COURT FILE NO.: 32411/10 (Milton)
DATE: 2013-03-28
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
JENNIFER LESLIE ROGERS
Laura E. Oliver, for the Applicant
Applicant
- and -
KEVIN LINDSAY ROGERS
Ted R. Laan, for the Respondent
Respondent
HEARD: April 10, 11 & 14, October 11 & 12 & December 10 & 14, 2012
REASONS FOR JUDGMENT
SNOWIE J.
[1] The parties were married on June 24, 2000. They separated on January 1, 2009. There are two children of the marriage, Kaeden Rogers born December 6, 2002 and James Rogers born November 7, 2005.
[2] The parties are committed to resolving the issues surrounding the children through mediation/arbitration with Dr. Fidler. As such these issues are not to be dealt with at this trial.
[3] There are only three issues before this trial court:
Divorce.
Can the husband trace his alleged inheritance and/or gift monies from receipt of the same to the i-trade, also known as the ‘e-trade’ account, on the valuation date?
What was the value of the husband’s 20% of the common shares of Digital Holdings on the date of marriage. (June 24, 2000)?
[4] The respondent claims that he should have the benefit of a $219,000.00 exclusion of inherited and/or gifted funds from the equalization calculation. The respondent husband alleges that he received two inheritances during the course of the marriage. One inheritance was from his step-grandmother, Phyllis Blow, who died on March 6, 1997. The quantum of this bequest was $72,964.33. I accept this as fact.
[5] The second alleged inheritance and/or gift was from his grandfather, Maurice Blow, who died on November 4, 2003. The quantum of this alleged inheritance was $255,985.68. It is the testimony of the respondent that he loaned both of these ‘inheritances’ to the paternal family business, Digital Holdings, as a shareholder loan. No specific or direct tracing of either of these two amounts have been provided to this court.
[6] The respondent owned 20% of the Common Shares in the family business on the date of marriage and on the date of sale of the business. The remaining Common Shares were owned equally by each of his parents (40% each). Additionally the respondent’s father owned 90 Preferred Class A Shares and his mother owned 35 Preferred Class B Shares.
[7] This family business was sold for $2,500,000.00 plus add-ons (for a total value of approximately 3.1 million) in 2006. From the sale proceeds the respondent received $240,000.00 plus $204,347.23 plus $29,459.90 (total = $433,807.13). These facts are undisputed.
[8] It is the respondent’s position that the aforesaid inherited/gifted (being $72,964.33 and $255,985.68) funds were in part converted to his shareholder loan of $219,000 and this amount was repaid to him upon the sale. It is his position that he took these funds ($219,000) and placed them into two e-trade (later known as i-trade) accounts. He has testified that the funds are traceable and should therefore be excluded from the calculation of his Net Family Property.
[9] The applicant does not accept the respondent’s claim and neither does this court.
[10] Firstly, this court finds that there was no evidence produced at trial that the $72,964.33 bequeathed by Phyllis Blow, to the respondent, Kevin Rogers at her death in 1997, was ever kept separate from matrimonial funds. There was no evidence establishing a tracing of these funds from one account directly into another. As such, I must conclude that these funds were not able to be traced and were co-mingled and as such are not subject to any legislative exemption.
[11] Secondly, there is no evidence of any inheritance at all from Maurice Blow to the respondent directly. The evidence is that Maurice Blow created his ‘estate’ through the proceeds of three insurance policies to which the only beneficiary was the respondent’s mother, Joyce Rogers. Joyce Rogers was the sole named beneficiary of all the insurance funds. As such these proceeds never formed any part of the Estate under a Will. Any monies received from Maurice Blow were inherited by the respondent’s mother not the respondent. The respondent and his parents gave evidence that the deceased Maurice Blow had expressed orally his wishes that 25% of the said insurance funds be given to each of his two grandchildren - Lesley and Kevin respectively. Such statements were not binding on Joyce Rogers legally. If monies were received in this manner by the respondent they were third party gifts from the respondent’s mother to the respondent. They are not inherited monies to the respondent from Maurice Blow.
[12] Thirdly, there was no documentation with respect to these gifts produced at trial. There was no paper trail produced at trial to show where these monies went. There are no cancelled cheques, and no transfer documents from a third party’s account to the respondent produced at trial. The only documents produced were the alleged bank statements ‘recreated’ by the respondent’s father. Joyce Rogers testified that she shredded many relevant documents six years ago. This fact further calls into question the accuracy of the documents ‘recreated’ by Donald Rogers in 2012 for this trial. I do not accept the recreated bank documents.
