ONTARIO

SUPERIOR COURT OF JUSTICE

COURT FILE NO.: FS-06-5092
DATE: 2012/10/03

BETWEEN:

LAURIE HELEN EARLS Applicant – and – MARK EARLS Respondent

Deborah Ditchfield, for the Applicant

Walter Drescher, for the Respondent

HEARD: June 29, 2012

turnbull J.

Introduction

1The applicant has brought a motion to strike the respondent’s pleadings.

2The applicant is 52 years of age and the respondent is 49 years of age. They were married December 31, 1987 and separated in April 2006. They have one son named Michael, who is 23 years of age.

Review of the Proceedings

3The two principle assets of the parties were the matrimonial home (located at 1112 R.R. #5, Simcoe, Ontario) and a rental property (located at 1070 R.R. #5, Renton, Ontario) which contained five residential units. Both properties were jointly owned. Shortly after their separation, Mr. Earls moved into the rental property and resided there until this court ordered him to vacate that unit on or before May 15, 2012. In the interim, he collected all the rents and was to pay the expenses on that property.

4It is clear from my review of the file that Mr. Earls has been very obstructive and unco-operative throughout these proceedings.

5The parties consented to an order ultimately signed by Mazza J. on July 19, 2006 that the matrimonial home would be listed for sale at $549,900. In that order, the parties agreed they would re-address the listing price in 30 days if their home did not sell. Mazza J. also ordered the respondent to pay the monthly mortgage, hydro, gas and insurance costs with respect to the matrimonial home until it was sold. He did not do so.

6The case conference endorsement of August 15, 2006 indicates that Mr. Earls did not appear at that case conference and costs of $500 were ordered payable by him forthwith in any event of the cause.

7In December 2006, after the applicant brought a motion, Taylor J. ordered the matrimonial home be listed with Mark Pauls for a period of 90 days at $519,000. The parties were ordered to reduce the listing price on day 45 in consultation with the listing agent.

8On April 18, 2008, after the applicant was forced once again to bring another motion, Taliano J. ordered that the matrimonial home be listed with Coldwell Bankers Real Estate Ltd. at a listing price of $499,000 and that the price of the home should be reduced by $10,000 every 45 days until it was sold. In her affidavit of June 11, 2009, Ms. Earls stated that despite the court orders that the matrimonial home and the rental property be sold, neither party renewed the listings when they expired in March 2009. She swore that when she learned that Mr. Earls had not renewed the listing agreement for the rental property and had removed the “for sale” sign from the lawn, she also removed the “for sale” sign from the matrimonial property.

9On July 18, 2008, the applicant brought a motion for compliance with the order of Mazza J. and for an order for the sale of the rental property. For oral reasons given, I ordered that the rental property be forthwith listed for sale pursuant to the Partition Act . The respondent was permitted to continue to be responsible for the maintenance and expenses of the rental property to and including the closing of any sale.

10Because of the long standing and acrimonious nature of this matter, I agreed to try to assist counsel and the parties in resolving this matter. I agreed that if an impasse was reached, counsel could contact me by telephone conference call to seek directions of the court. I was hopeful that such a process would reduce/eliminate the necessity for more motions with the attendant costs.

11During a conference call on June 18, 2009, counsel advised that the parties had agreed to list the rental property for sale and to list the property with a specific agent and real estate brokerage firm.

12However, on August 13, 2009, the applicant again was forced to bring two motions before the court. She sought an order finding the respondent in contempt of the July 18, 2009 order for his failure to list the parties’ rental property for sale. The second motion sought enforcement of the Court’s order of July 18 th requiring the respondent to pay his one-half share of the mortgage, hydro, gas, insurance, taxes and other expenses of the matrimonial home. In a lengthy written endorsement issued August 13, 2009, I noted at paragraph 8 the following:

To say the least, only a minimal effort has been made by Mr. Earls or his counsel to resolve the matter with Revenue Canada so that the exact amount of the debt can be crystallized. This is clearly to the prejudice of Mrs. Earls because as interest and penalty compound from that outstanding obligation, the amount of equity available in the residential property and the rental property is arguably diminishing.

