DATE: 20061025
DOCKET: C44827
COURT OF APPEAL FOR ONTARIO
MacPHERSON, ARMSTRONG and LaFORME JJ.A.
B E T W E E N :
MORRIS J. WAXMAN
Richard B. Swan and Gideon C. Forrest, for Morris Waxman and Solid Waste Reclamation Inc.
Applicant/Respondent
- and -
CHESTER WAXMAN, ROBERT WAXMAN, GARY WAXMAN, WARREN WAXMAN, LIGHTNING DISTRIBUTION INC., CHW HOLDINGS INC., GAWIX FINANCIAL CORPORATION, WAXTEK METALS INC., I. WAXMAN & SONS LIMITED and CHESTER WAXMAN, WAYNE LINTON AND GARY WAXMAN in their capacities as TRUSTEES OF THE CHESTER WAXMAN FAMILY TRUST
Edward Babin and Lorne Silver, for Chester Waxman
Respondents/Appellants
Heard: October 6, 2006
On appeal from the order of Justice J. Farley of the Superior Court of Justice dated December 23, 2005.
ARMSTRONG J.A. (dissenting):
[1] This is an appeal from the order of Justice Farley of the Superior Court of Justice (“the motion judge”) dated December 23, 2005. The motion judge refused to fully vacate and declare void ab initio certain notices of garnishment issued on November 4, 2005 on behalf of Solid Waste Reclamation Inc. (“SWR”) and served on CIBC Wood Gundy, CIBC, HSBC Bank Canada and Manulife Bank (“the Banks”).
The Background
[2] This matter arises out of the multiple and complex litigation between two brothers, Morris and Chester Waxman and their families concerning inter alia the ownership of the shares of I. Waxman & Sons Limited (“IWS”). Morris and Chester Waxman are referred to hereafter by their first names as a matter of convenience.
[3] After a lengthy trial, Justice Sanderson of the Superior Court of Justice restored Morris as a 50 percent shareholder of IWS and awarded damages to Morris against Chester, IWS and Chester’s sons – such damages to be determined on a reference to a Master. Sanderson J. also awarded SWR, a company controlled by Morris’s sons, damages of $2.6 million against Chester, Chester’s son, Robert, and IWS plus interest accruing from 1989.
[4] Sanderson J.’s judgment was appealed to this court by Chester and his sons. The appeal was dismissed except in respect of minor issues. Leave to appeal to the Supreme Court of Canada was denied as was a subsequent motion to reconsider the leave application.
[5] Unfortunately, the litigation between the brothers and their families did not end with the denial of leave to appeal to the Supreme Court of Canada. There remained outstanding the reference to the Master in respect of damages. Also, Morris commenced an oppression application against Chester, his sons and others in relation to the management of IWS. The oppression case was case managed by the motion judge who was also appointed under rule 37.15 to hear all motions and applications in Waxman related litigation.
[6] As a result of a concern to preserve the assets that would be available to satisfy the judgment of Sanderson J., obtained by Morris and others, Farley J. issued an order in the oppression case on November 3, 2004 to the effect that all of the assets of Chester and his two sons be frozen except for $100,000 per month that was to be paid to Chester and his sons for their employment with IWS. Counsel for Morris, in a letter to the motion judge dated November 9, 2004, agreed that the freezing order was not in any way to effect Chester’s ability to pay legal bills.
[7] The provision for the payment of legal fees was included in a subsequent order of the motion judge dated March 2, 2005. The March order provided for a payment protocol for legal fees which involved a review by a court appointed monitor.
[8] Final judgment in the oppression case was delivered on September 1, 2005. The motion judge converted a number of interlocutory orders into final orders including the November 3, 2004 freezing order and the legal fees payment protocol. Paragraph 3(c) of the September 1, 2005 order provides:
Chester, Warren, Robert and Bailey may use any of the funds frozen pursuant to the Order of this Court dated November 3, 2004 (the “Frozen Funds”), or any of their non-frozen funds, to pay for any legal fees and disbursements, including relevant and necessary expert, accounting or consulting fees, for proceedings 02-CL-4794, 33234/88, 37616/89 and 05-CL-5881 (including appeals) (the “Fee Payments”).
[9] The legal fees exception and the payment protocol appears to have worked satisfactorily.
