SUPERIOR COURT OF JUSTICE - ONTARIO

COURT FILE NO.: 810/10 (Guelph)
DATE: 20140305

RE: BARBARA ANN BLATHERWICK - and - BRIAN EARL BLATHERWICK

BEFORE: Tzimas J.

COUNSEL:
John G. Cox, for the Applicant
Stuart M. Law, for the Respondent
J. Ross MacFarlane, for Trustee in Bankruptcy for Brian Earl Blatherwick
Melissa K. Fallon, for Seasons (H.K.) Limited, a non-party

ENDORSEMENT

INTRODUCTION

[1] As between Mr. and Mrs. Blatherwick, there were six motions before this court. They were heard on the week of September 11, 2013 and continued on October 10 and 11, 2013. These motions follow on a history of twenty endorsements and court orders dating from November 18, 2010 and until August 2013, all of which have as their source Mrs. Blatherwick’s Application of July 29, 2010 seeking a divorce from Mr. Blatherwick, in addition to spousal support and the equalization of the net family property. The matrimonial Application followed 39 years of marriage between Mr. and Mrs. Blatherwick.

[2] Broadly speaking, these motions arise primarily as a consequence of Mr. Blatherwick having made an assignment in bankruptcy on April 19, 2013. Although each motion seeks discreet relief, all of them share a common factual foundation. In the result, although the motions are dealt with separately and in the sequence that they were argued, this court’s conclusions are drawn from the totality of the submissions that were made by the parties.

[3] Some additional background is necessary to properly address the issues raised. Mr. Blatherwick is a director of a group of companies best described as the “Seasons Group of Companies”. The companies design, manufacture, market and sell Halloween products from China, Hong Kong and Macau. The Seasons Group of companies consists of a complex web of companies registered in Canada, Hong Kong, and Macau. This is further complicated by the involvement of related companies, apparently, not controlled by the Seasons Group. This includes Discovery Bay, a corporation registered in the British Virgin Islands. As will be noted, Discovery Bay was the subject of much discussion during these motions. While the extent of Mr. Blatherwick’s control over Discovery Bay is at issue, it is clear he receives compensation through this company and historically directed funds to be transferred from it.

A. Motion Re: Civil Application bearing Court File No. CV-13-474774

[4] The first motion heard was for an order to consolidate an Application commenced in Toronto and bearing Court File No. CV-13-474774 with the matrimonial proceedings. At the time that this motion was heard, the Application was scheduled to proceed on October 26, 2013. The parties assumed that the seven motions would be heard and determined before that date. That was not possible because the submissions on the various motions extended into October 10 and 11, 2013. In the circumstances, the hearing date for the Toronto Application was adjourned to a date in September 2014.

[5] The title of proceedings of the Application is Seasons (H.K.) Limited v. Rockwood Landco. Inc. The Applicant, Season HK seeks a declaration that the Respondent, Rockwood holds the property with a municipal address of Units 4, 5, 6, and 17 Brownridge Road, Halton, Ontario in trust for Seasons HK. It also seeks a direction that Rockwood convey title of that property to Seasons HK or alternatively that the said property vest in the name of Seasons HK.

[6] Mrs. Blatherwick seeks the consolidation of the Application and the matrimonial proceedings for several reasons. She claims that this proceeding is part of an overall strategy to ensure that there is a multiplicity of actions to wear her down financially and emotionally. She submits that Seasons HK is the alter ego of Mr. Blatherwick. He has always been the controlling mind of that corporation and he is funding the Application through other offshore companies even though he made an assignment in bankruptcy in April 2013. Finally, and most practically, Mrs. Blatherwick notes that both proceedings rely on the same factual foundation. The witnesses in both proceedings, whether it is by viva voce evidence in the matrimonial proceedings, or by affidavit and cross-examination evidence in the Application, will be the same.

[7] In response, Seasons HK challenges the idea that Seasons HK is the alter ego for Mr. Blatherwick or that the application is Mr. Blatherwick’s brainchild. Seasons HK, which is a company incorporated under the laws of Hong Kong, in the Special Administrative Region of the People’s Republic of China, contends that Mr. Blatherwick had a 1/7th interest in the company. However, since Mr. Blatherwick’s assignment into bankruptcy, that 1/7th interest vested in the trustee in bankruptcy, Taylor and Leibow.

[8] Seasons HK also contends that the application is straight forward and that its consolidation would unduly complicate what is otherwise a straightforward issue, namely which of the two corporations owns the property at Brownridge Road. Seasons HK points to the different stages of the litigation in the two proceedings and finally it argues that there is no risk of inconsistent findings. Insofar as the NFP calculation is concerned, the property would be dealt with in accordance with the outcome of the Application. In short, Seasons HK sees no reason for the Application to be held back or to be thrown into the mix with the matrimonial proceedings.

[9] On the face of the Application, the connection to the matrimonial proceedings is not immediately obvious. The parties would appear to be two corporate entities fighting over the ownership of a property. However, on a closer examination, these are far from arm’s length corporate entities simply disputing the rightful ownership of the Brownridge Road property. The dispute appears to be far more complex, with a direct connection to the matrimonial proceedings and the issues that have to be resolved in that litigation.

