COURT FILE NO.: FS-14-00398336-0000 DATE: 20190308 ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN:
Jennifer Ann Leitch Applicant – and – Anthony James Charles Novac in his personal capacity and in his capacity as trustee of The Novac Family Trust (2013) and the Lulu Trust (2006) Respondent – and – Michael Novac in his personal capacity as trustee of each of The Novac 2011 Trust and The Novac Family Trust (2013) Nelly Novac in her capacity as a trustee of the 2011 Novac Family Trust Sonco Group Inc. The Novac 2011 Family Trust The Novac Family Trust (2013) John McLure, in his capacity as trustee of the Lulu Trust (2006) David Tam, in his capacity as trustee of the Lulu Trust (2006) Third Party Respondents
S. Gibb, I. Zylberman-Dembo and K. Warren for the Applicant A. Rosen and K. Eckert for the Respondent B.R. Smith and L. Love-Forester for the Third Party Respondents Gavin Tighe
HEARD: March 5, 2019
Gilmore, J.
RULING ON MOTIONS
Overview
[1] There are two motions before the court. The respondent Anthony Novac (“Anthony”) brings a motion pursuant to sections 12 and 40 of the Family Law Act for a preservation order in relation to certain assets belonging to the applicant Jennifer Ann Leitch (“Jennifer”). Although not specifically requested, Anthony asks in the alternative that the Caledon farm property registered in Jennifer’s name be transferred to him.
[2] The third party respondent (“Novac/Sonco”) brings a motion for security for costs from Jennifer. Novac/Sonco also seeks an order that Jennifer preserve her assets, and in particular her farm property as the security sought.
[3] These motions arise as a result of my judgment dated January 31, 2019. That judgment allowed the relief requested by Novac/Sonco and by Anthony. The judgment dismissed Jennifer’s request for a declaration of a conspiracy. The combined summary judgment motion and motion to change temporary support were lengthy and complex and were heard over nine days. Viva voce evidence was heard over five days from Anthony and Michael Novac (“Michael”).
[4] As Jennifer had no success on her own motion or in defending the other two motions, she was ordered to pay significant costs. Specifically, Jennifer was ordered to pay all inclusive costs of $900,000 to Novac/Sonco and $340,000 to Anthony. My costs ruling dated March 7, 2019 set out various reasons for ordering costs on such a significant scale, not the least of which was my finding that Jennifer had acted unreasonably and that both Michael and Anthony did better than their Offers.
[5] The result is that now Anthony and Novac/Sonco are concerned about their ability to collect the significant costs ordered, particularly in the face of Jennifer’s affidavit evidence that she may be faced with declaring bankruptcy.
[6] The parties previously signed a consent in which they have agreed that Jennifer will not dispose of or encumber the Caledon farm property, her RBC GIC or her artwork pending the release of my ruling on these motions.
[7] Some issues before the court on this motion were resolved on consent during the course of submissions as follows:
a. Jennifer will forthwith pay off her personal line of credit with RBC (being account number *******-001) with her RBC GIC (Account #*******9534) currently held as collateral for the RBC line of credit.
b. Counsel for Jennifer have undertaken to the court that they will not be seeking to register a lien or charging order in favour of Epstein Cole LLP against the Caledon farm Property, described as PT LT 10, Con 11, Erin, Ontario (“the farm”). If they change their position they will advise counsel for Anthony and Novac/Sonco in writing immediately.
The Novac/Sonco Motion
The Position of the Moving Party
[8] Novac/Sonco relies on Rule 24(13) of the Family Law Rules with respect to obtaining an order for security for costs and in particular Rule 24(13)(2) which relates to security for costs where a party has an order for costs that remain unpaid. While the costs ruling was only released recently, it is clear from Jennifer’s most recent financial statement dated May 2, 2018 that the farm is the only asset that could satisfy any costs award.
[9] It is uncontested that the farm is registered solely in Jennifer’s name and is her main asset of value. While opinions vary, the farm is likely worth between $1.2 and $1.6 million. There are taxes and other outstanding accounts related to the farm totaling approximately $100,000.
[10] The parties also have a valuable art collection. There is a dispute as to both the value and ownership of the art.
[11] Novac/Sonco seeks to prevent a sale of the farm. Once the costs order in their favour has been issued and entered they will become a judgment creditor of Jennifer. They can then file a Writ of Execution on title to the farm and sell it (after the required waiting period) to the benefit of any creditors should they choose to do so.
