CITATION: Waxman v. Waxman, 2015 ONSC 1353

COURT FILE NO.: 33234/88

DATE: 20150302

SUPERIOR COURT OF JUSTICE - ONTARIO

BETWEEN:

MORRIS WAXMAN AND MORRISTON INVESTMENTS LIMITED

Plaintiffs

AND:

CHESTER WAXMAN, CHESTER WAXMAN, IN TRUST, CHESTERTON INVESTMENTS LIMITED, ROBERT WAXMAN, GARY WAXMAN, WARREN WAXMAN, I. WAXMAN & SONS LIMITED, GREYCLIFFE FARMS INC., ROBIX FINANCIAL CORPORATION LIMITED, CIRCUITAL CANADA INC., RKW STANDARDBRED ASSOCIATES INC., RKW STANDARDBRED MANAGEMENT INC. and GLOW METAL TRADING INC.

Defendants

BEFORE: Newbould J.

COUNSEL: Richard B. Swan and Gideon C. Forrest, for the plaintiffs

John V. Grant, for the defendant Warren Waxman

Rosemary A. Fisher, for Brenda Karen Selwyn-Waxman

David J.H. Jackson, for Isaac Waxman

HEARD: February 26, 2015

ENDORSEMENT

1This is yet another chapter in the Waxman saga. It does not yet cover the period of War and Peace. Peace has not broken out. It is more akin to Bleak House, and is getting murkier and murkier. Note that this action was commenced in 1988.

2For more than 20 years, the plaintiff Morris Waxman was engaged in a lengthy legal battle with his brother, Chester Waxman and Chester’s sons concerning the family scrap metal business, I. Waxman & Sons Limited (“IWS”). By judgment of Sanderson J. dated June 27, 2002, Morris was restored as a 50% shareholder of IWS, and IWS, Chester and his sons, including Warren Waxman, were ordered to pay damages for oppression, breaches of fiduciary duty and related matters. IWS was also ordered to pay damages to the plaintiff in a companion action, Solid Waste Reclamation Inc (“SWR”), a company owned indirectly by Morris’ sons.

3A reference ordered by Sanderson J. to quantify Morris’ entitlement to 1983-2002 profits was completed on January 4, 2007, with the referee finding that Chester and IWS were liable to Morris for approximately $38 million (net of payments received to that point), and finding that Warren was liable to Morris for approximately $5.2 million. The reference report was confirmed by Sanderson J., with additional interest, and upheld on appeal to the Court of Appeal. Additional amounts were determined for costs, with the result that Warren was held liable to Morris for approximately $7.4 million plus interest.

4To date, Warren has paid Morris nothing on the judgment, although his wife Karen has paid some $400,000 to Morris to settle fraudulent conveyance proceedings.

5After the trial judgment, Morris was obliged to commence a further post-judgment oppression action in December 2002 to address post-judgment oppressive conduct by Chester, and in certain cases his sons, relating to the operation of IWS. Despite giving an undertaking to operate the company in the ordinary course of business, Chester withdrew some $6 million from IWS in the two months following the trial judgment. Justice Farley granted a number of injunctive remedies, including a November 2004 Mareva injunction against Chester and his sons, including Warren, which was incorporated into a final 2005 judgment.

6Warren has also taken steps to defeat Morris’ attempts to collect on his judgments against Warren and to put his assets beyond Morris’ reach:

(a) On February 13, 2004, while the Court of Appeal decision in the main litigation was under reserve and knowing that he could not pay Morris if he lost the appeal, Warren transferred his one-half interest in his family residence to his wife. A fraudulent conveyance proceeding against Warren and his wife in respect of this transfer was settled on the first day of the trial of that proceeding.