[10] More particularly, setting aside for a moment the implications of Mr. Blatherwick’s assignment in bankruptcy on the ownership of his assets, Mr. Blatherwick has interests in both Seasons HK and Rockwood. In the case of Rockwood, there is no disagreement that he has a 26% interest in that company. Mrs. Blatherwick also has a 26% interest in that company. With Season HK, that interest may correspond to a 1/7th share, or it may be some other value if the corporate veil is pierced successfully and Mrs. Blatherwick can establish that Seasons HK is Mr. Blatherwick.

[11] For the purposes of this motion, whether the interest in the Brownridge Road property corresponds to a 1/7th share, a 26% share, or some other figure, there is an interest that has to be determined, valuated, and then included in the Blatherwicks’ NFP and equalization analysis. Based on the submissions before this court, the determination of the rightful owner of Brownridge Road is likely to require the consideration of evidence relating to the identity of Seasons HK, the interpretation of the trust agreement between Seasons HK and Rockwood, and the broader connection of the Brownridge Road property to the matrimonial dispute. Those same issues would be explored in the context of the matrimonial proceedings, with or without the Application concerning Brownridge. The overlap between the two proceedings becomes obvious.

[12] It is also noteworthy that the timing of the Application, Mr. Blatherwick’s relationship to Seasons HK, his true intentions regarding the Brownridge Road property, and the possible implications of the Application on the ownership of the Brownridge Road property, lend significant credence to Mrs. Blatherwick’s concern that the Application is being used to wear her down both financially and emotionally. Without meaning to make any comment on the substantive merits of the Application or to draw any conclusions on how the court will eventually determine the ownership of the Brownridge Road property, it cannot go unnoticed that if the property were to vest in Seasons HK and if Mr. Blatherwick’s interest in Seasons HK is determined to correspond to a 1/7th interest, Mrs. Blatherwick’s interest in the property would diminish significantly. She would lose the corresponding benefit of her 26% interest in Rockwood and she would have access only to 50% of Mr. Blatherwick’s 1/7th share through the equalization analysis. On that possible scenario, one cannot help but be vigilant over the bona fides of the Application. It begs the question, is the ownership dispute real or has it been staged to defeat some of Mrs. Blatherwick’s interests in advance of the matrimonial proceedings?

[13] Having regard primarily to the overlap of the two proceedings but also considering the questionable motivations behind the Application, a consolidation of the two proceedings will enable the most expeditious and least expensive determination of the issues in dispute. Within the matrimonial proceedings, the parties will be able to seek the determination of the rightful ownership of the Brownridge Road property. That will then enable the NFP and equalization analysis. This approach will also avoid the risk of conflicting determinations on the question of ownership.

[14] Finally, to the extent that the Application might be motivated by ulterior motives, the consolidation ought to have the effect of levelling the playing field among the parties. They would have the same opportunity to put their best evidence forward before one judge, who would then draw his or her various conclusions. Moreover, the judge would also have the benefit of viva voce evidence on the various issues. This is especially significant in this case where the evidence before this court suggested that at least certain witnesses would not hesitate to take liberties with the truth if it serves other collateral purposes, a concern which is returned to later in this ruling.

[15] The question that will have to be sorted out in advance of the matrimonial proceedings will be the sequencing of the various matrimonial issues, so that Seasons HK’s and Rockwood’s participation in the matrimonial proceedings is limited to the issues that are engaged by the Application. It will also be necessary to ensure that the pleadings and any documentary disclosure in the Application proceedings to date are incorporated into the matrimonial proceedings. For example, the parties must turn their mind to whether or not they wish to convert the Notice of Application into a statement of claim and then have Rockwood defend the claim, or whether there might be some other way of putting the specific issue before the court.

[16] These issues were not explored before this court. It is therefore best that these and related procedural issues be discussed with the Case Management judge assigned to the matrimonial proceedings. A case management conference, or at least a part of one such conference ought to be dedicated to the specific management of the consolidation. It is possible that some details might be deferred to the trial judge for his or her management. Any deferral will be for the Case Management judge to decide. What is critical is that there is some careful planning in advance of the trial so that the participation of Seasons HK and Rockwood is focused and the judicial resources are used in an efficient manner.

[17] Finally, the participation of Seasons HK and Rockwood should not become a pretext for any delays in the scheduling of the matrimonial trial, which as is noted below, should proceed as expeditiously as possible.

B. Bankruptcy Motion

[18] This motion was also brought by Mrs. Blatherwick and it was the second one to be heard by this court as part of the cluster of motions. Mrs. Blatherwick seeks to annul the bankruptcy of Mr. Blatherwick pursuant to s. 181(1) of the Bankruptcy and Insolvency Act, RSC 1985, c B-3 (BIA) and vest all of Mr. Blatherwick’s property in her name pursuant to s.181(2) of the BIA.

[19] Mrs. Blatherwick disputes the bona fides of Mr. Blatherwick’s motive for his assignment into bankruptcy. She relies on an improper motive and lack of disclosure with the trustee in bankruptcy to conclude that the assignment in bankruptcy is an abuse of process and should be annulled. She goes further to request that all of Mr. Blatherwick’s assets vest in her name.

[20] Mr. Blatherwick responds that his assignment in bankruptcy is bona fides. Mr. Blatherwick argues that he was forced to declare bankruptcy after making voluntary disclosure to the Canada Revenue Agency (“CRA”). The debt to CRA of over $830,000.00 made him an insolvent person as his liabilities came to exceed his assets by at least $29,252.70 and he was no longer able to meet his obligations as they became due.

