ONTARIO

SUPERIOR COURT OF JUSTICE

COURT FILE NO.: Owen Sound 11-7699M
DATE: 2012 08 29

B E T W E E N:

Natasha Kraner

Allen Wilford, for the Applicant

Applicant

• and -

John Ivan Kraner

Peter Cozzi, for the Respondent

Respondent

Richard Burnside and Associates Court Appointed Receiver 2027707 Ont. Ltd c/a Tobermory Lodge

Harry van Bavel, for the Receiver

HEARD: August 16 2012

REASONS FOR DECISION

ON MOTION

WEIN J:

[ 1 ] These motions arise in the context of a family law action in which a Receiver has been appointed by the court to manage the main asset of the parties, the Tobermory Lodge. The parties lived in and managed the lodge for the past several years.

[ 2 ] John Kraner has not appealed from the order appointing the Receiver, made just three months ago, but moves before this Court for a Declaratory Order that the Receiver be discharged for cause. He also asks for a stay in payments to the Receiver, an accounting, that the Receiver be held in Contempt, and that Natasha Kraner be prohibited from being at the lodge.

[ 3 ] Natasha Kraner cross applies to have the property and business put in her name, so that she can run the lodge and also so that she can prevent the sale of the property by the mortgage holder, who is said to be a friend of or at least aligned with her husband. A complicating factor is that the land is owned by John Kraner personally but the business is a numbered company of his, and the past accounts have been intermingled with his personal accounts. Mrs. Kraner also asks for a series of other relief, including payment into court of money transferred by John Kraner to his brother on the same day the matter was last in court, for spousal support, and for various other relief related to the interim management of the lodge and the activities of John Kraner. She also asks that John Kraner be put in custody under the Absconding Debtors Act .

[ 4 ] The Receiver has moved for the passing of the first two Statements of Account, but all parties agree that those motions must be deferred until after the current issues are resolved. The Receiver takes the position that the motion to remove the receiver should be dismissed with costs.

History of the Proceedings

[ 5 ] On July 8 th , 2011, Natasha Kraner brought an ex parte application to restrain her husband from dissipating any property in his name or under his control, including the Tobermory Lodge. The order was granted on a short term basis pending service on John Kraner. On the return date, John Kraner appeared but Natasha Kraner did not. The non-dissipation order was continued to July 29, at which time both parties had counsel, and a consent order was made preventing John Kraner from dissipating his assets including the Tobermory Lodge. However, he was permitted to list the lodge for sale and was permitted to accept a bona fide third party offer to purchase it. That Order continues in effect.

[ 6 ] Disclosure orders followed in November of 2011.

[ 7 ] In the following months, a family law action was commenced and issues relating to financial disclosure were pursued.

[ 8 ] However, by May 3 rd , 2012, Natasha Kraner brought evidence to suggest that contrary to the court order Mr. Kraner was dissipating assets. These related to the payment of $150,000.00 in full satisfaction of a loan alleged to be $200,000.00, the transfer of $440,000.00 to his brother on July 8 th , 2011, allegedly prior to his receiving notice of the non-dissipation order, and conducting ongoing significant cash business at the Tobermory Lodge without accounting for it. It was ordered that the $150,000.00 be paid back into court and that Mr. Kraner appear at the adjournment date.

[ 9 ] On May 16, the court decided to appoint a Receiver based on transfers made by John Kraner, including the $440,000.00 and the $150,000.00. Justice Corbett concluded that Mr. Kraner was prepared to lie to damage Mrs. Kraner’s financial interest. The court also noted that he had failed to report cash revenues. The court concluded that irreparable harm might occur if John Kraner remained in charge of the business and although receivership costs would be high relative to the means of the business, it would not be appropriate to accept John Kraner’s undertakings to run the business appropriately. While he did not evict John Kraner from the property at that time, he appointed a Receiver.

[ 10 ] Subsequently, on May 28 th , on a continuance of the motion, affidavit evidence was received concerning the events at the lodge on the Victoria Day long weekend. On that weekend, counsel for Mrs. Kraner and his relatives assisted, because of exigent circumstances, in the running of the lodge in the absence of the ability to obtain other employees on short notice.

