SUPERIOR COURT OF JUSTICE - ONTARIO

COURT FILE NO.: FS-10-00362132

DATE: 2013/01/16

RE: Ava Suzanna Kerzner v. Eric Kerzner

BEFORE: Herman J.

COUNSEL:
Judith Nicoll, for the Applicant

James. D. Singer, for the Respondent

Jane E. Martin, for the Estate of Harry Berkelhammer

HEARD: December 19, 2012; January 4, 2013

ENDORSEMENT

[1] Eric seeks production of various documents and information related to the property and estate of Ava’s father, Harry Berkelhammer. Eric believes that Ava received income from her father during his lifetime and will receive a substantial inheritance, both of which, he submits, are relevant to her spousal support claim.

[2] Eric also seeks a certified appraisal of Ava’s interest in 114 Broadway Ave. The parties consent to an order requiring each of them to obtain certified appraisals of their respective properties.

[3] Ava seeks an order to require Eric to deposit $1,000,000 into court as security for the equalization payment due to her.

[4] The parties separated on April 30, 2009 (according to Eric) or July 13, 2010 (according to Ava).

[5] Ava issued her application in this proceeding on August 31, 2010. It is scheduled for trial in May 2013.

[6] On March 18, 2011, Sachs J. made a temporary support order, requiring Eric to pay Ava $3,000 per month by way of a contribution to her expenses for herself and the children. She also required Eric to pay expenses related to the matrimonial home and the children’s post-secondary expenses, an amount that was estimated to be just over $10,000 per month.

Eric’s motion for production

[7] The documents sought by Eric relate primarily to property owned by Ava’s father, Mr. Berkelhammer. He believes that the documents are relevant to the determination of spousal support, in so far as they may provide evidence of substantial gifts to Ava and a substantial inheritance.

[8] In particular, Eric seeks production of: financial statements for Berkelhammer Holdings Ltd. and Berkelhammer Realty Partnership since January 2008; the annual rental incomes from 2007 to date with respect to four properties owned by Mr. Berkelhammer; the bank statements and bank ledgers related with each property and each holding company; the annual rent rolls and MPAC forms associated with each property; documentation arising out of the challenge of the estate of Harry Berkelhammer by his widow that affects access to management fees received by Ava, distribution of operating income, access to financing or the ability to combine and re-zone two of the properties; documents in relation to the property Ava inherited from her mother in or about 2004; property owned by Ava without relation to inheritance; all offers to purchase received from 2007 to date; consultants’ reports on the plan to combine and develop two of the properties; and ledgers of Harry Berkelhammer’s personal bank accounts and bank account statements from 2007 to date.

[9] Ava submits that Eric is on a fishing expedition. Furthermore, it is her position what whatever she received as gifts or will receive by way of inheritance is excluded property.

[10] In my opinion, there is a distinction to be drawn between income or property Ava actually received or is receiving and her inheritance from her father.

Ava’s inheritance

[11] Mr. Berkelhammer passed away on November 1, 2011. Ava and her three siblings are equal beneficiaries under their father’s will. Ava and one of her sisters are the estate trustees.

[12] Mr. Berkelhammer’s widow has challenged the will and claims one-half of the estate. Ava states in her affidavit that, after the legal fees and division of the estate, it is questionable what she will receive. The Estate advises that there have been no distributions under the will.

[13] The Estate takes the position that any production of documents is premature, given the litigation arising from the challenge to the will. The Estate points out, as well, that the will does not require that any of the properties be distributed in specie. Furthermore, the Estate is concerned that the costs of providing the production Eric seeks would be a further drain on its assets.

[14] In my opinion, no useful purpose would be served by the further production of documents related to the estate at this time. Certain documents have already been provided, including a statement from Mr. Berkelhammer’s accountants outlining his assets at the date of his death and a copy of Mr. Berkelhammer’s will. There have been no distributions under the will and the amount Ava will receive cannot be ascertained at this time, in view of the pending litigation.

[15] If and when Ava receives a distribution, it may be material to the determination of spousal support. Ava should report any distribution she receives at that time.

