Court File and Parties

NEWMARKET COURT FILE NO.: FC-15-47776-01 DATE: 20240325 SUPERIOR COURT OF JUSTICE – ONTARIO – FAMILY COURT

RE: J.A., Applicant AND: M.K., Respondent

BEFORE: The Honourable Mr. Justice G.A. MacPherson

COUNSEL: A. Feldstein, Counsel for the Applicant

HEARD: March 20, 2024

Ruling on Uncontested Trial

Relief Requested

[1] The Applicant advances a request for a final Order on an uncontested basis as the Respondent’s pleadings were struck by my Order in June 2022.

Brief Factual Background

[2] The parties were married on August 22, 1997. The parties separated on January 5, 2014, but reconciled in March 2016.

[3] The parties separated for the final time, without any reasonable prospect of reconciliation, on July 17, 2017.

[4] There are four children of the relationship, namely, S.A. born in 1995; S.A.K. born in 2002; D.I.K. born in 2008; and J.L.K.A. born in 2013.

[5] On the date of separation, the parties and the children resided in Canada. The Respondent is now living in Israel and/or Russia and has done so since the separation in July 2017.

[6] The parties were divorced by court Order in Russia on May 4, 2018.

[7] As the children were habitually resident in Canada on the date of separation, Canada assumed jurisdiction to deal with the parenting issues.

[8] On September 10, 2021, by way of final Order: (a) the Applicant was granted sole decision-making authority for the children; (b) the primary residence of the children was with the Applicant; and (c) the Respondent’s consent to travel and government documentation for the children was dispensed with.

[9] The remaining claims in the litigation are financial. Those issues are - equalization, child support, spousal support, post-separation adjustments, the apportionment and determination of section 7 expenses, and costs.

[10] The Respondent has various business interests abroad. It is noteworthy that, in Russia, there are duplicate proceedings dealing with the properties of the parties. Both parties have retained counsel in Russia to deal with those matters.

[11] The Applicant hired Mr. Mandel to complete valuations of business and to provide an income stream analysis. Mr. Mandel completed a preliminary report but he was unable to complete valuations as significant pieces of disclosure are missing. It is noteworthy that Mr. Mandel found that two properties in Russia have a value of at least $3.7 million and potentially $16.9 million. There are many other corporations and there are various properties within those corporations.

[12] The Respondent, post-separation, in or about January 2018, transferred four corporations into the name of his mother. That is not disputed. These corporations are - VSN, Otdykh, Neshama, and Truma Ltd. The Respondent has no assets in Canada other than the real estate jointly owned with the Applicant.

[13] On August 20, 2019 the parties’ investment property, 32 Apiary Gate, sold with the net proceeds of $750,000 placed in trust.

Relevant Orders

March 6, 2020

[14] On March 6, 2020, this court made a temporary Order imputing income to the Respondent in the amount of $500,000. On that basis, this court ordered that commencing April 1, 2020, the Respondent would pay monthly child support in the amount of $7,800, monthly spousal support of $2,700, and that the Respondent pay 100% of section 7 expenses. This court also ordered the sale of 136 Arnold Avenue and 53 Cedarcrest Crescent.

September 10, 2021

[15] On September 10, 2021, Justice Bennett made a detailed disclosure Order.

[16] The disclosure Order was made on consent. It was made three years into the litigation. Despite his consent, the Respondent did not comply with Justice Bennett’s disclosure Order.

June 22, 2022

[17] On June 15, 2022, the Applicant advanced a Motion to Strike the Respondent’s pleadings. This court struck the Respondent’s pleadings in a Ruling released June 22, 2022.

[18] The Respondent appealed the June 22, 2022 Order to the Ontario Court of Appeal. By Order dated March 3, 2023, the Court of Appeal dismissed the Respondent’s appeal.

[19] Accordingly, the Applicant proceeds, on a final basis, to resolve the remaining issues by way of uncontested trial.

Uncontested Trial

Spousal Support

[20] The Applicant was a stay-at-home mother while the Respondent was the breadwinner for the family.

[21] Following the parties’ separation in 2017, seven years ago, the Respondent left Canada, leaving the Applicant and the children behind, and he has not returned to Canada since.

