1280055 Alberta Ltd. Plaintiff - v. -, 2012 ABQB 10

Court of Queen ’ s Bench of Alberta Citation: 1280055 Alberta Ltd. v. Zaghloul, 2012 ABQB 10 Date: 20120106 Docket: 0901 16940, 1001 08205 Registry: Calgary Between: 1280055 Alberta Ltd. Plaintiff - and - Hatim Zaghloul Defendant Action No. 1001 08205 And Between: 1280055 Alberta Ltd. Plaintiff - and - Hatim Zaghloul and Sawzia Zaghloul Defendant _______________________________________________________

Reasons for Judgment of J.B. Hanebury, Master in Chambers _______________________________________________________ [ 1 ] This is an application to set aside a default judgment on a promissory note and a noting in default on an action commenced by the judgment creditor claiming that the debtor fraudulently transferred his house to his wife. The judgment creditor was not a creditor at the time the transfer occurred which raises the question of its ability to rely on The Fraudulent Preferences Act and the Statute of Elizabeth. FACTS [ 2 ] Two actions were commenced by 1280055 Alberta Ltd. against Hatim Zaghloul.

The first, referred to as the “promissory note action”, is for a debt of $120,000.00 allegedly owing pursuant to a promissory note dated September 15, 2008. The second, referred to as the “fraudulent conveyances action”, is in relation to a transfer of property by Hatim Zaghloul to his wife, Sawzia Zaghloul. [ 3 ] In March, 2007, 128 Ltd. entered into a Share Purchase Agreement with Peace Trading Investments Inc. and invested $100,000.00. As instructed, it issued a cheque payable directly to Mr. Zaghloul, who signed the agreement as Peace Trading’s Calgary representative. It was 128 Ltd.'s understanding that Mr.

Zaghloul had a controlling interest, or was a shareholder, director, or officer of Peace Trading. The plaintiff was to receive shares in one of two specified companies. It appears that all of these companies were off- shore companies. [ 4 ] The cheque was cashed and Mr. Zaghloul’s evidence is unclear as to whether shares were ever delivered. 128 Ltd. says that they were not. In any event, the investment, which had attracted about 40 investors, failed. [ 5 ] Mr. Zaghloul says that as a result he had numerous threats, both physical and reputational, made against him.

He says that many of the investors came from the Muslim community, of which he was once the president. He states that two specific investors from that community threatened him and he was under pressure from the community’s religious leader to “offer something”. [ 6 ] In April, 2008, Mr. Zaghloul provided a letter to some of the investors. It showed a return address on Riverdale Avenue, Calgary. It provided four options to compensate investors, one of which was the return of 120% of the investment in cash by November, 2009, which amount would be secured by a promissory note signed by Mr.

Zaghloul personally. 128 Ltd. did not receive this letter in April, 2008. [ 7 ] Two months later, on June 30, 2008, Hatim Zaghloul’s wife, Sawzia Zaghloul, was contacted by Mr. Zaghloul’s lawyer and asked to sign a transfer of land that would transfer their home on Riverdale Avenue in Calgary, from both of their names, to her name alone. The consideration was $1.00 and the transfer was registered on July 18, 2008. Ms. Zaghloul placed a 1.1 million dollar mortgage against the title shortly thereafter. [ 8 ] An excerpt from Ms.

Zaghloul’s transcript was provided and she confirms that she had no discussions with her husband prior to the transfer and she was simply contacted by her husband’s lawyer and told that the house was being transferred into her name. [ 9 ] In Mr Zaghloul’s affidavit he says that he signed the transfer while he and his wife were living separate and apart and he was in London, England. He says that he moved from Calgary in January, 2008, is now living in Egypt, and has not been back in Canada

since September, 2008. He gives no reason in his affidavit for transferring the property to his wife. [ 10 ] In cross examination on his affidavit he provided more information. He confirmed that he did not speak to his wife before forwarding the transfer document to her. He acknowledged that she was not aware in advance that he was going to do this, he just did it. He stated that the written consideration was $1.00. but said that “he owed Sawzia some other monies”. He did not say how much. [ 11 ] He then stated at p. 14, line 26 to p. 15 line 12: ...I need to give a bit of the circumstances of that.

I – as I wrote, I believe, in an affidavit or while we’re having this video conference is I have two young children here in Egypt, and the lady that I have the children from asked me for – you know, to give her a gift, and I gave her, you know, the apartment. The one that’s rented out. I gave her that, and I gave her another place. That was in 2007, and I felt bad towards Sawzia that I never gave her the house we lived in, that it was jointly owned, and the other lady didn’t want it to be jointly owned. It was jointly owned, and she asked for it to be in her name alone, and that’s why I did it.

