Court File and Parties
COURT FILE NO.: CV-20-645615
DATE: 2021-07-08
ONTARIO SUPERIOR COURT OF JUSTICE
RE: BRADLEY SPARKMAN and 2289447 ONTARIO LTD., Plaintiffs
-and-
2574328 ONTARIO LTD., ANGELA SPARKMAN a.k.a. ANGELA PRUDCAIA, and EDGAR PRUDCOI, Defendants
BEFORE: F.L. Myers J.
COUNSEL: Eli Karp, for the plaintiffs John W. Bruggeman for the Defendants Angela Sparkman and 2574328 Ontario Ltd. Mark A. Klaiman, for the defendant Edgar Prudcoi
HEARD: July 6, 2021
ENDORSEMENT
The Motion
[1] The plaintiff seeks leave to issue certificates of pending litigation against three properties and an order under Rule 45.02 to require the defendants to preserve and secure the proceeds of sale of a fourth property pending the outcome of the action.
[2] The plaintiff Bradley Sparkman claims an interest in three investment properties that used to be owned by the plaintiff 2289447 Ontario Ltd. It is not clear whether Mr. Sparkman has an entitlement to speak for or instruct counsel to sue on behalf of that company. He recently issued shares to himself to purport to solidify his majority control. Whether that was appropriate or effective is open to question.
[3] 2289447 Ontario Ltd. transferred its three investment properties to Angela Sparkman’s company 2574328 Ontario Ltd. pursuant to a complicated butterfly transaction. The transaction structure was apparently conceived by Mr. Sparkman’s accountants. It was carried out by Dentons Canada LLP.
[4] Mr. Sparkman says that the transaction was supposed to be a “shell game” or a sham designed to move money away from creditors on a tax-free basis but with no loss of control over the properties by him. I leave to Mr. Sparkman the task of explaining to Canada Revenue Agency and Land Transfer Tax officials how he played them in a shell game in which a transaction was not intended as represented by the legal documents he advanced and relied upon.
[5] Ms. Sparkman says that the transaction was a transparent and lawful mechanism to repatriate investment properties she paid for. Mr. Sparkman can have no further ownership interest in the properties given the careful documentation carried out by sophisticated accountants and lawyers.
Outcome
[6] Much of Mr. Sparkman’s argument went to establishing that he has a cognizable claim to either a beneficial interest in the properties or for the imposition of a constructive trust as a result of unjust enrichment.
[7] For the purposes of this motion, I am prepared to accept that Mr. Sparkman has at least stated a possible claim to interest in land. In light of the view that I take, I do not need to consider his standing on behalf of 2289447 Ontario Ltd. or the true strength of these causes of action. I am dubious. However the task of determining the strength of the case requires a deep dive into the evidence that is neither possible nor appropriate on a motion.
[8] The butterfly translation is sufficiently complex that its full effect needs some review. Even if Ms. Sparkman’s interest in 2289447 Ontario Ltd. was valued at more than the value of the properties that it transferred to her corporation, I am unsure how she came away owning both her corporation 100% and with a majority of the shares of 2289447 as well.
[9] There is an additional property owned by Ms. Sparkman’s adult son Mr. Prudcoi. It appears that at least part of the purchase price of this property was funded from the joint bank account of Mr. and Mrs. Sparkman before they broke up. On this basis too, I am prepared to assume that Mr. Sparkman has established a triable issue to having a claim for an interest in the land.
[10] But the plaintiffs’ request for interim relief falters on any consideration of the equities. The orders sought are not necessary, fair, or just.
[11] Mr. Sparkman does not approach the court with “clean hands”. His evidence was significantly misleading. His claim, at best, is compensable in money. Moreover, he currently has possession of the parties’ matrimonial home that is jointly owned. Ms. Sparkman’s equity in the house will more than offset any damages that Mr. Sparkman might be able to show from a loss of control of the timing of sale of the various investment properties. Moreover, while this action was not improper, it would have been more proper for Mr. Sparkman to bring divorce proceedings or family law proceedings where the parties’ full rights inter se can be assessed.
[12] As to Mr. Prudcoi’s house, Mr. Sparkman made no complaint about this transaction when it occurred while he and Ms. Sparkman were still a couple. The timing of the complaint undercuts its credibility. It would not be just to tie up that property to recognize the possibility of a relatively modest interest as recently claimed by Mr. Sparkman.
Law
[13] The test for a CPL is well known. The test to grant leave to issue a CPL on on notice is the same as the test to remove a CPL. In dealing with case law below, that discusses removing a CPL, the reader needs to bear in mind that the test on this motion is the same.