Gifts from Mr. Berkelhammer

[16] I turn, then, to documents that Eric submits are relevant to the determination of income actually received by Ava.

[17] Ava states that she has disclosed all information with respect to her income, assets and debts in her Financial Statement and updates. It is her position that Eric is on a fishing expedition. She notes, as well, that providing this information to Eric could well result in a further delay of the trial, now scheduled for May 2013.

[18] Eric believes that Mr. Berkelhammer gave gifts to Ava on a systematic basis during his lifetime. He relies on evidence that he says establishes that more than $3,000,000, including $2,000,000 in GIC’s, is unaccounted for between January 2009 and November 2011. He believes that this amount may well have been gifted to Ava and her three siblings.

[19] Eric bases the $3,000,000 figure on the difference between the sum of money that appears in a letter in January 2009 to Mr. Berkelhammer from his lawyer and the sum of money in a letter from Mr. Berkelhammer’s accountant on November 1, 2011.

[20] There are several difficulties with Eric’s position.

[21] The first difficulty is that the starting point for Eric’s reasoning is a letter to Mr. Berkelhammer from his lawyer. Ava submits that this letter is subject to solicitor-client privilege. Mr. Berkelhammer’s Estate claims the privilege on the basis that any privilege survives an individual’s death and may be claimed by his or her estate (see Goodman Estate v. Geffen, 1991 69 (SCC), [1991] 2 S.C.R. 353 at para. 58).

[22] Eric submits that the privilege has been waived for the following reasons: the lawyer’s letter was copied to Ava and therefore her father waived the privilege; Ava is a trustee and beneficiary of the estate and she can therefore waive the privilege; Ava has waived the privilege as a result of producing other documents related to Mr. Berkelhammer’s businesses and the Family Trust, including a letter to Mr. Berkelhammer from his lawyer indicating that the Trust had been terminated; and it is unfair to Eric for Ava to be able to pick and choose which documents from the lawyer she produces in this litigation.

[23] In my opinion, there has been no waiver of solicitor-client privilege. The fact that Ava was copied on a letter from her father’s lawyer to her father does not mean that her father waived the privilege.

[24] The Estate now claims the privilege that Mr. Berkelhammer had during his lifetime. Ava, on her own, does not have the authority to waive that privilege. Ava is one of two estate trustees and one of four beneficiaries. Ava is engaged in the matrimonial litigation in her personal capacity, not as a trustee of the estate. Ava did not produce the letter; it was found and produced by Eric.

[25] The second difficulty is that there is no evidence as to how either Mr. Berkelhammer’s lawyer or the accountant arrived at their figures.

[26] The third difficulty is that it is a substantial leap to go from this evidence to a conclusion that Ava received more money in gifts from her father than she has claimed. Ava provided ledgers to Eric which document salary and gifts she says she received from her father from December 2008 to June 2010. Eric points out that the ledgers do not come close to explaining the missing money and the missing GIC’s. That assumes, however, that the discrepancy between the two sets of financial figures is accounted for by significant gifts to Ava and her siblings.

[27] Eric relies on the letter from Mr. Berkelhammer’s lawyer for a second purpose, that is, to provide evidence that Mr. Berkelhammer was engaged in estate planning. He reasons that this estate planning would have included providing gifts to his children prior to his death. Besides the problem of solicitor-client privilege, there is the additional problem that the letter contains recommendations only and therefore has little probative value.

[28] Eric also relies on evidence that Mr. Berkelhammer gave gifts to his other three children amounting to about $80,000 each. He concludes that he therefore must have given comparable gifts to Ava. However, Ava does not deny that she received gifts from her father, and has provided a ledger which documents those gifts. In any case, evidence of gifts of $80,000 to three of the children is a long way off from a conclusion that the alleged dissipation of more than $3,000,000 can be accounted for by equal gifts to the four children.

[29] Eric’s statement that Ava kept track of the gifts her father gave one of her sisters in order to adjust or equalize distribution later on does not support Eric’s proposition that all four children received equal gifts during Mr. Berkelhammer’s lifetime. Rather, it supports the opposite conclusion.

