Klasios v. Klasios, 2019 ONSC 4841

Superior Court of Justice - Ontario

Newmarket Court File No.: FC-18-56778-00 Date: 2019-08-27

Re: Catherine Mary Klasios, Applicant And: Lazaros Klasios, Respondent

Before: The Honourable Mr. Justice D.A. Jarvis

Counsel: Martha McCarthy / Lesley Burke, Counsel for the Applicant Paul McInnis / Christina Doris, Counsel for the Respondent

Heard: July 17, 2019

Ruling on Motion

1The respondent (“the husband”) has appealed an Arbitration Award¹ (“the award”) made in favour of the applicant (“the wife”) dealing with spousal support and costs enforceable as support. Both parties have brought pre-appeal motions. They are former spouses.

2The wife asks that the appeal be stayed or dismissed because the husband has not complied with the award, that he be denied an audience so long as he remains in breach of the award and that he be ordered to provide security for costs. She has also requested an order extending time to file her responding materials to the appeal. The husband moves to stay enforcement of the award pending his appeal being decided and he claims that he is unable to pay the award and to fund any security Order. He consents to the extension of filing time sought by the wife.

Background

3The award made by the arbitrator imputed to the husband a $150,000 income, calculated spousal support owing from and after May 1, 2013, awarded the wife a lump sum of $450,000 for retroactive and prospective spousal support payable by September 30, 2018 and $185,000 for costs enforceable as support.² This arbitration was the second phase in bifurcated proceedings, the first phase of which dealt with the wife’s claim to set aside the property and support terms of a marriage contract. The arbitrator enforced the property terms of the contract but set aside its support waiver. No appeal was taken from that award.

4The second phase award dealing with spousal support (and other issues, principally dealing with a mortgage) was made on June 29, 2018. The husband filed a Notice of Appeal dated July 26, 2018 and later delivered an Amended Notice of Appeal. The amendments varied the relief sought, mostly by withdrawing the husband’s dispute with the arbitrator’s findings about the parties’ incomes. Requests for clarification of this second phase award were made by the parties and resulted in two follow-up awards dated August 3, 2018 and January 25, 2019. The costs award was released on February 20, 2019.

5There is no dispute that the award was made pursuant to a valid Arbitration Agreement, that an appeal properly lies to this court pursuant to s. 45(6)(a) of the Arbitration Act³ and that the provisions of s. 59.8(4)(b) and (5)(a) and (b) of the Family Law Act⁴ apply,

45(6) Any appeal of a family arbitration award lies to,

(a) the Family Court, in the areas where it has jurisdiction under subsection 21.1 (4) of the Courts of Justice Act;

59.8(4) If the family arbitration award satisfies the conditions set out in subsection 59.6 (1)⁵, the court shall make an order in the same terms as the award, unless,

(b) there is a pending appeal, application to set the award aside or application for a declaration of invalidity; or…

59.8(5) If clause (4)…(b) applies, the court may,

(a) make an order in the same terms as the award…

6An Order in the same terms of the award has been made.

7Family Law Rule (“FLR”) 38(46) applies to appeals of family arbitration awards. No provision is made for stays of payment, or support, awards/orders and their enforcement. Where the rules don’t cover a matter adequately then pursuant to FLR 1(7) reference may be had to the Rules of Civil Procedure (“RCP”), s. 63.01(1) of which provides as follows,

The delivery of a notice of appeal from an interlocutory temporary or final order stays, until the disposition of the appeal, any provisions of the order for the payment of money, except a provision that awards support or enforces a support order does not stay a support order or an order that enforces a support order. O. Reg. 465/93, s.8.

8Nothing has been paid by the husband in compliance with the award. It totals $635,000, exclusive of interest.

