McNamee v. McNamee, 2012 ONSC 3515

SUPERIOR COURT OF JUSTICE - ONTARIO

**COURT FILE NO.:**08-0221
DATE: June 14, 2012

RE: Connie McNamee, Applicant

• and –

Clayton McNamee, Respondent

BEFORE: JUSTICE BRIAN W. ABRAMS

HEARD: March 2, 2012

COUNSEL: Philip Augustine , for the Applicant
James N. Eastwood , for the Respondent

ENDORSEMENT ON MOTION

BACKGROUND

1The parties, Connie McNamee (“Ms. McNamee”) and Clayton McNamee (“Mr. McNamee”), were married for eighteen and a half years.

2They have two children, namely: Dayle Alexandria McNamee (“Dayle”), born May 28, 1990 (age 22 years) and John McNamee (“Jake”), born May 1, 1995 (age 16 years).

3The parties participated in a six day trial that commenced November 30, 2009 and concluded on December 7, 2009.

4The trial Judge, the Honourable Mr. Justice G. Tranmer, issued his Reasons for Judgment, dated March 18, 2010.

5Tranmer, J. found, inter alia , that Mr. McNamee’s 500 common shares in his father’s concrete trucking company (the “corporation”) had not been received by way of a gift. As a result, they were not exempt from inclusion in his net family property. Ms. McNamee was, therefore, entitled to half of their value, which Tranmer, J. determined to be $209,100.00 plus prejudgment interest, in satisfaction of all property claims.

6Mr. McNamee appealed the trial decision. The appeal was heard February 1, 2011. The Ontario Court of Appeal released its decision on July 20, 2011.

7Mr. McNamee’s appeal was successful, resulting in a new trial being Ordered on the issue of unjust enrichment and constructive trust. The Court of Appeal held that:

“…We are satisfied that the appellant received his 500 common shares in the company as a gift. Subject to the constructive trust/unjust enrichment analysis, to which we now turn, it follows that, by operation of s. 4(2) of the Family Law Act , neither the appellant’s ownership interest in the shares, nor any increase in the shares’ value, form part of the appellant’s net family property for purposes of calculating the equalization payment. The trial Judge erred in ordering that half the value of the shares be included in the equalization payment to be made to the respondent…” [1]

8The Court of Appeal framed the discrete issue to be determined at the new trial thus:

“…We would direct a new trial on the issue of whether the respondent [Ms. McNamee] has unjustly enriched the appellant [Mr. McNamee] and is entitled to a beneficial ownership in the shares in the form of a constructive trust.” [2]

9The Court of Appeal gave direction regarding the process by which the trial judge should consider the evidence at the new trial, by reference to the first trial, specifically:

“In the present case, therefore, the trial judge should have assessed the respondent’s claim of a beneficial ownership interest in the shares pursuant to s. 10 of the Act before engaging with the equalization scheme”. [3]

10The Court of Appeal makes it clear that in light of Rawluk v. Rawluk , [1991] 1 S.C.R. 70 , and s. 101 of the Family Law Act, the Court must follow the two step process described

in Rawluk by identifying all relevant property and then determining ownership. Determining ownership through trust principles would first be undertaken before turning to the exclusions listed in s. 4(2). [4]

Pre-trial Motion – Financial Disclosure and Payment of Interim Disbursements/Legal Expenses

11Against this backdrop and in contemplation of the upcoming trial, Ms. McNamee brought this motion seeking updated financial disclosure and payment of interim disbursements and legal expenses. Additional claims for relief were resolved by consent of the parties.

FINANCIAL DISCLOSURE

12It is important to review the procedural history leading up to Ms. McNamee’s most recent request for disclosure. In Ms. McNamee’s Amended Application, dated March 9, 2009, she pleaded:

“A declaration that the Respondent holds his 500 shares in 1518006 Ontario Limited (the holding company of McNamee Concrete Ltd.) on a constructive trust for and to the benefit of the Applicant and that she is entitled to a 50% interest in the property.”

13The parties separated August 5, 2007. About that there is no quarrel. Ms. McNamee made no claim in her Amended Application that the value of the shares should have been calculated at the date of trial, as opposed to the date of separation. Accordingly, the first trial proceeded on the basis that the shares were properly valued at the date of separation.

