COURT FILE NO.: C-565-07
DATE: 2012-05-31
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Gabriele Wolf, Plaintiff
AND:
Peter Anstett and Patrice Butts, Defendants
BEFORE: G. E. Taylor
COUNSEL:
J. Greg Murdoch, Counsel for the Plaintiff
Timothy C. Flannery, Counsel for the Defendants
HEARD: April 30, 2012
ENDORSEMENT
Introduction
[ 1 ] On January 27, 2011, the plaintiff obtained judgment against Peter Anstett for in excess of $415,000. For a number of years before the judgment was pronounced, and after the judgment was pronounced, Peter Anstett worked as an independent sales agent for Don’s Produce Inc. On May 20, 2011, Peter Anstett and his wife Patricia Butts incorporated 1841918 Ontario Inc. to which Don’s Produce was directed to pay amounts owing to Peter Anstett for his work as an independent sales agent. When the plaintiff served a Notice of Garnishment on Don’s Produce, the Garnishee’s Statement was returned stating "as of June 01/11 we pay a numbered company for Pete Anstett's services".
[ 2 ] The plaintiff brings the present motion for:
a) a declaration that the incorporation of 1841918 Ontario Inc. was intended to defeat or defraud the plaintiff and to thwart enforcement of the judgment;
b) an order directing Don's Produce to forward any monies that are owing to 1841918 Ontario Inc. to the Sheriff pursuant to the Notice of Garnishment; and,
c) a finding that Peter Anstett is in contempt of court.
Facts
[ 3 ] On January 27, 2012, the Honourable Mr. Justice Reilly gave judgment against Peter Anstett in favour of the plaintiff for $369,413 plus interest and $40,855 for costs. He also found that the monies advanced to Peter Anstett were obtained by false pretences or a fraudulent misrepresentation. Subsequent to obtaining judgment, the plaintiff has taken various steps to satisfy the judgment including seizure of Peter Anstett’s RSP and a bank account. The plaintiff also arranged to examine Peter Anstett in aid of execution on April 15, 2012, which was adjourned at the request of Peter Anstett until May 24, 2012.
[ 4 ] At the examination in aid of execution, Peter Anstett testified that prior to May 20, 2011, he carried on as a proprietorship providing services to Don's Produce. He was paid $1100 a week plus commissions and a performance bonus which was deposited directly into his personal bank account. He has continued performing the same services on behalf of the Don's Produce after May 20, 2011, but his remuneration has been paid to 1841918.
[ 5 ] In an effort to satisfy the judgment, the plaintiff served a Notice of Garnishment on Don's Produce. In response, Don's Produce delivered at Garnishee's Statement stating: "as of June 01/11 we pay a numbered company for Pete Anstett's services".
[ 6 ] Peter Anstett also testified that when 1841918 was incorporated his wife, Patricia Butts, was issued 80% of the common shares and he owned the remaining common shares. Subsequently, Peter Anstett transferred his shares in 1841918 to Patricia Butts so that now she is the sole shareholder. In an affidavit filed in response to the present motion, Patricia Butts stated that she is the sole director, officer and shareholder of 1841918.
[ 7 ] In an affidavit sworn November 16, 2011, Peter Anstett deposed that although he recognizes he is indebted to the plaintiff, he is also significantly in debt to Patricia Butts and he is trying to pay off that indebtedness in preference to the judgment in favour of the plaintiff.
[ 8 ] In her affidavit dated November 16, 2012, Patricia Butts explained that the rationale behind the incorporation of 1841918 was to make sure that her family would come first and to give her control of Peter Anstett's income earning power, his expenses and his expenditures. She also acknowledged in her affidavit that through her control of 1841918 she is being repaid for monies which she feels are rightly owed to her by Peter Anstett.
[ 9 ] Peter Anstett testified that he is paid a salary of $811 bi-weekly by 1841918. He also admitted that the purpose for incorporating 1841918 with Patricia Butts as the sole shareholder, officer and director and having his income from Don’s Produce paid to the corporation was so that she could "go to the front of the line" and protect his income from his creditors.