[12] Novac/Sonco also seeks an order requiring that Jennifer preserve the art in her possession or control.
Jennifer’s Position
[13] Jennifer wishes to sell the farm immediately and have the sale proceeds held by the solicitor acting on the sale until further court order or agreement.
[14] Jennifer deposed that she is no longer able to maintain the farm given the reduction in her child and spousal support as of January 31, 2019. She requires access to some of the sale proceeds in order make ends meet and pay the children’s expenses.
[15] She is required to give Anthony notice of any impending sale because the farm remains a matrimonial home until divorce and she would be required to give him notice given the ongoing family law proceedings.
[16] Jennifer resists the Novac/Sonco motion on the basis that it is improper for Novac/Sonco to attempt to obtain priority as a creditor. Further, Novac/Sonco has no Family Law Act claim. As such, they are in effect, seeking a Mareva injunction. As Jennifer has no history of hiding or dissipating assets, there are no grounds for such an order.
Anthony’s Motion
Anthony’s Position
[17] Anthony also wishes to ensure the farm property is preserved but for different reasons than Novac/Sonco.
[18] His position is that with the costs order, the outstanding retroactive support and the equalization payment he is owed by Jennifer, he is already owed more than the value of the farm and it should simply be transferred to him. Selling it at this stage would not benefit anyone given the fact that it is unfinished and has not been occupied for several years.
[19] Specifically, Anthony asserts he is owed an overpayment of support of $346,803, costs of $340,000 and an equalization payment of at least $346,613 and as much as $1,342,508. The farm should be transferred to him if Jennifer cannot afford to maintain it.
[20] Anthony refers to excerpts from Jennifer’s questioning in which she does not disagree that the farm was always Anthony’s project and that she had little to do with its renovation or design. Further, he depleted $450,000 of his valuation day assets to pay for renovations to the farm. His trust claim and the other amounts owed to him make an outright transfer to him the most reasonable solution. His view is that this makes sense and reflects his request for a transfer based on a trust claim which he has been asserting since 2012.
Jennifer’s Position
[21] Jennifer’s response is that there is no request to transfer the farm property to Anthony in his Notice of Motion and there is no basis to do so prior to trial. In any event, even if the farm was transferred to Anthony, based on his financial statement, he does not have the means to complete the renovations or maintain it.
[22] Further, the case law is clear that a preservation order under the Family Law Act can only be made on clear evidence. Anthony has not proven that he has a prima facie entitlement to an equalization payment. Jennifer submits that Anthony’s Net Family Property statement fails to include proper values for his business interests in Casino New Brunswick and Conrose Park. As he dissipated the funds in the Lulu trust, that asset should also be included as his family property. With those adjustments, it means that Anthony would owe Jennifer an equalization payment.
[23] It is not clear that Jennifer will owe Anthony any repayment of support given the significant support Jennifer says will be owed to her for the period of 2012 to 2016.
[24] If the farm is not sold, it is clear that Jennifer will suffer serious harm, given her inability to maintain the payments on the farm. She does not want to have to file for bankruptcy but may have no choice if she is forced to preserve the farm.
[25] Anthony further responds that Jennifer has not provided an up to date Net Family Property statement nor has she ever provided her own response to his income or business valuation reports. It is unreasonable for her to complain about Anthony’s position on these issues without her own expert evidence.
[26] As for the artwork, Anthony requests that Jennifer preserve the artwork in her possession. Jennifer agrees, so long as Anthony does the same. Anthony does not accept this proposal given that his position is that he has receipts for the art in his possession and that Jennifer has failed to inventory or appraise the art in her possession as she undertook to do in 2016. Anthony also points out that Jennifer has not brought a motion requesting that Anthony preserve the artwork in his possession.
Analysis and Findings
[27] I agree with Jennifer that this motion is not the forum for Anthony to pursue his trust claim in the farm. Not only did he not request it in his Notice of Motion (thereby leaving Jennifer without the ability to properly respond to that request for relief), there are too many unknowns in the remaining matrimonial litigation to confirm Anthony’s trust interest at this stage.
[28] I do not agree with Jennifer that selling the farm is the best course of action at this point. The property has effectively been abandoned for several years. Jennifer’s creditors (which may ultimately include her own counsel) should not be subject to Jennifer conducting what would effectively be a fire sale of the property.
