@B,00021714,OR
@1@Z20061005
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Wildman v. Wildman
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82 O.R. (3d) 401
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Court of Appeal for Ontario,
Laskin, MacPherson and Cronk JJ.A.
October 5, 2006
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Family law -- Support -- Enforcement -- Trial judge not erring in ordering that amounts owed by husband be secured and enforceable against husband's companies -- Courts in family law cases may disregard separate legal personality of corporation where it is completely dominated and controlled by spouse and where doing so is necessary to ensure that corporate arrangements do not work injustice in realm of family law -- Trial judge not erring in ordering that costs be enforceable as spousal support -- Trial judge erring in ordering that pre- judgment interest be enforceable as spousal support where pre-judgment interest was awarded only with respect to equalization payment.
The husband, a highly successful businessman who operated a landscaping business through several companies, was ordered by the trial judge to pay spousal support in the amount of $16,072 per month and child support in the amount of $7,481 per month based on an income of $700,000. The trial judge ordered the husband to pay the wife an equalization payment of $98,190.12, less amounts already paid. The trial judge awarded costs to the wife fixed at $239,260.32 and pre-judgment interest relating to the equalization payment fixed at $6,578.28. On appeal, the husband did not take issue with any of these aspects of the order. He objected to two aspects of the order relating to enforcement: the trial judge ordered that all amounts owed by the husband be secured and enforceable not only against the husband personally but also against his companies; and the trial judge ordered that the costs and pre-judgment interest components of the order be enforceable as spousal support. The husband argued that the former component of the order constituted an improper piercing of the corporate veil and that there was no statutory authority for the latter component.
Held, the appeal should be allowed in part.
The courts in appropriate family law cases may disregard the separate legal personality of a corporate entity where it is completely dominated and controlled by a spouse and being used as a shield for fraudulent or improper conduct. The company need not have been created with an improper purpose in mind to justify piercing the corporate veil; it is sufficient that the corporation is used for an improper purpose. It is appropriate to look behind the corporate veil where: the individual exercises complete control of finances, policy and business practices of the company; that control has been used by the individual to commit a fraud or wrong that would unjustly deprive a claimant of his or her rights; and the misconduct is the reason for the other party's injury or loss. The law must be vigilant to ensure that permissible corporate arrangements do not work an injustice in the realm of family law. In this case, the husband was the sole owner of, and exercised complete control over, his various business enterprises. He himself made no distinction between his personal and business assets. He had controlled his business enterprises and structured his corporate assets in a way that diverted money from them to his own personal use. The losers were the wife and the children, who had not received the money that various courts had found they should receive. On the facts of this case, it would be flagrantly unjust to allow the husband to hide behind a corporate veil that he did not himself respect. [page402]
The trial judge did not err in ordering that costs be enforceable as spousal support. Statutory authority for that order was found in s. 1(1)(g) of the Family Responsibility and Support Enforcement Act, 1996, S.O. 1996, c. 31. However, the trial judge erred in ordering that pre-judgment interest be enforced as spousal support where the pre-judgment interest was not awarded on the support order but only on the equalization payment.
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Cases referred to
Arsenault v. Arsenault, [1998] O.J. No. 1423, 59 O.T.C. 232, 38 R.F.L. (4th) 175, 78 A.C.W.S. (3d) 745 (Gen. Div.), apld
642947 Ontario Ltd. v. Fleischer (2001), 2001 8623 (ON CA), 56 O.R. (3d) 417, 2001 8623 (ON CA), [2001] O.J. No. 4771, 209 D.L.R. (4th) 182, 47 R.P.R. (3d) 191, 2001 8623 (ON CA), 16 C.P.C. (5th) 1 (C.A.), consd
Rohani v. Rohani, 2004 BCCA 605, [2004] B.C.J. No. 2493, 8 R.F.L. (6th) 179, 2004 BCCA 605, 34 B.C.L.R. (4th) 62 (C.A.), distd
Other cases referred to
A.M.D. v. A.J.P., 2003 48241 (ON CA), [2003] O.J. No. 3, 35 R.F.L. (5th) 323 (C.A.) (sub nom. Drygala v. Pauli); Baum v. Baum, [1999] B.C.J. No. 3025, 1999 5387 (BC SC), 182 D.L.R. (4th) 715, 7 R.F.L. (5th) 231 (S.C.); Stancati v. Stancati (1984), 1984 1775 (ON CJ), 49 O.R. (2d) 284, [1984] O.J. No. 3430, 1984 1775 (ON CJ), 43 R.F.L. (2d) 69 (Prov. Ct.)
