Kondrasheva v. Davydov, 2012 ONSC 690

CITATION

Kondrasheva v. Davydov, 2012 ONSC 690

NEWMARKET COURT FILE NO.: FC-11-37596-00
DATE: 2012-01-27

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Marianna Kondrasheva, Applicant

AND:

Igor Davydov, Respondent

BEFORE: McDermot J.

COUNSEL: Alexandra Abramian, Counsel for the applicant
Charles Baker, Counsel for the respondent

HEARD: January 25, 2012

endorsement

Introduction

1This is a motion brought by the applicant for a declaration of contempt in respect of the transfer by the respondent of a significant amount of funds to an offshore account. The applicant states that this was done in contravention of a non-dissipation order of McGee J. made March 23, 2011. As such, she claims a declaration of contempt; if such a declaration goes, Ms. Abramian on behalf of the moving party requests that the penalty phase of the hearing be adjourned in order to allow the respondent to purge his contempt.

2For the reasons set out below, I have determined that there will be a declaration of contempt. The respondent shall have 60 days to purge his contempt by paying into court the sum of $723,999.12 to the credit of this action. In the event that the respondent’s contempt is not so purged, the penalty phase of this proceeding shall be scheduled to be heard by me on a date to be set by the trial coordinator; however, on a temporary basis, the respondent may not bring any other motions before this court or take any steps in this proceeding pending the penalty phase of this contempt proceeding.

Background Facts

3These parties were married in Russia on October 15, 2005; the respondent was a Canadian citizen, and sponsored the applicant’s immigration to Canada from Russia in 2006. This was a second marriage for both parties and each party brought two children from a former marriage into this relationship.

4The applicant’s materials state that the marriage broke down in March, 2011 although the respondent states that the marriage was over as early as January 21, 2011; the applicant left the matrimonial home on March 17. These proceedings were commenced by application issued on March 16, 2011. On March 23, 2011, the applicant and her counsel attended before McGee J. in order to obtain a number of orders including exclusive possession of the matrimonial home, spousal support of $5,000 per month and an order that the respondent pay all expenses on the home. McGee J. dismissed the motion for lack of notice; she made, however, an order that “neither party is to dissipate assets until further order or written agreement.” That order has not been appealed or set aside.

5Subsequent to this order being made, substantial sums of money were transferred out of the respondent’s accounts; they ended up in an overseas account in Cyprus. The various transfers are set out in paragraphs 27 to 43 of the applicant’s affidavit sworn November 14, 2011; although that affidavit states that the sums that were transferred out total $901,171.83, Ms. Abramian in argument stated that the amount that ended up disappearing offshore was actually $723,999.12. These amounts were transferred into an account in Cyprus; Mr. Davydov states that these funds were used to repay a debt to an individual named Irena Kulakova, who was actually owed $860,772.90 [1] . The net result was that by late May, 2011, most, if not all, of the respondent’s liquid assets had vanished, leaving the only matrimonial asset available for either equalization or spousal support the matrimonial home. That home is owned by the respondent, but is subject to a mortgage and of the some $400,000 in equity, one half is stated to be held by the respondent in trust for his two children, who have been named as party respondents in this proceeding.

6While these transfers were taking place, the applicant and the respondent fought about support. On April 15, 2011, after an argued motion, McGee J. made a temporary order for temporary spousal support in favour of the applicant in the amount of $6,000 per month commencing April 1, 2011. That support has fallen into default; on a motion brought to strike the respondent’s pleadings for failure to comply with that temporary order returnable before Kaufman J. on July 20, 2011, the parties agreed that the respondent could pay $15,000 toward the spousal support arrears in stages on or before August 25, 2011. The parties also agreed to questioning to take place on September 25 and 26, 2011.

7Mr. Davydov has now produced an income analysis stating that his income is actually $40,000 per annum, and not the amount of $210,679.29 relied upon by McGee J. Mr. Davydov states that he intends upon bringing a motion in April, 2012 to set aside the order, which has fallen into default again. There is a refraining order in place which is set to expire in June, 2012.

