Kovacs and Thrasher, 2015 ONSC 2793

SUPERIOR COURT OF JUSTICE - ONTARIO

CITATION: Kovacs and Thrasher, 2015 ONSC 2793

COURT FILE NO.: 29870/07 (Milton)

DATE: 2015-05-01

RE: MARIANNE KOVACS and DEAN THRASHER

BEFORE: FRAGOMENI, J.

COUNSEL: S. Heeley, for the Applicant

Dean Thrasher, in person for the Respondent

E N D O R S E M E N T

1The Applicant, Marianne Kovacs (Thrasher) (the wife) seeks the

following relief:

1. That the Respondent Dean Thrasher, (the husband) provide the disclosure set out in her Notice of Motion dated March 10, 2015.

2. That the husband pay to the wife the sum of $14,125.00 for interim disbursements for the purpose of obtaining an independent expert assessment of his income for child and spousal support purposes.

3. That the husband pay interim costs to the wife in the sum of $15,000.00 for legal fees.

4. In the alternative that the interim disbursements and interim legal fees be provided to the wife by way of a loan with terms of repayment either agreed to or by way of a Court order.

5. Costs of this motion.

2The husband seeks the following relief:

1. Disclosure from the wife as set out at paragraph 1 of his Notice of Motion dated April 16, 2015.

2. Disclosure from Mr. Joe Lagana, who the husband alleges is the wife’s common-law partner.

Husband's Motion

3I will deal firstly with the husband’s motion.

4With respect to Mr. Lagana, he was not served with the Motion and therefore he has not been afforded an opportunity to serve and file responding material. As a result this aspect of the husband’s motion is adjourned without a date so that Mr. Lagana can be served and given an opportunity to retain and instruct counsel and file and serve responding material. Rule 20(9) of the Family Law Rules states:

(9) The court may make an order under this rule affecting a non-party only if the non-party has been served with the notice of motion, a summons to witness (Form 23) and the witness fee required by subrule 23 (4), all by special service (subrules 6 (3) and (4)). O. Reg. 114/99, r. 20 (9); O. Reg. 322/13, s. 12 (2).

5With respect to the disclosure from the wife, she has no issue providing all of this information.

6With respect to the information in the possession of third parties she will make her best efforts in obtaining that information from them.

7An order shall issue therefore for the disclosure relief requested by the husband at paragraph 1(a) to (i) of his Notice of Motion dated April 16, 2015.

Applicant Wife’s Motion

Disclosure Issue:

Applicant Wife’s Motion

8The wife filed an Affidavit by her accountant, Mr. Michael Carnegie setting out the further disclosure he requires in order to prepare an analysis of Mr. Thrasher’s income available for Child and Spousal Support purposes.

9At paragraphs 5 to 13 he sets out the following:

5. I require full and complete copies of all of Mr. Thrasher’s personal income tax returns, along with all schedules and reporting slips for the years from 2010 through 2014 inclusive.

6. I require additional particulars for each personal income tax return as follows:

a) For all Statements of Business or Professional Activities, Statements of Commission Income and Statements of Rental Income, etc., I require identification and supporting documentation of al revenue earned (including the nature of and value of all payments in kind or bartered) and expenses deducted (including the nature of an value of all payments in kind or bartered);

b) For all automobile expenses, particulars of the amounts claimed and a copy of the mileage log used to determine the proportion of business and personal use as a percentage of the total kilometers driven:

c) For all home-office expenses, particulars of the amounts claimed and details of the number of rooms occupied solely for business purposes, the square footage of each, and the square footage of the entire dwelling;

d) For all carrying charges, the nature of the items deducted and an explanation of how each item (interest expenses, for instance) is connected to investments made to produce business, investment or rental income.

7. From the information I have reviewed, it app0ears that Mr. Thrasher has an ownership interest in various corporate entities. My understanding of the Child Support Guidelines is that annual income for support purposes may include all or part of the pre-tax income of a corporation in which the spouse is a shareholder, director or officer. To make an assessment of the amount, if any, of the pre-tax corporate income that may be included in Mr. Thrasher’s income, I require the following information:

7699549 Canada Corp.

8. Based on my review of the material provided to me, it appears as though Mr. Thrasher has an ownership interest in 7699549 Canada Corp. The information that I require, and do not have, to review and analyze what, if any, income is available to Mr. Thrasher through is ownership interest in 7699549 Canada Corp. is:

a) Copies of, or access to, the corporate minute book to establish the nature and percentage of ownership interest;

b) Externally prepared financial statements along with any communication prepared by the External accounting firm for the five fiscal years ending December 31, 2010 through 2014;

c) Copies of the corporate income tax returns for each of the five fiscal years ending December 31, 2010 through 2012 (the company was dissolved at the end of the 2013 year).

