Court File and Parties
Court File No.: FS-15-20247 Date: 20181218 Superior Court of Justice - Ontario
Re: Wendy Laliberte, Applicant And: Scott Gordon Monteith, Respondent
Before: Kristjanson, J.
Counsel: G. Karahotzitis / C. Amiri for the Applicant D. Gelgoot/C. van Wirdum, for the Respondent
Heard: November 22, 2018; submissions in writing December 14, 2018
Endorsement
1The applicant, Ms. Laliberte, brings a motion for a preservation order under section 12 and a non-depletion order under section 40 of the Family Law Act, R.S.O. 1990, c. F.3. Both orders are sought to restrain the respondent, Scott Monteith, Ms. Laliberte’s former spouse, from depleting, transferring or dissipating property in his possession. The parties separated in 2012. They entered into minutes of settlement on January 30, 2014. The minutes were incorporated into a separation agreement on April 8, 2014. The separation agreement contained a global property settlement and a release of spousal support claims. Both parties were represented by experienced counsel. Ms. Laliberte retained an expert valuator. Ms. Laliberte received and continues to receive substantial benefits under the separation agreement. The parties divorced in May, 2014.
2In June, 2015 Ms. Laliberte commenced an application to set aside the separation agreement in its entirety pursuant to section 56(4) of the FLA, on the basis of misrepresentation and failure to make full disclosure. Ms. Laliberte alleges that Mr. Monteith had concealed negotiations and a non-binding letter of intent to sell some of his businesses. The negotiations took place after separation but prior to the signing of the separation agreement. If the domestic contract is set aside, Ms. Laliberte seeks spousal support, child support and equalization that varies dramatically from what was agreed to in the separation agreement. In January, 2018 following a long motion, Justice Hood bifurcated the issues and ordered a trial on the validity of the separation agreement. Ms. Laliberte now seeks an order precluding Mr. Monteith from dissipating his assets, to preserve the claims she advances for equalization and support if the separation agreement is set aside. I decline to issue a preservation order, a non-depletion order, or a Mareva injunction.
3Under the FLA, married spouses have a right to equalization and to seek spousal support. However, having finally settled these issues, and obtained a divorce, the applicant does not have a present right to advance claims for equalization or support. The applicant has a contingent claim to advance a claim for equalization under the FLA, which arises only if the separation agreement is set aside. She would then be a former spouse advancing a claim for equalization. The applicant has no right to advance a claim for spousal support under the FLA, as the parties are now divorced; any such claim would have to be advanced under the Divorce Act. As such, the applicant has no standing to seek a non-depletion order pursuant to section 40 of the FLA.
4In the circumstances of this case, the applicant may seek a Mareva injunction, which effectively gives judgment before trial by freezing the assets of the defendant. The rationale for a Mareva order is to restrain a defendant from disposing of assets in order to protect the applicant’s right to enforce a monetary judgment. This is the test that should be applied on a motion for a preservation or non-depletion order where a domestic contract must be set aside before the applicant may advance claims under Parts I or III of the FLA, or where FLA statutory relief is not available. I find the applicant has not met the burden to obtain a Mareva injunction, and the motion is dismissed.
Background Facts
5The parties separated in 2012, after approximately seventeen years of marriage. They have two children. Mr. Monteith is the President, CEO and the sole shareholder of a corporation. Ms. Laliberte commenced a court application in April 2013 which included claims for custody and access, child and spousal support, equalization of net family property and other financial claims. The parties participated in two mediation sessions, and during the second mediation on January 30, 2014 the parties entered into Minutes of Settlement. Both parties were represented by experienced senior family counsel. Ms. Laliberte retained an expert valuator. Mr. Monteith provided Ms. Laliberte with detailed financial disclosure including a sworn financial statement and an income report prepared by expert valuators.