[13] Fourthly, there were no documents produced at trial to support that the shareholder loan of $219,000.00 “on the books” of Digital Holdings prior to the 2006 sale to Glentel Inc was ever repaid. In fact the documentary evidence is to the contrary. Paragraphs 2 a), b), c), d), e), f) and g) on pages 6 and 7 of the Share Purchase Agreement state as follows:
- PURCHASE AND SALE OF DIGITAL HOLDINGS SHARES
a) Basic Transaction. On and subject to the terms and conditions of this Agreement, the Purchaser agrees to purchase from the Vendors, and the Vendors agree to sell to the Purchaser, all of the Digital Holdings Shares for the consideration specified in Section 2(b) below.
b) Share Purchase Price. The purchase price for the Digital Holdings Shares is TWO MILLION FIVE HUNDRED THOUSAND DOLLARS ($2,500,000.00) (the “Share Purchase Price”).
c) The Share Purchase Price will be allocated as follows:
Donald T. Rogers Joyce L. Rogers Kevin L. Rogers Total
For the Class A Shares $- $350,000.00 $- $350,000.00
For the Class B Special $950,000.00 $- $- $950,000.00
For the Common Shares $480,000.00 $480,000.00 $240,000.00 $1,200,000.00
$1,430,000.00 $830,000.00 $240,000.00 $2,5000,000.00
d) Payment. The Share Purchase Price will be paid on the Closing Date as follows:
i) by cash payment of ONE MILLION SIX HUNDRED FIFTY THOUSAND ($1,650,000.00) paid as follows:
Donald T. Rogers Joyce L. Rogers Kevin L. Rogers Total
$580,000.00 $830,000.00 $240,000.00 $1,650,000.00
ii) by the issuance of a promissory note made by the Purchaser in favour of Don Rogers in the amount of EIGHT HUNDRED AND FIFTY THOUSAND DOLLARS ($850,000.00) which shall be in the form of the promissory note attached hereto as Schedule 3 (the Purchaser’s Note”).
e) Adjustments. Not later than June 26, 2006, the Vendors shall prepare, or cause to be prepared, a pro-forma financial statement for Digital Mobile and Digital Holdings for the period August 1, 2005 to June 30, 2006, which shall be prepared in a manner consistent with the Most Recent Financial Statement and shall deliver the final financial statements for such period on or before July 20, 2006 (the “Closing Financial Statement”).
f) Adjustment for excess working Capital. As of the Closing Date, the ratio of the working capital of Digital Mobile, that is the ratio of current assets of Digital Mobile (which shall be comprised of bank accounts, Accounts Receivable, current liabilities of Digital Holdings and Digital Mobile (which shall be comprised of accounts payable, accrued liabilities, and income taxes payable) as of the Closing Date and which shall be reflected in the Closing Balance Sheet, shall be 1:1. Any working capital of Digital Mobile in excess of the ratio of 1:1 as considered as redundant and shall not be included in this contemplated transaction and shall remain the property absolute of the Vendors. The said excess working capital, which shall be particularized in Schedule 4 attached hereto (the “Trust Assets”) shall be held in trust by the Purchaser, who shall act as trustee, for the absolute benefit of the Vendors. The Purchaser shall remit the Trust Assets to the Vendors immediately upon collection and /or receipt of the same. The Purchaser shall be entitled to a fee for managing the said trust and such fee shall be 0% of the value of the Trust Assets which are remitted to the Vendors within 0 to 60 days from the Closing Date, 5% of the value of the Trust Assets which are remitted to the Vendors within 61 to 90 days of the Closing Date, and 10% of the value of the Trust Assets which are remitted to the Vendors more than 91 days after the Closing Date.
g) Subsequent Adjustment.
A. If within four months after the Closing Date, any of the Accounts Receivables in the Closing Financial Statement are not collected (other than Accounts Receivables owing from any government agency and/or entity) or if inventory (including rental equipment units) and trade accounts payable are agreed by the Vendors and the Purchaser not to have the value as stated in the Closing Financial Statement (any failure to agree shall be resolved pursuant to Section 2(h) below), 100% of the amount of such uncollectible Accounts Receivables, plus the reduction in inventory values, plus any Related Party Debt or Bank Debt, less any reduction in trade accounts payable values, will be deducted by the Purchaser from any payments to be made pursuant to Section 2(d)(ii). Should any such deduction be made from any payments to be made pursuant to Section 2(d)(ii), the Purchaser irrevocably assigns the rights to initiate recovery proceedings against the defaulting parties to the Vendors.