13In that same endorsement, I referred to my endorsement from the June 18, 2009 conference call with counsel which stipulated that the parties had agreed to list the rental property for sale. I found at paragraph 9 of my endorsement of August 13, 2009, that this had not been done by Mr. Earls until August 4, 2009, after he was served with the applicant’s motion for contempt. In that same endorsement of August 13, 2009, I noted in paragraphs 11 and 12 that Ms. Earls and her daughter were prepared to purchase Mr. Earls one-half interest in the matrimonial home. At paragraph 14 of the endorsement, I wrote that Mr. Drescher agreed that his client would sell his one-half interest based on a $395,000 purchase price if no real estate commission was payable and if the $35,000 line of credit mortgage (second mortgage registered on title) could be transferred to the rental property. At paragraph 16, I wrote as follows:

I considered the positions of the parties in this matter. It is my view that Mr. Earls has been “dragging his heels” in failing to deal with this matter in a timely manner. Because of his dilatory actions, both in dealing with the CRA and listing the rental property, the litigation continues to unfold.

14At paragraph 18 of the endorsement, I further noted that despite the court order of July 18, 2008 requiring Mr. Earls to pay one-half of the cost of the mortgage, taxes, insurances and other expenses associated with the matrimonial home after August 1, 2008, he had not done so. At paragraph 19, I concluded that Mr. Earls was the principal cause of the problems continuing to fester in this litigation. While I did not find Mr. Earls in contempt of court at that time, I did find at paragraph 21 of the endorsement that Mr. Earls had intentionally neglected to negotiate with the Canada Revenue Agency (hereinafter CRA) or he had delayed doing so, knowing the presence of the CRA encumbrances against title to the matrimonial home and the rental properties would act as an impediment to any prompt sale of the matrimonial home.

15In another endorsement dated September 11, 2009, I have noted that during her submissions at that time, Ms. Ditchfield drew to the attention of the court a letter dated March 26, 2008 from CRA to Mr. Earls, which was only produced to her earlier that day or the day before. That letter indicated that Mr. Earls had already discussed matters with CRA and indicated to them that he would be in a position to financially fully retire both his G.S.T. and income tax debts in the near future upon the sale of his properties. Ms. Ditchfield submitted at that time that piece of correspondence showed bad faith on the part of Mr. Earls. She argued that on the previous occasion before the court, Mr. Drescher had indicated to the court that contact had been made with the CRA and he had been advised that various officials were away on holidays. However, Ms. Ditchfield contended and I agree that Mr. Earls new or ought to have known that he was not eligible for any taxpayer relief on any basis based on the correspondence from the CRA. A copy of that correspondence is found in the continuing record in volume 2, tab 2(m). In that letter, a representative of the CRA wrote:

I regret to inform you that no evidence was found to indicate that there were any extraordinary circumstances preventing compliance and meeting legislative requirements, nor was there any evidence found to conclude that there were any errors made by CRA.

16Hence, the CRA representative indicated that the taxpayer relief provisions would not be available to Mr. Earls. In the same letter, the CRA indicated as follows:

It is apparent you have a history of non-compliance with tax obligations as the majority of your G.S.T. and income tax returns have been filed late. Also you have not addressed any of your tax debts as no payments have been received. By doing so, you have knowingly allowed a balance to exist on both accounts and continue to accrue further tax and interest.

17Ms. Ditchfield argued that she felt the court had previously been misled by Mr. Earls because it was represented to the court that there was some possibility of negotiation with CRA. I concur with that submission of Ms. Ditchfield and find that Mr. Earls knew there was no possibility of negotiation with CRA and that he was once again “dragging his heels.”

18On October 6, 2009, the parties filed minutes of settlement pursuant to which the respondent was to transfer his one-half interest in the matrimonial home to the applicant in consideration for the payment of the sum of $197,500. It provided that one-half of the outstanding municipal taxes, one-half of the outstanding balance of the first registered mortgage, the sum necessary to lift liens and writs filed by the CRA, the sum of $3,900 previously ordered to be paid by the respondent to the applicant, and the sum of $1,500 plus G.S.T. and assessable disbursement were to be deducted from the proceeds otherwise payable to Mark Earls.

