All About Estates

Sham(e) on You!

McGoey (Re), 2019 ONSC 80 (CanLII) is a fun case which reminds readers of the law surrounding sham trusts, but also demonstrates that the most convincing evidence can sometimes be found right on the (type)face of a document, the validity of which is in issue.

In this motion, the trustee of the bankrupt estate of Gerald McGoey sought a declaration that Mr. McGoey’s interest in two properties held in joint tenancy with his wife, Kathryn McGoey, were assets of the estate subject to realization for the benefit of creditors. Mr. and Mrs. McGoey took the position that they both held title to these properties in trust for their children such that Mr. McGoey’s interest be excluded from the bankrupt estate by virtue of s. 67(1)(a) the Bankruptcy and Insolvency Act (the “BIA”) as property held in trust for any other person.

The trustee attacked the validity of the alleged trusts on the basis that they were “sham” trusts or fraudulent preferences created for the purpose of defeating Mr. McGoey’s creditors.

For the purposes of this blog, the facts can be summarized as follows: in June 2017, Mr. McGoey filed a notice of intention to make a proposal under the BIA. At a meeting of creditors held on December 12, 2017, the creditors voted against acceptance of the proposal and as such, Mr. McGoey was deemed to have made an assignment in bankruptcy on that day. The trustee of Mr. McGoey’s bankrupt estate sought to realize on Mr. McGoey’s assets for the benefit of his creditors. It is in this context that Mr. and Mrs. McGoey asserted that Mr. McGoey’s interest in two properties (a farm and a cottage) owned jointly with Mrs. McGoey were held in trust for their children.

The McGoeys’ relied upon trust documents alleged to have been created and signed in 1995 (for the cottage) and 2004 (for the farm).  Mr. McGoey testified that he created these documents on his own, without the benefit of accounting or legal advice.

The question before the court was whether the trusts were a sham. Justice Penny’s decision provides a detailed review of the law surrounding sham trusts which is worth reviewing. Justice Penny notes, among other things: “a sham is a transaction or instrument designed to give the appearance of creating legal rights or obligations that are different from what the party actually intended to create. In the context of a trust, a sham trust is usually created for a fraudulent, deceitful or illegal purpose, such as avoiding a creditor…”

Justice Penny ultimately held that the evidence overwhelmingly supported the conclusion that the alleged trusts were shams and the centrepiece of that conclusion arose from the expert report of Thomas W. Phinney.  Mr. Phinney has a Master of Science in graphic arts, specializing in design and typography. He has been retained as an expert in fonts, in particular font identification cases, involving allegedly forged documents.

Mr. Phinney identified the typeface used in the January 4, 1995 cottage trust document as set in the font Cambria.  As of January 4, 1995, however, the Cambria typeface had not yet been created. It was designed for Microsoft beginning in 2002 and did not reach the general public until January 2007. As the Cambria typeface did not exist on January 4, 1995, the document (set in Cambria and allegedly dated January 4, 1995) could not have been created or signed on that date. Similarly, the typeface used in the farm trust document was set in the font Calibri.  Like Cambria, Calibri was developed in 2002 but did not reach the general public until 2007.

Given Mr. Phinney’s academic training and lengthy service in the font development industry, among other things, Justice Penny found his evidence to be reliable and admissible. Mr. and Mrs. McGoey made no attempt to explain the discrepancy between their evidence and Mr. Phinney’s evidence.

Justice Penny concluded the alleged trust documents did not exist on, and were not signed on, the dates indicated. The court went onto consider the other red flags (also known as “badges of fraud”) that arose with respect to the trust documents, of which there were many, but the typeface/font evidence of Mr. Phinney is the most unique. The declarations sought by the trustee were granted.

About Joanna Lindenberg
Joanna is an experienced estates, trusts, and capacity litigator at de VRIES LITIGATION LLP. Joanna obtained her law degree from the Shulich School of Law at Dalhousie University after completing a Bachelor of Arts degree at McGill University. Following her call to the Ontario Bar in June 2011, Joanna obtained a Masters of Law at the University of California Los Angeles (UCLA), specializing in international and comparative law. Joanna's current practice focuses on, in part, will challenges, dependant’s support, capacity, and power of attorney disputes.

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