Proper approach

9As recently noted by the Court of Appeal “where an appellant wishes to be relieved of his or her trial ordered obligations pending appeal, the proper approach is to bring a stay motion where the circumstances can be brought before the court”.⁶ The onus of satisfying the court that a stay is appropriate rests with the moving party⁷, in this case the husband. A three-part test is involved:

(a) There is a serious issue to be tried;

(b) Irreparable harm will result if the stay is not granted; and

(c) The balance of convenience favours a stay pending appeal.⁸

10In Abuzour v. Heydary⁹ the Court of Appeal approved of an observation made by Laskin J.A. that “the components of the test are interrelated in the sense that the overriding question is whether the moving party has shown that it is in the interests of justice to grant a stay”.¹⁰

Serious issue

11This component of the test has a low threshold. The moving party must satisfy the court that the appeal is not frivolous or vexatious.¹¹ Such a finding is not predictive of the success of the appeal. In this case the husband submits that the arbitrator made several palpable errors dealing with two principal issues. The first (“the Mortgage issue”) is the validity of a second mortgage on the parties’ former matrimonial home. The second issue (“Lump Sum of Spousal Support”) deals with whether such an award was appropriate, whether the husband had the financial resources to pay it and how the arbitrator calculated the lump sum.

(a) the Mortgage issue

12The issue of the validity and enforceability of the second mortgage in favour of the husband’s mother was one of the substantive issues submitted for arbitration. The arbitrator found that the husband had advanced his own funds to his mother who lent them back to him and then secured her interest by the second mortgage. The arbitrator found that the mortgage was “merely a contrivance”¹², it was not “bona fide”¹³, the effect of which would have been to eliminate the wife’s equity in the property. The arbitrator added that if he needed to determine whether the advanced funds were a gift or a loan they were “in fact, [the husband’s] own funds, at all relevant points in time, channelled through his mother’s account”.¹⁴ The impact of this finding was that the wife was relieved from her liability for her half ($134,250) of the mortgage debt, which funds are being held in trust. The arbitrator found that the funds belonged to the wife and awarded them to her.

13In his June 29, 2018 award the arbitrator ordered the husband to pay to the wife lump sum spousal support of $450,000 consisting, in part, of the funds in trust.¹⁵ In a clarification dated August 3, 2018 the arbitrator corrected the award such that the funds held in trust were to be paid to the wife independently of the $450,000.

14The husband submits that the arbitrator made at least four errors:

(a) That the finding that the husband’s own funds were channelled through his mother who then loaned them back to him was not supported by the evidence;

(b) That the arbitrator was obliged to determine whether the advanced funds were a gift or a loan;

(c) That the arbitrator erred in shifting to the husband the evidentiary onus of proving that the advanced funds were a loan and not a gift and that neither the wife’s evidence nor the facts as found by the arbitrator were sufficient to disprove that the mortgage was valid; and

(d) That the arbitrator erred in awarding relief that had not been pleaded.

15In light of the clarification made by the arbitrator that the funds in trust belonged to the wife and did not form part of the support award, it is not necessary to consider the mortgage issue further because payment of the funds was automatically stayed by service of the Notice of Appeal, even though it was served before the arbitrator issued his clarification. Relevant to the second, or lump sum support issue, is the husband’s claim that the arbitrator erred when he issued his clarification because he made no apparent adjustment in his reasoning for how the husband was capable of paying the lump sum award.

(b) Lump Sum of Spousal Support

16The husband submits that the arbitrator made the following palpable and overriding errors in that:

(a) The arbitrator incorrectly applied the facts to the legal test for a lump sum spousal support order, in particular the ability of the husband to pay it;

(b) The arbitrator incorrectly stated the legal test for ordering a lump sum as set out by the Court of Appeal in Davis v. Crawford¹⁶; and

(c) That the arbitrator erred when he used as a start date from which to calculate support a date one and a half years earlier than the parties had agreed.

17The arbitrator found that the wife was entitled to compensatory support arising from an eighteen year marriage in which there were two children of the marriage. The husband was the family’s primary breadwinner who, when the parties separated, operated a successful restaurant that the arbitrator described was “substantially a cash business”.¹⁷ The wife claimed that the parties separated on August 15, 2012 whereas the husband claimed that they separated on May 17, 2013. The wife acknowledged that the parties continued to live in the matrimonial home until she left it on November 1, 2014.