19Finally on February 25, 2011, Mr. Justice Gordon ordered that pursuant to a consent filed, the ownership of the matrimonial home would be vested solely in the name of the applicant. It was ordered that the applicant should carry out the terms of the order made by me on October 6, 2009, adjusted as of March 23, 2011, subject to certain exceptions.

20On June 11, 2011, I signed a further consent order pursuant to the minutes of settlement filed at that time. That order provided that the matrimonial home be vested in the name of the applicant and Jessica van Goethem (the applicant’s daughter). The consideration for the transfer was based upon a value of $197,500 subject to adjustments specified in the consent order. The order also provided that the rental property be vested in the names of the applicant and Jessica van Goethem. That order also required the respondent to provide vacant possession of his apartment on the rental property to the applicant no later than July 15, 2011. He ignored that order.

21As events transpired, the respondent did not vacate the property until he was again ordered by me to do so in 2012. In the same order of June 10, 2011, the respondent was ordered to pay rent to the applicant for his occupation of the rental property based upon $600 monthly rental ($20 per day) from the date of closing of the transfer of the rental property from joint names of the applicant and respondent to the names of the applicant and Jessica van Goethem. That order required the respondent to ensure that all utilities of the rental property were paid to a zero balance as of the closing date and the utilities thereafter would be transferred to the applicant’s name and that of Jessica van Goethem. The respondent was permitted to collect rents to the date of closing, but he was to co-operate fully in the notification to tenants with respect to the payment of rents to the new owners, and he was to account for the payment of rents elected collected by him from tenants to the date of closing.

22The parties agreed that Brian Finnigan, Barrister and Solicitor, of the Waterous, Holden, Amey, Hitchon LLP law firm act on both transfers of the matrimonial home and the rental property to ensure that all mortgages, liens and encumbrances were paid as outlined in tab E of the applicant’s motion record of June 3, 2011, and he was to provide an accounting to both parties after closing. The matter was to be returned to court Thursday, June 30, 2011, to be spoken to in order to determine the issue of costs.

23For reasons never totally made clear to the court, the matter was not returned to court until April 27, 2012. At that time, Mr. Drescher appeared before the court. His client had not placed a motion or supporting affidavit before the court to indicate what relief was being sought from the court. Mr. Drescher indicated that his client was simply asking that the applicant comply with the court order (June 10, 2011 order). When pushed to identify the relief his client was seeking, Mr. Drescher again stated that his client was seeking compliance with the court order of June 10, 2011.

24At that time, after hearing submissions of counsel, I issued an order, having given oral reasons. The respondent was ordered to vacate his apartment in the rental property on or before May 15, 2012. The consent of the respondent, Mark Earls, to the sale of the rental property was dispensed with. Ms. Earls was granted leave to list the property for sale at a price recommended by the listing agent. She was given authority to sign all documents necessary to effect the listing and to sign all agreements with respect to the sale of the property. In all respects, the signature of the Mr. Earls was dispensed with. It was ordered that Mr. Earls provide a full accounting of rents received by him with respect to the rental property, including funds received and funds paid out, and this was to be provided to Ms. Earls on or before June 1, 2012.

25During the course of the matter before the court on April 27, 2012, the transcript shows at page 32 that Mr. Earls represented to the court that he only had one tenant in the commercial property. In fact, at the time that he made that representation to the court, he had three tenants in the commercial property. On April 27, 2012, it was also ordered that the respondent was to bring a motion returnable June 20, 2012, identifying the issues he had with respect to the sale of the matrimonial home and the relief which he was seeking as a result of any violation of the provisions of the order of June 10, 2011.

26In the interim, the applicant brought a motion to strike the respondent’s pleadings. I directed that that motion and the respondent’s motion, which had been ordered in paragraph 10 of my endorsement of April 27, 2012, be returnable June 29, 2012.

27Counsel appeared before the court on June 29, 2012. The respondent had not brought the motion ordered in paragraph 10 of my endorsement of April 27, 2012. Hence the motion to strike the respondent’s pleadings was argued before me.

28Mr. Brian Finnigan, Barrister and Solicitor, filed two lengthy affidavits. His affidavit sworn November 16 th , 2011 spelled out the financial situation with respect to both properties. I find as a fact that the properties were going to be lost by Power of Sale and/or tax sales for tax arrears if the actions described by Mr. Finnigan had not been taken. Ideally, the proposed actions should have been brought before the court for court approval before proceeding, but I am satisfied upon full review of the matter, there has been no financial prejudice suffered by Mr. Earls.