[ 10 ] Patricia Butts was cross examined on her affidavit. She testified that the decision to incorporate 1841918 and have Peter Anstett's remuneration paid to the corporation was made after the date of the judgment. She confirmed that the purpose in incorporating 1841918 and having Peter Anstett's earnings from Don's Produce paid to the corporation was to repay her money owing by Peter Anstett. The amount owing by Peter Anstett to Patricia Butts was not quantified.
The Law
[ 11 ] Section 5 of the Assignments and Preferences Act R.S.O. 1990, c. A.33 provides as follows:
(1) Subject to section 5 , every gift, conveyance, assignment or transfer, delivery over or payment of goods, chattels or effects, or of bills, bonds, notes or securities, or of shares, dividends, premiums or bonus in any bank, company or corporation, or of any other property, real or personal, made by a person when insolvent or unable to pay the person’s debts in full or when the person knows that he, she or it is on the eve of insolvency, with intent to defeat, hinder, delay or prejudice creditors, or any one or more of them, is void as against the creditor or creditors injured, delayed or prejudiced.
(2) Subject to section 5 , every such gift, conveyance, assignment or transfer, delivery over or payment made by a person being at the time in insolvent circumstances, or unable to pay his, her or its debts in full, or knowing himself, herself or itself to be on the eve of insolvency, to or for a creditor with the intent to give such creditor an unjust preference over other creditors or over any one or more of them is void as against the creditor or creditors injured, delayed, prejudiced or postponed.
(3) Subject to section 5 , if such a transaction with or for a creditor has the effect of giving that creditor a preference over the other creditors of the debtor or over any one or more of them, it shall, in and with respect to any action or proceeding that, within sixty days thereafter, is brought, had or taken to impeach or set aside such transaction, be presumed, in the absence of evidence to the contrary, to have been made with the intent mentioned in subsection (2), and to be an unjust preference within the meaning of this Act whether it be made voluntarily or under pressure.
(4) Subject to section 5 , if such a transaction with or for a creditor has the effect of giving that creditor a preference over the other creditors of the debtor or over any one or more of them, it shall, if the debtor within sixty days after the transaction makes an assignment for the benefit of the creditors, be presumed, in the absence of evidence to the contrary, to have been made with the intent mentioned in subsection (2), and to be an unjust preference within the meaning of this Act whether it be made voluntarily or under pressure.
(5) The word “creditor” when used in the singular in subsections (2), (3) and (4) includes any surety and the endorser of any promissory note or bill of exchange who would upon paying the debt, promissory note or bill of exchange, in respect of which the suretyship was entered into or the endorsement was given, become a creditor of the person giving the preference within the meaning of those subsections.
[ 12 ] Rule 16.08 (16) of the Rules of Civil Procedure provides as follows:
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 the claim;
(b) determine the rights and liabilities of the garnishee, the debtor, any 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.
[ 13 ] In Waxman v. Waxman , [2006] O.J. No. 4242 , the Ontario Court of Appeal held that 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 rule 60.08(16).
[ 14 ] The Ontario Court of Appeal in International Union of Painters and Allied Trades, Local 200 v. S & S Glass and Aluminum (1993) Ltd. , 2004 12611 (ON CA) , [2004] O.J. No. 1284 also stated that on motion pursuant to rule 60.08(16) the judge has the power to look at the realities of the relationship between the judgment debtor and corporations of the judgment debtor.
[ 15 ] International Union of Painters and Allied Trades is a case with similar facts to the present case. The creditor had a judgment against the debtor in his personal capacity and at least two of his corporations. When served with a Notice of Garnishment, the debtor incorporated a new company to which the garnishee was directed to make payment. The Court of Appeal upheld the decision of the motion judge to require the garnishee to pay the creditor up to the amount in the Notice of Garnishment even though the garnishee had already made payment to one of the debtor's companies. The Court pointed out that the garnishee could have followed the procedure set out in the Notice of Garnishment and made a motion pursuant to rule 60.08(16) to "determine any other matter in relation to a notice of garnishment". This was a course of action that was also open to Don's Produce.