Statutes referred to
Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, s. 178 [as am.]
Family Responsibility and Support Enforcement Act, 1996, S.O. 1996, c. 31, s. 1 [as am.]
Rules and regulations referred to
Child Support Guidelines, O. Reg. 391/97, s. 18
Federal Child Support Guidelines, SOR/97-175, ss. 7 [as am.], 18
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APPEAL from enforcement aspects of the judgment of Kruzick J. of the Superior Court of Justice, dated March 1, 1996, in a matrimonial litigation.
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Philip Epstein, Q.C. and Aaron M. Franks, for respondent.
Gary S. Joseph and K. Stock, for appellant.
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The judgment of the court was delivered by
MACPHERSON J.A.: --
A. Introduction
[1] In November 2003, a ten-year marriage between a highly successful businessman and a woman who stayed at home to raise two children ended in divorce. In proceedings in the family division of the Superior Court of Justice, Kruzick J. dealt with a large number of issues, including custody, access, equalization and spousal and child support. [page403]
[2] The appellant husband does not contest most of the components of the trial judge's order, including the substantial amounts ordered for spousal and child support and for costs. However, he does appeal two aspects relating to the enforcement of the financial components of the order. First, the appellant contends that the trial judge improperly pierced the veil of the appellant's companies and imposed liability on them for the amounts owing pursuant to the court order. Second, the appellant challenges the trial judge's order making costs and pre-judgment interest "payable and enforceable as spousal support".
B. Facts
(1) The parties and events
[3] Chris and Angela Wildman were married in 1993. They have two children, T. and S.
[4] The appellant, Chris Wildman, owns a high-end landscaping business, Precision Landscape Construction Limited, which operates as Landscape by Precision and Precision Paving and Landscape Construction. The appellant's business specializes in stone work, pool construction and decorative landscaping. The business is highly successful, generating an annual income for the appellant of about $700,000.
[5] The respondent, Angela Wildman, worked as a dental assistant when the couple was first married. However, she has not worked outside the home since 1994, although she did provide clerical support for her husband's business.
[6] The parties separated in 2003. Their post-separation relationship has been exceptionally acrimonious.
(2) The litigation
[7] The parties have spent considerable time in court since they separated in 2003. Over the course of six prior court proceedings, many orders were made. Most of the orders were directed at preserving the appellant's financial assets and trying to get him to meet his financial obligations to his wife and children.
[8] For more than a year, the appellant displayed almost complete disrespect for the growing number of court orders relating to him and his assets. This provoked Snowie J. to order, on May 26, 2005, that the appellant's answer and counterclaim be struck if he did not comply with the May 5, 2004 order of Belleghem J. and the May 10, 2005 order of Clarke J. before June 13, 2005. The appellant did not comply with Snowie J.'s order. Nor did he appeal it. His pleadings were struck. [page404]
[9] An uncontested trial took place before Kruzick J. In an order dated March 1, 2006, the trial judge granted the respondent's petition for divorce. He awarded sole custody of the children of the marriage to the respondent.
[10] The trial judge fixed the appellant's income at $700,000. He ordered the appellant to pay spousal support of $16,072 per month, child support of $7,481 per month, and 72 per cent of special and extraordinary expenses under s. 7 of the Federal Child Support Guidelines, SOR/97-175. The trial judge ordered that spousal and child support be paid from November 1, 2003; accordingly, he fixed the arrears for these payments at $450,016 and $73,743 respectively, after taking account of some child support payments during the relevant period. The trial judge also ordered that the appellant post security for future support in the amount of $350,000 and maintain a $1 million term policy of life insurance with the respondent designated as the irrevocable beneficiary.
[11] The trial judge ordered that the appellant pay the respondent an equalization payment of $98,190.12 less $59,133.39 already paid. The mutual non-depletion and preservation order made by Belleghem J. on May 5, 2004 was continued with respect to the appellant.
