Lynch v. Segal et al. [Indexed as: Lynch v. Segal]
82 O.R. (3d) 641
Court of Appeal for Ontario,
Doherty, Blair and LaForme JJ.A.
December 19, 2006
Family law -- Support -- Enforcement of support order -- Vesting order -- Wealthy husband having history of structuring his affairs so as to distance himself from his assets and of non-compliance with support orders -- Trial judge appropriately piercing corporate veil and finding that husband beneficial owner both of shares of corporation which held land and of land itself -- Trial judge not erring in directing that lands be transferred to and vested in wife as remedy to ensure that child and spousal support was paid.
The appellant was an extraordinarily wealthy man with a history of setting up legal formulations which had the effect of distancing himself from any assets, corporations or trusts which could be connected to him. As a result, as far as the respondent and their children were concerned, he appeared to have no assets at all. Certain farm and development land in Ontario was held by two companies which were incorporated on instructions from the appellant, who said he was representing a group of unnamed beneficial owners. The solicitor who incorporated the companies was instructed to appoint himself to be the sole shareholder, president and director of the companies, to prepare and execute blank nominee agreements providing that the companies held the lands in trust for an undisclosed beneficial owner, to endorse the share certificates and share transfers in blank and to execute resignations in respect of his positions as officer and director. He was then instructed to send the incorporating documents, the share certificates, share transfers and nominee agreements, completed in blank form, together with the signed resignations, to another solicitor in Guernsey, to whom the appellant had formerly introduced the respondent as the man in charge of his protection scheme. Shares of the companies were issued in blank and held by unnamed nominees supposedly fronting for foreign investors operating through the medium of international trusts. The appellant had paid little support since the parties' separation, and nothing since 2002. He did not defend the respondent's matrimonial action against him. The trial judge awarded lump sum spousal support in excess of $8 million and other relief. No appeal was taken from those orders. The trial judge found that the appellant was the beneficial owner of the shares of the companies and of the land which the companies held. As a remedy to ensure that the spousal and child support was paid, the trial judge made an order under s. 34(1)(c) of the Family Law Act, R.S.O. 1990, c. F.3, directing that the lands be transferred to and vested in the respondent. The appellant and the companies appealed that order.
Held, the appeal should be dismissed.
There was ample evidence to support the trial judge's findings that the appellant and the companies were one and the same, that the appellant was the beneficial owner of the shares of the companies, and that he was also the beneficial owner of the lands. This was an appropriate case in which to pierce the corporate veil. The appellant was not using the companies for permissible corporate arrangements, but rather was using them to disguise his property so that his spouse and children would have no claim against him should he ever have to defend against a claim. Piercing the corporate veil was an essential mechanism for ensuring that the respondent and the children received the financial support to which they were entitled. [page642]
The trial judge did not err in making a vesting order respecting the appellant's property without the appellant's first wife L (who had two judgments against the appellant in Nevada for millions of dollars for spousal and child support) having been made a party to the proceeding. L had been aware of the respondent's action since shortly after it was commenced in 2003, and took no steps to intervene in it. At the time of trial, she was not an execution creditor of the appellant's in Ontario. She had taken no steps to register or enforce the Nevada judgments. Only when oral argument in the appeal was completed and it was apparent that the appeal with respect to beneficial ownership interests had been lost did L register the Nevada judgments and seek leave to intervene in the appeal. Her motion was dismissed. L was clearly acting at the behest of the appellant, and any advantage of having her submissions would be far outweighed by the prejudicial effect on the respondent of the further delays that would inevitably result from permitting L to intervene. There is no requirement under the Family Law Act or the Courts of Justice Act, R.S.O. 1990, c. C.43 for notice to be given to anyone in particular when a vesting order is sought.
Vesting orders are discretionary and have their origins in the court's equitable jurisdiction. The rationale for the vesting power is to permit the court to direct the parties to deal with property in accordance with the judgment of the court. The jurisdiction is quite elastic. Nothing in the language of s. 100 of the Courts of Justice Act or s. 34(1)(c) of the Family Law Act operates to constrain the flexible discretionary nature of the power. Before a vesting order will be granted in the family law context, the court will need to be satisfied (as the trial judge was here) that the previous conduct of the person obliged to pay, and his or her reasonably anticipated future behaviour, indicate that the payment order will not likely be complied with in the absence of more intrusive provisions. In addition, the court should be satisfied that there is some reasonable relationship between the value of the asset to be transferred and the amount of the targeted spouse's liability, and that the interests of any competing execution creditors or encumbrancers with exigible claims against the specific property in question are not an impediment to the granting of a vesting order. In this case, it was open to the trial judge to reject alternative solutions and to opt for a remedy that would, in effect, swap the monetary spousal and child support parts of the claim against the appellant for the lands, thus ensuring that at least a significant portion of the appellant's support obligations would be paid.
APPEAL from a judgment of Paisley J. of the Superior Court of Justice, dated April 22, 2005, finding that the husband was the beneficial owner of a certain property and granting an order vesting that property in the wife.
