COURT FILE NO.: FS-13-387412

DATE: 20140402

SUPERIOR COURT OF JUSTICE — ONTARIO

RE:

Wendy S. Grossman, Plaintiff

AND

Lorne Grossman, Defendant

BEFORE:
Justice Michael A. Penny

COUNSEL:
Harold Niman and Sarah A. Strathopolous, for the Plaintiff

Cheryl A. Goldhart and Annie Noa Kenet, for the Defendant

HEARD:
March 27, 2014

ENDORSEMENT

Overview

[1] There are two motions. The applicant brings a motion for:

(1)

a bifurcation of the issues and directing a preliminary trial to determine the validity of a marriage contract;

(2)

an order dispensing with the respondent’s consent to the sale of the matrimonial home;

(3)

an order requiring the respondent to immediately pay an amount withdrawn on a joint secured line of credit in the amount of some $12,685; and

(4)

summary judgment against the respondent requiring him to repay a loan of some $200,000.

[2] The respondent brings a motion for:

(1)

leave to amend his answer to seek spousal support;

(2)

interim spousal support in the amount of $1,211 per month;

(3)

disclosure, including of the nature, extent and value of the applicant’s interest in her father’s estate planning vehicle; and

(4)

an order that the funds from the sale of the matrimonial home be held in trust by the respondent’s counsel pending resolution of all issues.

[3] Thus, the issues to be decided are:

(1)

whether an order to sever to deal with the validity of the marriage contract at a preliminary trial is appropriate;

(2)

whether the proceeds of the matrimonial home should be held in trust pending final resolution of all issues;

(3)

whether there should be summary judgment on the line of credit and business loan;

(4)

whether the respondent should be granted leave to amend his answer; and

(5)

whether the respondent is entitled to interim spousal support.

Background

[4] This couple was married in August 1999. There are two children, aged 13 and 10. The children reside primarily with the applicant. The parties separated in May 2012 after almost 13 years of marriage.

[5] Prior to the marriage, the applicant worked at AOL Canada. She already owned the matrimonial home. Shortly after they were married, AOL was sold and the applicant took a severance package. She has not worked outside the home since that time.

[6] Prior to the marriage, the respondent worked for an electronics company, earning about $250,000 per year. That business was sold in about 2005 and the respondent received a severance package. He decided to start his own business in 2006. He has earned about $100,000-$120,000 per year as CEO of that business until this year.

[7] About 2007/2008, the applicant loaned $200,000 to help the respondent’s business obtain a line of credit with a financial institution. Whether the loan was to the corporation or to the respondent personally is in dispute. In any event, post-separation, the respondent’s business declared bankruptcy. He now has no income.

Validity of the Marriage Contract

[8] Shortly after their engagement and about seven months before the wedding, the parties entered into a marriage contract. Under the terms of that contract, they both waived any entitlement to spousal support or to an equalization of net family property, regardless of the length of the marriage. The respondent also released any interest in the matrimonial home.

[9] The preamble to the marriage contract provides that the parties were of sound mind, that they in good faith chose to enter into this agreement and that they fully intended that it be legally binding upon them. In article 19, each party acknowledged that she or he:

had independent legal advice

understood the nature and consequences of the agreement

signed the contract voluntarily

was satisfied with the financial disclosure provided

had read the agreement in its entirety and had full knowledge of the contents and

was entering into the agreement without any undue influence, fraud or coercion whatsoever.

[10] The respondent executed the marriage contract on February 2, 1999 after receiving independent legal advice. In his certificate and affidavit of solicitor, the respondent’s counsel, Mr. Edney, swore that:

I have advised [the respondent] with respect to this domestic contract and believe that he is fully aware of the nature and effect of the domestic contract and is signing it voluntarily.

[11] The applicant’s father is a wealthy man. He established an estate plan under which the applicant holds two common shares of a corporation, Wendy Susan Investment Limited (WSIL). The evidence is that the father holds voting control of WSIL and is its sole officer and director. Assets of that corporation include real estate and rental agreements.

[12] In the marriage contract, both patties listed the nature of the assets they had and gave global estimates of value. The applicant disclosed that her assets included shares of private and public companies, financial instruments and debt securities, real estate and personal property and cash in money market funds with a value not exceeding $25 million.

[13] The respondent disclosed his estimated assets and liabilities as including real estate and personal property, RRSPs, business interests, stocks and bonds and cash, with a total value not exceeding $1.5 million.

[14] In his answer, the respondent seeks to set aside the marriage contract on the basis that it was signed under duress, as a result of a power imbalance and on the basis of inadequate financial disclosure.

[15] In this regard, he seeks disclosure of any and all documents necessary to ascertain the value of the shares or interests the applicant had or has, directly or indirectly or held for her behalf, in any private or public companies, any financial instruments or debt securities or real property as of the date of marriage, the date of separation and today.

