COURT FILE NO.: 43643-10

DATE: 2018-05-24

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Christine Ann Weber, Applicant

AND:

Sean Robert Hugh Merritt, Respondent

BEFORE: The Honourable Madam Justice L. Madsen

COUNSEL: Glenda McLeod, Counsel, for the Applicant

Matthew T. Kelly, Counsel, for the Respondent

Joseph A. Irvine, Counsel for the Added Party to the Motion, 1765975 Ontario Inc. (o/a Blue Water Metals)

HEARD: May 10, 2018

ENDORSEMENT

[1] The Applicant, Ms. Christine Weber [“Ms. Weber”] brings a Motion for specified financial disclosure from 1765975 Ontario Inc. [Blue Water Metals], the company owned jointly by the parents of the Respondent, Mr. Sean Merritt [“Mr. Merritt”], and an Order that the Respondent’s father, Mr. Robert Merritt [“Mr. Merritt Sr.”], attend for questioning within 30 days.

[2] Mr. Merritt and Mr. Merritt Sr. oppose the relief sought.

[3] For the reasons set out below, the Orders sought are granted, in part, on terms.

A. BACKGROUND

[4] The parties, who are the parents of four children ranging between the ages of 11 and 16 residing primarily with Ms. Weber, separated in October 2009 after an eight-year marriage. They were divorced on February 22, 2012.

[5] There has been extensive litigation since 2010. Much litigation has centred on Mr. Merritt’s income and support obligations, and Mr. Merritt’s efforts to reduce the support payable.

[6] On September 10, 2010, on an argued Motion within the initial Application, Justice MacPherson found Mr. Merritt’s income for support purposes to be $500,000 per year. She set child support at $7,500 per month and spousal support at $5,300 per month.

[7] On June 6, 2011, Mr. Merritt brought a Motion to Change the Temporary Order of Justice MacPherson. Mr. Merritt’s Motion was dismissed by Justice Campbell, who found that Mr. Merritt had wilfully disregarded the Order of Justice MacPherson.

[8] On December 16, 2011, the parties resolved the Application for Divorce on a consent basis, setting Mr. Merritt’s income at $200,000 per year, plus 40% of his net bonus. Base child support was set at $3,994 per month and spousal support was set at $2,192 per month. These terms were incorporated into the Divorce Order of Justice Campbell dated February 29, 2012.

[9] Mr. Merritt then brought a Motion to Change the support set out in Justice Campbell’s Divorce Order. By Consent Order of Justice Broad dated March 13, 2015, Mr. Merritt’s income for support was set at an anticipated $125,000 per year effective February 1, 2015. Child support was set at $2,660 per month and spousal support was set at $1,135 per month. It is conceded that in the course of that Motion to Change, Mr. Merritt produced a fraudulent T4 slip, seeking to reflect his income as $37,000 less than his actual income.

[10] Mr. Merritt was laid off from his employment. In October of 2015 he started his own company in the salvage industry.

[11] In May 2016, Mr. Merritt brought this Motion to Change. Counsel advised the Court that he initially sought to set his income at approximately $13,000 per year (Employment Insurance), to set child support at $186 per month, and to terminate spousal support.

[12] In August of 2016, Mr. Merritt attempted suicide.

[13] In or about October 2016, about a year after he started his own company, Mr. Merritt let his company go dormant, and became an employee of his parents’ company, Blue Water Metals.

[14] Mr. Merritt’s current position in the litigation is that his income for support purposes is the $72,000 per year he is paid as salary from his parents’ company.

[15] Mr. Merritt resides in a home purchased for him by his parents after separation.

[16] This Motion to Change is scheduled to be heard on the September 10, 2018 list, as a Motion, not a Trial. Accordingly, Ms. Weber will not have the opportunity to call Mr. Merritt Sr. as a witness.

[17] Counsel for Mr. Merritt Sr. and Blue Water Metals confirmed on the hearing of the Motion that the company has declined to produce any disclosure on a voluntary basis other than the very limited documentation attached to Mr. Merritt Sr.’s affidavit for this Motion (a copy of the Directors and Shareholders Register).

