Droujko v. Hafen

Court File No.: 635/17 Date: 2018-05-11 Superior Court of Justice – Ontario

Re: Elena Droujko, Applicant And: Rudolf Heinrich Hafen

Before: Mr Justice Ramsay Counsel: Kiran Sah for Applicant; Malte von Anrep QC for Respondent Heard: May 11, 2018 at St Catharines

Endorsement

[1] These are my reasons for dismissing the Respondent’s motion for partial summary judgment and for granting the Applicant’s motion under Rule 24 (12) for disbursement to fund litigation costs.

[2] The parties lived together from 2003 to 2017, a period of 14 years. In the main proceeding the Applicant seeks spousal and child support and a constructive trust in the Respondent’s residence and business and the proceeds of sale of his business. A temporary order for spousal support has been made. In the present motions, the Applicant sought an order for an advance of $50,000 for litigation expenses. The Respondent sought an order for summary judgment on the portion of the Application dealing with an interest in the Respondent’s business.

Partial summary judgment

[3] During the relationship the Respondent owned a company called Niagara Helicopters Limited. On December 11, 2011, also during the relationship, the Respondent sold his shares in Niagara Helicopters to Helicopter Transport Services (Canada) Inc. At the time the Applicant was an employee of Niagara Helicopters. The Respondent deposes that he hired the Applicant to split his income with her for tax purposes and that she did no work of any value. The Applicant deposes that she did contribute to the success of the company. In any event, the purchaser had no intention of continuing the Applicant’s employment. As part of the sale it required a release from her. She signed a document releasing “NHL and its affiliates, unincorporated divisions, predecessors, successors and assigns and all of their past and present officers, directors, representatives, agents, shareholders and employees … from any and all claims, demands, causes of action, fees and liabilities of any kind whatsoever, whether known or unknown, which I ever had, now have or may have hereafter against any of them, by reason of any actual or alleged act, omission, transaction, practice, conduct, occurrence or other matter whatsoever up to and including the date on which this agreement becomes effective.”

[4] In exchange the Applicant received severance pay.

[5] Based on this release, the Respondent submits that there is no genuine issue requiring a trial as to whether the Applicant is entitled to claim from the Respondent any interest in his business or, as I understand the argument, the proceeds of sale of the business.

[6] I disagree. The release was part of an employment contract, specifically, the terms of termination. It releases NHL and its purchaser from any liability for firing the Applicant. It has nothing to do with any spousal rights the Applicant may have as against the Respondent.

[7] The contradictory evidence about the extent of the Applicant’s contribution to the company can only be resolved by making findings of credibility. This is not a case for summary judgement.

[8] For those reasons I dismissed the motion for partial summary judgment.

Disbursement of litigation expenses

[9] The Applicant wants an advance from the Respondent to pay for an accountant to give expert evidence as to the Respondent’s income for the purposes of support.

[10] On February 23, 2018 Henderson J. ordered temporary spousal support of $3,000 a month on the basis of annual incomes of $10,000 for the Applicant and $160,000 imputed to the Respondent: Droujko v. Hafen, 2018 ONSC 1287. He found that the Respondent’s net worth was at least two million dollars. The former family home, which is the property of the Respondent, has been sold and, under Walters J.’s order of February 24, 2017, half the proceeds, amounting to $347,000, is being held in trust pending determination of the Applicant’s entitlement thereto, if any.

[11] The principles governing the exercise of the power under Rule 24 (12) are summarized by Pazaratz J. in Benzeroual v. Issa, 2017 ONSC 3655:

87 There is a presumption that parties pay their own legal fees until proceedings are over, at which point the court will determine whether any retroactive reimbursement for costs is appropriate. Melendez v. Soleimani, 2011 ONSC 5468 (Div. Ct); Waxman v. Waxman (2003) 2003 CanLII 22440 (ON CA), 168 O.A.C. 217 (C.A.). Mere inability or hardship paying one's own legal fees does not in itself rebut that presumption.

88 Rule 24 (12) of the Family Law Rules allows the court to order that a party pay money to the opposing party to cover part or all of the expenses of carrying on the case, including legal fees.

89 The rationale for interim disbursements was summarized by Rogers J. in Stuart v. Stuart 2001 CanLII 28261 (ON SC), 2001 CarswellOnt 4586 at paragraph 5:

The duty in the court to ensure a fair procedure means that both parties should be able to request and give disclosure and to tackle complex valuation issues equally. One party should not be disadvantaged in the litigation by being unable to test the evidence of the other party.

90 Stuart summarized the primary considerations in determining interim disbursements in family law cases:

a. An order for interim disbursements is discretionary.

b. The claimant must demonstrate that the interim disbursements are necessary to pursue their case; that without the advance of funds for interim disbursements, the claimant cannot present or analyse settlement offers or pursue entitlement.

c. The interim disbursements must be shown to be necessary.

d. The claim or defence advanced must be meritorious.

e. The exercise of discretion should be limited to exceptional cases.

f. Interim costs are for the purpose of leveling the playing field.

g. Monies may be advanced against an equalization payment.

