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Limitation Periods and the Fraudulent Conveyances Act

Section 2 of the Fraudulent Conveyances Act, R.S.O. 1990, c. F.29 (the “FCA”) provides that 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.

With that being said, it appears that, until now, there has been a misunderstanding as to what exactly it means when a conveyance of real property is deemed fraudulent pursuant to the FCA. Litigation lawyers thought the issue was resolved when the Ontario Court of Appeal issued the decision of Anisman v. Drabinsky, 2021 ONCA 120 (ONCA) wherein it confirmed the Honourable Justice Morgan’s conclusion in Anisman v. Drabinsky, 2020 ONSC 1197 (ONSC) that “if a claim is brought under the FCA to set aside a conveyance of real property, such a claim is on its face a claim to ‘recover any land’” such that it is subject to the limitation periods prescribed by the Real Properties Limitations Act, R.S.O. 1990, c. L.15 (the “RPLA”). However, it is now clear that this is not the case.

In the recent Ontario Court of Appeal decision of Bank of Montreal v. Iskenderov, 2023 ONCA 528 (ONCA) (“Iskenderov”), the Court, hearing the matter as a full panel, overruled its previously decision in Anisman v. Drabinsky, 2021 ONCA 120 (ONCA) and determined that a claim under the FCA is not a claim to recover land. Rather, the Court has clarified that a claim under the FCA is in fact a claim with respect to the enforcement of a debt such that it is subject to the limitation periods prescribed by the Limitations Act, S.O. 2002, c. 24, Sched. B (the “Limitations Act”). The Honourable Justice Feldman, writing for the Court, provided the following description as to what occurs when a conveyance of real property is found to be fraudulent pursuant to the FCA

What occurs (if a transaction is deemed fraudulent) is what the statute intends: the creditors regain the ability to execute against the land for the payment of the debts owed to them by the transferor. The conveyance is set aside but only as against creditors or others.

Although the Court of Appeal’s decision in Iskenderov has clarified or rectified the issue and, subject to an appeal to the Supreme Court of Canada, confirmed that a claim under the FCA is in fact a claim for the enforcement of a debt, it may have opened pandora’s box. 

When does the clock on a limitation period begin to tick when it comes to a claim under the FCA? For example, if a claim under the FCA is a claim to enforce a debt but a fraudulent conveyance can occur before a debt even exists, does the claim accrue from when the transfer occurs or when the debt becomes due and payable? If a debt results from a Court Order (e.g., a costs award) is there any applicable limitation period or are such actions subject to Subsection 16(1)(b) of the Limitations Acts, i.e. such that there is no applicable limitation period? 

If the Court finds that an action accrues from when a transfer occurs but the transfer occurred before the debt arose, how can the Court justify requiring parties to commence litigation to enforce a debt before the debt even exists? If the Court relies on “discoverability” to clarify or justify the above issues, how will it deal with the now active ultimate fifteen (15) year limitation period prescribed by Section 15 of the Limitations Act? All of these are very interesting issues that the Court will be faced with over time, but it is clear that Iskenderov is going to have a large impact on how creditor’s rights and how parties approach actions under the FCA