[12] The trial judge awarded costs to the respondent fixed at $239,260.32 and pre-judgment interest relating to the equalization payment fixed at $6,578.28.
[13] Although the above components of the trial judge's order involve huge amounts of money, the appellant challenges none of them in this appeal. However, he does contest two other components of the order.
[14] First, the trial judge ordered that all amounts owed by the appellant be secured and enforceable against not only the appellant personally, but also against the various enterprises through which he operated his construction and landscaping business. The appellant contends that this component of the order constitutes an improper piercing of the corporate veil.
[15] Second, the trial judge ordered that the costs and pre- judgment interest components of his order "be payable and enforceable as spousal support". The appellant contends that there is no statutory authority for this direction.
C. Issues
[16] The issues are:
(1) Did the trial judge err by piercing the veil of the appellant's companies and imposing a charge against them for [page405] the various amounts owed by the appellant to the respondent and their children?
(2) Did the trial judge err by making the costs and prejudgment interest awarded "payable and enforceable as spousal support"?
D. Analysis
[17] Before turning to the two issues raised on this appeal, I make a preliminary observation. This is a highly unusual appeal. The effect of the trial judge's final order is that the appellant owes the respondent and his children more than $800,000 for spousal support, child support, equalization, costs and interest. The appellant challenges not one penny of this amount.
[18] Instead, the appellant challenges only two enforcement mechanisms employed by the trial judge.
[19] In my view, the picture presented by this unusual dichotomy is an obvious, and troubling, one.
(1) The corporate veil issue
[20] The trial judge ordered the appellant to pay large sums of money to the respondent and his children. He sought to enforce his order by ordering that the appellant not deplete or dissipate "any property under his control" (para. 17). In addition, the trial judge ordered that "all amounts owing" by the appellant were to be secured by way of charge against the appellant personally and his companies, including "Precision Landscape Construction Ltd, Precision Paving and Landscape Construction or Landscape by Precision" (para. 18).
[21] The trial judge supported these components of his order in this fashion:
Mrs. Wildman seeks an order for security and preservation of a number of assets owned by Mr. Wildman, be these assets in his name or in the name of the "Precision" corporate entities. The pleadings of Mrs. Wildman implicate the corporate assets under the unjust enrichment and constructive trust portion of the claim. I had difficulty with this portion of the relief sought where the corporate entity is not a party.
Counsel for Mrs. Wildman has directed me to a decision of this court, specifically Arsenault v. Arsenault, [1998] O.J. No. 1423 where Wood J. deals with the issue of lifting the corporate veil in dealing with enforcement that arises from a support obligation. Accordingly, and following that decision I am prepared to and make the order as sought.
[22] The appellant submits that the trial judge's reasons and order are based on a violation of a fundamental and well-known legal principle -- a corporation has a separate legal personality that must be respected. Accordingly, a court should not "pierce [page406] the corporate veil" and attach liability to persons associated with a corporate entity. [See Note 1 below]
[23] The principle of the separate legal personality of a corporation is an important one. However, it is not an absolute principle. In my view, a particularly clear, concise and useful description of the principle and its limits was articulated by Laskin J.A. in 642947 Ontario Ltd. v. Fleischer (2001), 56 O.R. (3d) 417, 2001 8623 (ON CA), [2001] O.J. No. 4771 (C.A.), at paras. 67-68 ("Fleischer"):
To pierce the corporate veil is to disregard the separate legal personality of a corporation, a fundamental principle of corporate law recognized in Salomon v. Salomon & Co., [1897] A.C. 22, [1895-9] All E.R. Rep. 33. Only exceptional cases -- cases where applying the Salomon principle would be "flagrantly" unjust -- warrant going behind the company and imposing personal liability. Thus, in Clarkson Co. v. Zhelka, 1967 189 (ON SC), [1967] 2 O.R. 565 at p. 578, 64 D.L.R. (2d) 457 (H.C.J.), Thompson J. held that instances in which the corporate veil has been pierced "represent refusals to apply the logic of the Salomon case where it would be flagrantly opposed to justice." Similarly, Wilson J. observed in Kosmopoulos v. Constitution Insurance Co., [1987] 1 S.C.R. 2 at p. 10, 1987 75 (SCC), 34 D.L.R. (4th) 208, that the law on when the corporate veil can be pierced "follows no consistent principle. The best that can be said is that the 'separate entities' principle is not enforced when it would yield a result 'too flagrantly opposed to justice, convenience or the interests of the Revenue': L.C.B. Gower, Modern Company Law (4th ed. 1979), at p. 112."