18The arbitrator considered the Davis factors relevant to making a lump sum order and observed that “keeping the parties financially tied to each other seems to me completely unrealistic, given the murky and uncertain nature and state of [the husband’s] financial affairs”.¹⁸ The context of this observation is important. The arbitrator was “disquieted”¹⁹, “baffled”²⁰ and troubled²¹ by the husband’s evidence about his financial circumstances and his lack of credibility. These concerns and findings span both phases of the bifurcated arbitration process and the costs award. Some (of many) examples:

(a) In the first phase, the arbitrator found that the husband “was sadly lacking in candour and forthrightness” and that he “had no intention of making full financial disclosure no matter how the questions were framed and by whom”²²;

(b) The husband’s “…real income…is… shrouded in mystery”²³;

(c) The arbitrator found that there was “every reason to doubt [the wife’s] ability to obtain fair and accurate financial disclosure from [the husband] now and in the future”²⁴;

(d) The arbitrator found that the husband “failed even remotely to provide an accurate picture of his financial circumstances”²⁵;

(e) “...[the husband’s six] financial statements… leave much to be desired in terms of their accuracy and reliability. In short, none of them conform (sic) to any appropriate standard the courts expect of a party in litigation of this sort”²⁶;

(f) The arbitrator rejected the evidence of the husband’s expert about his historical and projected income because the husband had made “misleading and incomplete representations as to his business revenue and current income”²⁷;

(g) The arbitrator found that the husband contrived to shelter an asset from the wife’s support claim”²⁸; and

(h) The arbitrator found that on the evidence before him the husband “failed even remotely to provide an accurate picture of his financial circumstances. I place little to no reliance on his November 2017 Financial Statement except that I accept his net worth of at least $300,000 as of that date”.²⁹

19It is clear from the first phase of the arbitration process and the award that the husband failed egregiously to provide to the wife and the arbitrator, and even to his expert, the financial disclosure that the Court of Appeal has repeatedly said was a “fundamental” obligation of family law litigants.³⁰ Based on the evidence from the husband about his financial circumstances the arbitrator found that the husband had the ability to pay a lump sum and identified several sources from which to pay it. Fulsome reasons were given.

20However, two aspects of the award do suggest that the appeal is not frivolous or vexatious. The first is that when the arbitrator made his original award he identified the mortgage funds as a source of payment. His later clarification did not address whether, or how, the removal of this source of funding available to the husband impacted, if at all, the finding that the husband had ability to pay the lump sum. The second is the start date for the retroactive support calculation. It is nowhere clear from the arbitrator’s reasons why a May 1, 2013 commencement date was chosen. The arbitrator calculated the wife’s support entitlement without any apparent consideration of who paid for the matrimonial home until the wife left the property on November 1, 2014. At best though, the value of the alleged error is $39,844.³¹

Irreparable harm

21In RJR the Supreme Court placed the burden of proving irreparable harm on the party seeking the stay and noted that “‘[I]rreparable’ refers to the nature of the harm rather than its magnitude”.³² In this case, the harm of which the husband complains is that his appeal will not be heard if a stay is not granted. Given that the husband’s appeal involves findings made by the arbitrator as a result of what were found to be the husband’s wilful non-disclosure, inadequate and misrepresentative disclosure and his lack of financial probity, the harm of which the husband complains is self-inflicted, his evidence self-serving and, in my view, speculative. In 754223 Ontario Ltd. v. R-M Trust Co³³ Epstein J. (as she then was) noted that “Irreparable harm cannot be founded on mere speculation. The evidence must be sufficient to support a finding that the moving party would suffer such harm not that it is merely likely”.³⁴ There is no such credible, supportive evidence from the husband here. He is not being denied the right to appeal.

Balance of convenience

22This component of the test involves “a determination of which of the two parties will suffer the greater harm from the granting or refusal [of the stay] pending a decision on the merits”.³⁵ In RJR the Supreme Court observed that the factors to be considered are case-dependant and variable, also noting that in private law cases preserving the status quo when everything else was equal was of limited value.³⁶

23The husband in this case submits that if the stay is not granted that he will lose his right to appeal the award and that the wife will not be prejudiced because she will continue to receive $1,250 monthly spousal support pursuant to a temporary Order made by McDermot J. on January 21, 2015³⁷ and that this status quo will continue until the appeal can be heard. In my view, arguing the loss of the right to appeal merely repeats the husband’s unsuccessful claim of irreparable harm.

