BRACEBRIDGE

COURT FILE NO.: FC-10-209-00

DATE: 20130111

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

SUSAN BEATON

Applicant

– and –

DAVID BEATON

Respondent

J. Herbert, for the Applicant

D. Beaton on his own behalf

HEARD: May 22, 23, 30, June 1, August 15, 16, 17, November 19, 26 and 27, 2012

QUINLAN J.:

OVERVIEW

[1] At one point, it looked like Susan Beaton and David Beaton were sitting on a gold mine. However, the cost of servicing the debt on their gravel pit became too high. The parties separated. A sale that looked as if it might solve their problems fell through. By the time of trial, their property was sold by power of sale and there was virtually nothing left.

[2] They come to court seeking a determination of outstanding property issues.

BACKGROUND AND EVIDENCE

[3] The applicant wife and the respondent husband cohabited for a period of time. They were married on January 29, 2004. Just before their marriage, they purchased a property at 2638 Brunel Rd. in Huntsville as joint tenants. The property included the matrimonial home and a connected gravel pit.

[4] The applicant and the respondent began a business called Newholm Aggregates. There was no partnership agreement and the percentage of each of their interests in the business is in issue. The respondent ran the day-to-day operations of the business of extracting gravel. The applicant performed bookkeeping and administrative services for the business and also worked part-time outside the home.

[5] The parties took out several mortgages on their property. In addition, in order to run the business, they purchased equipment in which they were jointly invested and for which they jointly borrowed.

[6] The debts of the business mounted through the course of their marriage.

[7] In around November 2008, during the time that the parties' marriage was faltering, the respondent entered into negotiations with Gary Nordeman to purchase the business and the property for $1.8 million.

[8] After the separation in January 2009, the applicant had no further involvement with the business or property. In 2009, while the negotiations were ongoing, Mr. Nordeman began running Newholm Aggregates, hired the respondent as an employee and paid him a salary. The negotiations ultimately fell through and the respondent resumed running the business.

[9] The respondent received an income from the business and paid down some business debts. He received rental income from the matrimonial home. Ultimately, when the respondent was unable to continue to pay the operating costs of the business, he sold business equipment that he and the applicant had jointly purchased for the running of the business. The respondent also incurred significant expenses for bookkeeping and other financial services which the applicant claims were an attempt to put money out of her reach.

[10] Although much evidence was led concerning why the negotiations failed and whether the respondent or Mr. Nordeman paid the business debts after separation, by the time of submissions, the parties’ agreement as to the dates of valuations made much of that evidence irrelevant.

[11] Eventually, the mortgage went into default. In the midst of the trial the property was sold by power of sale for $500,000. After the payment of debts and the real estate commission, little was left.

ANALYSIS

1. Validity of the “Release”

[12] The parties agreed that their relationship significantly deteriorated throughout 2008. On November 12, 2008, both parties executed a document providing that the respondent was no longer responsible for a number of credit cards. On November 22, 2008, the applicant handwrote a document addressed to the respondent wherein she indicated that she would not do anything to destroy the “deal” the respondent was trying to put together and would sign any paperwork so the “deal” could be successfully completed. On January 17, 2009 the applicant handwrote the following: “I Susan Beaton give all title to Newholm Aggregates, I relinquish all profits and all debts to David Beaton.”

[13] The respondent’s position is that the January 17, 2009 document entitles him to the business, its assets and its debts. The applicant’s position is that she signed the document, which was dictated to her by the respondent, under duress. Her evidence was that the respondent was yelling and screaming at her, subjecting her to verbal abuse. She signed the document to get away and get some peace and quiet. She testified that in the back of her mind she did not think the document would be “of any value in a court of law”.

[14] I agree with the applicant’s position. The business and its assets were potentially very valuable. Although at the time that the applicant signed the January 17, 2009 document, she was aware that the respondent was involved in negotiations to sell the business, she was not a part of those negotiations or advised of their particulars. The parties' marriage was rapidly deteriorating. They were beginning to face significant debt and the situation between them was tense, difficult and marred by arguments. In addition, the applicant did not have the benefit of legal advice.