[30] In summary, Eric’s position that Ava must have received substantial gifts from her father during his lifetime, which she has not disclosed, begins with problematic evidence, that is, a letter protected by solicitor-client privilege. It then relies on a second letter from accountants to conclude that Mr. Berkelhammer’s assets decreased by a significant amount in a three-year period. Finally, it concludes that the decrease can be accounted for by significant gifts to Ava and her three siblings.

Consultants’ reports

[31] Eric also seeks production of consultants’ reports related to the possible combination of two of Mr. Berkelhammer’s properties. This, he submits, will establish the income potential of the properties.

[32] However, there is no evidence that the properties have actually been combined. Furthermore, the Estate points out that Mr. Berkelhammer’s will does not require an in specie distribution to the beneficiaries.

Money received from properties

[33] Finally, Eric seeks production of information regarding the properties owned by Mr. Berkelhammer and managed by Ava. He believes that Ava received undisclosed income from those properties.

[34] Ava indicates that she is willing to ask her father’s accounting firm to confirm what income her father, his properties and his businesses paid to her since the earlier of the parties’ two separation dates (April 2009). Eric says this is insufficient because the funds Ava received might not be reflected in the financial statements. This is based on his belief that Mr. Berkelhammer engaged in creative accounting. In my opinion, it is a leap from this belief to the conclusion that Ava received income from the properties beyond what she has reported.

Analysis and Conclusion

[35] Neither the gifts nor the inheritance received by Ava would ordinarily be subject to equalization. However, they may be relevant to the determination of her spousal support claim.

[36] The request for production with respect to Mr. Berkelhammer’s estate is denied. There have been no distributions under the estate and the estate is subject to litigation. The amount Ava will inherit is currently unknown. However, Ava shall advise Eric if and when she receives any distribution from the estate.

[37] Family Law Rule 19 (11) enables a court to order that documents controlled by a non-party be made available, where it would be unfair to a party to go on with the case without the documents in question. However, as noted by McGee J. in Santilli v. Piselli, [2010] No. 2067 (S.CJ.) at para. 12, “Suspicion and conjecture do not suffice” as a basis for ordering the production of documents under that Rule.

[38] In my opinion, Eric’s request for production is based on mere speculation and suspicion. More than that is required to seek information from a non-party.

[39] The timing and scope of this production request is an additional concern. This proceeding began in August 2010. The trial of this action is currently scheduled for May 2013. The production sought could well lead to a lengthy and complex examination of Mr. Berkhelhammer’s personal and business financial circumstances and would likely delay the trial. Such a time-consuming and potentially expensive exercise cannot be justified on the basis of speculation and suspicion alone.

[40] Ava’s proposed alternative is, in my opinion, sufficient. Ava shall therefore provide an affidavit from her father’s accountant setting out any income she received from her father or her father’s properties and businesses since April 30, 2009.

[41] Each party shall obtain certified appraisals of their respective properties.

[42] Eric’s motion for production is otherwise dismissed.

Ava’s motion

[43] Ava seeks an order pursuant to section 12 of the Family Law Act, requiring Eric to deposit $1,000,000 as security for the equalization payment due to her.

[44] In particular, she wants to secure the funds held in Eric’s safety deposit boxes because she is afraid he will spend these funds and will be unable to satisfy the equalization payment owed to her.

[45] Eric made a preliminary objection to the court’s authority to make such an order on a motion. In support of his position, he cited the decision in Reu v. Reu, [1995] O.J. No. 1521 (U.F.C.). In that case, the court had before it motions related to the satisfaction of an equalization payment. Mendes da Costa, U.F.C.J., considered the power to order the payment of an equalization amount in instalments or delay payment under s. 9(1) of the Family Law Act. In his view, the reference in that section to “In an application” meant the relief had to be sought during the course of the application, not on a motion.

[46] Ava, however, seeks relief under s. 12 of the Act, not under s. 9. That section provides that a court may make an interim or final order for the possession, delivering up, safekeeping and preservation of property, where the court considers it necessary for the protection of a spouse’s interests.

[47] Interim preservation orders are commonly made in order to protect a spouse’s equalization payment, prior to the determination of that payment. I see no reason why the property to be delivered up or preserved cannot include a sum of money.