B. If, on or before July 31, 2006, the Purchaser has failed to enter into an agreement or agreements with Wireless Concepts Inc., on terms satisfactory to each of the Purchaser and Motorola Canada Limited, which will permit Digital Systems to continue to operate the locations in London and Sarnia, Ontario, on the same terms and conditions as conducted as a Motorola Service Station and as a Authorized Two-Way Radio Dealer as at the date of this Agreement, then the Share Purchase Price shall be reduced by $300,000. In order to secure such reduction, the Purchaser shall hold back the amount of $150,000 from the amount payable pursuant to Section 2(d)(i), which amount shall be released to the Vendors if the agreements described herein are entered into on or before July 31, 2006. In addition, the Purchaser may deduct a further amount of $150,000 from the amounts payable pursuant to Section 2(d)(ii).
[14] The respondent has failed to provide any documentary proof that any pay-out of the shareholder loan was ever made. The evidence is that on July 31, 2005, (Corporate year end) there were “on the books” outstanding shareholder loans owed to each of the common shareholders as follows:
(1) the respondent’s mother $ 16,418.13
$ 47,005.48
(2) the respondent $219,000.00
(3) the respondent’s father $378,513.13
$660,934.74
[15] There were no provisions in the Agreement of Purchase and Sale for the pay out of any of these shareholder loans. Mr. Donald Rogers (the respondent’s father) testified that the shareholders’ loans were paid out by the company before closing from the business’ monies and that this was a condition of the sale. No records were produced to support this statement. In fact there was no documentation of any kind produced to support this statement.
[16] The respondent (husband) testified for two plus days. I found his evidence to be inconsistent, vague and evasive, especially his evidence given under cross-examination. He often answered questions as follows: “I am unsure of the answer and would need to check the records.” or “I would need to confirm …” or “I would have to ask my counsel …” or “I cannot remember.” or “I would need to read the transcript to refresh my memory.” or “I do not know.”. I found his evidence lacking in credibility. Where there were differences between the testimony of the respondent and the applicant, I preferred the evidence of the applicant. I found her testimony direct and to the point.
[17] Despite the fact that this litigation was commenced in 2010 many of the undertakings of the respondent husband still remained outstanding at trial.
[18] Much of the respondent’s documentation at trial had been self-generated and ‘recreated’ by either the respondent husband and/or the respondent’s father. I found these documents were often self-serving. For example: sums are listed as “inheritance monies to Kevin from Maurice Blow” although they were not legally inherited monies from Maurice Blow (see Exhibit #12, Tab #1) to Kevin. Money of the transactions that the respondent attempted to rely upon were undocumented. As such I find that the tracing was inadequate and/or non-existent.
[19] As such, I find that the respondent has failed to establish:
the tracing of the alleged ‘gifts’/inheritance funds into the shareholder loan;
the repayment of the shareholder loan; and,
the tracing of the alleged repayment of the shareholder loan into the e-trade investment accounts that existed at the time of separation.
[20] I found the respondent’s testimony to be “smoke and mirrors”. During the course of eight days of trial there was a great deal of evidence relating to numbers but the very essence needed to establish the actual tracing of these monies (being $219,000) back to a ‘gift’ and/or ‘inheritance’ was never established by the respondent. The evidence needed was not complicated but never produced.
[21] It is clear from the Agreement of Purchase and Sale of the Family Business (2006) that the shareholder loans were not paid out upon the sale. They were simply cleared prior to the sale to allow the sale to proceed. The respondent’s father testified that the three common shareholders (the respondent’s mother and father and the respondent) gave up all their shares and shareholders’ loans in exchange for the total sale price.
[22] In any event because the shareholder loan of the respondent cannot be traced nor can the i-trade or e-trade account contents be traced as coming from excluded property, the said monies will form part of the parties’ Net Family Property and be equally divided between the parties.
[23] The amount that the respondent received from the sale represents his 20% minority interest in the family business, being $433,807.13.
Value of the Respondent’s Company Shares on the Date of Marriage
[24] The respondent called Mr. George Goldsmith, accountant, to testify as to his report on the date of marriage valuation of the respondent’s share in Digital Holdings.
