COURT OF APPEAL FOR ONTARIO
CITATION: Chiaramonte v. Chiaramonte, 2013 ONCA 641
DATE: 20131023
DOCKET: C55971
Rosenberg, Tulloch and Lauwers JJ.A.
BETWEEN
Anna Chiaramonte
Applicant (Respondent)
and
Rosario Anthony Chiaramonte, R.A. Chiaramonte Dentistry Professional Corporation, 1298443 Ontario Ltd., Moutchiara Investments Ltd., Trident Services LLC, Chiaro Company LLC, Legends H.H. 1 LLC and Titan Services Ltd.
Respondents (Appellants)
Gary Joseph and Kristy Maurina, for the appellants
Lorne Wolfson and Adam Black, for the respondent
Heard: March 21, 2013
On appeal from the order of Justice Lorna-Lee Snowie of the Superior Court of Justice, dated August 2, 2012.
Tulloch J.A.:
A. introduction
[1] This is a dispute between a husband and wife, following a 19 year marriage. There are two children of the marriage. The appellant husband is a dentist who also invests extensively in rental real estate properties throughout Canada, the United States and Turks & Caicos. He provided financial support throughout the marriage. Apart from providing bookkeeping services for the appellant's dental practice, the respondent wife has not worked outside the home for 20 years.
[2] The parties have been separated since January 2010. Since the breakdown of the marriage, the relationship has been acrimonious. Vitriolic allegations have been levied by both sides. The wife believes that the husband was unfaithful to her during the marriage with one of their employees. The husband claims that the wife has a serious alcohol problem that contributed to the breakdown of the marriage.
[3] Following the parties' separation, the wife brought an application seeking financial relief. The main controversy that has plagued the application is the issue of financial disclosure to be provided by the husband. Prior to the motion that forms the basis of this appeal, the Superior Court had issued at least three orders containing terms relating to the husband's financial disclosure.
[4] The motion judge found that the husband had provided "token" disclosure only, and that he was in wilful breach of the three previous orders. Among other orders, the motion judge struck the husband's pleadings pursuant to the Family Law Rules, O. Reg. 114/99, and ordered that the matter proceed by way of an uncontested trial.
[5] The husband appeals. He submits that he substantially complied with the court orders. As for the disclosure obligations, the husband swore affidavits providing detailed explanations for any non-compliance. He argues that the motion judge made findings of fact that were not supported by the evidence, and failed to apply relevant legal principles to consider alternative, less extreme remedies. The husband now seeks to set aside those portions of the order striking his pleadings and allowing the matter to proceed to an uncontested trial.
[6] The wife contends that there has been significant non-compliance with the prior court orders and disclosure requirements. She argues that the motion judge's findings were supported by the record, that she properly exercised her discretion to strike the husband's pleadings pursuant to the Family Law Rules and that her order is entitled to deference on appeal.
[7] For the reasons that follow, I would allow the appeal.
B. FACTS
Background
[8] The parties were married on August 3, 1991, and separated on January 27, 2010. There are two children of the marriage: a daughter, born June 20, 1994, and a son, born November 8, 1996. The children now reside with their mother in the former matrimonial home.
[9] The husband maintains a successful dental practice and has compounded his wealth by investing in real property. He holds an interest in or is the sole shareholder of a number of companies that own dozens of real estate investment rental properties throughout Canada, the United States and the Turks and Caicos.
[10] Throughout the marriage, the wife was the primary caregiver for the two children and also worked as the bookkeeper for the appellant's dental practice.
[11] Following the abrupt breakdown of the marriage, the situation between the parties quickly deteriorated, resulting in an untenable relationship. Each party has made scandalous and vitriolic accusations against the other.
[12] On February 25, 2010, the wife brought an ex parte application seeking, inter alia, child support, spousal support, property vesting orders and non-depletion orders. The application was granted, resulting in the freezing of the husband's bank accounts and assets, as well as the husband's business and investment accounts. He subsequently retained counsel and returned the matter to court.
Orders Respecting Disclosure Obligations
[13] Between April 2010 and March 2012, the parties attended on a number of interlocutory motions and consented to several orders, at least three of which imposed on the husband some form of financial disclosure obligations.
