



COURT OF APPEAL FOR ONTARIO

CITATION: Mercado Capital Corporation v. Qureshi, 2018 ONCA
    711

DATE:
20180831

DOCKET:
C64376

Feldman, Benotto and Brown JJ.A.

BETWEEN

Mercado Capital Corporation

Applicant (Appellant)

and

Hafsa Faisal Qureshi
and Pollard & Associates Inc.,

Trustee in Bankruptcy for the Estate of Faisal Iqbal
    Qureshi

Respondents (
Respondent
)

Michael Myers and Michael
    Krygier-Baum, for the appellant

Veena Pohani, for the
    respondent

Heard: February 27, 2018

On appeal
    from the judgment of Justice Glenn A. Hainey of the Superior Court of Justice, on
    October 13, 2017, with reasons reported at 2017 ONSC 5572.

Feldman J.A.:

[1]

The
    appellant, Mercado Capital Corporation, is a creditor of the respondents
    husband, Faisal Qureshi. While Mr. and Mrs. Qureshi were married, they sold
    their matrimonial home, which was registered in Mr. Qureshis name, and used
    the proceeds plus other money to purchase a new home in both their names. After
    petitioning Mr. Qureshi into bankruptcy within one year of the purchase, the
    appellant sought to void the transfer of half of the new home into the
    respondents name, as a transfer for undervalue contrary to s. 96(1)(b)(i) of
    the
Bankruptcy and Insolvency Act
, R.S.C., 1985, c. B-3 (BIA).

[2]

The
    application was denied.

[3]

On
    appeal, the appellant submits that the application judge erred in his interpretation
    and application of s. 96 of the
BIA
.

[4]

For
    the reasons that follow, I would dismiss the appeal.

Background Facts

[5]

Mr.
    and Mrs. Qureshi married in 2001 and have three children. Mrs. Qureshi obtained
    her MBA from the Schulich Business School in 2004. A few months after her
    graduation, Mr. and Mrs. Qureshi had their first child, who was soon diagnosed with
    autism and epilepsy. Because their son required around-the-clock care, they agreed
    that Mrs. Qureshi would stay home and care for him. Her evidence was that, from
    a financial standpoint, retaining specialized staff to care for their child would
    likely have cost more than she would have been able to earn. As a result, she
    did not enter the workforce.

[6]

While
    Mrs. Qureshi was responsible for caring for the children and maintaining the
    household, Mr. Qureshi owned and operated a consulting and trading company,
    Client360 Group Inc. The trial judge found that Mrs. Qureshi supported Mr.
    Qureshi at home while he earned the family income by operating his businesses.

[7]

In
    2011, Mr. and Mrs. Qureshi bought a family home on Selwyn Avenue in Richmond
    Hill for $810,000. That home was registered only in Mr. Qureshis name. The
    purchase was funded in part by $283,500 cash; a mortgage covered the rest. Mrs.
    Qureshis parents provided $50,000 of that cash, and the remainder came from the
    familys savings. The trial judge found that while the Selwyn home was
    registered in Mr. Qureshis name, both Mr. and Mrs. Qureshi believed they each
    owned an equal share. Mr. Qureshi testified that the only reason the home was
    registered in his name was because Mrs. Qureshi was not available to attend the
    lawyers office to sign the documents.

[8]

On
    February 18, 2015, Mrs. Qureshi entered into an agreement of purchase and sale
    on behalf of her husband and herself to purchase a home on Davina Circle in
    Aurora. In March and May of 2015, Mr. Qureshi put down deposits totalling
    $256,240 towards the purchase of Davina from funds from Mr. Qureshis companies,
    Client360 Group Inc. and Eastern Equity Partners Ltd.

[9]

On
    June 30, 2015, the Selwyn property was sold for $1,180,000 with net proceeds of
    $372,177. The purchase of the Davina property closed on the same date.