(b) Warren owned 100 percent of the common shares of a company called Browax Holdings Inc. Browax in turns owns 50 percent of Glow Metal Trading Inc.. Unbeknownst to Morris until Warren’s examination in-aid-of-execution on May 9, 2005, on or about March 18, 2003, nine months after the release of Sanderson J.’s trial judgments, and shortly before the hearing by the Court of Appeal, Warren transferred all of his common shares of Browax to a trust he had established for his children. The fraudulent conveyance application in respect of this transaction was settled on the basis that the recipients consented to an order setting aside the transfer and the payment of $150,000.

(c) Unbeknownst to Morris, and not disclosed by Warren in his 2005 examination, Warren has been a shareholder, officer and director of 1340923 Ontario Inc. since 1999. In or about November 2006, in breach of the Mareva injunction contained in the September 1, 2005 judgment of Farley J., Warren transferred some or all of his shares in 1340923 to his children. In or about June 2007, 1340923 acquired the property on which Glow Metal Trading and WIS carried on business, known municipally as 143 Adams Blvd., Brantford for approximately $1.9 million.

(d) In or about December 2009 and January 2010, Warren led Nesbitt Burns to believe that Justice Farley’s Mareva injunction which had been served on Nesbitt Burns was no longer in effect, by representing that nothing had ever come of the court order and that there had been no other action or court order respecting those accounts. As a result, Warren convinced Nesbitt Burns to release approximately $34,000 to him. After Morris found out about this breach of court orders and advised Nesbitt Burns, Nesbitt Burns requested that Warren repay the money to Nesbitt Burns, which he did. In answer to undertakings from his May 2012 examination, Warren has advised that his wife transferred $34,000 into his account and he then returned the funds to Nesbitt Burns, which paid them over to Morris pursuant to a garnishment.

(e) Warren, and later his son Aaron, have incorporated companies under the name Waxtek which Morris believes have been used to disguise and shelter income. An Ontario company called Waxtek Metals Inc. was incorporated by Warren while he was employed at IWS and earned revenues in the millions of dollars in business with a Michigan company called Textron, which revenue Morris asserts could and should have been earned by IWS. IWS through Warren facilitated the sale of Waxtek scrap to third parties with whom IWS, and not Waxtek, had a brokerage account. Warren claimed on his judgment debtor examination in May 2012, as he had claimed in a 2005 judgment debtor examination, that Waxtek stopped doing business with Textron in 2004 and further said that he lost the customers to a competitor named Hog Brothers. However, later in the May 2012 examination, when confronted with documents Morris discovered in 2012, Warren conceded that he caused Waxtek to sue a Textron subsidiary and assert that they continued doing business through at least late 2005, and that Warren continued earning income from Waxtek to 2006. Moreover, Warren further admitted that a second Waxtek was incorporated in Michigan in 2004 by his son Aaron, with the similar name Waxtek Metals Group Inc. and picked up the business Waxtek Metals Inc. had been doing with Textron.

7Included in the issues raised on this motion are the ownership of coins once owned by Warren, racehorses said to be owned by his wife or son Isaac, a Florida condo and an expensive McLaren Mercedes automobile.

Coins

8When originally examined in aid of execution in May 2005, Warren testified that he bought collectible coins starting in about 1993 and that he “still had quite a few” of those coins. He testified that the coins were kept in a safety deposit box at the CIBC’s Westdale branch in Hamilton, and that he did not know if the value was “closer to $5,000 or $100,000”. Warren also testified at his 2005 examination that he did not have a listing of the coins, had not had his collection appraised, that he had receipts for some of the coins, and that he had sold off quite a few coins to pay off gambling debts.

9Several years after that examination, Morris came into possession of IWS documents which contained listings of certain of Warren’s coins, with corresponding values. The most recent of those lists, likely dating from about 1999 or 2000 and prepared by Warren, reflected coins that at that time were in his view worth some $2.2 million, including individual coins he valued in the tens of thousands of dollars and one coin he valued at $120,000. On his subsequent 2012 examination, Warren acknowledged that he prepared these lists and estimated the information as to value.

