Court File and Parties

Oshawa Court File No.: FC-17-1476 Date: 2018-08-30 Ontario Superior Court of Justice – Family Court

Between: Lynette Newcastle, Applicant – and – Carlton Newcastle, Samantha Persaud, International Plastics Recovery Inc. and Morrell Recycling Corporation, Respondents

Counsel: Lorne Fine, for the Applicant No one appearing for the Respondent, Carlton Newcastle Jodi L. Feldman, for the Respondent, Samantha Persaud Jonathan Rosenstein, for the Respondents, International Plastics Recovery Inc. and Morrell Recycling Corporation

Heard: August 27, 2018

Reasons for Decision

CHARNEY J.:

Introduction

[1] This family law proceeding involves a motion by a mother to restrain her daughter from depleting assets in two corporations controlled by the daughter. The mother is effectively seeking a Mareva injunction to prevent her daughter from depleting, transferring or otherwise disposing of assets owned and controlled by her daughter.

[2] In order to understand the basis of this motion, some background is helpful. To the extent that I comment on the evidence, I do so only for the purposes of this motion, and not to make any factual findings with regard to the main application.

Background Facts

[3] The Applicant, Lynette Newcastle (Lynette), is the spouse of the first Respondent, Carlton Newcastle (Carlton). They were married in 1982. There is a dispute as to the date of separation; the Applicant claims it was on or around January 1, 2013, Carlton claims it was in November 2016. I do not have to resolve that dispute for the purposes of this motion.

[4] Lynette and Carlton have two children. The first was Samantha Persaud, born in 1983. Samantha is the second Respondent in this case. The second child is Ryan Newcastle, who was born in 1986. Both children are married and living independent lives.

[5] In or around 1997 Carlton and five other partners started a company called International Plastics Recovery Inc. (IPR). Lynette claims that she was involved in the company from the beginning, while Carlton claims that she was not a partner and did not work for the company until later. That dispute is not relevant to the legal issues I must determine.

[6] In 2003 Carlton became the sole owner of IPR. Lynette was never a shareholder of IPR. Samantha completed school and started working with her father at IPR. Eventually Ryan started working for IPR as well.

[7] On or around January 1, 2014, Carlton transferred IPR to Samantha for $1.00 per share (total of 610 shares). Samantha became the sole controlling shareholder of IPR. The evidence indicates that Lynette was aware of this transfer when it happened in 2014, and tendered her resignation as Secretary of IPR on January 1, 2014, the same date that Carlton tendered his resignation as Director.

[8] If the date of separation was January 1, 2013 as contended by Lynette, then the value of IPR on that date must be included in Carlton’s financial statement. The evidence at this motion indicates that the approximate value of IPR in 2013 was $610,000.

[9] Following the transfer of the shares in 2014, Carlton and Lynette received a salary of $45,000 per year from IPR until August 2017. Samantha states that neither Carlton nor Lynette actually did any work for IPR, and that they were paid this way because it was “tax efficient”.

[10] Lynette commenced this family law application on September 15, 2017. Lynette is seeking equalization of net family property and spousal support from Carlton. The dispute between Lynette and Carlton is not before me, and Carlton took no position on this motion. I am advised that there is also a wrongful dismissal action brought by Lynette against Samantha that relates to Lynette’s August 2017 “dismissal” from IPR, but that issue is not before me.

[11] Lynette is also seeking parental support from Samantha pursuant to s. 32 of the Family Law Act, R.S.O. 1990, c. F.3 (the “FLA”). Samantha has indicated that she will bring a summary judgment motion with respect to that claim, and the summary judgment motion is scheduled for a long motion on October 4, 2018.

[12] Lynette alleges that Samantha has begun transferring all of IPR’s assets into a new company called Morrell Recycling Corporation (Morrell). This Corporation is also wholly owned and controlled by Samantha and carries on the same work at the same location as IPR. Lynette alleges that this is an attempt by Samantha to carry on the same business under a different name. Lynette also claims that Samantha has begun to dispose of IPR’s assets.

[13] On August 7, 2018, pursuant to a court order, Lynette amended her Application to add IPR and Morrell as respondents and to allege that the 2014 share transfer from Carlton to Samantha was a fraudulent conveyance and is void under sections 2 and 4 of the Fraudulent Conveyances Act, R.S.O. 1990, c.F.29. Under s. 2 of the Fraudulent Conveyances Act, a conveyance of property is fraudulent (and ineffective as against creditors) where it is “made with intent to defeat, hinder, delay or defraud creditors or others of their just and lawful actions...”

Issues On This Motion

[14] Lynette has raised two issues on this motion.