[10]

The purchase of the
    Davina home was funded with the $372,177 obtained from the sale of the Selwyn
    home, the $256,240 from the deposits made in March and May, mortgage funds of
    $1,902,081, and a last-minute contribution of $89,654 from Mrs. Qureshis parents.
    Her parents provided this cash to make up for an equity shortfall and to ensure
    that Mr. and Mrs. Qureshi could complete the purchase on time.

[11]

Title to the
    Davina property was registered in the names of Mr. and Mrs. Qureshi as joint
    tenants. The application judge accepted Mr. and Mrs. Qureshis evidence that
    they believed each had a 50% interest in Davina because, like Selwyn, it was
    their matrimonial home.

[12]

In early 2016, Mr.
    and Mrs. Qureshis marriage ended. Mr. Qureshi moved out and began a relationship
    with another woman in Dubai, while Mrs. Qureshi remained in Aurora with their
    three children.

[13]

Also in early
    2016, allegations arose that Mr. Qureshi was involved in a multi-million dollar
    fraud through Client360 Group Inc. and his other companies. In early 2017, he
    was forced to return to Canada when his passport was cancelled. He was arrested
    and charged with multiple counts of fraud upon his return to the country. There
    is no evidence that Mrs. Qureshi was aware of any alleged fraudulent activities
    on Mr. Qureshis part.

[14]

Mercado claims
    to be a victim of Mr. Qureshis fraud. On June 2, 2016, Mercado petitioned him
    into bankruptcy, and he was adjudged bankrupt on July 5, 2016. Soon after, the Davina
    house was sold for $2,838,000, yielding net proceeds of $696,815, with Mrs. Qureshis
    share of the proceeds of sale amounting to $348,407.50.

[15]

Mrs. Qureshi has
    no separation agreement, no court ordered support, nor any firm commitment to
    pay child and spousal support from Mr. Qureshi. The Davina house was her only asset.
     She needs her share of the proceeds from it in order to build an independent
    life with her children.

[16]

Mercado obtained
    an order under s. 38 of the
BIA

to bring an application for an order that Mrs. Qureshis 50% share of the
    proceeds from the Davina home

was the result of a transfer to her at
    undervalue, and is therefore void pursuant to s. 96(1)(b)(i) of the BIA.

[17]

Paragraph
    96(1)(b) provides:

96 (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



(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.

Application Judges Reasons

[18]

In dismissing
    Mercados claim, the application judge relied primarily on discretionary language
    in s. 96. His view was that judicial discretion not to award judgment under s.
    96 should be guided by the jurisprudence interpreting its predecessor
    provision, the former s. 100, including
Standard Trust Co. Ltd. v. Standard
    Trust Co.
(1995), 26 O.R. (3d) 1 (C.A.) and
Peoples Department Stores
    Inc. (Trustee of) v. Wise
, 2004 SCC 68, [2004] 3 S.C.R. 461. Much like s.
    96, s. 100 allowed a court to void a transaction between a bankrupt and another
    party where the consideration was conspicuously less than the fair market value
    of the property and the transaction occurred within a year of the initial
    bankruptcy event.

[19]

The application
    judge concluded that:

[I]t is not necessary for me to
    decide whether Hafsas 50% interest in the equity of Davina resulted from a
    transfer at undervalue contrary to s. 96(1)(b)(i) of the BIA. Even if it did,
    which I doubt, I would exercise my equitable discretion not to declare her 50%
    interest in Davina void.

[20]

Exercising his equitable
    discretion, he declined to declare Mrs. Qureshis 50% interest in the Davina home
    void, relying on the following factors:

·

The good faith of Mr. and Mrs. Qureshi and the lack of any
    intention to defeat creditors;

·

Mrs. Qureshis substantial non-monetary contribution to the
    family by her hard work managing the household and caring for their children;

·

Mrs. Qureshis parents contributions to the purchase price of
    both of their matrimonial homes;

·

Mr. and Mrs. Qureshis honest belief that Mrs. Qureshi was
    entitled to a 50% interest in Davina because it was their matrimonial home;

·

That Mrs. Qureshi and her children have no other guaranteed form
    of financial support, that the Davina home is Mrs. Qureshis only asset, and
    that Mrs. Qureshi needs the proceeds from the sale of the home to support
    herself and her children; and

·

That the agreement of purchase and sale for the Davina home was
    signed by Mrs. Qureshi in February 2015, well before the one year period
    preceding Mr. Qureshis initial bankruptcy event.