It had nothing to do with anything else. [ 12 ] Mr. Atkins, the principal of 128 Ltd., became concerned when he received no response to his emails and calls to Mr. Zaghloul and in September, 2008, he went to the Zaghlouls’ home on Riverdale Avenue. He and Mr. Zaghloul discussed business matters and the letter offering compensation was provided to 128 Ltd. for the first time, along with a promissory note. Mr. Atkins advised he needed time to consult with his business partner and consider their position. [ 13 ] Mr.

Atkins returned a day or two later and agreed to accept the promissory note and assign 128 Ltd.’s interest in the investment to Mr. Zaghloul. The promissory note was signed. [ 14 ] On October 11, 2009, Mr. Zaghloul provided an email to some of the investors which was addressed to all of the investors. It advised: I do not have the liquid resources to pay the investors. This problem is compounded by the fact that I owe Revenue Canada a substantial amount of money and they are basically getting everything they can get their hands on. My assets in Canada are not sufficient to cover their debt.

So basically, I have no assets that I could sell to pay the investors. One of the options offered in the letter was to wait another two years for payment which he notes is “within the limitations time frame.” [ 15 ] No payment was received on 128 Ltd.’s promissory note and it came due Oct. 31, 2009. [ 16 ] On November 10, 2009, 128 Ltd. filed the promissory note action seeking judgment. Service was effected pursuant to a substitutional service order which permitted the documents to be left at the Riverdale Avenue property. [ 17 ] Default judgment was entered against Mr.

Zaghloul on February 16, 2010. [ 18 ] To enforce this judgment 128 Ltd. commenced the fraudulent conveyances action naming Hatim and Sawzia Zaghloul as defendants and challenging the transfer of the title to the Riverdale Avenue property. On August 18, 2010, an order for service ex juris and substitutional service was obtained allowing service on Mr. Zaghloul by email and facebook private messaging. Service was effected pursuant to the order. On October 13, 2010, Mr. Zaghloul was noted in default. [ 19 ] Mr.

Zaghloul says he was unaware of the promissory note action until September, 2010, when counsel for a company he had done work for advised him of it.

[20] Mr. Zaghloul says that he learned about the fraudulent conveyances action on October 17, 2010, when his wife advised himof the lawsuit. He says he spoke with the plaintiff a week later and retained counsel on December 6, 2010. [21] This application to permit him to file a defence in both actions was filed on December 21, 2010. [22] The application is to set aside or open up both the judgment and the noting in default. The same law applies to bothapplications: Wilson v. Sayers 1973 ALTASCAD 117 , 1973 CarswellAlta 139 (ABCA). The test is not in issue.

ANALYSIS [23] Rule 9.15(3) of the Alberta Rules of Court provides: The Court may set aside, vary or discharge a judgment in default of defence on any terms the Court considers just. [24] Most of the jurisprudence on point is found in relation to the former Rule, Rule 158, and the parties agreed that the law inrelation to that Rule can be considered in relation to rule 9.15(3). [25] The overriding principle is that the Court has the discretion to do what is fair: Don Reid Upholstery Ltd. v. Patrie, (AB KB), 1995 CarswellAlta 357 (ABQB), para. 4.

Generally the Court considers three factors: whether the applicant has adefence on the merits; whether the applicant acted promptly to set aside the judgment once he or she had knowledge of it; and, whetherthe applicant chose not to file a defence, i.e. deliberately let the judgment go by default: Acast Enterprises Ltd. v. Family Pizza (Alberta)Ltd., 2007 ABQB 8, para. 3; Graylake Holsteins Ltd. v. Kzam Farms Ltd., 2004 CarswellAlta 1521, para. 19; Alberta v.

Fjeld, 2008ABQB 558, para. 16. [26] While acknowledging the overall discretion to do what is fair, case law has held that all of the three elements of the testshould be met: Palin v. Duxbury, 2010 ABQB 833 , 2010 CarswellAlta 2517, para. 42. Is There a Defence on the Merits? [27] An allegation that there is a defence is insufficient. The Court must evaluate whether there is an arguable defence and thedefendant is not trying to further delay or defeat a valid claim: Goulet v. Silva, 2002 ABQB 369 , 2002 CarswellAlta 471, atpara. 55-56.