6On April 8, 2014 the parties executed the comprehensive separation agreement which incorporated the terms of the January 30, 2014 minutes of settlement. The separation agreement is a domestic contract under Part IV of the FLA. The separation agreement provides that:
- The Minutes of Settlement provide for a global resolution of the financial issues,
- The separation agreement is a domestic contract entered into under section 54 of the FLA,
- The parties released all spousal support claims, and acknowledged that “they have had independent legal advice and all the disclosure they have requested and require to understand the nature and consequences of” the separation agreement,
- There were no representations, collateral agreements, warranties or conditions affecting the separation agreement,
- The parties agreed that each of them had provided financial disclosure, and stated that: “ Each party confirms to the other that they have investigated the others financial circumstances and are each satisfied with the disclosure and investigation ” (emphasis added),
- The separation agreement stated that the spousal support and property sections of the separation agreement are interdependent and inextricably intertwined and together they fully satisfied support objectives set out in the Divorce Act and the Family Law Act.
- The parties acknowledged their independent legal advice and affirmed that they understood their respective rights and obligations under the separation agreement and its nature and consequences, that the agreement was fair and reasonable, that they were not under any undue influence or duress, and were both signing the agreement voluntarily.
7Ms. Laliberte received benefits under the Agreement, including the payment of $3.3 million in satisfaction of claims to property, equalization and retroactive/prospective spousal support; payment towards her legal and valuation fees; assumption by Mr. Monteith of the joint debts; the transfer of the matrimonial home to Ms. Laliberte, then valued at approximately $2 million; and payment of child support of $10,000 monthly.
8In April, 2015 Ms. Laliberte commenced an application to set aside the separation agreement on the grounds of misrepresentation and failure to make full financial disclosure. In her affidavit she claims that in February 2015 she discovered that Mr. Monteith was negotiating the sale of two of his business interests for a combined price of $30,700,000 during the time the matrimonial settlement was negotiated and before the separation agreement was signed. The sale was completed one week after the signing of the separation agreement. Ms. Laliberte’s evidence is that during the settlement negotiations, Mr. Monteith valued his businesses between $7 and $8 million as at valuation date, and his income was between $435,000 to $840,000.
9Mr. Monteith agrees that the sale of the businesses closed on April 14, 2014 for a purchase price of $30,700,000, with the net value to him of approximately $18,200,000. He agreed that the negotiations concerning the sale started in October 2013, when the parties signed a non-disclosure agreement. On December 23, 2013 the acquiror company sent a draft non-binding letter of interest to purchase the businesses, which was executed by both companies December 30, 2013. In January, 2014 the businesses provided information to the potential acquiror which commenced its due diligence. The Share Purchase Agreement for the acquisition became binding on April 14, 2014. Mr. Monteith’s evidence is that the proposed sale of the businesses was non-binding and confidential until it closed on April 14, 2014, almost 3 months after the parties entered into the Minutes and almost 2½ years after the date of separation. His position is that Ms. Laliberte was fully aware of Mr. Monteith’s ownership interest in the businesses and as such financial disclosure is not an issue. The transaction occurred 2½ years after the separation, and was not finalized until after the settlement. Mr. Monteith’s evidence is that at any point between October, 2013 and April, 2014, either party could have “walked away” from the negotiations. His position is that there was no misrepresentation or failure to make financial disclosure.
10Neither party filed the valuations used in the 2013/2014 family law negotiations, nor their expert or solicitor files, on this motion. There is no expert evidence as to whether the non-binding letter of intent relating to a sale 2½ years after the valuation date was material in the context of the valuations, negotiations and disclosure at the time.
11The applicant raises the issue of alleged continued withholding of financial disclosure as part of her basis for the preservation order. I find that in this proceeding she has not established that Mr. Monteith breached any orders or inappropriately withheld financial information. Rather, in light of the final separation agreement, there has been substantial disagreement between the parties as to what information needs to be produced in this litigation, and the effect of confidentiality obligations to third parties. There have been two disclosure motions.
12Ms. Laliberte’s motion for disclosure and Mr. Monteith’s motion to bifurcate the issues proceeded before Justice Hood on December 12, 2017. The issues were bifurcated, and Justice Hood directed a trial to determine the validity of the separation agreement. He also directed a portion of the disclosure sought as relevant to the validity of the separation agreement and valuation at date of separation. He declined to order current financial disclosure or a current financial statement until it has been decided whether the separation agreement should be set aside. There has been substantial compliance with the disclosure order of Justice Hood. Questioning commenced, but when a document not previously produced or provided by the applicant was raised for the first time in questioning, Mr. Monteith’s counsel took the position that all documents be produced and affidavits of documents be exchanged before further questioning. I do not find that the conduct of the respondent or his counsel was inappropriate as argued by Ms. Laliberte.
