COURT FILE NO.: FC-12-176
DATE: 20130311
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: C.M.G., Applicant
AND
R.G., Respondent
BEFORE: J. Mackinnon J.
COUNSEL: Harold Niman, Daryl Gelgoot and Vanessa Amyot, for the Applicant
Michael Rankin and Annie Noa Kenet, for the Respondent
HEARD IN OTTAWA: January 16, 2013
AMENDED ENDORSEMENT
This is an amendment to the Endorsement released February 11, 2013. The amendment occurs in the name of counsel with respect to both parties.
[1] The respondent moves for bifurcation of the trial. The applicant moves for financial disclosure. Consent orders were signed addressing temporary child and spousal support, and exclusive possession of the cottage.
[2] The context of the motions is a marriage enduring some 14 years, with two children, a stay at home mother/wife, and a very wealthy father/husband. Shortly before marriage, a marriage contract was prepared at the husband’s behest and signed by both parties. The contract released entitlement to spousal support and property division. The consideration to the applicant was payment of one million dollars in the event of separation and a commitment that the matrimonial home would be owned jointly. In the action, the applicant asks for the marriage contract to be set aside, for spousal support and for an equalization of net family property.
[3] The respondent’s request for bifurcation would have all claims determined at a first trial save and except for any claims relating to equalization of the parties’ net family property and disclosure of assets and liabilities as at the date of separation. The first trial, as proposed by the respondent, would determine custody, access, child support, income for support purposes, the assets and liabilities at the date of marriage, whether the marriage contract should be set aside, and, if so, the applicant’s entitlement to and the quantum, if any, of spousal support.
[4] The applicant opposes bifurcation. She submits the required disclosure of the respondent’s assets and liabilities as at the date of separation should be determined now and all issues should proceed to one trial in the normal course.
Bifurcation
[5] The respondent’s business interests are very complex. The business valuator he has retained estimates that the preparation of a valuation report of his business interests at the date of separation will cost between $310,000 and $750,000. She also estimates that it will take approximately nine months to complete a valuation report, after receipt of all the necessary information and documentation. In the event that appraisals of real properties in Canada and the U.S.A. are required, these are estimated to cost $280,700. Additionally, the respondent’s holding company is a shareholder in M Group. It has estimated that the cost to it in assisting and compiling information necessary to value the shares of M Group at the date of separation is approximately $280,000. M Group may also bring a third party motion to seek confidentiality for its financial information. Finally, the respondent asserts that the issue of equalization may take 15 days of trial and result in costs of $750,000 to $1,000,000 in legal and other professional fees to each party.
[6] The respondent submits that bifurcation would provide the most just, expeditious and least expensive determination of the issues on their merits. He submits that there is demonstrable financial prejudice to both parties in not bifurcating the trial. He says that the validity of the marriage contract should be determined at the first trial since, if it is upheld, the second trial would not be required.
[7] Family Law Rule 12(5) provides as follows:
12(5) If it would be more convenient to hear two or more cases, claims or issues together or to split a case into two or more separate cases, claims or issues, the court may, on motion, order accordingly. O. Reg. 114/99, r. 12 (5).
[8] In Simioni v. Simioni (2009), 2009 934 (ON SC), 74 R.F.L. (6th) 202 (Ont. Sup. Ct.), the husband moved to sever the determination of the validity of the separation agreement from the other issues and to defer financial disclosure until the validity trial was complete. The Court stated at paras. 15, 16 and 17:
15 First, it should be accepted as non-controversial that both the Family Law Rules and the inherent jurisdiction of the Court provide ample authority and power to permit cases such as this to be split: Family Law Act, section 2(10); Rule 12(5). The jurisprudence confirms that this is an authority and power that ought to be exercised if convenient, and if the exercise of the power would be in the interests of justice. The interests of justice will be served if there are clear time and expense benefits to be gained from the bifurcation and determination of the threshold issue, provided no real or meaningful prejudice is caused to either party: Elcano Acceptance Ltd. et al v. Richmond, Richmond, Stambler & Mills, 1986 2591 (ON CA), [1986] O.J. No. 578 (O.C.A.); General Refractory Companies of Canada v. Venturedyne Ltd., [2001] O.J. No. 746 (S.C.J.O.); Royal Bank of Canada v. Kilmer van Nostrand Co., [1994] O.J. No. 1476 (Ont. Ct. Jus.(Gen. Div.)).
16 Nevertheless, it is equally important to remember that the splitting of a trial effectively denies the fundamental principle that as far as possible, multiplicities of proceedings are to be avoided, and thus the power to split a case should be regarded as one that is narrowly circumscribed and to be exercised in only the clearest of cases - in cases that exhibit the exceptional merit that calls upon the Court to exercise its inherent power: Courts of Justice Act, section 138; Elcano, above; Carriero (Litigation Guardian of) v. Flynn, [2004] O.J. No. 3117 (S.C.J.O.). In light of this caution, the onus necessarily lies upon the party seeking to bifurcate to satisfy the Court on a balance of probabilities that if granted, severance will result in the "just, expeditious and least expensive determination of the proceeding on its merits".: Merck & Co. v. Brantford Chemicals Inc., 2004 FC 1400, [2004] F.C.J. No. 1704 (F.C.C.) at para 4.