Cases referred to Wildman v. Wildman, 2006 33540 (ON CA), [2006] O.J. No. 3966, 151 A.C.W.S. (3d) 666 (C.A.), apld Other cases referred to 642947 Ontario Ltd. v. Fleischer (2001), 2001 8623 (ON CA), 56 O.R. (3d) 417, [2001] O.J. No. 4771, 209 D.L.R. (4th) 182, 47 R.P.R. (3d) 191, 16 C.P.C. (5th) 1 (C.A.); Debora v. Debora, 2006 40663 (ON CA), [2006] O.J. No. 4826 (C.A.); HSBC Bank of Canada v. Regal Constellation Hotel Ltd. (Receiver of) (2004), 2004 206 (ON CA), 71 O.R. (3d) 355, [2004] O.J. No. 2744, 188 O.A.C. 97, 242 D.L.R. (4th) 689, 35 C.L.R. (3d) 31, 23 R.P.R. (4th) 64 (C.A.); Kennedy v. Sinclair, 2003 57393 (ON CA), [2003] O.J. No. 2678, 42 R.F.L. (5th) 46 (C.A.), affg 2001 28208 (ON SC), [2001] O.J. No. 1837, 18 R.F.L. (5th) 91 (S.C.J.); Kosmopoulos v. Constitution Insurance Co. of Canada, 1987 75 (SCC), [1987] 1 S.C.R. 2, [1987] S.C.J. No. 2, 21 O.A.C. 4, 34 D.L.R. (4th) 208, 74 N.R. 360, 36 B.L.R. 233, [1987] I.L.R. Â1-2147; Maroukis v. Maroukis, 1984 76 (SCC), [1984] 2 S.C.R. 137, [1984] S.C.J. No. 35, 5 O.A.C. 182, 12 D.L.R. (4th) 321, 54 N.R. 268, 34 R.P.R. 228, 41 R.F.L. (2d) 113; Salomon v. Salomon, [1897] A.C. 22, [1895-9] All E.R. 33, 66 L. Ch. 35, 75 L.T. 426, 45 W.R. 193, 13 T.L.R. 46, 41 Sol. Jo. 63, 4 Mans. 89 (H.L.); Transamerica Life Insurance Co. of Canada v. Canada Life Assurance Co., [1997] O.J. No. 3754, 74 A.C.W.S. (3d) 207 (C.A.), affg (1996), 1996 7979 (ON SC), 28 O.R. (3d) 423, [1996] O.J. No. 1568 (Gen. Div.); Weslock v. Weslock, [2003] O.J. No. 4941, 126 A.C.W.S. (3d) 595, 2003 CarswellOnt 4206 (S.C.J.) [page643] Statutes referred to Courts of Justice Act, R.S.O. 1990, c. C.43, s. 100 Creditors' Relief Act, R.S.O. 1990, c. C.45, s. 4 [as am.] Family Law Act, R.S.O. 1990, c. F.3, ss. 9, 34 [as am.] Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.), ss. 3 [as am.], 38 [as am.], 248 [as am.] Interjurisdictional Support Orders Act, 2002, S.O. 2002, c. 13, Part III Authorities referred to Gower, L.C.B., Gower's Principles of Modern Company Law, 4th ed. (London: Stevens & Sons, 1979)
D. Smith, for appellants. Thomas G. Bastedo, Q.C. and Samantha Chousky, for respondent.
The judgment of the court was delivered by
BLAIR J.A.: --
Overview
1Moses Segal is an extraordinarily wealthy man. By his own admission he has a net worth exceeding $100 million. Equally extraordinary, however, is his ability to organize his business affairs in a way that disguises his ownership (direct or beneficial) in the assets underlying this wealth. As far as his former spouses and his infant children are concerned, he would have it appear that he has no assets whatsoever.
2Cynthia Lynch -- his second wife and the mother of his two pre-teenage children -- sued Mr. Segal for spousal and child support, and other monetary relief. She also discovered two properties in Ontario held in the name of the appellant corporations, added the appellants as defendants in the action and sought declarations that Mr. Segal is the beneficial owner of their shares and/or their property as well as a vesting order with respect to the shares and/or property.
3The assets Ms. Lynch discovered consist of development and farm lands in the Oakville area (the "Lands"). Justice Paisley found that there is no distinction in law between the appellant corporations and Mr. Segal and that Mr. Segal is the beneficial owner of the Lands. As a remedy to ensure that the sizeable lump sum awards for spousal and child support that he had made -- and which were not challenged on appeal -- were [page644] paid, Paisley J. directed that the Lands be transferred to, and vested in, Ms. Lynch.
4The issue on this appeal is whether the trial judge was justified in making that vesting order. In my view, for the reasons that follow, he was.
Background and Facts
The parties' relationship and lifestyle
5Cynthia Lynch and Moses Segal met in 1992. He is a moneyed self-employed businessman. She is a U.S. citizen, and when their relationship began, was a qualified lawyer practising at the Bar of New York. They started living together as spouses in 1994 and have two children, Emily and William, now aged 12 and eight. They separated in 2001.
6Mr. Segal had previously been married to Leonor Segal for 26 years. They are divorced. The children of that marriage are now adults.
7Ms. Lynch was reluctant to give up her career, but agreed to do so when Mr. Segal persuaded her in 1994 to move with him to London, England, to live together and have a family. In exchange for her loss of income, he agreed to pay her the sum of US$100,000 plus US$7,300 per month to enable her to purchase whatever luxury items she wanted. Shortly after the move to London, the parties relocated to Lyford Cay, Bahamas, because Mr. Segal decided he wanted to live in a tax-free jurisdiction. In 1997, they moved to Toronto, where they lived in an elegant mansion on Warren Road. The couple led a lavish lifestyle, as one would expect of a person of Mr. Segal's wealth -- expensive homes in the Bahamas and Canada, a private plane, farm property in Ontario where ponies and farm animals were available for the pleasure of the children.
Mr. Segal's modus operandi with respect to his assets
8Central to this action, and appeal, are what Mr. Bastedo referred to as the "extraordinary lengths [to which Mr. Segal went] to set up legal formulations which would have the effect of distancing himself in every possible way from any assets, corporations or trusts which could be connected to him". [See Note 1 below] Mr. Segal's carefully honed practice is to set up intermediary vehicles in order to screen himself from creditors, including his spouses, and to use various aliases and pseudonyms to that end. Substantial assets were held [page645] outside of Canada and those located in Canada were held by nominees or nominee corporations that made it very difficult to trace them directly back to Canada and to Mr. Segal. The trial judge noted that the documents created by Mr. Segal were just pieces of paper and did not prove what they appeared to create.