[16] The applicant moves for an order severing the issue of the validity of the marriage contract. She says that all of the respondent’s financial claims — equalization, matrimonial home, spousal support — are precluded by the marriage contract. She argues that the cost of conducting three or four valuations of her interest in a WSIL will be enormous and that there is little likelihood she would ever recover this expense from the respondent if he is unsuccessful in this litigation.

[17] Section 12(5) of the Family Law Rules provides that, if it would be more convenient to split a case into two or more separate cases, claims or issues, the court may, on motion, order accordingly.

[18] Many cases were cited to me in argument. It is clear that a party’s prima facie right is to have all issues decided in one trial. I find the analysis of Justice Michael G.J. Quigley in Simioni v. Simioni, 2009 934, 74 R.F.L. (6th) 202, [2009] O.J. No. 174, 2009 Cars­well­Ont 258 (Ont. S.C.), a helpful summary of the legal principles. There, he wrote (at paragraphs [15]-[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: . . . 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: . . .

[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: . . . 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”. . . .

[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: . . . the focus of these questions on expediency does not displace fairness and justice as the dominant considerations.

Separate or Interwoven Issues

[19] The applicant argues that the validity of the marriage contract is a freestanding issue that could be decided in a few days of trial. The likely witnesses would be the parties; the lawyers who gave independent legal advice, the applicant’s father and possibly some accounting evidence, although the applicant has testified that all financial records of WSIL are typically destroyed in compliance with CRA document preservation protocols (after six years) and that, as a result, there are no records to confirm what her interest in WSIL might have been worth in 1999.

[20] The respondent argues that the issue of the applicant’s 1999, 2012 and current net worth will be intertwined with all of the issues in dispute. Specifically, the respondent argues that he may be entitled to spousal support without setting aside the marriage contract if he can show that the result of the marriage contract, in denying him spousal support, is unconscionable under subsection 33(4) of the Family Law Act. That, he argues, will require the applicant to disclose all of her assets and her net worth in any event, meaning that cost savings — the alleged benefit of a preliminary determination of marriage contract validity — will not be realized regardless of the outcome of the early trial.

[21] I am not persuaded by the respondent’s argument. The applicant’s liability to payment of spousal support will, in my view, not likely turn on the theoretical value of what appear to be two unmarketable common shares in a private company otherwise owned and controlled by her father. It will be the pattern of payments actually made to her, if any, or income actually derived by her from that or other interests that will be of more significance in determining whether the applicant should pay spousal support in spite of the marriage contract. The determination of that issue, therefore, will not necessarily require multiple valuations of the value of her WSIL common shares.

[22] It is also relevant that the respondent’s motion to amend his answer to provide for his application for spousal support is a recent event, triggered by the failure of his business earlier this year. Before and throughout the marriage, the respondent worked. His recent reverses may well qualify him for spousal support at present but it is to be hoped, based on his past history, that his current unemployment will be temporary and will soon be a thing of the past.

[23] In my view, therefore, the pertinent issues are not inextricably intertwined so as to require determining all issues in any event of the marriage contract validity.

[24] This consideration, therefore, weighs in favor of severing the marriage contract issue and resolving it as a preliminary matter.

End Proceeding, Narrow Issues, Settlement

[25] It is clear that the most significant financial issue in this litigation is the respondent’s claim to equalization in the face of an agreement that he is not entitled to any. Thus, the preliminary determination of the validity of the marriage contract, while it will not end the proceeding, will, in my view, significantly narrow the remaining issues and, in any event of the outcome of the trial on the preliminary issue, massively increase the likelihood of settlement.

[26] This consideration, therefore, weighs in favour of severance.

Resources Already Devoted to Broader Issues

[27] The motion to sever the issue of the marriage contract from the other issues has been brought early on in these proceedings, before significant time and money has been consumed in the pursuit of all the other issues. No investment of cost to date will have been wasted or thrown away as a result of the severance of the marriage contract validity issue.

[28] This consideration is, therefore, at least not a negative consequence of severance.

Possible Delay

[29] While the separate trial of one issue always raises the possibility of delay, in this case this possibility seems more theoretical than real. I say this because, as noted above, the marriage contract is a critical factor in the “big picture” of what this litigation is all about.

[30] A disposition either way on the validity question will dramatically change the landscape of this litigation for both patties, and the risks and rewards involved, as well as narrowing the issues and increasing the likelihood of settlement.

[31] In addition, questions of delay, and any possible prejudice occasioned by delay, can be dealt with in other ways, to which I will return later in these reasons.

[32] In my view, the early disposition of the validity issue will tend to bring about a final resolution of this litigation sooner rather than later and is, therefore, unlikely to lead to any material overall delay.