[22] The parties were divorced by court Order in Russia on May 4, 2018. The Ontario Court does not have jurisdiction to hear and determine corollary relief proceedings under the Divorce Act, R.S.C., 1985, c.3 (2nd Supp.), following a valid foreign divorce.

[23] Section 22 (1) of the Divorce Act states: A divorce granted, on or after the coming into force of this Act, pursuant to a law of a country or subdivision of a country other than Canada by a tribunal or other authority having jurisdiction to do so shall be recognized for all purposes of determining the marital status in Canada of any person, if either former spouse was ordinarily resident in that country or subdivision for at least one year immediately preceding the commencement of proceedings for divorce.

[24] The grounds upon which the court may decline to recognize a foreign divorce include: a) the Respondent did not receive notice of the Divorce Application; b) the foreign divorce is against public policy; c) the foreign court or other authority that granted the divorce (“the granting authority”) did not have the jurisdiction to do so under the law of the foreign country; d) where there is evidence of fraud going to the jurisdiction of the granting authority; and e) there was a denial of natural justice by the granting authority in making the divorce order. [1]

[25] There was no appeal of the foreign divorce, and the Applicant did not advance the argument that the Russian divorce was invalid. Accordingly, this court does not have jurisdiction to consider the Applicant’s claim for spousal support under the Divorce Act.

[26] Section 15 of the Family Law Act, R.S.O. 1990, c.F.3, states that the property rights of spouses arising out of the marital relationship are governed by the internal law of the place where both spouses had their last common habitual residence or, if there is no place where the spouses had a common habitual residence, by the law of Ontario. The last place the parties had a common habitual residence is Canada. Accordingly, in respect of equalization, Canada is the appropriate jurisdiction to deal with the claim.

[27] This Court has jurisdiction to award child support under section 33 of the Family Law Act as those claims were not adjudicated at the time of the Divorce and the Applicant, in her amended application, included the Family Law Act relief. This Court’s jurisdiction includes a determination that support be made periodically, or by lump sum, and includes a determination of support that is limited in time or indefinite. This court also has jurisdiction to deal with child support and section 7 expenses under the Family Law Act.

Child Support

[28] The Applicant requests an Order imputing income to the Respondent in the amount of $1,200,000 per annum for the purpose of determining child support.

[29] Section 19(1) of the Federal Child Support Guidelines, SOR/97-175, reads as follows:

Imputing income

19 (1) The court may impute such amount of income to a spouse as it considers appropriate in the circumstances, which circumstances include the following: (a) the spouse is intentionally under-employed or unemployed, other than where the under-employment or unemployment is required by the needs of a child of the marriage or any child under the age of majority or by the reasonable educational or health needs of the spouse; (b) the spouse is exempt from paying federal or provincial income tax; (c) the spouse lives in a country that has effective rates of income tax that are significantly lower than those in Canada; (d) it appears that income has been diverted which would affect the level of child support to be determined under these Guidelines; (e) the spouse’s property is not reasonably utilized to generate income; (f) the spouse has failed to provide income information when under a legal obligation to do so; (g) the spouse unreasonably deducts expenses from income; (h) the spouse derives a significant portion of income from dividends, capital gains or other sources that are taxed at a lower rate than employment or business income or that are exempt from tax; and (i) the spouse is a beneficiary under a trust and is or will be in receipt of income or other benefits from the trust.

[30] Section 21 of the Child Support Guidelines states:

