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When Canadians file for bankruptcy, most of their assets — including houses and cottages — become the property of the trustee in bankruptcy and are sold to pay creditors. One of the few exceptions to this rule occurs when the bankrupt person holds property in trust for a third party.
A judge recently ruled two trust documents were shams based on an expert witness’s testimony that the documents’ fonts were inaccurate.
After their marriage in 1994, Mr. G. and Mrs. K jointly bought a cottage in Muskoka for $700,000. In May, 2003, the couple purchased a farm in Caledon for $635,000.
Mr. G. was an executive in the telecommunications industry and became CEO of Look Communications in 2004. By 2008, the company was in financial trouble and sold its assets for $80 million, with Mr. G. receiving a severance package of $5.6 million.
Look later sued Mr. G. and other former board members to recover the compensation payments. Following a trial in 2017, Mr. G. was ordered to repay Look $5.5 million.
By December, 2017, Mr. G. was bankrupt, and the trustee took steps to liquidate his assets — including the cottage and the farm.
The Mr. G. and wife, Mrs. K. produced two trust documents alleged to have been created and signed in 1995 for the cottage, and 2004 for the farm.
The first, one-page trust document, dated January 4, 1995, stated that the cottage was held in trust for three children from a prior marriage.
The second, one-page trust agreement, dated March 4, 2004, stated that the farm was held in trust for all five children from previous marriages of the couple.
KSV Kofman Inc., the trustee in bankruptcy, applied to Ontario Superior Court last November for a declaration that the two properties were assets of the bankrupt estate which could be sold for the benefit of creditors.In the litigation, both Mr. G. and Mrs. K. relied on the trust documents to claim that the properties belonged to their children and could not be liquidated by the trustee in bankruptcy. If the documents were valid, the properties were beyond the reach of creditors. If they were invalid, they were part of the bankruptcy assets.
Mr. G. testified that the trust documents were created and signed on January 4, 1995 and March 4, 2004, respectively. But counsel for the bankruptcy trustee produced an expert witness: Thomas Phinney, an acknowledged expert in graphic arts, design and typography. He has 20 years of experience in the font industry, including more than a decade with Adobe Systems Inc. creating and using fonts and typefaces.
Phinney identified the font on the 1995 trust agreement as Cambria, which was designed by Microsoft in 2002 and only made available to the public in 2007. His conclusion was that the 1995 trust agreement in Cambria font could not have been created or signed on that date.
Similarly, Phinney testified that the 2004 trust agreement was set in a font called Calibri, which Microsoft developed in 2002 and which was not released to the public until 2007.
Based on the expert evidence, Justice Michael Penny ruled that the trust documents were shams.
The lesson from the case is when you are examining documents, you need to look at the form as well as the content.
by Bob Aaron
Bob Aaron is a Toronto real estate lawyer and frequent speaker to groups of home buyers and real estate agents.
He can be reached by email at firstname.lastname@example.org, phone 416-364-9366 or fax 416-364-3818.