9Ms. Lynch was not unaware of these practices on the part of Mr. Segal during their relationship. In fact, he boasted about them. At one point he informed Ms. Lynch that he wished to change a trustee in Switzerland for another trustee who would obtain a witness for him to claim ownership in his assets, in court, if needed. In 1994, he took her to the Channel Islands and introduced her to an English solicitor, Roger Dadd, who, he said, was involved in asset protection for him at the time. Mr. Dadd is the person to whom the Ontario solicitor who incorporated the appellant corporations reported. Mr. Segal also explained his modus operandi to Ms. Lynch. It involved incorporating companies with only the bare necessities and formalities in place in order to make the incorporation valid. Directors would be named, but shares would not be issued and blank shares would be held by the incorporator and trustee. If a structure were ever challenged, the shares could be issued to create the impression that someone else owned the corporation and, thus, the asset in question.
10The trial judge found this was precisely the scheme utilised with respect to the appellant corporations, as well as with respect to certain other transactions in which Mr. Segal engaged to "whisk away" assets from Ms. Lynch.
11The appellants were incorporated by an Ontario solicitor, Mr. Dolson, shortly before the acquisition of the respective tracts of land they hold, on instructions from Mr. Segal, who said he was representing a group of investors. They were incorporated on behalf of unnamed beneficial owners, with no reporting letter, little correspondence and no notes in the file. Mr. Dolson was instructed to appoint himself to be the sole shareholder, president and director of the corporations; to prepare and execute blank Nominee Agreements providing that the corporations held the Lands in trust for an undisclosed beneficial owner; to endorse the Share Certificates and Share Transfers in blank; and to execute resignations in respect of his positions as officer and director. He was then instructed to send the incorporating documents, the Share Certificates, Share Transfers and Nominee Agreements, completed in blank form, together with the signed resignations, to the same Mr. Dadd, of the Isle of Guernsey, to whom Ms. Lynch had been introduced in 1994, as the man in charge of Mr. Segal's protection scheme. Shares of the appellants were [page646] issued in blank and held by unnamed nominees supposedly fronting for mysterious high-end foreign investors operating through the medium of international trusts.
12This was the same ploy utilised by Mr. Segal in respect of the corporation holding title to the parties' matrimonial mansion on Warren Road, and in respect of a further corporation (Sondol Wireless Connectivity Inc.) holding title to a third development tract of land in the Milton area. In both of these cases, he was able to have the corporate structure of the companies altered quickly to make himself the president and controlling officer; he then effected the sale of the assets and transferred the sale proceeds into untouchable overseas accounts. The sale of the matrimonial home ($2,700,000) took place shortly after the separation of the parties. The Sondor sale ($2,500,000) took place later, in October 2003, and was in direct defiance of an order of Mesbur J. dated July 31, 2003 restraining Mr. Segal from depleting his assets. That order had been served on Mr. Dolson prior to the Sondor sale.
13At trial and on discovery, the appellants produced Mr. Fergus Anstock, an English solicitor, who testified that he was now the sole nominee shareholder of the appellant corporations and that he represented the beneficial owners. He said he knew who the beneficial owners were, and that Mr. Segal was not one of them, but that he could not reveal their identity without breaching his duty of confidentiality to his clients. On discovery, he refused to provide answers to the following inquiries and requests:
(a) who was involved with Mr. Dadd in respect of the acquisition of the properties in Canada;
(b) where the money for the acquisition of the properties came from;
(c) whether there was one individual or more than one individual who put money into the acquisition;
(d) what was the name of the family of investors involved;
(e) what was the name of the investor, the name of the person who provided the money, the record of the way in which the money was paid, his recollection of the entire transaction together with copies of correspondence, e-mails, telegraphic transfers, money transfers, or any other information from the family that would trace the properties into Ontario;
(f) to provide the contents of a discussion with Mr. Segal in the Fall of 2003; and [page647]
(g) to provide the files in his office containing correspondence, e-mails, wire transfers, or any other documents relating to this particular matter.
14At trial, Mr. Anstock advised that he would not answer any of the questions he refused to answer during his examination for discovery.
15The trial judge quite properly declined to allow Mr. Anstock to testify as to other matters purportedly relating to the beneficial ownership of the shares of the appellants, when he refused to testify regarding the issues outlined above. Although he found Mr. Anstock to be a person of integrity, he concluded that Mr. Anstock had been deceived by Mr. Segal, and gave no weight to his evidence. At the conclusion of the appellants' oral argument we saw no reason to interfere with the trial judge's ruling and conclusion in this regard, and did not call upon the respondent to address this issue. We agree with the trial judge's observation that "to fail to indicate who the owner is when you give your opinion as to who the owner isn't, is neither logical or fair". To permit such testimony would result in a situation where a witness could testify about half the story without telling the whole story. This would potentially sanction a witness limiting his or her evidence to what is helpful to the case of the party calling the witness without exposing him or her to providing relevant evidence to the contrary that may be within the witness' knowledge. See Weslock v. Weslock, [2003] O.J. No. 4941, 2003 CarswellOnt 4206 (S.C.J.), at para. 11.
The claims in the action
16Mr. Segal has paid little in the way of support for Ms. Lynch or the children since the separation, and nothing since December 2002. He made it clear that he was prepared to bankrupt the respondent, if necessary, to enforce his idea of what a reasonable financial settlement was. This action was commenced in July 2003.
17In the action, Ms. Lynch claimed custody of the children, spousal and child support, amounts representing the unpaid monthly sums of $7,300 and moneys promised but not paid on the sale of the spouse's home in Lyford Cay. This relief was not contested, as Mr. Segal fled the jurisdiction shortly after the separation and did not defend the action. Default proceedings were taken against him. Justice Paisley awarded the following relief in relation to the above claims:
(a) $8,350,747 as lump sum child and spousal support; [page648]
(b) $378,135.77 for arrears of child and spousal support;
(c) $1,445,664.99 in respect of a debt owing to Ms. Lynch; and
(d) $963,084 in respect of moneys promised Ms. Lynch on the sale of the parties' home in the Bahamas.