B. THE PARTIES’ POSITIONS ON THIS MOTION

Ms. Weber’s Position

[18] Ms. Weber argues that it would be unfair for her to have to proceed to the hearing of the Motion to Change without an opportunity to examine certain specified disclosure of Blue Water Metals, and without having an opportunity to question Mr. Merritt Sr. She argues that there is little risk that such Orders would delay the hearing of the Motion, since it is scheduled for September 2018 and there are three months between now and then. Further, she argues that there is no “floodgates” concern since she has particularized the disclosure she is seeking and is not over-reaching.

[19] Ms. Weber argues that Mr. Merritt’s Motion to Change must be seen in context. She says that Mr. Merritt has persistently tried to reduce his income for support purposes, and that his current “employment” with his parents’ company is merely an attempt to shield income so as to reduce support payable. She asserts that Mr. Merritt’s company, which operated in the same field as Blue Water Metals, had a client base which he brought to Blue Water Metals. Ms. Weber alleges that Mr. Merritt is now doing the same job he performed in his own company, for his parents’ company, without the benefit of the upside if Blue Water Metals does well. She says the evidence shows that Mr. Merritt Sr. was largely retired and that his son is now “ramping up” his parents’ business. She believes, based on Mr. Merritt’s statements at his examination for discovery that the company’s revenues have increased. Had he continued to work within his own company, she says, Mr. Merritt would have been exposed to the inclusion of pre-tax corporate earnings in his income for support purposes.

Mr. Merritt Sr.’s Position on behalf of Blue Water Metals

[20] Mr. Merritt Sr. strenuously opposes being subjected to a non-party disclosure Order or an Order for questioning which he feels will result in disclosing private, confidential, and proprietary information which their son has no interest in beyond being an employee. He is worried that an Order for disclosure will “open the floodgates” and that he and his company will be irretrievably drawn into his son’s litigation. He says that this Motion is proof that “no good deed goes unpunished” and that he is being asked to divulge “highly personal information” although all he and his wife wanted to do was to help their son through a difficult time.

[21] Mr. Merritt Sr. on behalf of Blue Water Metals states that there is nothing untoward about Blue Water Metals hiring Mr. Merritt in the fall of 2016. Mr. Merritt Sr. explains that he and his wife were drawing $6,000 per month from the company in 2016, and that after Mr. Merritt’s suicide attempt and seeing that their son was not making a successful go of his own company, they wanted to help. He believed his son was unemployable due to depression and alcoholism and that he needed time to heal. Mr. Merritt Sr. and his wife brought their son over as an employee, and now forego what was their own draw of $6,000 per month. Mr. Merritt Sr. says Blue Water Metals is having a hard time paying that salary and that he and his wife have had to dip into savings since Blue Water Metals hired their son.

Mr. Merritt Jr.’s Position

[22] Mr. Merritt supported the position of Mr. Merritt Sr., and additionally expressed concern with respect to delay and cost. He stressed that the current Motion to Change was commenced two years ago and that if the door is opened to disclosure from Blue Water Metals, the Motion to Change could be delayed further.

[23] Mr. Merritt also stressed that any credibility concerns regarding himself, arising from the falsified T4 issue, for example, should not bear on his father or his parents’ company or tarnish the Court’s perception of Mr. Merritt Sr. or Blue Water Metals.

C. LAW AND ANALYSIS

[24] Ms. Weber brings her Motion under Rule 20(5) which contemplates both documentary disclosure as well as questioning, including of non-parties, in certain circumstances. Rule 20(5) provides as follows:

20(5) ORDER FOR QUESTIONING OR DISCLOSURE – The Court may, on motion, order that a person (whether a party or not) be questioned by a party or disclose information by an affidavit or other method about any issue in the case, if the following conditions are met:

1. It would be unfair to the party who wants the questioning or disclosure to carry on the case without it;

2. The information is not easily available by another method;

3. The questioning or disclosure will not cause unacceptable delay or undue expense.

[Emphasis Added]

[25] Rule 20(9) imposes specific notice requirements regarding non-parties, as follows:

20(9) NOTICE AND SUMMONS TO NON-PARTY – 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 sub rule 23(4), all by special service (sub rules 6(3) and (4)) [emphasis added].