The Garnishment Notices
[10] As indicated above, counsel for SWR (who was also Morris’s counsel) by ex parte application to the Registrar of the Court, obtained the notices of garnishment on November 4, 2005. Counsel for Chester moved before the motion judge on December 13, 2005 to vacate the notices of garnishment. Counsel also moved for an order directing that Chester may, on terms similar to the payment protocol set out in the orders of March 2 and September 1, 2005, pay outstanding receivables and further legal and professional fees in respect of ongoing litigation with Morris from the accounts at the Banks and/or the Chester Investments loan to IWS and/or Chester’s shareholding loan/drawing account with IWS.
[11] After reserving his decision, the motion judge on December 23, 2005 ordered that the notices of garnishment issued to SWR in respect of Chester’s bank accounts were to be vacated, but only to the extent necessary to fund certain payments:
(i) repayment by Chester to IWS of legal fees relating to the appeal of Justice Sanderson’s trial judgment; and
(ii) payment of reasonable legal fees for Chester for the reference to a maximum of $250,000.
[12] The motion judge also ordered that to the extent that the funds in the bank accounts were insufficient to satisfy the above payments, the Chesterton loan account at IWS could be utilized, subject to Chester agreeing to reimburse such amounts found not owing to Chester.
The Appeal
[13] Counsel for the appellants attack the order of the motion judge on several grounds. The main thrust of the appellants’ position is that the notices of garnishment are in conflict with the motion judge’s freezing orders of November 3, 2004, March 2, 2005 and September 1, 2005. Counsel submits that the September 1 consolidating order provides that all of the monies held in Chester’s accounts at the Banks, except for the $100,000 monthly payment and the payment of legal fees, are frozen and are not to be transferred or encumbered. Encumbering those funds through the notices of garnishment is contrary to the express terms of the September 1 freezing order.
[14] The effect of the garnishment notices, as far as Chester and his family are concerned, is that they prohibit access to the bank accounts for the payment of their legal fees in accordance with the payment protocol except to the extent of $250,000 which sum is insufficient to cover their needs. Counsel for the appellants submits that the motion judge’s order of December 23 is tantamount to a variation of the September 1, 2005 order without any variation application having been brought.
[15] Counsel for the appellants also submits that the notices were issued just weeks short of the commencement of the reference before the Master and three days before an attendance on the Master to deal with the scheduling of the reference. The Master and counsel for Chester were not advised of the notices of garnishment at the scheduling motion. There was no change in circumstances following the September 1 order which would justify the motion judge varying the legal fees exception to that order. No effort was made on behalf of SWR to enforce its judgment from the time of the dismissal of the appeal to this Court. There is a suggestion of ulterior motive on the part of the respondents. There is, at least, an inference that could be drawn that the issuance of the notices of garnishment, virtually on the eve of the reference to the Master, was a stratagem to achieve some tactical advantage. Indeed, Justice Farley makes a passing reference in his reasons for judgment when he refers to “the rather sudden issuance of the garnishments”.
[16] Counsel for the respondents submits that the order of December 23, 2005 has to be read in the context of the litigation battle that has been waged between the two brothers and their families since 1988. He emphasizes, in particular, that after the judgment of Justice Sanderson, Chester continued to drain funds from IWS and that Chester and his son Robert have done everything within their power to avoid accepting the judgment of Justice Sanderson. Counsel alleges that attempts to examine Robert as a judgment debtor in reference to the judgment in favour of SWR have been frustrated and that this led to the application for the notices of garnishment. Counsel for the respondents relies on the motion judge’s endorsement of December 23, 2005 where he describes the purpose of his freezing orders:
The general purpose of the freezing orders were [sic] to prevent the incredible and continued leakage of assets from Chester, which assets would in all likelihood be required (not for expenses and disbursements in the ordinary course) but rather to fund Chester’s obligations to Morris as determined by the foregoing court decision of Sanderson J., whether or not the reference determined a further damage liability of any magnitude.
[17] Counsel for the respondents, during the course of oral argument, repeated several times that there was nothing in the freezing orders which prohibited the issuance of the notices of garnishment and that they were perfectly entitled to proceed with them.
