Court of Appeal for Ontario

Date: 20211021 Docket: C68436

Before: Feldman, Harvison Young and Thorburn JJ.A.

Between:

Lynne Marie Hevey Applicant (Appellant)

and

Charles James Hevey Respondent (Respondent)

Counsel: Gary S. Joseph and Stephen P. Kirby, for the appellant Bryan R.G. Smith and Sarah Conlin, for the respondent

Heard: April 14, 2021 by video conference

On appeal from the order of Justice Jonathon C. George of the Superior Court of Justice, dated May 27, 2020, with reasons reported at 2020 ONSC 3307.

Harvison Young J.A.:

[1] The appellant, Lynne Hevey, appeals from an order granting summary judgment to the respondent, Charles Hevey, dismissing her application for equalization and other relief. At the time of her application, the parties had been divorced for more than 10 years. The dispute arises out of a complex financial arrangement.

[2] Ms. Hevey claimed in her application to have recently discovered that Mr. Hevey had misrepresented material facts and failed to make significant disclosure at the time of the divorce application in 2008. In particular, she claimed Mr. Hevey had represented to banks that his net worth was approximately $21 million at the same time that he stated in a sworn financial statement that his total assets amounted to $0. At the time, the parties did not pursue equalization or spousal support. In his summary judgment motion, Mr. Hevey relied heavily on his submission that the parties had agreed not to pursue either, although there was no written agreement not to pursue equalization or spousal support. He also argued that Ms. Hevey’s claim for equalization was barred by s. 7(3) of the Family Law Act, R.S.O. 1990, c. F.3 [“FLA”].

[3] The heart of the appeal is Ms. Hevey’s assertion that this was not an appropriate case for summary judgment. For the following reasons, I would allow the appeal and order that the matter be remitted for trial.

A. Background

[4] The appellant, Ms. Hevey, and the respondent, Mr. Hevey, married in 1980, separated in 2006, divorced in 2008, and have two adult sons. They negotiated the issues arising from their separation in 2008 and did not pursue equalization, although the surrounding circumstances form part of the subject of this appeal. Both parties were represented by counsel at the time.

[5] In 2019, Ms. Hevey brought an application for equalization and spousal support, alleging that Mr. Hevey had misrepresented his financial circumstances during their negotiations.

[6] In her application, Ms. Hevey claimed to have recently discovered the misrepresentation when Mr. Hevey, who is a real estate developer, sold one of the family’s commercial properties in April 2019 for over $16 million. During the disposition of the property, Ms. Hevey, through her commercial counsel, received documents that disclosed a trust arrangement involving PMP Trust, of which Mr. Hevey was the sole beneficiary. Ms. Hevey then discovered the alleged misrepresentation: while Mr. Hevey’s financial statement sworn in December 2008 indicated a net family property value of $0, he was actually worth more than $21 million between 2007 and May 2008, based on his disclosure to a bank.

[7] The relevant background to the family arrangements pre-separation may be briefly summarized. In 1986 and 1996, two family trusts were created which held various assets. Ms. Hevey was the trustee of both family trusts and Mr. and Ms. Hevey’s two sons were the beneficiaries. In 2006, the assets of those family trusts were transferred to three new numbered companies due to the pending expiry of the 21-year period from the date of creation of one of the family trusts. There is no dispute that this was required by tax laws. The dispute arises from the corporate arrangements established, into which the trust assets were transferred.

[8] Ms. Hevey and Mr. and Ms. Hevey’s two sons owned special or preferential shares in the three numbered companies. However, PMP Trust, of which Mr. Hevey was the sole beneficiary, owned the only common, or “growth” share, in each of the three numbered companies. According to Ms. Hevey, Mr. Hevey thereby was the beneficiary of all the family assets, except for one half interest in the matrimonial home. She notes that when she raised Mr. Hevey’s interest in PMP trust through counsel in July 2009, Mr. Hevey emailed her stating that her “lawyers [sic] concern about PMP trust is without merit, as the one common share held by PMP has absolutely no value” and that “[t]he boys control the corporation.” Ms. Hevey claims that she relied on Mr. Hevey’s representations about his financial situation and his representations that he was making all efforts to ensure she and the children benefited from the family assets.