[15] Duress can include not only violence or threats of violence to the person, but also other forms of intimidation, including economic duress that may coerce the will of another: P.(M.L.) v. P.(G.W.), [2000] O.J. No. 4059 (S.C.J.). The lack of independent legal advice is a factor for the court to consider along with all the other circumstances: Dougherty v. Dougherty, 2008 ONCA 302.

[16] When I consider the non-disclosure of the particulars of the negotiations, the existence of duress and the failure to obtain independent legal advice, I am satisfied that the document signed by the applicant on January 17, 2009 has no validity.

2. The Business after Separation and the Sale of Business Equipment

[17] Much of the trial was consumed by evidence of matters that transpired after the separation of the parties. Evidence was led regarding the negotiations with Gary Nordeman for the sale of the property and the reason for the breakdown in those negotiations. The court heard evidence, in general terms, regarding payments made by Mr. Nordeman towards the running of the business and the servicing of the debts. The court heard evidence about the respondent's involvement with the business subsequent to separation, his servicing of debts and about his sale of business equipment, which the applicant argued was improvident or inaccurately reported.

[18] At the end of the day, the parties agreed that the assets and debts, save and except the property on Brunel Road, should be valued at the date of separation. Their agreement on the date of separation made much of the evidence irrelevant, including evidence as to the value of the business equipment and the price for which it was sold.

3. The Value of Newholm Aggregates

[19] The applicant argued that a "modest" value of $500,000 should be assigned to the business of Newholm Aggregates, as distinct from the property. The applicant relied on the evidence of Mr. Nordeman that although the business required the property for its operation, the property was not its only value.

[20] In addition, the applicant’s position is that the respondent depleted the value of the business by not selling it and by not arranging further buyers or paying debts. I will deal with this submission when I deal with the issue of the valuation of the matrimonial home and property on Brunel Road.

[21] The respondent’s position is that no value should be attributed to the business.

[22] I agree with the respondent’s position. The property on which the gravel pit operated has been sold. All business assets have been sold. What potentially remains of "Newholm Aggregates" is the respondent’s contacts, goodwill and the aggregate licence. I have no evidence before me regarding a valuation of any of these assets.

[23] Considering the state of the evidence, I am not satisfied that the applicant has proven that any value should be attributed to Newholm Aggregates.

4. Equalization of Net Family Property

a. Percentage of division

[24] The parties disagree on the percentage of the partnership to be attributed to each of them. The respondent’s position is that he was not even aware that the business would be registered as a partnership and that the applicant did this of her own accord. He argues that if the court finds that there was a partnership, income tax and other documentation supports that the split was 60% in favour of the respondent.

[25] The applicant's position is that there was an equal partnership. She testified that the 60 – 40 split as shown on income tax and other documentation was based on a recommendation from the parties’ accountant about the manner in which the parties should split their income: the applicant had a part-time job outside of the home and, from a tax perspective, it made sense to attribute only 40% of the partnership and its income to her.

[26] I accept the applicant’s position that the parties had an equal partnership. I am satisfied that when they purchased the property as joint tenants and began the business, it was a joint effort between them. I accept the evidence of the applicant that they began the business in order to provide the respondent with a method of earning income after he lost his job. The applicant had a part-time job outside the home and her contribution was through bookkeeping and other administrative duties. It made sense to attribute less income to her. Although the respondent found significant fault with the manner in which the applicant carried out her duties, whether she was a good bookkeeper or administrator is irrelevant to the issues before me.

[27] I find that the parties, as husband and wife, determined that they would jointly operate the business, jointly and equally purchase assets and incur debts in relation to the business and jointly and equally reap its rewards.

[28] Accordingly, any division of assets in relation to the business, both with respect to assets and liabilities, will be on a 50-50 basis.

b. The value of the property

[29] Although at the conclusion of the trial the applicant agreed with the position of the respondent that the value of the property on Brunel Road, including the matrimonial home, should be assessed at its actual sale price, she took the position that the respondent depleted the value of the property by not paying debts or selling it earlier. The applicant argued that this is relevant in determining whether the cost of real estate commission should be deducted from the sale price of the property. No order for an unequal division pursuant to s.5 (6) of the Family Law Act, R.S.O. 1990, c.F.3 has been sought.

