Court File and Parties

COURT FILE NO.: 32775/10
MOTION HEARD: 20120321
SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Constance Lynn Sandre, Applicant

AND:

William Gary Sandre, Respondent

BEFORE: MILLER, J.

COUNSEL:
S. Jaskot, for the Applicant
R. Tsao, for the Respondent

HEARD: March 21, 2012

REASONS FOR DECISION

[ 1 ] Constance Sandre brings a motion for an order that William Sandre comply with earlier orders for disclosure, failing which he should be ordered to pay a daily penalty of $500 or such other order as is “necessary for a just determination of the matter” pursuant to Rule 1(8) of the Family Law Rules .

[ 2 ] Mr. Sandre takes the position that he has made sincere and diligent efforts to satisfy the orders for disclosure and that as any records in his control or ability to request have been substantially produced, the penalty sought by Mrs. Sandre is “draconian”.

[ 3 ] While the material filed included references to Mr. Sandre’s request for release of funds from his RRSPs in order to meet his child support obligation this was not argued before me.

Background

[ 4 ] The parties were married in 1989 and separated in 2010. They have three children.

[ 5 ] During the marriage Mr. Sandre owned and operated Connections Canada Inc. In 2003 he took on two business partners. In 2006 Mr. Sandre began doing work for Network Services International Inc. According to Mrs. Sandre, Mr. Sandre began and was (and is) the directing mind behind Network Services International Inc. although one Karsten Kothe was established as the sole director and shareholder. According to Mrs. Sandre, Mrs. Sandre told her this was done to circumvent a non-compete clause he had with Connections Canada and that he had an agreement with Mr. Kothe for a transfer of the shares to Mr. Sandre once the non-compete clause had expired.

[ 6 ] In 2008 Mr. Sandre incorporated NSIRetail Inc. He is the sole director and shareholder.

[ 7 ] There is evidence that Network Services and NSIRetail are interrelated, including that the website for Network Services is www.nsiretail.com, and within the website the names Network Services and NSIRetail are used interchangeably and NSIRetail is referred to as a supplier to Network Services to which money is owing.

[ 8 ] Mr. Sandre maintains he has no ownership interest in Network Services International Inc.

[ 9 ] The parties appeared before Snowie, J. on a case conference November 8, 2010. She made a detailed order for disclosure. Network Services International Inc. was added as a respondent to this action.

[ 10 ] The parties appeared before Daley, J. on another case conference February 25, 2011. Daley, J. endorsed that disclosure shall be in accordance with the order made by Snowie, J. November 8, 2010.

[ 11 ] The parties first appeared before me April 21, 2011 on a motion in relation to support. At that time Mrs. Sandre was asking that I impute income to Mr. Sandre for the purposes of determining appropriate support. One of the bases for her request that I impute income was Mr. Sandre’s failure to comply with earlier orders to disclose. She also sought compliance with the existing orders for disclosure failing which there should be a penalty pursuant to Rule 1(8).

[ 12 ] As I was unable, on the material before me at that time to make a finding as to whether there had been wilful non-compliance, I made an order requiring Mr. Sandre to comply, in full, with the disclosure order made by Snowie, J. November 8, 2010, no later than May 24, 2011. I ordered that for any of the specified items not provided by May 24, 2011, Mr. Sandre was to provide a written explanation of any and all efforts to obtain those items and why they had not been produced. I also ordered Mr. Sandre to address those additional items which were set out in Exhibit ‘F’ to Mrs. Sandre’s affidavit of April 18, 2011 in the same fashion and within the same time frame.

[ 13 ] Counsel were to obtain a date after May 24, 2011 to appear back before me for review.

[ 14 ] June 28, 2011 the parties again appeared before me. At that time they we agreed that the disclosure issues needed to be adjourned to a long motion. This was scheduled to be heard October 26, 2011. Mrs. Sandre was to provide a list of deficiencies in disclosure by October 18, 2011 and Mr. Sandre had until October 21, 2011 to respond.

[ 15 ] The long motion was adjourned due to my unavailability to February 22, 2012 then to March 21, 2012.