Income Information

Obligation of applicant

21. (1) A parent or spouse who is applying for an order for the support of a child and whose income information is necessary to determine the amount of the order must include with the application, (a) a copy of every personal income tax return filed by the parent or spouse including any materials that were filed with the return for each of the three most recent taxation years; (b) a copy of every notice of assessment and reassessment issued to the parent or spouse for each of the three most recent taxation years; (c) where the parent or spouse is an employee, the most recent statement of earnings indicating the total earnings paid in the year to date, including overtime, or, where such a statement is not provided by the employer, a letter from the parent’s or spouse’s employer setting out that information including the parent’s or spouse’s rate of annual salary or remuneration; (d) where the parent or spouse is self-employed, for the three most recent taxation years, (i) the financial statements of the parent’s or spouse’s business or professional practice, other than a partnership, and (ii) a statement showing a breakdown of all salaries, wages, management fees or other payments or benefits paid to, or on behalf of, persons or corporations with whom the parent or spouse does not deal at arm’s length; (e) where the parent or spouse is a partner in a partnership, confirmation of the parent’s or spouse’s income and draw from, and capital in, the partnership for its three most recent taxation years; (f) where the parent or spouse controls a corporation, for its three most recent taxation years, (i) the financial statements of the corporation and its subsidiaries, and (ii) a statement showing a breakdown of all salaries, wages, management fees or other payments or benefits paid to, or on behalf of, persons or corporations with whom the corporation, and every related corporation, does not deal at arm’s length; (g) where the parent or spouse is a beneficiary under a trust, a copy of the trust settlement agreement and copies of the trust’s three most recent financial statements; and (h) in addition to any information that must be included under clauses (c) to (g), where the parent or spouse receives income from employment insurance, social assistance, a pension, workers compensation, disability payments or any other source, the most recent statement of income indicating the total amount of income from the applicable source during the current year or, if such a statement is not provided, a letter from the appropriate authority stating the required information. O. Reg. 391/97, s. 21 (1) ; O. Reg. 446/01, s. 7; O. Reg. 25/10, s. 5.

Obligation of respondent

(2) A parent or spouse who is served with an application for an order for the support of a child and whose income information is necessary to determine the amount of the order, must, within 30 days after the application is served if the parent or spouse resides in Canada or the United States or within 60 days if the parent or spouse resides elsewhere, or such other time limit as the court specifies, provide the court, as well as the other spouse, an applicant under section 33 of the Act or the order assignee with the documents referred to in subsection (1). O. Reg. 391/97, s. 21 (2) .

[31] The Respondent has not complied with his statutory disclosure obligation. The Respondent has not complied with court ordered disclosure. The Respondent filed a sworn Financial Statement in the early stages of the litigation where he claimed annual earnings of $44,000. The Respondent could not possibly accumulate assets in Canada at over $10,000,000 and have each of his four children attending private schools that have annual costs of well over $100,000 on the income reported. As the Respondent has not provided disclosure of his income nor of his assets, this Court has no alternative but to impute income on the evidence before the Court.

Respondent’s Income

[32] This Court draws an adverse inference from the Respondent’s refusal to provide court ordered disclosure and must conclude that disclosure would not have been in the Respondent’s best interests.

[33] A preliminary income report prepared by Paul Mandel calculated the Respondent’s income for the years 2016/2017 at somewhere between $965,000 and $1,340,000.

[34] In his conclusions, Mr. Mandel provided three scenarios for imputing income. Scenario 1 was based on actual funds transferred in 2016 and 2017 and then averaged. Scenario 2 was based on 2016 and 2017 annualized transfers that were averaged. Scenario 3 was based on adjusted 2016 and 2017 transfers that were averaged.

[35] Scenario 3 is the more accurate indicator of the Respondent’s income. It is neither the highest nor the lowest of the three income scenarios presented. It is preferred by the court as it is based on adjusted 2016 funds received. Using scenario 1 or 3 risks a misleading result depending on the dates of transfers.

[36] Scenario 3 resulted in the Respondent’s annual income being $1,210,000. The Applicant deposes that the Respondent, during the marriage, would typically deposit $50,000 per month into the joint bank account. This afforded the parties to live a lavish lifestyle. On the basis of the preliminary income report and considering the standard of living of the parties, I impute an annual income of $1,200,000 to the Respondent.

[37] As stated, there are four children of the marriage namely, S.A. born in 1995, S.A.K. born in 2002, D.I.K. born in 2008 and J.L.K.A. born in 2013.