8At the questioning, the respondent disclosed the transfers of funds noted above. Ms. Kondrasheva states that this was the first time that she discovered that funds had been transferred contrary to the non-dissipation order. Mr. Davydov states during that questioning that he had been subject to an agreement with Irena Kulakova made in 2004; he stated that she had agreed to place $650,000 in funds with him to invest; she would receive a return on those funds of 10% and Mr. Davydov would pocket any profit beyond that amount. Mr. Davydov states that the money was delivered over a number of years in cash instalments of about $30,000 by an individual named “Sergey.” He did not know his last name. He states that he put the money in his accounts in cash increments of less than $10,000, as any amount greater than that would breach money laundering legislation. He undertook to provide particulars of the various transfers of the cash into his account to show the entire advance of the $650,000 but he has not fulfilled that undertaking.

9Mr. Davydov says that Irena Kulakova became anxious about her funds because of the divorce proceedings and because of his investment losses. He states that he had to pay back the funds as Ms. Kulakova made threats against himself and his children; in his affidavit, Mr. Davydov says in his affidavit that, “Russians deal with disputes differently than do Canadians.” He implies that he and his children were at risk if these funds were not paid back. He acknowledges having transferred the funds out of his account in the face of the non-dissipation order in order to repay this debt.

10Significantly, the respondent does not state that he was unaware of the non-dissipation order when he transferred the money to Ms. Kulakova. He was, throughout this time, represented by counsel. He does not state anywhere in his affidavit that he did not know of the non-dissipation order; his only statement on the subject was that “[m]y counsel did not discuss with, nor did I understand, the nature and effect of the non-dissipation order.” Implied in that statement is the fact that, at all material times, the respondent was aware of the order in question.

Analysis

11Ms. Abramian asks for a declaration of contempt in respect of the transfers of funds noted above.

12As set out by C. Lafreniere J. in Bowman v. Bowman , [2009] O.J. No. 2993 (S.C.J.) at para. 17 , to make a finding of contempt, I must satisfy myself as to three elements of the alleged contempt:

a. The order must be clear and not subject to different interpretations;

b. The acts stated to constitute the contempt must be wilful rather than accidental; and;

c. The events of contempt must be proven beyond a reasonable doubt.

13Although much of the argument put forward by Mr. Baker on behalf of the respondent was directed toward penalty, no exception was taken to the first element or as to the clarity of the order. The argument in this matter was directed towards the second and third elements. Mr. Baker firstly stated that a trial should be held to prove the contempt beyond a reasonable doubt; these types of findings should not be made on a motion. Furthermore, Mr. Baker submitted that the respondent did not understand that he could not pay down debts with his funds; Mr. Davydov states in his materials that his lawyer was incompetent and did not properly explain the nature and effect of the non-dissipation order to him. Moreover, even if there was a wilful default, Mr. Baker says that it will make little difference to the end result as there will be no equalization payment herein and he was just paying a debt with a corresponding asset.

14Regarding the first issue, Mr. Baker is correct that a trial might be necessary under certain circumstances where the facts surrounding the alleged dissipation of assets were uncertain or where there was a serious conflict on the facts in issue. That is not the case here. The respondent has admitted to the transfer of the funds contrary to the non-dissipation order as set out in the applicant’s affidavit; moreover, those admissions are also confirmed through the transcript of the questioning of the respondent which took place on September 26 and 27, 2011. That questioning was extensive and comprehensive.

15Moreover, and as in a summary judgment motion, the respondent is expected to put his best foot forward in order to justify a trial of an issue; here he has not. In his own material, he does not deny being aware of the non-dissipation order; he only complains about the advice received from his lawyer. He also has not answered the undertakings surrounding the alleged debt to Irena Kulakova and one would think that it would have been uppermost in his mind to do so considering the issue of contempt was put on the table by service of the motions for contempt on November 14, 2011. Notwithstanding the motions for contempt, the respondent has not satisfied those undertakings.