[29] Jennifer is now the subject of a significant costs order. That order was based on a number of considerations which included the fact that Jennifer acted unreasonably, failed to accept reasonable offers, and made serious allegations impugning the character of the responding parties which were not proven. She cannot now embark on a course of action which will undoubtedly result in reducing the value of the creditors’ only valuable exigeable asset.
[30] Further, since Jennifer will be paying off the RBC line of credit, she will free up $950 per month in her budget which could be used to maintain the farm in the short term.
[31] While the farm is currently a matrimonial home, both parties wish to obtain a divorce. They both gone on with their lives and this is not an unreasonable request. Once the divorce is granted, the parties will no longer be spouses and Jennifer will not require Anthony’s consent to sell the farm.
[32] Given the above factors, I prefer the approach of Novac/Sonco which views this matter from a debtor/creditor perspective. I agree that Rule 24(13)(2) of the Family Law Rules would apply in this case. While the costs ruling was only recently released, it is clear that Jennifer does not have the means to pay the costs order. That fact has been admitted in her material and it is clear from her financial statement.
[33] As for Rule 24(13)(4) of the Family Law Rules, it may be going too far to say that Jennifer’s entire case is a waste of time, but given the wording of Rule 24(13)(2), it is not necessary to rely on (4).
[34] Jennifer argues that Novac/Sonco does not have a Family Law Act claim and that they are therefore precluded from relying on Rule 24(13). I do not agree. Novac/Sonco was added as a party to this action by Jennifer. She added them because she alleged Novac/Sonco and Anthony had conspired to hide Anthony’s income in order to deprive her of child and spousal support. I do not see that the fact that Novac/Sonco does not have their own FLA claim, and is only a defending party somehow deprives them of the use of Rule 24(13).
[35] I do not agree with Jennifer that a motion for security for costs cannot be made at this stage of the proceeding. A plain reading of Rule 24(13) of the Family Law Rules does not preclude a party from bringing a motion for security for costs at any particular point in the proceeding.
[36] According to Rule 24(13) of the Family Law Rules, the court must make an order for security for costs that is just (after considering the four factors set out under that rule). Given the large amount of costs awarded in this case, and Jennifer’s dramatically changed financial circumstances, I do not see that it is unjust to allow Novac/Sonco security for their costs which are now crystallized. Failing to do so would put the ability of both responding parties to collect on their costs awards at risk.
[37] It is not unheard of to order property as a form of security for costs. In Lockwood Estate v. Moar, 2010 ABQB 596, the plaintiffs appealed an order requiring them to post $10,000 by way of security for costs. The plaintiffs did not have access to cash but had equity in a condominium in another province. The court ordered security for costs by way of a charge against that property. While I am not ordering a charge against the farm, the responding parties as judgment creditors will have similar remedies by way of a Writ of Execution.
[38] Finally, Rule 24(14) of the Family Law Rules permits the court to determine the form and method of giving the security for costs. There is no reason why the form of such security cannot be preservation of the farm.
[39] I agree with Anthony that Jennifer has not brought a cross-motion seeking an order requiring him to preserve the artwork in his possession. He should therefore not be required to do so in the circumstances.
Orders
[40] As Epstein Cole is not a party to this litigation, I cannot order that firm not to register a lien for services on the farm. However, it is important to recite at this point their undertaking to the court that they will not do so. If they change their position they have also undertaken to advise both Novac/Sonco and Anthony immediately.
On Consent
[1] The applicant will forthwith pay off her personal line of credit with RBC (being account number *******-001) with her RBC GIC (Account #*******9534) currently held as collateral for the RBC line of credit.
Not on Consent
[2] Anthony’s request to have the farm property municipally known at PT LT 10 CON 11 Erin, Ontario (“the farm”), transferred into his name based on a claimed trust interest is dismissed. Anthony is free to renew this request for relief at trial if he chooses.
[3] The applicant shall post security for costs in this proceeding and by way of such security is ordered to preserve all of her assets including but not limited to:
a. Selling, disposing of, or encumbering in favour of anyone, the farm.
b. Selling, disposing of or encumbering any pieces of the parties’ art collection in her possession, power or control
Costs
[4] Novac/Sonco has had complete success. Anthony has had partial success as Novac/Sonco’s success means the farm will not be sold. If the parties cannot agree on costs, I will receive written submissions of no more than two pages in length on a 7 day turnaround from the date of this ruling starting with Novac/Sonco. Costs submissions are to be delivered electronically to my assistant Patrizia.generali@ontario.ca.
C. Gilmore, J.
Released: March 8, 2019