29Mr. Finnigan swore that pursuant to paragraph 10 of the Order of June 10, 2011, he was to act on the transfers of the rental and matrimonial properties and to ensure that all mortgages, liens and encumbrances were paid. However, as explained in his detailed affidavits, there were insufficient funds to pay all of the mortgages, liens and encumbrances and therefore, it was not possible to give effect to the transfers as contemplated in the order. In order to deal with the outstanding mortgages, liens and encumbrances on the matrimonial property, Mr. Finnigan explained that it was refinanced and as part of that refinancing, transferred from the names of Jessica van Goethem and Laurie Earls to the names of Jessica van Goethem and James Durka. Mr. Finnigan swore that immediately after the date of the Order, the matrimonial property became subject to power of sale proceedings being taken by the first mortgage, TD Canada Trust. In order to avoid the property being lost in that power of sale action, it was necessary for whoever owned the property to refinance to pay out the amount due on the mortgage. However, as part the refinancing, it was also necessary to pay tax arrears owing to the County of Norfolk in the amount of $38,348.73, an execution against Laurie and Mark Earls which was registered by the law firm of Brimage Tyrrell in the amount of $2,419.97, and an execution against Laurie Earls registered in favour of the law firm Waterous, Holden in the amount of $7,500. An amount also had to be paid to CRA in order to have that agency lift liens that had been registered against Mark Earls. In order to refinance the property, the new lender required the financing to be done in form of a transfer rather than in the form of a simple refinancing to comply with the lender’s policies. That is the reason the property was transferred into the name of Jessica van Goethem and James Durka. The sale price for a one half interest in the property was in the agreement between Jessica van Goethem and James Durka, as purchasers and Jessica van Goethem and Laurie Earls as vendors was $250,000, which was $52,500 higher than the agreed value contained in paragraph 2 of the Order.

30The accounting of the net proceeds is spelled out at tab G of his affidavit.

Postion of the Respondent

31The respondent filed an affidavit objecting to this transaction and asserted that the property was sold at a much reduced price to the applicant’s daughter and her partner, James Durka. He noted that from the affidavit of Mr. Finnigan, it appears the home was sold to Jessica van Goethem and James Durka for $250,000, who subsequently had a mortgage for $298,000 registered against the property. He further noted that the law firm, Waterous, Holden, Amey, Hitcheon LLP, representing Ms. Earls, held back at least $16,500 to pay their accounts, presumably on the instruction of the applicant. He argued that these costs were not contemplated in the court order and are personal in nature to the applicant herself.

32Mr. Earls argued that the bottom line was the matrimonial home was agreed upon as being worth $395,000. It was “sold” to the applicant’s daughter and her boyfriend for $250,000. The other $150,000 has disappeared.

Position of the Applicant

33Ms. Ditchfield emphasized that Mr. Earls was entitled to credit for the amount of $197,500 under the consent order of June 11, 2010, which represented his one half interest before deducting his one half responsibility for the mortgages, taxes, and his liability to CRA for the liens registered against his name.

34Mr. Earls filed a responding affidavit dated April 16, 2011. In paragraphs 7 and 8 thereof, he laid out the accounting which should have taken place in order to give him the benefit of the $197,500 for his one half interest in the matrimonial home and the $87,500 for his one half interest in the commercial property as envisaged in the consent order of June 10, 2011. He felt that there should be $1952.70 owing to him. However, he has not taken into account the considerable legal fees which would be incurred to effect the transfers and which Mr. Finnigan has indicated had to be incurred largely in trying to negotiate with CRA.

Analysis and Conclusion

35On a review of the totality of the situation, I find that Mr. Earls has not been financially prejudiced by the actions taken by the applicant to effect the sale of the matrimonial home.

