DATE: 20021008 DOCKET:M28969 M29026 C38616 C38611 C38624

COURT OF APPEAL FOR ONTARIO

RE:

MORRIS WAXMAN and MORRISTON INVESTMENTS LIMITED (Plaintiffs (Respondents)) – and – CHESTER WAXMAN, CHESTER WAXMAN, in trust, CHESTERTON INVESTMENTS LIMITED, ROBERT WAXMAN, GARY WAXMAN, WARREN WAXMAN, I. WAXMAN & SONS LIMITED, THE GREYCLIFFE HOLDINGS LIMITED, ROBIX FINANCIAL CORPORATION LIMITED, CIRCUITAL CANADA INC., RKW STANDARDBRED ASSOCIATES INC., RKW STANDARDBRED MANAGEMENT INC., and GLOW METAL TRADING INC. (Defendants (Appellants))

A N D BETWEEN:

I. WAXMAN & SONS LIMITED and CHESTER WAXMAN (Plaintiffs by Counterclaim (Appellants)) – and – MORRIS WAXMAN, MICHAEL WAXMAN, SHIRLEY WAXMAN, DOUGLAS WAXMAN, THE WAXMAN HOLDING CORPORATION INC., MORRISTON INVESTMENTS LIMITED, SOLID WASTE RECLAMATION LIMITED, SOLID WASTE RECLAMATION INC. and GENERAL ENVIRONMENTAL TECHNOLOGIES CORPORATION (Defendants to Counterclaim (Respondents))

BETWEEN:

MORRIS WAXMAN (Plaintiff (Respondent) – and – I. WAXMAN & SONS LIMITED (Defendant (Appellant))

BETWEEN:

MORRIS WAXMAN, MICHAEL WAXMAN and SOLID WASTE RECLAMATION LIMITED (Plaintiffs (Respondents)) – and – CHESTER WAXMAN, ROBERT WAXMAN, GARY WAXMAN and I. WAXMAN & SONS LIMITED (Defendants (Appellants))

A N D BETWEEN:

CHESTER WAXMAN, WARREN WAXMAN, ROBERT WAXMAN, GARY WAXMAN, BRENDA HALBERSTADT and I. WAXMAN & SONS LIMITED (Plaintiffs by Counterclaim (Appellants)) – and – MORRIS WAXMAN, MICHAEL WAXMAN, DOUGLAS WAXMAN, SOLID WASTE RECLAMATION LIMITED and THE WAXMAN HOLDING CORPORATION INC. (Defendants to Counterclaim (Respondents))

BETWEEN: C38611

MORRIS WAXMAN and MORRISTON INVESTMENTS LIMITED (Plaintiffs (Respondents)) – and – PAUL ENNIS, Q.C. and ENNIS & ASSOCIATES (Defendants (Appellants))

B E TW E E N: C38624

MORRIS WAXMAN and MORRISTON INVESTMENTS LIMITED (Plaintiffs (Appellants)) – and – TAYLOR LEIBOW, WAYNE LINTON and I. WAXMAN & SONS LIMITED (Defendants (Respondents))

BEFORE: GOUDGE J.A. (IN CHAMBERS)

COUNSEL: Robert S. Harrison and Richard B. Swan For the respondent Morris Waxman and related parties

Alan Lenczner and Lorne Silver For the appellant Chester Waxman and related parties

Frank Bowman For Taylor Leibow, et al.

Barbara Murchie For the Paul Ennis, Q.C. et al.

William G. Horton For American Home Assurance Company

HEARD: October 3, 2002

E N D O R S E M E N T

[1] At its core this litigation is a fight between two brothers, Morris and Chester Waxman, over the very successful scrap metal business that they owned and built together.

[2] In 1983 Chester Waxman purchased from Morris his half of the family business, I. Waxman & Sons Ltd. (IWS) by way of a share purchase agreement. In 1988 Morris Waxman was terminated as its president.

[3] The five lawsuits that resulted from this fight were tried together over 200 days by Sanderson J. On June 27, 2002 she issued reasons for judgment which, following additional argument, she supplemented with further reasons on September 16, 2002. These reasons provide inter alia for very substantial money judgments in favour of Morris Waxman and Solid Waste Reclamation Inc. (SWRI), the company controlled by his sons. The reasons also provide for a number of mandatory orders directed to, among others, Chester Waxman, his sons Warren, Gary, and Robert, IWS, and Steve Wiseman, a partner with the accounting firm that services IWS.

[4] Appeals have been taken in all five actions and, as a result, the money judgments are automatically stayed pursuant to Rule 63.01(1).

[5] The respondents, principally Morris Waxman and SWRI, move for directions concerning these appeals including an order that the appeals be expedited. They also move for relief from the stay of the money judgments. The appellants, on the other hand, move for a stay pending the appeal of some of the mandatory orders.