[26] In addition, an Order for disclosure against a non-party is available under Rule 19(11) which also includes a special service requirement. Case law under Rule 19(11) was provided to the Court. That Rule states:

19(11) DOCUMENT IN NON-PARTY’S CONTROL – If a document is in a non-party’s control, or is available only to the non-party, and is not protected by a legal privilege, and it would be unfair to the party to go on with the case without the document, the Court may, on motion with notice served on every party and on the non-party by special service. [Emphasis added]

Service

[27] As a preliminary matter, it does not appear that Blue Water Metals was served by special service, as required by both Rule 20(9) and 19(11). The Affidavit of Service indicates that the Motion materials were served by next day courier to the home of Mr. Merritt Sr. This is not a method of special service provided for in the Rules.

[28] Having said that, there can be no question that service was effective. Mr. Merritt Sr. filed responding materials on behalf of Blue Water Metals, including a Factum and Brief of Authorities, and was present in Court to vigorously defend his position. Counsel for Mr. Merritt and Blue Water Metals did not raise the issue of irregular service at the hearing of the Motion. Accordingly, this Court is not prepared to dismiss the Motion on this technicality. In accordance with Rule 2(2) which provides that the primary objective is to deal with cases justly, and Rule 2(3) which provides that this means ensuring that the procedure is fair to all parties, saving expense and time, dealing with cases in ways that are appropriate to its importance and complexity, and giving appropriate Court resources to a case, this Court finds that it is appropriate to proceed to the substantive determination of this Motion notwithstanding the service defect. It would cause both delay and undue cost to proceed otherwise.

Order for Questioning or Disclosure

[29] The onus on a motion for non-party disclosure and/or questioning is on the moving party. Re the Estate of Harold Edwin Ballard, 1995 CanLII 3509 (ON CA), 1995 CarswellOnt 1332 at 16.

[30] The starting point is to consider the context, and the purpose for which the Rule is invoked. Ireland v. Ireland, 2011 ONCA 623 at 28.

[31] The Court has held that the test under Rule 19(11) is an objective test which requires an analysis outside the litigant’s belief system: “suspicion and conjecture will not suffice.” See Santilli v. Piselli, 2010 CarswellOnt 3317 at paragraph 12. There is no reason that the test would not be the same under Rule 20(5).

[32] In Re the Estate of Harold Edwin Ballard, supra at 15, in the context of the Rules of Civil Procedure, the Ontario Court of Appeal set out six factors to be considered by the Motions judge when faced with a motion for non-party disclosure:

a. The importance of the documents in the litigation;

b. Whether production at the discovery stage of the process as opposed to production at Trial is necessary to avoid unfairness to the Applicant;

c. Whether the discovery of the defendants with respect to the issues to which the documents are relevant is adequate and if not, whether the responsibility for that inadequacy rests with the defendants;

d. The position of the non-parties with respect to production;

e. The availability of the documents or their informational equivalent from some other source which is available to the moving party;

f. The relationship of the non-parties from whom production is sought, to the litigation and the parties to the litigation. Non-parties who have an interest in the subject matter of the litigation and whose interests are allied with the party opposing production should be more susceptible to a production order than a true “stranger” to the litigation.

[33] Rule 20(5) has been held to be more permissive than the comparable Rule in the Rules of Civil Procedure, and to give judges more liberal and generous discretion. As noted by Justice Turnbull in Hagey-Holmes v. Hagey, 2005 CarswellOnt 2840 at 32:

That makes eminent sense when one considers that in matrimonial litigation, spouses and family members may be “used” to shield income or other assets that might be relevant in the assessment of spousal support, child support, or net family equalization issues.

[34] So too in Loeb v. Loeb, 2013 CarswellOnt 3247 at 42, the Court noted that it is not uncommon in the family law context for family members and their businesses to align themselves to support and protect a family member defending a property or support claim.

[35] At the same time, as set out in Boyd v. Fields, 2006 CarswellOnt 8675 at 12, as with all disclosure requests in the family law context, whether from parties or non-parties, while full and frank disclosure is a fundamental tenet of the Family Law Rules, “there is also an element of proportionality, common sense, and fairness built into these rules.” Disclosure obligations must be assessed in light of Rule 2(3).

[36] As stressed by Justice Kristjanson in Politis v. Politis, 2018 ONSC 323, in the family law context, the test for compelling third party disclosure set out in Re Ballard, supra, “must be supplemented to take into account two critical values, privacy and proportionality.” She notes, in the context of new partners, that privacy interests of third parties must be carefully balanced against the interests of the parties in the proceeding.

