Martha O'Connor Plaintiff And: Nfld. Real Estate Investment Corporation First Defendant And: 79980 Newfoundland & Labrador LTd. Second Defendant And: Kevin Nolan Third Defendant And: Harbourside Development Corporation Fourth Defendant And: Denis Barry T/A Denis G. Barry Professional Law Corporation THIRD PARTY, 2019 NLSC 188

court crest IN THE SUPREME COURT OF NEWFOUNDLAND AND LABRADOR GENERAL DIVISION Citation : O'Connor v. Nfld. Real Estate Investment Corporation , 2019 NLSC 188 Date : October 24, 2019 Docket : 201801G4706 Between: Martha O'Connor Plaintiff And: Nfld. Real Estate Investment Corporation First Defendant And: 79980 Newfoundland & Labrador LTd. Second Defendant And: Kevin Nolan Third Defendant And: Harbourside Development Corporation Fourth Defendant And: Denis Barry T/A Denis G. Barry Professional Law Corporation THIRD PARTY Before: Justice Donald H. Burrage Place of Hearing: St. John’s, Newfoundland and Labrador Date of Hearing: September 19, 2019

Appearances: No appearance On behalf of the Plaintiff Daniel Bennett Appearing on behalf of the First, Second, Third Defendants No appearance On behalf of the Fourth Defendant Colin Feltham Appearing on behalf of the Third Party Authorities Cited: CASES CONSIDERED: Ryan v. Dew Enterprises Ltd. , 2014 NLCA 11 ; Goyeche v. Hill , 2019 NLSC 74 ; Walsh v. Johnson , 2010 NLCA 6 ; Burry v. Newfoundland & Labrador (Citizen's Representative) , 2010 NLTD(G) 103; Walsh v. TRA Co ., [2006] CarswellNfld 376, [2006] N.J. No. 389 ; Fiander v.

Mills , 2015 NLCA 31 STATUTES CONSIDERED: Fraudulent Conveyances Act , R.S.N.L. 1990 c. F-24 ; Bankruptcy and Insolvency Act , R.S.C. 1985, c. B-3 RULES CONSIDERED: Rules of the Supreme Court, 1986 , S.N.L. 1986, c. 42, Sch. D REASONS FOR JUDGMENT Burrage, J. : INTRODUCTION [ 1 ] This is an application by the Third Party (Barry) pursuant to Rules 14.24(1) (b)(

c) and (

d) of the Rules of the Supreme Court, 1986 , S.N.L. 1986, c. 42, Sch. D to have the First and Third Defendants’ claim against him struck on the grounds that it: (

i) is false, scandalous, frivolous or vexatious; (ii) may prejudice, embarrass or delay the fair trial of the proceeding; and (iii) is otherwise an abuse of process of the Court. [ 2 ] Barry has not yet filed a defence to the Third Party claim, pending the outcome of this application. The Plaintiff’s claim [ 3 ] On 11 July 2018 the Plaintiff (O’Connor) filed this action, on her own behalf and as a representative of other creditors of a locally incorporated company, Project Management and Development Limited (PMDL).

Insofar as relevant to this application, O’Connor’s allegations, as set forth in her Statement of Claim, may be summarized, as follows: • On or about 8 March 2013 O’Connor and another individual jointly loaned $100,000 to PMDL. This loan was secured by a mortgage over land on Temperance Street, St. John’s, NL, known as Parcel “A”. • PMDL defaulted on the mortgage and on 29 April 2016, PMDL was declared bankrupt by Order of this court.

The trustee in bankruptcy subsequently assigned all its rights, title and interest in PMDL to O’Connor and the other participating creditors of PMDL. • On 30 June 2015, less than 12 months prior to its bankruptcy, PMDL conveyed adjacent land on Temperance Street, St. John’s,

NL, known as Parcel “B”, to the First Defendant, Nfld. Real Estate Investment Corporation (NREIC). On 9 August 2017, NREIC conveyed Parcel “B” to the Second Defendant, 79980 Newfoundland & Labrador Ltd. Neither of those transactions was at arm’s length. • The conveyance of Parcel B was a fraudulent conveyance within the meaning of the Fraudulent Conveyances Act , R.S.N.L. 1990 c.