16Based upon the admissions on the record and based upon the transcript of the examination of the respondent, I have no difficulty in finding beyond a reasonable doubt that the respondent transferred funds contrary to McGee J.’s order of March 23, 2011. There is no need for a trial to determine any facts necessary to prove the essential elements of the contempt by the respondent.

17The second issue raised is related to the wilful aspect of the actions in transferring the assets. The respondent states that his lawyer did not “discuss” the non-dissipation order and therefore, he did not understand “the nature and effect of the non-dissipation order.” [2] He later states that “may” have breached the order of McGee J., and apologizes for this; however he also states, “However, at the time I did not understand the nature and effect of that provision of the order and I did not knowingly believe that by paying these debts, which I really considered to be a debit and credit transaction, meant that I was breaching the order.” [3]

18What is important, however, is not what was said, it is what is not disclosed in that material. Mr. Davydov does not state that he consulted with his lawyer about transferring the funds and was told by that lawyer that he could pay the Kulakova debt with the funds in question. He does not set out in any sort of positive manner what his actual understanding of the order was. As such, I must presume that the respondent had the opportunity to consult with counsel as to what was allowed and what was not allowed; I must also presume that the respondent did not avail himself of that opportunity prior to transferring the funds. Implicit in everything stated in the respondent’s affidavit is the fact that the respondent was aware of the non-dissipation order when he effected the transfer of the money to Cyprus. Under the circumstances, the transfer of the funds cannot be said to be “accidental”; in fact, the respondent, by not consulting with counsel, was wilfully blind as to the transfer of the funds and as such, the second element mentioned in Bowman has been satisfied.

19As well, from the material filed by Mr. Davydov, it is apparent that he also excuses his actions by the fact that he paid off a creditor who was pressing him in a fairly unpleasant fashion. He states that he felt that he was not dissipating assets because he was merely paying off a corresponding debt, which made little difference to the end result.

20I firstly have real doubts as to whether this debt could be proven at trial based upon the inconsistencies in Mr. Davydov’s materials. I note that the debt to Irena Kulakova was not disclosed in Mr. Davydov’s original financial statement sworn March 29, 2011; for that matter, neither were the accounts which were eventually transferred to Cyprus in contravention of the order. Furthermore, there are a number of inconsistencies in Mr. Davydov’s evidence; at one point in the questioning, he describes the relationship as an investor-client relationship, but the document submitted was entitled as a “loan agreement.” The disclosure which might have proven the relationship, being the deposit of the cash amounts received from Irena Kulakova, were not produced prior to argument of the motion. Finally, the whole transaction, from start to finish, does not have the ring of truth; the story of the loan and the cash advances smack of illegality and cannot be verified in any meaningful fashion. As an illegal loan contrary to money laundering legislation, the debt may very well have been unenforceable at law.

21That being said, I do not have to decide on whether the loan itself existed or is a valid and enforceable transaction. The real issue is the breach of the non-dissipation order and although the reasons for the breach may go to the issue of penalty for the contempt, it does not affect the issue of whether there is a finding of contempt.

22It is trite that a court order is mandatory and that compliance with an order is not optional; as was succinctly put by Quinn J. in Gordon v. Starr , 2007 35527 (ON SC) , [2007], O.J. No. 3264 (O.C.J.) at para. 23 :

...Court orders are not made as a form of judicial exercise. An order is an order, not a suggestion. Non-compliance must have consequences. One of the reasons that family proceedings degenerate into an expensive merry-go-round ride is the all-too-common casual approach to compliance with court orders.

23As well, non-dissipation or preservation orders cannot be ignored because the money was being used to pay down debt or to avoid bankruptcy: see Beaudoin v. Beaudoin , [1997] O.J. No. 5504 (S.C.J.) and Bowman v. Bowman, supra . This is particularly so where the evidence of the debt itself is, as in the present case, problematic: see Aube v. Aube , [2008] O.J. No. 3393 (S.C.J.) .