[21] The motion actually gives rise to three issues: a) this court’s jurisdiction to hear this motion; b) whether service of the motion was properly effected on all of Mr. Blatherwick’s creditors; and c) was Mr. Blatherwick’s assignment in bankruptcy bona fides ?

a) Court’s Jurisdiction

[22] The Trustee raised the concern that a motion to annul a bankruptcy is one of a certain class of motions which must be made to the Superior Court of Justice sitting in Bankruptcy and Insolvency. This concern was raised even though a motion was brought before a judge sitting in bankruptcy in London, Ontario, and the judge adjourned that motion to this hearing and the whole file was ordered to be transferred to the Superior Court of Justice in Guelph.

[23] In the course of argument, counsel for the Trustee did concede that this motion could proceed. But since the Trustee’s counsel made some serious comments about the distinction between “orderly motions” in bankruptcy court, and “chaotic proceedings” in family proceedings, as the basis for his arguments on jurisdiction, I am obliged to review the basis of this court’s jurisdiction to pronounce on the annulment motion.

[24] Section 183(1) of the BIA vests jurisdiction to decide matters under the BIA with the Superior Court of Justice. Sumner Co. (1984) Ltd (Trustee of) v Triarch Maritimes Inc., 3 C.B.R. (3d) 209 dealt with the jurisdiction of a regular court to hear a bankruptcy matter, and stated:

As a general rule, all matters relating to bankruptcy should be dealt with in the Bankruptcy Court. However, the bringing of third-party proceedings in the ordinary civil courts did not require leave of the Bankruptcy Court. Merely because the Judge would be required to make some decisions relating to the Bankruptcy Act did not require every proceeding within the general action that had been properly authorized to be proceeded with in the ordinary Court to be referred back to the Bankruptcy Court.

[25] In Retail Merchants Assn. v Melissa Derek Inc. (2002), 2002 49494 (ON SC), 60 O.R. (3d) 547 Justice Henderson considered the court’s jurisdiction to hear an application pursuant to section 69.4 of the BIA amongst other non-bankruptcy related relief that was requested. Justice Henderson found it made no practical sense to require the plaintiff to bring two different motions in different courts. Justice Henderson held that:

In my opinion, it is clear that I have jurisdiction, as a Superior Court justice, to deal with all bankruptcy matters. The Bankruptcy Court was set up to assist in the administration of bankruptcy matters, but the creation of that court does not take the jurisdiction away from any Superior Court justice in the province to deal with bankruptcy matters.

[26] I agree with Justice Henderson’s analysis. The reasoning is especially applicable in this instance where the determination of Mr. Blatherwick’s bona fides is inextricably connected to his positioning in the matrimonial proceedings and his past admissions to lying as the particular circumstances suited him.

[27] Insofar as counsel for the Trustee highlighted differences in the types of procedural devices used in family proceedings, such as the Continuing Record or the reliance on questioning to support the motion, to suggest that they are not practical for bankruptcy proceedings and on that basis a Superior Court generally does not have jurisdiction over bankruptcy issues, I disagree. The concerns raised are not a function of jurisdiction. It is up to counsel to manage the orderly pursuit of a proceeding. Unfamiliarity with the use of a Continuing Record ought not to be passed off as chaos. That said, if something is chaotic (or more likely unfamiliar) counsel have a professional obligation to make the necessary inquiries with their opposing counsel to clarify the situation. There is nothing to prevent counsel from collaborating to use such possible tools as a compendium of documents or a compendium of transcripts to streamline the particular submissions if that would be helpful.

[28] In this instance, for all the concerns that were raised by the Trustee’s counsel, when he was asked if he had concerns with the sufficiency of the evidence or any related concerns, counsel confirmed that he did not have such concerns; that he did not require an adjournment and he was prepared to proceed with his submissions.

b) Proper Service of the Motion to Annul Mr. Blatherwick’s Bankruptcy

[29] Having confirmed this court’s jurisdiction to hear the motion, the next issue to review relates to the sufficiency of service of this motion on all of Mr. Blatherwick’s creditors. The Bankruptcy and Insolvency General Rules, Can. Reg. 368 as amended (BIA Rules) require notice to be served on the trustee, the bankrupt and the Division Office of the Superintendent of Bankruptcy.

[30] Counsel for the Trustee questioned whether the Superintendent in bankruptcy was served in a timely matter. Ultimately, he conceded the issue and was content to proceed with submissions on the merits. Counsel for Mrs. Blatherwick confirmed that the Superintendent was served within the required timelines.

[31] Based on the above, the Court is satisfied that Mrs. Blatherwick satisfied the service requirements of the BIA Rules.

c) Was Mr. Blatherwick’s Assignment in Bankruptcy Bona Fides?

[32] Turning then to the actual request for an annulment, section 181(1) of the BIA gives the court the power to annul the bankruptcy where, in the opinion of the court, the assignment ought not to have been filed. A review of the case law reveals that setting aside a bankruptcy is highly discretionary, see Re Regional Steel Works (Ottawa – 1987) Inc. (1994), 2001 28462 (ON SC), 25 C.B.R. (4th) 239 and an extraordinary remedy see TNG Services Inc. (Re), 2009 7106 (Ont. S.C.J.).