Issues

[21]

Mercados appeal
    raises the following issues:

1)

Did the purchase of
    the Davina home in the joint names of Mr. and Mrs. Qureshi constitute a transfer
    by Mr. Qureshi to Mrs. Qureshi of one half of the home at undervalue?

2)

If so, did the
    transfer take place within one year or five years of the date of Mr. Qureshis initial
    bankruptcy event?

3)

If the transfer was
    within five years, did the appellant prove that the transferor was either
    insolvent when the transfer took place or intended to defraud, defeat, or delay
    a creditor?

4)

Does the court have
    discretion under s. 96(1) of the BIA to decline to declare the transfer void as
    against the trustee in bankruptcy or against the creditor authorized to bring
    the application under s. 38?

5)

If the court has that discretion,
    did the application judge err in law in the basis on which he exercised it?

Analysis

(1)

Issue 1: Was there a transfer at undervalue?

[22]

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[.]

[23]

Mrs. Qureshi
    submits that, besides the cash contributions made by her parents which were for
    her benefit, she made a non-financial contribution to the purchase of both
    homes by running the household and looking after the children, allowing Mr.
    Qureshi to work and earn income. She asks that that contribution be given legal
    recognition in determining whether there was any disposition of property at all
    when Davina was purchased, or in calculating the value of her contribution.

[24]

This submission
    is consistent with the evidence that was accepted by the application judge: Mr.
    and Mrs. Qureshi both believed that each had an equal interest in their
    matrimonial homes, even though the Selwyn home was registered in Mr. Qureshis
    name alone, and the funds used to purchase both homes came from Mr. Qureshis
    business and from Mrs. Qureshis parents. Mrs. Qureshis direct contribution
    was in running the home and raising the children.

[25]

This submission
    is also consistent with the philosophy of the
Family Law Act
, R.S.O.
    1990, c. F.3 (FLA). Mesbur J. recently described the
FLA
s premise in a s. 96 transfer for
    undervalue case,
Re Cameron
, 2011 ONSC 6471, 108 O.R. (3d) 117, at
    paras. 39-41:

[Q]uite apart from what money each might have contributed to
    the actual purchase of the properties, I would have concluded each had made an
    equal contribution, whether by way of money or money's worth. I base this on
    the premise of our
Family Law Act
, namely that marriage is an
    economic partnership. The roles of the partners in that partnership are to
    acquire assets, earn income, raise children and run the household. All those
    roles are deemed to be of equal value, entitling each partner to an equal share
    of the net value of assets acquired during the marital partnership.

As I see it, regardless of what each of the spouses contributed
    in money to acquire their matrimonial homes, the law presumes that each widow
    contributed as much as her husband to that acquisition, whether by way of
    money, or money's worth. Part of what each acquired was the hope of surviving
    and becoming the sole owner of the whole. Each acquired an inchoate right
    to sole ownership at the time the property was acquired with their equal, joint
    efforts. That inchoate right crystallized at the moment of the other joint
    tenant's death.

Although neither widow paid
    anything to acquire the whole of their matrimonial homes on their husbands'
    deaths, it seems to me each had already provided ample and adequate
    consideration for their right to acquire the whole property by way of
    survivorship.

[26]

This same
    philosophy has been applied by the courts to common law relationships that are
    not governed by the
FLA
. It has
    allowed a court to impose a constructive trust on a portion of the property
    accumulated by the parties during their relationship, regardless of legal
    title, as a remedy in favour of the spouse who makes a non-monetary
    contribution to the home for unjust enrichment: see
Kerr v. Baranow
,
    2011 SCC 10, [2011] 1 S.C.R. 269, at para. 50.