[ 16 ] In an affidavit dated October 19, 2011 Mrs. Sandre identified the following deficiencies in Mr. Sandre’s disclosure:

• no explanation for an account payable from Network Services to NSIRetail;

• no invoices to support Mr. Sandre’s summary of transactions between Network Services and NSIRetail;

• no explanation or invoices for monies paid by NSIRetail to Network Services in 2010 or 2011;

• no Annual financial statements, corporate tax returns, notices of assessment or detailed general ledgers for Network Services;

• no bank accounts from February 1, 2011 for Network Services;

• no Annual financial statements, corporate tax returns, notices of assessment and reassessment, detailed general ledgers, bank accounts and cancelled cheques for NSIRetail from incorporation to date;

[ 17 ] On March 14, 2012 Mr. Sandre produced the following additional documentation: a balance sheet for NSIRetail as at December 31, 2011; an Income Statement for NSIRetail for the period January 1, 2011 to December 31, 2011; T2 returns for NSIRetail for the years 2008, 2009 and 2010 all dated December 31, 2011; updated bank statements for NSIRetail’s RBC account to February 20, 2012 and an updated personal bank account statement to February 21, 2012.

[ 18 ] As of the date this motion was heard, March 21, 2012, Mrs. Sandre continues to identify the following deficiencies:

• no explanation for an account payable from Network Services to NSIRetail;

• no invoices to support Mr. Sandre’s summary of transactions between Network Services and NSIRetail;

• no explanation or invoices for monies paid by NSIRetail to Network Services in 2010 or 2011;

• for NSIRetail - no proof that the corporate returns had actually been filed; no notices of assessment and reassessment and no detailed general ledgers;

• nothing provided for Network Services and only one letter sent to Karsten Kothe July 4, 2011 asking for documentation relating to Network Services.

[ 19 ] Mrs. Sandre also produced copies of two cheques, received at the matrimonial home both payable to Network Services International: one dated January 30, 2012 in the amount of $22,367.70 and another dated February 6, 2012 in the amount of $,650.51 together with a purchase order indicating an order for $11,626.27 payable in three payments. She asks for direction with respect to the cheques. The cheques should be passed on to Mr. Kothe.

[ 20 ] Mr. Sandre takes the position that he has made sincere and diligent efforts to satisfy the orders for disclosure and that as any records in his control or ability to request have been substantially produced.

Transactions between Network Services and NSIRetail

[ 21 ] Snowie, J.’s order of November 8, 2010 required Mr. Sandre to produce, amongst other things, “a full accounting to the Applicant with respect to all transactions involving Network Services International Inc. and NSIRetail Inc.”

[ 22 ] Mr. Sandre produced on June 19, 2011 a one page summary detailing payments made by Network Services to NSIRetail between July 16, 2010 and November 5, 2010. MR. Sandre swore in his affidavit of the same date “there have been no other transactions between Network Services International Inc. and NSIRetail Inc.”.

[ 23 ] Cancelled cheques produced for NSIRetail show payments made to Network Services September 24, 2010 in the amount of $20,000; December 14, 2010 in the amount of $4315.49 and January 4, 2011 in the amount of $3,790. No explanation has been provided for these payments.

[ 24 ] Mr. Sandre takes the position that prior to separation he was an employee of Network Services and that following separation his new company, NSIRetail, billed and received payments, as set out in the one page summary, for services he continued to provide to Network Services during this time frame.

[ 25 ] Mr. Sandre has not provided any invoices to support his summary of transactions between Network Services and NSIRetail although the summary clearly indicates each of the payments was invoiced. His position that the information provided amounts to a “full accounting” as ordered is simply not tenable.

[ 26 ] Counsel for Mr. Sandre invited me, if I found that Mr. Sandre had not complied with the order to produce “a full accounting”, to impose a $500 per day penalty for further failure to comply after three business days.

[ 27 ] Mr. Sandre is ordered to produce an explanation for the account payable from Network Services to NSIRetail; an explanation and copies of any and all invoices for monies paid by NSIRetail to Network Services in 2010 and 2011; and copies of any and all invoices to support his summary of transactions between Network Services and NSIRetail no later than March 30, 2012, failing which he will be subject to a daily penalty of $500.