Advantages/Prejudice

[33] The principal advantages of an early determination of the marriage contract validity issue are:

(1)

speed final resolution/settlement;

(2)

avoid lengthy and costly disclosure and possible disclosure disputes involving third patties;

(3)

avoid significant cost to both parties of preparing multiple competing valuation reports of the applicant’s purportedly excluded assets for:

(a)

date of marriage contract;

(b)

date of marriage;

(c)

date of separation; and

(d)

current (trial) date.

[34] In view of the respondent’s allegations of inadequate disclosure, all available evidence of the applicant’s assets in February 1999 must be disclosed, including all available evidence of the value of those assets, in order to facilitate the just determination of the marriage contract validity issue. This would also include documentary evidence of the nature of the estate planning vehicles affecting the applicant in February 1999 and her rights and obligations in connection with those vehicles. If, however, the applicant is successful in upholding the marriage contract, it will avoid the need for multiple subsequent valuations.

[35] While it would have been better for the applicant to have adduced specific evidence of the likely cost of such valuations, experience and common sense tells us that the valuation of private corporations, real estate and rental contracts is likely to be laborious, time consuming, contentious and expensive.

[36] The principal disadvantages of a severance argued by the respondent are:

(1)

potential delay and, specifically, delay in the adjudication of his claim for spousal support;

(2)

potential increase in cost, which he cannot afford; and

(3)

potential duplication/multiplicity in use of court resources,

[37] Apart from the issue of spousal support, I do not think the respondent has made a substantive case that the final resolution of this litigation will be delayed by a severance of the marriage contract validity issue. The concerns raised do not get beyond the realm of conjecture.

[38] With respect to the issue of spousal support specifically, this can be dealt with by means of a motion for interim spousal support which has, in fact, been brought returnable in the respondent’s motion in this case. I will return to this issue below.

[39] As already noted, I do not view the issues as being inextricably interwoven and therefore the risk of duplication is relatively low. The respondent’s fears over the risk of increased cost do not rise to the level of proof on a matter of substance. The inferences of possible prejudice on this front are also mere conjecture. In light of my analysis above, it is more likely that an early determination of marriage contract validity will ultimately shorten the litigation and reduce cost, rather than attenuate it and increase cost. There is a strong case for promoting expediency on the critical issue in this litigation.

[40] This consideration, therefore, weighs in favour of severance.

Overall Assessment of Fairness and Justice

[41] It is, of course true than expediency, however attractive in a particular case, must ultimately be measured against overall considerations of what is fair and just in the circumstances.

[42] Given the rather speculative nature of the respondent’s objections to severance, however, I do not think it is sufficient simply to rely on his prima facie right to one trial. It is clear that right will give way to other considerations, such as whether it would be more convenient to split the case into two or more separate cases, claims or issues, as stated in FLR 12(5). Matrimonial litigation often becomes a battlefield on which the net worth of both parties is decimated. The risk of asset destruction through the process of litigation should be of central concern to all parties in matrimonial litigation.

[43] In the circumstances of this case, expediency, in my view, outweighs the somewhat speculative claims of prejudice that could result from a severance of the validity issue. Accordingly, I order that the validity of the marriage contract shall be severed from the remaining issues and dealt with at a preliminary trial. I will set out below how the matter shall proceed.

The “Validity” Trial

[44] In order to deal with concerns over delay and added cost, I order that the trial on the validity of the marriage contract proceed for a maximum of five days commencing September 15, 2014. The issue shall be the validity of the marriage contract, as circumscribed by subsection 56(4) of the FLA and the pleadings. I have already outlined the basic parameters of the disclosure required for this trial. To the extent there is non-documentary evidence relevant to the validity issue, i.e., evidence that will come only from witnesses, the party proposing to adduce that evidence shall disclose it before August 15, 2014 by way of a written summary of the expected evidence of that witness. Questioning may be held of the two parties.

Promissory Note

[45] The respondent currently has no income. As noted, his business, which was his only source of income, went bankrupt earlier this year.

[46] The documentary evidence of indebtedness for the applicant’s loan of $200,000 is a promissory note signed by the respondent’s business corporation. This note, however, purports both to be a debt obligation and a guarantee. It is difficult to understand how the same entity can both be the principal debtor and the guarantor.

[47] While the respondent initially listed the debt as personal to him in his financial statement, he listed all of his company’s debts as his own debts at the same time. He has since amended his presentation, claiming it was an error to have listed this and other debts as personal to him.

[48] The applicant has filed a claim in the Stratebrand bankruptcy.

[49] There is a significant issue of credibility around whether the loan was a personal obligation of the respondent’s or just a corporate obligation. Clearly, the respondent’s earlier “admissions” that the debt was his personally will be relevant to the resolution of that issue. At this stage, however, it cannot be said that there is no genuine issue requiring a trial.

