Court File and Parties

COURT FILE NO.: FC-12-1561

DATE: 20140617

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: MARY ‘ANNE’ ARMSTRONG, Applicant

AND:

TODD LINTON ARMSTRONG, Respondent

BEFORE: The Honourable Mr. Justice F. Graham

COUNSEL: Ms. K. Annand, for the Applicant

Mr. D. Manning, for the Respondent

HEARD: May 1, 2014

ENDORSEMENT

[1] By way of Notice of Motion dated March 5, 2014, Ms. Armstrong seeks to have Mr. Armstrong found in contempt of court on the basis that he,

“Failed to comply with the Order of Justice Gilmore dated April 2, 2013 to hold any further sale proceeds for Armstrong Insurance Broker’s Limited in Trust by a Solicitor agreeable to between the parties.”

[2] Paragraph 6 of the April 2, 2013 order reads,

“Pending further agreement of the parties or court order, any further funds that the Respondent is entitled to receive on account of the sale of his shares in Armstrong Insurance Brokers Ltd. shall be held in Trust by a Solicitor agreeable to the parties.”

[3] Mr. Armstrong was a licenced insurance broker while the parties were cohabiting spouses. Post-separation he lost his insurance licence and, as a result, he sold his insurance business in August of 2012.

[4] Mr. Armstrong received partial proceeds of the sale in the amounts of $110,516.19 on or about July 31, 2012 and $271,585.58 on March 19, 2013.

[5] The terms of sale stipulated that Mr. Armstrong would receive three additional payments, in the amount of $100,000 each: on July 31, 2014, July 31, 2015, and July 31, 2016 (the second, third, and fourth anniversary dates of the sale, respectively).

[6] On September 10, 2012, however, Mr. Armstrong was erroneously informed by his solicitor for the sale, by way of a reporting letter, that the three final payments of $100,000 would be made on July 31, 2013, July 31, 2014, and July 31, 2015 (i.e. the first, second, and third anniversaries of the sale).

[7] The parties attended a case conference on April 2, 2013 where they consented to the order of Gilmore J. that forms the subject matter of this motion, including paragraph 6 set out above.

[8] Paragraph 4 of that order required Mr. Armstrong to pay $100,000 to Ms. Armstrong within 10 days - as partial payment of equalization. Mr. Armstrong made that payment on April 8, 2013.

[9] On July 22, 2013, the parties attended a settlement conference.

[10] At that time, they agreed that Mr. Armstrong would pay Ms. Armstrong $50,000 toward equalization on or before November 15, 2013 and a final $50,000 toward equalization on or before March 15, 2014.

[11] They also agreed that Mr. Armstrong would pay child support in the amount of $800 per month and spousal support in the amount of $1,000 per month commencing August 1, 2013, with a review in one year upon Mr. Armstrong obtaining other income or the equivalent to income.

[12] Mr. Armstrong has been making the support payments as agreed.

[13] In August of 2013, inconsistent with the terms of sale, but consistent with Mr. Armstrong’s solicitor’s erroneous reporting letter, the first of the three remaining $100,000 installments for the sale was paid to Mr. Armstrong.

[14] Mr. Armstrong did not pay any of that amount to, or leave any of that amount with, a solicitor to be held in trust.

[15] Consistent with the agreement of July 22, 2013, however, Mr. Armstrong paid Ms. Armstrong $50,000 toward equalization on November 15, 2013.

[16] On December 3, 2013, Ms. Armstrong’s counsel wrote to Mr. Armstrong’s sale solicitor to determine whether Mr. Armstrong’s solicitor had been advised of the terms of paragraph 6 of the order of April 2, 2013. The sale solicitor responded the next day that he had not been informed. This correspondence was filed as Exhibit E to the affidavit of Ms. Armstrong of March 5, 2014. That affidavit was served upon Mr. Armstrong on March 10, 2014. In his responding affidavit, dated April 25, 2014, he denied various allegations made by Ms. Armstrong in her affidavit of March 5, 2014, but he did not deny that he had not advised his solicitor for the sale about paragraph 6 of the April 2, 2013 on or before December 4, 2013.

[17] As noted earlier, on March 5, 2014, Ms. Armstrong filed the motion before the court.

[18] On March 15, 2014, Mr. Armstrong failed to pay Ms. Armstrong the remaining $50,000 payment toward equalization agreed to on July 22, 2013. He informed her that he intends to pay the remaining $50,000 to her in 2015 when he receives the next $100,000 installment for the sale of his business.

[19] As noted earlier, Ms. Armstrong’s contempt allegation is that Mr. Armstrong has failed to comply with paragraph 6 of Gilmore J.’s consent order by not putting the sale proceeds he received since April 2, 2013 into trust.