10Some of the coins on these lists, and/or contained on invoices for coins purchased by Warren produced in answer to his 2005 examination, were very similar to or the same as coins sold by Heritage Auctions at an auction held at the Waldorf Astoria Hotel in New York on January 3, 2010 in something called the Canadiana Collection, all of which, accordingly to Heritage’s promotional information, came from one consignor. Warren refused to provide a consent and direction to Heritage Auctions to advise whether any coins sold by Heritage Auctions, including in the Canadiana Collection, were Warren's coins or those of a member of Warren’s family, or whether any proceeds of sale were paid to Warren or a member of Warren's family.

11One coin on Warren’s list was a 1936 “dot” Canadian quarter, which he purchased for $37,500 and valued on the list at $50,000. The coin was graded at “Specimen 68”. A 1936 “dot” Canadian quarter, identified as one of only five known Specimen 68 “dot” quarters, and only of two ever graded by a leading coin grading service (PCGS) at Specimen 68, was sold as part of the Canadiana Collection at the Waldorf auction for $80,500. On his 2012 examination, Warren denied that this was his coin that was sold in the Heritage auction and said that he thought he still had that coin and that it would be in his CIBC Westdale safety deposit box. It is clear that no such coin was in his safety deposit box.

12Comparing Warren’s list to the Heritage Canadiana Collection results shows numerous examples of rare coins that appear on both lists:

a. A 1947 BL Silver Dollar (valued on Warren’s list at $900) also appears at lot #20346 (sold for $5,462.50);

b. Sovereign 1909-C MS 65 (valued on Warren’s list at $7,000) also appears at lot #20351 (sold for $18,400). The coin is identified as being “Ex Campbell”, i.e., sold by Sandy Campbell of Halifax, someone from whom Warren bought many of his coins;

c. Sovereign 1913-C MS 64 (valued on Warren’s list at $6,000) also appears at lot #20354 (sold for $5,318.75). PCGS indicates that there are only 20 such coins in that state. Warren testified that he was not sure if he still had that coin; and

d. Canadian Gold 1912 $5.00 MS 65 (valued on Warren’s list at $12,500) also appears at lot #20360 (sold for $2,645). The coin is identified as being “Ex Campbell”. PCGS indicates that there are only 11 such coins in that state. Warren indicated that he believed he still had the coin.

13On his 2012 examination, Warren testified that the majority of the coins on the list were still in his possession and were in his CIBC Westdale safety deposit box. He denied that any of the coins in the Canadiana Collection were his coins. The 2012 examination was adjourned on consent so that the parties could examine the coins in his CIBC Westdale safety deposit box. Following that examination, arrangements were made for a professional numismatist to examine these coins. The expert appraised the entirety of Warren’s coins at just under $12,000, far less than the $2.2 million value on the list that Warren had prepared.

14At his 2013 examination, Warren admitted that he was probably at the Waldorf Hotel in New York on January 3, 2010, the date and location of the Heritage auction, because he went to New York with his son Isaac to view the coins and visit New York. He continued to deny that any of the coins at the auction were his. On this motion, Warren now says that he was not present on the day of the auction, but was there earlier for the coin show. However, Warren’s son Isaac admitted on cross-examination that Warren, Karen, Isaac himself and his wife were all at the auction. Isaac obtained a job with Heritage in 2009 and was still working there at the time of the auction in January, 2010.

Racehorses

15On his 2005 examination, Warren testified that, although he had owned horses in the five years previous to his examination, he did not own horses as of that date. He further testified that none of his horses were transferred to family members. Morris is concerned that Warren’s wife Karen is holding valuable racehorses for Warren in her name.

16Warren’s wife Karen is a family physician. Based on her tax returns, her net income after taxes was $256,623 in 2006, $157,145 in 2007, $161,264 in 2009 and $227,616 in 2011. Her 2010 return is apparently missing.