[30] The applicant was a partner in Newholm Aggregates and a joint owner of the property on Brunel Road. If the applicant had concerns that the respondent might improvidently deplete his net family property while the spouses were cohabiting, she could have brought an application under s.5(3) of the Family Law Act.

[31] After separation, as a partner and joint owner, the applicant could have found a buyer for the business and property. The applicant could have brought an application for partition and sale under s.2 of the Partition Act, R.S.O. 1990, c.P.4 and pursued relief by way of a motion. Although the applicant, in her application, sought the sale of the family property, given her rights as a partner and joint owner, she cannot wait until trial and then argue that the respondent did not do enough to maintain the value of the jointly-owned business and property. It was obvious during the course of their marriage that the debts were mounting and that the parties were having difficulty maintaining the business. The applicant cannot escape responsibility as a partner and joint owner for the debacle that has resulted; she is equally responsible.

[32] As a result, I find that it is fair to assess the value of the property on Brunel Road, including the matrimonial home, at the sale price of $500,000 and to deduct from that price the money actually paid for real estate commission in the amount of $50,000, for a net value of $450,000.

c. Assets on valuation date

[33] As noted earlier, the parties agreed that, save and except for the value to be attributed to the property on Brunel Road, other assets are to be assessed on the date of separation.

[34] Although the parties were not in agreement as to the actual date of separation, they did agree that it was at some point in January 2009. In addition, except for the value of the stockpiles, the parties agreed that the value of the following assets of the business on separation were otherwise as set out in the respondent’s financial statement sworn August 24, 2010.

[35] Those values are as follows:

Komatsu Loader $169,200

Daewoo Excavator $25,289

Screening Plant $19,534

Weigh Scale $29,200

Total $243,223

[36] Although the respondent had other assets listed in his financial statement, given that there was no evidence before me as to the value of those assets and considering that the applicant did not seek their inclusion in her closing submissions, I have not assessed any value to them.

[37] As noted, the parties disagree as to the value of the stockpiles. The applicant’s position, based on the evidence of Mr. Nordeman that there was some $300,000 in inventory, is that the court should assess the value of the stockpiles at $75,000. The respondent’s position, as set out in his financial statement, is that the value of the stockpiles on valuation date was $45,000.

[38] The difficulty in assessing the value of the stockpiles is that I do not have accurate evidence of its value. Mr. Nordeman had not been involved in running a business of extracting gravel before he attempted to purchase the parties' business and was involved in the business for less than a year. The respondent professed no real knowledge of the manner in which to assess the stockpiles.

[39] I find that it is fair to assess the value between those chosen by the parties. As such, the value at which I am assessing the stockpiles is $60,000, making the total value of assets $303,223.

[40] There was no evidence before me as to the value of general household items and vehicles and the parties ultimately agreed that they were satisfactorily divided between them. As such, no value will be assigned to these items.

[41] Although the applicant was unaware of the exact amount of the TD Canada Trust joint accounts on the valuation date, she testified that, at separation, the parties were about $9,000 in the red. The respondent, in his financial statement, set out the value of the TD Canada Trust joint partnership business loan at -$10,391 and their joint personal account at -$578, for total bank account values at -$10,969. I am satisfied that I can accept the respondent's figures, especially in view of the applicant’s evidence. The negative balance in the bank accounts will be deducted from the total value of assets.

[42] As a result, the value of assets, other than the property, on valuation date is $292,254. Added to this is the sum of $450,000, which is the net value of the property on Brunel Road on sale.

[43] Accordingly, I find that the value of assets is $742,254.

d. Credit card debts

[44] After November 12, 2008, the applicant assumed the debts in relation to three credit cards. I am satisfied based on her evidence and a review of the credit card statements that were filed as exhibits that these debts were for joint expenses and should be equally divided.

[45] The total debts on valuation date in relation to the three credit cards were $31,921.06. Transactions in the amount of $292.25 were incurred after the time the applicant agreed that the respondent was no longer responsible for the credit cards. Accordingly, the amount of credit card debt to be divided is $31,628.81.