1211519 Ontario Ltd. and Level 4 Capital Corp.

9. Based on my review of the material provided to me, it appears as though Mr. Thrasher has an ownership interest in a company referred to by two different names over time. The two names are 1211519 Ontario Ltd. and level 4 Capital Corp. To determine the income that is available to Mr. Thrasher through his ownership interest in this company, it is important that we have additional information to review and analyze, including the following:

a) Copies of, or access to, the corporate minute book to establish the nature and percentage of ownership interest;

b) Externally prepared financial statements along with any communication prepared by the External accounting firm for the five fiscal years ending March 31, 2010; March 31, 2014; and March 31, 2015 when available.

c) Copies of the corporate income tax returns for each of the five fiscal years ending March 31, 2010; March, 2014; and March, 2015 when available.

Prime 1 Construction Services Corp. o/a Park Lane Farms

10. Based on my review of the material provided to me, it appears as though Mr. Thrasher is a director, officer or shareholder of this company. Therefore, it is important that we have additional information to review and analyze, including the following:

a) Copies of, or access to, the corporate minute book to establish the nature and percentage of ownership interest and/or office held by Mr. Thrasher;

b) Externally prepared financial statements along with any communication prepared by the External accounting firm for the five fiscal years from 2010 through 2014, and 2015 when available;

c) Copies of the corporate income tax returns for each of the five fiscal years from 2010 through 2014 and 2015 when available.

d) Copies of, or access to, all documents related to the sale of the company to Tweed Marijuana in 2014.

11. To fully review and analyze all of the results of operations of the corporations in which Mr. Thrasher has an ownership interest, additional information beyond what is listed above is also required, specifically:

a) A list of any other corporations in which Mr. Thrasher is a director, officer or shareholder;

b) For each additional corporation, if any:

i. Copies of, or access to, the corporate minute book to establish the nature and percentage of ownership interest and/or office held by Mr. Thrasher;

ii. Externally prepared financial statements along with any communication prepared by the External accounting firm for the five fiscal years from 2010 through 2014, and 2015 when available;

iii. Copies of the corporate income tax returns for each of the five fiscal years from 2010 through 2014 and 2015 when available.

c) For each company under review, a copy of the year-end trial balance and adjusting journal entries for each of the fiscal years under review;

d) For each company under review, a copy of the year-end trial balance and adjusting journal entries for each of the fiscal years under review;

e) For each company under review, copies of all T4 slips for remuneration paid to all directors, officers, shareholders and people related to the directors, officers and shareholders for each fiscal year under review;

f) For each company under review, information about the nature and amount of all unusual or non-recurring transactions specifically identifying the quantum and frequency, for all years under review.

12. Based on my review of the material provided, it is clear that Mr. Thrasher, and/or the corporations in which he is a director, officer, or shareholder, receives payments for services in forms other than cash or cash equivalents. To ascertain the value of those non-cash payments, I require the following:

a) Information about all amounts received by Mr. Thrasher or any company in which he has an interest via payments in kind (for example, stock, warrants, options or other securities) and barter during each year;

b) Information about all payments made via payments in kind made by Mr. Thrasher or any company in which he has an interest (for example, stock, warrants, options or other securities) and barter during each year;

c) An explanation of the accounting policies used to account for amounts received and amounts paid by way of payment in kind instead of cash.

13. Based on the information I have reviewed, it appears as though Mr. Thrasher has received compensation directly for services rendered to certain businesses. Therefore, to make a proper assessment of his income for support purposes, I require the following information:

a) Information about all amounts received from Security Devices International Inc. (“SDI”) in cash or in kind during all years from 2010 to present;

b) Information about how Mr. Thrasher and/or level 4 Capita Corp. came to acquire the 400,000/800,000 warrants and 1,300,000/2,600,000 common shares of SDI sited in the Proxy Statement contained in Exhibit “M” to Ms. Kovacs’ affidavit;

c) An explanation, along with supporting documentation, of where the $120,000.00 of cash remuneration paid to Mr. Thrasher by SDI in 2013 (sited in the Proxy Statement contained in Exhibit “M” to Ms. Kovacs’ affidavit) is recorded and/or reported, if not in his 2013 person income-tax return.