Typically, the corporate veil is pierced when the company is incorporated for an illegal, fraudulent or improper purpose. But it can also be pierced if when incorporated "those in control expressly direct a wrongful thing to be done". Clarkson v. Zhelka at p. 578. Sharpe J. set out a useful statement of the guiding principle in Transamerica Life Insurance Co. of Canada v. Canada Life Assurance Co. (1986), 1996 7979 (ON SC), 28 O.R. (3d) 423 at pp. 433-34 (Gen. Div.), affd [1997] O.J. No. 3754 (C.A.): "the courts will disregard the separate legal personality of a corporate entity where it is completely dominated and controlled and being used as a shield for fraudulent or improper conduct."
[24] I note, at the outset, that what the trial judge did in this case was not a typical piercing of the corporate veil. Most corporate veil cases involve an attempt by a claimant to look through a corporation to make the principal(s) liable for the obligations of the corporation. In this instance, however, the trial judge allowed the respondent wife to look to the corporation to satisfy the obligations of its principal and sole shareholder, the appellant husband. As a result, the usual concern regarding piercing the corporate veil -- unanticipated personal liability -- is not present. [page407]
[25] The crucial question in this appeal is whether the exception to the principle of separate legal personality for corporations set out in Fleischer and Transamerica Life Insurance should be injected into family law. Should the courts in appropriate family law cases disregard the separate legal personality of a corporate entity where, in the words of Sharpe J. in the latter case"it is completely dominated and controlled and being used as a shield for fraudulent or improper conduct"? In my view, the answer to this question is a resounding "Yes". I say this for two reasons.
[26] First, s. 18 of both the federal and provincial Child Support Guidelines, O. Reg. 391/97 contemplates piercing the corporate veil in appropriate cases:
Shareholder, director or officer
18(1) Where a spouse is a shareholder, director or officer of a corporation and the court is of the opinion that the amount of the spouse's annual income as determined under section 16 does not fairly reflect all the money available to the spouse for the payment of child support, the court may consider the situations described in section 17 and determine the spouse's annual income to include
(a) all or part of the pre-tax income of the corporation, and of any corporation that is related to that corporation, for the most recent taxation year; or
(b) an amount commensurate with the services that the spouse provides to the corporation, provided that the amount does not exceed the corporation's pre- tax income.
[27] The purpose of s. 18 is to enable the courts to conduct a fair accounting of the money available for the payment of child support. Justice Martinson commented in Baum v. Baum, 1999 5387 (BC SC), [1999] B.C.J. No. 3025, 182 D.L.R. (4th) 715 (S.C.), at para. 28:
Valid corporate objectives may differ from valid child support objectives. The purpose of s. 18 is to allow the court to "lift the corporate veil" to ensure that the money received as income by the paying parent fairly reflects all of the money available for the payment of child support. This is particularly important in the case of a sole shareholder as that shareholder has the ability to control the income of the corporation.
I agree with these observations.
[28] Second, in his reasons the trial judge explicitly referred to and adopted the analysis and conclusion of Wood J. in Arsenault v. Arsenault, [1998] O.J. No. 1423, 59 O.T.C. 232 (Gen. Div.). In my view, he was right to do so. Arsenault is a particularly well-reasoned and useful decision.
[29] In Arsenault, the parties had a traditional marriage in which the husband provided all the income while the wife was the primary caregiver for their four children. Pursuant to a settlement [page408] agreement, the husband was to pay $1,800 per month in support. The husband was a software consultant who worked for a single employer, Soldier's Memorial Hospital in Orillia. However, his income was paid to a numbered company of which he was the sole shareholder. As a result of this arrangement, child and spousal support payments were made in an inconsistent manner, causing frustration and financial difficulties for the wife, as well as the accrual of arrears.