[9] In response to Ms. Hevey’s application for equalization and spousal support, Mr. Hevey brought a motion for summary judgment under r. 16 of the Family Law Rules, O. Reg. 114/99 [FLR], dismissing Ms. Hevey’s application. He argued that the limitation period set out in s. 7(3) of the FLA had long expired and that he and Ms. Hevey had agreed not to pursue equalization or spousal support at the time of their divorce. The test, summarized by this court in Ramdial v. Davis, 2015 ONCA 726, 68 R.F.L. (7th) 287, at paras. 27-31, required the motion judge to ascertain whether there was a genuine issue for trial. At the time Mr. Hevey brought the motion, he had not filed an answer to Ms. Hevey’s application or a financial statement as required by the FLR.

B. Issues on Appeal

[10] The issues are whether the motion judge erred by

• allowing Mr. Hevey’s motion for summary judgment when Mr. Hevey had not served an answer as required by r. 16 of the FLR; and
• misinterpreting and misapplying s. 2(8) of the FLA.

C. Decision Below

[11] The motion judge granted summary judgment against Ms. Hevey, dismissing her application. Before addressing the motion directly, he spoke to Ms. Hevey’s argument that he did not have the authority to consider the motion when Mr. Hevey had not yet filed an answer and financial statement as required by r. 16(1) of the FLR. The motion judge referred to an endorsement from September 12, 2019, which stated that Mr. Hevey was not required to file an answer or sworn financial statement pending determination of the summary judgment motion. Citing Ms. Hevey’s counsel’s lack of concern with that endorsement and his conduct afterward, he found that the parties had agreed to proceed without the filing of an answer.

[12] The motion judge noted that, in any event, the primary objective of the rules was to ensure the court can deal with cases justly and to mandate a process that is fair, efficient, and appropriate given the importance and complexity of the issues. He stated that an answer would have done little to enhance Mr. Hevey’s position and that the record was sufficient to deal with the merits of the motion. The motion judge was puzzled as to why Ms. Hevey, if she had procedural concerns before, did not raise them prior to consenting to the timetables and foregoing cross-examinations.

[13] Proceeding to the merits of the motion, the motion judge noted that Ms. Hevey’s claim for equalization was statute-barred under s. 7(3) of the FLA. To revisit the issue of equalization, Ms. Hevey needed to satisfy the conditions under s. 2(8) of the FLA, which permits the court to extend a time prescribed by the FLA if it is satisfied that there are apparent grounds for relief, relief is available because of delay that has been incurred in good faith, and no person will suffer substantial prejudice by reason of delay.

[14] The test for summary judgment is whether there is a genuine issue requiring a trial: Hryniak v. Mauldin, 2014 SCC 7, [2014] 1 S.C.R. 87.

[15] The motion judge considered the evidence before him, which was that the equalization claim was statute-barred; the parties were represented by experienced counsel when they decided to forego equalization; financial disclosure was exchanged in relation to that decision; Ms. Hevey was a savvy business-person and had run her own family company for years; Ms. Hevey had access to her own accounting and legal professionals; Ms. Hevey was directly involved with and had knowledge of Mr. Hevey’s finances and that of the trusts; and the correspondence from 2008-2009 during their negotiations addressed the issues Ms. Hevey now raised. The motion judge found no evidence of an intention to mislead, no evidence of fraud, and no evidence that Mr. Hevey acted in bad faith. He also found that the documents Ms. Hevey relied on lacked context and could not be fully attributed. The motion judge observed that the parties settled their affairs, motived by a desire for finality so that they could move on with their lives.

[16] Lastly, the motion judge addressed the issue of spousal support. The parties made only limited submissions on spousal support and, in any case, those issues had been settled over 10 years earlier and there was no evidence of fraud. The motion judge concluded that there was no genuine issue requiring a trial.

D. Discussion

[17] For reasons that follow, I would allow the appeal.

[18] As Iacobucci and Major J.J., writing for the majority, noted in Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235, the standard of review on a pure question of law is correctness: at para. 8. Questions of mixed fact and law, which involve applying a legal standard to a set of facts and which lie along a spectrum, are usually subject to the more stringent standard of palpable and overriding error: Housen, at paras. 26, 36-37.

[19] Here, the motion judge fell into reversible error by permitting the respondent to proceed with his summary judgment motion despite not having filed an answer to the appellant’s application as required by r. 16 of the FLR. In addition, he fell into error by misinterpreting and misapplying s. 2(8) of the FLA, which sets out the conditions to be applied by the court in considering whether an extension of time prescribed by the FLA should be granted.

