Court File and Parties

Court File No.: CV-15-11005-00CL Date: 20160602 Superior Court of Justice - Ontario

Re: John Joseph Liptay, Jr. and 1584131 Ontario Ltd., Applicants And: Paula Anne Liptay-Burghardt, Pamela Marie Hvasta, Laurie Anne Liptay-Morar, David Stephen Liptay, Leslie Marie Liptay, Luanne Marie Liptay, 1280584 Ontario Inc. and The Office of the Children’s Lawyer, Respondents

Before: Penny J.

Counsel: Michael Kerr and Andrea Farkouh for the Applicants Robert Watson for the Respondents

Heard: May 27, 2016

Endorsement

[1] This proceeding involves the allocation of assets within an estate freeze structure between the seven children of Anne Teresa Liptay and John Joseph Liptay, both deceased. Many issues raised in the initial application have been overtaken by events.

[2] It is common ground that each child is to receive an equal share of their parents’ accumulated assets. The assets were either in their parents’ estate or in an estate freeze vehicle, 1280584 Ontario Inc. It is also common ground that any inter vivos transfers of assets to individual children are to be included as part of that child’s overall 1/7 share. The litigation has really boiled down to an accounting exercise.

[3] The respondent, Pam Hvasta, was given initial responsibility for looking after the parents’ financial affairs and, following their death, the accounting for the assets and who had already received, or was to receive, what, in order to achieve the equal division that the parents intended.

[4] This litigation arose from disagreements over how various transactions had and should be accounted for and whether the accounting done by Pam achieved the objective of equal division of all of the assets.

[5] Jay believes mistakes have been made and that the accounting prepared by Pam is not accurate or reliable in certain respects. Pam, Paula, Luanne, Laurie and David are opposed to Jay in this litigation. They say Pam’s current accounting (it has been amended several times in response to a number of Jay’s concerns) is correct. Leslie has not participated and has taken no position in the litigation.

[6] At a pretrial conference held November 2, 2015, Mr. Justice Hainey concluded that the matter was not ready for trial and vacated the pending trial date. There were two significant issues standing in the way of a trial:

(1) the issues for trial were not specifically defined for the trial judge; and

(2) there was a pending motion by Jay for production of additional financial records or, in the alternative, for the appointment of an inspector under s. 209 of the Ontario Business Corporations Act.

[7] Hainey J. ordered that the motion proceed on the date previously reserved for the commencement of the trial, November 30, 2015. I adjourned that motion at the request of the respondents, who had not filed responding material or a factum. The motion came back on for hearing Friday, May 27, 2016.

[8] Mr. Justice Morgan on January 31, 2013 ordered the immediate liquidation of 128 (subject to the obligation to realize proper values) under s. 208 of the OBCA. At that time, he declined to appoint an inspector but ordered that “relevant information respecting the conduct of the liquidation shall be disclosed to all parties.”

[9] 3 1/2 years later, most of the assets have been sold but the parties are still at war over many of the transactions that have taken place, how they are to be accounted for and whether Pam’s accounting will result in an equal distribution of the assets to all seven children.

[10] Jay retained his own accountant to review the reports prepared by Pam. In a preliminary report of August 21, 2015, Ms. Loomer of Froese Forensic Partners Inc. concluded, among other things, that with respect to disbursements from 128 and loans payable to the Liptay childrens’ numbered companies, Froese could not confirm the amounts paid, or the amount payable to, the childrens’ numbered companies “because insufficient information has been provided to allow us to do so.” These disbursements, loans and payments are at the heart of the dispute between the parties.

[11] Exhibit L to the Loomer affidavit filed in support of this motion sets out, comprehensively, the documents requested with respect to disbursements from father’s account and disbursements and loans from 128. Production of these documents has been refused.

[12] Some indication of the respondents’ approach to the accounting dispute can be derived from the respondents’ response to the applicant’ request to admit. The respondents were asked to admit the authenticity of their father’s, and 128’s, financial records. They refused to do so.

[13] To the parties’ credit, they have managed to narrow the issues and largely, to liquidate their father’s asset portfolio. There is deep distrust, however, between Jay and the respondents.