[30] Justice Wood described Mr. Arsenault and his corporation in this fashion, at paras. 10-12:
The respondent is a talented software consultant. Although he does work for more than one person or organization, his primary source of revenue is a permanent contract with the Soldier's Memorial Hospital in Orillia. The funds which flow to him from this contract are more than sufficient to satisfy the support requirements of the separation agreement and are received at regular intervals. However, the contract with Soldier's Memorial Hospital is not between that institution and the respondent. Rather it is with 1112705 Ontario Limited.
This is a corporation of which the respondent is the sole shareholder, director, officer and employee. Since the respondent offers no evidence, the reason for the corporation's existence is unknown. However, it would not be unreasonable to assume that it was incorporated for the tax flexibility and limited liability protection it might offer to what is in reality a sole proprietorship. The corporation carries on no activity outside personal ones of the respondent. It exists solely as a vehicle through which funds flow to him.
It is this arrangement which frustrates the regular flow of support to the applicant and the children and prevents the Family Responsibility Office from being able to effectively enforce the terms of the agreement.
[31] Against this backdrop, Wood J. shifted to his legal analysis. Because his analysis is especially clear and, in my view compelling, I set out in full paras. 24-30 of his reasons:
In the area of corporate and commercial law, the Courts are generally reluctant to look behind the corporate veil unless there are circumstances in which it is appropriate that this be done. In general, the following circumstances must be present:
The individual exercises complete control of finances, policy, and business practices of the company.
That control must have been used by the individual to commit a fraud or wrong that would unjustly deprive a claimant of his or her rights.
The misconduct must be the reason for the third party's injury or loss.
All of those criteria apply in this case. The respondent has absolute control of the company, as he is the sole shareholder, director and officer. His actions in determining when and how monies are to be paid by the corporation to him have resulted in the frustration of the operation of the Family Responsibility and Support Arrears Enforcement Act. The frustration of the operation of that Act has prevented support flowing in a regular and orderly fashion to the applicant and the children. [page409]
While I am satisfied that the situation in this case meets even the most rigorous standards applied in corporate law to the lifting of the veil[,] I take some comfort in the fact that in the area of family law a somewhat more relaxed approach has been taken by the Courts. In M. (B.B.) v. M. (W.W.) (1994), 1994 9111 (AB QB), 7 R.F.L. (4th) 255 (Alta. Q.B.), a general contractor was ordered to pay a portion of the monies owing to a solely held corporation operated by the respondent (payor) to satisfy arrears of support. A similar approach to closely held corporations' assets has been taken by Courts in Ontario in Bregman v. Bregman (1978), 1978 2189 (ON SC), 21 O.R. (2d) 722 (H.C.J.), affirmed by the Court of Appeal at (1979), 25 O.R. (2d) 254 (C.A.) and Crowe v. Crowe, [1985] O.C.P. 110 (H.C.J.).
It should also be noted that a piercing of the corporate veil for the purpose of imputing income is not only mandated, but set out in detail in section 18 of both the Federal and Provincial Child Support Guidelines. It could be argued that section 18 of the Guidelines [is] a codification of a common practice in the Courts across Canada when imputing income for the purpose of setting the appropriate level of child or spousal support.
There is also a strong public policy argument to be made for a review of closely held corporations in the context of support. Despite improvements in the rate of collection, an enormous number of support orders are in arrears. Non payment of support often results in support recipients and their families having to rely on public funds. The connection between non payment of support and the present levels of child poverty in Canada hardly needs to be underlined.
The title of the Family Responsibility and Support Arrears Enforcement Act announces its intended purpose unequivocally. It is legislation designed specifically to improve the dismal support payment statistics in the Province of Ontario. However, in situations such as the one before the Court, the Act is frustrated in its purpose.
There will be many situations in which funds flow through many hands from their ultimate source to a payor. Where this is so, for appropriate reasons the Director must look to the immediate source of funds as the income source. Where, however, the income source as defined in the Act is no more than the alter ego of the payor and has no function other than as a vehicle through which funds owing to the payor are channelled, it is appropriate to look through that entity to determine the relationship between the real income source and the payor.