F-24 , for the sole purpose of defeating the creditors of PMDL. • In the alternative, as the conveyance occurred within one year of PMDL’s bankruptcy, the conveyance is a preference and/or transfer at undervalue and is void as contrary to sections 95 and/or 96 of the Bankruptcy and Insolvency Act , R.S.C. 1985, c. B-3 ( BIA ). [ 4 ]

Section 95 of the BIA provides that transfers of property to a non-arm’s length creditor within 12 months of bankruptcy are void.

Section 96 of the BIA provides that transfers of property for undervalue are void if within 12 months of the bankruptcy, whether or not the parties are at arm’s length. The period is longer (5 years) where the parties are non-arm’s length and the debtor was insolvent at the time of transfer, rendered insolvent by it, or the debtor intended to defraud, defeat or delay a creditor. the third party claim [ 5 ] On 4 January 2019, prior to filing a defence, the First and Third Defendants commenced a Third Party claim against Barry. The following is a

summary of that claim, insofar as relevant to the within application: • On 18 December 2013 the Third Defendant, (Nolan) instructed Barry to prepare a deed of conveyance of Parcel B from PMDL to a related company, Nolan Hall Real Estate Services Limited (NHRSL), for the purpose of carrying out the development of a condominium building on Temperance Street, in St. John’s, NL.

Nolan executed the deed from PMDL to NHRSL on 20 December 2013 and instructed Barry to register same at the Registry of Deeds. • On 20 July 2015 Nolan discovered that the conveyance had not been registered and that Barry had failed to attach a survey description of Parcel B to the deed, despite having been provided with this description back in March 2013. In light of this development, Nolan discussed with Barry the option of conveying the property from PMDL to another related company, NREIC.

At the time Barry was aware that PMDL was in financial difficulty, that construction of the condominium project had not begun and that default on various mortgages it had given was likely, or at least reasonably foreseeable. Nevertheless, after consultation with Barry, on 22 July 2015, PMDL conveyed Parcel B to NREIC, despite having previously purported to convey the property in 2013 to NHRSL. • This conveyance was taken on the advice of Barry who at the time assured Nolan that Parcel B could not be subject to a claim by the creditors of PMDL.

At the time Nolan had the option of registering the deed from PMDL to NHRSL, executed over two years prior to its bankruptcy. • Barry was negligent, breached his duty of care and/or fiduciary obligations to the Defendants in failing to register the 2013 conveyance from PMDL to NHRSL and in failing to advise of the risk of a

section 95 and/or 96 BIA claim by creditors of PMDL. [ 6 ] In simple terms, the Defendants assert that it was Barry’s negligence that exposed them to O’Connor’s claim under the BIA . They allege that had they been advised of the 12-month provision under sections 95 and 96 of the BIA , they would have proceeded to register the 18 December 2013 conveyance of Parcel B and would not have proceeded with the 2015 conveyance to NREIC. the 2017 claim [ 7 ] On 7 April 2017 the First and Third Defendants (NREIC and Nolan), together with Robert Hall and Nfld.

Real Estate Investment Corporation commenced an action against Barry. This action predates the claim by O’Connor. [ 8 ] The Plaintiffs in the 2017 claim allege that Barry was negligent and breached the duty of care and/or fiduciary obligations owed to them in his handling of the condominium project. [ 9 ] Included in the 2017 claim is the allegation that Barry was negligent and/or breached his fiduciary duty to register the 2013 conveyance of Parcel B, and in the advice given with respect to the BIA . This portion of the 2017 claim mirrors that in the Third Party claim.

However, the 2017 claim is broader in scope with allegations of negligence related to other aspects of the project. In essence, collectively the Plaintiffs blame the failure of the condominium project on Barry and seek to recover general damages and lost profit. [ 10 ] Barry has filed a defence to this claim.

For his part, while acknowledging that he acted for the various Plaintiffs from time to time, Barry denies that he was negligent and/or breached any fiduciary duty to the Plaintiffs. [ 11 ] As it relates to Parcel B, Barry denies that he was instructed to register the 2013 conveyance of Parcel B, or that he was provided with the necessary description to do so.