Barring exceptional circumstances, the Court is to accept the facts as found in the affidavit of the defendant: Wilson v.Sayers (supra). Defence to the Promissory Note Action [28] Mr. Zaghloul raises two arguments to the claim on the promissory note. Firstly, he argues that it was granted under duress;and, secondly, he says that there was no consideration. [29] Mr. Zaghloul argues that he was subjected to duress, including economic duress, that left him with no realistic alternative butto submit and provide his personal promissory note: Stott v. Merit Investments Corp., (ON CA), 1888 63 O.R. (2d)545 (Ont.

C.A.), para. 48. He says that he felt threatened when Mr. Atkins showed up at his house without a prior phone call or email.He says that around the same time he had been threatened by someone from the Lebanese community. [30] On cross-examination Mr. Zaghloul acknowledged that he had not been actually threatened in any way by Mr. Atkins or any

other representative of 128 Ltd. He acknowledged that when they met he did not think that Mr. Atkins was a member of the Muslimcommunity from which he had received threats and pressure. Mr. Atkins came to Mr. Zaghloul’s house because he wanted to find outwhat was happening with 128 Ltd.’s investment. There is no evidence that he was even aware of these alleged threats. Mr Zaghloul, ofhis own volition, then volunteered the April, 2008, letter offering the promissory note. [31] It cannot be said that Mr. Zaghloul “had no choice but to submit” to Mr. Atkins, as that term is used in the case law.

Mr.Atkins took the letter and left, so that the company could consider its options. Prior to Mr. Atkin’s return Mr. Zaghloul did not recant theoffer. When Mr. Atkins returned he did not refuse to sign the promissory note. After Mr. Atkins left with the signed note he still didnothing to recant the document, nor did he allege duress. [32] This situation is insufficient to raise an issue as to the execution of the promissory note under duress: Techform Products Ltd.v. Wolda, (2001) (ON CA), 56 OR. (3d) 1 (Ont. C.A.), para. 31. [33] Secondly, Mr.

Zaghloul argues that there is an absence of consideration for the note and therefore he has an arguable defence.He points to the fact that the acceptance and discharge of claims found in the note is in the name of Mr. Atkins, and Mr. Atkins had noclaim in relation to the failed investment. [34] To consider this argument the note itself and Mr. Zaghloul’s evidence bear description. [35] The note is headed “Promissory and Discharge Note”. It commences with the promise to pay of Mr. Zaghloul of RiverdaleAvenue, Calgary and is made in favour of the “investor”, who is then named as 128 Ltd.

Further down the page there is a paragraphsetting out the acceptance of the note and the discharge and assignment of any claims against Mr. Zaghloul, certain other individuals andthe investment companies. The acceptance and discharge paragraph commences: “I, Murray Atkins”. Underneath the discharge Mr.Atkins has signed and “Investor” is typed under his name. [36] 128 Ltd. was clearly identified as the investor at the commencement of the document. However, when questioned as to whohe thought he was dealing with, Mr. Zaghloul’s responses were somewhat opaque.

He said at p. 20, line 22 to p. 21, line 15: Q. ...[A]t all times, you knew that Murray Atkins was the principal of 128, correct? A: The principal, no, he told me — and he used repeatedly he has an equal partner that he had to go back to all the time. Q: But you knew that Murray Atkins could bind 128, correct? A: He told me that he really needed to consult with that partner, so, you know, don’t tell me what I do and what I didn’t know. ... Q: When Mr. Atkins signed on behalf of 128, you did not question the authority of that signature? A: Well - - Q: You accepted it?

A: I didn’t know otherwise. Q: Okay. A: I didn’t accept it. I accept that there was an agreement that was incomplete, but, yes. [37] For this evidence to make sense, Mr. Zaghloul must be saying that while he accepted Mr. Atkin’s signature at the time onbehalf of 128 Ltd., he now no longer accepts it on that basis. [38] I cannot see a failure of consideration. At the time the document was signed the investor was known to be 128 Ltd., its namewas entered as the investor, and it was understood and accepted that Mr. Atkins was signing and could sign on behalf of the investor.

Hehad the actual, apparent or ostensible authority to do so. He had gone away to discuss the matter with his business partner. It wasunderstood by both parties that the investor’s claims were being discharged and assigned in exchange for Mr Zaghloul’s promise to payit $120,000.00. [39] This argument is insufficient to raise an arguable defence. [40] Finally, in oral argument, a suggestion was raised that the note was a guarantee. The note itself makes it clear that this was notthe case. [41] As there is no arguable defence to the judgment on the promissory note, 128 Ltd.’s judgment will stand.