[46] I find that the respondent owes the applicant $15,814.40 for his one-half share of the credit card debts.

e. Debts on valuation date

[47] As noted, after separation, Gary Nordeman ran the business for a time and paid down some of the business debts. The respondent also ran the business after separation, paid down some of the business debts and received the benefit of an income from the business. The respondent received rental income from the rental of the matrimonial home.

[48] The state of the evidence is such that, without a proper accounting, it would have been impossible to determine what amount, if any, to credit to the respondent for payment of debts after separation. However, given the parties’ agreement that the debts should be valued at the date of separation, it is unnecessary to determine what credit the respondent should receive for payment of debts after separation. It is also unnecessary to determine the amount of income that the respondent should account for from the business and the rental of the matrimonial home after separation.

[49] Although the parties do not agree on the value of the debts on valuation date, there is only $7,729 difference between their financial statements. The debts as listed are:

Applicant

Respondent

Mortgage – Georgian Mortgages

$253,964.32

$254,082

Mortgage – Muskoka Futures

$52,277.44

$53,133

BDC

$120,750

122,500

Daewoo Excavator

$23,485.26

$23,485

Komatsu Loader

$145,134.30

$150,140

Total:

$595,611.32

$603,340

[50] In addition, I have assessed the credit card debts at $31,628.81.

[51] The applicant’s valuation of the debts on valuation date, plus the credit card debts, total $627,240.13. The respondent’s valuation of the debts on valuation date, save and except for the accounts payable for which there was no evidence led and which I accordingly am not considering, plus the credit card debts, total $634,968.81. Given the dearth of evidence before me regarding the value of the debts, I am satisfied that that the fairest manner in which to assess the debts is to once again divide the difference.

[52] Accordingly, I assess the value of debts on valuation date at $631,104.63.

f. Property, debts and other liabilities on date of marriage

[53] The applicant’s financial statement sworn July 23, 2010 disclosed assets of a value of $16,000 on the date of marriage. The respondent's financial statement disclosed assets of a value of $19,500 on the date of marriage. Given that neither party filed or led evidence in support, no deduction will be granted to either party.

g. Calculation of net family property

[54] The total value of assets is assessed at $742,254. The total value of debts on valuation date is assessed at $631,104.63. Accordingly, the net family property of the parties is $111,149.37.

[55] Given that on separation the respondent took over the property on Brunel Road, including the matrimonial home and the business, the respondent owes the applicant in equalization of net family properties one-half of their net family property, being the sum of $55,574.68. In addition, the respondent owes the applicant $15,814.40 for his one-half share of credit card debts, for a total amount owing of $71,389.08.

5. Payments to Cindy Fleury

[56] After separation, the respondent retained the services of Ms. Fleury. Ms. Fleury has spent 18 years in the financial services industry. She is a certified financial planner, a Certified Divorce Financial Analyst (a designation that she testified is recognized in the United States) and a branch manager.

[57] As a result of cheques and documentation produced by the respondent on the seventh day of trial that showed monies flowing between the respondent and Ms. Fleury, the applicant sought leave to have Ms. Fleury added as a party. In the alternative, the applicant sought to have all of Ms. Fleury’s bank and credit card statements produced. Given the stage of the trial, I decided that to add Ms. Fleury as a party would be prejudicial to Ms. Fleury’s ability to respond to the case that might be alleged against her and would unduly delay the resolution of issues between the applicant and the respondent. For the reasons set out in my ruling, I ordered that Ms. Fleury produce the records sought.

[58] The respondent and Ms. Fleury testified that she was retained to perform a number of services for the respondent. Ms. Fleury testified that she reviewed the accounting that had been done on the books of Newholm Aggregates by the applicant and by a bookkeeper that had been hired by Mr. Nordeman. She looked into Mr. Nordeman's current expenses, reviewing all of his bills and income. She assisted the respondent to prepare his financial statement, drafted a rental agreement for the property on Brunel Road, attempted to get financing for Newholm Aggregates and to rent the leased equipment, prepared lease agreements and did a lifestyle audit on the respondent.