[14] Justice Emery stated the test in 2526716 Ontario Inc. v. 2014036 Ontario Ltd., 2017 ONSC 1762 at paragraph 48:
The practical approach on a motion to discharge a CPL is to first determine if there is a triable issue as the threshold question mandated by Clock Investments. If and when this threshold question has been answered to the satisfaction of the court, the equities on all matters between the parties may then be considered for the exercise of the court's discretion on a principled basis as to whether a certificate should be allowed or discharged.
[15] Waxman v. Waxman, 1991 CarswellOnt 3452, Lane J. put it this way:
It is appropriate to begin with a consideration of the requirement that the claimant have a "reasonable claim to the interest in the land claimed", and to follow up with a consideration of the equities, in particular the 8 factors suggested in 572383 Ontario Inc. v. Dhunna, supra. At the end of the day, the governing test will be that set out by the Divisional Court in Clock Investments Lid. v. Hardwood Estates Ltd. (1977), 1977 CanLII 1414 (ON SC), 16 O.R. (2d) 671 where Steele J. said:
... the governing test is that the judge must exercise his discretion in equity and look at all of the relevant matters between the parties in determining whether or not the certificate should be vacated.
[16] The usual factors considered to illuminate the equities are set out in the Dhunna case referred to by Justice Lane above. Master Glustein (as he then was) summarized the factors in Perruzza v. Spatone, 2010 ONSC 841 at paragraph 20,
(i) whether the plaintiff is a shell corporation, (ii) whether the land is unique, (iii) the intent of the parties in acquiring the land, (iv) whether there is an alternative claim for damages, (v) the ease or difficulty in calculating damages, (vi) whether damages would be a satisfactory remedy, (vii) the presence or absence of a willing purchaser, and (viii) the harm to each party if the CPL is or is not removed with or without security
[17] Mr. Karp argues that the equitable factors set out in Dhunna and relied upon routinely since then, apply only when a plaintiff is seeking specific performance of a real estate transaction or similar relief. The Dhunna factors, he submits, do not fit a claim where a plaintiff seeks to trace an equitable interest or to claim a conductive trust.
[18] Mr. Karp reasons that specific performance has always been special and particular relief that is granted sparingly by the law when property is unique. The Dhunna factors look at the positions of the parties in a purchase and sale transaction to determine if the claim is one where specific performance may lie.
[19] Mr. Karp says that in a claim like this one, where a plaintiff says his land was taken, there is no issue about whether the land was unique. He is entitled to his property back and to trace title into his wrongfully taken property. Issues of uniqueness of land or investment land have no real relevancy in this analysis he argues. He would have me grant relief on finding a triable issue without a further consideration of the equities.
[20] In Avan v. Benarroch, 2017 ONSC 4729, Master Jolley wrote:
[36] I also accept that the plaintiff may not have met the Dhunna factors if that were the only applicable test for the granting of this motion. However, those factors are more relevant to an action for specific performance than to a tracing claim or a constructive trust claim as is being advanced here (Roseglen Village for Seniors v. Doble, supra at para 15).
[21] In the Roseglen case relied upon by the Master, and reported at 2010 ONSC 4680, Chapnick J. confirmed a long line of authorities that provides that in considering the equities, it is not mandatory for the court to consider the Dhunna factors. In that case, Master Muir, like Master Jolley, had held that, “most of the Dhunna factors are applicable only to an action for specific performance of a contract for the purchase and sale of land and not to a tracing claim.” Chapnick J. agreed with the Master and dismissed the appeal.
[22] But, in both Roseglen and Avan, the courts considered the equities and “all of the relevant matters between the parties in determining whether or not the certificate should be [granted]” as written by Steele J. in 1977. Neither Roseglen nor Avan eliminates the second half of the two-part test. They just say that the Dhunna factors are not always the most relevant issues to consider when weighing the equities.
[23] While the specific Dhunna factors may aim at transactions more than tracing cases, the role of the equities in determining whether an order is just is statutory and applies to all cases in which a certificate of pending litigation is sought.
[24] Subsection 103 (6) of the Courts of Justice Act, RSO 1990, c C.43 provides:
Order discharging certificate
(6) The court may make an order discharging a certificate,
(a) where the party at whose instance it was issued,
(i) claims a sum of money in place of or as an alternative to the interest in the land claimed,
(ii) does not have a reasonable claim to the interest in the land claimed, or
(iii) does not prosecute the proceeding with reasonable diligence;
(b) where the interests of the party at whose instance it was issued can be adequately protected by another form of security; or
(c) on any other ground that is considered just,
and the court may, in making the order, impose such terms as to the giving of security or otherwise as the court considers just.
[25] This section directs the broad inquiry into the equities supported by the case law. The fact that some of the Dhunna factors may be less relevant in a particular matter does not undermine the purpose of ensuring that it is fair and just to freeze a property before doing so.