[14] Pam’s accounting has been shown to have contained errors, which she has purported to address once confronted with them. Now, she says all issues have been addressed that there is no need for any further accounting information or accounting analysis. Jay, on the other hand, is not satisfied that the accounting has been done properly and has been thwarted in his efforts to conduct a full examination of the originating financial records in order to test Pam’s assertion that her reporting has been done correctly.

[15] The financial dealings between 128 and the childrens’ numbered companies are complex, but not that complex. In light of Morgan J.’s clear order and the substantial amount of time that has passed since that order was made, it is surprising, and disturbing, that the parties are still locked in this highly acrimonious struggle. The respondents’ response to this motion has been to attack Jay’s motives and his prior actions or positions taken in these proceedings; in general, to raise every possible obstacle to Jay’s attempt to challenge and test Pam’s accounting. The only thing they have not done in their response to this motion is to answer the simple question, ‘why should Jay not have access to the original financial records to examine them for himself?’

[16] Essentially, the respondents take the position that:

(a) Jay, having set the matter down for trial, is foreclosed from bringing this motion;

(b) Jay has been given all the information he has previously asked for; and

(c) All Jay’s concerns have been addressed in subsequent iterations of Pam’s several revised reports.

They oppose any further production of backup financial documentations or the appointment of an inspector to review the records to ascertain whether Pam’s accounting is comprehensive and accurate.

[17] This is, in my view, a situation that cries out for an independent third-party to review the financial records and accounts and submit a report to the court. That is what Jay seeks on this motion.

[18] I do not agree that this motion has been foreclosed by virtue of the applicant having set the matter down. Hainey J. clearly identified this case as a straightforward accounting case that was not ready for trial. Pam, as a beneficiary of the estate freeze, is not independent. Her accounting has been questioned. Those questions have been confirmed by a forensic accounting expert. This case could not proceed at all without the ability of the applicant to have someone with accounting expertise who is independent review the underlying financial records. It is for the benefit of all parties that this exercise be done as quickly and efficiently as possible.

[19] The court enjoys broad inherent powers to regulate and control its own process and proceedings. This is necessary in order to fulfill the court’s core functions in the administration of justice. These core functions include securing the just, most expeditious and least expensive determination of every civil proceeding on its merits, see Abrams v. Abrams (2010), 2010 ONSC 2703, 102 O.R. (3d) 645 (S.C.J.). If leave to bring this motion were necessary, as part of the inherent jurisdiction of the court to ensure the just, most expeditious and least expensive determination of this proceeding on its merits, I would grant that leave.

[20] On the present record before me, there remains uncertainty about the reliability of Pam’s accounting on a number of issues. For example, there remain questions about the accounting treatment of the money she borrowed to buy the Doulton property. Has Pam accounted for interest on the funds borrowed to purchase the Lionheart property? There remain unanswered questions about interest on the Grand Olympic mortgage which was paid to Laurie, although the mortgage was owned by 128. Similar questions remain about the Plouffe, Kuppa and Shakespeare mortgages. There is a lack of detailed information about how much money has been withdrawn from 128 on behalf of the children. The amounts owed by 128 to individual children appear to fluctuate from year to year without explanation. Although there are now apparently only four mortgages left in the asset portfolio, they are material, representing over $6.5 million in uncollected debt owed to 128. There are apparently legal proceedings regarding at least three of them.

[21] These are all issues which have been identified by Ms. Loomer. Her requests for information to enable her to answer these questions have been refused. Other than the fact that the respondents say they are tired of this litigation and Jay’s constant requests for more information, no factual explanation has been offered for why Ms. Loomer’s request is unreasonable, unwarranted or inappropriate.

[22] I find the respondents’ position particularly odd in light of Pam’s acknowledgment in her factum that she was the family member entrusted for years with handling the family’s financial affairs. She was the one appointed by their mother as estate trustee. She was the one appointed by their father to be attorney and estate trustee. It was Pam who the siblings agreed initially should conduct the winding up and be entrusted with the accounting of who was entitled to what. Pam took on fiduciary obligations. She has a responsibility to account for her management of and accounting for other people’s money. If there are questions about that accounting, she ought to be cooperating and seeking answers, not throwing up every possible obstruction.