[37] Non-parties are generally protected from potentially intrusive, costly, and time-consuming processes of discovery except in circumstances specifically addressed by the Rules. See Santilli v. Piselli, supra. As Justice McGee noted therein at paragraph 13: “The discovery process must be kept within reasonable bounds.”

[38] There must be an evidentiary basis to show that the documents sought or the questioning requested is relevant. The request for disclosure from a non-party and the request for questioning should not amount to a fishing expedition. Campbell v. Wentzell, 2015 CarswellOnt 15086 at 47. Disclosure is not a weapon and is not intended to overreach. Saunders v. Saunders 2015 CarswellOnt 2209 at para. 13.

[39] In applying Rule 20(5) to the facts of this case, this Court finds as follows:

(a) Unfairness

[40] The first condition of the test under Rule 20(5) is that it would be unfair for the party who wants the disclosure or the questioning to proceed without it. Unfairness requires an assessment of the materiality of the information sought to the issues in the proceeding. If questioning or disclosure were not permitted would the party be deprived of the opportunity to secure material evidence relating to an issue in the proceeding? Tsakiris v. Tsakiris, 2007 CarswellOnt 6718 at 15.

[41] Whether the matter will proceed by Trial or Motion may also affect the determination of unfairness. For example, in Santilli, supra, it was relevant to the Court that the matter was to proceed as a Trial, and the Applicant would have the opportunity to call the non-party as a witness at Trial.

[42] “What is fair and relevant and needs to be produced increases with the complexity of the financial and business circumstances.” Loeb v. Loeb, supra, at 48.

[43] It would be unfair for Ms. Weber to carry on this case without documentary disclosure and questioning.

[44] The information sought is directly relevant and material to the issue in the proceeding: namely, what is Mr. Merritt’s income for support purposes, or potentially, what should it be, if he is not earning what he is capable of earning from a support perspective.

[45] In an excerpt from Mr. Merritt’s questioning, attached to Ms. Weber’s affidavit for this Motion, Mr. Merritt set out the following under oath:

a. That his company, which he has allowed to go dormant, undertakes the same business as his father’s company;

b. That all new business generated by him is now through his father’s business;

c. That he decided to work for his father’s company after the “episode” in August, 2016 when he had a “come to Jesus” moment;

d. That he is no longer “chasing the money”;

e. That he had existing contacts that he could manage for his father and that he could identify new business for him;

f. That he is working to “build” his father’s business;

g. That he currently earns $72,000 as a scrap metal consultant but that if business is good, there will be bonuses;

h. That if he doubled his father’s book of business, he would conceivably discuss bonus, commission, or base salary increase at that time;

i. That his father is “already retired”, that Blue Water Metals is something he did on the side;

j. That Blue Water Metals is like an annuity for his father and “now we want to build it.”

[46] Those statements suggest that Mr. Merritt Sr.’s business was a retirement side line; that Mr. Merritt brought over his own clients to his parents’ business; and that Mr. Merritt is now building up his father’s business rather than building up his own business.

[47] This is amplified by Mr. Merritt’s statements in his affidavit sworn for this Motion in which he states, for example, that he is frequently “forced to travel across Ontario to visit potential clients and customers to generate revenue for the company.” He also states in his Affidavit that his father is retired (although operating Blue Water Metals) and that he retired eleven years ago.

[48] A number of these statements stand at least somewhat at odds with Mr. Merritt Sr.’s sworn statements in his affidavit for this Motion, including the following:

a. That Mr. Merritt essentially took over what Mr. Merritt Sr. had been doing;

b. That the business base has not changed materially and that the book of business has not been expanded;

c. That up until October 2016, Mr. Merritt Sr. had been “consistently active in running Blue Water Metals” (as opposed to being retired);

d. That Mr. Merritt had no contacts in the industry which were not Mr. Merritt Sr.’s contacts first;

e. That the company has been “profitable since inception” but also that “the deals are sporadic, not anything like a steady stream of revenue” and that “we have not been able to afford to draw any money from Blue Water Metals since he [Mr. Merritt] started and have had to dip significantly into savings; ”

f. That Blue Water Metals did not receive any new deals or funds when [Mr. Merritt] started working for it; and

g. That [Mr. Merritt] did not transfer his business to Blue Water Metals.

