Court File and Parties

Court File No.: FS-15-401094 Date: 2016-06-22 Superior Court of Justice - Ontario

Re: Diane Plese, Applicant And: Robert Herjavec, Respondent

Before: Kiteley J.

Counsel: Stephen M. Grant and Melanie Battaglia, for the Applicant Bryan Smith, for the Respondent

Heard: June 21, 2016

Endorsement

[1] The Applicant has brought this motion seeking an order in the following terms:

Pending further order of this court or the Applicant’s consent, the Respondent, or any person acting or purporting to act on his behalf or authority, legally or otherwise, is restrained from directly or indirectly, through a corporation or trust or any other entity or by any means, disposing of, depleting or removing, transferring, alienating, assigning, mortgaging, encumbering, or otherwise dealing with, any assets, bank accounts, and any property in any jurisdiction in which the Respondent may have an interest, directly or indirectly, legally or beneficially, and the Respondent’s interest in any corporations, bank accounts, trusts, and all other property, and the Respondent shall preserve all of his assets, including but not limited to, The Herjavec Group Inc., 7949766 Canada Ltd., and Andiamo Inc. (collectively the “companies”), including but not limited to, the business and financial operations of the companies.

[2] The motion is brought pursuant to these sections of the Family Law Act:

s. 12 In an application under section 7 or 10, if the court considers it necessary for the protection of the other spouse’s interests under this Part, the court may make an interim or final order,

(a) restraining the depletion of a spouse’s property; and (b) for the possession, delivering up, safekeeping and preservation of the property.

s. 40 The court may, on application, make an interim or final order restraining the depletion of a spouse’s property that would impair or defeat a claim under this Part.

[3] Counsel have filed hundreds of pages of material including affidavits and exhibits. On May 31, 2016, I made an order on consent directing that evidence filed in connection with two subject matters would be sealed and not form part of the public record. As a result, I also received three affidavits in sealed envelopes with many exhibits. As indicated to counsel at the conclusion of the submissions, I expect that Mr. Smith will retrieve the sealed materials and undertake to the court and to the Applicant to ensure that they are preserved for future reference.

Analysis

[4] The analysis pursuant to s. 12 requires the court to consider the relative strength of the Applicant’s case, the balance of convenience or inconvenience and irreparable harm. While the language of s. 40 is somewhat different, I intend to consider the same criteria.

[5] In an endorsement dated December 3, 2015 [1], I made an order requiring the Respondent to pay temporary spousal support in the amount of $124,115 per month and to pay temporary child support in the amount of $44,992 per month. The Respondent acknowledges that the Applicant is entitled to spousal support. Given the duration of the relationship and other circumstances described in that endorsement, I anticipate that she will receive a final order for indefinite spousal support. The only question is the amount. The Applicant’s claim for spousal support is unassailable.

[6] As for the Part 1 claim, the parties do not agree as to who owes who the equalization payment. Based on his draft net family property statement, Mr. Smith takes the position that the Applicant may owe to the Respondent an equalization payment of $2.5 million. Mr. Grant has not provided a comparative net family property statement but he does not accept that calculation and points out that his valuator will shortly provide a report that challenges the value that the Respondent places on his shares in THG, which is his most valuable asset. He points out other frailties including the significant deduction for costs of disposition. For purposes of this motion I conclude that the Applicant has an arguable case that the Respondent will be ordered to make an equalization payment to her that could be several million dollars.

[7] Without going into the detail contained in the evidence, the circumstance which motivated this motion is the expectation on the part of the Respondent to enter into an arrangement with a financial institution in which he and THG will borrow a sum of money which, on the face of it, exceeds the net value established by the Respondent’s expert of the shares of THG at valuation date in July 2014. With such debt financing, the Respondent and THG would be able to pay out term loans, have funds to purchase costly equipment and acquire potential businesses either to grow his existing business or obtain a strategic advantage.

[8] At paragraph 27 of Bronfman v. Bronfman [2] Sachs J. observed as follows:

The exercise is one of balancing risks. On one side there is the risk that in the time it takes to get to trial, the plaintiff’s rights may be so impaired that a final judgment would represent nothing more than a Pyrrhic victory. On the other hand, there is the risk that a defendant may be restrained from doing something that he or she is ultimately shown to have the right to do. The task is complicated by the fact that at an interim stage a court is being called upon to grant a remedy before the merits of the dispute have been fully explored.

[9] Counsel for the Applicant takes the position that the balance of convenience favours the granting of a non-dissipation/preservation order where the trial is scheduled to commence in November 2016, only 5 months away (or 7 or 8 months if judgment is reserved).

[10] Counsel for the Respondent takes the position that the Respondent would experience significant inconvenience if he were prevented from doing what he ought to be entitled to do namely carrying on in the ordinary course of business and taking steps to grow the business.

[11] I consider the convenience to the Applicant and the inconvenience to the Respondent to be equally balanced.

[12] I turn to irreparable harm, which in this case, is the risk of dissipation by the Respondent.

[13] The motivation behind an order pursuant to s. 12 or s. 40 is to avoid the situation in which the Applicant obtains a final judgment only to find that the time elapsed during the litigation has given the Respondent an opportunity to put himself in a position that the Applicant will be unable to collect and the Applicant will have only a Pyrrhic victory. In my view those provisions are intended to reflect the fiduciary obligation on the part of the payor spouse to honour the entitlements that have arisen during the course of the relationship. It is not intended to be security, such as in circumstances where a party is required to post security for costs by cash or bond or other means. It is not a Mareva injunction. Rather, an order pursuant to s. 12 or s. 40 imposes an obligation to preserve property and to not deplete property.

