COURT FILE NO.: FS-18-33 DATE: 2021-03-12
ONTARIO SUPERIOR COURT OF JUSTICE
B E T W E E N:
KELLY ANNE KOTOMAKI MCDOWELL Shirley R. Woodley Griffin, for the Applicant Applicant
- and -
JULIAN PHILIP MCDOWELL Erin Simpson, for the Respondent Respondent
HEARD: March 12, 2021, By videoconference at Orangeville, Ontario Price J.
Endorsement
OVERVIEW
[1] The parties to this proceeding have more issues in dispute than they have the financial resources to resolve to them.
[2] The parties have modest means. The Applicant mother reports income of $25,490. She is on disability for Anxiety, P.T.S.D. and Depression, which she attributes to abuse she says she suffered during the marriage. She is on a Legal Aid Certificate that is unlikely to pay to have her business valued.
[3] The Respondent is apparently supported by his mother, a part of whose house he says she signed over to him as an “early inheritance”, and registered on title in the names of him, his mother, and the Applicant, who he says was added to secure his Line of Credit.
[4] The Applicant alleges that the Respondent stated at an earlier hearing that he earned $130,000 but he now says that his income declined first to $60,000, and now to nothing, because of the disruptions caused by the COVID pandemic. Even at this late stage of the proceeding, at the parties’ second attendance for a Settlement Conference, he says that he is unable to provide even an estimate of his recent income, recording “TBD” for his income on his Settlement Conference Brief.
[5] This litigation is straining the parties’ resources. The parties disagree over even their date of separation. The Respondent says it was in 2020; the Applicant says it was in 2016 and insists that the Respondent produce his financial records for the past five years.
BACKGROUND FACTS REGARDING DISCLOSURE
[6] The Respondent made a request for disclosure from the Applicant on August 12, 2020, and then scheduled a Case Conference to take place less than a month later, on September 9. He then refused the Applicant’s request for an adjournment to give her more time to produce the requested documents, characterizing the request, made a week before the Conference, as a “last-minute request”.
[7] At the Case Conference on September 9, Justice Bielby directed the parties to exchange Requests for Information by September 11, “unless they agreed otherwise” and to “make disclosure” by October 15, 2021. It is unlikely that Justice Bielby expected the Respondent to interpret his direction as incorporating the entire contents of the Respondent’s demand for documents on August 12, 2021, including a demand for a Business Valuation from he should have known she could not afford unless he advanced the funds to pay for it.
[8] When the Applicant was unable to comply with the Respondent’s demand by the next Conference date of November 27, and on November 23 asked again to adjourn the Conference, the Respondent again refused her request. Justice Conlan, who presided at the second Settlement Conference on November 27, 2020, observed that the proceeding had become bogged down over disclosure issues. He noted that each side complained about the other’s inadequate disclosure, and found that the Applicant, “in particular”, had failed to comply with paragraph 2 of Justice Bielby’s Order dated September 4, which required the parties to “make disclosure” by October 15.
[9] Justice Conlan extended the deadline for disclosure to January 15, 2021 and warned of “serious consequences” if the disclosure order was not complied with. He reserved the costs of that day’s attendance to today’s date.
[10] After the Applicant produced 278 pages of disclosure, the Respondent sought costs of the November 27 attendance from her in the amount of $1,500.00. He relied, in part, on her failure to obtain a valuation of PGX Holdings. Additionally, he made a motion for an Order striking the Applicant’s pleadings, which was scheduled to be heard on Monday, March 15, 2021, three days after the current Settlement Conference. The Applicant, in turn, made a cross-motion.
[11] On the one hand, the Respondent disputed the Applicant’s assertion that she did not operate PGX Holdings during the marriage and demanded that she obtain a valuation of it. On the other hand, he disputed her assertion that she was unable to afford the valuation and submitted that her saying that she could not afford the valuation was evidence that there was a business to value.
[12] In seeking the costs of the November 27 hearing today, and moving for the drastic remedy of having the Applicant’s pleadings struck, the Respondent relied on the fact that on September 4, 2020, Justice Bielby, at the Case Conference, directed the parties to exchange Requests for Information, and to “make disclosure” by October 15, 2020. He argued that “making disclosure” required the Applicant to produce a business valuation that would likely cost thousands of dollars.