Defence to the Fraudulent Conveyances Action [42] Mr. Zaghloul acknowledges that he decided to make a gift to his wife at a time when he had offered promissory notes to anumber of his creditors in lieu of the investment funds that they had provided to him for the failed investment. As this offer was made to128 Ltd. two months after the transfer and thirteen months before the note came due, Mr. Zaghloul argues that there was no debt due andowing at the time of the transfer nor evidence that he was insolvent at that time.

As a result, he argues, he has an arguable defence that he is not liable under either the Statute of Elizabeth 1571 (13 Eliz.

I) c. 5,[1] or the Fraudulent Preferences Act R.S.A. 20000, c. F-24, s.1.There is, he says, a triable issue. No case law was provided by him in support of this defence. [43] 128 Ltd. responds that the Statute of Elizabeth and the Fraudulent Preferences Act apply to the transfer and there is noarguable defence. [44] To decide this question the requirements under both Acts must be considered to ascertain if there an arguable defence to theclaim. [45] The two Acts have different ambits.

The Fraudulent Preferences Act can only be relied upon by creditors and the purpose of s.3 is to restrict the debtor’s ability to prefer one creditor over another. The Statute of Elizabeth is broader and its goal is to set aside transfers designed to hinder or delay creditors or others in the collection of their claims.[2] [46] 128 Ltd. relies on a number of decisions from other provinces to argue that the Statute of Elizabeth applies to subsequentcreditors: Newlands Sawmills Ltd. v. Bateman, (BC CA), [1922] 3 W.W.R. 649 (B.C.C.A.); Bludoff v. Osachoff, (SK CA), [1928] 2 W.W.R. 150 (Sask. C.A.); Ewachowski v.

Marischuk et. al., [1917] 3 W.W.R. 747 (Man. Q.B.).

[ 47 ] It relies on the decision of this Court in Krumm v. McKay 2003 ABQB 437 , para. 30 , to argue that both Acts apply to subsequent creditors and therefore it has standing to set aside the transfer, with the result that there is no arguable defence. [ 48 ] It is correct that the Alberta Court of Queen’s Bench held in Krumm that both Acts applied to the situation before it and the transfers were fraudulent.

However, a review of the facts in that case indicates that, unlike the facts in the case before this Court, the debt in issue existed at the time of the transfer , although it was not yet due. [ 49 ] The Court noted that for the Fraudulent Preferences Act to apply one must be a creditor at the time of the impugned transaction, and the issue of whether a creditor could include someone whose debt has not yet become payable at that time had yet to be determined.

The Court determined the issue and held that a creditor whose debt had not yet matured came within the definition of creditor. [ 50 ] This case does not stand for the proposition that the Fraudulent Preferences Act applies when there is no type of debtor- creditor relationship at the time the debtor transferred his property. The case does not go that far. Therefore, as the law now stands in Alberta, under the Fraudulent Preferences Act, to have standing the complaining creditor must show that at the time of the impugned transaction he was either an existing creditor, or a creditor whose debt had not yet come due.

Therefore, in relation to the applicability of that Act to the facts in this case, there is an arguable defence. [ 51 ] However, this arguable defence is irrelevant if there is no arguable defence under the Statute of Elizabeth . [ 52 ] In relation to the Statute of Elizabeth, the Court in Krumm pointed out that the wording is broader as it allows “creditors and others” to challenge a transfer.

It said that the courts have interpreted this to establish a general exception to the effect that a subsequent creditor can challenge a transfer if it is able to establish an intention to defraud it specifically, or future creditors generally. [ 53 ] However, in Krumm and in the other cases cited by 128 Ltd., the facts were different than those before this Court.

While they contain useful statements as to the applicability of the Statute of Elizabeth to subsequent creditors, with the exception of Newlands Sawmills , they involved a creditor who had a potential or contingent debt with the transferor at the time of the transfer. In the case of Newlands Sawmills , the debtor was going into a potentially risky business venture and transferred his property to his wife.

However this case is from the British Columbia Court of Appeal and is not binding on this Court. [ 54 ] Therefore, the case law provided by 128 Ltd. is not definitive and the issue remains: Is there an arguable defence that a subsequent creditor does not come within the definition of “creditors and others” and cannot rely on the Statute of Elizabeth to challenge a transaction that occurred before the debt arose? To answer this question the law on this issue that is binding on this Court must be considered. [ 55 ] Before examining individual cases, it is helpful to start with an overview of the Act . C.R.B.

Dunlop, in a paper, Fraudulent Conveyances and Preferences: A Feasibility Study, [3] provided a synopsis: English law on fraudulent conveyances dates back to the Middle Ages, but the first comprehensive attempt at prohibition may be the Fraudulent Conveyances Act, 1571 , iv usually referred to as the Statute of Elizabeth. The Statute sought to avoid “feigned, covinous and fraudulent” transfers of land and personalty entered into with the intent to “delay, hinder or defraud creditors and others” of their just and lawful claims.