Behaviour of the Respondent

36Ms. Ditchfield has argued on behalf of the applicant that Mr. Earls has been abusing the process of the court. For instance, she noted that on April 27, 2012, I ordered him to bring a motion to identify the relief Mr. Drescher was seeking. He did not comply with that order. On May 24, 2012, I again ordered Mr. Earls bring his motion before the court returnable June 29, 2012, and again he did not do so. Mr. Drescher said he saw no reason that a motion should be brought because there was no relief which could be sought and obtained. However, if his client felt that the transfer of the matrimonial home to Ms. van Goethem and Mr. Durka was improper, I would have expected a motion be brought to simply set that transaction aside and/or an accounting. In the alternative, a motion for contempt to comply with the order of June 10, 2011, could have been sought.

37Ms. Ditchfield also noted that Toronto-Dominion Bank obtained default judgment on the rental property mortgage based on a statement of claim issued at the Milton office of the Ontario Superior Court of Justice on January 9, 2012 against the respondent and the applicant. The affidavits of service, filed as exhibit 1 on this motion, indicated that Ms. Earls was served personally and Mr. Earls was served by delivery of a copy of the statement of claim to his partner and by service at his address by regular mail. In court, Mr. Drescher advised that Ms. Romaro, Mr. Earls partner, never received the documents as alleged in the affidavit sworn by the deponent relative to service of the statement of claim, and that neither party received a copy of the statement of claim by regular mail. This is of some import because when Ms. Earls went to the property to carry out the order made by me that she should sell the property, she found that there were three tenants in the property, which is contrary to what Mr. Earls advised me on April 27.

38In my order of April 27, 2012, at paragraph 5, I ordered that Mr. Earls provide a full accounting of rents received and paid out on or before June 1, 2012. He has provided a handwritten one page accounting at exhibit C of this affidavit found at tab 13 of volume 2 of the Continuing Record. To say the least, it is sadly deficient in accounting for rents and expenses for six years of occupation. There are no receipts attached, the names of the tenants are not included and copies of the statements for the bank account to which the monies should have been deposited are not included.

39Mr. Finnigan noted at paragraph 14 of his affidavit sworn May 23, 2012 that a By-Law Enforcement Officer with the County of Norfolk advised Mr. Earls had vacated the rental property and had either not paid the utilities or had them shut off thereby not only leaving the three tenants at the property without any utilities, but also putting Ms. Earls as risk of being charged under the Municipal By-Law for failure to provide utilities as she is a joint owner of the property.

40I also note that Mr. Earls did not vacate the property by July 25, 2011 pursuant to the provisions of the June 10, 2011 order, and he did not pay the $20 per day with respect to over holding, as required in paragraph 6 of that order.

41The matter of greatest concern of this court is that the June 10, 2011 order was made to effect a refinancing of the matrimonial home and the rental property. This was done pursuant to minutes of settlement negotiated between the parties through counsel. Within hours of signing the minutes of settlement, Mr. Earls then undermined the ability of the applicant to refinance the rental property by sending a seven page fax to the bank outlining all of the defects he was aware of with respect to the property. His response in his affidavit to that allegation was that he had a duty to point out those deficiencies to the bank. However, as Ms. Ditchfield indicated, he chose not to point those defects out to the court at that time or to indicate to the applicant there would be difficulties in refinancing because of the deficiencies. I find that he intentionally torpedoed that refinancing. The deficiencies in the rental property were known to him because he was the person who solely had control of that property for the preceding six years.

42As I review this lengthy file, these are not the first times that Mr. Earls has intentionally misled the court.

43There have been over 30 court appearances by the parties in this matter over the past six years and to try to pin him down is like trying to nail Jell-O to a wall. In my view, Ms. Earls should not have to spend more time and money trying to nail him down. Mr. Earls is essentially ungovernable and he will not comply with court orders.

44In the order of June 10, 2011, I ordered in paragraph 8 that Mr. Earls should “collect the rents and fully co-operate in notifying tenants.” Essentially the same order relative to accounting was made in paragraph 5 of the order of April 27, 2012. As far back as August 13, 2009 at page 8 of my endorsement made that day, I noted that Mr. Earls had complete control over the rental income and had provided no accounting with respect to the property. In the same endorsement in paragraph 21, I wrote:

I find Mr. Earls had intentionally intended not to deal with the CRA knowing that those encumbrances would act as an impediment to the sale.