[13] At the Conference today, the parties wisely agreed to step back and resume their efforts to clarify the disclosure requested, the disclosure received, and the disclosure that they still needed. They agreed to reserve the costs that Justice Conlan reserved, and the costs of today’s Conference, to the trial judge, and further agreed to adjourn the parties’ motion and cross-motion to enforce each other’s disclosure obligations sine die.
[14] The Court may be called upon in the future to address the costs of November 27 and today that, but for the parties’ agreement to defer that issue, I would have had to determine. I would be remiss if I did not offer my thoughts on the facts that exist today, as reflected in the parties’ briefs, that may help inform that future costs decision, although counsel did not address that issue I was not required to rule on it. It is my hope that these thoughts may also guide counsel in their future communications.
COUNSEL’S OBLIGATIONS IN RELATION TO DISCLOSURE
[15] Counsel in any case must be mindful of the obligations that the Law Society of Ontario’s Rules of Professional Conduct impose on them with regard to their client’s disclosure obligations. Those rules outline specific steps that counsel must take in advising clients on matters of disclosure. Rule 5.1-3 states that where the rules of a tribunal require the parties to produce documents or attend on examinations for discovery, a lawyer, when acting as an advocate, must advise his/her client to comply with their disclosure obligations, and must not make frivolous requests or demands for information or the production of documents.
THE LEGISLATIVE REGIME GOVERNING DISCLOSURE
[16] The disclosure process directed by s. 21 of the FCSG and Rule 13 of the Family Law Rules require each party to produce certain specified documents depending on the issues. If the recipient is unable to determine the value of an asset, liability, or of a party’s income or expenses, from that documentation, that party makes a Request for Information in Form 20, listing the additional documents required. If the documents are not provided voluntarily, the party needing them can apply to the court, at a Conference or motion, for an Order directing that they be produced.
[17] Once an Order is made, the party who has not received documents ordered to be produced may apply for enforcement of the Order. In some cases, where a Request for Information was not served, or a motion for production was not made, the Court, as Justice Bielby did, may collapse the two steps by directing the parties to exchange Requests for Information and “make disclosure” or “respond to the Requests”. However, a disclosure obligation must be brought home to a party by the legislation or Order before an Order is made punishing the party for non-compliance. The Rules provide for enforcement of statutory obligations and Orders, not Requests for Information.
[18] Based on the material filed before me, I would find that the Applicant “made disclosure”, as required by Justice Bielby’s Order, even though she did not provide all the disclosure set out in the Request for Information that the Respondent served after Justice Bielby made the Order. The disclosure that Justice Bielby ordered did not necessarily entail everything set out in the later Requests for Information as Justice Bielby, on September 4, could not have known what they would entail.
[19] While the disclosure obligation is clear cut for foundational documents specifically set out in the FCSG and Rules, the complexity and nuance of disclosure requests, and the difficulty in determining whether a request is relevant and proportionate in the circumstances, increases exponentially for documents not specifically mentioned in the FCSG and Family Law Rules.
THE PROCESS FOR SEEKING FURTHER DISCLOSURE
[20] Court enforcement of disclosure obligations, especially in a motion to strike pleadings or impose penalties for contempt, should rarely be brought before exhausting reasonable efforts to secure the other party’s co-operation with requests for additional disclosure through correspondence and communication. Drastic enforcement measures are remedies of last resort. They tend to deplete the parties’ financial resources and distract counsel and the court from their focus on resolving the substantive issues in the proceeding.
[21] The correspondence by which requests are made for additional disclosure should invite the party being asked to produce documents, in the event he/she fails to produce a document, to provide an affidavit indicating whether the document ever existed or was in the party’s possession, when it ceased to be in the party’s possession, what requests were made for the documents from any third parties believed to be in possession of them, giving the contact information, copies of the requests and the replies received, and the reasons the document could not be produced. Such an affidavit can be in the form of a formal affidavit of documents or simply an affidavit addressing the specific documents requested. The requesting party may also request, if the documents are in the possession of a non-party, for a direction authorizing that non-party to produce them.
[22] Such an affidavit may obviate the need to apply for enforcement measures against the party who failed to produce the documents, and provide the evidence needed to make a request, or motion for production of the documents from a non-party, and save the client time and money.