14In Ms. McNamee’s affidavit in support of this motion, sworn January 10, 2012, she deposes at paragraph 16:

“At the first trial of this matter the midpoint valuation of the Respondent’s 500 common shares of Holdco on the date of our separation was determined by Collins Barrow, LLP to be $418,200.00”. (emphasis added)

15There is no evidence that the value of the shares was updated to the time of the first trial.

16Moreover, nowhere in the evidence on this motion does Ms. McNamee say that the shares should have been valued at some time other than the date of separation.

17Counsel for Ms. McNamee, Mr. Augustine, contends in oral submissions that there was never any secret that the shares should be valued at the date of trial. That said, Ms. McNamee’s factum, dated January 27, 2012, filed in support of this motion is not so clear and unequivocal, specifically:

“19. At the first trial of this matter the midpoint valuation of the Respondent’s 500 common shares of Holdco on the date of separation was determined by Collins Barrow, LLP to be $418,000”. (Emphasis added)

“20. The Applicant is asking that her 50% beneficial interest in the common shares held by the Respondent in Holdco be recognized by the court at the second trial”. [5]

18What is it that Ms. McNamee is asking the Court to recognize, her 50% beneficial interest in the $418,200.00 at the date of separation, or some other, yet to be determined, post separation value? Query whether Ms. McNamee is prepared to share in any potential diminution in the value of the shares post separation, if the evidence supports such a finding at the new trial?

19Counsel for Mr. McNamee, Mr. Eastwood, contends that the claim for additional financial disclosure takes his client by surprise. In support of that position, Mr. Eastwood relies on the following:

(i) The parties jointly retained a certified business valuator, Bruce Brooks, to complete a valuation of Mr. McNamee’s shares for the first trial;

(ii) It was Mr. Brooks’ opinion that on the date of separation Mr. McNamee’s shares had a value of $418,000.00 and that the trial judge accepted that valuation;

(iii) Neither of the parties appealed the trial judge’s finding with respect to the value of the shares; and

(iv) Ms. McNamee has provided no evidence suggesting that she has made any contribution to the value of the shares, whether directly or indirectly, since the date of separation. Accordingly, Ms. McNamee has led no evidence to support a claim for an equitable interest in the added value of Mr. McNamee’s shares, if any, since the date of separation.

20I note the following comments made by the Court of Appeal in respect of the value of the shares, with reference to the evidence at the first trial:

(i) “Mr. McNamee Sr. has always controlled the business and made all major financial and other decisions respecting it, and still does (emphasis added);” [6]

(ii) “… Mr. McNamee Sr. retained full control by ensuring that his preference shares be voting shares (in the normal estate freeze the preference shares maintained by the former principle are non-voting)… his voting preference shares entitle him to take unlimited dividends from the company at any time , thus enabling him, should he wish to do so, to denude the company of the equity or retained earnings in the future (also an unusual feature). (emphasis added) [7]

(iii) “The fact that the donor could affect the value of the shares at any given time reflects the nature of the estate freeze in question. It has no bearing on whether the shares as transferred were or were not a gift. The shares could be of no value, of limited value or of substantial value. As it turned out, they were of substantial value - $418,200.00 - when it counted” (emphasis added). [8]

21Based on the evidence filed in support of this motion and upon review of the Court of Appeal’s decision, it seems clear that the parties did not previously advert to the shares being valued at any time other than the date of separation. Indeed, the first that anyone raised the issue was when Ms. McNamee pleaded it in her Notice of Motion.

22Mr. Augustine contends that based on the Supreme Court’s decision in Rawluk, the regime created by the Family Law Act does not oust the equitable remedy of constructive trust in the process of settling the affairs of married couples upon separation. Rather, far from excluding the remedy of constructive trust, the fundamental objectives of the Act were furthered by the use of the constructive trust remedy in appropriate circumstances.

23Mr. Augustine further contends that the constructive trust remedy can be used to allow a non-titled married spouse to share in the continuing increase of value of the trust property following separation.