10In addition to that disclosure, the wife also filed an affidavit of Ms. Jessica Earl, legal assistant at her counsel’s law firm. At Exhibit B of her affidavit she sets out a letter dated March 26, 2015 from her counsel to Mr. Thrasher. On page 2 of that letter her counsel Sean Heeley sets the following at paragraph 5:

In your correspondence you have for the first time disclosed having an interest in four additional companies, specifically Kombat Cooper Inc., 2412457 Ontario Corp., 2447362 Ontario Corp. and Cambrian Corp. We require the following disclosure for those companies:

a) Copies of, or access to, the corporate minute book;

b) Copies of all externally produced financial statements, along with any communication prepared by the external accounting firm for the fiscal years of 2010, 2011, 2012, 2013 and 2014;

c) Copies of all T2 Corporate Tax Returns for the years 2010, 2011, 2012, 2013, and 2014;

d) Copies of all T4 slips for remuneration paid to all directors, officers, shareholders and people related to the directors, officers and shareholders for the years 2010, 2011, 2012, 2013 and 2014;

e) Details of all unusual or non-recurring transactions, including the quantum and frequency for the years 2010, 2011, 2012, 2013 and 2014.

11I have reviewed and considered the Affidavits filed by the parties in support of their positions.

12In support of her position the wife relies on the following Affidavits and supporting documentation attached to those affidavits:

1. Affidavit of the wife sworn January 23, 2015.

2. Affidavit of the wife sworn March 10, 2015.

3. Financial Statement of the wife sworn March 10, 2015.

4. Affidavit of Michael Carnegie sworn March 10, 2015.

5. Affidavit of Jessica Earl sworn April 15, 2015.

13In support of his position the husband relies on the following Affidavits and supporting documentation attached hereto:

1. Affidavit of the husband sworn April 16, 2015.

2. Affidavit of the husband sworn April 17, 2015.

14I note at the outset that there is a considerable amount of information contained in this evidentiary record and it is difficult to summarize it in these reasons. For example, the wife’s Affidavit of January 23, 2015 is 37 paragraphs in length and has 19 exhibits attached to it. The husband’s Affidavit of April 16, 2015 is 29 paragraphs with 13 exhibits and his Affidavit of April 17, 2015 is 37 paragraphs with 14 exhibits.

15A great deal of the evidentiary record deals with financial information and corporate structures, all relevant to the wife’s position that she requires the requested disclosure in order for her expert to prepare any assessment of the husband’s income.

16The following paragraphs from the wife’s January 23, 2015 are illustrative of the kind of information that is in play:

11. The Respondent has a history of failing to make full and frank disclosure regarding corporations that he has an interest in. For example, during the initial Application the Respondent failed to disclose his interest in 1211519 Ontario Ltd., which subsequently became Level 4 Capital Corporation. Attached hereto and marked as Exhibit "E" to this my Affidavit is a copy of the Net Family Property Statement, which was made a schedule to the Final Order. Attached hereto and marked as Exhibit “F” to this my Affidavit is information confirming the Respondent’s interest in 1211519 Ontario Inc. at the time of those proceedings.

12. The Respondent and his companies are engaged in the venture capital business. The Respondent or his companies often take compensation for the Respondent’s consulting services from other companies in the form of stock instead of salary.

13. A related news release dated February 26, 2013, which is attached hereto and marked as Exhibit “I” to this my Affidavit, shows that the Respondent, Dean Thrasher, is the Chief Operating Officer and has a total annual compensation of $120,000.00 per year. Nothing that the Respondent has produced shows that income.

14. In a preliminary prospectus dated November 4, 2010, SDI has stated that it entered into a Consulting and Professional Services Agreement with Level 4 Capital Corp. It values the services provided at $360,000.00 and states that in lieu of fees, Level 4 was paid with 1,800,000 common shares accepted at $0.20 per share. Attached hereto and marked as Exhibit “J” to this my Affidavit is the first ten pages of the document referred to and the specific paragraph dealing with the payment of consulting fees to Level 4 Capital Corporation.