DISCOVERY PLAN
[23] In addressing the proportionality of documents not specifically mentioned in the FCSG and Rule 13, it is appropriate to consider another step in the discovery process that is not as explicitly set out in the Rules of Civil Procedure, RRO 1990, Reg 194. That is, the need for a discovery plan. It is important that a party who intends to move for enforcement of the other party’s disclosure obligations first communicate with the other party in an effort to Identify the disclosure that is needed and the difficulties, if any, of providing it. This can best be accomplished by means of a discovery plan.
[24] The invitation to the other party to develop a discovery plan that can set a realistic timetable and address any difficulties with production is especially important if the party seeking the disclosure may have to ask the Court to enforce the disclosure obligations, or direct oral questioning, or order costs of a motion for production or of the adjournment of a Conference or hearing. This Court addressed this issue at length in its decision in Koolatron v. Synergex, 2017 ONSC 4245, at paras. 20 to 24, 29 to 36, and 38 to 78. The principles discussed apply equally to the family law discovery process.
THE PROPORTIONALITY OF FUTURE DISCLOSURE REQUESTS
[25] I turn now to consider the proportionality of future disclosure requests. In doing so, I do not propose to consider the specific disclosure requests that the parties in the present case have made, as counsel today have consented to the terms of an Order setting out the documents that they will produce and have provided for questioning that may follow the production of those documents.
[26] In making general comments on the principle of proportionality, I am indebted to Carol Crawford, Shawn Duguay and Lauren McMurtry for their thoughtful and comprehensive paper, “Proportionality: Disclosure Requests and Obligations”, presented in 2019 at the 28th Annual Institute of Family Law Conference. It can be found at 2019Docs 3930. I have drawn extensively from it, in part, to give the contents the greater attention they deserve and give them greater accessibility. I have taken the liberty of not reproducing extensive excerpts from the article, and I take full responsibility for any slant I have imposed on its contents.
[27] Full and frank disclosure is a fundamental tenet of the Family Law Rules. However, there is also an element of proportionality, common sense and fairness built into the rules. Fairness and some degree of genuine relevance, which is the ability of the evidence to contribute to the fact-finding process, are factors.
[28] Just as non-disclosure can be harmful to a fair trial, so can excessive disclosure be harmful. It can confuse, mislead or distract the trier of fact's attention from the main issues and unduly occupy the trier of fact's time and ultimately impair a fair trial.
[29] The relief valve that is intended to qualify a party’s immediate obligation to provide full and frank financial disclosure is found within the principle of proportionality. That principle is intended to provide balance to the obligation to disclose, the relevance of disclosure to the issues, and the fairness and common sense that drive the disclosure request. (See: Boyd v. Fields at para 12)
[30] In this regard, the Court of Appeal’s decision in Kovachis v. Kovachis, 2013 ONCA 663 at para 34, is particularly helpful. There, the Court dealt with the appeal of a motion judge’s decision to strike the appellant’s pleadings for failure to provide disclosure as ordered. As noted by Justice Laskin in reversing the decision, the motion judge erred by failing to consider the disclosure that the appellant had made, failing to itemize or articulate the specific disclosure that was outstanding, and failing to consider the proportionality of the disclosure requests. The Court of Appeal was not satisfied that any of the disclosure which the appellant had failed to provide rose to the level that warranted the striking of his pleadings, noting that the record suggested the appellant had produced everything of significance. It stated that before striking Kovachis' pleadings, consideration ought to have been given to the importance or materiality of the items of disclosure Kovachis had not produced.
[31] Although full and frank disclosure is a necessary component of family law litigation, exhaustive disclosure is not always appropriate. Courts and parties must consider the burden that disclosure requests bring on the disclosing party, the relevance of the requested disclosure to the issues at hand, and the costs and time to obtain the disclosure compared to its importance.
[32] The determination of how much disclosure is fair and proportionate is almost entirely dependent on the circumstances of the case. In determining when a party’s disclosure requests are proportional, it is critical to ensure that the disclosure requested can be closely tied to the issues at the heart of the proceedings, and that the manner in which certain a given item of disclosure will shape the analysis of those issues can be articulated.