[33] In Re Wale (1996), 45 C.B.R. (4th) 15, Justice O’Connor annulled a bankruptcy that arose in the course of a matrimonial proceeding. Justice O’Connor held that an annulment will only be granted in one of three circumstances: a) the debtor is not actually an insolvent person; b) the bankruptcy is found to be an abuse of process of the court; or c) the debtor is committing a fraud on his or her creditors.

[34] The first question to ask is whether the debtor is an insolvent person. The Trustee in Bankruptcy states Mr. Blatherwick is “clearly insolvent”.

[35] According to the BIA, an insolvent person is somebody who for any reason is unable to meet his obligations as they generally become due, who ceases paying his current obligations in the ordinary course of business as they generally become due, or whose aggregate property is not, at a fair valuation, sufficient to enable payment of all his obligations, due and accruing due.

[36] The Trustee contends that Mr. Blatherwick is insolvent because it would appear he does not have liquidity and cash flow, that he is unable to pay his support obligations, and that the actual realizable value of the off-shore operations and web of corporations is questionable. For that reason the Trustee placed a value of $1.00 on the offshore assets.

[37] On the face of the evidence before this court, Mr. Blatherwick does appear to be insolvent. At the time of his submissions, Mr. Blatherwick stated that his debts exceed his assets by $29,252.70. This figure took into account the Seasons valuation by Mr. Blatherwick’s business valuator.

[38] However, one of the overriding difficulties with this question lies with the web of multiple offshore companies to which Mr. Blatherwick is connected either directly or indirectly. It is fairly obvious that the complex web has been set up to serve various purpose, not the least of which is to make it difficult to follow the movement of monies and other assets from one corporate entity to another. Without that clarity, it is virtually impossible to verify the magnitude of the alleged indebtedness, if it exists at all. Nor is it possible to know if Mr. Blatherwick is telling the truth when he says that he is unable to meet his financial obligations as they come due.

[39] Mrs. Blatherwick contends that there is no possible way that Mr. Blatherwick is insolvent, given his control of the Seasons Holdings and his management of the funds flowing through a related company, Discovery Bay. She asks: how could somebody who runs an operation that has reported annual worldwide sales of approximately $53,000,000.00 USD be unable to cover off a shortfall of $30,000.00? That question is compounded by the admitted fact that in the four years before the bankruptcy, Mr. Blatherwick had no apparent difficulty advancing $700,000.00 USD in payments to three girlfriends in the Philippines.

[40] The difficulty with this evidence is that it speaks to the past but it does not shed much light on Mr. Blatherwick’s situation in the months leading up to his assignment in bankruptcy. Whether it is because Mr. Blatherwick is concealing the real evidence, or because Mrs. Blatherwick is unable to access the required information, or it simply does not exist, the evidence before this court was insufficient to challenge Mr. Blatherwick’s contention that he no longer had control of Seasons Holdings and that he was no longer able to direct the movement of monies, be they draws, loans, or gifts, from Discovery Bay. By extension, the court had no greater clarity over Mr. Blatherwick’s true financial situation and his ability to access funds in the way he had been doing for years. The reality is that in the absence of a trial and a much fuller evidentiary record Mr. Blatherwick’s solvency is an open question.

[41] That brings the analysis to the next two questions. Is Mr. Blatherwick’s assignment in bankruptcy an abuse of process or has he defrauded his creditors? The leading authority on the questions to be considered for such an analysis is set out in Re Wale:

[26] Under s. 181 the Court has a wide discretion when considering an annulment application. An exhaustive review of the circumstances surrounding the assignment should be made by the Court. There is no single test or principle to be applied. The test is flexible and fact specific. The debtor’s motive is the primary consideration is determining abuse of process or fraud. After considering whether the debtor is an insolvent person some of the questions the court might pose to ascertain the debtor’s motive are:

(1) Is the debtor’s financial situation genuinely overwhelming or could it have been managed?

(2) Was the timing of the assignment related to another agenda or was bankruptcy inevitable in the near or relatively near future?

(3) Was the debtor forthcoming in revealing his situation to his creditors or did he hide assets or prefer some creditors over others?

(4) Did the debtor convert money or assets to himself which would otherwise have been assets in the bankruptcy?

(5) What had been the debtor’s relationship with his creditors, particularly his major ones? Was it such that they might have assisted him, if he had approached them, by granting time or terms of repayment or had any goodwill been destroyed by past unfulfilled promises?

(6) Are there other relationships–business partnerships shareholder arrangements, spousal, competitors for an asset, or simply personal associations which could cast light on a possible bad faith motive for making an assignment?

[42] Considering these questions as a whole, and for the following reasons, Mr. Blatherwick’s assignment in bankruptcy is highly suspicious and favours a finding on a balance of probabilities that there has been an abuse of process designed to undermine both Mrs. Blatherwick’s matrimonial claims and CRA’s claim.