[25] This court declined to recognize Mr. Goldsmith as an expert for this purpose for many reasons. They are as follows:
Mr. Goldsmith is a social friend to Donald and Joyce Rogers. They have known each other since 2003. They go out socially together. His not an arms’ length expert.
Mr. Goldsmith worked actively as a negotiator to assist Donald Rogers in the successful sale of Digital Holdings to Glentel. As such, Mr. Goldsmith was in the employ of Donald Rogers.
Mr. Donald Rogers is a source of other business on an on-going basis for Mr. Goldsmith. Mr. Goldsmith described Mr. Donald Rogers as “a fan” of his.
Donald Rogers paid Mr. Goldsmith for his assessment of the value of Kevin Rogers’ shares on the date of marriage.
Mr. Goldsmith is not a Chartered Business Valuator, although he testified that he does value businesses in his practice.
Mr. Goldsmith has never been qualified as an expert witness for court purposes.
Mr. Goldsmith has never taken the CICBV’s course. He is not familiar with their standards nor their format and he has not complied (by his own evidence) with the CICBVs Practice Standards.
Mr. Goldsmith’s report is lacking any “scope of review”, “key assumptions”, and/or any “restrictions” due to the limited material available to him on which to make his Report as required.
[26] While none of the above is necessarily fatal unto itself, Mr. Goldsmith admitted under cross-examination that he did not have sufficient evidence as defined by the CICBV Standards to determine the date of marriage value of Kevin Rogers’ shares in Digital Holdings. He testified that he relied upon information largely in his head retrospectively as the documents he would have needed were not made available to him. This inadequate. His report is merely his ‘best guess’, based upon his memory of ‘potential’ future contracts (some that did not come to fruition) and the summaries only of the company business statements at the time.
[27] Mr. Goldsmith admitted under cross-examination that had he known that the information (limited as it was) he relied upon was different his conclusions probably would have been different. For example: there is evidence before the Court that Kevin Rogers had generally withheld the real state of the company’s finances, had forged PST remittances and hid real costs (Exhibit #15). All such activity was not disclosed to Mr. Goldsmith.
[28] Kevin Rogers was a minority shareholder (20%) in a private company, without any control. Mr. Goldsmith testified that he did not believe that Kevin Rogers could even have found a buyer for his 20% of the common shares at the date of marriage. His position was too vulnerable.
[29] For all of the above reasons I find that the respondent, Kevin Rogers, has not met the onus of establishing the date of marriage valuation of his shares through Mr. Goldsmith.
[30] I find that the best evidence before this court as to the date of marriage valuation of Kevin Rogers’ common share values is the Brownlow, Thompson & McKay Chartered Accountants (hereafter known as Brownlow) valuation. Brownlow, Thompson & McKay were the independent auditors (company accountants) who did the financial review of the company, and completed the financial statement tax returns of the company for many years (from approximately 1995 to the sale of the Business in 2006). This valuation was preformed for the purpose of a Partial Estate Freeze of the family business dated June 8, 1999. This was only one year prior to the marriage date. At that time the common shares were valued at zero and the preferred shares had a frozen value of 1.3 million dollars. This fact of the zero valuation by Brownlow is undisputed. At the time of the Freeze each of Joyce, Donald and Kevin Rogers were issued common shares at $1.00 each. Brownlow valued the company at that time at 1.3 million dollars with all the value in the preferred shares only. This fact is also undisputed. The actual Brownlow Report was never produced by the respondent despite repeated requests by the applicant, but these facts re: the findings in the Brownlow Report are not disputed. There are very few changes on the face of the financial statements from 1999 to 2000. (see attached as Schedule “A”) of the 2 operating companies gross sales. As such, I find that the value of the respondent’s shares on the date of marriage (June 24, 2000) on a balance of probabilities is zero.
[31] Divorce Judgment to issue on the usual terms.
Costs
[32] If the parties cannot resolve the issue of costs between themselves they have 30 days to provide their argument in writing for costs. This argument shall be no more than 3 pages.
SNOWIE J.
Released: March 28, 2013
COURT FILE NO.: 32411/10 (Milton)
DATE: 2013-03-28
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
JENNIFER LESLIE ROGERS
Applicant
- and -
KEVIN LINDSAY ROGERS
Respondent
REASONS FOR JUDGMENT
SNOWIE J.
Released: March 28, 2013