18No appeal is taken from these orders.
19At trial, the main issues centred around the relief claimed by Ms. Lynch against the appellant corporations, Idyllic Acres Holdings Inc. and Ashoe High Speed Solutions Inc. Idyllic owns a tract of raw development property in the Oakville area, acquired in 1998 for $2.6 million. Ashoe owns the farm property in the same area that was used as a recreation retreat by Mr. Segal, Ms. Lynch and their children, and on which the ponies and farm animals were kept. This property was purchased in July 2000, at a cost of $1.636 million. Amongst other things, Ms. Lynch claimed a declaration that:
(a) Mr. Segal is the beneficial owner of the shares of Idyllic and Ashoe, and that he holds this beneficial ownership in trust for her to the extent of 50 per cent, or alternatively, that he is the beneficial owner of the shares himself;
(b) In the further alternative, that Mr. Segal has a beneficial ownership in the lands owned by the appellant corporations, and that he holds this ownership either in trust for her or wholly for himself; and
(c) An order pursuant to s. 34(1)(c) of the Family Law Act, R.S.O. 1990, c. F.3 requiring the shares of Idyllic and Ashoe and the Lands, or the Lands only, to be transferred to her and vested in her absolutely.
20She succeeded. The trial judge found that "the limited companies and Mr. Segal are one and the same" and that "[Mr. Segal] is the beneficial owner of the property". He ordered that the Lands be vested in Ms. Lynch in satisfaction of the monetary claims outlined above, and costs.
21On appeal, Idyllic and Ashoe attacked the finding that Mr. Segal is the beneficial owner of their shares and the Lands, together with the order vesting the Lands in Ms. Lynch. They argued that Mr. Segal was simply the finder and manager of the Lands on their behalves, and that he is completely divorced from any ownership interest in the appellant corporations. Rather, the appellants submitted, they are owned by mysterious [page649] but not-to-be-named high net worth individuals and families operating through international trust vehicles out of the Isle of Guernsey. At most, they contended, the vesting order should have been made in respect of the shares of the corporations. Alternatively, the trial judge should have imposed some other more suitable remedy such as a charging order against the Lands or the shares.
22There was ample evidence, however, to support the trial judge's findings that Moses Segal and the appellant corporations "are one and the same", that he is the beneficial owner of the shares of Idyllic and Ashoe and that he is also the beneficial owner of the Lands. We did not call upon the respondent to address those issues, and the appeal with respect to them is dismissed.
23We reserved our decision with respect to the issues relating to the vesting order, however, and the balance of these reasons relate to those issues. I will deal with the matters we did not ask the respondent to address only to the extent necessary to understand the vesting order concerns.
24Prior to turning to that analysis, though, I need to refer to a development that occurred following oral argument and the reservation of our decision respecting the vesting order.
25One of the appellants' submissions on appeal was that the trial judge should not have made a vesting order respecting Mr. Segal's property without Leonor Segal -- Mr. Segal's first wife -- having been made a party to the proceeding. Ms. Segal has two judgments against Mr. Segal in Nevada for amounts totalling close to US$6 million, primarily for spousal and child support in relation to the first marriage. The argument is that she has an interest as a spousal judgment creditor in Mr. Segal's property, an interest that is equal in priority to that of Ms. Lynch.
26Leonor Segal has been aware of the Lynch action since shortly after it was commenced in 2003, and took no steps to intervene in it. Almost immediately following the completion of oral argument and the reservation of our decision, however -- after it had become apparent that the appeal with respect to the beneficial ownership interests had been lost -- she unexpectedly appeared and sought leave to intervene in the appeal. We dismissed that motion in a separate decision, [2006] O.J. No. 4810 (C.A.), released on December 5, 2006, for reasons set out therein. Suffice it to say here that, although we recognize the question of Ms. Segal's position as judgment creditor is something to be considered in relation to the vesting order issues, we were satisfied that any advantage of having Ms. Segal's submissions on those issues would be far outweighed by the prejudicial effect on Ms. Lynch of further delays that would inevitably result from permitting her to intervene. [page650]
Analysis
The jurisdiction to make a vesting order
27In Ontario, the court's broad general power to grant a vesting order is found in s. 100 of the Courts of Justice Act, R.S.O. 1990, c. C.43. In the specific context of family law claims, ss. 9(1)(d)(i) and 34(1)(c) of the Family Law Act confer an equally broad power to grant a vesting order on an application for equalization of net family property or support, respectively. [See Note 2 below] Vesting orders are discretionary and have their origins in the court's equitable jurisdiction.
28Section 34(1)(c) of the Family Law Act states:
34(1) In an application under section 33, the court may make an interim or final order, . . . . .
(c) requiring that property be transferred to or in trust for or vested in the dependant, whether absolutely, for life or for a term of years.
29Section 100 of the Courts of Justice Act states:
- A court may by order vest in any person an interest in real or personal property that the court has authority to order be disposed of, encumbered or conveyed.
30As this court noted in HSBC Bank of Canada v. Regal Constellation Hotel Ltd. (Receiver of) (2004), 2004 206 (ON CA), 71 O.R. (3d) 355, [2004] O.J. No. 2744, 242 D.L.R. (4th) 689 (C.A.), at paras. 32-33:
The vesting order itself is a creature of statute, although it has its origins in equitable concepts regarding the enforcement of remedies granted by the Court of Chancery. Vesting orders were discussed by this court in Chippewas of Sarnia Band v. Canada (Attorney General) (2000), 2000 16991 (ON CA), 51 O.R. (3d) 641, 195 D.L.R. (4th) 135 (C.A.) at pp. 726-27 O.R., p. 227 D.L.R., where it was observed that:
Vesting orders are equitable in origin and discretionary in nature. The Court of Chancery made in personam orders, directing parties to deal with property in accordance with the judgment of the court. Judgments of the Court of Chancery were enforced on proceedings for contempt, followed by imprisonment or sequestration. The statutory power to make a vesting order supplemented the contempt power by allowing the Court to effect the change of title directly: see McGhee, Snell's Equity 30th ed., (London: Sweet and Maxwell, 2000) at pp. 41-42. (Emphasis added)
A vesting order, then, has a dual character. It is on the one hand a court order ("allowing the court to effect the change of title directly"), and on the other hand a conveyance of title (vesting "an interest in real or personal property" in the party entitled thereto under the order). . . [page651]
31The rationale for the vesting power, therefore, is to permit the court to direct the parties to deal with property in accordance with the judgment of the court. The jurisdiction is quite elastic. Nothing in the language of either s. 100 of the Courts of Justice Act or s. 34(1)(c) of the Family Law Act operates to constrain the flexible discretionary nature of the power.