[27]

It is not necessary for this court to decide whether the Selwyn
    property was impressed with Mrs. Qureshis beneficial interest.  The issue does
    not need to be decided because even if  as the appellant submits  there was a
    transfer at undervalue, the effective date of the impugned transaction was more
    than a year before the bankruptcy event and the appellant failed to prove that
    Mr. Qureshi was insolvent or intended to defraud, defeat or delay a creditor on
    the day of disposition.

(2)

Issue 2: What is the effective date of the impugned
    disposition of property?

[28]

Mrs. Qureshi entered into the agreement of purchase and sale for the
    purchase of Davina on behalf of herself and Mr. Qureshi on February 18, 2015.
    The transaction closed on June 30, 2015, when the property was registered in
    the names of Mr. and Mrs. Qureshi as joint tenants.

[29]

The initial bankruptcy event occurred on June 2, 2016, when the
    appellant creditor brought a bankruptcy application against Mr. Qureshi. If the
    closing of the Davina purchase and the joint registration on title is the
    impugned disposition of property, then it occurred within one year of the
    initial bankruptcy event and is captured by s. 96(1)(b)(i). If, however, the
    date of the agreement of purchase and sale constitutes the disposition of
    property, then s. 96(1)(b)(ii) applies.

[30]

This
    court settled the above legal issue in
Buchanan v. Oliver Plumbing
    and Heating Ltd
.
, [1959] O.R. 238
    (C.A.). There, the court adopted Jessel M.R.s definition of the relationship
    between a vendor and purchaser of land who have entered into a valid contract for
    sale, as set out in
Lysaght v. Edwards
(1876), 2
    Ch. D. 499, at pp. 505-6:

It appears to me that the effect
    of a contract for sale has been settled for more than two centuries; certainly
    it was completely settled before the time of Lord
Hardwicke
, who speaks of the settled
    doctrine of the Court as to it. What is that doctrine? It is that the moment
    you have a valid contract for sale the vendor becomes in equity a trustee for
    the purchaser of the estate sold, and the beneficial ownership passes to the
    purchaser, the vendor having a right to the purchase-money, a charge or lien on
    the estate for the security of that purchase-money, and a right to retain
    possession of the estate until the purchase-money is paid, in the absence of
    express contract as to the time of delivering possession.

[31]

As long as a contract for the sale of land is carried
    out or is specifically performable, the completion relates back to the
    contract:
Buchanan
, citing
Rayner
    v. Preston
(1881), 18 Ch. D. 1, at p. 13.
    Even if the purchaser pays the sale price upon closing, the purchaser becomes
    the beneficial owner of the property as soon as the contract is formed.

[32]

Further, in
Russo Corp. v. Deborah Essery
, 2016 ONSC 321, Pattillo J. held that the word
    transfer in the context of s. 96 does not refer to the act of registering an
    interest in property on title. In that case, the alleged transfer at undervalue
    was a husbands conveyance of a half-interest in a property to his wife. Pattillo
    J. held that the date of transfer for s. 96 purposes was the date the document
    executing the transfer was signed, rather than the date wifes title was
    registered on the property. In coming to this conclusion, Pattillo J. observed
    at paras. 37-38:

The wording of Section 96 speaks of transfer. It does not
    contain the words register or registration. Blacks Law Dictionary, 10th
    ed., defines transfer as any mode of disposing of or parting with an asset
    or an interest in an asset. By contrast, registration is something
    completely different. It is the act of registering something, in the case of a
    transfer of land, in the land tiles or registry office.  In that regard, s. 20
    of the BIA, which deals with the trustees divestiture of property, refers to
    registration of a quit claim or renunciation in land titles or registry.

It is also important to note that
    s. 96 does not deal just with land. It deals with a disposition of property in
    general and provision of services.

[33]

Because Mr. and Mrs. Qureshi carried out the terms of the
    agreement of purchase and sale for Davina, Mrs. Qureshi acquired her beneficial
    interest in Davina upon signing that agreement, making February 18, 2015 the
    effective date of the impugned disposition of property, not the date of
    registration.
I note as well that while
the
    balance of the funds for the purchase was paid on the date of registration,
the March and May 2015 deposits by Mr. Queshi for the
    purchase of Davina  which form part of the transfer impugned by Mercado  were
    also made more than one year before the date of the initial bankruptcy event.