[14] First, in April 2010, Eberhard J. ordered on consent that the husband provide financial disclosure in respect of his dental practice, including the production of financial statements and the preservation of bank statements and deposit books for inspection. Also pursuant to this order, the husband agreed to provide monthly accounting and bank statements for each account associated with his real estate investment properties. He also agreed to provide records for the use of certain funds and to produce certain credit card statements.
[15] Second, in January 2011, Goodman J. ordered, again on consent, that the husband produce copies of his monthly statements for certain credit cards.
[16] Finally, in March 2012, Thompson J. ordered that the husband complete and submit to the wife an expert valuation of the appellant's dental practice and a preliminary analysis of the appellant's income for at least the previous three years.
The Respondent's Motion Below
[17] This appeal arises out of the wife's motion, brought in February 2012, to strike the husband's pleadings for alleged breaches of the prior court orders and alleged bad faith conduct by the husband in attempting to prolong the litigation, increase the wife's costs and generally prevent her from pursuing her claim.
[18] The husband denied these allegations and brought a cross-motion seeking an order that the wife comply with certain terms set out in the orders of Bielby and Belleghem JJ., dated October 1, 2010, and December 17, 2010, respectively.
[19] Snowie J. heard the motion on August 2, 2012. She made specific findings of fact regarding the husband's financial disclosure and, in particular, found that the husband had wilfully breached the orders of Eberhard, Thompson and Goodman JJ.:
It is clear to this court the Father considers himself above the law and has repeatedly "thumbed his nose" at the outstanding court orders. It appears to be a "game" of "power and control" for the father. He has made little effort to comply with this court's order for the last 2 ½ years as witnessed by the outstanding disclosure (15 pages) attached to this endorsement as Schedule "A".
I accept all the outstanding disclosure listed in schedule "A". The disclosure made to date by the father has been "token" only. He has produced a "handful" of documents here and there in order to feign compliance. It is a "game" for him. He clearly believes that he is smarter than counsel and this court and can avoid disclosure. The disclosure he has made is of little value.
I find that the father is clearly and wilfully in breach of the orders of Justice Eberhard, paras. 8, 10, 11, 12, 13, 14, 17, 18, 19, 20; and Justice Thompson dated March 29, 2012, para. 13.
I further find that the father is in breach of Justice Goodman's order of January 18, 2011, para. 6. No monthly credit card statements have been provided by any of the Respondents as ordered.
[20] The motion judge granted the wife's motion. Among other relief, the motion judge struck the husband's pleadings and ordered that the matter be set down for an uncontested trial. The motion judge also dismissed the husband's cross-motion in its entirety. The husband appeals those portions of the order striking his pleadings and setting the matter down for an uncontested trial. Leave to appeal the interlocutory aspects of the motion judge's order was refused by van Rensburg J. on December 31, 2012.
C. the parties' POSITIONS
[21] The crux of the parties' dispute concerns the nature and amount of financial disclosure provided by the husband to the wife.
[22] The husband submits that he has substantially complied with the disclosure obligations set out in the prior court orders. In support of his position, he offers a detailed list of bank statements, credit card statements, financial statements and records that have been provided to the wife. The husband claims that the motion judge simply ignored the evidence.
[23] The husband submits that the wife has changed counsel on three occasions since commencing these proceedings and that these changes may have contributed to her inability to track the documentation that he provided.
[24] The husband also claims that the wife made it difficult for him to access his computer and documents left in the matrimonial home. He points out that she had been his bookkeeper and was responsible for entering financial information into an accounting program. He alleges that she failed to enter this financial information for many months, which further impeded his ability to provide information as intended.
[25] In addition, the husband submits that the wife was aware that he was involved in legal proceedings with his former accountants, and that the proceedings included a request for the return of his files. Eventually, on October 14, 2011, the appellant moved to compel his former accountants to release his files. Thompson J. granted the appellant's requests and extended the timeline in Seppi J.'s order dated August 18, 2011, for the delivery of the husband's income tax returns and financial statements. According to the husband, the required materials were provided to the wife as they were completed.
[26] The husband seeks to have the order striking his pleadings set aside and to participate in the trial of this matter. He argues that the motion judge departed from the established principle that pleadings should only be struck in exceptional circumstances, and that the motion judge erred in law by failing to consider alternative, less extreme remedies. The husband also argues that the motion judge made palpable and overriding factual errors in finding that he had provided "token" disclosure only, that only a "handful" of documents had been produced and that all of the allegedly outstanding disclosure was in fact outstanding.