[20] Mr. Armstrong argues that the $50,000 he paid Ms. Armstrong on November 15, 2013 was part of the $100,000 he received in August of 2013 so if he is in contempt of the April 2, 2013 order then she is a party to the contempt by accepting funds that should have been paid into trust. He also argues that his payment to Ms. Armstrong of half of the sale proceeds he received in August of 2013 shows that he was not wilfully disobeying the April 2, 2013 order. The court does not accept these arguments. Ms. Armstrong had no obligation to put sale funds into trust – that was Mr. Armstrong’s obligation under paragraph 6, not hers. Moreover, the obvious purpose of paragraph 6 is to provide Ms. Armstrong with security. Her receipt of $50,000 in November of 2013 obviated the need for security for that amount of the sale proceeds and, therefore, that payment was not a wilful breach of the order by either party in the circumstances of this case. It is the non-payment of the remaining $50,000 of sale proceeds into trust that is the essence of the alleged contempt before the court.

[21] Mr. Armstrong suggests that the agreement of July 22, 2013 was “a further agreement of the parties” within the meaning of paragraph 6 of Gilmore J.’s order and, as a result, he was not bound by paragraph 6 of Gilmore J.’s order after July 22, 2013. The agreement of July 22, 2013, however, makes no reference to the April 2, 2013 order. Paragraph 6 simply establishes a schedule for Mr. Armstrong to make two payments on account of equalization to Ms. Armstrong. Nothing in the July 22, 2013 agreement ties those payments to the anticipated receipt of proceeds from the sale of the business or the requirement that sale proceeds be paid into trust.

[22] Mr. Armstrong submits that Ms. Armstrong’s erroneous reference, in her affidavit, to “Clause 9” rather than “Paragraph 6” of the April 2, 2013 order is significant. The court does not agree. The reference to “Clause 9” is immediately followed by a recitation of paragraph 6 of the order. And, as pointed out by Mr. Armstrong, there is no paragraph 9 in the order – the order ends at paragraph 8. It is obvious that the reference to “Clause 9” is merely a typographical error that causes no prejudice to Mr. Armstrong.

[23] Mr. Armstrong also argues that paragraph 6 of the April 2, 2013 order is a “payment order” within the meaning of Ontario Civil Procedure Rule 60.11 (1) and, therefore, cannot be enforced by way of contempt. This submission, however, is not correct. In Dickie v. Dickie 2007 SCC 8, [2007] S.C.J. No. 8 (para. 7) the Supreme Court of Canada essentially adopted the dissent of Laskin J.A. reported at 2006 576 (ON CA), [2006] CarswellOnt 118 (O.C.A.). Laskin J.A. stated (at para. 104),

“Where money is ordered to be paid not to the creditor but into court – or its functional equivalent, to a solicitor to be held in trust – and where the effect of the order is not to create a fixed debt obligation but to secure a debt obligation, then the order is not an order for the payment of money under r. 60.11(1)”,

and (at para. 112),

“an order that security be paid to a solicitor to be held in trust is the functional equivalent of an order that the security be paid into court. In both cases, what is ordered is security, not a payment from a debtor to a creditor”,

and (at para. 116),

“the exclusion in r. 60.11(1) refers only to orders for the payment of money; the rule does not exclude the use of the contempt power for breach of an order to post security….even for an order that amounts to money or money’s worth.”

[24] Mr. Armstrong also suggests that he is not bound by paragraph 6 of the April 2, 2013 order because the parties did not reach an agreement about which solicitor would hold further sale money in trust. The court does not accept that submission. Paragraph 6 of the order refers to “a Solicitor agreeable to between the parties”. Mr. Armstrong stated in his affidavit of April 25, 2014, that, without any time limitation, he “would have been agreeable” to the solicitor who handled the sale of his business being the trustee. In other words, and the court so finds, Mr. Armstrong’s state of mind on April 2, 2013 and thereafter was that he was agreeable to his sale solicitor holding further sale proceeds in trust. Exhibit A to Ms. Armstrong’s reply affidavit is a letter dated May 11, 2013, from Ms. Armstrong’s counsel to Mr. Armstrong’s counsel on this motion (not the solicitor involved in the sale of the business) proposing that Mr. Armstrong’s solicitor on the sale be requested to hold future sale proceeds in trust pursuant to paragraph 6 of the April 2, 2013 order. At the hearing of this motion, Mr. Armstrong did not suggest, nor did he seek to file evidence to establish, that he was not made aware of the May 11, 2013 letter in a timely fashion. As a result, the court finds that on or about May 11, 2013, and likely earlier, both parties were “agreeable” to Mr. Armstrong’s solicitor for the sale acting as trustee, thus, fulfilling the requirement of paragraph 6 of the April 2, 2013 order. While Mr. Armstrong denied that there was an “agreement”, he did not deny that both parties were “agreeable” to the sale solicitor acting as trustee prior to the August payout.

[25] On or about May 11, 2013, and likely earlier, Mr. Armstrong should have informed his solicitor for the sale about paragraph 6 of the April 2, 2013 order and that he and Ms. Armstrong were both agreeable to the sale solicitor holding further sale proceeds in trust. Unfortunately, however, Mr. Armstrong did not inform his sale solicitor about the existence of paragraph 6 of the April 2, 2013 order prior to, or even at the time of, the erroneous distribution of $100,000 in August of 2013, even though the order clearly and directly applied to all distributions of sale proceeds received after April 2, 2013. In fact, the court finds that Mr. Armstrong still had not informed his sale solicitor of paragraph 6 on or before December 3, 2013 when Ms. Armstrong’s counsel wrote to the sale solicitor.