(3)

Issue 3: Did the appellant creditor prove that the bankrupt was
    insolvent or intended to defraud, defeat, or delay a creditor on the date of
    the disposition to the respondent?

[34]

Since the
    beneficial ownership of Davina passed to Mrs. Qureshi on February 18, 2015,
    more than one year before the initial bankruptcy event, but within five years
    of that event, s. 96(1)(b)(ii) applies. The transaction may be declared void if
    the appellant creditor proves that Mr. Qureshi was insolvent on that date or that
    he intended to defraud a creditor in making the disposition of property. Mercado,
    as a creditor authorized by the court to bring this proceeding in the trustees
    stead, bears the burden of establishing one of the above requirements in order
    to impugn the transfer at undervalue: Wood, at pp. 2, 22; The Late Honourable Lloyd
    W. Houlden, Mr. Justice Geoffrey B. Morawetz & Dr. Janis P. Sarra,

Bankruptcy
    and Insolvency Law of Canada
, loose-leaf, 4th ed. (Toronto:
    Thomson Reuters, 2009) at F§201.

[35]

Mr. Qureshi was
    insolvent when he was petitioned into bankruptcy on June 2, 2016. He swore in
    his statement of affairs of July 28, 2016 that he had not made any significant
    financial changes in the one year prior to that date. From that, the appellant
    argues that there was no evidence that he was also not insolvent when he made
    the Davina deposits in March and May 2016.

[36]

This submission is
    misconceived: the onus is on the appellant to prove all of the factors in the
    subsection in order to be entitled to the order under s. 96. While it is
    certainly possible that Mr. Qureshi was already insolvent in February 2015,
    there is no evidence on the record that proves that fact on a balance of
    probabilities. The record is silent on his financial status on that date and at
    that time.

[37]

Further, in his
    examination by the Official Receiver on March 2, 2017, Mr. Qureshi was asked
    the following questions:

[Q]:
Please describe the events that led up to your current
    financial position.

Answer: I was running business building a factory overextended
    myself in terms of debt in Feb 2016, my business creditors began calling their
    loans I had personal guarantees on some loans they came after me personally, at
    this time I was financially strapped and I was unable to defend the legal
    action.

[Q]:
When was the last time you used credit?

Answer: Last borrowing no later than March 2016.

[Q]:
Approximately on what date did you become aware that
    you were unable to meet your debts as they became due? What made you aware of
    this fact?
When did you first become aware of your insolvency?

Answer: March 2016- I was sued by
    business creditors.

[38]

This evidence
    runs counter to the appellants suggestion that Mr. Qureshi was insolvent over
    a year before the initial bankruptcy event.

[39]

On the
    alternative condition, the intent to defraud, defeat, or delay a creditor, the
    application judge found that Mr. Qureshi did not intend to defeat his creditors
    by taking joint title in Davina.

[40]

Because the
    appellant has not proved the elements required to satisfy s. 96(1)(b)(ii), there
    is no basis for the court to void the purchase of Davina in joint names and in
    particular, to void the impugned disposition to Mrs. Qureshi.

(4)

The Issue of the Courts Discretion Not to Make an Order

[41]

The application
    judge did not decide whether there was a transfer for undervalue, instead
    determining that he had the discretion not to make the order voiding the
    transaction in any event, and that for the reasons he listed he would not make
    the order. The appellant submits on this appeal that the application judge
    erred in interpreting the basis for and limits on his ability to exercise
    discretion not to make the order.

[42]

As there is no
    finding of an impeachable transfer for undervalue, there is no need for the
    court to address the issue of the scope of the discretion in the court not to
    make the order when all the conditions are met.

Result

[43]

I would dismiss
    the appeal with costs to the respondent fixed at $32,000 on the partial
    indemnity scale, inclusive of disbursements and HST.

Released: August 31, 2018 K.F.

K. Feldman J.A.

M.L. Benotto J.A.

David Brown J.A.