24The husband was unable to refer the court to any case involving an appeal from a support order in which the court assessed, or considered, harm in circumstances where there had been financial non-disclosure by the appellant. None of the cases upon which the husband relies, mostly from Ontario but also from British Columbia, Prince Edward Island and Saskatchewan, where payment of temporary or final support orders under appeal were stayed for various reasons, involves findings of financial non-disclosure.³⁸

25The husband has not appealed the wife’s entitlement to spousal support. The arbitrator found that she suffered an economic disadvantage from the marriage and its breakdown³⁹; that she was, and would continue to be, financially dependent on the husband⁴⁰ and was entitled to indefinite support.⁴¹ The wife’s evidence is that her financial situation is precarious and she is significantly indebted.⁴² Her Financial Statement sworn on June 28, 2019 disclosed debts totalling $525,752.12 mostly for a personal loan to pay for legal fees, debt payments and post-separation expenses, an increase of slightly over $348,000 since her claimed August 2012 separation date.⁴³

26In Phillion v. Ontario (Attorney General)⁴⁴, a case which involved a stay of proceedings as an abuse of process, the Court of Appeal recognized that “the balance of convenience must weigh significantly in favour of [granting the stay]”.⁴⁵ Relevant to any balancing analysis in support order appeals is the “no automatic stay” policy regarding support orders noted by Brown J.A. in Heydary v. Ahmadi.⁴⁶ That case involved an appeal by a husband from a final order at trial awarding the wife lump sum spousal support. There were funds in trust from the sale of a property sufficient to pay the award pending a decision on the merits. The husband’s request for a stay was dismissed. The only practical difference between that case and the one now before this court is that while the arbitrator was able to identify the sources available to the husband to pay the lump sum in this case, he was unable to quantify them with any satisfactory degree of confidence as a direct consequence of the husband’s non-disclosure and lack of financial credibility. In Davis the Court of Appeal upheld the trial judge’s decision to award a lump sum in circumstances where the learned judge had observed that the appellant’s assets were difficult to quantify and that the appellant had “other assets, some of which are not capable of quantification”.⁴⁷

27In assessing, or balancing, the issue of greater harm, it is also relevant to consider the husband’s compliance with the award notwithstanding his appeal, and evidence of his financial circumstances since it was made. In the first phase of the bifurcated arbitration process, the arbitrator observed that “the economic disparity between the parties is at least $1,000,000, if not considerably more. The parties’ financial circumstances are not comparable in any way or to any degree”.⁴⁸ It is noteworthy that there is no evidence whatsoever of any effort by the husband, even on a without prejudice basis, to pay anything toward the award. Not unlike the arbitrator I am also puzzled with the husband’s credibility about his financial circumstances, in particular as reflected in his most recent financial statement sworn May 31, 2019⁴⁹ in which he stated that “[W]hile income has been imputed to me of $150,000/yr, my actual income is $39,000/yr”. This statement was sworn after the husband withdrew his appeal from the award finding that his income was $150,000. I am left with a sense of “déjà vu”.

Interests of justice

28While the husband has satisfied the first component of the RJR test for a stay, he has not met the second and third parts dealing with irreparable harm and balance of convenience. Given the arbitrator’s findings, especially about the husband’s financial non-disclosure, his misrepresentation about his financial circumstances (confusing even now in light of his most recent financial statement), his lack of financial probity, the disparity in the parties’ net worth, the failure of the husband to comply in any way with the award, even on a without prejudice basis, and the policy of “no automatic stay” in support order appeals, it is my view that the interests of justice will not be served by granting a stay of enforcement of the award pending a decision of the husband’s appeal on its merits.

Abuse of process/Stay of proceedings/Security for costs

29The wife seeks dismissal of the appeal as an abuse of process or that it be stayed because the husband has failed to pay the award. She also wants security for costs in the further event that any order less than dismissing the appeal is made. These requests must be considered in the context of a protracted litigation history that started with a court application in February 2014 and ultimately led to an arbitration process lasting more than eleven days over an almost two year period (and also included preliminary rulings, clarifications by the arbitrator and written costs submissions).