32I do not think any useful purpose is served by attempting to categorize the types of circumstances in which a vesting order may issue in family law proceedings. The court has a broad discretion, and whether such an order will or will not be granted will depend upon the circumstances of the particular case. I agree with the appellants that the onus is on the person seeking such an order to establish that it is appropriate. As a vesting order -- in the family law context, at least -- is in the nature of an enforcement order, the court will need to be satisfied (as the trial judge was here) that the previous conduct of the person obliged to pay, and his or her reasonably anticipated future behaviour, indicate that the payment order will not likely be complied with in the absence of more intrusive provisions: see Kennedy v. Sinclair, 2001 28208 (ON SC), [2001] O.J. No. 1837, 18 R.F.L. (5th) 91 (S.C.J.), affd 2003 57393 (ON CA), [2003] O.J. No. 2678, 42 R.F.L. (5th) 46 (C.A.). Thus, the spouse seeking the vesting order will have already established a payment liability on the part of the other spouse and the amount of that liability, and will need to persuade the court that the vesting order is necessary to ensure compliance with the obligation.
33In addition, the court should be satisfied that there is some reasonable relationship between the value of the asset to be transferred and the amount of the targeted spouse's liability and, of course, that the interests of any competing execution creditors or encumbrancers with exigible claims against the specific property in question are not an impediment to the granting of a vesting order. However, I would not go so far as to say -- as argued by the appellants -- that the onus to satisfy the court on these matters is at all times on the person seeking the order. I shall return to these issues later in these reasons.
The beneficial ownership issue
34As noted above, we did not call on Mr. Bastedo to respond to the appellants' submissions that the trial judge erred in finding Mr. Segal alone is the beneficial owner of their shares and of the Lands. The evidence amply supports these findings, which are pivotal to the proceedings as they underpin the making of the vesting order in question.
35The well-known corporate law principle, first enunciated in Salomon v. Salomon & Co., [1897] A.C. 22, [1985-9] All E.R. 33 (H.L.), that the shareholders of a corporation are separate and [page652] distinct from the corporate legal entity is -- as MacPherson J.A. recently noted in Wildman v. Wildman, 2006 33540 (ON CA), [2006] O.J. No. 3966, 151 A.C.W.S. (3d) 666 (C.A.), at para. 23 -- "an important one" but not, however"an absolute principle". There is a line of jurisprudence establishing in very general terms that the courts will not enforce the "separate entities" notion where "it would yield a result 'too flagrantly opposed to justice, convenience or the interests of the Revenue' ": Kosmopoulos v. Constitution Insurance Co. of Canada, 1987 75 (SCC), [1987] 1 S.C.R. 2, [1987] S.C.J. No. 2, at p. 10 S.C.R., citing L.C.B. Gower, Gower's Principles of Modern Company Law, 4th ed. (London: Stevens & Sons, 1979) at 112. See also Debora v. Debora, 2006 40663 (ON CA), [2006] O.J. No. 4826 (C.A.), at para. 24; Transamerica Life Insurance Co. of Canada v. Canada Life Assurance Co. (1996), 1996 7979 (ON SC), 28 O.R. (3d) 423, [1996] O.J. No. 1568 (Gen. Div.), at pp. 432-34 O.R., affd [1997] O.J. No. 3754, 74 A.C.W.S. (3d) 207 (C.A.); and 642947 Ontario Ltd. v. Fleischer (2001), 2001 8623 (ON CA), 56 O.R. (3d) 417, [2001] O.J. No. 4771 (C.A.), at paras. 67-69.
36A more flexible approach is appropriate in the family law context, particularly where -- as here -- the corporations in question are completely controlled by one spouse, for that spouse's benefit and no third parties are involved. The same situation arose in Wildman, supra. In that case, Mr. Wildman operated a successful high-end landscaping business through a corporation and several sole proprietorships. There were no third-party investors in the companies and Mr. Wildman controlled them completely. In order to enforce the other parts of his order requiring Mr. Wildman to pay large sums of money for spousal and child support, the trial judge in that case directed that the amounts owing were to be secured by way of a charge not only against the appellant personally, but also against his companies.
37In rejecting Mr. Wildman's appeal from the latter disposition, MacPherson J.A. said, at paras. 48-49:
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...
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.
(Emphasis added)
38In my view, Justice Paisley, like the trial judge in Wildman, was correct in recognizing that this case is one in which it is [page653] appropriate to pierce the corporate veil. During argument he observed that Mr. Segal was not using the appellant corporations for permissible corporate arrangements, but rather "was using the corporate structure for one sole purpose, to disguise his property so that his spouse and children would have no claim against him should he ever have to defend against a claim". In his reasons for judgment he referred to Mr. Segal's scheme "to conceal his assets""to disguise [them] through every means possible" and to create the impression that "someone other than he owned his property". The record supported these observations and findings. In the circumstances, piercing the corporate veil, and finding that both the corporate shares and the Lands are beneficially owned by Mr. Segal, was -- to adopt the language of MacPherson J.A. above -- "an essential mechanism for ensuring that [Ms. Lynch] and [the] children of the marriage receive the financial support to which, by law, they are entitled".
