Marcoccia v. Marcoccia, 2008 ONCA 866

CITATION: Marcoccia v. Marcoccia, 2008 ONCA 866

DATE: 20081222

DOCKET: C49169

COURT OF APPEAL FOR ONTARIO

O’Connor A.C.J.O., Doherty and Goudge JJ.A.

BETWEEN:

Carmela Marcoccia

Applicant/Respondent/Responding Party on Motion

and

Luciano Marcoccia

Respondent/Appellant/Moving Party on Motion

T. Michele O’Connor, for the respondent/appellant

Ken H. Nathens, for the applicant/respondent

Heard: December 15, 2008

ENDORSEMENT

[1] The parties have been involved in matrimonial litigation since 2006. The husband appeals the order of Rogers J., dated July 10, 2008, striking his Answer to the wife’s claims for support and an equalization payment.

[2] The motion judge struck the husband’s Answer because she found he had breached an order for disclosure of financial information relating to his business, a company in which he and his partner each owned a fifty percent interest. While she also found that the husband’s failure to comply with a preservation order cast doubt on his good faith in the litigation, the motion before her did not seek relief for breach of that order.

[3] A remedy striking a pleading is a serious one and should only be used in unusual cases.

[4] In our view, the motion judge erred in striking the husband’s Answer. The husband’s conduct, upon which she relied, was not sufficiently serious to require the striking order.

[5] On December 19, 2007, MacKinnon J. ordered the husband to disclose certain financial records and breakdowns of financial information from his business. The husband produced some but not all of the records.

[6] On January 4, 2008, the husband’s business partner instituted the buy sell process that was provided for in the partnership agreement. That process led to the husband selling his fifty percent in the business on February 15, 2008.

[7] The husband’s business was his main source of income and his main asset other than his interest in the matrimonial home. The husband accepts that the financial records from the company that he was ordered to disclose are relevant to the wife’s matrimonial claims.

[8] While the wife may eventually challenge the bona fides of the buy sell process, she did not do so on the motion to strike the husband’s Answer and the motion judge did not make any finding in that respect. Thus, we approach the issues on this appeal on the premise that the husband’s former partner properly exercised his contractual rights under their agreement and that there was no improper collusion between the husband and his partner aimed at impairing the wife’s claims.

[9] During the buy sell process, the parties communicated about the outstanding disclosure issues. The husband did not inform the wife that the buy sell process was underway and that his shares were to be sold. Nor did the husband take any steps within the buy sell process to obtain the financial records that had not been produced pursuant to the December 19, 2007 order.

[10] The husband’s explanation for these failures is that he believed, erroneously as it turned out, that disclosure had been completed as a result of an exchange of information between the two financial experts retained by the parties. Thus, he believed there was no need to inform the wife about the pending sale. The motion judge addressed the husband’s belief and concluded that by February 6, 2008, at the latest, it was evident to the husband that some disclosure continued to be missing.

[11] In our view, given the nature of the litigation and the outstanding disclosure order, the husband should have told the wife of the impending sale and made efforts to obtain the relevant records before closing. Candour demanded no less. However, it is far from certain that if the husband had taken these steps, disclosure would have resulted. It seems unlikely that the wife could have obtained an order staying the sale absent a finding that the buy sell process was an artifice being used to assist the husband in the matrimonial litigation.

[12] Further, the events subsequent to the closing of the sale suggest that the husband’s former partner was unlikely to have delivered the required records even if the husband had requested them. After the sale closed, the husband did ask for the documents. The former partner declined. The husband and wife then obtained a court order directing the former partner to produce the records. The former partner has appealed that order and that appeal will be heard in February 2009.

[13] In considering the seriousness of the husband’s conduct, we note that there is no finding that he deliberately breached the disclosure order. While the husband was not as candid as he should have been about the sale process, the period during which he knew there was further disclosure required and did not act was relatively short, about nine days. It is far from certain that he could have done anything during that period to resolve the issues. We also note that the wife may obtain the disclosure in any event. If not, there remains the possibility that a court hearing this matter at trial might draw an inference adverse to the husband based on the circumstances surrounding the failure to disclose.

[14] On the facts of this case, there is no reason to believe that an order striking the husband’s Answer is necessary to prevent prejudice to the wife; nor will it assist the court in addressing the issues that require resolution. Further, the sanction imposed goes beyond that which is necessary to express the court’s disapproval of the conduct in issue.

[15] In the result, we conclude that the husband’s failure to comply with the disclosure order is not sufficiently serious to warrant the severe remedy ordered below.

[16] The wife also complains that the way the husband disposed of the proceeds of the sale of his shares breached a preservation order made in August 2006. The wife did not specifically rely upon this breach as a basis for the motion striking the husband’s Answer, however, she did make specific references to it in her affidavit material.

[17] In her reasons striking the husband’s Answer, the motion judge referred to the fact that the husband had used much of the money received from the sale to pay debts and legal fees. On this appeal, the husband accepted that the use of the monies in this fashion was a “technical” violation of the preservation order. He goes on to argue, however, that there will not be a net effect on the equalization calculation because the monies were used to pay off debts that existed before valuation day. Whatever the case, the motion judge was not asked to and did not base her order to strike the husband’s Answer on a finding that he had breached the preservation order. Rather, she said that it “casts doubt of the litigation good faith” of the husband.

[18] In the result, we are satisfied that the appeal should be allowed. We are, however, concerned that there is a possibility at least that the husband’s lack of candour could have made a difference to the way the disclosure has evolved. We are also concerned that the husband’s lack of candour should not be rewarded. As a result, we are of the view that he should be required to bear the wife’s costs in the litigation that resulted because of her efforts to obtain full disclosure. We, therefore, allow the appeal, set aside the order of the motion judge and substitute an order dismissing the wife’s application to strike the husband’s Answer on the following conditions:

a) The husband pay the wife’s costs of the motion to strike the husband’s Answer, fixed in the amount of $10,000;

b) The husband pay the wife’s legal costs of the motion to compel production of the financial records from the husband’s former business, including the costs related to the appeal. The husband shall have the benefit of any cost award made in favour of the wife in that litigation;

c) The husband shall pay the above amounts out of the approximately $20,000 now being held in his solicitor’s trust account and be responsible for any deficiency; and

d) The husband shall indemnify the wife for any cost orders made against her in the third party production litigation and continue to pursue the disclosure required by the order.

[19] There shall be no costs on this appeal.

“D. O’Connor A.C.J.O.”

“Doherty J.A.”

“S.T. Goudge J.A.”