[48] In Bronfman v. Bronfman, 2000 22710 (ON SC), [2000] O.J. No. 4591 (S.C.J.) Sachs J. conducted a helpful analysis as to the approach taken to such orders. She noted, at paras. 28-29, that the first two factors that apply to interim or interlocutory injunctions, that is, the relative strength of the plaintiff’s case and the balance of convenience or inconvenience, are relevant to the determination of an application for an order under s. 12. In particular, the court will want to consider how likely it is that the petitioner will receive an equalization payment and the effect that the granting of such an order will have on the parties.

Equalization payment

[49] According to Ava’s draft Net Family Property Statement (NFP), appended to her affidavit of November 7, 2012, she is owed an equalization payment of $1,815,852.21. According to Eric’s draft Net Family Property Statement, appended to his affidavit of December 14, 2012, he will owe Ava an equalization payment of $534,774.50.

[50] Eric objects to relying on Ava’s unsigned NFP. Ava submits that the reason her NFP is a draft is because the value of Eric’s property has been a moving target throughout this proceeding. Eric’s NFP is also a draft and both NFP’s are appended to sworn affidavits. In the circumstances, I am prepared to rely on the two draft NFP’s for the purpose of this motion.

[51] Eric also submits that, notwithstanding his NFP, which shows an equalization payment to Ava, he may well not owe anything to Ava at the end of the day. He argues that his claim for a retroactive adjustment support and costs will effectively wipe out any equalization payment he owes to Ava. However, his claim for a retroactive adjustment is, in my opinion, speculative and is based on his belief that Ava has hidden funds she received from her father. Furthermore, it is not possible to speculate on who will get costs.

[52] In these circumstances, I decline to apply any set-off to the equalization payment for the purpose of this motion.

[53] One of the key differences between the two NFP’s is the allocation of $1,000,000 cash which was, at one point, in the trunk of Eric’s car. Ava claims Eric has the entire amount. Eric claims Ava took $800,000 of it.

[54] I accept that, for the purpose of this motion, Eric will likely owe a substantial equalization payment of at least $534,774.50.

Impact on the parties

(i) Impact on Ava

[55] Ava submits that the effect of not obtaining the order is that the assets may well be dissipated and Eric will not be able to satisfy the equalization payment owed to her.

[56] Eric’s position is that there are sufficient assets to satisfy any equalization payment and such an order, therefore, is unnecessary. He points, as well, to the fact that Sachs J. has already addressed this issue.

[57] In her decision, dated March 18, 2011, Sachs J. ordered that Eric not dispose of or encumber any of his interests in his businesses and not conduct any transactions other than in the usual and ordinary course of business. Furthermore, Eric was required to account to Ava for any transactions he made through his business “prior to trial”.

[58] In reaching her decision, Sachs J. addressed three bases for Ava’s motion. The first was Ava’s claim that Eric disposed of 40% of his interest in his business to his controller in order to defeat her claims. Sachs J. stated that the record indicated that the disposition took place well before the separation.

[59] Ava’s second argument was that Eric had failed to disclose $900,000 worth of business investments. While this figure did not appear in Eric’s financial statement, he did disclose elsewhere that his business had investments of $850,000.

[60] Finally, Ava argued that Eric appeared to deal in cash, was emotionally unstable and had threatened to make it as difficult for her as possible.

[61] Sachs J. accepted the following: the businesses were Eric’s major assets; Ava’s assets may well be excluded from equalization; there was admitted emotional instability on Eric’s part; and there was correspondence from Eric to Ava, which could be interpreted as threatening.

[62] In a hand-written note from Eric to his accountant, in the materials before Sachs J., Eric wrote: “Need to know how much $$ we can bury.”

[63] At this point, Ava asks for a stronger order than the preservation order given by Sachs J., that is, she asks that funds be delivered. What has changed since the order?

[64] The first thing is Eric’s admission that the information he had provided with respect to the transfer of 40% of his business to his controller was not true.

[65] The second is more recent information with respect to significant funds Eric has in safety deposit boxes. At his questioning in May 2012, Eric said he had approximately $1,000,000 in a number of safety deposit boxes. It is these funds that Ava seeks to have delivered.