[15] The first is an Order that the Applicant be permitted to question Samantha “both in her personal capacity and on behalf of” IPR and Morrell.

[16] The second is an Order to prevent Samantha from “depleting, transferring, encumbering and/or disposing any of her assets or any assets over which she has possession or control”, including IPR and Morrell. The basis of this motion is Lynette’s allegation that the transfer of shares from Carlton to Samantha in 2014 (which post-dates Lynette’s alleged date of separation) was a fraudulent conveyance executed with the intent of frustrating Lynette’s rights as a creditor under the Family Law Act.

[17] A third issue relates to Lynette’s request for disclosure of documents and transactions related to IPR and Morrell. This motion for disclosure will be dealt with at the long motion scheduled for October 4, 2018.

[18] I will deal with each of these issues in turn.

Questioning

[19] Rule 20(5) of the Family Law Rules provides:

The court may, on motion, order that a person (whether a party or not) be questioned by a party or disclose information by affidavit or by another 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 with the case without it.
2. The information is not easily available by any other method.
3. The questioning or disclosure will not cause unacceptable delay or undue expense.

[20] The Applicant takes the position that one reason she needs to question Samantha is Samantha’s unwillingness to provide disclosure and to respond to communications. This puts the cart before the horse. The Applicant’s disclosure motion is scheduled for October 4, 2018. In my view that motion should be decided before any decision is made on the issue of questioning. Once the scope of the Samantha’s disclosure obligations (if any) is established by the court, and she has had an opportunity to comply with those disclosure obligations, the parties will be in a better position to assess whether questioning is necessary. It may be that the documents disclosed answer all of the Applicant’s questions. It may be that the documents disclosed raise additional questions not anticipated at this hearing. The scope of questioning will be coterminous to the scope of disclosure. If, once the documents are disclosed, the parties cannot reach an agreement on questioning, the Applicant may bring a motion for questioning at that point.

Mareva Injunction

[21] Section 12(b) of the FLA permits a spouse to seek an interim or final order for the safekeeping and preservation of property held by the other spouse, commonly referred to as a non-dissipation order. Section 12(b) of the Family Law Act provides:

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,

(b) for the possession, delivering up, safekeeping and preservation of the property.

[22] Section 12(b) does not permit the court to make an order with respect to property owned by a non-spouse, and cannot be invoked to set aside transactions that have already been completed: Dimartino v. Dimartino, 2016 ONSC 7461, at paras. 25 – 30. Where the property is owned by a non-spouse, the Applicant must satisfy the test for a Mareva injunction.

[23] In O2 Electronics Inc. v. Sualim, 2014 ONSC 5050, at para. 67, Perell J. summarized the law relating to Mareva injunctions as follows:

For a Mareva injunction, the moving party must establish: (1) a strong prima facie case; (2) that the defendant has assets in the jurisdiction; and (3) that there is a serious risk that the defendant will remove property or dissipate assets before the judgment. A Mareva injunction should be issued only if it is shown that the defendant’s purpose is to remove his or her assets from the jurisdiction to avoid judgment. The moving party must also establish that he or she would suffer irreparable harm if the injunction were not granted and that the balance of convenience favours granting the injunction. Absent unusual circumstances, the plaintiff must provide the undertaking as to damages normally required for any interlocutory injunction.

[24] As indicated by Timms J. in Price v. Price, 2016 ONSC 728, at para. 6, the test for a Mareva injunction presents a higher hurdle than the test for a non-dissipation order under s. 12 of the FLA.

[25] In my view this motion for a Mareva injunction can be disposed of by considering the third point that must be established by the Applicant: that there is a serious risk that the defendant will remove property or dissipate assets before the judgment.

[26] In the case of Sibley & Associates LP v. Ross, 2011 ONSC 2951, Strathy J. (as he then was) reviewed the cases related to interim Mareva injunctions and allegations of fraud. He stated (at paras. 62 – 63):

[T]he law has sought to draw a fair balance between leaving the plaintiff with a "paper judgment" and the entitlement of the defendant to deal with his or her property until judgment has issued after a trial. In my respectful view, a plaintiff with a strong prima facie case of fraud should be in no more favoured position than, say, a plaintiff with a claim for libel, battery or spousal support. On the other hand, there may be circumstances of a particular fraud that give rise to a reasonable inference that the perpetrator will attempt to perfect the deception by making it impossible for the plaintiff to trace or recover the embezzled property. To this extent, it seems to me that cases of fraud may merit the special treatment they have received in the case law.