[ 11 ] Justice Corbett found that John Kraner had impeded the management and business of the lodge, such that the Receiver was now justified in asking that he be barred from the property. On the other hand, he also noted that the Receiver appeared to be aligned with Mrs. Kraner because he had relied on her to train new management and had relied on her counsel and his relatives and friends to assist in running the lodge on short notice on the long weekend. The court then concluded that it would not be reasonable for the Receiver to employ either of the parties at the lodge notwithstanding that new management would be costly.

[ 12 ] The Court ordered that “the Receiver may in his discretion communicate with or meet with either Mr. Kraner or Ms. Kraner” for the purpose of receiving information about the lodge, that neither party would be paid for doing so, and that neither party could remain at the lodge overnight or for more than four hours in any 24 hour period. They were to be accompanied at all times by the Receiver or its agent.

[ 13 ] The court also ruled that Mr. Kraner had been acting in a manner contrary to the interest of the lodge for the purpose of frustrating or impeding the receivership. He was required to return equipment he had taken including computer equipment and files. Because of his disruptive actions he was required to leave the property during the Receivership.

[ 14 ] It is significant to note that the events that took place on and before the Victoria Day weekend formed a significant underpinning to the reasons given on May 28 th . Much of the current argument is based on those same facts.

[ 15 ] Now, less than three months later, Mr. Kraner has applied to have the Receiver discharged for cause and for a stay of payments. By contrast, Mrs. Kraner applies again to be allowed to run the lodge at this stage.

[ 16 ] It is obvious that both John Kraner and Natasha Kraner are unhappy with the Receivership, and wish to have the property run by each of them, without the other. Contempt actions have also been brought, including a request that the Receiver be held in contempt.

Current Facts of the Case

[ 17 ] Both parties are now required to be out of the lodge, away from its day to day management, and have had to resile from interfering with the business of the lodge. John Kraner takes the position that the Receiver is biased in favour of Natasha Kraner, and has spent excessive amounts of money since taking over the management of the lodge, such that the receiver ought now to be removed. John Kraner relies extensively on the events leading up to and over the Victoria Day weekend.

[ 18 ] Subsequently, through the month of June, difficulties were encountered by the Receiver with respect to the management of the lodge by Drajan Vojnoeic. He was removed by the Receiver on June 25 th . As well, an employee, Emina Danovic, was unable or unwilling to keep up with the work of the lodge such that other local people had to be obtained. John Kraner now suggests that the new manager, Mr. Schnurr, is a friend and aligned with counsel for Natasha Kraner, but she alleges that Dragan and Emina were in effect spies for John Kraner.

[ 19 ] In issue is the extent of the expenditures made by the Receiver. Both Mr. and Mrs. Kraner have expressed concerns about the amount of money that the Receiver has spent on repairs and operations, now totalling at least $176,000.00. Revenues during that time period are reportedly only $58,000.00. However, it is clear that extensive repairs were required because Mr. Kraner had permitted the lodge to become run down, and, at least it is argued by Mrs. Kraner , may have sabotaged the plumbing and electrical lines . Work orders required immediate attention, and structural deficiencies had to be fixed.

[ 20 ] Overlaid on top of all of this is the fact that foreclosure proceedings have been brought against Mr. Kraner and the numbered company, allegedly as a result of the Receiver’s failure to pay the mortgage, although the holder of the mortgage has agreed to stay the proceedings at this time. There is a suggestion that the holder of the mortgage may not be acting at arm’s length from John Kraner.

[ 21 ] By contrast, Mrs. Kraner argues that Mr. Kraner took large cash receipts from the lodge, and encouraged cash payments by charging no tax. She suggests he has concealed “millions of dollars in cash” to defeat her claim for equalization. She notes that he spent little to no money doing regular maintenance since the year 2008, such that the swimming pool did not work, decks and railings were rotten and dangerous, the Health Department had closed the kitchen, the roof leaked in some areas, and water testing had not been done. Mrs. Kraner suggests that her only hope to obtain any equalization payment is to have the title vested in her name so she can live there and run the business with minimum expense.