91 More recent case law suggests interim disbursements in family law cases are not limited to exceptional cases. McCain v. Melanson, 2017 ONSC 916 (SCJ); Sadlier v. Carey, 2015 ONSC 3537 (SCJ); Turk v. Turk, 2016 ONSC 4210 (SCJ); Romanelli v. Romanelli 2017 ONSC 1312 (SCJ).

92 The recurring theme is that where one party is at an economic disadvantage, interim disbursements may be required;

a. To "level the playing field". Ludmer v. Ludmer, 2012 ONSC 4478 (SCJ); C.M.M. v. D.G.C., 2015 ONSC 1815 (SCJ).

b. To ensure that meritorious claims in the family law context are not abandoned or forfeited by those who lack financial resources and, as a result, are at a significant financial disadvantage relative to the other party in the proceeding. Morton v Morton, 2015 ONSC 4633 (SCJ).

c. To allow both parties to advance and scrutinize their respective cases, in compliance with our comprehensive Family Law Rules, within the timelines imposed by case management.

93 As noted in Stuart, interim disbursements have often been permitted where the payment can be characterized as an advance to the party who will likely be receiving an equalization payment in any event. But a pending equalization entitlement is not a pre-requisite to interim disbursements. While equalization is claimed herein, the evidence is unclear as to the likely outcome on this topic.

94 Similarly, while some of the earlier case law considered the ability of the claimant to repay the funds in the event that their case fails, this does not appear to be a consideration which currently receives much favour. The purpose of much of our family law legislation is to address economic disadvantage. It would be illogical to require the disadvantaged party to prove they've got enough money to repay any advance on disbursements. If they had such resources, they likely wouldn't be seeking interim disbursements in the first place. Romanelli v. Romanelli (supra).

95 Under Rule 24(12) the threshold requirement of a "meritorious claim" is not terribly onerous: The claimant must establish a prima facie case. Rea v. Rea, 2016 ONSC 382 (SCJ).

96 But interim fees and disbursements are not intended to fund a fishing expedition. There must be sufficient information in the materials filed on the motion to reassure the court that the claims being made are reasonable. Romanelli v. Romanelli (supra); Mcilvenna v. Pinkowski, [2010] O.J. No. 3963 (SCJ).

97 A party claiming interim disbursements should provide estimates and explanations of the proposed expenditures, particularly those relating to experts and valuators. Hall v. Sabri, [2011] O.J. No. 4178 (SCJ); Jung v. Johnson, 2015 ONSC 6734 (SCJ). Ballpark numbers are generally insufficient (although the court may be able to take judicial notice of a reasonable range of anticipated legal fees).

98 By the same token, until the financially dominant party cooperates fully and makes complete disclosure, it is difficult for a party claiming interim disbursements to assemble precise cost estimates from the professionals they seek to retain. Once it becomes clear that the financially dominant partner is intent on deception and obfuscation, a more expansive approach to interim disbursements may be necessary to avoid mischief and discourage non-disclosure.

99 The party seeking interim disbursements should also be able to satisfy the court that despite reasonable steps to finance the litigation, they are still unable to proceed without advance funds. Turk v. Turk (supra).

100 An award of interim disbursements pursuant to Rule 24(12) is not a predetermination of costs. The order is not intended to be a licence to litigate. Both parties should remain equally wary about the potential of a costs order against them. Rea v. Rea (supra).

[12] I make the following findings:

a. An accountant is a necessary expense if the Applicant is to establish the Respondent’s income satisfactorily for the purposes of trial or settlement of the issue of spousal support. Henderson J. described his own decision on this issue as a conservative estimate.

b. The Applicant had to bring a motion to get financial disclosure from the Respondent. The disclosure that he made shows that he has put his money into investments that do not produce income. He seems to think that this is a complete defence to any claim for spousal support. The Applicant needs an accountant to establish how much income the Respondent could be making if he re-invested his money wisely.

c. The Applicant has established a strong prima facie case for spousal support and a constructive trust in the family home and a case for a constructive trust in the proceeds of sale of the family business that requires a trial.

d. The Applicant has little ability to finance the basic requirements of the litigation.

e. The Respondent is able to finance his defence.

f. There is $347,000 of the Respondent’s money being held in trust against the Applicant’s claims.

[13] I recognize that as a rule a party should not recover before judgment, and should pay his or her own expenses until then. However, if I do not make the requested order, there is a serious prospect that the Applicant will be forced to walk away from a potentially meritorious claim simply because she cannot out-litigate the Respondent.

[14] I therefore made the following order:

a. From the proceeds of the sale of the Respondent’s residence that are being held in trust, $50,000 shall be disbursed to the Applicant forthwith, of which she may spend $20,000 on an accountant and $30,000 on legal fees and disbursements. This amount shall be considered an advance on any entitlement the Applicant may be found to have in the Respondent’s residence or spousal support.

J.A. Ramsay J.

Date: 2018-05-11