[43] Viewed in the broadest terms, Mr. Blatherwick and his partners have set up a corporate web to enable tax avoidance and to be as judgment proof as possible. With respect to Mrs. Blatherwick’s proceedings, it cannot be ignored that Mr. Blatherwick threatened to declare bankruptcy on numerous occasions. Even though admittedly he did make some support payments pursuant to Justice Lemon’s Order from May 2012 until November 2012 and he did make one final support payment in January 2013, Mr. Blatherwick was unhappy with the court’s support order. It is indeed interesting that Mr. Blatherwick blames that support order for his bankruptcy, as opposed to admitting that he would not have had a debt to Revenue Canada had he paid his taxes all along.

[44] In addition to these broad observations, the specific consideration of the questions suggested in Wales, as illustrated more particularly in the analysis below enhance this court’s finding of an abuse of the bankruptcy process by Mr. Blatherwick.

(1) Is the debtor’s financial situation genuinely overwhelming or could it have been managed?

[45] Mr. Blatherwick’s perspective on Justice Lemon’s support order puts into question everything he says about being overwhelmed by his debt to the CRA and therefore being left with no choice but to declare bankruptcy. It is difficult to believe that somebody who could design a complex web of offshore corporate holdings and operations and then run a multi-million dollar business could not manage an alleged shortfall in his financial obligations of $30,000.00.

[46] The situation with the CRA was not a surprise. Mr. Blatherwick controlled everything relating to his reporting to CRA and his support obligations. His financial situation was not a surprise. It is therefore highly doubtful that Mr. Blatherwick was overwhelmed. It is more likely that a bankruptcy was an expedient route to follow.

(2) Was the timing of the assignment related to another agenda or was bankruptcy inevitable in the near or relatively near future?

[47] The timing of the assignment in bankruptcy is highly suspicious. Given Mr. Blatherwick’s repeated threats to Mrs. Blatherwick that he would declare bankruptcy, Mr. Blatherwick preserved that act until he was ready to have recourse to it with an appearance of credibility. Although it is not impossible that the magnitude of the debt to the CRA made the bankruptcy an inevitable conclusion, the main compelling explanation in these circumstances is that the CRA debt, together with a very substantial support order, became the perfect way to avoid both obligations. Mr. Blatherwick was quick to capitalize on that pretext. The CRA advised him of his debt on April 3, 2013 and he filed for bankruptcy on April 19, 2013. There was no evidence of any efforts to manage the CRA debt, to explore a possible payment plan, or to look for financial tools to address the debt. Rather, the timing of the bankruptcy suggests that Mr. Blatherwick had what he needed to act on his threat to go bankrupt. In doing so he would accomplish two objectives. First, he believed he would defeat Justice Lemon’s support order, which he did not like. Second, he would not have to pay CRA, something he never wanted to do in the first place.

(3) Was the debtor forthcoming in revealing his situation to his creditors or did he hide assets or prefer some creditors over others?

[48] Insofar as the question of Mr. Blatherwick being forthcoming over his situation, he admitted that he was not. When Mr. Blatherwick filed for bankruptcy he was required to answer the question “within five years prior to the date of the initial bankruptcy event have you either in Canada or elsewhere made any gifts to relatives or others in excess of $500?” Mr. Blatherwick said he did not.

[49] To say this answer was less than forthcoming would be an understatement. As a result of a review certain documents that were seized from Mr. Blatherwick’s hard drive by Mrs. Blatherwick, she discovered that in the five years prior to the bankruptcy, the gifts alone to three girlfriends totalled $690,000.00 USD.

(4) Did the debtor convert money or assets to himself which would otherwise have been assets in the bankruptcy?

[50] On this question, the evidence was limited insofar as specific transactions were concerned. Mr. Blatherwick chose to spend his draws from Discovery Bay in various ways. He chose not to declare income taxes. He also chose to make very lucrative gifts to his girlfriends. These gifts included luxurious vacations. However, that evidence does not necessarily support a finding of conversion. Evidence of actual transactions would have to be put before the court to support such a conclusion. Other than suspicions and hypothetical scenarios the evidence at this time is lacking.

(5) What had been the debtor’s relationship with his creditors, particularly his major ones? Was it such that they might have assisted him, if he had approached them, by granting time or terms of repayment or had any goodwill been destroyed by past unfulfilled promises?

[51] Regarding Mr. Blatherwick's relationship to his major creditors, there is little doubt that in the circumstances, Mrs. Blatherwick would not be one assisting him with his payment obligations. There was no evidence regarding inquiries that might have been made with the CRA for a payment plan.

[52] Insofar as his business partners were concerned, Mr. Blatherwick wanted the court to believe that they too were so angry with his conduct that there is no way that they would assist him with his predicament. He went as far as to suggest that they were using self-help measures to address an alleged debt of $900,000.00 to his partners. His partner, Mr. Zhang submitted the alleged debt to the Trustee but it was disallowed. As at the time of this motion, the disallowance was not appealed and there was no new claim.

[53] The difficulty with Mr. Blatherwick’s proposition is that there was no direct evidence from his partners. The court has no way of knowing what is posturing, what is contrived, or what is real. More to the point, the question left unanswered is why would Mr. Blatherwick ask his partners for assistance if a bankruptcy could give him a clean break from the two obligations that he never wanted to meet? Mr. Blatherwick admitted that he and his partners arranged their operations and corporate structures to protect one of their other partners and to enable that partner to conceal monies from his wife. If this was done for one partner, it is entirely possible that Mr. Blatherwick’s partners would be returning the favour. Without viva voce evidence from the partners to support a contrary conclusion, the historic conduct by Mr. Blatherwick and his partners favour an inference that however Mr. Blatherwick’s partners are positioning themselves, they are doing so to support Mr. Blatherwick in his pursuit of his bankruptcy and likely not because of any bona fides debt to them.