[38] This court has calculated child support both retroactively and prospectively. The Family Law Act provides the court with broad discretion to do so. While it is unusual to make a prospective lump sum child support award, it is necessary to do so in this case for the reasons that follow. The Respondent has not complied with basic disclosure requirements. The Respondent has not complied with court ordered disclosure requirements. The Respondent advances an income position that is not grounded in reality. His sworn Financial Statement, deposing an annual income of $45,000, cannot explain the accumulation of millions of dollars in assets and the lifestyle enjoyed by the parties. The Respondent has made no voluntary periodic child support payments. The Respondent, his assets, and his income are in Russia and outside this Court’s reach. The court is satisfied that after nine years of obfuscation this pattern will continue. Accordingly, this court has determined that it is in the best interest of the children and in the administration of justice to establish lump sum child support prospectively and retroactively.

[39] This court finds that both S.A. and S.A.K. pursued post secondary education. This court accepts that, for the purpose of child support, D.I.K. and J.L.K.A. will also pursue post-secondary studies. Accordingly, the prospective child support calculations were completed on the basis that child support will end for each child when they turn 21.

[40] I accept the calculations of child support both prospectively and retroactively as is set out in Exhibit P of the affidavit of the Applicant sworn June 11, 2023. The Respondent is credited with the temporary child and spousal support payments made pursuant to my March 6, 2020 Order. As there is no spousal support ordered on a final basis, the temporary spousal support payments made by the Respondent shall be credited as child support payments. Accordingly, lump sum child support from the date of separation until December 2035 is set at $2,303,606.

Section 7 expenses

[41] In apportioning section 7 expenses, I impute income to the Respondent in the amount of $1,210,000.

[42] I am imputing an annual income of $30,000 to the Applicant for the purpose of determining an apportionment of section 7 expenses. During the parties’ relationship the Applicant remained in the home looking after the children. Their relationship spanned 30 years including their 10 years of cohabitation prior to their marriage. The Applicant states that she did assist the Respondent with his various businesses throughout the marriage, but she predominantly stayed at home and looked after the children.

[43] It is noteworthy that the Applicant requests reimbursement of section 7 expenses already incurred. She makes no request for section 7 expenses on an ongoing basis. Based on the imputed incomes, aforementioned, the parties’ section 7 expenses are apportioned: Applicant: 2.4% and Respondent 97.6%. I accept the calculations of retroactive section 7 expenses as set out in Exhibit P of the affidavit of the Applicant sworn June 11, 2023. Accordingly, lump sum section 7 expenses retroactive to the date of separation are set at $45,944.83.

Equalization

[44] The Applicant estimates the Respondent owned over $30,000,000 in assets in Russia at the date of separation.

[45] Paul Mandel stated in his preliminary report, on the basis of some disclosure obtained, that just two of the Russian properties could have significant value for the purpose of equalization with a range between $3.7 and $16.9 million. The properties were identified as 630091 Novosibirsk Region and 630073 Novosibirsk Oblast.

[46] It is noteworthy that there are 16 properties identified in which the Respondent may have had debt or equity interests as follows: a) Sfera/Sfira; b) EC Extreme Fitness; c) Otdikh LTD; d) Ared; e) Super rent; f) Khanin M.Y.; g) LLC Recreation Extreme Fitness; h) VSN; i) Fitness extreme; j) EF; k) Trauma LTD; l) Neshama LTD; m) Khanina T.I.; n) Omega 2000; o) Interstroy; and p) Star.

[47] The Respondent, post-separation, in or about January 2018, transferred four corporations into the name of his mother. That is not disputed. These corporations are VSN, Otdikh, Neshama, and Trauma Ltd.

[48] The Applicant states that, as a result of limitation periods in Russia, she brought actions on four of the corporations in Russia. Those corporations are LLC Recreation Extreme Fitness, Trauma LTD, Neshama LTD, and Otdikh LTD. Estimates for the values of these four corporations were provided to the Russian Court. They total approximately $8,000,000. It is noteworthy that the values attributed to Trauma LTD. and Neshama LTD. in the Russian Court are similar to the values provided by Mr. Mandel in his report. It is also noteworthy that the value of VSN LTD, which is not part of the Russian litigation, was estimated by Mr. Mandel to have a value between $7.45 million and $11.71 million.

[49] The Net Family Property Statement includes the value of the residential real estate in Canada as well as some of the Russian corporations.

[50] I accept that the Respondent owes the Applicant an equalization payment of $9,123,836 based on the values and assumptions set out in Exhibit R of the affidavit of the Applicant sworn June 11, 2023.