[33] While non-disclosure may restrict a party’s ability to fairly determine the issues, excessive disclosure may unreasonably increase the costs in a particular case and delay an adjudication of the matter on its merits. See: Roberts v. Roberts, 2015 ONCA 450 at para 11. See also: Rayzberg v. Bakhmatch, 2015 ONSC 6306.
[34] Rule 2 of the Family Law Rules states that the primary objective of the Rules is to deal with cases justly. Rule 2(3) defines what that means. It includes, (a) ensuring that the procedure is fair to all parties; (b) saving expense and time; (c) dealing with the case in ways that are appropriate to its importance and complexity; and (d) giving appropriate court resources to the case while taking account of the need to give resources to other cases. (See: Courts of Justice Act, RSO 1990, c C43, O Reg 114/99: Family Law Rules, rule 2(3) and 2(4).)
[35] Adhering to the primary objective of a just outcome in the context of disclosure entails balancing a party’s obligation to provide disclosure, having regard to its relevance to the issues and merits of the case, against the cost to the party who is to provide the disclosure, and the cost to the public of judicial resources, and especially of time, required to adjudicate whether certain documents or, in the present case, professional valuations, should be obtained.
[36] Applying the test of proportionality set out in Rule 2(4), in the context of disclosure, entails gauging two central considerations. The first is time; the is cost. Time refers to both the amount of judicial time that must be allocated to resolving a disclosure dispute and the delay that non-disclosure, and disproportionate requests for disclosure, are likely to have on a final adjudication on the merits of the dispute.
[37] As described in Roberts v. Roberts, 2015 ONCA 450, at paras 11 and 12, in which the Court of Appeal upheld a motions judge’s decision to strike appellant’s pleadings for failing to provide disclosure, the failure to apply the principle of proportionality impedes the progress of the proceeding, causes delay, and generally acts to the disadvantage of the opposite party. It also impacts the administration of justice, as unnecessary judicial time is spent, and the final adjudication is stalled.
[38] Cost, also, encompasses judicial resources as well as the resources of the parties. A failure to comply with basic disclosure obligations and an overbearing request for production both tend to increase costs, heighten procedural hurdles, and undermine the primary objective of achieving a just outcome.
[39] Proportionate disclosure is what falls between the two extremes of inadequate disclosure and excess demands for disclosure. It consists of the information or documents that give a clear and concise path to determining the facts that are relevant to the issues. Justice Rogers offered guidance on applying the proportionality principle in Chernyakhovsky v. Chernyakhovsky, [2005] OJ No 944, 137 ACWS (3d) 988 [ONSC], at para 6. He noted that the disclosure process is intended to bring factual evidence to light in an organized and timely way, after which those facts should either “point to a resolution or to the necessity of a trial.”
[40] In addition to the primary objective of Rule 2 of the Family Law Rules, which applies to every family law case, the Rules require specific disclosure based on the issues in dispute in such a proceeding. For financial issues, these requirements are detailed in section 21 of the Federal Child Support Guidelines (FCSG) and Rule 13 of the Family Law Rules. The latter require each party to make full and frank disclosure of his or her financial situation, sufficient to allow a full understanding of his or her financial circumstances, by way of a sworn financial statement. The information set out in a party’s financial statement is a baseline for that party’s obligation to provide disclosure, and the information in the financial statement (or lack of it) will often be the driving force behind subsequent disclosure requests that engage the principle of proportionality.
[41] Beyond the statutory obligation to produce the documents described in section 21 and Rule 13, the Rules permit parties to serve Requests for Information in Form 20. The documents requested can range from something as simple as bank and credit statements confirming the values of bank accounts, RRSP’s, investment accounts listed as assets in the party’s Financial Statement, and credit card, mortgage, and Line of Credit statements listed as liabilities, to the kind of accounting that a Conference Judge can require for funds withdrawn from joint accounts, of household contents or jewelry that a party has disposed of at or after the parties’ separation, (See: Rule 17(8)(1)(b.1)(iv) and (v)), to financial statements of a business and the underlying general ledger and journals.
[42] While the disclosure obligation is clear cut for foundational documents specifically set out in the FCSG and Rules, the complexity and nuance of disclosure requests, and the difficulty in determining whether a request is relevant and proportionate in the circumstances, increases exponentially for documents not specifically mentioned in the FCSG and Family Law Rules.