S. 2 provided that such conveyances should be “clearly and utterly void, frustrate and of no effect” as against “creditors and others” whose claims might be delayed by such conveyances... [T]he courts quickly saw its potential as the foundation for a civil action to avoid fraudulent conveyances of exigible property by debtors. Since 1571, the courts have been active in creating a large and complex body of law which purports to interpret the Statute but which in reality constructs a new right in “creditors and others” to challenge and avoid fraudulent conveyances. [ 56 ] He then commented at page 5:

Texts and essays on the law are full of criticisms of confused rules, redundant statutory provisions, perplexing and contradictory decisions, antiquated rules and ideas, and opaque policy. Fraudulent conveyances and preferences problems have not produced far-reaching and imaginative judicial decisions. The vast majority of the cases say little or nothing about the law, simply copying passages from leading decisions. The cases which do address the law have often caused more trouble than they should have.

Not surprisingly, calls abound for a complete rewriting of the law. [ 57 ] The development of the case law establishing who comprises the class of “others” in the Statute of Elizabeth is discussed by the same author in Creditor-Debtor Law in Canada (2 nd ed. Carswell, 1995). [4] Historically the English courts decided that where a fraudulent settlement was set aside, the recovered property could be claimed by the creditors generally, whether or not their claims existed at the time of settlement.

This led to the development of a rule that a subsequent creditor could maintain an action to have a conveyance set aside if any debt that was due at the date of the transaction remained unpaid at the time of the commencement of the action by the creditor. [ 58 ] The theory behind this approach was that since prior creditors could have set aside the conveyance and a subsequent creditor could have shared in the result, the subsequent creditor should also be able to commence the action.

However, if no prior creditor could bring an action, for example due to the expiration of limitation periods, the subsequent creditor was also unable to proceed. [ 59 ] Over time, this rule developed exceptions. The general exception, as was noted in Krumm , is that a subsequent creditor can challenge a transfer where it can establish an intention to hinder or defraud it specifically, or future creditors generally. [5] [ 60 ] Another exception has been allowed when someone settles property on the eve of going into business with the intent to protect it from future creditors of the business.

The question of whether the Act applies when there is no new business established but the debtor has conveyed away property to defraud future creditors of his or her present business is not as clear. [6] [ 61 ] The ability of subsequent creditors to set aside a transfer under the Statute of Elizabeth was considered by Nigel Howcroft in his

article Scope of Fraudulent Conveyances and Fraudulent Preferences Legislation in Alberta , 1987 3 Alta. L.R. 496, p. 504.

He states that it has been held that a subsequent creditor can do so but has a heavier burden of proof as he must prove either that the debtor made the transfer with the express intent to delay, hinder or defraud his creditors or that by the conveyance the debtor became insolvent. [7] He notes that even if the result of the transfer is that the debtor is insolvent, where all of the creditors who existed at the time of the transfer have been paid, it is very difficult for a future creditor to prove fraudulent intent. [8] [ 62 ] Most of the cases referred to in the analysis found in Creditor-Debtor Law and in the

article Fraudulent Conveyances are, or rely upon, old English decisions. [9] [ 63 ] One of the frequently cited cases is Spirett v.

Willows 1865 J.D. (Ch. 70), which did not actually involve a claim by a subsequent creditor. [10] However, on that topic, the Lord Chancellor said: There is some inconsistency in the decided cases on the subject of conveyances in fraud of creditors; but I think the following conclusions are well founded...if a voluntary settlement or deed of gift be impeached by subsequent creditors, whose debts had not been contracted a the date of the settlement, then it is necessary to shew either that the settler made the settlement with express intent, to “delay, hinder, or defraud creditors,” or that after the settlement the settler had not sufficient means, or reasonable expectation, of being able to pay his then existing debts, that is to say, was reduced to a state of insolvency, in which case the law infers that the settlement was made with intent to delay, hinder, or defraud creditors, and is, therefore, fraudulent and void. [ 64 ] In Jenkyns v.

Vaughan (1856) 3 Drewry 419, the position of subsequent creditors was discussed and Kindersley V.C. said: …..It is not in dispute that a subsequent creditor is entitled to participate, if the instrument is set aside by any creditor…In cases where a subsequent creditor files a bill, it occurs to me that much may depend on this (supposing there is no evidence of anything to show the fraudulent intention but the fact of the settler being indebted to some extent), - whether, at the time of filing the bill, any of the debts remain due which were due when the deed was executed.

