approach
    or usual practice in CCAA proceedings is to rarely make costs orders, with
    the result that each party bears its own costs. The Monitor also asserts that,
    given the policy considerations animating CCAA proceedings, it would be unjust
    to award costs against the Monitor, which is obliged to bring a motion to court
    when a creditor disputes its disallowance of a claim.

[82]

We see no reversible error here. We agree with the
    observation of Newbould J. in
Return on Innovation Capital Ltd. v. Gandi
    Innovations Ltd.
, 2011 ONSC 7465, 88 C.B.R. (5th) 320, at para. 5, that this
    courts decision in
Indalex
should not be read as laying down a
    general principle that costs should rarely be awarded in CCAA proceedings.
    There is nothing in
Indalex

that would remove the motion
    judges discretion to award costs in this case, and there is nothing
    unreasonable in his decision that costs of the Monitors unsuccessful attempt
    to disallow Speedys claim (which, if successful, would have benefited KRIs
    creditors) should follow the event and be borne by the debtors estate.

[83]

Second, the Monitor asserts that the quantum of
    costs awarded by the motion judge, although agreed at the time of the motion,
    is clearly unreasonable. At the time of the motion, everyone, including the
    motion judge, believed that the amount in dispute exceeded $2 million. In fact,
    because Speedy had waived its rights under the secured guarantee in respect of
    Mr. Saskins personal debt, the amount in dispute was substantially less. The
    Monitor submits that this reduction should be reflected in the amount of costs.

[84]

I disagree. The amount in dispute is only one of
    a variety of factors that are relevant to the determination of costs. In the
    circumstances of this case, the quantum of costs reflected the legal work
    required, which was the same, irrespective of the amount in dispute. There is
    nothing to suggest that the agreed quantum of $25,000 was other than proportional
    to the work and reasonable in all the circumstances.



CONCLUSION AND
    DISPOSITION

[85]

For these reasons, I would dismiss the appeal. I
    would award costs of the appeal to Speedy, including the motion for leave to
    appeal, fixed at the inclusive amount of $15,000, to be paid by the Monitor on
    behalf of the debtor and not in its personal capacity. No costs are awarded in
    favour of or against the Israeli Functionary.

Released: KMvR Sep 27, 2019

K.
    van Rensburg J.A.

I
    agree. C.W. Hourigan J.A.

I
    agree. Grant Huscroft J.A.

SCHEDULE A

LIST OF NON APPLICANT AFFILIATES

Urbancorp Power
    Holdings Inc.

Vestaco Homes
    Inc.

Vestaco
    Investments Inc.

228 Queens
    Quay West Limited

Urbancorp
    Cumberland 1 LP

Urbancorp
    Cumberland 1 GP Inc.

Urbancorp
    Partner (King South) Inc.

Urbancorp
    (North Side) Inc.

Urbancorp
    Residential Inc.

Urbancorp
    Realtyco Inc.





[1]
The
Israeli Functionary did not file a factum in this court,
    although counsel was present for the argument of the appeal.



[2]
If the transfer occurred within one year before the date of the
    initial bankruptcy event, fraudulent intent is not required: BIA, s.
    96(1)(b)(i). If the transfer occurred more than one year but less than five
    years before the date of the initial bankruptcy event, fraudulent intent or
    insolvency is required: BIA, s. 96(1)(b)(ii).