[26] I disagree with Mr. Karp’s submission that the availability of damages is not a relevant consideration for cases where a plaintiff seeks to trace title to an investment property. The adequacy of a monetary remedy is a central consideration in both specific performance and tracing cases.
[27] In Dhatt v Beer, 2021 ONCA 137 at para. 42, the Court of Appeal recently reiterated that the key issue in granting specific performance is not the “uniqueness” of the land, but whether a grant of title to the land instead of damages “better serves justice between the parties”.
[28] The same consideration applies to the tracing remedy of constructive trust for unjust enrichment. In Kerr v. Baranow, 2011 SCC 10, the Supreme Court of Canada wrote:
[50] The Court has recognized that, in some cases, when a monetary award is inappropriate or insufficient, a proprietary remedy may be required. Pettkus is responsible for an important remedial feature of the Canadian law of unjust enrichment: the development of the remedial constructive trust….
[52] The plaintiff must also establish that a monetary award would be insufficient in the circumstances (Peter, at p. 999). In this regard, the court may take into account the probability of recovery, as well as whether there is a reason to grant the plaintiff the additional rights that flow from recognition of property rights (Lac Minerals, at p. 678, per La Forest J.).
[29] The point is that the same issue, whether money damages are an adequate remedy, is a fundamental aspect of both the remedies of specific performance and constructive trust. The common law favours monetary relief where just and appropriate over orders affecting title. Mr. Karp is not correct and greatly overstretches Master Jolley’s comment to submit that the equities and the Dhunna factors are not proper considerations in a case in which the plaintiff seeks to trace title by way of equitable trust remedies.
Analysis
[30] In this case, all three properties transferred from 2289447 Ontario Ltd. were investment properties. They were all tenanted. A monetary award can readily include provable loss of value and investment opportunities.
[31] The parties are former spouses. While neither has yet commenced family law proceedings, the issues in this case are but one element of the economic relationship between them. Family law proceedings can readily deal with preservation orders as appropriate in the overall context rather than this motion bringing an artificial focus on only the one set of issues that Mr. Sparkman chooses to advance at this time.
[32] 2574328 Ontario Ltd. sold one of the three investment properties after learning that Mr. Sparkman was bringing this proceeding. The proceeds are being held by counsel. Mr. Sparkman seeks an order holding up that fund under Rule 45.02. Mrs. Sparkman submits that she needs access to the money to bring family law proceedings and to live. Mr. Sparkman has the matrimonial home and is not paying voluntary support. She submits that Mr. Sparkman is trying to starve her of funds to limit her ability to bring family law proceedings and simply to punish her.
[33] In his affidavit, Mr. Sparkman swore:
In or around January 2017, Angela began putting pressure on me to transfer the 228 Properties to a corporation under her control, ostensibly because she claimed that there was a risk that I may get sued if potential future creditors determine that I control or own the corporation that owns the 228 Properties.
While I had no known creditors at that time, I did have a former spouse that could have, theoretically, made demands for support, although no such demands were ever threatened or made.
[34] In fact, Mr. Sparkman was mired in family law proceedings with his former spouse at the time. She may not have been claiming spousal support, but child support and property issues abounded. The suggestion that his former spouse was not a known and serious threat to his assets was not true.
[35] Worse yet, in his family law proceedings, Mr. Sparkman does not say that he has an interest, direct or indirect, in the investment properties which he claims in this proceeding. The financial statement that he submitted from his accountant shows 2289447 Ontario Ltd. not owing the three investment properties and having a negative value. If the accountant who was involved in the butterfly transaction believed that beneficial title to the three investment properties remained with the vendor corporation 2289447 Ontario Ltd., he would have recognized the value of the investment properties in the corporation’s financial statement.
[36] In addition, in his matrimonial proceeding against his former spouse, Mr. Sparkman swears that Ms. Sparkman had an investment in 2289447 Ontario Ltd. worth more than $734,000. That supports the value underlying the butterfly to move the properties out to her own company. It utterly undermines Mr. Sparkman’s evidence and suggestion that his 100% shareholding interest gave him “indirect ownership over the 228 properties” and left Ms. Sparkman no interest in 2289447 Ontario Ltd. or the three investment properties.
[37] As noted above, I am not determining the strength of the case in this motion. I do not know which venison of Mr. Sparkman’s narrative is true. Rather, I am considering whether it is fair, just, and equitable to grant relief to a party who says opposite things to different judges of this court when it suits his financial interest.