[43] The facts in each case will dictate whether such requests fall within the scope of proportionality. Where a party’s financial statement, on its face, does not contain enough information for a full understanding of the other party’s financial circumstances, the Rules go further and provide that the other party may request further and better information pursuant to Rule 13(11). If that information is not provided, Rules 13 and 19 specifically set out the process for applying to the Court to have that information provided.
THE NEED FOR ENFORCEMENT OF DISCLOSURE OBLIGATONS
[44] The need for effective enforcement of disclosure obligations in any litigation is self-evident, but it merits some specific comments in relation to family law proceedings.
[45] In determining the right of a spouse to support, the Court is required, by sections 15 to 19 of the Federal Child Support Guidelines, to consider the spouses’ tax documents. They are the starting point in those sections, even though the Court may, later in its analysis, impute income pursuant to s. 19, based on other evidence.
[46] Section 241 of the Income Tax Act does not permit litigants, or even the Court, to order Canada Revenue to produce taxpayer records, except in rare and unusual circumstances, such as the enforcement of foreign support Orders. The privacy of taxpayer records prevails over Court Orders, in spite of the fact that sections 15 to 19 of the FCSG requires the Court to have regard to those records when determining income for support purposes.
[47] This Court has referred to the restricted access to tax records previously, in Pinto v. Ponciano, 2016 ONSC 6466, at paragraphs 61 to 90, where this Court set aside an Order of the Ontario Court of Justice that granted a variation of support to a payor spouse on the ground that he had failed to disclose his tax records in the original support application. Later, in Hutcheon v. Bissonnette, 2017 ONSC 1108, this Court stated:
[60] As this court noted in Pinto v Ponciano, 2016 ONSC 6466, at paragraphs 61 to 90, the proper determination of issues of support depends on the parties’ compliance with their disclosure obligations, as the Family Law Act and Federal Child Support Guidelines requires the court to base its determinations of spouses’ income on taxpayer information. However. the Income Tax Act does not permit the court to order the production of such information directly from the Canada Revenue Agency. In these circumstances, the court must be vigilant not to permit the power which the confidentiality of taxpayer information gives to the payor spouse to withhold information to result in unfairness to the recipient spouse.
[48] The protection given to tax records reflects the balance Parliament has struck between a taxpayer’s privacy interests and the need for voluntary disclosure by taxpayers to the tax authorities, and the need for effective enforcement of a taxpayer’s obligations to pay support to his/her spouse and children.
[49] To my knowledge, the Court has not been called upon to consider whether s. 241(1) and (2) of the Income Tax Act violates the economic component of a recipient spouse’s right to security of the person under s. 7 of the Charter of Rights (See: Fancy v. Shephard, Mussani v. College of Physicians and Surgeons of Ontario, para. 56), by impeding enforcement of the spouse’s right to child or spousal support. It is therefore not for this Court to comment on the policy considerations involved, except to observe that the inaccessibility of tax records, except through the taxpayer, appears to give rise to much litigation over disclosure issues, including litigation seeking to impose sanctions for failure to produce tax records. (See, for example, Fatahi-Ghandehari v. Wilson, 2018 ONSC 669, where this Court ordered costs of $94,000.00 in a lengthy contempt proceeding arising from, among other defaults, a failure to produce tax documents).
ENFORCEMENT OF FAMILY LAW DISCLOSURE OBLIGATIONS
[50] The sanctions that a Court may impose on a litigant for failure to comply with his or her disclosure obligations, under various circumstances, can be found in Rules 1(8), 13(7), 14(23) and 19(10). To quote Justice Rogers in Chernyakhovsky, at para. 7, these sanctions are severe in order to “emphasize the importance of disclosing the necessary information in a file quickly”, and include anything from orders for costs, drawing adverse inferences based on the non-disclosure, or in extreme cases, striking a party’s pleadings altogether.