In such a case, as any of the prior creditors might file a bill, it appears to me that a subsequent creditor might do so too….

[65] Although these comments in older English case law may appear definitive on the topic, this Court has noted that while English case law may be the starting point for Canadian law, it is not necessarily the end point.[11] To understand the law in Alberta it isnecessary to first examine the Supreme Court of Canada case law and then the Alberta cases considering this issue. [66] In D. McCall & Co. v.

McDonald (1886) 1886 CanLII 16 (SCC), 13 S.C.R. 247, it was held that a creditor who has not yetobtained judgment on a debt can apply under the Statute of Elizabeth to set aside a fraudulent transaction. [67] The question of the ability of a subsequent creditor to challenge a pre-existing transfer was in issue in the case of Donohoe v.Hull Bros. & Co., (1895) 1895 CanLII 56 (SCC), 24 S.C.R. 683. However, ultimately, the Court held that the transaction was done inthe utmost good faith and the husband’s creditors had been paid off by the wife before the action was commenced.

As a result, said theCourt, it did not need to determine if the subsequent creditors had standing, but “supposed” that they would. [68] In Sun Life Assurance Co. of Canada v. Elliott (1900) (SCC), 31 S.C.R. 91 the Court considered whether amortgagee whose security was insufficient to pay the debt at the time of the impugned transfer came within the definition of “creditorsand others”. In that case the transferor gave property to his wife and daughter at a time when he was solvent but had stopped makingpayments on the mortgage.

The transfer left him insolvent. [69] The Supreme Court held that the mortgagee had standing to challenge the transaction and it noted that “[i]f there ever was acase where a man’s generosity was at the expense of his justice it is the present case, and equity demands that so much of the subjectmatter of his generosity as will be sufficient to discharge his debts should be restored to his estate.” [70] A businessman who ran a hotel transferred a property to his wife shortly after he had made what was characterized as a “fatalmistake” in a business venture, but at a time when it could be argued that all of his liabilities had been discharged.

He becameincreasingly insolvent until he ultimately made an assignment for the benefit of creditors. The Court, focussing on the reasons for thetransfer, rather than the question of whether the creditor came within the definition of “creditors and others”, upheld the Court of Appeal,and set it aside: McGuire v. Ottawa Wine Vaults Co. (1913) (SCC), 48 S.C.R. 44. [71] The question of whether the creditor had standing had been raised in the Court of Appeal, [1912] O.J. No. 39.

The Court ofAppeal found that the account of the debtor was continuous from a time anterior to the impugned transfer, although payments were madefrom time to time so that at the time in issue there happened to be nothing owing. As a result, it held that, therefore, the creditor camewithin the words “creditors and others”. The Court of Appeal acknowledged the statements in earlier English case law that a voluntaryconveyance made with the intent to affect future creditors alone comes within the Statute of Elizabeth. [72] The Court in Hughes v.

Northern Electric and Manufacturing Co. (1915) (SCC), 50 S.C.R. 626 consideredthe claim of a creditor whose debt arose over a year after the debtor had granted a mortgage. The mortgage was made to discharge thecompany’s existing indebtedness and to secure money for the future. The Court did not deal with the question of whether the creditorcould bring the action as it held that the transaction was valid.

However, one Justice noted that he had “not been able to discover anysolid ground upon which the plaintiff obtains [standing] to attach a transaction as ultra vires which was entered into a year before hebecame a creditor of the company”. [73] There is no Supreme Court of Canada case precisely on point with the situation in front of this Court.

While the Court ofAppeal in Ontario Wine Vaults acknowledged that a transfer undertaken to frustrate future creditors comes within the statute, theSupreme Court of Canada did not address the issue clearly and the fact situation is distinguishable from that before this Court. As theSupreme Court of Canada has not decided the issue before this Court, I turn to the decisions in this jurisdiction. [74] The Alberta decision most on point is Arnold v. Fleming [1923] A.J. No. 58 (Alta.

S.C.), where the Court considered theFraudulent Conveyances Act of British Columbia, the provisions of which were identical to those of the Statute of Elizabeth. Theplaintiff in that case was found to be a creditor for her court costs only. Due to the date those costs were awarded, she was held to be acreditor whose claim only arose subsequent to the date of the impugned transfer.

Tweedie J. held that she came within the definition of“creditors and others” found in the legislation but, as a subsequent creditor, she had to “establish the actual intent of the part of the debtorto delay, hinder or defraud her as an execution creditor” and she failed to do so.