24However, as one practitioner and author recently pointed out:

“It is important to remember that while Rawluk decided that claims for remedial constructive trust and unjust enrichment are available to married spouses, Rawluk said nothing about making those claims in the face of specific provisions in the Family Law Act that would oust such a claim. That is, Rawluk decided that trust claims could continue in the face of the statutory regime because the statutory regime did not specifically oust those claims.” [9]

25In any event, Mr. Augustine asserts, on this motion, that Ms. McNamee does not need to convince the court that she will necessarily win on the constructive trust issue at the new trial. Rather, she need only persuade the court that there is a triable issue. On that basis alone, notwithstanding the absence of a particularized pleading and scant evidence filed in support of the relief claimed, Ms. McNamee should be given the opportunity to prove her case. Accordingly, with reference to Rules 2(3) and 19 of the Family Law Rules , Ms. McNamee, through her counsel and/or Mr. David Clarke, CA CBV of Collins Barrow, LLP, shall be entitled to examine the documents requested in paragraphs 4 (a) through (j) of her Notice of Motion, dated January 12, 2012.

INTERIM DISBURSEMENTS AND LEGAL EXPENSES

26With reference to Rule 24(12), the Court may order a party to pay an amount of money to another party to cover part or all of the expenses of carrying on the case, including lawyers’ fees.

27Counsel agree that this Court’s decision in Agresti v. Hatcher (2004), 2004 Carswell Ont 917 is instructive in terms of the interpretation of Rule 24(12).

28To that end, Mr. Augustine contends that the Court has discretion to utilize the rule so that the parties have a fair opportunity to provide or test disclosure, make or consider offers or possibly to go trial.

29Ms. Augustine further relies on the decision in Menage v. Hedges (1987), 1987 Carswell, Ont 2397 for the proposition that each spouse has the burden of establishing the value of the property that he or she owns.

30Moreover, where a party refuses to produce a valuation for an asset, the court may order that the party pay interim disbursements towards the completion of a proper valuation for that asset. This is so even in cases where neither party is necessarily affluent enough to hire a valuator. See Greenwood v. Greenwood (1988), 1988 Carswell Ont 322 .

31Finally, and in reference to the Agresti decision, Mr. Augustine points out that where the wife in that case had an annual income of $48,000.00 in addition to monthly child support payments of $2,500.00 and had accumulated legal bills totaling $56,000.00; and the wife’s lawyer estimated it would take an additional $20,000.00 to conclude the matter, the Court ordered that the husband pay the wife up to $35,000.00 in interim disbursements toward the completion of a valuation report. In addition, the court ordered the husband to pay the wife $28,000.00 in interim legal fees, $13,000.00 representing fees billed and owing to the wife’s legal firm and $15,000.00 towards future legal costs.

32Respectfully, Mr. McNamee did not refuse to produce a valuation for the shares. Rather, the parties jointly retained Mr. Brooks to complete the valuation for the first trial. Tranmer, J. relied on that valuation to determine the midpoint value of $418,200.00 for the shares, at the date of separation.

33Ms. McNamee now contends that the joint report prepared by Mr. Brooks for the first trial is no longer current and, by implication, inaccurate.

34In response, Mr. McNamee contends that the report is current, accurate and relevant. In fact, as Mr. McNamee points out, the Court of Appeal affirmed, at least implicitly, the mid-point date of separation value as expressed by Mr. Brooks and as accepted by Tranmer, J.

35Mr. McNamee also points out that when the parties jointly retained Mr. Brooks, they did so based on a pre-trial agreement that they would share equally the cost of his appraisal. To that end, Mr. McNamee asserts that Ms. McNamee unilaterally changed the terms of the pre-trial agreement. She now contends that she will only pay her half of the disbursement, representing $7,750.00, after the new trial.

36Ms. McNamee concedes in evidence that she owes Mr. McNamee the $7,750.00. However, she rationalizes her non-payment of the sum thus: She was awarded costs following the first trial, which Tranmer, J. reduced by $7,750.00 to compensate for the fact that Mr. McNamee had paid the up-front cost for the report. Mr. McNamee then appealed the award of $209,100.00, along with the net figure for costs of $88,653.89. Ms. McNamee characterizes the costs as having been “suspended” by the Court of Appeal.

37Respectfully, the Court of Appeal did not “suspend” the payment of costs. Rather, the Court of Appeal set aside the cost award and indicated in subsequent correspondence that the costs of the first trial should be left to the discretion of the judge hearing the new trial. Accordingly, while the net figure for costs was set aside on appeal, Ms. McNamee’s agreement to pay Mr. McNamee the $7,750.00 following the first trial was not.