13Ms. Laliberte alleges that Mr. Monteith “is arranging his financial affairs in a way designed to thwart my equalization and support claims so that I am unable to advance my claims.” Her evidence is that he has listed his home for sale; his home was encumbered by a number of charges in 2017-2018; he registered a charge against his cottage in 2018; he has been in negotiations to sell a percentage of one of his companies; and he owes money for section 7 expenses.
14Mr. Monteith’s evidence is that his company has been self-financing startup technology and turnaround manufacturing businesses, resulting in delays in generating sufficient revenue streams and capitalization issues, and it has minimal funds. Charges on assets and property disposition are related to the operations of his business, and not to avoid judgment as alleged. He advised that he and his family have loaned his corporation substantial funds since 2017 in part through mortgaging his home. His evidence is that his corporation and its related businesses have implemented numerous cost cutting measures recently, and he himself has not received salary for the past 12 months. His evidence is that he cannot continue to fund all the expenses associated with the home and cottage properties given the financial circumstances of his businesses, leading him to sell the properties.
15Ms. Laliberte makes the bald allegation, not supported by evidence that “the Respondent transferred assets off-shore and transferred assets and property into the names of relatives, friends and other entities, the full extent of which is not within my knowledge.” She alleges that the respondent has accounts and interests in entities located offshore “which interests he has not disclosed in his Financial Statements.” She states that during their marriage she and Mr. Monteith travelled frequently to the Cayman Islands and she “believed” in 2011 the respondent opened a bank account at the Royal Bank of Canada, Cayman Islands branch, and there has been no disclosure of the account. Mr. Monteith’s affidavit evidence is that these allegations are not true; that he has no accounts or business interests in Panama or the British Virgin Islands. He has companies in both Malta and the Cayman Islands established in October 2013, which have been disclosed, and he denies opening a bank account in the Cayman Islands in 2011; one of his companies opened an account in the Cayman Islands in 2013, which has been disclosed.
16The evidence before me is that Mr. Monteith has paid all child support payments. He was late in his October payment due to his continuing financial problems but made a catch-up payment in November, together with the November payment. There is a dispute between the parties as to whether Ms. Laliberte consulted with Mr. Monteith or advised him of section 7 expenses. Ms. Monteith’s counsel conceded in argument that they have not provided the receipts for reimbursement of section 7 expenses. Mr. Monteith is not in arrears of child support.
Legal Issues
17The applicant moves for a preservation order pursuant to section 12 and a non-depletion order pursuant to section 40 of the Family Law Act. These sections provide:
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.
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.
18Married spouses have a right to equalization, and to seek spousal support. Sections 12 and 40 are part of a statutory scheme to enforce those rights. The objective of section 12 is to ensure that if an equalization payment is found to be owing, there are sufficient assets to satisfy the payment: (Lasch v. Lasch, 64 O.R. (2d) 464)). A similar objective underlies section 40 in respect of support obligations.
19In this case, however, the parties are divorced. The parties have signed a domestic contract dealing with all financial and property issues, while represented by counsel. The applicant retained an expert valuator, was aware of the existence of the businesses, and in the separation agreement confirmed that she had investigated Mr. Monteith’s financial circumstances and was satisfied with the disclosure and investigation. The parties released their rights to spousal support and equalization. This affects the availability of statutory relief under the FLA.
20The parties are not spouses as defined in the FLA. Part I of the FLA deals with family property, and Part III of the FLA deals with support obligations. Section 12 is contained in Part I of the FLA, and a section 12 preservation order may be sought in relation to equalization claims under Part I of the FLA. Spousal support arises under Part III of the Act. A section 40 non-depletion order may be sought in relation to support claims arising under Part III of the Act.
21Ms. Laliberte does not qualify as a spouse under either Part I or Part III of the FLA. Under s. 1(1) of the FLA, spouses are defined as two persons who are married or who have entered into a marriage that is void or voidable in good faith. Section 29 of the Act extends the definition of spouse for the purposes of support claims under Part III of the FLA to include unmarried persons who have cohabited for a period of no less than three years or who are the parents of a child. Since the parties are divorced, Ms. Laliberte does not qualify as a spouse under either definition. She is a “former spouse.”