Barry denies that the Plaintiffs, as sophisticated and knowledgeable real estate developers, sought or relied upon his advice respecting the subsequent conveyance of Parcel B from PMDL to NREIC. analysis [ 12 ] Procedurally, Third Party claims are governed by the interrelation between sections 93-94 of the Judicature Act and Rule 12 of the Rules of the Supreme Court, 1986 , S.N.L. 1986, c. 42, Sch. D . [ 13 ] In Ryan v. Dew Enterprises Ltd. , 2014 NLCA 11 , Green, J. identified the following guiding principle for joining third parties (at paragraph 58): 58. ... As noted, this

section is the statutory authorization for third party procedure. It contemplates a person being joined as a third party whenever the defendant is making a claim "related to or connected with the original subject matter of the proceeding". That language extends beyond contribution or indemnity claims, inasmuch as it does not require the defendant to claim to pass on liability for the plaintiff's claim to the third party. All that would appear to be required is to show that the defendant's cause of action against the third

party arises out of the same general factual and/or legal matrix of the extant issues between the plaintiff and defendant. [ 14 ] In reliance on Ryan , Barry argues that the Third Party claim is “baseless” as it is contrary to the accepted law regarding the addition of third parties. [ 15 ] The focus of Barry’s argument is on O’Connor’s claim that the Defendants committed deliberate and fraudulent conveyances solely for the purpose of defeating PMDL’s creditors.

In other words, that the conveyance of Parcel B from PMDL was fraudulent, within the meaning of the Fraudulent Conveyances Act , and therefore void. [ 16 ] Under the Fraudulent Conveyances Act a fraudulent conveyance is a conveyance with the intent to defeat, hinder, delay or defraud creditors. It is true, as Barry argues, that much of O’Connor’s claim is directed to the assertion that various conveyances of the Defendants, including the conveyance of Parcel B, were specifically designed to defraud the creditors of PMDL. [ 17 ] A fraudulent conveyance requires the specific intent of the participants to defraud.

Barry is correct in saying that the Defendants do not allege fraud on his part, or that he participated in what O’Connor asserts were fraudulent conveyances. It may or may not be the case that Barry will have evidence to give germane to O’Connor’s fraudulent conveyance claim, but that has no bearing on Barry’s role as a Third Party. [ 18 ] However, O’Connor also alleges that the “conveyance” from PMDL to NREIC was in contravention of the BIA .

It is in response to this claim that the First and Third Defendants bought the Third Party claim against Barry, the allegation being that he was negligent in advising them to pursue this course and in failing to advise of the BIA consequences, when at the time there was an alternative course of action available (namely to register the 2013 conveyance).

The allegation of negligence and/or breach of fiduciary duty on the part of Barry relates to the claim under the BIA . [ 19 ] The BIA claim of O’Connor is based on the express language of sections 95 – 96, the remedy for a breach being a declaration that the conveyance of Parcel B by PMDL is void. If successful, the Defendants cannot avail of Parcel B, or realize on its value. Through the Third Party claim they seek to recover this potential loss, the argument being that it was the advice of Barry that got them in the pickle. [ 20 ] Relying in part on this court’s decision in Goyeche v.

Hill , 2019 NLSC 74 , Barry also argues that the cause of action against him in negligence is different from O’Connor’s cause of action against the Defendants in fraud, and that the factual matrix going rise to the two claims is different. [ 21 ] In Goyeche the Respondent in a family law proceeding in the Family Division sought to bring a Third Party claim in the General Division against his lawyer for professional negligence in the drafting of a cohabitation agreement. The agreement had not been witnessed and, as a consequence, the parties to the family law proceeding conceded that it was not enforceable.

As such, the status of the cohabitation agreement was no longer an extant issue as between the parties to the family law proceeding (at paragraph 101): 101. In the family law proceeding Ms. Goyeche and Dr. Hill have thus resolved the question of whether the Marriage Agreement is enforceable, thus sparing a judge of the Family Division from having to decide this question. 1 The enforceability is no longer an extant issue between the parties to the family law proceeding. Whether or not Mr.