[50] The applicant’s motion for summary judgment on this issue is dismissed.

Joint Line of Credit

[51] The applicant’s motion regarding immediate payment of the respondents withdrawal of the joint line of credit in the amount of $12,685 is also dismissed. There is no urgency to the disposition of this issue and it will be dealt with in the context of a final resolution of all property matters) following the determination of the validity of the marriage contract.

Proceeds of Sale of Matrimonial Home

[52] The respondent takes the position that there is no prejudice to the applicant in requiring the proceeds of sale of the matrimonial home to be held in trust as security for his claims until the matter is finally resolved. He also says that, by contrast, there will be prejudice to him if the funds are not protected.

[53] The respondent, however, has advanced no evidence to support either proposition. It seems to me that the inference I am being asked to draw is that there is no prejudice to the applicant in requiring the proceeds to be held in trust because she is the beneficiary of an estate plan and is, potentially at least, very wealthy and, therefore, “doesn’t need the money.”

[54] This is directly contradicted by the applicant, who says she is carrying two mortgages at the moment and very much needs the money from the sale of the matrimonial home to pay down the mortgage on her new residence.

[55] In my view, the respondent is trying to have it both ways. If there is no prejudice to the applicant because she is wealthy, then there is no prejudice to the respondent in allowing the funds to be dispersed to the applicant because the applicant is presumably good for the money if the respondent is successful in his equalization claim. Further, the funds are being reinvested in known, identifiable real property. The applicant has undertaken not to impair the equity in her new home beyond where it will sit once she receives the net equity in the matrimonial home.

[56] The matrimonial home is prima facie excluded property under the terms of the marriage contract. Unless and until the marriage contract is set aside, the respondent has no claim to an interest in the matrimonial home. There is no basis for any suggestion that the funds will be taken beyond the respondent’s reach or unreasonably dissipated pending final resolution. The respondent is in effect seeking a Mareva injunction. The preconditions to a Mareva injunction are not met in this case.

[57] The applicant’s request that she be entitled to deal with the matrimonial home without the respondent’s consent is granted. The proceeds of sale of the matrimonial home shall not be held in trust but shall be released to the applicant and used to acquire 462 Fairview Ave.

Amendments

[58] Amendments must be granted unless prejudice would arise that cannot be compensated for by costs or an adjournment or unless the pleading plainly discloses no cause of action or is otherwise untenable. The amendments sought in this case are tenable of law. There is no evidence of prejudice.

[59] Mr. Niman argues that the respondent’s amendment concerning the $200,000 debt constitutes the withdrawal of an admission, for which a more stringent test is applicable. While I agree that there is, in a sense, an admission being withdrawn concerning the respondent’s personal liability for the $200,000 debt, I believe he has sufficiently explained that so-called admission as an error to warrant permitting the amendment at this stage.

[60] Whether the respondent is able to sustain his position that the debt was corporate only and not personal is, as noted above, a matter that will have to be resolved in due course.

[61] Accordingly, leave to make the amendments sought by the respondent is granted.

Interim Spousal Support

[62] One of the amendments sought is for the payment to the respondent of spousal support, including interim spousal support.

[63] Both requests are opposed on the basis that the marriage contract precludes either party from seeking spousal support. As noted earlier, an award of spousal support does not require that the marriage contract be set aside.

[64] The circumstances of this case are unique. Both patties came into this marriage with good jobs. The applicant stopped working shortly after the marriage. The respondent worked throughout the marriage, both as an employee and as the owner of his own business. Shortly after separation, the respondent’s business went bankrupt, leaving him without income.

[65] The applicant has disclosed income of almost $100,000 per annum. As of today, the respondent has no income.

[66] In the unique circumstances of this case, I find that an award of interim spousal support is warranted. I make this award on an entirely “without prejudice” basis to both parties, on the entirely preliminary assessment that it was not within the reasonable contemplation of the parties that at, or shortly following, the termination of their marriage, one of them would be entirely without visible means of support.

[67] Accordingly, pending trial, the applicant shall pay the respondent $1,211 per month on account of “without prejudice” interim spousal support. It shall be the respondent’s obligation to diligently seek employment. He shall report on his efforts and circumstances in this regard in any event no less frequently than every six months following the release of these reasons. He shall, if he secures employment, disclose that fact, along with the basic particulars, immediately.

Costs

[68] A party seeking costs shall do so by submitting a brief written submission (not to exceed two typed double-spaced pages) together with a bill of costs and any supporting documents within 10 days of the release of these reasons. A party wishing to respond to a request for costs shall do so by filing a brief written submission (subject to the same page limit) within a further seven days.

Justice Michael A. Penny.

Date: 02 April 2014