In this case, the real income source (the Soldier's Memorial Hospital) has a relationship with the respondent, Gary Arsenault. He is their computer programmer. He is on the premises each day and is responsible for ensuring the proper operation of their software systems. If something goes wrong, they call Gary Arsenault, not 1112705 Ontario Limited. The expertise upon which they depend, and for which they pay, is the respondent's and the respondent's alone. 1112705 Ontario Limited has no employees other than the respondent. It has no owners, officers, or directors other than the respondent. It carries on no business other than that carried on by the respondent. It is, in short, irrelevant to the relationship between the Hospital and the respondent and should be so for the purposes of attaching funds paid to the respondent for support purposes.
(Footnote omitted)
[32] The appellant sets against Arsenault the decision of the British Columbia Court of Appeal in [page410] Rohani v. Rohani, 2004 BCCA 605, [2004] B.C.J. No. 2493, 34 B.C.L.R. (4th) 62 (C.A.). In Rohani, the court did not pierce the corporate veil of a company in a matrimonial case.
[33] Rohani is distinguishable on the facts from this appeal. In Rohani, the husband was not the sole shareholder or director of the company in issue, though he did make almost all of the business decisions relating to it. Moreover, the company in question was merely the husband's vehicle for participating in a much larger business enterprise that involved other owners. In this case, the appellant is the sole shareholder and director of Precision Landscape Construction Ltd. and the only person involved in his other business entities. Accordingly, there is no concern here that an order attaching to the appellant's various business entitites might have the effect of expropriating the assets of innocent third parties.
[34] However, putting aside the factual difference between the two cases, the appellant relies on some of the reasoning in Rohani to support his position.
[35] First, the appellant relies on Rohani to argue that if the existence of the company in issue pre-dates the separation of the parties and it was created for legitimate business, succession and tax planning objectives -- in short, if there has been a genuine incorporation -- then the corporate veil should not be pierced. The appellant submits that Precision Landscape Construction Ltd. comes within this description; it was incorporated long before the parties separated and for legitimate business and tax reasons.
[36] On this point, I do not read Rohani in the absolute fashion contended for by the appellant. On the contrary, I read Rohani as standing for the proposition that the history relating to how a spouse sets up his business affairs is a relevant factor in resolving the financial issues in a matrimonial case. It is not, however, the controlling factor.
[37] I set out again what Laskin J.A. said in Fleischer, at para. 68:
Typically, the corporate veil is pierced when the company is incorporated for an illegal, fraudulent or improper purpose. But it can also be pierced if when incorporated "those in control expressly direct a wrongful thing to be done". Clarkson v. Zhelka at 578. Sharpe J. set out a useful statement of the guiding principle in Transamerica Life Insurance Co. of Canada v. Canada Life Assurance Co. (1986), 1996 7979 (ON SC), 28 O.R. (3d) 423 at pp. 433-34 (Gen. Div.), affd [1997] O.J. No. 3754 (C.A.): "the courts will disregard the separate legal personality of a corporate entity where it is completely dominated and controlled and being used as a shield for fraudulent or improper conduct."
(Emphasis added)
[38] It is clear from this passage that a company need not have been created with an improper purpose in mind to justify piercing the corporate veil; it is sufficient that the corporation is used for an [page411] improper purpose. In a matrimonial context, what this must mean is that the snapshot of the company at the time of incorporation is probably nothing more than a starting point. The real focus must be on the relationship between the company and the controlling spouse and how the spouse is using the corporation after the parties have separated and before the financial issues are resolved.
[39] Second, the appellant relies on Rohani to support his argument that since the respondent benefited from the use of the corporate vehicle during the marriage, she cannot resile now and try to convert corporate assets into personal assets of her husband. The appellant especially relies on Rohani, at para. 20:
While the wife had no direct interest in Myfam she benefited from its existence during the marriage to the extent that it presumably provided a tax shelter for assets and income and was used by the husband to fund family living expenses and gifts to the wife. The use for family purposes was central to the conclusion that the Class A shares were family assets. While the husband's use of company funds may have been questionable by others, the wife was not defrauded or prejudiced on that account. To paraphrase Wilson J., the wife, having received the benefits of incorporation, should not be allowed to escape the burden of its existence by looking directly to its assets as if they were personal assets of the husband.
[40] With respect, I do not agree with this reasoning. It was the appellant who chose to incorporate. He was the director and sole shareholder and he made all the business decisions. The appellant alone chose the benefits and burdens of the decision to incorporate. It may well be that the respondent and the children benefited from these decisions during the marriage. However, so did the appellant.