[ 22 ] Ancillary claims relate to the car turned over to her by John Kraner: she alleges he will not turn over the second key and told her she would have a serious accident. The overall equalization claim by Natasha Kraner is complex and relates to the transfer of money dating back to the 1990’s when the couple were involved in running other lodges.

[ 23 ] On behalf of the Receiver, it is noted that the assets of John Kraner are intermingled with the assets of Tobermory Lodge, “2027707”. The Receiver confirms the ongoing repair and health issues that were required to be funded in order for the business of the lodge to operate during the 2012.

Issues and Law

1. Removal of Receiver

[ 24 ] The general obligations of a receiver are well known, as set out in Canada Trustco Mortgage Company v. York-Trillium Development Group Limited (1992), 12 C.B.R. (3 rd ) 220 , 1992 CarswellOnt 168 (Ont. Gen. Div.) at para. 2 :

(a) it is a fiduciary as to all interests of concerned parties and as such it is to act as an appointee of the Court in good faith; with candour; disclosing all relevant material facts affecting the parties; avoiding any real or objectively perceived conflicts of interest; and

(b) it has a general duty to exercise its obligations with prudence, diligence, due care and skill.

[ 25 ] It is not disputed that there is a heavy onus on a party asking to remove a Receiver. The court must consider the added cost involved in replacing a Receiver with another Receiver, and must assess the foundation for the alleged claim for mala fides . In normal circumstances, a Receiver will not be removed short of proof that the Receiver is engaged in blatant intentional action contrary to the interest of one or more parties. There is no doubt that the Receiver owes the duty to exercise its responsibilities in a careful manner considering the circumstances, but at the same time the court ought not to be assessing the actions taken by the Receiver in the context of the perfect light of hindsight.

[ 26 ] Many of the initial concerns set out by John Kraner relate to alleged breaches of fiduciary duty that occurred on or before the last motion, including the alleged alignment between the Receiver and the applicant or counsel for the applicant and what was alleged to be an adversarial role towards Mr. Kraner when he was living at the property. At this time however he was clearly impeding the work of the Receiver, so it does not lie in him to now complain about steps taken to remedy harm he himself caused.

[ 27 ] With respect to the other concerns relating to the duty to account, it is clear that the passing of the accounts will be dealt with in September, and all parties agreed to the adjournment to that date.

[ 28 ] Finally, the evidence is conflicting with respect to the attendance of counsel for Mrs. Kraner or Mrs. Kraner herself at the lodge in contravention of the order, and at this stage, on a motion, it would not be appropriate to find that any such breach occurred.

[ 29 ] The Receiver in this case was placed in the extremely difficult position of determining what expenditures were appropriate in order to keep the lodge open over the summer months. It is apparent that the lodge was not in ready condition for the season and that some expenditures in excess of what would normally be required had to be made. It may well be that the real solution would be to tear down the property and have someone start afresh, as Mr. Kraner suggests, but that option at least at this interim stage is not available to the parties, because of the manner in which they have acted towards each other in these proceedings, requiring the appointment of a Receiver.

[ 30 ] The request to remove the Receiver at this stage is denied. The respondent’s request to be permitted back into the lodge to operate it is also denied: his own actions have resulted in his removal from that position.

2. Contempt

[ 31 ] John Kraner also requests that Natasha Kraner be found in contempt of court order by reason of having stayed at the lodge for in excess of the four hour period permitted by the court order of May 28 th . As was noted in that order and the subsequent order relating to the costs, in which John Kraner’s evidence was found to be “patently false”, it is entirely inappropriate to base a contempt order on affidavit material filed on his behalf or by him.

3. Sale of the Property

[ 32 ] With respect to the request to remove the designation of the property as the matrimonial home, that request is also declined. If the property is sold, any proceeds must be paid into court, so that the assets of Mr. Kraner cannot be further dissipated.