17 There are a number of questions the Court should consider in deciding whether the severance of the trial in this instance is just and expeditious. These include whether the issues for the first trial are relatively straightforward and the extent to which the issues proposed for the first trial are interwoven with those that will arise in the second. They include whether a decision from the first trial will likely put an end to the action, significantly narrow remaining issues, or significantly increase the likelihood of settlement. They include the extent to which resources have already been devoted to all issues, the possibility of delay, the advantages or prejudice the parties are likely to experience and whether the severance is sought on consent or over the objections of one or more parties: see General Refractories Co. of Canada, above at para. 16. However, as Himel J. noted there, emphasizing the observations of Wilkins J. in Royal Bank v. Kilmer, above, the focus of these questions on expediency does not displace fairness and justice as the dominant considerations.
[9] The separation agreement in Simioni, if valid, ousted the jurisdiction of the court in favour of mandatory mediation. The case also engaged multiple valuation dates. The Court found that it was an appropriate case for bifurcation but ordered financial disclosure for the date of separation because a trial of the issue as to the validity of the agreement required these values:
43 While I have reached a different conclusion in this case on the issue of severance, I find that no realistic or considered determination could be made on the validity of the Separation Agreement on June 29, 2007 in the absence of meaningful disclosure relating to the state of Denis's financial worth as of that date. Full disclosure at that date will reduce the disclosure costs for multiple dates that would otherwise arise, but still ensure the information necessary to determine the key question at the first trial is available.
[10] The respondent also relies on Baudanza v. Nicoletti, 2011 ONSC 352, 11 R.F.L. (7th) 329 (Ont. Sup. Ct.). The applicant sought to set aside a cohabitation agreement, alleging inadequate financial disclosure as one ground. The motion judge ordered a bifurcated trial. In so doing, he stated at para. 48:
48 I find that it is more convenient for the case to be split and that certain issues be tried prior to the major issues of equalization of property and payment and quantum, if any, of spousal support. The issue of the validity of the cohabitation agreement is relatively straightforward. It is clear that equalization of property is completely dependent upon the issue of whether the agreement is valid or not and there is a significant cost savings to be achieved if the agreement is found to be valid as the valuation issues in this case are extremely complicated and costly. Moreover, the bifurcation of the trial can be crafted in order to put an end to matters if the agreement is found to be valid. Moreover, we are early on in this proceeding; there has been one case conference, and I am in a position to rule on disclosure issues herein based upon the splitting of the trial.
[11] However, the motion judge did not agree that the only issue for the first trial would be whether the cohabitation agreement was valid. He included in trial one the issue of whether the spousal support release is binding in light of the principles enunciated in Miglin v. Miglin, 2003 SCC 24, [2003] 1 S.C.R. 303.
[12] In my view, the respondent’s motion for bifurcation fails. This case is distinguishable from Simioni. There, the first trial would determine whether the court had jurisdiction or whether a mandatory ADR provision in the separation agreement ousted the court’s jurisdiction. The spousal support issues that arise in this case do not appear to have been raised in Simioni. In addition, there were multiple valuation dates; the bifurcated first trial would potentially reduce the required financial disclosure to one date, that of separation. I am not persuaded that the approach taken in Baudanza is correct or suitable for this case. Here, the spousal support issues cannot properly be included in the first trial. If the marriage contract is determined to be valid, then the applicant is still entitled to advance her claim for spousal support. To do so, she is entitled to put before the court the respondent’s property position as at the date of separation. If the marriage contract is found to be invalid, then the property issues need to be determined before the issue of spousal support and both of these issues would need to be deferred to the second trial. It is not fair or efficient to proceed with the proposed first trial in these circumstances. The suggestions made by the respondent to address this situation do not sufficiently remove the potential prejudice to the applicant.
[13] The terms of the marriage contract demonstrate that the issues of property division and spousal support are interwoven. The purpose of the contract is “to avoid any rights and obligations relating to property and spousal support”. The right of the applicant on marriage breakdown to receive one million dollars is “in consideration of the releases and terms of this Agreement”. The contract releases her entitlement to spousal support, to equalization of net family property and to claims in equity by constructive, implied or resulting trust. The consideration is not broken down or allocated between the releases of property and spousal support rights.
[14] The applicant has applied for spousal support under section 15.2 of the Divorce Act, R.S.C. 1985, c. 3 (2nd Supp.). One possible outcome is that the marriage contract is upheld and she is found entitled to spousal support. Miglin directs that where, as here, the agreement contains a final release of spousal support a two stage analysis is required. The first stage considers the circumstances of the parties at the time the agreement was entered into, including issues such as financial disclosure, legal advice and balance in bargaining power. Finding that an agreement is satisfactory at stage one does not mean that the court does not go on to the second stage where the focus will be on whether circumstances have changed in ways that the parties may not have contemplated, whether the agreement is still in compliance with the objectives of the Divorce Act or whether enforcing the agreement in the circumstances as at marriage breakdown would lead to a situation that the court cannot condone. This is in addition to the general direction in section 15.2(4) to consider the “condition, needs, means and other circumstances of each spouse”. Accordingly, evidence with respect to the net worth of both spouses at the time of their marriage breakdown is required at stage two of Miglin.