Discussion
[ 16 ] Peter Anstett and Patricia Butts, in their affidavits and in their cross examinations on those affidavits attempted to justify the incorporation of 1841918 as being nothing more than belatedly following the advice which they had been receiving for many years to incorporate personal service companies through which their incomes would be received. I accept that they probably received some advice to this effect. However, in my view, it is obvious from the timing of the incorporation and the fact that Patricia Butts is the sole shareholder of the company into which Peter Anstett's earnings from Don's Produce are paid that at least an equal motivation was to attempt to put Peter Anstett's income out of reach of the plaintiff.
[ 17 ] By incorporating 1841918 and then directing Don's Produce to pay remuneration for services performed by Peter Anstett to that corporation, Peter Anstett made a gift or an assignment of his income earning capacity to 1841918. Peter Anstett is unable to pay all of his debts because he has not satisfied the judgment in favour of the plaintiff. Both Peter Anstett and Patricia Butts admit that the purpose of the scheme is to make certain that Patricia Butts receives payment of the amount owing to her in preference to what is owing to the plaintiff. I am sceptical that there is in fact a real debt owing by Peter Anstett to Patricia Botts but it is not necessary for me to make a finding on that point.
[ 18 ] I therefore come to the conclusion that the incorporation of 1841918 and the direction to Don's Produce to pay the corporation the amount earned by Peter Anstett for his services is a preference which is contrary to the Assignments and Preferences Act .
[ 19 ] Pursuant to rule 60.08(16) I have the discretion to determine the rights and liabilities of the garnishee and to determine any other matter in relation to the notice of garnishment and to do so in a summary manner.
[ 20 ] On the argument of the motion, counsel for the plaintiff asserted that he only seeks to have Don's Produce pay the amounts owing from time to time to Peter Anstett from the date of the motion forward. Plaintiff does not seek to have Don's Produce repay to the plaintiff the amounts which it has paid to 1841918 since receiving the Notice of Garnishment. This is a very fair and reasonable position.
[ 21 ] Without hesitation, I find that the incorporation of 1841918 and the direction to Don's Produce to pay Peter Anstett's remuneration to the corporation was for the purpose of defeating, hindering, delaying or prejudicing the plaintiff in her efforts to satisfy the judgment owing by Peter Anstett. Accordingly, pursuant to the authority of the rule 60.08(16) I find it appropriate that Don's Produce be required to honour the Notice of Garnishment by paying to the Sheriff all amounts which it owes, or which become owing, to Peter Anstett.
Conclusion
[ 22 ] For the foregoing reasons, there will be an order that Don's Produce henceforth, pay to the Sheriff, Region of Waterloo all amounts that are due and owing and become due and owing to Peter Anstett until such time as the Notice of Garnishment is withdrawn or set aside or the judgment in favour of the plaintiff is paid in full. At the conclusion of oral argument on the motion, I made an order requiring Don's Produce to pay into court to the credit of this action any amount currently owing or which becomes due and owing to Peter Anstett or 1841918, to be paid out in accordance with my reasons as contained in this Endorsement. I therefore further order that all monies which have being paid into court to the credit of this action be paid to the Sheriff, Region of Waterloo.
[ 23 ] Because of the conclusion I have reached it, I decline to find Peter Anstett in contempt of court.
[ 24 ] If counsel are unable to agree on the appropriate disposition for costs of the motion they made make written submissions. The written submissions on behalf of the plaintiff are to be delivered to my office within 14 days of the release of this Endorsement, not to exceed three pages in length exclusive of a Bill of Costs and Costs Outline. Responding submissions are to be delivered to my office within 28 days of the release of this Endorsement, not to exceed three pages in length.
G. E. Taylor J.
Date: May 31, 2012