Part 28 published on 01/11/09
Condominium corporation seeks to add a Defendant and to add claims for fraudulent conveyance of mortgages, breach of fiduciary duty, and constructive trust
?The condominium corporation asserted a claim against the developer for alleged building deficiencies, including claims for alleged breaches of warranties contained in the agreements of purchase and sale.
The developer’s unsold units were encumbered by a first mortgage in favour of an institutional lender. Following the condominium corporation’s turnover meeting, the developer registered second mortgages against the unsold units, in favour of a private corporation (“the second mortgagee”). Those second mortgages were to secure financing for the development that had been provided to the developer by the second mortgagee.
The condominium corporation alleged that the developer and the second mortgagee were related companies (not at arms length). The condominium corporation therefore sought to amend its Statement of Claim, in order to add the second mortgagee as a Defendant, and to add the following claims:
- A declaration that the second mortgages against the unsold units are void against the condominium corporation, as fraudulent conveyances (designed to defeat the condominium corporation’s ability to recover on its claims);
- Breach of fiduciary duty as against the developer; and
- Constructive trust (ie. a claim that the developer’s interest in the unsold units, prior to the second mortgages, constitutes a trust in favour of the condominium corporation and its owners, in an amount required to satisfy proven warranty claims).
The Court held as follows:
a) The proposed claim for the alleged “fraudulent conveyances” is statute barred (due to expiry of the limitation period).
b) The proposed claim for breach of fiduciary duty is refused because there is no “over-arching” fiduciary relationship between a purchaser and a vendor of a condominium. That relationship does not “in itself, give rise to fiduciary duties”. It is a normal contractual relationship unless there are facts pleaded that establish a fiduciary relationship.
c) The proposed claim of constructive trust is tenable, and is accordingly permitted. The Court said: Even if I accept the King West Defendant’s submission that TSCC 1703 cannot base its claim for a fund to pay warranty claims on their contractual rights (an issue I do not decide), a claim in equity for a fund to pay contractual warranty claims is “legally plausible”, “arguably maintainable”, “conceivable” or “within the bounds of legal possibility”…
A claim for constructive trust would not be an abuse of process, since it is not trying to freeze assets as in the Mareva injunction hearing, nor seek an order contrary to the finding of Pollak J. in her endorsement dated August 8, 2008 that payments from 1KW to HEL (the second mortgagee) were in the ordinary course. Instead, TSCC 1703 seeks a priority, after trial, over the claims of a secured creditor…”.