[41] More fundamentally, the emphasis on how assets were accumulated and used during the marriage, in my view, is misplaced. Once a marriage collapses, the focus must shift to the parties' real assets post-separation and a fair distribution of those assets between the parties and, importantly, with an eye firmly fixed on the future needs of the children. In this context, piercing the veil of a company owned and controlled by one party may, in some circumstances, be entirely appropriate.
[42] I return to Arsenault. After reviewing the case law, Wood J. summarized it in this fashion, at para. 24, as I have previously set out:
In the area of corporate and commercial law, the Courts are generally reluctant to look behind the corporate veil unless there are circumstances in which it is appropriate that this be done. In general, the following circumstances must be present:
The individual exercises complete control of finances, policy, and business practices of the company. [page412]
That control must have been used by the individual to commit a fraud or wrong that would unjustly deprive a claimant of his or her rights.
The misconduct must be the reason for the third party's injury or loss.
Justice Wood decided that it was appropriate to apply these three factors in the matrimonial context. In my view, he was right to do so. Accordingly, I will conduct the same analysis in this case.
[43] First, the appellant is the sole owner of, and exercises complete control over, his various business enterprises. With respect to Precision Landscape Construction Ltd., the appellant is the sole shareholder and director. In the transcript of a motion before Clarke J. on May 10, 2005, the appellant called himself a "sole proprietor". Furthermore, the appellant appears to make no distinction between his personal and business assets. For example, in the cash logs prepared by the appellant (and produced at trial by the respondent) the appellant did not differentiate between personal and business assets. In short, the appellant's business enterprises are his alter ego; they are not distinct from him and have no connection to any third party.
[44] Second, there is no question that the appellant has controlled his business enterprises and structured his corporate assets in a way that diverts money from them to his own personal use. The most compelling evidence on this issue is probably the evidence gathered by the private investigator engaged by the respondent concerning the appellant's business relationship with a client, M[r]. Z. It is clear from this evidence that the appellant negotiated payment options with Mr. Z. in a manner designed to maximize the appellant's personal cash intake and minimize the amount of money flowing to the company.
[45] Third, the losers in all of this have been the respondent and the children. They have not received, and continue to not receive, the money that various courts have found they should receive.
[46] In summary, on the facts of this case it would be flagrantly opposed to justice to allow the appellant to hide behind a corporate veil that he does not himself respect.
[47] The appellant makes one other argument on the corporate veil issue. He contends that the trial judge erred by making orders against the appellant's companies because the companies were not named as parties and, therefore, had no notice of the matrimonial litigation.
[48] I disagree. This is matrimonial litigation, not commercial litigation. Importantly, the record establishes that the appellant and his companies are one and the same. No third party has any interest in any of the companies. The appellant was given notice of the proceedings and thus, the companies, his alter ego, were also given notice. [page413]
[49] In the end, although a business person is entitled to create corporate structures and relationships for valid business, tax and other reasons, the law must be vigilant to ensure that permissible corporate arrangements do not work an injustice in the realm of family law. In appropriate cases, piercing the corporate veil of one spouse's business enterprises may be an essential mechanism for ensuring that the other spouse and children of the marriage receive the financial support to which, by law, they are entitled. The trial judge was correct to recognize that this was such a case.
(2) The costs and pre-judgment interest issue
[50] The trial judge ordered that both costs and pre-judgment interest "be payable and enforceable as spousal support". The formal court order provides:
THIS COURT ORDERS THAT the Respondent pay to the Applicant her costs in this action on a full indemnity basis, in the amount of $239,260.32 (being full indemnity costs of $247,400.32 less $8,140 costs already paid) plus 7% GST, such costs to be payable and enforceable as spousal support.
THIS COURT ORDERS THAT the Respondent pay to the Applicant pre-judgment interest in the amount of $5,868.75 on the equalization of $98,190.12 from October 19th, 2003, to August 11th, 2005, and in the amount of $709.53 on the amount owing of $39,056.61 from August 12, 2005 to February 28, 2006, such interest to be payable and enforceable as spousal support.
[51] The appellant contends that these enforcement orders were made in error. Because the analysis relating to these two paragraphs involves different considerations, I will treat them separately.