(6) Are there other relationships–business partnerships shareholder arrangements, spousal, competitors for an asset, or simply personal associations which could cast light on a possible bad faith motive for making an assignment?

[54] Mr. Blatherwick’s overall business endeavours, his professional and perhaps most significantly his acrimonious resistance of Mrs. Blatherwick’s matrimonial proceedings offer any number of motives for an assignment in bankruptcy. Mr. Blatherwick had an admitted history of using his Seasons group of companies to frustrate claims in his partners’ matrimonial proceedings and to avoid tax liability. During examination he admitted to receiving a dividend on behalf of one of his partners to keep its existence from that partner’s wife. This act shows the partners’ willingness to use the complex corporate structure to hide potential assets.

[55] Similarly, Mr. Blatherwick admitted Discovery Bay is used as a way for the partners to avoid taxation in Hong Kong. Mr. Blatherwick described it as a “parking space” for money so taxation is not an issue. The use of off shore accounts to hide assets and avoid tax is highly problematic when determining the bona fides of his assignment into bankruptcy.

[56] The real question that follows on a finding of an abuse of process in this context relates to the identification of an appropriate remedy. It is open to this court to annul Mr. Blatherwick’s bankruptcy. However, such a remedy should be ordered only in the most extraordinary circumstances. Short of extraordinary circumstances, the Court has wide discretion to fashion a remedy that is responsive to the particular circumstances of a case. In fashioning such a remedy the court ought to be guided by the need to reach a just outcome.

[57] In the circumstances of this case, given the evidentiary gaps highlighted above, Mr. Blatherwick’s very questionable credibility, and Mrs. Blatherwick’s family law claims, it is very doubtful that the ends of justice would be satisfied by an annulment. Rather, having regard to Mrs. Blatherwick’s overall interests, as well as the very persuasive submissions of the Trustee, the most expedient and prudent approach to this motion would be to lift the stay of proceedings on all of the matrimonial issues and to have the parties proceed with an expedited trial. Such an approach would allow Mrs. Blatherwick to pursue her equalization claim at trial. The proposed approach would be without prejudice to Mrs. Blatherwick renewing the annulment should she be able to fill in the evidentiary gaps identified above.

[58] Section 69.4 of the BIA permits the court lift a stay of proceedings. It states:

69.4 A creditor who is affected by the operation of sections 69 to 69.31 or any other person affected by the operation of section 69.31 may apply to the court for a declaration that those sections no longer operate in respect of that creditor or person, and the court may make such a declaration, subject to any qualifications that the court considers proper, if it is satisfied

(a) that the creditor or person is likely to be materially prejudiced by the continued operation of those sections; or

(b) that it is equitable on other grounds to make such a declaration.

[59] The operative analysis on the policy objectives of the BIA and the lifting of a stay is captured in Schreyer v. Schreyer, 2011 SCC 35, [2011] 2 S.C.R. 605 at paragraph 25. The Supreme Court of Canada cautioned that if Parliament intended equalization claims to be exempted by the operation of the BIA it could have said so in the BIA. But the Supreme Court of Canada also noted that Mrs. Schreyer could have sought an order to lift the stay of proceedings imposed by operation of s. 69.3 of the BIA to seek a remedy under the Manitoba Family Property Act.

[60] Mrs. Blatherwick’s first request is that the bankruptcy be annulled and that all of Mr. Blatherwick’s property and assets vest in Mrs. Blatherwick. Alternatively, she seeks the lifting of the stay of proceedings to enable the matrimonial proceeding to go ahead.

[61] The more prudent course of action and indeed one that takes into account the objectives of the BIA and the FLA is to lift the stay of proceedings on the matrimonial application. This will accomplish a number of goals.

[62] First, since support is exempted from the stay, in the absence of a settlement, a trial would proceed on that issue, in any event of the bankruptcy. If it is not already obvious, the consideration of Mr. Blatherwick’s financial position, his income, past, present and into the future, his assets and the income earned from those assets are relevant considerations to the issue of support. The determination of equalization, if there is such an entitlement, will represent an analytical subset of the evidence that will be before the court. In that sense the determination of equalization would complete the matrimonial picture.

[63] That completed picture before the court may also result in the following additional benefits. First, if an equalization payment is found to be owing but it is not ever likely to be paid, that situation could have a bearing on the quantum of support to be ordered by a trial judge. In other words, Mrs. Blatherwick’s circumstances as a result of obtaining her equalization may be relevant to her support. See: ss.33(8)(9) of the Family Law Act and s. 15.2.(4) of the Divorce Act, as opposed to s.15.2(5) of the Divorce Act.

[64] Second, even if equalization were to have no bearing on support, its determination would crystallize Mrs. Blatherwick’s unsecured share to equalization. I caution that if, as Mr. Blatherwick argued, he had already paid Mrs. Blatherwick her equalization share, such an outcome could have implications on what monies are available to Mr. Blatherwick’s creditors.