[75] However, subsequent to this case, a slightly different approach appears to have been taken by the Alberta Courts. [76] A transfer was set aside where it was done subsequent to an assault, but prior to the commencement of an action for damagessuffered in the assault: Goyan v. Kinash [1945] A.J. No. 77 (Alta. S.C.).

In coming to the conclusion that the plaintiff came within the definition of “creditors and others”, the Court relied on the text May on Fraudulent and Voluntary Conveyances, 3rd ed., p. 102, whichsaid at p. 102 that “[t]he words ‘creditors and others’ are wide enough to include any person who has a legal or equitable right or claimagainst the grantor or settlor, by virtue of which he is, or may become entitled to rank as a creditor of the latter.

The claim may arise outof a tort, as well as out of a contract, express or implied, or other legal obligation”. [emphasis added] [77] The same definition from May was relied upon in the decision of Murdoch v. Murdoch, (1977) (AB KB), 1A.R. 378 (Alta.

S.C.), where the Court found that a wife who had filed a divorce petition at the time of the impugned transfer had a legal or equitable claim at that time and came within the definition of “creditors or others”.[12] [78] A plaintiff who had not obtained judgment but who had filed an action against the transferor prior to the transfer was found to come within the definition of “creditor and others”: Pigeon Lake Park Maintenance Ltd. v. Foley, [1997] A.J.

No. 508 (Master).[13] Master Funduk, relying on old English case law, commented in obiter, that a creditor who becomes a creditor after a transfer designed toput the transferor’s property out of the reach of his creditors can claim the benefit of the Statute of Elizabeth. [79] In Palechuk v.

Fahrlander, 2006 ABCA 242, para. 31, the Court, referring to Murdoch, and therefore relying on thedefinition found in May, held that “the party challenging the conveyance must be someone who was a creditor at the time of theconveyance or someone with a legal or equitable right to claim against the transferor.” This requirement was recently repeated by theCourt of Appeal in Milavsky v. Milavsky, 2011 ABCA 231. [80] It is unclear if the Court of Appeal’s decisions in Palechuk, and Milavsky are meant to be limited to their facts or to clarify the approach found in earlier English case law and Arnold v.

Fleming.[14] [81] In the result, the law binding on this Court on the issue before it is unclear. This is not surprising as there is a significantunderlying issue of policy: whether people in business should be able to protect their assets from subsequent creditors.

As noted by oneCanadian author, “there is considerable tension between the wish to protect the legitimate expectations of subsequent creditors and thewish to protect the interest of those engaged in commerce [which has] occasionally prompted some to move away, or to interpret certain jurisprudence as a move away, from the traditional approach...”[15] [82] Therefore, assuming, without deciding, that the criteria set by the Alberta Court of Appeal are applicable to the facts in thiscase, does 128 Ltd. have standing under the Statute of Elizabeth?

In other words, at the time of the transfer was 128 Ltd. a creditor or didit have a legal or equitable right to claim against Mr. Zaghloul? [83] In the summer of 2008, 128 Ltd. was not a creditor and it has made no claim that it had a legal or equitable right to claimagainst Mr. Zaghloul at that time. It’s claim is based on the promissory note which was signed several months later. [84] Therefore, as a result of this lack of clarity in the case law, there is an arguable defence that 128 Ltd. does not have standing toset aside the transfer under the Statute of Elizabeth.

While this issue may be capable of being decided summarily, counsel for the partieshave had no opportunity to consider or argue the case law and commentary relied upon in the above analysis. Did the Defendant Deliberately Let the Judgment Go by Default? [85] Generally if a defendant deliberately lets a judgment go by default, he is not allowed to set it aside: Edwards v. Ferris, 2001

[ 85 ] Generally if a defendant deliberately lets a judgment go by default, he is not allowed to set it aside: Edwards v. Ferris, 2001 ABQB 1125 , para. 13 ; Sonnenschein v. Kramchynski, 2000 SKQB 181 , para. 8 ; Reed v. Toronto Dominion Bank, 2003 ABQB 150 (Master). [ 86 ] Mr. Zaghloul admits that he saw the facebook messages but says that he refused to open them as he they were not from someone he knew and provides as an excuse that he was concerned about infecting his computer.

While a review of the notices he received indicates that someone receiving them would likely have suspected that they could be legal documents, this factual situation is insufficient to find that Mr. Zaghloul deliberately let the judgment go by default as in the aforementioned cases. Did the Defendant Act Promptly when he Learned of the Claim? [ 87 ] The delay between when Mr. Zaghloul learned of the claim and when he brought this application is insufficient to deny this application CONCLUSION [ 88 ] The judgment in the promissory note action stands and the application to open it up is denied.