(a) Costs
[52] The appellant contends that costs are meant to compensate the successful party for its expenses in an action and have nothing to do with the factors and objectives behind making an order for spousal support.
[53] The answer to this submission is that there is both statutory and case law authority to support the trial judge's order.
[54] Section 1(1)(g) of the Family Responsibility and Support Enforcement Act, 1996, S.O. 1996, c. 31 (the "FRSEA") provides:
1(1) In this Act"support order" means a provision in an order made in or outside Ontario and enforceable in Ontario for the payment of money as support or maintenance, and includes a provision for, [page414]
(g) interest or the payment of legal fees or other expenses arising in relation to support or maintenance . . . .
[55] The advantages of an order under this provision are that the costs award is enforceable by the Family Responsibility Office and the order is not discharged in a bankruptcy by virtue of s. 178(1)(c) of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3.
[56] The validity of an order making a costs award at trial enforceable by the Family Responsibility Office was specifically affirmed by this court in A.M.D. v. A.J.P., [2003] O.J. No. 3, 2003 48241 (ON CA), 35 R.F.L. (5th) 323 (C.A.), at para. 16. Indeed, in that case the court went even further and ordered, at para. 17, that costs of the appeal also constitute a support order and "are fully enforceable by the Family Responsibility Office".
[57] I note that both s. 1(1)(g) of the FRSEA and the wording of the court's endorsement in A.M.D. v. A.J.P. use the terminology of "enforceable", not "payable and enforceable" as in the order in this case. The respondent concedes that nothing is added by the words "payable and". For the sake of accuracy, they should be deleted from para. 14 of the order.
[58] The appellant makes a second argument on this issue. He contends that the trial and the final order dealt with several issues other than support, including custody, access, property, debts, preservation, [and] freezing and charging orders. The appellant submits that only those costs relating to support should be enforceable pursuant to s. 1(1)(g) of the FRSEA.
[59] I disagree. The principal issue at trial was spousal and child support. In any event, I agree with Thomson J.'s observation in Re Stancati v. Stancati (1984), 49 O.R. (2d) 284, 1984 1775 (ON CJ), [1984] O.J. No. 3430 (Prov. Ct.) at p. 287 O.R.: "It seems to me to be both impractical and inappropriate to suggest that this court should attempt to dissect cost awards in order to determine which part of the award relates to the support aspect of the proceedings." I also note that A.M.D. v. A.J.P. was a multi-issue matrimonial case in which this court upheld the trial judge's order that all costs be enforceable by the Family Responsibility Office.
(b) Pre-judgment interest
[60] The appellant submits that pre-judgment interest was not awarded by the trial judge on the support order or arrears, but only with respect to the calculation of the equalization payment. Accordingly, even if s. 1(1)(g) of the FRSEA permits "interest" to be enforced as support, the requisite link between the interest and a support order is missing in this case. [page415]
[61] I agree. Both para. 15 of the final order and the trial judge's reasons link pre-judgment interest to equalization, and only to equalization. Accordingly, there is no foundation within the wording of s. 1(1)(g) of the FRSEA for an order making the awards of pre-judgment interest enforceable as spousal support.
[62] The result is that the trial judge's awards of pre- judgment interest in the amounts of $5,868.75 and $709.53 continue in force. However, they cannot be enforced as spousal support by the Family Responsibility Office.
E. Disposition
[63] The appeal is allowed in two minor respects: (1) the words "payable and" are deleted from para. 14 of the final order; and (2) the words "such interest to be payable and enforceable as spousal support" are deleted from para. 15 of the final order.
[64] In all other respects, the appeal is dismissed.
[65] The respondent is entitled to her costs of the appeal which I would fix at $35,000 inclusive of disbursements and GST. Pursuant to s. 1(1)(g) of the FRSEA, the costs of the appeal should be enforceable as spousal support.
Appeal allowed in part.
Notes
Note 1: I note that the trial judge's order applies to three businesses, only one of which, Precision Landscape Construction Ltd., is a registered company. However, in the circumstances of this case, it is fair to treat all three of the appellant's business entities in a similar fashion. Accordingly, if the trial judge's order stand against Precision Landscape Construction Ltd., it should not bind the other two business entities either.
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