[18] With respect, I cannot accept the respondents’ submission. Paragraph 3(b) of the September 1, 2005 order provides:
All of the assets of Chester, Robert and Warren are frozen and shall not be assigned, transferred or otherwise encumbered except by further order of the Court, save and except that these freezing orders do not apply to the use by Chester, Warren and Gary of the money they receive out of the $100,000 monthly funds from IWS (referred to in paragraph 1(d), above); the reasonable needs of Robert are to be dealt with in a similar fashion, based upon agreement by all counsel or further order of the Court, which should be structured so as not to precipitate a seizure of assets by any secured creditor. (Emphasis added)
[19] Paragraph 3(c) of the order has already been referred to above which provides access to Chester, Warren, Robert and Bailey to the funds for the payment of legal fees and disbursements.
[20] In my view, the September 1, 2005 order is unequivocal that the bank accounts (the assets of Chester) cannot be encumbered except by further order of the court. In order to achieve the objectives sought by the respondents, it was necessary for them to bring an application to vary the September order.
[21] Counsel for the respondents argues that as case management judge and a judge acting under rule 60.08(16) of the Rules of Civil Procedure, the motion judge had a broad discretion to make whatever order he considers just in the particular circumstances of this case. Subrule 60.08(16) provides:
Garnishment Hearing – on motion by a creditor, debtor, garnishee, co-owner of the debt or any other interested person, the court may,
(a) where it is alleged that the debt of the garnishee to the debtor has been assigned or encumbered, order the assignee or encumbrancer to appear and state the nature and particulars of his or her claim;
(b) determine the rights and liabilities of the garnishee, the debtor, co-owner of the debt and any assignee or encumbrancer;
(c) vary or suspend periodic payments under a notice of garnishment; or
(d) determine any other matter in relation to a notice of garnishment,
and the court may proceed in a summary manner, but where the motion is made to a master and raises a genuine issue of fact or of law, it shall be adjourned to be heard by a judge.
[22] The respondents rely upon the judgment of this court in International Union of Painters and Allied Trades, Local 200 v. S & S Glass and Aluminum (1993) Ltd. (2004), 47 C.P.C. (5th) 266 (Ont. C.A.) in respect of the approach to be taken to subrule 60.08(16). The aforesaid case related to the validity of two notices of garnishment in which the debtor was identified by some, but not all, of his various names. The garnishee took the position that it did not owe money to the debtors named in the notices of garnishment. Gillese J.A. observed that the debtors in the action were, in reality, one person. In upholding the validity of the second notice of garnishment, Gillese J.A. said at paragraphs 18, 19, 20, 21 and 27:
[18] There are times when technical arguments, such as the one proffered by Seaway in this case, must carry the day. This is not one of those times.
[19] I begin by considering the language of subrule 60.08(16). There is nothing in its wording to support the restrictive approach advocated by Seaway. In fact, the language used in subrule 60.08(16) supports the contrary view. “Any…interested person” may bring a motion pursuant to the subrule; the court “may” determine the “rights and liabilities of the garnishee” or “any other matter” in relation to a notice of garnishment. It “may” proceed in a summary manner.
[20] The subrule was recently considered in 20 Toronto Street Holdings Ltd. v. Coffee, Tea or Me Bakeries Inc. (2001), 53 O.R. (3d) 360 (Ont. S.C.J.). Justice Nordheimer said this, at para. 5: “as suggested by the use of the word ‘may’ in subrule 60.08(16) above, the court may therefore make whatever order it deems just in the particular circumstances of any given case.”
[21] In my view, on a plain reading of rule 60.08(16), the motions judge had the power, when determining Seaway’s “rights and liabilities”, to look at the realities of the relationship of the various Skov companies and the conduct of Skov toward Local 200, as those realities were know[n] to Seaway, when it received the garnishee. Those realities fully justified the order.
[27] Nothing in the subrule or in the case law decided on its application supports the proposition that the courts should take an unduly technical approach when satisfied that adequate notice has been given to the affected party. The subrule has been applied in an equitable manner: see Hongkong Bank of Canada v. Slesers (1992), 7 O.R. (3d) 117 (Ont. Gen. Div.), at 120; Metropolitan Toronto (Municipality) v. O’Brien, [1995] O.J. No. 4896 (Ont. Gen. Div.) at para. 19.