Due to the lack of clarity in the law, the application to open up the noting in default in the fraudulent conveyances action is granted. [ 89 ] The plaintiff is entitled to its thrown away costs and the costs of this application, to be paid within 60 days of assessment, if the amount cannot be agreed. The plaintiff also sought terms in this order that would require the payment into court of the amount of the judgment. As there is a certificate of lis pendens against the title to the Riverdale Avenue house, that request is denied.

Should that certificate no longer be in place and incapable of being refiled with the same priority, the parties should advise the Court and it can be determined if further terms are required. Heard on the 12 th day of October, 2011. Dated at the City of Calgary, Alberta this 6 th day of January, 2012. J.B. Hanebury M.C.C.Q.B.A. Appearances: Joshua D. Sadovnick Macleod Dixon LLP

for the Plaintiff Hema Ahuja Carscallen LLP for the Defendant [1]also known as the Fraudulent Conveyances Act.. [2]See Krumm v. McKay 2003 ABQB 437, para.34-35. [3]Presented August 23-26, Regina, Sk. at the Uniform Law Conference. [4]Dunlop, p. 617 et seq. [5]Dunlop, p. 619. See Pigeon Lake Park Maintenance Ltd. v. Foley [1997] A.J. No. 508 (Master) where the claimant had sued thetransferor and the transfer occurred prior to judgment being obtained and the claimant becoming a creditor. [6]See Dunlop, p. 621.

As noted by Dunlop at p. 623, the cases do not mesh into any clear and coherent pattern, probably because thechoice between the debtor’s right to plan his or her affairs and the creditors’ right to payment is a difficult one. [7]He relies on Spirett v. Willows (1865) 46 E.R. 649 and Cromwell v. Comeau (1957) (NS CA), 8 D.L.R. (2d) 676(N.S.S.C.). See also; Freeman v. Pope, (1867-70) 5 Ch.A. 538 (C.A.); MacKay v. Douglas,

(1872) L.R. 14 Eq. 106, approved by theCourt of Appeal in Ex Parte Russell, (1882) 19 Ch. D. 588 (C.A.), which have been cited to the same effect. It is not clear whether it isthe ratio of these cases that is being cited or merely comments, as in Spirett, that are obiter. [8]As a result, a subsequent creditor, unlike an existing creditor, may not raise a presumption of fraud on the basis that a previous transferadversely affected his claim.

He is required to show positive evidence that the transfer was done for the purpose of avoiding creditors.Otherwise any conveyance made during the life of a debtor would be voidable upon his becoming insolvent. [9] An analysis of the old law is found in Canadian Imperial Bank of Commerce v.

Boukalis, (BC CA), [1987] 3W.W.R. 505 (B.C.C.A), where a five member court considered whether a creditor who was secured at the time of the transfer couldclaim under the provincial legislation that mirrors the Statute of Elizabeth. [10]See as well: The Rights and Liabilities of Husband and Wife, John Fraser Macqueen (Henry Sweet: London) 1885, p. 273 [11]Master Funduk in Pigeon Lake Park Maintenance Ltd. v. Foley, [1997] A.J. No. 508, para. 32, [12]See as well Sambaliuk v. Sambaliuk [1983] A.J.

No. 711 (ABQB) where a husband disclaimed an entitlement to his father’s estate ata time when he was he was paying insufficient maintenance to maintain his family. The wife was found to come within the definition of“creditor and others”. This case was overturned on appeal on another point. See also: Fillier v. Bubley [1997] A.J. No. 1285 (ABQB)where the plaintiff was owed maintenance at the time of the transfer. The Court said that the word “others” includes those who hadclaims similar to creditors. [13]As noted, 128 Ltd. relied on two decisions of other courts.

A transfer was found to be void when it occurred after demand had beenmade but before judgement had been obtained: Bludoff v. Osachoff (SK CA), [1928] 2 W.W.R. 150 (Sask. C.A.). Atransfer was also set aside when it was made during the course of an action but before trial: Ewachowski v. Marchischuk [1917] 3W.W.R. 747 (Man. Q.B.). [14]Family law cases considering the issue of who constitutes an “other” within the Statute of Elizabeth are treated as a distinct topic inMel A. Springman, Frauds on Creditors: Fraudulent Conveyances and Preferences, (Carswell: Toronto, 2002, looseleaf). [15]Supra, n. 14 at p. 12-22.

I note that both the Ontario and the British Columbia Law Reform Commissions have recommended thatsubsequent creditors should not be entitled to impeach conveyances that occurred before their claims arose, supra n. 14 at p. 12-24.