NSIRetail Inc.

[ 28 ] Snowie, J.’s order of November 8, 2010 required Mr. Sandre to produce for NSIRetail Inc.: Annual financial Statements from the date of incorporation (September 5, 2008) to the present; Corporate tax returns and all Notices of Assessment and Reassessment from the date of incorporation to the present; Detailed General Ledgers from the date of incorporation to the present date; and, Copies of all bank account statements and cancelled cheques (for both Canadian and international accounts) from the date of incorporation to the present date.

[ 29 ] Mrs. Sandre identifies the following existing deficiencies in disclosure related to NSIRetail : no proof that the corporate returns had actually been filed; no notices of assessment and reassessment and no detailed general ledgers;

[ 30 ] Counsel for Mr. Sandre indicated that the corporate tax returns for NSIRetail have been filed and that notices of assessment will be provided when received.

[ 31 ] Mr. Sandre takes the position that the disclosure provided to March 14, 2012 : a balance sheet for NSIRetail as at December 31, 2011 together with an Employee Ledger; an Income Statement for NSIRetail for the period January 1, 2011 to December 31, 2011; T2 returns for NSIRetail for the years 2008,2009 and 2010 all dated December 31, 2011; updated bank statements for NSIRetail’s RBC account to February 20, 2012 satisfy the requirements of him pursuant to the orders made by Snowie, J., Daley, J. and this Court.

[ 32 ] Counsel for Mr. Sandre submitted that the income statement meets the requirement of the “detailed general ledger” in the existing orders. It does not. A detailed general ledger would have individual entries for all of the subcategories set out in the income statement including all those included in sales revenue and expenses. It is simply, and grossly insufficient to provide a single entry, for example, labelled Sub-contractors, with an expenditure of $559,019.26.

[ 33 ] Counsel for Mr. Sandre invited me, if I found that Mr. Sandre had not complied with the order to produce “a detailed general ledger”, to impose a $500 per day penalty for further failure to comply after three business days.

[ 34 ] I note that the 2008, 2009 and 2010 corporate tax returns for NSIRetail indicate $0 income for each of those years. This is inconsistent with the summary provided indicating $33,775 NSIRetail received $33,775 from Network Services in 2010.

[ 35 ] Mr. Sandre is ordered to provide a detailed general ledger, including any and all sub-ledgers, for NSIRetail Inc. and proof that the 2008, 2009 and 2010 corporate income tax returns have been filed, no later than March 30, 2012 failing which there will be a further $500 per day penalty.

Network Services International Inc.

[ 36 ] Snowie, J.’s order of November 8, 2010 required Mr. Sandre to produce for Network Services International Inc.: Annual financial Statements from the date of incorporation (February 22, 2006)) to the present; Corporate tax returns and all Notices of Assessment and Reassessment from the date of incorporation to the present; Detailed General Ledgers from the date of incorporation to the present date; Copies of all bank account statements and cancelled cheques ( for both Canadian and international accounts) from the date of incorporation to the present date; and, CRA Audit report.

[ 37 ] To date Mr. Sandre has produced nothing for Network Services International Inc.

[ 38 ] Mr. Sandre maintains that he was nothing other than an employee of Network Services and any enquiries with respect to records of Network Services should be made to Karsten Kothe who is the sole director and shareholder.

[ 39 ] Mr. Sandre sent one letter to Karsten Kothe July 4, 2011 asking for documentation relating to Network Services. His counsel indicates there has been no response.

[ 40 ] Mrs. Sandre has produced a copy of correspondence from Mr. Kothe’s solicitor, David Thrasher to counsel for Mrs. Sandre representing that Mr. Sandre caused Network Services (NSI) to be incorporated and that Mr. Sandre at all times controlled the financial dealings of the company. Mr. Sandre transferred monies in 2009 of at least $500,000 from Network Services to his family and to NSIRetail. The letter, dated May 6, 2011, indicates Mr. Kothe will co-operate as required to obtain the financial records of the company although it also indicates Mr. Kothe had never been given access to financial records.