[23] I, of course, agree with Gillese J.A.’s observations on the approach to be taken to subrule 60.08(16). It was obviously appropriate to take that approach in the S & S Glass & Aluminum case. However, the situation before us in the case at bar is quite different. While it is not difficult, on this record, to have a high degree of empathy for the plight that the respondents find themselves in and while it can be said that the motion judge proceeded on a pragmatic basis, I cannot find any legal justification upon which to support the notices of garnishment. By ignoring the express requirement contained in paragraph 3(b) of the Order, the respondents have simply short-circuited the process that the motion judge established.
[24] The motion judge makes no reference in his reasons for the need to apply for a “further order of the Court” as expressly provided for in paragraph 3(b) of his order of September 1, 2005. He appears to have overlooked it and in so doing, I believe, he was in error.
[25] Counsel for Chester also raises an issue concerning the sum of $237,753.55 held in the trust accounts of Cassels Brock and Lenczner Slaght which is addressed in the motion judge’s endorsement of March 1, 2006. I agree with the submission of counsel for the respondents that the motion judge did not make an order on March 1, 2006 concerning these funds and I would decline to make any order in respect of them.
[26] For the above reasons, I would allow the appeal and set aside the order of December 23, 2005. In view of the conclusion I have reached, I do not find it necessary to deal with the other grounds of appeal.
[27] I would award the appellants their costs of the appeal on a partial indemnity basis fixed in the amount of $12,000 inclusive of disbursements and GST. If the parties cannot agree on the costs of the proceedings before the motion judge, they can advise the court through the Registrar.
“Robert P. Armstrong J.A.”
LaFORME J.A.:
[28] I have had the benefit of reading the succinct and forceful decision of my colleague. Respectfully, however, I find myself in disagreement with his disposition of this appeal. I take a different approach to analysing the decision of Farley J., and in doing so I conclude that the appeal must be dismissed. In my view, Farley J’s decision was one of an exercise of discretion by an experienced commercial court judge who had the task of case managing this long and complex litigation.
[29] I agree with, and rely on the background as set out in the decision of my colleague, but part company with him on the analysis to be applied. Also, like my colleague I will refer to Morris and Chester Waxman by their first names solely for purposes of convenience. I do think, however, that it is helpful to first repeat some general features of the order of Farley J. that is the subject of this appeal.
[30] Farley J. made an order wherein he imposed terms on certain notices of garnishment delivered by SWR[^1] against accounts held by Chester. The terms were made in order to permit Chester to access up to $250,000 from the garnished accounts to assist him in paying certain legal fees.
[31] Farley J. also imposed a pre-condition that required Chester to first fulfil his obligation under an earlier order of Farley J. to repay approximately $710,000 to the family company, I. Waxman & Sons Limited (“IWS”), which Morris Waxman and the appellant each own on a 50:50 basis. This amount represented personal legal fees of Chester and his sons, which Chester had improperly caused IWS to pay. Chester was permitted under the challenged order to employ funds in the garnished accounts for the purpose of fulfilling this repayment condition.
[32] Finally, the order also permitted Chester - in the event that there were insufficient funds in the garnished accounts - to employ a loan “account” at IWS in favour of Chester’s wholly-owned holding company, Chesterton Investments Limited (“Chesterton”), for the purpose of funding the repayment pre-condition, and the $250,000 amount for future legal fees.
[33] For purposes of clarity, and to fill out the context, within months after the trial judgment in June 2002, Morris commenced an oppression case against Chester that was supervised by Farley J. Later on Farley J. was designated as the case management judge for all Waxman matters pursuant to Rule 37.15.
ANALYSIS
[34] Importantly, the motion was brought by Chester under rule 60.08 – supported by thorough affidavit material and a comprehensive factum – seeking, among other things, to have the SWR garnishments set aside. Both sides relied on this rule, which Farley J. ruled on and issued his order pursuant to.
[35] Chester submits that the motion judge erred by failing to decide the issues in a manner prescribed by rule 37.13. That is, the motion judge failed to decide the issues as framed in the notice of motion, as he was obliged to do. The appellant’s arguments may be distilled into two basic submissions, namely:
The circumstances in which the garnishments were sought and obtained by SWR with Morris’s consent amount to an abuse of process; and/ or,
Given the nature of the motion before him, Farley J. could not have granted the relief he ordered. That is, Farley J. effectively varied his original freezing orders, which was not a proper issue for consideration on this motion.