24Finally, a debtor cannot pick and choose the creditor that he or she decides to pay. This is a principle that is enshrined in the Assignments and Preferences Act [4] and the Bankruptcy and Insolvency Act [5] as well as the common law.

25Mr. Davydov has done exactly that. He has both a spousal support obligation and a potential equalization payment which he may have to make. I am not in a position to prejudge whether or not an equalization payment will have to be made and the respondent will have to do a better job at proving his debts than he has done to the present if he is to utilize those debts as deductions for calculating his net family property. In this case there is a live claim for both spousal support and equalization of property, and the respondent has arranged for almost all of his liquid assets to be transferred to an offshore account in the face of the McGee J. non-dissipation order. It does not matter whether he used the funds to pay debt or to purposefully avoid the applicant’s claims in this matter; the respondent breached the non-dissipation order and he is accordingly in contempt of that order.

26Accordingly, I find that the respondent, by transferring the sum of $723,999.12 to his account in Cyprus is in contempt of the order of McGee J. dated March 23, 2011.

27As requested by Ms. Abramian, the respondent shall have 60 days to purge his contempt by payment of $723,999.12 into court to the credit of this action. In ordering this, I am not ignoring the submissions of Mr. Baker that Mr. Davydov will not, and cannot repay these funds at present. His materials appear to be amply clear on that issue. However, I would think that the respondent would at least welcome the opportunity to attempt to purge his contempt and get this matter back on track at present.

28Mr. Baker suggested that an appropriate penalty be an order that the respondent not be permitted to bring any further court proceedings or motions in this proceeding if the contempt is not purged. I am not judging whether or not this is appropriate as the penalty portion of this contempt hearing will be adjourned to a further date before me to be scheduled through the trial coordinator if the respondent’s contempt is not purged. However, I note that the respondent is intent upon bringing a motion to reduce his support; he says that it is scheduled for April, 2012. I do not feel that it is fair for the respondent to attempt to reduce support when he has also removed all of his funds from being available to pay support if ordered; accordingly, I am making a temporary order that pending the penalty portion of this contempt hearing, the respondent shall not be permitted to initiate any further motions or steps in this proceeding; that order will be vacated upon the respondent purging his contempt herein.

Order

29Accordingly an order shall go as follows:

a. There shall be a declaration that the respondent, by transferring the sum of $723,999.12 to the account in Cyprus is in contempt of the order of McGee J. dated March 23, 2011.

b. The respondent shall have 60 days to purge his contempt by payment of $723,999.12 into court to the credit of this action.

c. There shall be a temporary order that pending the penalty portion of this contempt hearing, that the respondent not be permitted to initiate any further motions or steps in this proceeding, which order shall be forthwith vacated in the event that the respondent purges his contempt as noted above.

d. In the event that the respondent’s contempt is not purged within the 60 days noted above, the parties may schedule the penalty portion of this contempt hearing before me through the trial coordinator.

30In the event that the contempt is purged, the parties may then provide written submissions for costs of this motion with the applicant and then the respondent to provide submissions of no more than 5 pages in length not including any costs memorandum or offers to settle, on a 10 day turnaround. If the contempt is not purged, costs may be spoken to upon conclusion of the penalty portion of this hearing.

Footnotes

1. 1Mr. Davydov states at para. 59 of his affidavit sworn January 19, 2012 that he actually paid this individual $780,502.73 but for the purposes of this contempt motion, I accept the amount as submitted by applicant’s counsel at the motion of $723,999.12.
2. 2Para. 26 of the respondent’s affidavit sworn January 19, 2012
3. 3Para. 51 of the respondent’s affidavit sworn January 19, 2012
4. 4R.S.O. 1990, c. A.33
5. 5R.S.C. 1985, c. B-3