[15] It is for this reason that I decline to apply the approach in Baudanza where whether the release was binding pursuant to Miglin, was included in the first trial and the quantum of spousal support was deferred to the second trial. The value of the respondent’s assets and liabilities at marriage breakdown is necessary knowledge for the proper consideration of Miglin in the context of the applicant’s claim for spousal support. This is made clear in Greenglass v. Greenglass, 2010 ONCA 675, 2010 CarswellOnt 7761 (C.A.) at paras. 41 and 44:
41
Section 15.2(4) of the Divorce Act, R.S.C. 1985, c. 3 (2nd Supp.), provides a list of circumstances to consider when determining spousal support. This list includes the means of the parties. When determining a party's means, all pecuniary resources must be taken into account, including capital assets: Leskun v. Leskun (2006), 2006 SCC 25, 34 R.F.L. (6th) 1 (S.C.C.) at para. 29.
44 As will be seen, in the circumstances of this case, Mr. Joseph is correct. That said, the amount of the equalization payment and the impact of any potential income-generating potential associated with the assets with which each party is left will almost invariably affect the support analysis. As a matter of law, therefore, the calculation of the division of assets and resulting equalization payment must always precede any support analysis.
[16] These same considerations are also applicable to section 33(4) of The Family Law Act, R.S.O. 1990, c. F. 3 which provides that a court may set aside a waiver of support in a domestic contract if it results in unconscionable circumstances.
[17] The respondent’s assertion that if the entire marriage contract is declared invalid, then under his proposal, the only remaining issue for the second trial would be equalization of net family property ignores the fact that a trial judge is required to address the property issues before determining spousal support. It would be an error to bifurcate issues for trial in a way that could result in the reversal of the correct order for determining these issues. It is not persuasive to suggest that the first judge would simply not award spousal support in this event because s/he would know that the applicant would subsequently be receiving such a substantial equalization payment that she would not require spousal support. The alternate suggestion that the first trial judge could make a temporary spousal support order and defer the final award to the second trial is impractical. The parties would be conducting the first trial without a complete understanding of what was subject to adjudication. The potential for overlapping issues of fact between the two trials is clear.
[18] The respondent has relied heavily on the costs of providing financial disclosure of his assets and liabilities as at the date of separation in support of his motion for bifurcation. Despite this, he has not instructed his own counsel as to whether he will adopt the independent valuation of the shares of M Group which is prepared each year pursuant to its shareholders’ agreement. Nor has he produced the valuation for the year of separation. The respondent’s business valuator says that use of this valuation would reduce her cost estimate to the range between $310,000 and $450,000, a potential savings of $300,000. The respondent’s inactivity in this regard is inconsistent with his expressed desire to adopt a bifurcated process because it will save both parties considerable sums of money.
[19] I find there is real prejudice to the applicant arising from the proposed bifurcation of issues. She would have to proceed to the first trial and address both unconscionable circumstances under The Family Law Act section 33(4) and the Miglin analysis without the ability to test the respondent’s assertions as to his date of separation values. She would face the prospect of undertaking the first trial without knowing in a definite way whether her claim for spousal support would or would not be adjudicated on a final basis at that trial.
[20] For all these reasons, I have concluded that despite the costs involved in proceeding in the normal course to a single trial, bifurcation as proposed by the respondent will not result in the just determination of the proceeding on its merits, and the motion is dismissed.
Financial Disclosure
[21] The dismissal of the motion for bifurcation has the result that the respondent is required to make productions relevant to the value of his assets and liabilities on the date of separation. Counsel are directed to review the disclosure requested by the applicant and to provide me with a list of those items, if any, that remain in dispute between them which I will then rule on.
[22] The respondent is directed to deliver a complete financial statement in the required court form setting out the value of his assets and liabilities as at the date of the parties’ separation.
[23] The respondent has agreed to produce items 42 and 43 relative to the date of marriage, and 44 if it was in existence at that date. With respect to item 45 and D, the order is that the respondent shall produce the documents forming the basis of the figures set out in the marriage contract, without limiting the applicant’s entitlement to seek additional disclosure after review of these productions.
Costs
[24] Counsel requested the opportunity to make written submissions on the costs of the motions that were argued in court. I will receive those, from the applicant who has been the successful party by February 28, 2013 and from the respondent by March 20, 2013. The applicant may deliver a brief reply, if necessary, by March 25, 2013.
J. Mackinnon J.
Released: March 11, 2013
COURT FILE NO.: FC-12-176
DATE: 20130311
ONTARIO
SUPERIOR COURT OF JUSTICE
RE: C.M.G., Applicant
AND
R.G., Respondent
BEFORE: J. Mackinnon J
COUNSEL: Harold Niman, for the Applicant
Michael Rankin, for the Respondent
ENDORSEMENT
J. Mackinnon J
Released: March 11, 2013