[26] While it is true that, on or after May 11, 2013, Ms. Armstrong’s counsel or Mr. Armstrong’s counsel could have and, perhaps, should have informed Mr. Armstrong’s solicitor for the sale about paragraph 6 of the April 2, 2013 order and that the parties were agreeable to the sale solicitor holding further sale proceeds in trust, it was not suggested during argument, nor was there evidence filed suggesting, that Mr. Armstrong had relied on his counsel or Ms. Armstrong’s counsel to inform Mr. Armstrong’s sale solicitor about paragraph 6. Accordingly, the fact that neither counsel informed Mr. Armstrong’s sale solicitor about paragraph 6 does not relieve Mr. Armstrong from his implied obligation to inform his own solicitor for the sale about paragraph 6 of the order before any further funds from the sale were distributed to him.

[27] Mr. Armstrong also submits that paragraph 6 of the order of April 2, 2013 does not apply to the $100,000 he received in August of 2013 because the payment was made a year early and, therefore, he was not “entitled to receive” those funds as required by the wording of the order. The court does not accept that submission. While it is certainly true that the $100,000 was paid early, the character of the funds did not change as a result. Those funds formed part of the remaining $300,000 that Mr. Armstrong was entitled to receive as a result of the sale. He had no other entitlement to that money. He certainly would not be able to argue successfully that the $100,000 payment was made ex gratia, simply because it was paid early, and that the purchaser continued to owe him the full $300,000. The $100,000 received in August of 2013 was clearly money to which he was entitled as a result of the sale of his business. If he had returned the funds to the purchaser of the business he might have been in a better position to argue that he was not entitled to the funds – but he did not do that.

[28] Mr. Armstrong argues as well that the terms of paragraph 6 of the April 2, 2013 order are vague and not clear about who is to do what. The court does not accept that submission. Paragraph 6 is clear on its face. Mr. Armstrong was required to place or keep the $100,000 he received in trust with his solicitor pending another agreement of the parties or a court order, subject to an implied exception for money paid directly to Ms. Armstrong.

[29] Mr. Armstrong suggests as well that the Notice of Motion does not sufficiently particularize the contempt alleged. The court does not agree. The Notice of Motion provides sufficient particulars on its face. Mr. Armstrong knew that he had received proceeds from the sale after the order was made and he did not place or keep those funds in trust with a solicitor.

[30] Mr. Armstrong provided that court with various strong and binding authorities to remind the court that the onus of proof for contempt is the criminal law onus of ‘beyond a reasonable doubt’, that contempt should be used as a last resort in a family law case, and it must be used with great caution, and only in cases of deliberate and wilful disobedience of a court order. He submitted that there must be repeated instances of disobedience of a court order to ground a motion for contempt. He also submitted that Ms. Armstrong should have brought a motion for directions in this case rather than a contempt motion.

[31] The court finds, however, that the inevitable result of a motion for directions in this case would be an order requiring Mr. Armstrong to pay at least $50,000 to a solicitor to be held in trust, as already required by paragraph 6 of the existing April 2, 2013 order. In other words, directions from the court would be redundant in this case.

[32] The court recognizes that Mr. Armstrong complied with paragraph 4 of the April 2, 2013 order (by paying Ms. Armstrong $100,000 on April 8, 2013) and he has been complying with the support terms of the July 22, 2013 agreement, and he voluntarily paid support before then, and he has made other payments to benefit Ms. Armstrong and the children since separation, which is some evidence indicating that his inclination is to obey court orders in this matter rather than wilfully fail to comply. On the other hand, he failed to make the March 15, 2014 payment pursuant to the July 22, 2013 agreement and that payment would have been secured if he had complied with paragraph 6 of the April 2, 2013 order. Thus, his non-compliance, in August of 2013, with paragraph 6 of the April 2, 2013 order, put him to be in a position, in March of 2014, to not comply with the July 22, 2013 agreement.

[33] Mr. Armstrong attempts to tie the payments agreed to on July 22, 2013 to the receipt of sale funds but, having subsequently received sale funds early, argues, at the same time, that there is no connection between the receipt of those sale funds and the July 22, 2013 agreement. Further, he states that the March 15, 2014 date for payment related to the sale proceeds payout schedule, but the court finds that nothing in the sale schedule refers to March of 2014 or any date between November 15, 2013 and March 15, 2014.

[34] Although this case does not involve repeated discrete individual incidents of disobedience of a court order, it does involve continuous non-compliance with the clear term of a court order for an on-going period of more than nine months.

[35] Upon consideration of the evidence and submissions, the court finds, beyond a reasonable doubt, that despite his compliance with some aspects of the order of April 2, 2013, Mr. Armstrong did not inform his solicitor for the sale about paragraph 6 of the April 2, 2013 order because it was his intention to wilfully and deliberately disobey that term of the order and he did so.

[36] In the result, Mr. Armstrong is found in contempt of court as alleged.

[37] The parties shall contact the trial co-ordinator forthwith to arrange to attend before me for submissions as to penalty.

F. GRAHAM J.

Date: June 17, 2014