[27] The wife argues that the motion judge's decision to strike the husband's pleadings, and to deny him participation in the trial of this matter, is entitled to deference on appeal. Those remedies were within the broad discretion of the court under the Family Law Rules to deal with a party who is in breach of court orders. The wife contends that the motion judge was entitled to prefer her evidence as to the sufficiency of the disclosure provided by the husband. The motion judge's findings that the husband failed to disclose financial information, and that he wilfully breached multiple court orders, is supported by the record.
D. Analysis
[28] As a preliminary matter, the wife argues that this court should not entertain the appeal since an appellate court has the discretion to refuse to hear the appeal of a party who continues to be in wilful breach of an order: Dickie v. Dickie, 2007 SCC 8, [2007] 1 S.C.R. 346, at paras. 4-6.
[29] It is true that the court has an inherent power to control abuse of its process and to refuse to entertain the appeal of a party who is in wilful breach of court orders. However, because one of the husband's primary arguments in this case is that the motion judge erred in finding that the husband wilfully breached court orders for disclosure, it is necessary to consider the merits of this appeal. I note that the parties agreed, at the time of the hearing of the motion below, that the husband was up to date with his child and spousal support payments based on the imputed income attributed to him by Eberhard J. It is also acknowledged that, although the household and s. 7 expenses were not being paid, the entitlement to these expenses was in dispute.
The [Family Law Rules](https://www.canlii.org/en/on/laws/regu/o-reg-114-99/latest/o-reg-114-99.html)
[30] The Family Law Rules provide as follows, in relevant part:
1(8) The court may deal with a failure to follow these rules, or a failure to obey an order in the case or a related case, by making any order that it considers necessary for a just determination of the matter, on any conditions that the court considers appropriate, including:
(a) an order for costs;
(b) an order dismissing a claim made by a party who has wilfully failed to follow the rules or obey the order.
10(5) If a respondent does not serve and file an answer as this rule requires, or the answer is struck out by an order,
(a) the respondent is not entitled to any further notice of steps in the case (except as subrule 25 (13) (service of order) provides);
(b) the respondent is not entitled to participate in the case in any way;
(c) the court may deal with the case in the respondent's absence; and
(d) the clerk may set a date for an uncontested trial.
14(23) A party who does not obey an order that was made on motion is not entitled to any further order from the court unless the court orders that this subrule does not apply, and the court may on motion, in addition to any other remedy allowed under these rules,
(a) dismiss the party's case or strike out the party's answer or any other document filed by the party;
(b) postpone the trial or any other step in the case;
(c) make any other order that is appropriate, including an order for costs.
Striking a Party's Pleadings
[31] In family law cases, pleadings should only be struck, and trial participation denied, in exceptional circumstances and where no other remedy would suffice: Purcaru v. Purcaru, 2010 ONCA 92, 75 R.F.L (6th) 33, at para. 47. The exceptional nature of this remedy is rooted in the significance of the adversarial system, as this court recognized in Purcaru, at para. 49:
The adversarial system, through cross-examination and argument, functions to safeguard against injustice. For this reason, the adversarial structure of a proceeding should be maintained whenever possible. Accordingly, the objective of a sanction ought not to be the elimination of the adversary, but rather one that will persuade the adversary to comply with the orders of the court.
[32] Striking a party's pleadings is a drastic remedy that should only be applied in exceptional circumstances. The rules authorizing this remedy must be interpreted in light of the draconian effect of rule 10(5)(b). That rule provides that a respondent whose answer has been struck is not entitled to participate in the case in any way. For example, in Kim v. Kim, 2001 CarswellOnt 502 (ONSC), on the basis of rule 10(5)(b), an uncontested hearing was held on custody, support and property without further notice to the party whose pleadings had been struck. Similarly, in Costabile v Costabile, 2004 CarswellOnt 4860 (ONSC), a party whose pleadings had been struck was not entitled to notice of further proceedings nor was he entitled to participate in any way.