[6] Addressing first the motion for directions, all parties urged that the appeal be expedited. I agree that, given the ages of the major protagonists and the issues involved, this appeal should be heard at an early date. While the court has reduced its inventory of appeals to the point where that is now possible in almost every case, I am prepared to codify that result in this matter by formally ordering that these appeals be expedited.

[7] As agreed by the parties, I will adjourn the balance of the motion for directions to a date shortly after the release of these reasons. At that time, I will address the remainder of the matters requiring directions pending the appeals.

[8] I turn now to the respondents’ motion for relief from the stay of the money judgments. They raise three arguments in this connection.

[9] First, the respondents ask that I exercise the jurisdiction given by Rule 63.01(5) to order that the automatic stay be lifted on such terms as are just. The jurisprudence of this court makes clear that the automatic stay provided for by the rules should be applied in all but unusual circumstances, where there is demonstrable and unusual hardship to the respondent, and where a reasonable measure of protection can be afforded to the appellant to allow recovery if the appeal succeeds. The principal factors to be considered and balanced here are therefore the financial hardship to the respondents if the stay is not lifted, the ability of the respondents to repay or provide security for the amount paid, and the merits of the appeal. See Ryan v. Laidlaw Transportation Ltd. (1994), 1994 616 (ON CA), 19 O.R. (3rd) 547 (C.A.); Siwich v. Dagmar Resort Ltd. (1996), 1996 407 (ON CA), 4 C.P.C. (4th) 1 (Ont. C.A.).

[10] Given these criteria, much of the argument before me was addressed to the respondents’ assertion that the appeals are essentially frivolous and devoid of merit. Since the appeals will undoubtedly proceed to a full canvass in this court, I do not propose to deal in detail here with each of the various issues. Suffice it to say that I cannot find the appeals to be simply frivolous or devoid of merit. While the trial judge makes strong findings of fact, there are arguable issues raised that do not appear to necessarily require that those findings be set aside, including the scope of fiduciary duty, the extent of the oppression remedy, and the sweep of the orders setting up the tracing procedures. Moreover, some of the findings of fact are attacked on appeal as palpable and unreasonable and while that standard is not easily met in this court, an appeal of findings of fact is not per se frivolous.

[11] In argument before me, the respondents did not seriously press the hardship issue, or the consideration concerning the ability to repay. As to the former, while Morris Waxman is far less well off than these judgments would make him, he has a modest income, a home, and the necessities of life. While he owes his lawyers $2.6 million now and will owe considerably more after this appeal, there is no suggestion that he will be deprived of able representation if the stay is not lifted. As to the latter consideration, the respondents offered no proposal for repayment should the appeals be successful.

[12] While the respondents did not press the hardship or repayment factors, they did urge that I consider as a factor the risk that the appellants will dissipate their assets pending appeal.

[13] I agree that, particularly if an appeal is in essence devoid of merit, a significant risk that the appellant will dissipate his assets pending appeal may well warrant that the automatic stay be lifted in order, for example, that the money be paid into court to await the outcome of the appeal. See Bank of Nova Scotia v. Del Grande, [1994] O.J. No. 2918 (Ont. C.A.).

[14] However, I cannot find that this threshold has been reached in this case. The respondents rely on two incidents in particular in advancing this argument, one in 2000 when IWS dividended $12 million to Chester Waxman who then loaned it back to the Company, and the second in 1998 when IWS transferred a large parcel of land to a company controlled by Chester Waxman, but owned by his grandchildren. Both these actions preceded the trial judgment and for each the appellants offer a benign commercial explanation. Moreover, it is not clear to me that either action has significantly diminished the ability of the appellants, taken collectively, to respond to this judgment if these appeals are unsuccessful. I recognize that the trial judge indicated that, had it been before her, she would have ordered the preservation of assets pending execution. However, while the trial understandably took a long time – two years – these appeals will be heard within six months. Thus, in all the circumstances here, I do not think that the respondents have established that the risk of dissipation of assets should tip the scales in favour of lifting the automatic stay.

[15] In summary, given that the appeals are, in my view, not simply devoid of merit and considering the factors of hardship, ability to repay, and possible dissipation of assets together, I would decline to exercise my discretion to lift the automatic stay. Thus the respondents’ first argument fails.

[16] This conclusion renders it unnecessary to deal with the separate arguments against lifting the stay raised by Mr. Ennis and his excess insurer. Mr. Ennis was the solicitor for IWS and its principals and was found jointly and severally liable with Chester Waxman and IWS for a portion of the money judgments. Hence he has joined in the opposition to the motion to lift the stay. His excess insurer appeared on the motion to argue against the request that if the stay were lifted the insurer be ordered to pay the balance of the excess policy directly to the respondents in advance of the appeal. As I have said, given my conclusion that the automatic stay should not be lifted I need not address this novel but interesting argument.

[17] Finally on this point, I note that Mr. Lenczner made clear that his offer on behalf of his client to immediately and unconditionally pay $150,000 to Morris Waxman remains outstanding.