4. Transfer of the Property to Natasha Kraner

[ 33 ] Natasha Kraner requests that the formal ownership of the property be transferred to her to save the property from the mortgage holders’ actions and to put an end to the Receiver’s costs. To a large degree this request is simply a repetition of a request made in the proceedings in May. Despite John Kraner’s obvious actions, already commented on by Justice Corbett, in paying out a loan at a 25% discount and transferring $440,000.00 to his brother, it is not clear at this stage that ownership of the property should necessarily rest in Natasha Kraner. As noted above, if the property sold, which may well be a good thing, it must be shown to have been sold to an arm’s length purchaser, and the assets of the proceedings paid into court so that they can be dealt with as part of the matrimonial action.

5. Spousal Support

[ 34 ] It is difficult at this stage to assess the quantum of spousal support payable and it is not although it appears entirely probable that Natasha Kraner will receive support, in the absence of full and proper financial disclosure, it is difficult to make even an interim order. Natasha Kraner’s view of her husband’s dealings over the past several years may suggest to her that he has “millions” stashed away, but another view suggests that it has all been something of a shell game where money has been transferred from one asset to another. These are matters for trial.

[ 35 ] Nonetheless, it is not inappropriate that some spousal support be paid. Mrs. Kraner received only $20,000.00 by way of an interim order up to March of 2012. The family income overall is likely to be much reduced once Revenue Canada becomes involved in the financial fallout of the disclosure of the cash income admitted to have been taken from the property by John Kraner. In the interim, only modest support, of $4,000.00 a month, on a without prejudice basis, is appropriate. This is aligned with the amount previously agreed to and so can be deemed minimally appropriate.

[ 36 ] Accordingly, there will be an order for the payment of $4,000.00 a month on an interim basis from John Kraner to Natasha Kraner commencing April 1 st , 2012, with the $20,000.00 of arrears to be paid by September 15 th , and payments for September forward to be paid on the first of each month commencing September the 1 st .

6. Disclosure Orders

[ 37 ] It is appropriate that a deadline for disclosure be set. John Kraner is required to disclose all his assets and investments, including those of all of his companies and investments wherever held, and including from the date of the sale of the Shakespeare Inn. This disclosure must be completed by September 30 th 2012. He is also to comply with the undertaking given at his examination, as soon as possible, and no later than September 30 th 2012.

7. The Lexus Car Key

[ 38 ] In the context of John Kraner’s actions in this matter, including his transfer out of funds in probable disregard of court orders, and including the previously stated misconduct such as swearing to patently false evidence respecting financial performance and breaching the non-dissipation, and including his alleged threat to Natasha Kraner, it seems likely that he has kept one of the Lexus car keys. He is to return it to Natasha by September 8, 2012, failing which he will make a payment of $2,000.00 to pay for electronic changes necessary to rekey the vehicle.

8. Other Relief Requested

[ 39 ] The various requests by Natasha Kraner, that all costs of the receivership be paid by John Kraner, that he reimburse the wages of certain employees, and that he be placed in custody under the Absconding Debtor Act, are not appropriately dealt with prior to trial.

9. Early Trial

[ 40 ] If this matter cannot be settled by way of an appropriate lump sum for equalization and support, then an early trial is mandated, to end the interim issues that will almost inevitably arise again between these parties.

10. Costs

[ 41 ] It is always to be anticipated that experienced counsel will be able to resolve the issue of costs. If Counsel are unable to do so in this case, however, I will receive costs submissions to a maximum of 5 pages each, within 10 days for the Receiver and within 10 days thereafter for each of the other parties.

WEIN J.

Released: August 29, 2012

COURT FILE NO.: Owen Sound 11-7699M
DATE: 2012 08 29

ONTARIO SUPERIOR COURT OF JUSTICE B E T W E E N: Natasha Kraner Applicant - and - John Ivan Kraner Respondent - and - Richard Burnside and Associates Court Appointed Receiver 2027707 Ont. Ltd c/a Tobermory Lodge REASONS FOR DECISION ON MOTION WEIN J.

Released: August 29, 2012