[14] Where the Respondent has specific assets such as real estate or liquid assets, orders pursuant to s. 12 and s. 40 are achievable without impacting others. [3] Where the key asset is shares in a private corporation(s) which carries on business in multiple jurisdictions in a competitive environment, the analysis required of the court before making orders pursuant to s. 12 and s. 40 is far more complex.

[15] Counsel for the Respondent takes the position that the Respondent has complied with the temporary support order which requires him to pay $169,000 per month; that he provided a valuation from an accredited CBV; and that he attended examinations as scheduled and completed his undertakings. In addition, counsel asserts that the Respondent continues to operate THG out of its Ontario head office and I note that there is no evidence that that will change before judgment after trial. Counsel also points out that the evidence contained in the affidavits and exhibits demonstrates that the Respondent has grown the revenues and that no income producing assets of the company have been sold while the proceeds of the sale of non-incoming producing assets were retained by the company and or used to pay down debt. He argues that the Respondent has provided ample evidence that he has worked hard to grow the business to increase its value, not merely to preserve it. For purposes of this motion, I accept and rely on that evidence and I conclude that the conduct of the Respondent does not demonstrate that there is a risk that he will conduct himself in such a way as to deplete the value of his assets pending trial.

[16] As I indicated to counsel during submissions, the comprehensive material provided by the Respondent is impressive. In the multiple affidavits by the Respondent and others, including Moy, detailed and specific responses are provided to the allegations made by the Applicant. On that evidence, which was not materially challenged, I accept the submission that the order sought would cripple, if not strangle, THG, a company that is not a party to this proceeding. Such an order would materially interfere with its day-to-day operations. It is likely to eliminate its ability to secure financing to grow and likely to jeopardize the viability of a company employing over 200 people. I agree with counsel for the Respondent that the harm would be irreparable.

[17] Mr. Grant said repeatedly that he did not intend by this motion to impede the Respondent from carrying on his business, impair his ability to operate or to make it difficult for him to operate. During submissions he indicated his willingness to modify the proposed draft order and he invited me to make such changes as I considered appropriate. As an alternative, he suggested that the court might make an order that the Respondent be required to put his shares in THG in escrow. Mr. Grant stressed that it is not in his client’s interest to have a negative impact on the Respondent’s financial affairs but it is in his client’s interest that her claims to an equalization payment and to support be protected.

[18] At paragraph 33 of Adler v. Adler [4] I accepted the evidence of the Respondent that he was “not incented to lose money” and he was not motivated to deprive the Applicant of her entitlement. Similarly, in this case, the evidence points to the Respondent being focused on generating significant income and return on capital and points to the Respondent not being motivated to deprive the Applicant of her entitlement to an equalization of net family property or to support.

[19] As counsel pointed out, the Respondent has already committed to providing security estimated at $5 million arising from the sale of a Muskoka property and from the anticipated sale of a Florida property both registered in his name.

[20] On all of the evidence, I am not persuaded that it is necessary that I make an order pursuant to either s. 12 or s. 40.

[21] In his submissions, counsel for the Applicant took the position that the Respondent had not accounted for over $5 million of distributions from a trust of which he is the sole trustee and of which the Applicant and children are the beneficiaries. In his factum he took an alternative position that the Applicant has not had an opportunity to ascertain whether the Respondent has sufficiently accounted for that amount. In the Respondent’s material and in submissions, counsel provided considerable detail as to the disposition of significant trust funds. On that analysis, the Respondent has accounted for approximately $20 million of the $21 million at issue. As indicated during submissions, I do not consider the issues arising from the trust to be relevant either under s. 12 or s. 40 since such claims are independent of the Family Law Act claims. Having said that, the detailed accounting leads me to conclude that criticism of the Respondent for a failure to account is not justified.

[22] At the conclusion of submissions, counsel advised that they had agreed on the costs of this motion in the amount of $9500 to be paid subject to outcome. The Applicant was not successful and pursuant to rule 24, the Respondent is presumed entitled to recover costs. I see no reason to require her to pay those costs in the immediate future since her main source of income is support. I do observe that Mr. Smith’s willingness to set the costs at $9500 must be a concession on his part. Given the volume of and the details contained in the responding affidavits, I expect that the actual costs incurred by the Respondent were several multiples of that amount. Nonetheless costs of $9500 reflect what a reasonable litigant in the position of the Applicant would expect to pay for such a motion. Mr. Smith appears to concede that the fact that the Respondent’s financial affairs are of such complexity that he incurred such a significant expenditure ought not to fall on the Applicant.

Order

[23] The motion for an order pursuant to s. 12 and s. 40 is dismissed.

[24] The Applicant shall pay costs fixed in the amount of $9500 provided that payment will be set off against amounts the Respondent is otherwise required to pay pursuant to the judgment after trial.

[25] Counsel for the Respondent shall retrieve the three sealed affidavits from my Registrar and ensure that they remain available for future reference.

Kiteley J.

Date: June 22, 2016

Footnotes

[1] 2015 ONSC 7572 [2] 2000 CarswellOnt 4622 [3] footnote 2; Pollak v. Pollak (1993) , 48 R.F.L. (3 rd ) 56; Radosavljevic v. Radosavljevic (1986) , 57 O.R. 2 nd 51 [4] 2016 ONSC 2414