15. Despite Level 4 Capital Corp. having entered into an agreement with SDI prior to November of 2010, the Respondent has maintained that Level 4 Capital Corp. did not come into existence until 121151 Ontario Ltd. was changed to Level 4 Capital Corp. by Articles of Amendment dated May 12, 2011, a copy of which is attached hereto and marked Exhibit “K” to this my Affidavit.

16. This is not the only time that the Respondent has used this company to provide services to another company that is seeking private placement financing. Attached hereto and marked as Exhibit “L” to this my Affidavit is a copy of the TSX Venture Exchange Bulletin dated April 17, 2012 whereby Pan Terra Industries Inc. published its agreement to pay Level 4 Capital Corp. a finders fee in the amount of $500,000.00 by way of an issuing of common shares deemed to have a price of $0.50 per share.

17. Attached hereto and marked Exhibit “M” to this my Affidavit are pages 14, 17, 18, 19, 20 and 21 of the Proxy Statement, which confirms the following:

a) the Respondent is the Chief Operating Officer of SDI;

b) the Respondent is a director of SDI;

c) In 2012 the Respondent was compensated for his role as the COO in the amount of $170,074.00;

d) For 2013 the Respondent was compensated for his role as the COO in the amount of $120,000.00;

e) There is a consulting agreement between SDI and Level 4 Capital Corp. for a two year period at $20,000.00 per month which can be taken as cash or as stock;

f) The Respondent owns 400,000.00 warrants with an exercise price of $0.13 and expiration date of January, 2016;

g) Level 4 Capital Corporation owns 2,600,000 common stock;

h) The Respondent personally owns 1,300,000 common stock.

17In her March 10, 2015 Affidavit the wife sets out the following at paragraph 5:

5. The content of the document explains some aspects of the Respondent’s compensation from SDI. The document confirms the following:

a) Effective October 1, 2014, SDI executed a renewal agreement with a company in which the chief operating officer, Dean Thrasher has an interest in for a period which expires on December 31, 2017 for services rendered. The total consulting fees are estimated to be $864,000.00 for the three (3) year period. The company may also accept common shares in lieu of cash. As of November 30, 2014, the company has not exercised its right to accept this compensation in shares.

b) Dean Thrasher, the Respondent, is currently the director, secretary and chief operating officer of SDI and was appointed as a director on November 26, 2013.

c) Dean Thrasher, the Respondent, has been the chief operating officer of SDI since October of 2010.

d) Dean Thrasher, the Respondent, as chief operating officer only was awarded total compensation of $228,339.00 in 2014; $120,000.00 in 2013; and $170,074.00 in 2012.

e) Level 4 Capital Corp., a company in which the Respondent owns a 50% interest, was issued 800,000 options in 2014 and 800,000 compensation warrants in 2012. The Respondent is entitled to 50% of those options and warrants.

f) SDI entered into a consulting agreement effective October 4, 2012 with Level 4 Capital Corp. which ended September 30, 2014. SDI has renewed that agreement which now ends December 31, 2017. Level 4 Capital Corp.’s remuneration for the first period was $20,000.00 per month and was increased to $24,000.00 per month commencing October 1, 2014. At the discretion of Level 4 Capital Corp., it may take remuneration in the form of cash or in common shares.

g) As a director, the Respondent was also entitled to compensation from SDI. In 2014, director’s were not paid cash but were issued options.

h) The Respondent through Level 4 Capital Corp. for the year ending November 30, 2014 was issued 115,446 and 112,893 options or warrants.

i) Since the inception of SDI and through to November 30, 2014, the Respondent through Level 4 Capital Corp. held 400,000 exercisable options at an exercised price of $0.36 per option with an expiration date of September 10, 2019.

j) In addition to those options, the Respondent through Level 4 Capital Corp. has been issued 800,000 warrants at an exercised price of $0.13 per warrant with an expiration dated January 4, 2016.

k) In addition, the Respondent through Level 4 Capital Corp. owns 1,800,000 common shares of SDI, 50% of which are beneficially owned by the Respondent.