A Former Spouse Has No Standing to Seek a Section 40 Order
22Former spouses are not entitled to advance support claims under the FLA: Okmyansky v. Okmyansky, 2007 ONCA 427 at para 42. Divorced spouses may only claim spousal support under the Divorce Act. Ms. Laliberte therefore does not have standing to seek a non-depletion order under section 40 of the FLA, since that is a statutory remedy only available in respect of FLA support claims. However, as discussed below, she may seek a Mareva injunction in relation to her Divorce Act support claim, which is a contingent claim which arises only once the separation agreement is set aside.
A Former Spouse May Seek a Section 12 Order
23Equalization claims arise under section 5 of the FLA, which are commenced by application pursuant to section 7(1) of the FLA, which provides that:
7 (1) The court may, on the application of a spouse, former spouse or deceased spouse’s personal representative, determine any matter respecting the spouses’ entitlement under section 5. (emphasis added)
24It is clear from section 7 that former spouses have standing to bring an application for equalization under section 7. Section 12 of the Act provides that in an application under section 7, the Court may make an interim or final order restraining the depletion of a spouse’s property and for the possession, delivering up, safekeeping and preservation of the property if it considers it necessary for the protection of the other spouse’s interests under this Part. It does not refer to the “former spouse’s” property or “former spouse’s” interests.
25Mr. Monteith argues that section 12 of the FLA does not permit the court to make an order with respect to property owned by a non-spouse, and where property is owned by a non-spouse, the moving party must satisfy the test for a Mareva injunction, which presents a higher hurdle (see Newcastle v. Newcastle, 2018 ONSC 5121 at paras 22-24). In Newcastle, the property was owned by a daughter, not by a former spouse. The issue is more difficult when the property is owned by a “former spouse”, in an application properly commenced by a former spouse.
26I find that since a “former spouse” may commence an application for equalization, and the court on the application may determine any entitlement relating to equalization, a section 12 preservation order may be sought by a former spouse. Section 12 is an integral element of the statutory scheme relating to the enforcement of the statutory right to equalization.
27In most claims by former spouses for equalization, this will be the initial application and the former spouse has a prima facie entitlement to pursue equalization. However, as discussed below, Ms. Laliberte has only a contingent claim to equalization, which arises only if the separation agreement is set aside, and it is then determined that the property settlement under the separation agreement was insufficient such that a payment is owing to her.
Application to the Facts
28Section 12 and 40 orders are discretionary, and the decision to grant or refuse a preservation or non-depletion order is highly fact specific and contextual. Where the claimant has a right to apply for equalization under Part I of the FLA and spousal support under Part III of the FLA, the test to be applied for a section 12 preservation order or a section 40 non-depletion order is the interim injunction test: Price v. Price, 2016 ONSC 728 at para. 6.
29This is not a case in which there is a clear entitlement to even assert a claim for equalization or spousal support; in fact, it is the opposite. Until the separation agreement is set aside, the applicant has no entitlement to make an equalization claim as a former spouse under Part I of the FLA. Ms. Laliberte can never make a claim for spousal support under Part III of the FLA since the parties are divorced. Ms. Laliberte has at the highest contingent claims, which are wholly dependent on succeeding in setting aside the domestic contract. In those circumstances, the lower interim or interlocutory judgment standard should not be applied to a motion for a preservation or non-depletion order. Rather, it is appropriate to apply the Mareva injunction standard to such motions until the domestic contract is set aside.
30The applicant’s claims include damages for negligent and fraudulent misrepresentation, breach of fiduciary duty and the tort of deceit, as well as the matrimonial-related claims. A Mareva injunction pursuant to section 101 of the Courts of Justice Act, R.S.O. 1990, c. C.43, and Rule 40 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, are applicable to these claims.