(1) Did the motion judge err by allowing the summary judgment motion to proceed in the absence of an answer?

[20] Given the language of r. 16 of the FLR and the importance of disclosure in family law and in light of the opacity of Mr. Hevey’s financial arrangements, the motion judge made a palpable and overriding error in concluding that an answer was not required before proceeding with the summary judgment motion.

[21] Summary judgment is governed by r. 16 of the FLR.

[22] Rule 16(1) specifically provides that summary judgment is available after the respondent has served an answer:

WHEN AVAILABLE

16. (1) After the respondent has served an answer or after the time for serving an answer has expired, a party may make a motion for summary judgment for a final order without a trial on all or part of any claim made or any defence presented in the case.

[23] The appellant says that this rule is mandatory and that the appeal should be allowed on this basis alone. The respondent states that the appellant’s counsel did not raise any concerns about the motion judge’s order dispensing with the requirement that the respondent file an answer prior to the hearing of the summary judgment motion. In his reasons, the motion judge made a similar comment, stating that “[a]s I recall it, Applicant[’s] counsel did not object to this nor did he raise any concerns”.

[24] The appellant’s concern was, however, raised before the motion judge at the scheduling hearing. In response to a question from the motion judge as to whether granting an order dispensing with the request to file an answer before the summary judgment hearing would prejudice Ms. Hevey, the appellant’s lawyer stated that he was not agreeing to such an order but that it should be left to the judge hearing the summary judgment motion. The motion judge wrote an endorsement dispensing with the requirement that Mr. Hevey file an answer and financial statement, and the summary judgment hearing proceeded on March 6, 2020, on that basis.

[25] With respect, the motion judge erred in permitting the summary judgment motion to proceed to hearing in the absence of an answer and financial statement from Mr. Hevey.

[26] As this court held in Frick v. Frick, 2016 ONCA 799, 132 O.R. (3d) 321, at para. 11, “[t]he Family Law Rules were enacted to reflect the fact that litigation in family law matters is different from civil litigation…They embody a philosophy peculiar to a lawsuit that involves a family.” Part of that philosophy is the recognition that “[t]he most basic obligation in family law is the duty to disclose financial information”: Roberts v. Roberts, 2015 ONCA 450, 65 R.F.L. (7th) 6, at para. 11.

[27] Here, the appellant’s position was that she had received inadequate disclosure initially. She put forward some evidence to substantiate her claim – in particular, the roughly contemporaneous $0 sworn net family property statement and the May 2008 bank disclosure asserting that the respondent had assets in excess of $21 million, which she stated she never saw until 2019.

[28] Mr. Hevey insists that, as a sophisticated business woman who ran her own business, had been a trustee of the trusts, and was a preferential non-voting shareholder in one of the companies, Ms. Hevey understood exactly how his financial affairs were managed and what his interests were at the time. He says she also knew that his net worth vacillated as he bought and sold properties, and, in addition, that times were especially bad in December 2008 following the financial crash in the fall of 2008.

[29] In my view, and without deciding whether an answer is always needed, an answer was needed here as required by the rules. Specifically, the answer would have been accompanied by a new sworn financial statement upon which Mr. Hevey could have been cross-examined. Cross-examinations, particularly about the nature of the respondent’s interest in the PNP trust could in fact be very helpful in this case. In their absence, the respondent’s affidavits could rely upon the complexity of the corporate arrangements and the PNP trust to skirt what might be, and might have been, a significant beneficial interest. For example, a cross examination on a financial statement might include a question such as “Despite not being a shareholder, have you received any benefit in any form from the trust, which holds your common shares in the corporations?” At the same time, the motion judge may have been inferring from the fact that neither party sought to cross-examine the other on the sworn affidavits that were in evidence that there would also not have been cross-examinations on a sworn financial statement.

[30] The requirement for both parties to provide financial statements at the outset is closely related to the importance of disclosure in family law proceedings, a particularly salient principle in the present case. This court has repeatedly emphasized this point in recent years, and it has been recently emphasized in the Supreme Court of Canada decision in Colucci v. Colucci, 2021 SCC 24, 458 D.L.R. (4th) 183.