C. Mr. Blatherwick’s Motion to Vary the spousal support order of Justice Lemon

[65] The third motion before the court was Mr. Blatherwick’s motion to vary the order of Justice Lemon of April 24, 2012, see Blatherwick v Blatherwick, 2012 ONSC 2456. He says that there has been a material change in his circumstances to warrant a variation in his spousal support obligations. Mrs. Blatherwick disagrees.

[66] Section 17 of the Divorce Act allows a court of competent jurisdiction to vary a support order. The factors to consider are provided in s.17(4.1):

(4.1) Before the court makes a variation order in respect of a spousal support order, the court shall satisfy itself that a change in the condition, means, needs or other circumstances of either former spouse has occurred since the making of the spousal support order or the last variation order made in respect of that order, and, in making the variation order, the court shall take that change into consideration.

[67] Section 17 requires a material change in circumstances. A material change is a change, such that, if known at the time, would likely have resulted in different terms in the order. If the matter which is relied on as constituting a change was known at the relevant time, it cannot be relied on as the basis for variation. See Willick v Willick 1994 28 (SCC), [1994] 3 S.C.R. 670.

[68] Mr. Blatherwick submits that Justice Lemon relied on a grossed up income provided by his business valuator. The gross up was used because Mr. Blatherwick had not been paying tax on his worldwide income. After the April 24th, 2012 order of Justice Lemon, Mr. Blatherwick made a voluntary disclosure to CRA on July 10, 2012. He argues this disclosure eliminated the gross up treatment of his income that was required before he was paying tax.

[69] Mrs. Blatherwick says that Mr. Blatherwick’s tax liability was a subject that was before Justice Lemon when the spousal support order was made. As such, it is not a change Mr. Blatherwick can rely upon to seek a variation of that order.

[70] Indeed, Justice Lemon was clear that he did not rely on the report of Mr. Blatherwick’s business valuator to make his support order. In the June 20, 2012 endorsement, Blatherwick v Blatherwick, 2012 ONSC 3606, His Honour stated:

I made my order on very little reliable evidence. In order for me to rely on Ms. Russell, I would have had to rely on Mr. Blatherwick. For the reasons set out in my endorsement, I did not rely on Mr. Blatherwick. While I accepted some propositions and made inferences to the extent that I could, I expressly left the findings of fact to the trial judge.

[71] In addition, Justice Lemon was very much aware that it was highly likely that Mr. Blatherwick was going to be reporting himself to the CRA. At paragraph 4 of the April 24th, 2012 endorsement, Justice Lemon recognized that Mr. Blatherwick “may owe $548,000 to Revenue Canada.” In the June 20th endorsement, Justice Lemon stated: “What the Canada Revenue Agency does to both Mr. Blatherwick and Mrs. Blatherwick as a result of those payments, agreements and orders is up to the CRA and not up to me.” In other words, His Honour made the support order in the face of the knowledge of the tax liability and probable self-reporting to CRA.

[72] In light of that, Mr. Blatherwick’s actual reporting cannot be considered a material change in his circumstances to warrant a variation of his support order.

[73] A second material change raised by Mr. Blatherwick in support of this motion for a variation was the alleged “cut-off” of a substantial sum of funds by his creditors, Mr. Alan Zheung and Seasons Macau. Mr. Blatherwick submitted that he owed Mr. Zheung at least US $920,000.00 and that Mr. Zheung simply stopped the payment of Mr. Blatherwick’s annual draws of US $200,000.00 as a self-help means of remedying Mr. Blatherwick’s indebtedness on that front.

[74] The difficulty with this submission is that its credibility is highly suspect. There was before the Court an affidavit in Chinese and a translation of that document in the name of Mr. Zheung. However, Mr. Zheung’s identity and his connection to the Seasons Group or Discovery Bay left this court with many unanswered questions. Those questions tied into Mr. Blatherwick’s admissions to the collaboration among his partners to protect each other’s judgment proof position. In addition to those questions, the Trustee disallowed Mr. Zheung’s alleged debt, putting that claim into serious doubt.

[75] In light of these circumstances, the court would require viva voce evidence on the issue of Mr. Blatherwick’s indebtedness to Mr. Zheung, before it could accept that alleged circumstance to be a material change that would warrant a variation of Justice Lemon’s support order of April 24, 2012.

[76] Having made it clear that his Order was an interim one and having made specific reference to the conclusions that a trial judge will have to make, rather than pursue motions to vary, it is essential that the trial is expedited, so that a trial judge may make a final determination, with the full benefit of the record and viva voce evidence. This is especially crucial, given the very substantial debts that are accumulating on account of outstanding support obligations. Justice Lemon made his order in the face of “very little reliable” evidence. The quality of this evidence has not changed.

D. Mr. Blatherwick’s motions to sever Divorce from corollary relief and for certain costs.

[77] Mr. Blatherwick’s next two motions ask for the severing of the divorce from the corollary relief sought by Mrs. Blatherwick and for certain costs he incurred as a result of certain motions initiated by Mrs. Blatherwick.

[78] On the subject of the divorce, Mr. Blatherwick is engaged to one of his girlfriends and he would like to get married. He says that it would also facilitate her immigration application. But even on this subject, Mr. Blatherwick was not being truthful. In his fiancée’s Immigration Application he described his status as “widowed”.

