Ontario Court of Appeal Clarifies Limitation Period for Setting Aside a Fraudulent Conveyance

Published on: September 2023 | What's Trending

Mortgage house in a bear trap on wooden table background. House trap on debt or loan problem or risk in real estate property financing concept.

If you are a party seeking to set aside a fraudulent conveyance in Ontario, a recent decision by a five-judge panel of the Court of Appeal for Ontario means that you might be wise to act fast.

The Court of Appeal for Ontario decision in Bank of Montreal v Iskenderov, 2023 ONCA 528, found that for actions seeking a declaration that a fraudulent conveyance of real property is void against creditors, the applicable limitation period is the basic limitation period of two years from the date the claim was discovered, per section 4 of the Limitations Act.

The Court clarified that the 10-year limitation period of the Real Property Limitations Act (“RPLA”) does not apply to actions to set aside a transfer of property as a fraudulent conveyance, like the action before the Court in Iskenderov.

This means that today, despite a contrary finding by the Court of Appeal in the 2021, Anisman case, such actions need to be brought within two years of the discovery of the claim in order to avoid becoming statute-barred.

The Case:

In Iskenderov, the Bank of Montreal (“BMO”) sought to set aside the transfer of a matrimonial home from a husband to his wife as part of a separation agreement. The husband had transferred the home to his wife and then defaulted on a $400,000 loan from BMO which had been fraudulently obtained.

A central issue in Iskenderov was which period; the 2-year Limitations Act period or the 10-year RPLA period, applied, as the action was commenced more than 2 but less than 10 years after the impugned transfer. This meant that the action would be presumptively statute-barred if the shorter limitation period applied.

In finding that the 2- year Limitations Act period applied, the court considered that:

The limitation period for actions to “recover any land” did not apply to fraudulent conveyance actions historically.

The Court noted that the new Limitations Act came into force on January 1, 2004. After conducting an overview of the historical case law and equivalent historical statutes, the Court found that “before the new Act came into force, there was no limitation period for bringing a fraudulent conveyance action” and that “prior to the enactment of the new Act, s. 4 of the RPLA or its equivalent provisions were never applied to an action for a fraudulent conveyance of land”.

Thus, the court determined that there was no historical basis in which to root applying the 10-year RPLA limitations period to fraudulent conveyance actions.

The relief in a fraudulent conveyance action under the Fraudulent Conveyances Act does not lead to “the recovery of any land”.

Here, the court emphasized that fraudulent conveyance actions are brought under the Fraudulent Conveyances Act and that a reading of a plain text of s. 2 of the FCA indicates that it does not grant the relief of reconveyance of the property back to the transferor (when the transferee is a bona fide purchaser). The fraudulent conveyance is void only as against creditors or others and the transaction remains valid as between the transferor and transferee.

What this means is that a creditor cannot use the FCA to acquire fraudulently conveyed property. Rather, the FCA can be used by a creditor to acquire the ability to execute against the land for payments owed to them, with their debts having priority to the proceeds of the sale of the property. However, because no land is obtained, it follows that the RPLA does not apply.

The court’s interpretation in other cases of “an action to recover any land” in s. 4 of the RPLA does not accord with the relief granted in fraudulent conveyance actions under the Fraudulent Conveyances Act.

Likewise, the Court found that in interpreting the wording of “an action to recover any land” within s. 4 of the RPLA, this statutory language applies to actions where the court grants a property right in land or money that was paid for land, which is not the relief granted under the RCA. In doing so, the Court explicitly rejected recent case law which had found that the RPLA governed all limitations periods affecting land.

Applying the three principles above, the Court held that Anisman had been wrongly decided, and that the two-year Limitation Act period applied in the case at bar.


So, what does Iskenderov mean for lawyers, creditors or other parties who might want to have a transaction set aside as a fraudulent conveyance?

In general, it means that these parties will want to ensure that they act quickly in order to ensure they are within the 2-year period prescribed by the Limitations Act and that their actions are not out of time.

However, because the countdown under the Limitations Act begins when the claim is discovered (rather than when the impugned act occurred), in some cases, applying the Limitations Act might actually extend the timeline to set aside a fraudulent conveyance. In rare cases, this timeline could even stretch beyond the 10 years prescribed by the FCA if the transfer goes undiscovered.

Author: Colin Hunt, Lawyer