[31] While the respondent argues that the appellant “waived” equalization, the record suggests that she merely did not pursue it at that time. There was no written waiver or domestic contract. In support of his argument that the appellant was sophisticated, knew all the arrangements, and had access to all the financial information, the respondent provided a letter. This letter dated December 17, 2008, from his lawyer Donald Kilpatrick to Ms. Hevey’s lawyer, sets out the general structure of the family assets and the roll-over of the trust assets to the three numbered companies. It also mentions that Mr. Hevey was not a shareholder of any of the companies, going on to state that PNP trust did own a common share in each one and that “Mr. Hevey is the beneficiary of the PNP trust”.

[32] The evidence about what Ms. Hevey understood about the new corporate structure into which the trust assets were moved is very conflicting. Mr. Hevey states that she had open access to Brian Chapman, the commercial lawyer who made the arrangements. Ms. Hevey states that at one point Mr. Hevey called her and said, “I don’t have anything but if you don’t believe me then talk to Brian Chapman.” She also states that she never had independent legal advice on these issues and that Mr. Chapman was effectively Mr. Hevey’s own commercial lawyer. She also points to other contemporary correspondence she learned about later suggesting that while Mr. Hevey was being kept “out of the limelight”, he was retaining the control of the companies.

[33] Against this backdrop is the May 2008 statement to a bank in which Mr. Hevey disclosed assets of approximately $21 million. There may well be good explanations for the disparity between this amount, the $0 amount on his December 2008 financial statement, and the fact that he did not disclose any beneficial interest in PNP or any other corporate interests. In the absence of an answer and sworn financial statement, Ms. Hevey was at a significant disadvantage in the course of this summary judgment motion where she was required to put her best foot forward.

[34] Suggesting that she could have cross-examined Mr. Hevey misses the mark. It is up to the party with the assets to make the disclosure and the valuation of assets. According to the Ontario family law regime, and as already stated, financial disclosure is a paramount consideration. That also applies to a summary judgment motion such as this one. Moreover, it is not up to the claimant to “ferret out” information, as the appellant put it, about income and assets from the other party. Although, in Colucci, the Supreme Court was dealing with retroactive child support, the same imperatives apply when dealing with issues of retroactive spousal support, namely that courts must encourage proactive financial disclosure and in no way reward those who improperly withhold, hide or misrepresent information they ought to have shared: at para. 54.

[35] There is nothing in the record that presents any valuation of the common shares of any of the companies at the time of Mr. Hevey’s December 2008 financial statement. Nor is there anything in his financial statement that disclosed his beneficial interest in the three companies.

[36] A continuing theme in Mr. Kilpatrick’s letter was that the respondent was considering claiming equalization and spousal support from the appellant. This suggests that her understanding at the time was that Mr. Hevey had little or nothing in the way of assets and that she decided to not pursue any claims to pre-empt him from claiming anything from her. There is nothing in the record to indicate that Mr. Hevey had produced any valuation of his beneficial interest in the PNP trust at the time. Ms. Hevey’s evidence is that he had not, and that she did not understand the nature of his interests in the companies.

[37] In short, in my view, the motion judge fell into palpable and overriding error in dispensing with the requirement that the respondent file an answer and financial statement, as required by r. 16 of the FLR, before proceeding with a summary judgment motion in these circumstances.

(2) Did the motion judge err in interpreting and applying s. 2(8) of the FLA?

[38] The motion judge reasoned that summary judgment was available to dismiss the appellant’s claims largely because the limitation period for equalization claims set in the FLA had long expired.

[39] Section 2(8) of the FLA provides:

The court may, on motion, extend a time prescribed by this Act if it is satisfied that,

(a) there are apparent grounds for relief;

(b) relief is unavailable because of delay that has been incurred in good faith; and

(c) no person will suffer substantial prejudice by reason of the delay.