[66] When asked what his plans were for the money, Eric said: “Actually it would be only on a personal basis. It wouldn’t be my business….Nothing specific. I use that money to – when I travel. I use that money to buy clothes; basically, spending money”.

[67] In his affidavit, dated December 14, 2012, Eric reported that, as of September 6, 2012, he had $611,000 in his safety deposit boxes. He said he could not put the money up as security for an equalization payment because he needed the money to pay support, lawyers, business expenses and personal expenses.

[68] Eric does not explain what happened to more than $300,000 between May and September 2012 and why, contrary to his statement in May 2012, he now intends to spend the money on business expenses, as well as personal expenses. He also does not say whether he spent any of the money between September and December 2012.

[69] A third concern is that an additional excluded property appears on Eric’s draft NFP, which did not appear on his Financial Statement. Eric’s explanation is that he was “totally out of it” when he prepared his financial statement and forgot about the property.

[70] Eric also claimed, by affidavit sworn on February 15, 2011, that Ava took $285,000 of cash from the truck of his car. He now claims that it was closer to $800,000.

[71] Finally, the parties have disagreed on the meaning of Sachs J.’s order that Eric account for transactions “prior to trial”. In September 2012, Eric reported that he had sold a model home in June 2012. He has not reported on any other transactions. In particular, he did not report on the sale of his BMW car.

[72] Eric submits that he will have ample resources to satisfy any equalization payment. He pointed, for example, to his RRSP of $229,992 and to his Sheppard Ave. property. According to Eric’s Financial Statement, dated February 28, 2011, the property had a value of $575,000, with a mortgage of $370,952. It is not known what the equity is today.

[73] It is my opinion that there is a risk of dissipation of assets prior to trial in view of the following: Eric said he intends to spend the money in the safety deposit boxes; if one accepts his figures, Eric has apparently spent more than $300,000 between May and September 2012; Eric has changed his position as to what he plans to spend the money on; Eric wrote to his accountant that he wanted to bury money; Eric appears to have substantial dealings in cash; Eric did not report on the sale of his car; Eric’s position with respect to his financial position has been a “moving target”; and it is difficult to rely on Eric’s Financial Statement, given his admission that, when he signed it he was “totally out of it” and did not read it.

(ii) Impact on Eric

[74] In Eric’s affidavit of December 14, 2012, Eric says he needs the funds in his safety deposit boxes to pay support, lawyers, business expenses and personal expenses.

[75] Eric also says sales are extremely slow and his net income is zero.

[76] However, Eric’s statement with respect to his need for the funds in the safety deposit boxes is contrary to the position he took at his questioning. At that time, he said he planned to spend the money on personal things.

[77] It is not clear why Eric cannot access other funds to cover business expenses. In his questioning in May 2012, he referred to one of his companies having an investment account with about $700,000.

Conclusion

[78] There is, in my opinion, a risk that Eric will dissipate assets to the extent that he would be unable to satisfy an equalization payment. According to Eric’s draft NFP, he will owe an equalization payment of more than $500,000. According to Ava’s draft NFP, Eric will owe an equalization payment of more than $1,000,000.

[79] In view of Eric’s changing positions with respect to his financial situation, it is difficult to know what the true nature of his finances is. He has indicated an intention to “bury” money and appears to have significant dealings in cash. While Eric now says he needs the funds in the safety deposit boxes, he has given different explanations as to what he plans to do with the money. It is not clear why he cannot access other funds to cover business expenses.

[80] Eric is therefore required to deliver and pay into court $500,000. These funds will not be released, pending an agreement of the parties or court order.

[81] Ava also asks for an order specifying when Eric is required to report any transactions. I decline to grant this relief because it was not requested in the motion.

Costs

[82] I would encourage the parties to resolve the matter of costs. If they are unable to do so, Ava may provide written submissions within 14 days of this decision. Eric has a further 14 days within which to respond. The written submissions will be no longer than 5 pages in length, in addition to a Bill of Costs.

Herman J.

Date: January 16, 2013