[33] It is true that a motion judge's decision to strike pleadings and deny participation at trial is entitled to deference if exercised on proper principles: Purcaru, at para. 50. Absent palpable and overriding factual error, appellate courts ought not to interfere with a motion judge's properly exercised discretion to strike pleadings. However, given the exceptional nature and significant implications of denying a party participation at trial, it is essential that this remedy of last resort be granted only on a proper evidentiary basis.
Application to the Present Case
[34] In the case at bar, the motion judge concluded that the husband was clearly and willfully in breach of three previous orders. In her reasons, the motion judge found that the husband had "thumbed his nose" at the outstanding court orders, and, in respect of the disclosure that he did make, that this was "token" disclosure only. She found that the husband had produced only a "handful" of documents here and there.
[35] A review of the record indicates that these findings were erroneous.
[36] There was evidence that the husband had provided a considerable amount of the disclosure specifically ordered by Eberhard, Thompson and Goodman JJ. in their respective orders. In addition to identifying allegedly outstanding disclosure, the wife's affidavit dated July 24, 2012, acknowledges the records that had already been produced. These included various personal and corporate bank statements, credit card statements, invoices, income tax returns, year-end financial statements and listing agreements, much of which addressed the terms of the prior court orders referred to by the motion judge.
[37] In my view, the motion judge clearly mischaracterized the husband's disclosure. The efforts made by the husband to comply with the court orders were more than just token attempts at compliance. Keeping in mind that the husband's financial situation is considerably more complex than that of the average family law litigant, it is apparent from the record that the husband had been making serious efforts to comply with his disclosure obligations. The exhibits attached to the husband's affidavit of April 27, 2012, include a personal income tax return and year-end financial statements for two of the husband's corporations. The exhibits attached to the husband's affidavit of July 10, 2012, many of which were also attached to an earlier affidavit, include personal and corporate bank statements for various accounts; a chart listing approximately 40 properties owned by the husband, including purchase price and mortgage information; a property appraisal; listing agreements for certain properties owned by the husband; and an invoice for valuation services. None of this evidence was referred to by the motion judge. It is not clear from her reasons that she even considered the affidavit evidence tendered by the husband.
[38] I do not mean to suggest that the husband's disclosure has been perfect. However, in my view, the motion judge committed palpable and overriding errors in finding that the husband had willfully breached the existing court orders. Justice would be best served in this case by allowing the husband to participate at trial. The extent of the husband's disclosure may well lead a trial judge to conclude that his income or assets exceed the figures disclosed. That determination is best left to the trial judge, based on all the evidence, including such further evidence as the husband may provide to substantiate his position.
[39] For these reasons, I would allow the appeal and set aside those portions of the motion judge's order striking the husband's pleadings and allowing the matter to proceed by way of an uncontested trial.
[40] The husband has been successful on this appeal and is entitled to costs of the appeal on a partial indemnity scale plus disbursements and HST.
[41] The husband also asks this court to set aside the costs order of Snowie J. dated February 1, 2013, which ordered costs in favour of the wife on a full indemnity basis in the amount of $90,616.91 for fees and $10,724.89 for disbursements. The wife argues that this court cannot consider the costs order of Snowie J. without leave to appeal. However, the general principle is that, when an appeal is allowed, the order for costs below is set aside and the costs below and the costs of the appeal are awarded to the successful appellant: St. Jean (Litigation Guardian) v. Cheung, 2009 ONCA 9; Hunt v. TD Securities Inc. (2003), 2003 CanLII 48369 (ON CA), 43 C.P.C. (5th) 211 (Ont. C.A.). Leave to appeal is not required if the substantive disposition is different from that of the decision under appeal: Dines v. Harvey A. Helliwell Investments Ltd., [1992] O.J. No. 2107 (Ont. C.A.). Accordingly, the motion judge's costs order is set aside. However, given that the husband does not seek an order for costs below, and because the result of this appeal leaves the wife with partial success on the motion, no costs below are awarded to the husband.
[42] As to costs of this appeal, if the parties cannot agree, they may make brief written submissions. The appellant shall make submissions within 15 days of the release of the decision; the respondent will have 15 days to respond.
Released: "MHT" October 23, 2013
"M.H Tulloch J.A."
"I agree. M. Rosenberg J.A."
"I agree. P.D. Lauwers J.A."