18In his Affidavit sworn April 17, 2015 the husband responds to the wife’s Affidavit of January 23, 2015. At paragraph 10, 11, 16 & 19 he sets out the following:

10. See Exhibit “F” detailing that the Respondent has had one source of income from 2010 to 2013 (Seucirty Devices International Inc. “SDI”). This letter along with a flowchart explains that indeed the Respondent has only had the single income. The letter is from the Chartered Accounting firm that produces and files the Respondent’s tax returns, as well as Level 4 Capital Corp’s financial statements, all of which have been supplied more than once to the Respondent’s counsels for the years 2010-2013.

11. Section 11 – The company 1211519 Ontario Limited was created on December 3, 1996 (see Exhibit “G”).

This same question in Section 11 has come up several times over the past 8 years in court. Rachael Pulis of Snelius Redfearn LLP in Burlington, ON was the Applicant’s second last lawyer of record. This company was one of the final items and can be found in the Continuing Record, that Ms. Pulis questioned prior to Justice Coats’ final Order. Both Ms. Pulis and Justice Coats were satisfied with the disclosure presented and that it was an oversight on my part to not include this numbered company in the Net Family Property Statement, rated at a zero value. This company has never had a bank account, revenue, assets or operational activity until it became Level 4 Capital Corp. in 2010. The Applicant’s counsel is aware of these facts.

16. Section 18 of the Applicant’s affidavit of January 23, 2015, talks of Pan Terra Industries Inc. This topic was brought up and exhausted at the parties Dispute Resolution on November 8, 2013. Richard Skibinski (the Applicant’s counsel at that time – of Szpiech, Ellis, Skibinski, Shipton) was satisfied with disclosure supplied and is part of the Continuing Record regarding this company. The Respondent’s business partner in Level 4 Capital operates in the mining sector at times. Pan Terra at the time and presently, owns mining assets, and is a public company. For services that the Respondent’s business partner executed, he was paid a finder’s fee in shares. The Respondent does not own any of these shares in question. This was explained to Mr. Skibinski in November 2013 in detail, and a letter form Pan Terra (Kombat Copper) was supplied.

17. Sections 23, 24, and 25. Prime1 Construction o/a Park Lane Farms: This is a company that I attempted to consummate a deal with at the end of 2013 and the beginning of 2014. The deal fell through for a myriad of reasons, and I am not a director, officer, or shareholder of this entity, or Tweed Marijuana Inc. Please see Exhibit “I” detailing that the Respondent was never a shareholder, and was never remunerated in any form. Mr. Footman (their CEO) has given his phone number and I’m sure would be willing to speak to the courts, or the Applicant’s counsel, if so required.

19The husband characterizes his financial circumstances as simple asserting that he has one source of income and if one looks carefully at all of the corporate information provided the calculation of his source of income is an easy one.

20Having reviewed and considered the evidentiary record before me in its entirety I cannot agree with the husband’s characterization of his financial profile in relation to the corporate entities he is associated with.

21I am satisfied that an expert is required to review this material and provide an assessment of the husband’s income.

22The jurisprudence supports this position.

23In Stuart and Stuart, Rogers, J sets out the following at paragraphs 4, 7 and 15:

4. Family Law is no longer a guessing game where facts are concerned. The rules provide for full and complete disclosure. The parties are to know the facts and use this knowledge to settle or proceed to litigation. Cases should proceed expeditiously through the disclosure stage.

5. Rule 24(12) is discretionary. The discretion must be applied to further the primary objective of fairness.

6. In the case at bar the above criteria are met. Ms. Stuart has a reasonable claim for an equalisation payment. Because of the complexity of her husband’s assets, she cannot test the valuations of such assets without an expert. Any prudent litigant would hire a valuator to review the report of the husband’s expert. In addition she would be severely disadvantaged were she to have to carry on the case without the assistance of counsel. The monies requested are reasonable for the tasks at hand and are in keeping with the money available in the case.

24In Agresti v. Hatcher, Justice J.S. O’Neill reviews the guiding legal principles commencing at paragraph 10, 11, 12 and 13 as follows:

10. Rule 24(12) provides:

Payment of Expenses – The court may make an order that a party pay an amount of money to another party to cover part or all of the expenses of carrying on the case, including a lawyer’s fees.