[49] It may be that these statements are all reconcilable, but on the evidence before the Court for this Motion, it would be unfair for Ms. Weber to proceed to the hearing of the Motion to Change without an opportunity to satisfy herself, through documentary disclosure and questioning of Mr. Merritt Sr., as to whether, for example, Mr. Merritt did or did not bring clients to his father’s business, whether Mr. Merritt’s business has increased since his son started “building it up”, and whether in fact the “business base” of Blue Water Metals has been expanded. These issues are all squarely relevant to whether it was a reasonable decision, from the perspective of determining income for support purposes, for Mr. Merritt to let his business go “dormant” in favour of working for his father’s company.

[50] This is particularly so, where the determination has already been made that this matter will be heard as a Motion, with no opportunity for Ms. Weber to call Mr. Merritt Sr. as a witness at Trial. It would be unfair for her not to be able to hear from Mr. Merritt directly regarding the issues that bear on income for support purposes.

(b) The information sought is not easily available by any other method.

[51] The second condition of the test under Rule 20(5) is that the information not be “easily available” by any other method. Information is “easily available”, for example, if it is available from another source, such as the Respondent. Armstrong v. Miller, 2001 CarswellOnt 10587. In that circumstance an Order is not necessary.

[52] Where the only way to obtain the information sought is through the non-party, this requirement will be met. See for example Hagey-Holmes v. Hagey, supra, at para. 34(2).

[53] This Court finds that the information sought is not easily available by any other method.

[54] By letter dated February 9, 2018, counsel for Ms. Weber requested that Mr. Merritt voluntarily produce certain disclosure. By letter dated February 27, 2018, counsel for Mr. Merritt indicated that his client was not prepared to consent to the questioning of his father, Mr. Merritt Sr., “or to provide disclosure from his father’s company, Blue Water Metals.”

[55] As noted, Mr. Merritt Sr. attached the Directors and Shareholders Register to his affidavit as an exhibit.

[56] On the hearing of the Motion, counsel was asked by the Court whether Mr. Merritt Sr. had voluntarily produced any disclosure other than the Directors and Shareholders Register. Counsel indicated that he had not.

[57] It is clear from the foregoing that the information sought is not easily available from Mr. Merritt Sr. and Blue Water Metals without an Order of this Court.

(c) The questioning or disclosure will not cause unacceptable delay or undue cost.

[58] The third condition of the test under Rule 20(5) is that the disclosure or questioning not cause unacceptable delay or undue expense. Whether delay or undue expense would be occasioned is a question of fact in each case.

[59] As noted, this Motion to Change has been set to the September 10, 2018 list. This is three months away.

[60] This Court is setting tight timelines for the production of certain disclosure and for questioning of Mr. Merritt Str. to take place. Even allowing that there may be undertakings arising from the questioning, there is no need for this process to delay the hearing of the Motion.

[61] There will be some cost occasioned as a result of the Court’s determination herein. However, the Court finds that the cost is not “undue”, in the sense that the matter cannot fairly proceed to being heard without the evidence being ordered below. Of course, in the event that Ms. Weber is not ultimately found to be successful in her arguments about Mr. Merritt’s income, she may face cost sanctions following the hearing of the Motion to Change.

(d) Additional Considerations

[62] Turning briefly to the considerations set out by the Court of Appeal in Re The Estate of Harold Edwin Ballard, set out above, this Court finds as follows:

a. The disclosure sought by Ms. Weber is important to the fair and just adjudication of this Motion to Change;

b. Production at the discovery stage of the process is necessary to avoid unfairness given that Ms. Weber will have no opportunity to call Mr. Merritt Sr. as a witness since this matter is proceeding as a Motion as opposed to as a Trial;

c. In this case both production and questioning are necessary;

d. The non-party opposes production and has produced only the most limited information on a voluntary basis; and

e. The non-party in this case is Mr. Merritt’s father and the company he owns with Mr. Merritt’s mother. He is not a true “stranger” to the litigation. As Justice Turnbull noted in Hagey-Holmes v. Hagey, supra, in matrimonial litigation, family members may from time to time be “used” to shield income relevant in the determination of support. See also Loeb, supra.