[18] The respondents’ second argument in seeking some relief from the automatic stay is that I ought to order interim costs pursuant to s. 249(4) of the Business Corporations Act or, alternatively, pursuant to s. 131(1) of the Courts of Justice Act. In each section, jurisdiction is given to “the court”, which gives me some concern about whether it is a jurisdiction which can be exercised by a single judge of this court rather than a panel of this court.

[19] However, assuming I have jurisdiction, I would decline to exercise it in the circumstances here.

[20] Section 249(4) of the Business Corporations Act is the specific provision dealing with interim costs and thus it is the provision against which the respondents’ request should be assessed. Counsel agree that the leading case addressing this provision is Alles v. Morris (1992), 5 B.L.R. (2d) 146, where Blair J. found that to obtain an order under this section a party must establish that it has a case of sufficient merit to warrant pursuit and that the party is genuinely in financial circumstances which, but, for an order under the section would preclude the case from being pursued.

[21] The appellants properly do not contest the first of these two criteria, but focus on the second. In my view, the respondents cannot meet this criterion. Despite their debt to their lawyers, which will be significantly increased by the appeal, there is nothing before me to suggest that without an interim costs order it is possible that the respondents will be unrepresented on these appeals.

[22] The respondents seek to engage s. 131 of the Courts of Justice Act for the same reasons they advance to lift the automatic stay under Rule 61.01(5). I have found those reasons insufficient for that purpose and, without more, would not exercise my discretion under s. 131 to permit the respondents to accomplish indirectly what I have found they cannot accomplish directly under Rule 61.01(5).

[23] The respondents third argument is that, in any event, I should order security for costs pursuant to Rule 61.06(1). The short answer to this submission is that the respondents have not established that the appellants have insufficient assets to pay the costs of these appeals, nor have they established any other special circumstance warranting the order sought. The arguments they advance are those put forward unsuccessfully to seek a lifting of the automatic stay and equally are insufficient to sustain an order for security for costs.

[24] In conclusion, I would dismiss the respondents’ motion seeking relief from the automatic stay of the money judgments in this matter.

[25] The motion brought by the appellants is to stay certain of the mandatory orders in the judgments appealed from. They are supported in this by counsel acting for the accounting firm on behalf of Mr. Wiseman.

[26] The orders sought to be stayed are those providing for a tracing procedure to determine whether certain funds to which Morris Waxman was found to have a claim as beneficiary of a constructive trust can be traced into the hands of persons who are not bona fide purchasers for value without notice.

[27] The orders require significant compilation and disclosure of information by the appellants, and oblige them and others to attend to be examined as part of the tracing process.

[28] While it is not sought to be stayed, a related order provides that the trial judge be the one to referee disputes arising during this process.

[29] The test for the imposition of a stay of a mandatory order pending an appeal is not in dispute. The appellants must show a serious question to be adjudicated on the appeal; then they must show that they will suffer irreparable harm if the stay is not granted. Finally, there must be an assessment as to which of the parties, the appellants or the respondents, would suffer greater harm from the refusal or the granting of a stay. Overall the determination of a motion like this requires an exercise of the court’s discretion.

[30] To dispose of this motion I need only deal with the irreparable harm criterion because, on this record, the appellants have failed to meet it. Their assertion is that if Chester Waxman and his sons Gary and Warren, who all currently work for IWS, have to comply with these orders, they will have to divert so much time and attention to this that the business of IWS will suffer severely and may not survive.

[31] Under cross-examination this assertion simply did not hold up.

[32] The estimates of time required given by the deponent on behalf of the appellants were acknowledged to be just a wild stab. The deponent agreed he had no real idea of how many hours compliance would take. He also agreed that much of the compliance work would be done by advisors and not by Chester Waxman and his sons Gary and Warren. It was the time and attention to the business of those three that was essential for its survival. In short, the appellants simply have not shown any irreparable harm if the stay is not granted.

[33] Moreover, weighing against my exercise of discretion to impose a stay is that the appellants are in acknowledged non-compliance with another mandatory order made at trial – to convey forthwith to Morris Waxman 50% of the shares of IWS. No stay was sought of this order nor any reason offered for not having complied beyond the weak excuse that the respondents had not asked that the shares be conveyed.

[34] In the circumstances, therefore, I would decline to exercise my discretion to issue the stay of the mandatory order sought by the appellants. This motion must be dismissed.

[35] In the result, both the motion to relieve against the automatic stay and the motion to impose a stay on certain mandatory orders are unsuccessful. The major protagonists have divided success between them. While counsel for Mr. Ennis and his excess insurer can be said to have had undivided success in resisting the respondents’ motion, their roles were quite limited. In all the circumstances there should be no costs of either motion.

[36] I propose now to convene a meeting of counsel as quickly as possible to address the additional matters requiring directions. I would be grateful if counsel could be in touch with my law clerk to make the necessary arrangements.

“S.T. Goudge J.A.”