30Pursuant to s. 140(5) of the Courts of Justice Act⁵⁰ (“the Act”) a court may “stay or dismiss a proceeding as an abuse of process or on any other ground”. Rule 2.1.01(1) of the RCP is similarly worded in that it provides that a court may “stay or dismiss a proceeding if the proceeding appears on its face to be frivolous or vexatious or otherwise an abuse of process of the court”. As there is no comparable family law rule, then s. 106 of the Act and RCP rule 2.1.01(1) apply by analogy to the relief requested by the wife. She maintains that given the arbitrator’s findings about the husband’s financial circumstances and his lack of credibility the appeal should be dismissed or stayed without her being required to deliver any responding appeal pleadings. The husband argues that adverse credibility findings should not vitiate appeal entitlement and relies on Scaduto v. The Law Society of Ontario⁵¹ for the proposition that dismissing an appeal at its outset should be limited to the clearest of cases. In light of my observations about the merits of the lump sum support issues raised by the husband, although weak, I am not persuaded that the husband’s appeal should be dismissed as an abuse of process.

31As an alternative to dismissing the appeal the wife argues that its hearing should be stayed until the husband complies with the order. S. 106 of the Act provides that the court “may stay any proceeding on such terms as are just”. Pursuant to FLR 1(8), a court may, among other things, dismiss a claim, deny a party’s entitlement to any further order of the court or postpone any other step in a case. The court may also make an order for security for costs of a family arbitration award appeal.⁵²

32In Herman v. Rathbone⁵³, Madsen J. dealt with a motion by a wife to deny the husband any further relief or orders from the court because he had not paid about $300,000 in court-ordered child support. A three-stage process for dealing with FLR 1(8) order non-compliance was followed;

(a) Is there a triggering event that would allow a consideration of Rule 1(8)?;

(b) Is it appropriate to exercise discretion in favour of the non-complying party? This discretion should only be exercised in “exceptional circumstances”;

(c) If discretion is not exercised in favour of the non-complying party, what is the appropriate remedy pursuant to Rule 1(8)?

33After finding that the non-payment of the support was a triggering event Madsen J. held that the husband failed to persuade the court that exceptional circumstances existed and, in fashioning a remedy, ordered that the husband fully pay the outstanding support within 60 days failing proof of which the husband would not be heard and his pleadings would be struck.

34The triggering event in this case, like Herman, is the non-payment of the support order.

35Are there exceptional circumstances in this case? The husband’s argument that he lacks the financial resources to pay the support order and consequently his appeal might not be heard mirror the unsuccessful arguments he made with respect to his being irreparably harmed if staying enforcement of the support order was refused. Exercising the court’s discretion in his favour in circumstances where there are fulsome reasons given for the findings made, cogent on their face, and based on the husband’s disclosure misconduct, would not be appropriate in my view.

36The draft order that accompanied the wife’s June 3, 2019 factum asked that delivery of her responding appeal material be deferred until the husband had complied with the support order. This makes sense. The husband will be given an opportunity to comply with the support order but not at the further expense of the wife.

37As for the wife’s request for an order for security for costs in an amount not less than $50,000, no evidence such as an estimated Bill of Costs, was provided to the court. If the request was based on the court granting the stay but making some other order dealing with the husband’s payment of the support order then the issue is moot in light of dismissal of the husband’s motion. It is not necessary to deal with this request at this time.

Disposition

38Accordingly,

(a) The husband’s motion to stay the support order is dismissed;

(b) The husband shall have until October 31, 2019 to comply with the support order, failing which the wife may move without notice to the husband for an order dismissing his appeal;

(c) If the husband complies with the support order before October 31, 2019 then the wife shall have 60 days from the date of the husband perfecting the appeal and complying with FLR 38(21) to file her responding appeal materials;

(d) The wife’s motion for security for costs is adjourned sine die.