[63] Further, this Court has considered the caution provided by Justice Kitely in Saunders, supra, and Justice Perrell, in Boyd, supra, regarding the importance of proportionality, common sense, and fairness, as well as of not treating disclosure as a weapon. This Court finds that the disclosure ordered herein and the requirement that Mr. Merritt Sr. attend for questioning are proportionate to the issues and required for the fairness of the Motion to Change.

[64] Further, although Mr. Merritt Sr. complains that the information requested is “highly personal”, the disclosure Ordered by this Court is not “personal” in nature but relates directly to the business which employs his son. To the extent that there is any interference in Mr. Merritt Sr.’s privacy it is necessary in the circumstances of this case, where the documents sought are relevant to the determination of Mr. Merritt’s income for support purposes.

(e) Conclusion Regarding Orders Sought

[65] Ms. Weber has sought the following documentary disclosure:

a. A copy of the current Directors and Shareholders Register;

b. A complete listing of all clients of 1765975 from January 1, 2015 to present;

c. Financial Statements for 1765975 Ontario Inc. for the years 2015, 2016, and 2017;

d. General ledgers and/or accounting statements for 1765975 from January 1, 2017 to the present; and

e. Monthly banking statements, for all accounts upon which 1765975 is named, from January 1, 2017 to the present.

[66] The Directors and Shareholders Register was produced with Mr. Merritt Sr.’s responding affidavit so that issue is moot.

[67] This Court finds that the client listing from January 1, 2015 to the present is directly relevant to the question of whether Mr. Merritt brought his clients to his Blue Water Metals when he accepted employment with the company. So too, the financial statements from 2015 to the present would provide documentary evidence regarding whether in fact the business of Blue Water Metals has been steady since Mr. Merritt let his own company go dormant and joined his father’s company, or whether the business has been “built up” and if so, to what extent.

[68] Mr. Merritt Sr. is concerned about disclosing proprietary information which he states could potentially damage his business in an environment of increased competitiveness. This is a reasonable concern. The Order below provides that the documents produced by Mr. Merritt Sr. on behalf of Blue Water Metals are to be held in confidence by Ms. Weber and her counsel, subject to obtaining financial advice on those documents should they choose to. In the event that information and/or documents disclosed by Mr. Merritt Sr. on behalf of Blue Water Metals are required to be used in Court, those documents are to be made sealed exhibits.

[69] At this time, the request that Mr. Merritt Sr. produce general ledgers and accounting statements and monthly banking statements is over-reaching and not necessary to prevent unfairness. It may well be that these documents are requested in questioning, but at this stage the documents set out in paragraph 70(b) and 60(c) above should suffice.

D. ORDER

[70] Based on the foregoing, this Court makes the following Order:

1. The Non-Party Respondent, 1765975 Ontario Inc. (Robert Merritt) shall produce to the Applicant’s counsel the following documents within 14 days:

a. A complete listing of all clients of 1765975 from January 1, 2015 to present;

b. Financial Statements for 1765975 Ontario Inc. for the years 2015, 2016, and 2017;

2. The Non-Party Respondent, 1765975 Ontario Inc. (Robert Merritt) shall attend for questioning under oath within 30 days, pursuant to Rule 20(5) of the Family Law Rules, for one half day, on a date mutually convenient to the counsel of both Robert Merritt and the Applicant’s counsel.

3. Documents produced by Non-Party Respondent, 1765975 Ontario Inc. (Robert Merritt) are to be held in confidence by Ms. Weber and her counsel, subject to obtaining financial advice on those documents should they choose to. In the event that information and/or documents disclosed by Non-Party Respondent, 1765975 Ontario Inc. (Robert Merritt) are required to be used in Court either in relation to further Motions or the Motion to Change, those documents are to be made sealed exhibits.

E. COSTS

[71] Counsel are encouraged to agree upon the costs of this Motion.

[72] If there is no agreement, the Court will receive brief (3 pages or less, double spaced) written submissions from both parties and the non-party respondent by June 1, 2018 and any brief responding submissions by June 15, 2018.

[73] Timelines may not be extended without leave of the Court. If submissions are not received on the timeline set out herein, the question of costs of this Motion will be deemed to have been resolved on consent.

Madsen, J.

Date: May 24, 2018