39The "beneficial ownership" findings are central, because they provide the foundation upon which the trial judge was able to make the vesting order that is challenged on appeal. It is not because Mr. Segal was found to be the beneficial owner of the shares of Idyllic and Ashoe that the order may stand; it is because the trial judge found Mr. Segal to be the beneficial owner of the Lands. Once it is accepted that the Lands belong to Mr. Segal, they become a fair target for a vesting order under s. 34(1)(c) of the Family Law Act or s. 100 of the Courts of Justice Act, if such an order is otherwise appropriate in the circumstances.
The appellants' arguments
40The appellants raise four specific arguments in opposition to the vesting order made. I have touched on some of them earlier. First, they attack the premise that the trial judge in fact made a finding that Mr. Segal is the owner of the Lands. It follows from this, in their view, that the judgment should have provided for the vesting of the shares of the corporations in Ms. Lynch, if any vesting order were made, rather than stripping the underlying assets out of the corporations and transferring them directly to Ms. Lynch (without the liabilities -- e.g., capital gains tax -- attending them within the corporations). Secondly, they submit that the vesting order ought not to have been made without any valuation of the Lands in order to ensure that their value was sufficient to satisfy and protect the interests of the children in terms of their lump sum support awards. [See Note 3 below] Thirdly, they contend that no [page654] vesting order should have issued without Mr. Segal's first wife, Leonor Segal, being made a party in order to protect her Nevada judgments for spousal and child support. Finally, the appellants submit that the trial judge erred in failing to consider and impose alternative measures to the vesting order, either in the form of vesting the corporate shares rather than the Lands or in the form of a charging order against the shares or the Lands in lieu of the vesting order.
41I would not give effect to any of these grounds.
The trial judge found Mr. Segal to be the owner of the underlying assets
42I agree, respectfully, that the trial judge was not as clear as he might have been in articulating his finding that Mr. Segal is the beneficial owner of the Lands. On reviewing his reasons as a whole, however, I have no doubt that he made such a finding -- particularly when the reasons are read in conjunction with the oral argument of counsel that immediately preceded the rendering of oral judgment.
43In at least two places during the submissions of counsel for the appellants at trial the trial judge commented that "Mr. Segal is the beneficial owner of the lands and any intermediaries that he is using are puppets" and that "the owner of the land -- the owner of the company, is Moses, a.k.a. Moey Segal". Although he noted at one point in his reasons that the only significant issue to be tried in the action was whether the companies are owned by Mr. Segal or by some other unknown parties, the trial judge did not limit his findings to the determination that the appellants are beneficially and entirely owned by Mr. Segal. He was alive to the central issue underlying the question of ownership of the corporations, namely, the use of the hidden ownership scheme to camouflage Mr. Segal's ownership of the assets. In the context of making the vesting order, the trial judge noted that "[t]he only evidence that somebody other than Mr. Segal owns the land is the self-serving statement made to Mr. Dolson" (which he did not accept).
44In the end, the trial judge made the following findings, which were amply supported on the evidence:
In my view the limited companies and Mr. Segal are one and the same. He is the beneficial owner of the property.
(Emphasis added)
45I reject the submission that the trial judge made no finding that Mr. Segal was the beneficial owner of the underlying assets.
46The appellants also submit that it was inappropriate for the trial judge "to strip" the Lands out of the corporations and vest [page655] them directly in Ms. Lynch without regard for any capital gains tax obligations that may be attributable to appreciation in the value of the properties. No doubt, a person taking title by way of a vesting order must take the property subject to any existing executions against it: Maroukis v. Maroukis, 1984 76 (SCC), [1984] 2 S.C.R. 137, [1984] S.C.J. No. 35, 12 D.L.R. (4th) 321 at p. 323 S.C.R. Capital gains tax, however, is not an execution or encumbrance against the Lands. The obligation to pay capital gains tax falls on the taxpayer owner of the property in question [See Note 4 below] -- in this case, technically, the appellant corporations. Vesting the Lands -- which the trial judge held to be beneficially owned by Mr. Segal -- is no different than vesting any other asset belonging to him. If the property vested is subject to pre-existing registered executions or encumbrances, the person taking title through the vesting order takes subject to those executions or encumbrances. The person in whom the title vests, however, does not take subject to other personal obligations to which the previous owner may be subject. Capital gains tax obligations fall into this latter category.
47Here, the trial judge was made aware of the appellants' "capital gains" submission. Appellants' counsel at trial specifically brought it to the trial judge's attention during argument, which was completed immediately prior to the judge's delivery of his oral reasons. Although he did not say so specifically, it is a fair inference from the trial judge's reasons, and from his comments during argument that he concluded Mr. Segal (or the appellant corporations, which he equated with Mr. Segal) is in a position to defray whatever personal tax obligations might arise from the transfer in other ways. I see no error in that approach.
No evidence of value
48The appellants next argued that no order should have been made vesting the Lands in Ms. Lynch because she led no evidence to establish the value of the Lands nor any evidence indicating [page656] some relative equivalence between the money judgments the Lands were to satisfy and the value of the Lands. If the Lands are worth significantly more than the money judgments, Ms. Lynch will receive an undeserved windfall as a consequence of the vesting order. If they are worth significantly less, then the court must, given its jurisdiction to protect children, ensure that it does not exchange a significant award for an empty recovery.
49It is the appellants, however, who were advancing the contention that the value of the Lands did not justify their exchange in satisfaction of the money judgment imposed by the trial judge. They were in as good a position as Ms. Lynch -- and arguably, a better position -- to present evidence of the value of the Lands. I do not think it is open to them to complain that there was no evidence of value in the circumstances of this case.