17Isaac started buying horses in his name in 2004 around the time of the judgment against his father Warren. Karen started purchasing racehorses in her name in 2007 after the reference established the amount of the judgment against Warren. Some of Isaac’s horses are or were co-owned with Karen. In 2009, Karen purchased racehorses at auctions for several hundreds of thousands of dollars. Warren said in 2013 that he did not recall whether he was involved in any of these purchases. Karen’s affidavit demonstrated that of the horses she had records of purchase for, which were not all of them, $458,265 was spent by her in 2009. Further information produced in an answer to undertaking, without any backup, took the number to $629,000.

18In 2010, Karen purchased racehorses for at least $1,131,000. On his 2013 examination, when asked if he was involved in any of those purchases, Warren said he was not going to comment on those purchases and when asked if he negotiated the purchases said that he did not recall. He admitted that he attended many of the auctions in which horses were bought in her name but would not answer whether Karen was at the auctions. He refused to advise as to the source of the funds to buy the horses.

19On his cross-examination on his affidavit, Isaac said that on some occasions when horses were purchased for cash, his father Warren showed up with the cash to pay for them. He said he could not recall which horses they were.

20Karen has provided lists of horses she said she purchased, but has not produced back-up documentation for a number of them. Documentation for some purchases in her name were signed by Warren and not by her and on others they contained Warren’s e-mail address rather than Karen’s. Karen has filed some evidence showing that the funds to purchase certain of these horses came from her bank account. However, she has produced no evidence at all as to where the funds came from to enable the purchases, such as producing the bank statements or other evidence showing the source of the deposits into her account that funded these purchases.

21When asked if he had given any instructions to a horse agent in respect of horse purchases in the last five years, Warren advised that the only instructions the agent would have received would have been instructions from Karen relayed through Warren. Warren also said that it could be that he had spoken to various particular people about horse purchases and training of horses in his wife’s name.

22On his 2013 examination, Warren testified that he did not have a power of attorney for his any of his wife’s accounts, but did have a power of attorney ‘in case one of us goes dingy’. He testified that he had not used it the last five years. That power of attorney has now been produced. It bears the same date as the incorporation of the Waxtek Michigan company, which is May 25, 2004, less than one month after the Ontario Court of Appeal had dismissed the appeal of Sanderson J.’s trial judgment. It is admitted that he has signing authority over Karen’s bank accounts.

23Warren refused to provide the bills of sale for purchases and sales of horses by Karen, or the source of the funds for the purchases, or the destination of the funds from the sale of the horses.

24Although Karen professes to have a passion for horses, on her cross-examination she was unable to describe a single horse she had owned, identify who she bought them from, or how much she paid for them. One was for a quarter of a million dollars and six were from New Zealand in 2010 for $100,000 each. She could not remember the prices. She said Warren or Isaac arranged for purchases.

Other assets-a McLaren Mercedes and a Florida condominium

25Warren drives an exotic McLaren Mercedes sports car. On his 2012 examination, he indicated that he did not recall who was paying for the car which is apparently worth some $500,000, but stated that it is under his wife’s name. Warren refused to advise when the car was purchased or leased, or how Karen could afford to purchase and own a $500,000 car on her income. Warren also apparently drives a Lexus that Karen leases, and he sometimes drives her Infiniti.

26In her affidavit filed on this motion, Karen said that she paid the down payment on the McLaren of approximately $67,000 and that the car is still leased by her. She said that she used funds from the sale of the building in which her medical practice was located to pay the initial amount. She produced no documents to support this. On cross-examination, Karen confirmed that she has the lease documents from when she leased the car, but refused to produce them. The car has since been re-leased, and Karen has refused to produce those documents as well. The lease payment was approximately $5,000 per month under the original lease, and perhaps $3,000 per month under the re-lease.

27Warren admitted on his 2012 examination that his wife owns a condominium in Florida. The condo was purchased for over $1 million in 2008. Warren refused to answer questions as to where the money came from to buy the condo or where the money comes from to pay the mortgage. Karen deposed that 75% of the purchase price on the condominium was financed, and the down payment was financed through the proceeds of the sale of the building her medical practice was located in. In answer to an undertaking, Karen advised that her share of the proceeds was $404,000, but did not provide any documentary evidence to support this, nor did she advise what taxes, if any, she had to pay on this gain. On cross-examination, Karen advised that the monthly mortgage payments on the condo are approximately $6,000.