31A Mareva injunction is intended to prevent the dissipation of assets pending the determination of a civil matter. In order to obtain a Mareva injunction, the moving party must, as set out by Trimble, J. in Ekaterina Ivanova Karpacheva v. Valery Vladimirovich Karpacheva, 2018 ONSC 4563 (SCJ) (Karpacheva) at para. 33:
(1) establish a strong prima facie case; (2) make full and fair disclosure of all material matters within her knowledge; (3) give particulars of the claim against the defendant; (4) give the basis for believing that the defendant has assets in the jurisdiction; (5) establish that there is a serious risk that the defendant will remove property or dissipate assets before judgment; and (6) give an undertaking as to damages.
32There is an onus on the applicant to establish a real risk that the defendant is removing or about to remove assets from the jurisdiction to avoid the possibility of a judgment, or is otherwise dissipating or disposing of assets in a manner clearly distinct from the usual course of business or living: Chitel v. Rothbart (1982), 39 O.R. (2d) 513 (Ont. C.A.) at pp. 532-533; Canadian Imperial Bank of Commerce v. Credit Valley Institute of Business & Technology at para. 16. The stringent nature of the test for a Mareva injunction arises because preservation and non-depletion orders are a form of execution before judgment, and are an “anathema to a property owner’s right to deal with his or her property as he or she sees fit”: Karpacheva, supra, at para. 29.
33In this case, Ms. Laliberte has not met the onerous test required to justify the granting of a Mareva injunction. She has not made out a strong prima facie case that the Separation Agreement ought to be set aside, nor a serious issue to be tried on the issues of equalization and spousal support. She has not established that Mr. Monteith has removed assets from the jurisdiction or dissipated assets in order to avoid her claims. She has not established that she would suffer irreparable harm if the injunction were not granted, and finally, she has not given an undertaking as to damages.
No Strong Prima Facie Case
34The applicant must first establish that she has a strong prima facie case to set aside the domestic contract under section 56(4) of the FLA and then that she has a serious issue to be tried on the merits of the claim for equalization and spousal support. As set out by Kiteley, J. in Turk v Turk, 2015 ONSC 5845 at paras. 52-55 (internal citations omitted):
52Section 56(4) of the Family Law Act provides that a court may set aside a separation agreement or a provision in it if (a) a party failed to disclose to the other significant assets, or significant debts or other liabilities, existing when the contract was made; (b) if a party did not understand the nature or consequences of the domestic contract; or (c) otherwise in accordance with the law of contract.
[53] In the decision in LeVan v. LeVan …the Court of Appeal applied a two part test when conducting the analysis under s. 56(4): (a) The court must determine if the party seeking to set aside the agreement can demonstrate that one or more of the circumstances in subsections (a) to (c) have been engaged; and (b) If the moving party has fulfilled the first part, the court must then consider whether it is appropriate to exercise discretion in favour of setting aside the agreement.
54The onus is on the party seeking to set aside the separation agreement to prove his or her case.
[55] In exercising its discretion as to whether it is appropriate to set aside the agreement, the following factors should be taken into account: (a) whether there had been concealment of the asset or material misrepresentation; (b) whether there had been duress, or unconscionable circumstances; (c) whether the petitioning party neglected to pursue full legal disclosure; (d) whether he/she moved expeditiously to have the agreement set aside; (e) whether he/she received substantial benefits under the agreement; (f) whether the other party had fulfilled his/her obligations under the agreement.
35The date of separation was 2012. The minutes of settlement were signed in 2014. husband’s income report, used at the mediations, is not in evidence; nor is the applicant’s valuator report. The applicant’s valuator attended the mediations. The parties reached a global property settlement. There is no evidence as to how the final settlement was reached, how the value of the companies changed between date of separation and the agreement, and whether disclosure of settlement negotiations and a non-binding letter of intent 2.5 years after the date of separation would have been material. I do not have a sufficient evidentiary basis to find that there was misrepresentation or a failure to make full financial disclosure. The applicant called no expert evidence that might have assisted me in making this determination. The applicant called no evidence as to how, if at all, the disclosure of a non-binding letter of intent, would have affected the equalization payment or spousal/child support claims at the time, particularly in light of the global financial settlement structure, and given disclosure of the existence of the businesses. I cannot take judicial notice that the negotiations and non-binding letter of intent constitute a misrepresentation or a failure to make the required disclosure on the evidence before me.