[79] Mrs. Blatherwick opposes the accelerated severance. She currently has the certain medical benefits covered by Mr. Blatherwick’s insurance policy that would be terminated thirty days following the issuing of the divorce. Moreover, she is suffering from depression and is highly dependent on the medical coverage. In the circumstances, she sees no reason to agree to the requested order.

[80] Apart from Mrs. Blatherwick’s concerns, as will be discussed below, Mr. Blatherwick is in breach of a number of court orders. It is rather audacious on his part to pick and choose which court orders he will respect, which he will ignore, and which he will seek to obtain.

[81] Given my direction that the trial be expedited, there is no reason to sever the divorce from the corollary relief. If anything, the need for an expedited trial is underscored by such a request. In the circumstances of this case, it is best that all the relief claimed be dealt with at trial.

[82] Regarding Mr. Blatherwick’s claim for certain costs thrown away, this too ought to be deferred to the trial. The costs Mr. Blatherwick is seeking relates to the following: a) costs for Mrs. Blatherwick’s abandoned motion of April 22, 2013; b) costs thrown away for the withdrawal of the affidavit of Rosemary Chambers; and c) costs thrown away for Mrs. Blatherwick’s abandoned claim for Letters Rogatory.

[83] I acknowledge the guiding principles on the subject of costs outlined in Rule 24.11 of the Family Law Rules. However, this is no ordinary case. The abandoned proceedings ought not to be considered in isolation but rather should be evaluated against the totality of the each party’s conduct. In addition, I echo my concern with Mr. Blatherwick’s selective approach in his respect of court orders. Finally, given Mr. Blatherwick’s outstanding support obligations, a cost award would merely represent a small set-off against a very substantial debt.

[84] As with the issue of the divorce severance, especially in light of my order that the trial of the matrimonial issues be expedited, a delay of a few more months with respect to this particular relief is not going to cause any prejudice to Mr. Blatherwick.

E. Mrs. Blatherwick’s motion declaring that Mr. Blatherwick is in breach of court orders

[85] Mrs. Blatherwick’s counsel identified several orders that Mr. Blatherwick has breached. The breaches relate to Mr. Blatherwick’s failure to meet his support obligations and to comply with the orders of Justice Belleghem concerning the depletion of his assets.

[86] There is no question that the respect for court orders is of paramount significance. It brings justice into disrepute if court orders are ignored and there are no consequences that follow. At the same time, those consequences have to be meaningful and practical.

[87] In this instance, although Mrs. Blatherwick’s counsel asks for the striking of Mr. Blatherwick’s pleadings as well as significant financial sanctions, neither of these solutions would assist Mrs. Blatherwick with her claims. Even if the pleadings are struck, Mrs. Blatherwick would still have to proceed to trial to prove her claims. The striking of Mr. Blatherwick’s pleadings would leave the court with a very incomplete picture. As for the financial sanctions, it is hard to know how that would have any effect on Mr. Blatherwick’s motivation to comply with his outstanding obligations.

[88] It is appropriate, especially in light of the order for an expedited trial, to disallow any further motions to be brought by Mr. Blatherwick, except with leave of the case management judge.

CONCLUSION

[89] Based on the foregoing this Court orders as follows:

(a) The civil action bearing court file no. CV-13-474774 is hereby consolidated with the matrimonial proceedings.

(b) A case management conference, or part of such a conference is to be scheduled with the case management judge to discuss the specific logistics of the consolidation.

(c) The stay of proceedings against Mr. Blatherwick is to be lifted with respect to Mrs. Blatherwick’s matrimonial application and an expedited trial is to be scheduled.

(d) The motion to annul Mr. Blatherwick’s assignment in bankruptcy is hereby dismissed without prejudice to its renewal by Mrs. Blatherwick, should she obtain new evidence that would shed greater light on Mr. Blatherwick’s solvency.

(e) The motion to vary the support is dismissed.

(f) The costs thrown away regarding the Chambers affidavit and the claim for Letters Rogatory sought by Mr. Blatherwick are deferred to trial.

(g) The motion to sever the divorce is dismissed.

(h) Mrs. Blatherwick’s motion regarding Mr. Blatherwick’s multiple court breaches is adjourned to the trial judge. In the meantime, Mr. Blatherwick is prohibited from bringing any further motions, except with leave of the case management judge.

[90] Insofar as the costs of these motions are concerned, the parties are strongly urged to work out a settlement, failing which, each is to make submissions in writing of no more than 5 pages, not including a bill of costs and any offers to settle. As Mrs. Blatherwick was largely successful her submissions are to be served and filed with the court by March 28, 2014. Mr. Blatherwick may file responding submissions by April 11, 2014. Seasons H.K. Limited may also serve and file responding submissions on the subject of the motion for consolidation of its application with the family proceedings.

Tzimas J.

DATE: March 5, 2014

COURT FILE NO.: 810/10 (Guelph)

DATE: 20140305

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: BARBARA ANN BLATHERWICK - and - BRIAN EARL BLATHERWICK

BEFORE: TZIMAS J.

COUNSEL: John G. Cox, for the Applicant
Stuart M. Law, for the Respondent
J. Ross MacFarlane, for Trustee in Bankruptcy for Brian Earl Blatherwick
Melissa K. Fallon, for Seasons (H.K.) Limited, a non-party

ENDORSEMENT

Tzimas J.

DATE: March 5, 2014