Smyth was negligent was never an issue as between them. [ 22 ] In contrast, whether or not the conveyance of Parcel B from PMDL was in violation of the BIA remains a live issue as between O’Connor and the Defendants. [ 23 ] In any event, the fact there are different causes of action is not necessarily fatal to a third party proceeding.

As the court in Ryan stated (at paragraph 65 ): 65. … a claim could be made against a third party by a defendant even though he is not seeking to pass on to the third party the losses associated with the plaintiff's claim against the defendant but instead wishes to assert a completely separate cause of action that happens to arise out of the same factual matrix of the claim made by the plaintiff and the defendant and to use that claim to offset his losses associated with the plaintiff's claim against him. [ 24 ] In Ryan the Court observed that Rule 12 is not limited in express terms to claims for indemnity and contribution.

Rather, the only requirement is that the Defendant assert some sort of claim “for all or any part of the plaintiff’s claim against the defendant ( Ryan , at paragraph 51 ). In this case, the losses for which the Defendant’s claim arise from a finding that the conveyance of Parcel B from PMDL is void as contrary to the BIA . [ 25 ] Barry also argues that the claim is frivolous and vexatious, as brought for an improper purpose and being a claim that is without arguable merit ( see Walsh v. Johnson , 2010 NLCA 6 at para. 13 ).

A pleading may be considered frivolous and vexation if it is obvious that the action cannot succeed or is hopeless ( Burry v. Newfoundland & Labrador (Citizen's Representative ), 2010 NLTD(G) 103. [ 26 ] However, the within application is not a mini trial on the merits and in assessing whether the Third Party claim is frivolous or vexatious the court is limited to the facts as alleged in the pleadings. Viewed through this lens, if what the Defendants allege can be proven, it cannot be said that their claim is frivolous.

Therefore, based on the pleadings, I am unable to conclude that the Third Party claim, as framed, is frivolous and vexatious in the sense that it is obvious the action cannot proceed or is hopeless . [ 27 ] Barry also seeks to strike the claim, in part, as constituting an abuse of process of the Court. As Orsborn, J. stated in Walsh v. TRA Co ., [2006] CarswellNfld 376, [2006] N.J.

No. 389 , an “ abuse of process really is a situation that goes to wrongly engaging the court's process for either some ulterior motive or in bad faith, not bona fide , that the litigation itself was brought for some improper purpose, divorced really from the merits or otherwise of the claim” (at paragraph 1). An abusive claim is a baseless claim brought for some ulterior purpose other than the legitimate vindication of legal rights ( see Fiander v. Mills , 2015 NLCA 31 , at para. 35 ). [ 28 ] Barry observes that the Defendants had previously commenced an action against him claiming negligence and breach of

fiduciary duty, arising out of the same circumstances as alleged in the Third Party action. The result is a multiplicity of actions. As such, the Defendants’ motivation could not be a vindication of legal rights. Rather, Barry argues that the Third Party claim was brought for the ulterior motive of disrupting the legal proceedings between the Plaintiff and Defendants and burdening him with unnecessary costs. [ 29 ] It is true, as the Court of Appeal said in Ryan that one of the reasons for the Third Party action is to avoid a multiplicity of proceedings.

That may be so, but with respect, Barry goes too far in arguing that the Third Party claim ought to be struck as a consequence of 2017 action. [ 30 ] The fact that there is some overlap between the 2017 claim and the Third Party claim is not in my view grounds for striking the Third Party claim. The 2017 is a broad claim for damages arising from the failed condominium project while the Third Party action is a more specific claim brought in response to O’Connor’s claim against the Defendants.

There are other means at the parties’ disposal of streamlining the two claims and avoiding duplication without striking the third party claim in its entirety. [ 31 ] To conclude, O’Connor’s BIA claim and the Defendants claim against Barry are sufficiently related so as to ground the Third Party claim. The application to strike the Third Party claim is thus dismissed. [ 32 ] The costs of this application shall be in the cause on the Third Party claim. _____________________________ Donald H. Burrage Justice