36This is not a case like Bronfman where the wife had the right to assert an equalization claim; whether the separation agreement will be set aside in the exercise of the trial judge’s discretion cannot be determined on the record. I have no evidence of the wife’s attempts to obtain disclosure. There is no evidence of the applicant’s “investigations”, which she confirmed at the time were adequate. There is evidence that the wife obtained substantial benefits under the agreement, and that the husband fulfilled his obligations under the agreement. I find that the applicant has not established on a balance of probabilities a strong prima facie case that the separation agreement will be set aside. I would decide this case on that basis alone, but I go on to consider the other elements.
Not Removing/Depleting Assets to Avoid Judgment
37Ms. Laliberte must show, on a balance of probabilities, that Mr. Monteith is taking steps to put his assets out of her reach, either by removing them from the jurisdiction of the court or by dissipating or disposing of them other than in the normal course of business or living. Mr. Monteith’s evidence is that he is using assets, including the charges and collateral mortgages on his properties, to operate his companies which are in financial difficulty. The trial date for the setting aside of the separation agreement has not yet been set. Any equalization and spousal support claims cannot be raised until the final determination of the trial to set aside the separation agreement. The order sought is a global preservation of assets/non-depletion order.
38I give no weight to the alleged international transfer of assets to avoid a potential claim. The applicant’s allegations of transfers to friends and family, and bank accounts abroad, are speculative, and Mr. Monteith denies those allegations. The Order cannot be based on speculation: Kreft v. Mezo at paras. 4, 10. Ms. Laliberte has not met the burden of showing that Mr. Monteith is taking steps to put his assets out of her reach to avoid judgment, or other than in the normal course of business and living. Rather, I find the evidence supports a conclusion that Mr. Monteith’s focus is on generating income and return on capital within his businesses, not seeking to deprive the applicant of a contingent equalization or support claim.
No Undertaking as to Damages
39There is no undertaking as to damages in the record. Section 40.03 of the Rules of Civil Procedure provides:
40.03 On a motion for an interlocutory injunction or mandatory order, the moving party shall, unless the court orders otherwise, undertake to abide by any order concerning damages that the court may make if it ultimately appears that the granting of the order has caused damage to the responding party for which the moving party ought to compensate the responding party.
40There was a submission that the applicant would be willing to execute such an undertaking. Because those damages may be substantial, the undertaking should be in writing, and should be provided to the Court in the motion materials. Individuals must execute the undertaking personally; a lawyer’s assertion does not constitute an undertaking.
Overbroad Order Sought
41The final concern is the breadth of the Order sought. The Court of Appeal in Chitel cautioned that a party on a Mareva injunction must seek to establish the assets to be subject to the injunction with as much precision as possible. In Lasch v. Lasch, Justice Granger held that a preservation order under s. 12 of the FLA should be restricted to specific assets. This is because these orders represent execution before judgment, and run the risk of significantly interfering with the operation of businesses. In this case, the applicant sought an overbroad order as follows:
An Order restraining the Respondent, Scott Monteith, from directly or indirectly, personally, through a corporation or trust or other entity, by any means whatsoever, transferring, alienating assigning, mortgaging, encumbering, disposing of, depleting, or removing, or otherwise dealing with, any property in any jurisdiction in which he may have an interest, directly or indirectly, legally or beneficially as a trustee, pursuant to Sections 12 and 40 of the Family Law Act, save and except with the consent of the Applicant or further Court Order.
42While the applicant’s counsel indicated his willingness to seek a more targeted order, he has sought an order far beyond the breadth of the FLA, and fails to identify specific assets to be preserved. A preservation order should be targeted to protect the interests claimed, not all assets controlled by the party.
Conclusion
43I conclude that in the circumstances of this case, the applicant has not met the burden of establishing that a section 12 preservation order is warranted, and I decline to exercise my discretion to grant such an order. The motion for a section 12 order is dismissed with costs. The motion for the section 40 order is dismissed with costs as the applicant lacks standing to apply for such an order.
44I encourage the parties to agree on costs. If they are unable to do so, the respondent may make costs submissions of no more than three pages plus a costs outline by January 7; the applicant may respond with submissions of no more than three pages, by January 14. If the applicant takes issue with the quantum of costs sought rather than simply the scale, then she must also file a costs outline.
Kristjanson, J.
Date: December 18, 2018