50In any event, the trial judge had some evidence of value. Working from the purchase prices of the two properties -- $2.6 million, in the case of the Idyllic tract, and $1.636 million in the case of the Ashoe farm property -- he concluded that there was "no rational risk . . . that the lump sum payment claimed would be exceeded by the value of the lands which are sought to be vested in satisfaction of that sum". Based on the record, he was entitled to draw that conclusion and I would not interfere with it. That disposes of the "windfall" concern. It was also clearly open to the trial judge to conclude, as he did, that the only realistic way of ensuring the children would receive any recovery on the support order made in their favour -- given Mr. Segal's determination to avoid his obligations and, indeed, his outright defiance of earlier court orders -- was to satisfy the money portion of the judgment out of the Lands. In my view, he was correct in doing so.
51I cannot help but make one further observation at this point. While it is commendable of the appellants to address the concern that the best interests of the children be protected, the submission is somewhat disingenuous in the circumstances. Given the trial judge's finding that the appellants and Mr. Segal are "one and the same", and given Mr. Segal's complete abandonment of his children and his evident determination to avoid meeting any of his support obligations, the argument seems more directed towards saving the assets in his corporation than to providing for the best interests of the children.
Leonor Segal as judgment creditor
52Nor would I interfere with the vesting order on the basis that the interests of Mr. Segal's first wife, Leonor Segal, have not been adequately protected. [page657]
53At the time of trial, Ms. Segal was not an execution creditor of Mr. Segal in Ontario. She had taken no steps to register or enforce her Nevada judgments here pursuant to Part III of the Interjurisdictional Support Orders Act, 2002, S.O. 2002, c. 13. This state of affairs continued until a few days after oral argument on the appeal, when Ms. Segal suddenly entered the fray, registered her foreign judgments pursuant to the Act and sought leave to intervene in the appeal.
54As indicated earlier, we dismissed her motion for leave to intervene for separate reasons, supra, released on December 5, 2006. In those reasons we canvassed the circumstances underlying the motion to intervene and concluded that it would not be fair or just to permit Ms. Segal to inject herself into the proceedings -- of which she has been aware since 2003 -- at this stage because any advantage that might be gained from her participation would be outweighed by the prejudice to Ms. Lynch in causing further delay. Suffice it to say that we had no doubt it was Moses Segal who had instigated Ms. Segal's initiative to become involved, notwithstanding his apparent absence from the proceedings and his professed lack of any connection to or control over the appellant corporations. Nor did we have any doubt that Mr. Segal was animated by his avowed intention to practice a "scorched earth policy" and to ensure that anybody but Ms. Lynch take value from his properties. This attitude was confirmed in an e-mail to Ms. Lynch, dated December 19, 2005, in which Mr. Segal said: "I think it is now time to invite U-NO-WHO from Montreal to the picnic. She is not needy, but is very hungry, will eat a lot, and will never go away." On July 18, 2006 -- one day after Leonor Segal's motion for leave to intervene was filed -- Mr. Segal sent another e- mail to Ms. Lynch. This one said:
While at the shore in my house with my kids give serious consideration to the following: NEMO ME IMPUNE LACESSIT.
(Emphasis in e-mail)
55Roughly translated"Nemo me impune lacessit" means "No one messes with me and gets away with it."
56A vesting order is essentially an equitable remedy designed to work as an enforcement mechanism. The equities in this case do not favour Leonor Segal; they favour Ms. Lynch.
57It is true that Ms. Lynch was aware of Ms. Segal's outstanding Nevada judgments. However, as noted in our earlier decision, she had reason to believe, following a lengthy conversation with Ms. Segal's Nevada counsel (at Ms. Segal's suggestion), that Ms. Segal was not going to pursue enforcement procedures [page658] at that time. Moreover, Ms. Segal is not in need. She has remarried a distant cousin of Moses Segal, a man who is even wealthier than Mr. Segal. She and her new husband are highly regarded members of the Jewish community in Montreal, where they are known for their generous charitable donations. The children of Leonor and Moses Segal are now adults. Ms. Lynch and her minor children, on the other hand, are in need of the support ordered by the trial judge.
58The appellants argue that Ms. Segal is a known judgment creditor of Mr. Segal and that she is a necessary party to the determination of the vesting issue. This is particularly so, they say, because both Ms. Lynch and Ms. Segal are judgment creditors with claims for spousal and child support. They are therefore claimants entitled to equal priority over other judgment creditors -- a right now entrenched in statute law in order to protect spouses and children and to ensure that their claims are satisfied in priority to those of other non-secured claimants: see the Creditors' Relief Act, R.S.O. 1990, c. C.45, s. 4. Not to take into account Ms. Segal's interests as a spousal judgment creditor when vesting the Lands in Ms. Lynch, the appellants submit, is to ignore the broad interjurisdictional statutory scheme that has been put in place by legislators across the continent to protect spouses and children.
59I do not accept these submissions in the context of this case.
60Ms. Segal was not an execution creditor of Mr. Segal in Ontario at any relevant time in these proceedings. Although she was well aware of Ms. Lynch's lawsuit against her former husband, she had no enforceable encumbrance against any of his assets in this province. Had she registered her Nevada judgments in Ontario prior to the trial and applied for intervention status at that stage, it may well be she would have succeeded, at least with respect to the issues concerning the ownership of the appellant corporations and their properties and the matter of the vesting order. As a registered spousal judgment creditor entitled to equal priority with Ms. Lynch over Mr. Segal's property, she could be said to have an interest in those subject matters and to be a person who may be adversely affected by a judgment in relation to them. However, she chose not to take any of these steps.
61There is no requirement under the Family Law Act or the Courts of Justice Act for notice to be given to anyone in particular when a vesting order is sought. Whether such notice should be given in a particular case is a matter for a judge to determine. However, I am not aware of any other statutory or legal prerequisite requiring Ms. Lynch to give notice of the details of her claim to Ms. Segal, an unregistered foreign judgment creditor; nor were we [page659] referred to any such authority by counsel. Clearly, Ms. Segal's interests would have been protected had she been a registered execution creditor. Either she would have been entitled to receive notice and to participate in the proceedings or, at worst, Ms. Lynch would have taken the vested title in the Lands subject to her interest as an execution creditor. Unfortunately for Ms. Segal, she chose not to register her Nevada judgments until it was too late.