[36] I disagree. The order was fully authorized by subrule 60.08(16), which as I said, both sides relied upon.
[37] In Toronto Street Holdings Ltd. V. Coffee, Tea or Me Bakeries Inc. (2001), 53 O.R. (3d) 360 (S.C.J.) Nordheimer J. at para. 5 described the broad remedial scope of subrule 60.08(16) as:
… garnishment is an equitable remedy and, as suggested by the use of the word "may" in subrule 60.08(16) above, the court may therefore make whatever order it deems just in the particular circumstances of any given case.
[38] This court in International Union of Painters and Allied Trades, Local 200 v. S & S Glass and Aluminum (1993) Ltd. (2004), 47 C.P.C. (5th) 266 (Ont. C.A.) at paras. 21-27 agreed with this description[^2]. Thus, a motion judge is entitled to look at the reality of the relationship between a debtor and the corporations he controls when making an order under subrule 60.08(16).
[39] Farley J’s discretionary order was within his jurisdiction and involved no error in law or principle. The order in respect of the garnishments was fully authorized by subrule 60.08(16). There was no reason why the garnishments should have been wholly set aside, as sought by Chester. They were issued by a judgment creditor against a judgment debtor to collect on a valid judgment that had already been upheld by this Court.
[40] To accede to Chester’s argument would mean that a judgment creditor, having protected its judgment by obtaining a court order prohibiting the judgment debtor from dissipating its assets, creates a bar to the judgment creditor taking any further steps to enforce its judgment. In this case it would mean that Chester is free to litigate exhaustively in an effort to frustrate or avoid Morris’s judgment, while Morris is prohibited from taking otherwise lawful steps to enforce his judgment.
[41] Such a result in this case would be unfair, unbalanced and unreasonable. It seems to me that this is precisely the analysis that Farley J. undertook and decided, in the context of his intimate knowledge of this long and complex litigation, should not be allowed to occur.
[42] It is important to appreciate that any freezing orders made against Chester were made in an effort to protect Morris’s ability to realize on his judgment. They were granted for purposes of allowing for enforcement of the judgment, not to shelter Chester’s assets until he has exhausted his litigation options.
[43] What Farley J. did was to uphold the validity of the garnishments while permitting Chester to access a specified amount of cash from the garnished accounts in order to prevent a scheduled reference proceeding from being derailed or delayed. This was a practical and functional approach by an experienced commercial judge who was, and had been, case managing the multitude of litigation between the parties. Moreover, I think it was entirely appropriate that Chester - as a precondition - be required to first comply with the outstanding legal fees repayment order, which he had ignored.
[44] Finally, Farley J. permitted Chester to employ the Chesterton loan account as a backstop, in the event that there were insufficient funds in the garnished accounts to cover the legal fee repayment obligation and the $250,000 sum freed up for legal fees on the damages reference. This backstop element of his order was authorized by paragraph 1(q) of the previous final judgment in the oppression case, which enjoined IWS payments to Chesterton under the loan account “until further order of this Court”.
[45] For these reasons, the order of Farley J. was a proper exercise of his judicial discretion. Additionally, while the approach taken by SWR, with the consent of Morris, in obtaining the garnishment orders might be considered by some as “hardball” litigation, it was nevertheless completely lawful. In the circumstances of this case, it falls far short of amounting to an abuse of process.
[46] Before closing, I agree with my colleague’s conclusion at para. 25, and accordingly, I too would decline to make any order in respect of the monies held in the trust accounts of the law firm. Finally, I likewise do not find it necessary to deal with any other grounds of appeal, given my decision.
DISPOSITION
[47] I would, for these reasons, dismiss the appeal. And, as agreed to by the parties, I would award costs of this appeal to Morris in the all-inclusive amount of $12,000.
RELEASED:
“JCM” “H.S. LaForme J.A.”
“OCT 25 2006” “I agree J.C. MacPherson J.A.”
[^1]: By way of reminder, SWR (Solid Waste Reclamation Inc.) is a company controlled by Morris Waxman’s sons. In a judgment dated June 27, 2002 SWR was awarded damages against Chester Waxman et al. in the amount of $2.6 million.
[^2]: My colleague, at para. 22 of his decision, sets out the relevant paragraphs of Gillese J.A. referenced from S & S Glass.