[40] Each of the requirements must be met as a pre-condition to granting the relief: Vivier v. Vivier, 5 R.F.L. (3d) 450 (Ont. Dist. Ct.). The “relief” is not the extension of time but the relief claimed under the FLA such as equalization: Scherer v. Scherer (2002), 59 O.R. (3d) 393 (Ont. C.A.), at para. 16. In determining whether “apparent grounds for relief” exist, the court may make a limited inquiry into the merits of the proposed claim. The question to be answered is “[b]ut for the limitation period that acts as a bar, are there apparent grounds to support the claim?”: see Werth v. Werth, 2004 ONCJ 43, at para. 14. The relief must be unavailable because of a delay that has been incurred in good faith. The “good faith” requirement requires the applicant for an extension to show that they acted “honestly and with no ulterior motive”: Hart v. Hart (1990), 27 R.F.L. (3d) 419 (Ont. U.F.C.), at p. 432. Lastly, it must be demonstrated that no person will suffer substantial prejudice by reason of the delay. The mere showing of prejudice is not sufficient; rather, it must be demonstrated that the prejudice will be substantial. Generally, the length of time occasioned by the delay is a factor, along with the extent to which the responding party has rearranged their financial affairs: see e.g., Douthwaite v. Douthwaite (1997), 32 R.F.L. (4th) 90 (Ont. Gen. Div.).

[41] With respect, the motion judge’s reasons do not interpret and apply s. 2(8) of the FLA correctly.

[42] First, the motion judge erred in his interpretation of s. 2(8)(b), which refers to the delay “incurred in good faith”. This clearly refers to the delay occasioned by the party claiming the extension: Hart, at p. 432. However, the motion judge appears to have focussed on whether the appellant had established “fraud” on the part of the respondent. At para. 10, he notes:

More than that, however, [namely, the fact that she was “at the relevant time, in the loop so to speak and kept up to speed on all issues relating to the trusts”] while recognizing that limitation periods can be extended and that an established fraud would indeed allow one to revisit these issues ….[Emphasis added].

[43] This articulation holds the appellant up to a higher standard for revisiting the limitation period than s. 2(8) sets out. Specifically, while s. 2(8) only requires apparent grounds for relief, unavailability of relief because of delay that has been incurred in good faith, and no substantial prejudice, the motion judge’s statement at para. 10 suggests that he was holding the appellant to a standard of “established fraud” before revisiting the limitation period question. There is no authority to support that interpretation, and it is not consistent with the clear wording of the provision.

[44] Second, the motion judge fell into palpable and overriding error in inferring that Ms. Hevey knew or ought to have known all information about the trusts and the corporations.

[45] The appellant’s evidence explaining the delay is that she began her claim after receiving information in 2019 indicating that the respondent had been in a much stronger financial position in the period leading up to the application for divorce than he had led her to believe. If true, this explains her delay. As I have indicated earlier in these reasons, the appellant was not in a position to “put her best foot forward” in the summary judgment motion because Mr. Hevey had not filed an answer and financial statement.

[46] A related concern is the motion judge’s inference, as argued by the respondent both below and in this court, that because the appellant had book-keeping experience and access to some (though not all) of the trust information, she understood the complexity and consequences of the corporate and trust arrangements. In my view, it was unfair to infer that the appellant did understand all this at the time. She does not appear to have received independent legal advice concerning the structure of the new corporations and the PNP trust, although she was represented by an experienced family lawyer. Again, given the absence of a clear written agreement between the parties, the record before this court might have supported the inference that she did not understand the arrangements, whether as a result of a lack of disclosure, misrepresentation, or other factors. As already mentioned, the record includes the letter from Mr. Kilpatrick referred to above clearly indicating that Mr. Hevey was considering claiming spousal support and equalization from Ms. Hevey as well as the evidence of the discrepancy between the $0 on the respondent’s net family property statement and the bank statement earlier in 2008 that his net worth was $21 million.

[47] These determinations relate both to the explanation for Mr. Hevey’s delay and to her good faith and could not be made on a summary judgment motion, at least in the absence of an answer by the respondent, which undermined her ability to put her best foot forward.

[48] Finally, this was not simply a claim for equalization but also a claim for spousal support which is not subject to the same limitation period. There is no discussion of this point. It may well be that Ms. Hevey’s claim for spousal support would not be strong. That said, the circumstances of disclosure in December 2008 and the question as to whether the respondent did mislead the appellant are material issues that would be very relevant to whether Ms. Hevey could have been entitled to spousal support. That could not be determined in this summary judgment motion.

E. Disposition

[49] For the foregoing reasons, I would allow the appeal and remit the matter to trial, without prejudice to the right of the parties to bring a fresh motion for summary judgment in accordance with these reasons. Costs are payable by the respondent to the appellant for this appeal in the amount of $15,000.

Released: October 21, 2021 “K.F.” “Harvison Young J.A.” “I agree. K. Feldman J.A.” “I agree. Thorburn J.A.”