Relief sought

(i) Undertakings and refusals

28Morris Waxman has moved for an order requiring Warren Waxman to provide answers to undertakings not fulfilled and questions refused on his examination in aid of execution. At the hearing of this motion, I made orders with respect to them. I ordered that all of the questions listed in sections A to F of the consolidated list and all of the questions except for the last three in the miscellaneous section are to be answered. I ordered that with respect to documents requested, Warren Waxman is to make his best efforts to produce what he has in his possession, power or control and then to re-attend to be further examined in aid of execution. I also ordered that he pay the account of his accountant referred to in questions 1088 to 1092 and 1180. With respect to the order requiring records of horse dealings of Isaac, while I refused to order the plaintiffs to now pay for any expenses incurred by Isaac, I ordered that it was without prejudice to the right of Isaac to come back and request an order that any expenses he incurred be paid.

29I also ordered that Warren, his wife Karen and his son Isaac are to sign an authorization to Heritage Auctions requesting information regarding the coin sales.

(ii) Rule 60.18(6) examinations of Karen and Isaac

30The plaintiffs seek orders under rule 60.18(6) that Warren’s wife Karen and his son Isaac attend for an examination in respect of Warren’s assets, income, property and any other matter pertinent to the enforcement of Morris’ judgments against Warren. Both Karen and Isaac filed affidavits on this motion and were cross-examined. The plaintiffs say however, that neither Karen or Isaac were forthcoming and that they should be subject to a more complete examination in aid.

31Rule 60.18(6) provides:

(6) Where any difficulty arises concerning the enforcement of an order, the court may,

(a) make an order for the examination of any person who the court is satisfied may have knowledge of the matters set out in subrule (2); and

(b) make such order for the examination of any other person as is just.

32This rule is broad. If there is any difficulty enforcing an order, a court can make an order under (a) for the examination of any person who may have knowledge of the matters set out in subrule (2) and under (b) make an order of any other person as is just. Subrule (2) provides:

(2) A creditor may examine the debtor in relation to,

(a) the reason for nonpayment or nonperformance of the order;

(b) the debtor’s income and property;

(c) the debts owed to and by the debtor;

(d) the disposal the debtor has made of any property either before or after the making of the order;

(e) the debtor’s present, past and future means to satisfy the order;

(f) whether the debtor intends to obey the order or has any reason for not doing so; and

(g) any other matter pertinent to the enforcement of the order.

33There are a number of cases dealing with the rule and its predecessor. The current state of the law was expressed by Pepall J. (as she then was) in this very Waxman v. Waxman case in which she ordered that Robert Waxman’s son Daniel and his wife Debra be examined in aid of execution of the judgment against Robert Waxman. She stated:

4There are a number of cases that have addressed this provision and its predecessor. In CIBC v. Sutton (1981), 1981 CanLII 1886 (ON CA), 34 O.R. (2d) 482, the Court of Appeal examined the predecessor provision, Rule 591. The Court noted that caution should be exercised such that strangers to the litigation are not unduly harassed by examinations. The Court stated that the relatives of a judgment debtor or a stranger should not be ordered to be examined unless the judgment creditor has exhausted all means available before resorting to a motion of this kind. The Court went on to say, however, that the wording of the Rule left it to the discretion of the motions judge. The applicable rule was subsequently amended. Unlike its predecessor, it provided for 2 avenues whereby an order for examination could be made. It also listed the many subjects which the judgment creditor could examine. Lastly, although available, it did not impose the aforementioned restriction found in CIBC v. Sutton.