[59] Ms. Fleury rendered invoices to Newholm Aggregates for 83 hours of work for her role as a Certified Divorce Financial Analyst to prepare legal documents for this proceeding. The invoices totalled $11,925.16. Other invoices rendered by Ms. Fleury brought the total amount of invoices that she rendered to the respondent or Newholm Aggregates to over $53,000.

[60] The respondent initially testified that, to his knowledge, he never paid Ms. Fleury $55,000. When a $55,000 bank draft to Ms. Fleury dated August 13, 2011 was shown to him, he testified that he did not believe that the $55,000 was in addition to the $20,000 that Ms. Fleury had loaned him. It then became evident that it was.

[61] Ms. Fleury testified that in 2011, when the applicant would not sign off on new financing for Newholm Aggregates, Ms. Fleury was paid for services she and her bookkeeping sub-contractors performed from late fall 2009 through 2010. She testified that she incurred 13 months of bills before she invoiced the respondent and that her invoices were paid after the respondent took the equity out of the business equipment; it was at this point that she received the bank draft for $55,000 in payment of the invoices she rendered that totalled close to that amount.

[62] Ms. Fleury testified that she loaned the respondent $20,000 to help him to keep Newholm Aggregates “going”. She paid the respondent's tax liability so he could keep a positive credit rating. In the course of Ms. Fleury's evidence and after she was ordered to produce her financial records to the applicant, it became clear that she also either loaned the respondent money for personal expenses such as cigarettes, beer and concert tickets or paid these expenses for him, crediting them as payment for work done and including them in a T4 slip she issued to him. Ms. Fleury testified that there was no loan agreement existing between them and that if the respondent did not have the money to repay her, she tracked the amount and expected an equal amount in labour.

[63] Ms. Fleury is also the respondent's landlord: the respondent has been residing in an apartment in her basement since August or September 2009. The respondent testified that he did not pay any rent to Ms. Fleury; rather, he does landscaping and repairs to her house. Ms. Fleury testified that the respondent does not pay rent; however, she issues him a T4 slip and in 2011, she credited the respondent $15,000 for home maintenance and dog-sitting services.

[64] The applicant argues that the respondent paid monies to Ms. Fleury to avoid paying equalization. Pursuant to the Fraudulent Conveyances Act, R.S.O. 1990, c.F.29, the applicant seeks to have the transfers of $20,000 and $55,000 from the respondent to Ms. Fleury declared void. Relying on Jonas v. Jonas, [2002] O.J. No. 3058 (S.C.J.), the applicant seeks to have Ms. Fleury's assets in the amount of $75,000 frozen and preserved through payment into court until Ms. Fleury has the opportunity of presenting evidence and making submissions.

[65] I have serious reservations about the propriety of the transfer of monies from the respondent to Ms. Fleury, considering:

(i) the quantum of the accounts she rendered;

(ii) the delay and timing of her rendering of the accounts;

(iii) the fact that her accounts for the preparation of documentation for this litigation were rendered to Newholm Aggregates;

(iv) her loaning of funds for the running of the business without interest or a loan agreement;

(v) her provision to the respondent of funds for living expenses, and

(vi) the fact that the respondent does not pay rent.

[66] It appears that the relationship between the respondent and Ms. Fleury is not arms-length. It may be that, on a full evidentiary record, the applicant can demonstrate that the conveyances were fraudulent. However, Ms. Fleury is entitled to a full opportunity to respond, before assets are frozen, funds are preserved or findings are made. Should the applicant wish to pursue the matter, she can do so through another action.

CONCLUSION

[67] The respondent shall pay to the applicant the sum of $71,389.08 in equalization of net family properties.

[68] The respondent shall pay to the applicant pre-judgment and post-judgment interest.

COSTS

[69] If the parties cannot agree on costs, I will receive written submissions, not to exceed three pages in length, plus a costs outline and any relevant offers. Submissions from the applicant are to be provided by January 28, 2013 with responding materials from the respondent to follow by February 12, 2013.

QUINLAN J.

Released: January 11, 2013