[23] The words of MacKinnon J. in King City Holdings Limited v. Preston Springs Gardens Inc., 2001 CarswellOnt 1364 (S.C.J.) at para. 12 are entirely apposite here:

the significant quarreling and the state of animosity as is here demonstrated precludes all reasonable hope of reconciliation and friendly cooperation. In itself, that significant animosity and the resulting complete loss of confidence is sufficient to justify relief and to meet the test of “just and equitable.” It is clear that the parties have reached an impasse, are deadlocked, and that the court must intervene in this shareholder’s dispute.

[24] MacKinnon J. went on to say in the King City case that the court may make whatever order it deems just and equitable. This gives the court power to grant a wide range of discretionary remedies. No finding of oppression need be made by the court under s. 207. Where the parties no longer trust one another, have lost confidence in each other’s ability to deal fairly and can no longer act properly and in a businesslike manner, there is a deadlock which warrants the exercise of the court’s authority under s. 209 of the OBCA to appoint an inspector.

[25] It is clear that the “just and equitable” jurisdiction conferred by s. 207 of the OBCA (which was invoked by Morgan J. when he ordered 128 to be wound up) informs the authority of the court under s. 209.

[26] Section 209 provides:

The court may make the order applied for, may dismiss the application with or without costs, may adjourn the hearing conditionally or unconditionally or may make any interim or other order as is considered just, and upon the making of the order may, according to its practice and procedure, refer the proceedings for the winding up to an officer of the court for inquiry and report and may authorize the officer to exercise such powers of the court as are necessary for the reference. [Emphasis added]

[27] I have come to the conclusion that the normal remedy for the problem posed by Ms. Loomer - an order for production of documents - would not suffice in the circumstances of this case. I say this because, based on conduct to date, it would likely lead to more squabbling and more antagonism and cost without necessarily achieving what is clearly needed - an independent assessment of Pam’s accounting. I therefore exercise my discretion under s. 209 of the OBCA and appoint an inspector as an officer of the court to make enquiry and report on the sufficiency of Pam’s accounting.

[28] No exception was taken to the qualifications of the individual proposed to be appointed as an inspector under s. 209. This is Jerry Henechowicz of MNP Ltd. I therefore appoint Mr. Henechowicz as the inspector.

[29] In connection with his duties as a court appointed inspector, I authorize Mr. Henechowicz to make inspection of all necessary documents and records and, for this purpose, order the respondents to deliver such documents and records to Mr. Henechowicz forthwith upon demand.

[30] Mr. Henechowicz shall also have the authority to interview and, if necessary, examine any party in connection with the exercise of his responsibilities as inspector.

[31] I am not satisfied that further orders under s. 215(2) of the OBCA or for the appointment of a liquidator are warranted at this time.

[32] The inspector has provided an estimate of costs. The inspector’s costs up to the limit of that estimate shall be paid at first instance by 128. If additional fees are necessary there shall be a motion on proper material seeking, and explaining the reason for, this relief. How the inspector’s costs should be finally allocated as between the applicant and the respondents is an issue that will be resolved as part of the final disposition on the merits.

[33] Mr. Kerr seeks to tidy up the pleadings to reflect developments (of which there have been many) since the application was first initiated. He therefore seeks leave to amend. The motion is opposed on the basis that it is unnecessary and for various technical reasons. Mr. Watson conceded that the amendments do not raise any issues which are “prejudicial” to the respondents within the meaning of that term as it is used in connection with amendment motions.

[34] Leave to amend is granted.

[35] It is my intention to fix the costs of this motion but make them payable in the cause. I urge the parties to agree on an appropriate number. In the absence of agreement, each party shall submit a Bill of Costs within seven days of the release of these reasons.

[36] Certainly no later than the completion of the inspector’s inquiry and report, the parties shall book a case conference before the case management judge, Justice Hainey, in order to resolve any remaining outstanding issues concerning the conduct of the trial.

Penny J. Date: June 2, 2016