38Mr. McNamee frames the issue in the following terms:

“Prior to the original trial, the parties agreed to retain the services of Bruce Brooks, a certified business appraiser with Collins Barrow, LLP. It was agreed that these expenses would be fronted by the Respondent, with the Applicant to then pay her share. The Applicant never paid her share. Instead, this pre-trial agreement was merged by the trial judge into the order for costs. Essentially, the trial judge subtracted the applicant’s share of the disbursement from the costs ordered against the respondent. The costs order has, however, been set aside by the Court of Appeal. The Applicant still owes her share and as is clear from her own evidence, will never have the means to honour this agreement, yet she is requesting new costs for an updated appraisal.” [10]

In effect, Mr. McNamee contends that Ms. McNamee does not come before the Court with clean hands in making her request for new costs.

THE LAW

39Again, Rule 24(12) provides:

“Payment of Expenses – The court may make an order that a party pay an amount of money to another to cover part or all of the expenses of carrying on the case, including the lawyer’s fees.”

40The remedy anticipated by the Rule is clearly discretionary.

41In the Stuart v. Stuart 2001 28261 (ON SC) , [2001] O.J. No. 5172 (Ont. S.C. J.) , Rogers, J. outlined the following principles applicable when considering an Application under Rule 24(12):

(i) the court interprets the new Family Law Rules to require the exercise of the discretion in Rule 24(12) on a less stringent basis than the cases that call for such only in exceptional cases. The discretion should be exercised to ensure all parties can equally provide or test disclosure, make or consider offers or possibly (sic) go to trial. Simply described, the award should be made to level the playing field . (emphasis added).

(ii) An order under rule 24(12) should not immunize a party from cost awards. The order is to allow the case to proceed fairly and should not be such that a party feels a license to litigate.

(iii) Certainly the proof of the necessity of the interim disbursements would be critical to the successful claim. The claimant must clearly demonstrate that the disbursements are necessary and reasonable given the needs of the case and the funds available. In particular, if an expert is the subject of a requested disbursement, the claimant must demonstrate there is a clear need for the services of the said expert.

(iv) The claimant must demonstrate that he or she is incapable of funding the requested amounts.

(v) The claim or claims being advanced in the case must be meritorious as far as can be determined on the balance of probabilities at the time of the request for disbursements.

(vi) The order for interim disbursements should not be limited to cases where it would be taken out of an equalization payment. The leveling of the playing field should not be limited to those with an expected equalization payment.”

42Tranmer, J. found that Mr. McNamee’s 2008 income was $105,447.00, to which he imputed an additional $16,000.00 per year to reflect certain benefits that Mr. McNamee derives from the corporation.

43Tranmer, J. determined Ms. McNamee’s income in 2009 to be zero a result of some retraining that she had undertaken.

44The evidence indicates that Mr. McNamee’s income has remained static since the time of the first trial.

45In contrast, the evidence shows that Ms. McNamee’s income has increased to approximately $30,000.00 per annum.

46Mr. McNamee was ordered to pay child support for the two children in the amount of $1,644.00 per month and spousal support of $2,400.00 per month.

47Ms. McNamee continues to receive full child support in the face of evidence that Dayle, at 22 years of age, no longer resides with her, curtailed her university studies for a period of time and obtained full-time employment. She has since commenced a college program on a full-time basis.

48When full value is given to Ms. McNamee for the support received, in addition to her increase in annual income, and the corresponding amounts for support are deducted from Ms. McNamee’s income, it is difficult to reconcile the facts of this case with those in Agresti. The Respondent in that case, Mr. Hatcher, was a former NHL hockey player who retired after 16 seasons. At the time of the hearing, his interest and investment income was approximately $325,000.00, as compared to Ms. Agresti’s income of $48,000.00. In those circumstances the principle of “leveling the playing field” is understandable. Based on the evidence before me in this case, the parties’ economic positions are much closer together.