5In the 1995 decision of Lauzier v. Ranger, [1995] O.J. No. 1943, Charron J. addressed R. 60.18(6) and expressly rejected the notion that a creditor had to exhaust all other means of obtaining the information from the debtor before a third party examination could be made. She did not refer to CIBC v. Sutton directly. In Blastco Corp. v. Pittman Environmental Technologies Inc., [2001] O.J. No. 1519, Quinn J. determined that “means” are those that one would reasonably be expected to pursue in the circumstances of the case. He also noted that the difficulty referred to in the Rule must be real and not expediency in disguise. In my view, this interpretation of the applicable law is sound.

34In that case, Justice Pepall ordered the examinations under both subrule (2) (a) and (b).

35In my view, it is quite clear that there has been difficulty in enforcing the judgment against Warren Waxman. In spite of years of efforts to collect from him, he has paid nothing and his wife has paid a small fraction because of fraudulent conveyances.

36There is little doubt that Karen may have knowledge of matters set out in subrule (2). She was at the coin auction. She has purchased at least $1.3 million in racehorses, the most minimal details of which she purports not to recall. The evidence indicates that monthly expenses of at least $4,000 have to be paid for the care of the horses. She has acquired an expensive condominium in Florida for $1 million that has monthly expenses of $6,000 and an expensive McLaren Mercedes worth some $500,000. Her income as a family physician would certainly be unlikely to support all of these things. Although she says she used money from the sale of the building to pay for the down payment on the condo, she has provided no documentation to support that. She has not provided adequate documentation about her bank accounts to establish where money came from to acquire assets.

37Karen has refused to produce lease documents for the McLaren Mercedes. Although she said in her affidavit that she leased the car, since at least 2009 the lease payments were not being made by Karen but by a scrap company called Electro-Shred, of which Karen owns 50% and at which Warren works for $80,000 per year. It is not clear that Electro-Shred has made the lease payments since the beginning of the lease because Karen took that question under advisement and did not answer it. Karen said she paid $140,000 for her interest in Electro-Shred but has not disclosed the source of the funds.

38The refusal by Warren to provide information regarding Karen’s assets has not helped the matter.

39I am quite satisfied that Karen may have knowledge of the matters set out in subrule (2) of rule 60.18(6) and also that it is just that she be examined under the rule. I order that she be examined under the rule and that she produce all relevant documentation that she has in her power, possession or control.

40Regarding Isaac, he may well have information, particularly with respect to the horses owned in Karen’s name and with respect to the coins sold at the Heritage auction. Isaac assisted Karen in the purchase of some of the horses and co-owned some of them with her. He trained the horses. He was employed by Heritage and attended the auction with his father and Karen.

41Mr. Jackson urges that no order be made at this time permitting a rule 60.18(6) examination of Isaac. He said Isaac is a 27 year old who runs a horse business and should not be involved in this matter. I note, however, that Isaac swore an affidavit on behalf of his father on this motion and in my review of his cross-examination was not entirely forthcoming, with a “memory” problem.

42Mr. Jackson says that it is premature to examine Isaac and that it should at least await information from Heritage Auction regarding the coins and the production of the horse records which I have ordered Warren to use his best efforts to obtain from Isaac. I take it from this that Isaac will make full production of those records.

43In my view, there are clear grounds to make an order that Isaac be examined under rule 60.18(6), and I make that order now. However, the examination is to await receipt of a response from Heritage Auctions and to await production of the records from Isaac about his horses. Once that has occurred, the plaintiffs will be entitled to examine Isaac under the order and he will be required to produce all relevant documents in his possession, power or control that he has not already produced. The examination may or may not be required, but I leave that up to counsel for the plaintiffs.

Conclusion

44An order is to go regarding the refusals and undertakings in accordance with the orders made during the hearing and repeated in these reasons. An order is to go under rule 60.18(6) for the examination of Karen and Isaac in accordance with these reasons.

45The plaintiffs are entitled to their costs. If costs cannot be agreed, brief written cost submissions with a proper cost outline may be made within 10 days and brief written reply submissions may be made within a further 10 days.

Newbould J.