39If the parties are unable to agree on costs, the following terms apply:

(a) The wife shall deliver her submissions by September 20, 2019;

(b) The husband shall deliver his submissions by October 4, 2019;

(c) Reply, if any, by the wife shall be delivered by October 15, 2019;

(d) The submissions for (a) and (b) shall be no longer than five pages, double-spaced; reply shall be restricted to three pages, double-spaced;

(e) Submissions shall be filed in the Continuing Record. The parties are to advise the judicial assistant by email when their submissions have been filed (Meghan.Billings@ontario.ca); and

(f) Offers to Settle, Bills of Costs, and authorities upon which a party may wish to rely shall be filed by the deadlines for filing costs submissions but shall not form part of the Continuing Record.

40I thank counsel for their thorough preparation and assistance to the court.

Footnotes

1. 1The arbitrator made a number of awards but those relevant are a support award and, separately, a costs award. They shall be referenced as one award for the purposes of this Ruling unless otherwise noted.
2. 2Pursuant to s.1(1) of the Family Responsibility and Support Arrears Enforcement Act 1996, S.O. 1996, c. 31, as am., subparagraph (g) under the definition of “support order” includes “…the payment of legal fees or other expenses arising in relation to support or maintenance”. The arbitrator found that the costs were “… a component of and incidental to” the support award and consequently enforceable by the Family Responsibility Office (para. 66 of the Costs Award).
3. 3Arbitration Act, 1991, S.O. 1991, c. 17.
4. 4Family Law Act, R.S.O. 1990, c. F.3, as am.
5. 5This section deals with the conditions for enforceability of a family arbitration award.
6. 6A.A. v. Z.G., 2016 ONCA 660, para. 4.
7. 7Manis v. Manis, 2001 CarswellOnt 2315 (Ont. C.A.) para 19.
8. 8RJR MacDonald Inc. v. Canada (Attorney General), [1994] S.C.R. 311, paras 81-86.
9. 92015 ONCA 249, para. 25.
10. 10Abuzour v. Heydary, 2016 ONCA 249, para. 25.
11. 11Supra #8, para. 83.
12. 12Award, para. 56.
13. 13Ibid, paras 67 and 70.
14. 14Ibid, para. 69.
15. 15Ibid, para. 129.
16. 162001 CanLII 7964 (ON CA), [2001] O.J. No. 1719, paras 71-75.
17. 17First phase Arbitration Award dated August 25, 2017, para. 34.
18. 18Award, para. 99.
19. 19Supra #17, para. 37.
20. 20Award, para. 7.
21. 21Costs Award, para. 56.
22. 22Supra #17, para. 37.
23. 23Supra #17, para. 64.
24. 24Award, para. 101.
25. 25Award, para. 109.
26. 26Supra #17, para. 56.
27. 27Supra #17, para. 55.
28. 28Award, para 56. This finding was made in relation to the mortgage issue but is relevant to the issue of the husband’s financial probity.
29. 29Award, para. 109.
30. 30Manchanda v. Theti, 2016 ONCA 909, at para. 13.
31. 31Award, paras. 117 and 118. The arbitrator calculated net arrears of $17,904 (2013) and $21,940 (2014).
32. 32Supra #8, para. 64.
33. 33[1997] O.J. No. 282 (Ont. Gen. Div.).
34. 34Ibid, para. 40.
35. 35Supra #8, para. 67.
36. 36Supra #8, para. 80.
37. 37This Order was made before the parties agreed to submit the parties’ support issues to arbitration.
38. 38Husband’s factum dated July 10, 2019, para. 7.
39. 39Supra #17, para. 225.
40. 40Supra #17, para. 222.
41. 41Award, para. 111.
42. 42Affidavit of the wife sworn on March 12, 2019, para. 42.
43. 43Affidavit of the wife sworn on June 28, 2019, Exhibit K.
44. 442014 ONCA 567, 2014 CarswellOnt 10370.
45. 45Ibid, para. 50.
46. 462018 ONCA 958, at para. 35.
47. 47Supra #16, para. 23.
48. 48Supra #17, para. 227.
49. 49Affidavit of the husband sworn May 31, 2019, Exhibit J.
50. 50R.S.O. 1990, Chap. C. 43
51. 512015 ONCA 733, paras 8 and 9.
52. 52FLR 38(26).
53. 532017 ONSC 4585.