11. In Stuart v. Stuart 2001 CanLII 28261 (ON SC), [2001] O.J. No. 5172 (Ont. S.C.) Rogers J. outlined the following principles applicable when considering an application under rule 24(12):

• The court interprets the new Family Law Rules to require the exercise of the discretion in rule 24(12) on a less stringent basis than the cases that call for such only in exceptional cases. The discretion should be exercised to ensure all parties can equally provide or test disclosure, make or consider offers or possibly (sic) go to trial. Simply described, the award should be made to level the playing field.

• An order under section 24(12) should not immunize a party from cost awards. The order is to allow the case to proceed fairly and should not be such that a party feels a license to litigate.

• Certainly the proof of the necessity of interim disbursements would be critical to the successful claim. The claimant must clearly demonstrate that the disbursements are necessary and reasonable given the needs of the case and the funds available. In particular, if an expert is the subject of a requested disbursement, the claimant must demonstrate there is a clear need for the services of said expert.

• The claim must demonstrate that he or she is incapable of funding the requested amounts.

• The claim or claims being advanced in the case must be meritorious as far as can be determined on the balance of probabilities at the time of the request for disbursements.

• The order for interim disbursements should not be limited to cases where it would be taken out of an equalization payment. There are cases where there would not be an equalization payment. The litigants could be a child suing a parent, an elderly parent suing an adult child or a family that has not acquired assets. It may be that a party with a minimal income stream and no liquid assets needs disbursements to test evidence that might lead to him or her resisting an equalization order. The leveling of the playing field should not be limited to those with an expected equalization payment.

12. In Pakka v. Nygard 2002 CanLII 62431 (ON SC), [2002] O.J. No. 3858 (Ont. S.C.) Kitely J. stated at para. 77 as follows:

In Stuart v. Stuart (2001), 2001 CanLII 28261 (ON SC), 24 R.F.L. (5th) 188, [2001] O.J. No. 5172 (Quicklaw) (S.C.J.), Rogers J. reviewed the principles evolving under Family Law Rule 24(12). All of those principles are applicable here notwithstanding that the rule itself does not apply. I appreciate that Rogers J. was considering disbursements in the context of establishing the value of the husband’s net family property. But, as the defendant here indicated, there is sufficient complexity in his financial and corporate circumstances, that the same principles ought to apply where the issue is establishing the income of the defendant for purposes of the Guidelines.

13. In Reynolds v. Reynolds, [2001] O.J. No. 4959 (Ont. S.C.) Nelson J. was dealing with a request for an interim payment of legal and valuation fees. At para. 23, he stated:

…In my view, the playing field needs to be leveled somewhat as these parties approach trial so that there is no danger or less danger of capitulation because of unpaid and ever increasing fees. In cases where the imbalance can be redressed, it should be.

25At paragraph 20, Justice O’Neill states:

At the outset, it can be stated that the respondent’s financial affairs are reasonably complex. As outlined in the affidavit of the applicant, in 1999, Mr. Hatcher filed tax returns in seven different states in the United States. On September 12th, 2002, he swore a financial statement disclosing various assets that generate interest and investment income. In that statement, he listed at least nine different sources of interest and investment income.

26I am satisfied that the husband’s financial affairs are complex and require an expert to asses these corporate structures to determine the husband’s income.

27I am satisfied, therefore, that the disclosure required and as set out by Mr. Carnegie and as detailed in paragraph 9 herein ought to be provided to the wife and an order shall issue accordingly. In the event that any of this information has already been provided to the Applicant or her counsel, the husband is not required to do so again.

28I am also satisfied that the disclosure requested and as set out in Ms. Earl’s Affidavit at paragraph 10 herein is also to be provided.

Interim Disbursements:

Interim Disbursements

29I am also satisfied on the evidentiary record before me and guided by the governing legal principles that this is an appropriate case to exercise my discretion under Rule 24(12) in favour of the wife. An order shall issue that the husband pay to the wife for interim disbursements, the sum of $14,125.00 required by Mr. Michael Carnegie towards the preparation of his report.

Interim Legal Fees:

Interim Legal Fees

30I am not satisfied that an order ought to issue for interim legal fees and therefore an order will not be made in that regard.

Costs

31The parties shall make written submissions on costs of this motion within 20 days.