[51] This Court has stated that the most basic obligation in family law proceedings is the duty to disclose financial information. The requirement is immediate and ongoing: Roberts v. Roberts, 2015 ONCA 450, 65 R.F.L. (7th) 6, at para. 11. In 2015, Family Law Rule 13 was amended to emphasize a party’s financial disclosure obligations. A party’s non-compliance must be considered in the context of this strict financial disclosure obligation. Rule 1(8) provides the court with the authority to strike claims. Those who choose not to disclose financial information or to ignore court orders will be at risk of losing their right to participate in the proceeding, at least regarding the financial issues, as their Application, Answer, or Financial Statements may be struck.
[52] In the decision in Mullin v. Sherlock, 2018 ONCA 1063, at para 45, the Court of Appeal set out a framework for the Court to apply when faced with the allegation that a party has failed to comply with a disclosure order, and more specifically, how to determine the appropriate remedy under Rule 1(8). In the first stage, the Court must be satisfied that some non-compliance with an existing disclosure order has taken place. Once the Court is satisfied that this has occurred, the Court should consider the following:
the relevance of the non-disclosure, including its significance in hindering the resolution of issues in dispute;
the context and complexity of the issues in dispute, understanding that an uncomplicated case should have little tolerance for non-disclosure, whereas a case involving extensive valuation of assets may permit some reasonable delay in responsiveness;
the extensiveness of existing disclosure;
the seriousness of efforts made to disclose, and the explanations offered by a defaulting party for the inadequate or non-disclosure; and
any other relevant factors.
[53] Having considered these factors, Justice Pepall concluded that it then falls to the Court to determine which remedy is appropriate in the circumstances, noting that the orders identified in Rule 1(8) are not exclusive, and that other approaches may be appropriate.
THE TRIAL SCHEDULING ENDORSEMENT FORM
[54] Neither party in the present case filed a Trial Scheduling Endorsement Form in advance of the Settlement Conference. The completion of Parts 1 and 2 of this form, setting out each party’s issues, the witnesses they intend to call at trial, and the time that will be required for each of the witnesses and for opening and closing arguments, is required to be filed before the Conference.
[55] The importance of this document cannot be understated. The Court needs it in order to arrive at a realistic estimate of the time required for the trial. Additionally, the process of estimating the duration of the trial and, consequently the cost, which can generally be doubled to take account of pre-trial preparation, is a sobering one. It reminds clients of the expense they can avoid by arriving at an outcome through meaningful settlement discussions and encourages self-restraint with regard to pre-trial motions.
[56] In his Brief, the Respondent estimated that his part of the trial could be completed in one day. Having regard to the as-yet unresolved issues of parenting time, ownership and disposition of, the matrimonial home, child and spousal support, and equalization of net family property, a much longer trial can be expected. The parties have been advised of the costs they may face by proceeding to trial if they are unsuccessful, especially if the opposing party achieves an outcome better the one that its Offer to Settle would have entailed.
FUTURE DISCLOSURE AND QUESTIONING
[57] In the present case, it appeared that the burden of the parties’ escalating conflict would fall increasingly on their children, both of whom have been diagnosed with autism, one suffering severely enough to be developmentally delayed. The Court was relieved that the parties exercised restraint at the Conference, re-directed their attention from enforcement back to disclosure, and worked with each other to identify which of their disclosure requests were still outstanding, and which were still required.
[58] The first step in successful negotiation is for the parties to provide the disclosure the other party needs to negotiate an acceptable outcome. In the absence of such disclosure, a party will be unlikely to settle because they will feel they are at a disadvantage, lacking important information that the other party possesses. Similarly, neither party’s lawyer will want to advise his/her client to settle, because if a document comes to light in the future that the client was entitled to, and that would have made a difference to the client’s willingness to enter into the settlement, the client will understandably hold the lawyer responsible for advising him/her to settle without it.
[59] I commend counsel in the present case for stepping back from the brink and renewing their efforts to secure each other’s co-operation in the discovery process. The communication surrounding that process may well lay the groundwork for addressing the substantive issues and is likely to conserve the parties’ limited financial resources for that effort.
[60] Counsel will note when they read these reasons that I have inserted into their consent Order a requirement that they consult with each other and complete and file Parts 1 and 2 of the Trial Scheduling Endorsement Form within two weeks, by March 26, 2021.
[61] Based on the foregoing, an Order shall issue in the terms of the draft Order that I have signed.
Price J. Released: March 12, 2021