45With respect to Mr. Earls' position in this matter, he did not cross-examine Mr. Finnigan with respect to the particulars of the sale of the matrimonial home. It is obvious to this court that the funds were applied properly and if he had any concern with that he should immediately have brought a motion to the court seeking questioning, attempting to set aside the transaction and other corollary relief. His suggestion that the matter should prolonged and go to a trial is totally irresponsible and a direct flaunting of the court order that a motion be brought so that these matters can be dealt with in as summary a manner as possible with the least expense to the parties. In his correspondence to the court dated September 7, 2012, Mr. Drescher submitted that the respondent has insisted since the beginning of this litigation that the applicant is partially responsible for the tax arrears since the date of the separation because she was previously the bookkeeper for his business and received a benefit from his non-payment of taxes. I reject this argument because the Minutes of Settlement which led to the Order of June 10, 2011 did not attribute any liability in this respect to the respondent.

46I note that on February 22, 2011, at tab 3, volume 2, exhibit B of the continuing record, Mr. Earls did provide some accounting of the property for 2010. However, it was sadly deficient in form and content. He did not provide any supporting documentation such as bank statements, names and contact information of tenants, copies of receipts, and other supporting documentation.

47Ms. Ditchfield has noted that essentially there is nothing left here to be argued about. The income property has been taken over by the bank and will be sold by that institution. The matrimonial home has been transferred and Mr. Earls has received the equivalent financial benefit that he would have received had it been sold to a third party at a price of $395,000.

48Ms. Ditchfield has advised that there is no pension that her client held at the date of separation, so there is no equalization of family property to be effected with respect to pension income. The only other asset was furniture, which was divided pursuant to the order of Mazza J.

49Mr. Earls owned a piece of equipment called a “Zoom Boom,” which he sold for approximately $23,000 net after paying commissions. Ms. Ditchfield has advised that Ms. Earls simply does not care anymore about claiming an interest in Mr. Earls' business nor any share of her entitlement to the sale proceeds of the Zoom Boom. She simply wants a divorce and wants to claim nothing against him, except her costs, which she would like to be able to claim on summary judgment motion if the court strikes his pleadings.

50This court is aware that pleadings should only be struck in only the most exceptional circumstances. There is no specific rule under the Family Law Rules which envisages a party moving to strike another party's pleadings. However, Rule 1(7) provides that if the rules do not cover a matter adequately, the court may if it considers it appropriate deal with the matter by reference to the Rules of Civil Procedure.

51Rule 60.12 of the Rules of Civil Procedure grants the court power to strike out a party’s defence if a party fails to comply with an interlocutory order.

52In the case of Bell Express Vu Limited Partnership v. Toronie , [2009] ON CA 85, the Court of Appeal noted that striking out is a severe remedy and ought not to be one of first resort without at least providing the defendant an opportunity to cure the default. However, our courts have held that where plaintiffs consistently refuse or neglect to comply with court orders in relation to the processing of a claim and where a litigant is unwilling to or unable to comply with court orders, the right to continue an action may be dismissed. However, an action should only be dismissed where the breach is intentional, contumelious or without reasonable excuse or otherwise constitute an abuse of the court’s process. Provato v. Burgantin (2003), 33 C.P.C. (5 th ) 385 (S.C.J., Master) .

53I have taken into account the fact that Mr. Earls has misstated the number of tenants in the rental premises, he has not provided a proper accounting as ordered by this court relative to the rentals obtained by him, and he has failed to comply with various court orders on numerous occasions. Furthermore, on his own accounting, he has not suffered any financial prejudice. These are issues which can be addressed on the question of costs at the end of any motion for summary judgment and/or trial of this action.

Conclusion

54In review of the entirety of this file, I find the respondent’s breaches of court orders and his misrepresentations to the court have been intentional, without reasonable excuse, and constitute an abuse of the court’s process. In the circumstances, the respondent’s pleadings in this action shall be struck. The applicant may bring a motion for summary judgment seeking the costs of these proceedings and the divorce.

55With respect to the issue of the costs of these proceedings, I direct that written submissions be provided to the court by Ms. Ditchfield and a copy provided to Mr. Drescher so that he may attend on the return of the summary judgment motion to make reply submissions with respect to costs.

Turnbull J.