[38] In addition, Mr. Sparkman’s affidavit put into evidence a nominee agreement that shows that Ms. Sparkman’s company 2574328 Ontario Ltd. holds the three investment properties as bare trustee for 2289447 Ontario Ltd. Here is how he characterizes the transfer of the three investment properties from 2289447 Ontario Ltd. to 2574328 Ontario Ltd.:
I discussed the above arrangement with my accountant at the time and after consultation, I agreed that I would cause 228 to perform the 228 Transfers, assuming it could be done on a tax neutral basis.
…Denton's LLP was retained to draw up the paperwork in order to effect the transfer of the 228 Properties from 228 to 257 on a tax neutral basis. I did not interact much with [Dentons] and I and 228 did not receive independent legal advice.
On April 28, 2017, I caused 228 to transfer the 228 Properties to 257 for $2 each property.
On that same day, 257 executed a nominee agreement (the "Nominee Agreement") with 228 under which 257 agreed to hold the 228 Properties in trust for 228. The Nominee Agreement is attached as Exhibit H.
[39] Incredibly, Mr. Sparkman says nothing about the complex butterfly transaction. The nominee agreement was indeed the first step of the butterfly transaction to avoid Land Transfer Tax. But Mr. Sparkman presents the document as a standalone transaction. He does not mention that it was an intermediate step in a complex transaction with multiple transaction steps. He now admits that he knew that the nominee agreement became ineffective after a day or two as the next steps of the butterfly transition were implemented.
[40] Mr. Karp tries to take blame for Mr. Sparkman’s misstatement saying he prepared the affidavit before fully comprehending the transaction. Taking that dubious submission at face value, absent affirmation and cross-examination, it does not help Mr. Sparkman. That Mr. Sparkman swore to a misstatement based on a misunderstanding by his counsel does not make his evidence less untrue or less knowingly so. He knew that the nominee agreement was a step in the omitted butterfly transaction whether Mr. Karp understood it or not. Furthermore, coming to court and presenting sworn affidavit evidence in support of an ex parte motion initially, and then on notice, before doing enough due diligence to understand the evidence being advanced and relied upon (when it is fully laid out in Denton’s reporting letter) is equally inappropriate.
[41] Rule 45.02 says:
45.02 Where the right of a party to a specific fund is in question, the court may order the fund to be paid into court or otherwise secured on such terms as are just. [Emphasis added.]
[42] An order under Rule 45.02 does not issue as of right. It too is subject to the equities.
[43] In my view, the issues in this case sound best in money. The overriding issue is the division of the parties’ properties. This will include considering whether the butterfly transaction was proper or a sham perpetrated by Mr. Sparkman through his own accountants and Dentons Canada LLP. If Mr. Sparkman has been deprived of money or investment opportunities, he can readily prove his losses. He currently has exclusive possession of a valuable house that is jointly owned by Ms. Sparkman. He has lots of time to bring all of the monetary issues on both sides of the ledger to a family law court for just and equitable title determinations and equalization.
[44] Mr. Sparkman cannot be allowed to seek relief from this court on the basis that Ms. Sparkman had no interest in his investment properties while telling the court in his family proceedings that she had the lion’s share of the equity in the company that owned them. The fact that his affidavit contained at least three serious misstatements deprives Mr. Sparkman’s plea to equity of much of its force.
[45] The Dhunna factors include:
- the intent of the parties on acquiring the land. Here it was investment.
- the ease or difficulty in calculating damages. Here it is straightforward.
- whether damages would be a satisfactory remedy. Yes.
- the harm to each party if the CPL is or is not removed with or without security. There is no harm to Ms. Sparkman pending a full accounting. If funds are later found to have been wrongly spent by Ms. Sparkman in the interim, Mr. Sparkman will have remedies against remaining properties or proceeds including the matrimonial home.
[46] For all of these reasons, in my view, it is not in the interest of justice to grant the relief sought. Considering all of the relevant matters between the parties, it is not fair, just, or equitable to tie up the two remaining investment properties, the proceeds of the third, or Mr. Prudcoi’s house at this time in this proceeding.
[47] The parties need to have an accounting of all of their respective rights. They defer commencing family law proceedings at their own risk. This action can proceed to discovery in the interim until it is merged into family law proceedings (should that occur).
[48] The defendants may deliver costs submissions no later than July 16, 2021. The plaintiff may deliver cost submissions no later than July 23, 2021. In addition, the parties may deliver copies of any offers to settle on which they rely. Submissions shall be no longer than three pages. Both parties shall deliver Costs Outlines if they deliver submissions.
[49] All costs material is to be filed through the Civil Submissions Online portal and uploaded to Caselines although counsel will not have received confirmation of the acceptance of their filings from the registrar.
[50] No case law or statutory material is to be submitted. References to case law and statutory material, if any, shall be embedded in the parties’ submissions as hyperlinks.
F.L. Myers J.
Date: July 8, 2021