62The argument concerning Ms. Segal's claim on the Nevada judgments was advanced thoroughly at trial (and on appeal) by the appellant corporations. The trial judge obviously concluded that notice to Ms. Segal was not necessary and that whatever inchoate claim she might have in relation to Mr. Segal's assets did not preclude him from vesting these particular Lands in Ms. Lynch in order to ensure payment of the particular orders for spousal and child support that he had made in the circumstances of this particular case. For the reasons outlined above, I do not think he erred in that assessment.
The failure to vest the shares or to make a charging order in lieu of a vesting order
63Finally, the trial judge committed no reversible error in declining to vest the shares of the appellant corporations, rather than the Lands, in Ms. Lynch, or in refusing to make a charging order or grant some other remedy in lieu of a vesting order. Once the finding was made that Mr. Segal is the beneficial owner of the shares and of the Lands, the decision whether to grant a vesting order pursuant to the Family Law Act or the Courts of Justice Act became a matter within the broad discretion of the trial judge. Absent an error in principle or an error in law in the exercise of that discretion, this court will not interfere.
64There was no such error here.
65On the findings of the trial judge there are no third party investors or shareholders -- "no secret offshore investor whose identity needs to be protected" -- whose interests in the appellant corporations might be affected by treating Mr. Segal and the corporations as "one and the same", and by finding Mr. Segal to be the beneficial owner of the Lands. Any valid encumbrancers or registered execution creditors with an interest in the Lands at the time the vesting order was made are protected because Ms. Lynch takes title subject to such interests. The trial judge was very alert to the reality that "[t]here is simply no possibility that Mr. Segal would ever pay child or spousal support willingly". He concluded Mr. Segal's failure to comply with the interim support order of Justice Kitely in the proceedings and his deliberate evasion of Justice Mesbur's order [page660] prohibiting him from dissipating his assets (the Sondor sale) were sufficient proof of that actuality. He was also aware of the need to provide finality to the litigation, to the extent possible.
66In these circumstances, it was clearly open to the trial judge to reject alternative solutions and to opt, as he did, for a remedy that would in effect swap the monetary spousal and child support parts of the claim against Mr. Segal for the Lands. This would ensure that at least a significant portion of Mr. Segal's support obligations would be satisfied (on the evidence the trial judge was satisfied the value of the Lands would not be sufficient to meet those obligations fully). He was convinced that without the vesting order Ms. Lynch and the children would likely receive nothing. He concluded:
In my view the claim for vesting of those lands, in lieu of any excess claim for spousal support, and in satisfaction of the claim for lump sum support is fair in the circumstances.
67The trial judge was justified in the circumstances in arriving at that conclusion. While he could have awarded a different remedy, the vesting order was well within the range of reasonable options at his disposal.
68Providing for a charging order against either the shares or the Lands, instead of a vesting order, would have left control of the appellant corporations in the hands of Mr. Segal, who is a self-confessed master at manoeuvring and manipulating his corporate vehicles in order to frustrate and defeat the interests of his former spouses, his children and his creditors generally. At worst, he could devise a means of stripping the assets out of the corporations and spiriting them away for his personal benefit, as he did in the Sondor transaction. At best, he could take steps to delay Ms. Lynch's ability to recover on the charging order and put her to further expense in pursuance of his "scorched earth policy". The trial judge was right in rejecting such a proposal.
69Similarly, while an order vesting the shares of the appellant corporations in Ms. Lynch would ultimately put control of the corporations in her hands, a series of corporate steps would have to be taken before that control would become a reality and, in any event, such a remedy might not be as effective in satisfying Mr. Segal's support obligations because of the capital gains tax implications referred to above. As long as there are corporate steps that have to be taken, there are opportunities for Mr. Segal and the appellant corporations to be mischievous and to attempt to put obstacles in the way of Ms. Lynch's attempts to enforce her spousal and child support orders. As to the tax considerations, Mr. Segal is obviously in a position to cope with any personal or [page661] corporate tax liabilities that he may be compelled to pay, whereas he will not willingly satisfy his support obligations. The choice of an order vesting the Lands, which he beneficially owns, instead of the shares, is justifiable on that ground alone.
Disposition
70For the foregoing reasons, and given the circumstances of this case, I would not interfere with the trial judge's discretionary choice to transfer the Lands to Ms. Lynch and to vest them in her in satisfaction of her spousal and child support claims, in the circumstances of this case.
71Accordingly, the appeal is dismissed.
72Ms. Lynch is entitled to her costs of the appeal, payable by the appellant corporations, and fixed in the amount of $60,000 all inclusive, as agreed by counsel.
Appeal dismissed.
Notes
Note 1: Respondent's factum at para. 14.
Note 2: This case deals with support.
Note 3: A combined lump sum child and spousal support award of $8,350,747 plus an amount of $378,135.77 for arrears of child and spousal support.
Note 4: Section 3(b)(i) and (ii) of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.), require the taxpayer to determine the amount, if any, by which the total of all of the taxpayer's taxable capital gains for the year from dispositions of property other than listed personal property, and the taxpayer's taxable net gain from the year from dispositions of listed personal property, exceeds the amount, if any, by which the taxpayer's allowable capital losses for the year from dispositions of property other than listed personal property exceed the taxpayer's allowable business investment losses for the year. A taxpayer includes a corporation: s. 248(1). Section 38(a) defines a taxpayer's taxable capital gain for a taxation year from the disposition of any property as one-half of the taxpayer's capital gain from the year from the disposition of property. As these provisions illustrate, the obligation to pay capital gains tax is taxpayer-focused, rather than property- focused.
