Trial judge did not apply the legal test for fraudulent conveyance: court
In a recent ruling, the Ontario Court of Appeal ordered a new trial in a dispute over alleged fraudulent conveyance and oppression arising from asset transfers after the termination of a contract.
The dispute began in 2010 when DGA North American Inc. (DGA NA) terminated a contract with Marketology Media Inc. leading to arbitration and an award in Marketology’s favour in 2014. DGA NA refused to pay, claiming insolvency, which Marketology argued was caused by a series of asset transfers to DGA NA’s parent and sister companies. These transfers were alleged to have been made to hinder Marketology’s ability to collect its award.
Marketology filed claims of fraudulent conveyance and oppression. The trial judge dismissed the fraudulent conveyance claim but upheld the oppression claim, ordering the appellants, including DGA NA’s principal Pauline Peng, to pay over $1.1 million plus interest. However, the appeal court found that the judge’s reasoning was inconsistent, failing to provide a clear path from evidence to conclusions.
The Court of Appeal identified several critical errors. While the trial judge accepted some evidence indicating the transfers were made in good faith to support DGA NA’s business, she also cited evidence suggesting the transfers were intended to avoid paying creditors. The appeal court further noted that the judge did not apply the legal test for fraudulent conveyance and failed to reconcile contradictory findings.
Similarly, the court criticized the basis for the oppression remedy, which rested on the unpleaded theory that DGA NA had a duty to reserve funds to pay Marketology’s award. The appellate court noted this expectation was not supported by the pleadings or evidence and that the trial judge’s approach deprived the parties of an opportunity to address the issue.
The Court of Appeal emphasized that reasons for judgment must articulate a logical path from evidence to conclusions, explaining not just what decision was made but why. Concluding that the trial judge’s reasoning did not permit meaningful appellate review, the court found it necessary to remit the case for a new trial.