49Ms. McNamee agreed to pay Mr. McNamee $7,750.00 for her half of the Brook’s report, following the first trial. She resiled from that agreement when Mr. McNamee was successful on the appeal in having the net figure for costs set aside. She now contends that she will only pay the $7,750.00 following the new trial, which is premised on her being successful. Why do I say that? Because Ms. McNamee’s most valuable asset is her solely owned home. It has an approximate value of $180,000.00, but is subject to a first mortgage to the bank of approximately $150,000.00 and a second mortgage to her legal counsel of $125,000.00. Accordingly, Ms. McNamee may be, for all intents and purposes, judgment proof. It is reasonable, therefore, to conclude that unless Ms. McNamee is ultimately successful at the conclusion of the new trial, she will more than likely be unable to repay Mr. McNamee the $7,750.00. Moreover, it is more than likely that she will be unable to pay any additional amount for disbursements or costs. Query whether that might make Ms. McNamee feel as though she has a licence to litigate, as Mr. McNamee contends.

50The question as to whether the interim disbursement would be critical to the successful claim is arguable. For all of the reasons set out above, Mr. McNamee contends that the Brooks report is current, accurate and relevant.

51Ms. McNamee, having been content to proceed to trial on the first occasion based on the date of separation valuation, has expanded her claim to include the continuing increase in value of the trust property, if any, following separation. While Ms. McNamee does not need to convince the Court on this motion that she will necessarily win on the constructive trust issue at trial, she must lead evidence to clearly demonstrate why an updated report is reasonable and necessary. She has not. Put simply, while she is entitled to the additional financial disclosure to prove her case, it does not necessarily follow that she is entitled to have Mr. McNamee fund her efforts.

52Mr. Augustine, in directing the Court to the corporate balance sheet, contends that Mr. McNamee has “millions of dollars sloshing around” and is, therefore, better able to fund the disbursements, along with Ms. McNamee’s legal expenses. I do not accept these submissions. As the Court of Appeal said with reference to the evidence at the first trial: “Mr. McNamee Sr. has always controlled the business and made all the major financial and other decisions respecting it, and still does”. [11]

53There is no evidence before me that Mr. McNamee has unfettered access to capital in the corporation. Rather, he is paid a salary and from that salary he is obligated to pay both child support and spousal support. Once support is paid, in addition to Ms. McNamee’s increase in income, the parties economic positions are relatively similar. Accordingly, while it may be true that Ms. McNamee is incapable of funding the additional disbursements and legal expenses, Mr. McNamee is in no better a position to do so.

54I am unable to determine on the balance of probabilities that Ms. McNamee’s claim for the post separation increase of value of the trust property, if any, is meritorious. The evidence before me on that issue is speculative, at best.

55Ms. McNamee shall be entitled to examine the documents as requested and ordered, at her own expense. Further, if Ms. McNamee wishes to commission the preparation of an updated report, she is free to do so, at her own expense. In summary, I am not persuaded that the facts of this case call for the sort of discretionary relief granted in Agresti and with reference to Rule 24(12), for all of the reasons articulated above.

56Litigation of any sort is fraught with financial risk and exposure. Ms. McNamee’s is no greater than Mr. McNamee’s, based on the evidence before me. This is not a case where there is a clearly demonstrated need to “level the playing field” by ordering payment of interim disbursements and legal expenses, in advance of trial. If Ms. McNamee is ultimately successful at trial, she will be entitled to make a claim for costs.

57The costs of the contested adjournment on January 31, 2012 and the motion of March 2, 2012, are reserved to the trial Judge hearing the matter.

Footnotes

1. 1McNamee v. McNamee , 2011 ONCA 533 at paragraph 53
2. 2McNamee v. McNamee , 2011 ONCA 533 at paragraph 72
3. 3McNamee v. McNamee , 2011 ONCA 533 at paragraph 70
4. 4“Houston, We Have a Problem” Constructive Trust and Unjust Enrichment, Philip M. Epstein, Q.C., March 26, 2012 .
5. 5Factum of Connie McNamee, dated January 27, 2012 at paragraphs 19 and 20.
6. 6McNamee v. McNamee , 2011 ONCA 533 at paragraph 10
7. 7McNamee v. McNamee , 2011 ONCA 533 at paragraph 13
8. 8McNamee v. McNamee , 2011 ONCA 533 at paragraph 44 – “when it counted” must mean the date of separation and not the date of the first trial, as the latter was never pleaded nor was such evidence led at the first trial.
9. 9Philip M. Epstein, Q.C., Supra at page 42.
10. 10Notice of Motion of Clayton McNamee, dated January 17, 2012 at page 8 “Interim Disbursements” paragraph 2.
11. 11McNamee v. McNamee , 2011 ONCA 533 at paragraph 10