[ 41 ] A copy of another letter, dated February 10, 2011, a “without prejudice” letter sent by Robert Hine as counsel for William Sandre to Karsten Kothe, indicates Mr. Sandre is the largest creditor and investor in Network Services International Inc. and more than $700,00 is owing by NSI to Mr. Sandre from money loaned and invested since 2006. The letter indicates “these funds were provided pursuant to an agreement that you would resign as an officer and director of the company and, upon payment of $20,000, you would transfer all your shares in NSI to Mr. Sandre, so that he would become the sole shareholder of NSI.” The letter demands that Mr. Kothe complete this transfer of shares forthwith.

[ 42 ] Counsel for Mr. Sandre submitted that this “without prejudice” letter was an unsuccessful attempt by Mr. Sandre to take over Network Services and despite the representations made in the letter he maintains his position, set out in his affidavit in this litigation, that no agreement existed or exists.

[ 43 ] The order made by this Court April 21, 2011 required that for any of the specified items not provided by May 24, 2011, Mr. Sandre was to provide a written explanation of any and all efforts to obtain those items and why they had not been produced.

[ 44 ] Mr. Sandre’s solitary letter to Mr. Kothe dated July 4, 2011 does not, in my view, meet the criteria of a genuine effort to comply with the order of this Court. The issue as to who controls the records for Network Services International Inc. and how those records may be obtained must be resolved in order that there may be a just determination of this matter.

[ 45 ] I have considered submissions made by Mr. Sandre’s counsel with respect to the financial difficulty Mr. Sandre faces in respect of the costs related to each step in this litigation, but pursuant to Rule 1(8) Mr. Sandre is ordered to bring a motion to require Karsten Kothe, on behalf of Network Services International Inc. to produce:

Annual financial Statements from the date of incorporation (February 22, 2006)) to the present; Corporate tax returns and all Notices of Assessment and Reassessment from the date of incorporation to the present; Detailed General Ledgers from the date of incorporation to the present date; Copies of all bank account statements and cancelled cheques (for both Canadian and international accounts) from the date of incorporation to the present date; and, CRA Audit report.

[ 46 ] The motion should be returnable before me on a date to be arranged with the assistance of the trial coordinator, in consultation with counsel for both Mr. Kothe and Mrs. Sandre. Mrs. Sandre shall be given notice of the motion and served with any material to be filed on the motion and may file motion material and attend at the motion to make submissions if she wishes. If the motion cannot, for any reason, be heard before June 29, 2012, I am to be advised, through the trial coordinator, with a written explanation.

Orders

[ 47 ] Mr. Sandre is ordered to produce an explanation for the account payable from Network Services to NSIRetail; an explanation and copies of any and all invoices for monies paid by NSIRetail to Network Services in 2010 and 2011; and copies of any and all invoices to support his summary of transactions between Network Services and NSIRetail no later than March 30, 2012, failing which he will be subject to a daily penalty of $500.

[ 48 ] Mr. Sandre is ordered to provide a detailed general ledger, including any and all sub-ledgers, for NSIRetail Inc. and proof that the 2008, 2009 and 2010 corporate income tax returns have been filed, no later than March 30, 2012 failing which there will be a further $500 per day penalty.

[ 49 ] Mr. Sandre is ordered to bring a motion to require Karsten Kothe, on behalf of Network Services International Inc. to produce:

Annual financial Statements from the date of incorporation (February 22, 2006)) to the present; Corporate tax returns and all Notices of Assessment and Reassessment from the date of incorporation to the present; Detailed General Ledgers from the date of incorporation to the present date; Copies of all bank account statements and cancelled cheques (for both Canadian and international accounts) from the date of incorporation to the present date; and, CRA Audit report.

[ 50 ] The motion should be returnable before me on a date to be arranged with the assistance of the trial coordinator, in consultation with counsel for both Mr. Kothe and Mrs. Sandre. Mrs. Sandre shall be given notice of the motion and served with any material to be filed on the motion and may file motion material and attend at the motion to make submissions if she wishes. If the motion cannot, for any reason, be heard before June 29, 2012, I am to be advised, through the trial coordinator, with a written explanation.

[ 51 ] The parties may exchange and file written submissions as to costs no later than April 30, 2012.

MILLER J

Date: March 23, 2012