Rather than carve out an "exception" for fraud, however, it seems to me that in cases of fraud, as in any case, the Mareva requirement that there be risk of removal or dissipation can be established by inference, as opposed to direct evidence, and that inference can arise from the circumstances of the fraud itself, taken in the context of all the surrounding circumstances. It is not necessary to show that the defendant has bought an air ticket to Switzerland, has sold his house and has cleared out his bank accounts. It should be sufficient to show that all the circumstances, including the circumstances of the fraud itself, demonstrate a serious risk that the defendant will attempt to dissipate assets or put them beyond the reach of the plaintiff.

[27] In the present case, the transfer of IPR to Samantha occurred more than four years ago, with the knowledge and apparent consent of Lynette. Moreover, the transfer occurred more than three years before Lynette commenced this family law application. The evidence indicates that Samantha has been operating IPR as a profitable business since the transfer in 2014. The evidence indicates that Samantha relies on the IPR business to support her family. In these circumstances, I am not prepared to infer that the transfer of IPR to Samantha in 2014 is, by itself, evidence that there is a serious risk that Samantha will attempt to dissipate assets or take any steps to put them beyond the reach of Lynette.

[28] Lynette also points to evidence (from an anonymous source) that Samantha incorporated Morrell on May 4, 2018, and has been transferring the assets, inventory and business of IPR to Morrell. Lynette is concerned that Samantha is planning to close IPR in an effort to reduce the value of the IPR shares.

[29] Samantha’s affidavit indicates that Morrell is “a new more socially conscious corporation” owned and operated by Samantha. Morrell was created as a separate company to deal with the recycling of a specific product: Defective Packaging Film. Samantha acknowledges that she is the sole shareholder of both IPR and Morrell. Both companies belong to her.

[30] Counsel for the Respondents questions the admissibility of hearsay from an anonymous source. Putting the admissibility issue aside for the moment, the difficulty with Lynette’s position is that, even assuming that the original share transfer in 2014 is void as being a fraudulent conveyance, Samantha has not depleted or dissipated IPR’s assets, she has simply transferred them to herself under a different corporate name. As long as the assets remain in Ontario under Samantha’s ownership, Lynette can trace and recover the property if she is successful in her claim. If the transfer of the IPR assets – owned 100% by Samantha – to Morrell – still owned 100% by Samantha - was intended to put the assets beyond the reach of Lynette, it will be ineffective at achieving its purpose.

[31] Apart from accessing IPR assets to satisfy any equalization order against Carlton (assuming the 2014 transfer is held to be a fraudulent conveyance), the current or future value of the shares of IPR is irrelevant to the dispute between the parties. The valuation date was either January 1, 2013, as claimed by Lynette, or November 2016, as claimed by Carlton.

[32] In addition, Lynette’s affidavit indicates that Samantha sold one of IPR’s properties (a property located on Clements Road) on March 15, 2018 for $355,000.

[33] Samantha’s affidavit indicates that the funds from the sale of that property were deposited into IPR’s bank account and have been used to fund IPR’s operations.

[34] It is not clear from any of the affidavit material filed what the significance of the Clements Road property was to the operation of IPR or Morrell. There is no evidence that either IPR or Morrell operated from that property or that the sale of that property has in any way interfered with the operation or profitability of either of the corporate Respondents.

[35] While Lynette has expressed her concern that Samantha plans to close IPR in order to reduce its value or defeat her claim, the evidence does not persuade me that Lynette has met her onus of proving that there is a serious risk that Samantha will remove property or dissipate assets before the judgment.

[36] Finally, the evidence indicates that even without the IPR assets, Carlton owns sufficient property to satisfy any equalization order that may be made against him. According to the financial statements filed by Lynette and Carlton, the two jointly own real estate that, in 2013, was worth $1,150,000. Their joint equity in the property is estimated to be approximately $680,000.

[37] Assuming that Lynette is successful in her claim, and the value of the IPR shares in January 2013 is added to the net family property, the evidence before me indicates that there are sufficient assets available to Carlton to make the equalization payment even without the IPR shares. Accordingly, the Applicant has not demonstrated that she will suffer irreparable harm if the Mareva injunction is not granted.

Conclusion

[38] Based on the foregoing, the Applicant’s motion for a Mareva injunction is dismissed, and the motion for questioning is adjourned sine die, pending the determination of the disclosure motion.

[39] The Respondents are presumptively entitled to their costs on this motion. If the parties cannot agree on costs, the Respondents may file written submissions of no more than two pages, plus costs outline and any offers to settle, within 30 days of the release of this decision, and the Applicant may file responding submissions on the same terms within 20 days thereafter.

Justice R.E. Charney

Released: August 30, 2018