Post-Separation Adjustments

[51] As stated, following their separation, the Respondent left Canada and made no contribution to the household expenses, made no voluntary child support payments, and made no voluntary payments towards section 7 expenses. All funds received by the Applicant since separation were from net sale proceeds of sold Canadian residential properties. I accept that the Respondent owes the Applicant post-separation adjustments calculated in the amount of $115,592 as set out in paragraph 50 of the affidavit of the Applicant sworn June 11, 2023. Accordingly, post-separation adjustments owed to the Applicant are set at $115,592.58.

Pre and Post-Judgment Interest

[52] Section 128 of the Courts of Justice Act, R.S.O. 1990, c.C.43 states: A person who is entitled to an Order for the payment of money is entitled to claim and have included in the order an award of interest thereon at the prejudgement interest rate, calculated from the date the cause of action arose to the date of the order.

[53] Pre-judgment interest on the equalization payment is calculated from the date of separation as that is the date the cause of action arose. Pre-judgment interest on the arrears of support is calculated each month the support was due and unpaid as this is the date the cause of action arose.

[54] I am satisfied that pre-judgment interest is appropriate and it is calculated as follows: (a) the interest owing on the equalization payment totals $487,137.88; and (b) the interest owing on the periodic payments total $41,029.57.

[55] The total pre-judgment interest owing is $528,167.45.

Costs

[56] Rules surrounding the issue of costs in family proceedings are designed to foster four purposes: (1) to partially indemnify the successful litigant; (2) to encourage settlement; (3) to discourage and sanction inappropriate behaviour by litigants; and (4) to ensure that cases are dealt with justly under subrule 2(2) of the Family Law Rules, O. Reg. 114/99, as amended, (“the Rules”) (see Mattina v. Mattina, 2018 ONCA 867).

[57] By any metric, the Applicant was the most successful party.

[58] As the successful party, subrule 24(1) of the Rules creates a presumption of costs in favour of the Applicant.

[59] Subrule 24(5) of the Rules provides criteria for determining the reasonableness of a party’s behaviour in a case (a factor in clause 24(12) (a)(1) above). It reads as follows:

DECISION ON REASONABLENESS

(5) In deciding whether a party has behaved reasonably or unreasonably, the court shall examine, (a) the party's behaviour in relation to the issues from the time they arose, including whether the party made an offer to settle; (b) the reasonableness of any offer the party made; and (c) any offer the party withdrew or failed to accept.

[60] Family law litigants are responsible for and accountable for the positions they take in the litigation. [2]

[61] In this case, the Respondent has acted in a litigation fashion that is so unreasonable it amounts to bad faith. He disregarded court Orders including Orders he consented to. He did not provide disclosure which was required by statute and court Order. He did not pay court ordered child support. He did not pay court ordered spousal support. He did not pay court ordered section 7 expenses. He did not pay court ordered property carrying costs. He appealed my decision to sell properties, as he is entitled to. However, he aborted it. Justice Backhouse made the following comments in her Endorsement from the aborted appeal:

In sum, the husband has failed to comply fully with his court ordered support. He failed to pay for the carrying costs of the property and opposed its sale. After the sale was ordered it was necessary for the wife to return to court for an urgent motion for carriage of the sale. The court found the husband was withholding his consent unreasonably to the sale in an attempt to thwart the sale. Bringing this appeal in light of these circumstances has the hallmarks of a tactical strategy lacking bona fides and amounting to bad faith. In all the circumstances, the wife is entitled to the costs of the abortive appeal on a full indemnity basis which I fix in the amount of $20,000.

[62] Subrule 24(8) of the Rules states that if a party has acted in bad faith, the court shall decide costs on a full recovery basis and shall order the party to pay them immediately. Persistent refusal by a party to make accurate financial disclosure and reveal their true income can, as here, rise to the level of bad faith. [3]

[63] An award of costs is subject to a number of factors, specifically those set forth in Rule 24(12). It reads as follows:

SETTING COSTS AMOUNTS

(12) In setting the amount of costs, the court shall consider, (a) the reasonableness and proportionality of each of the following factors as it relates to the importance and complexity of the issues: (i) each party’s behaviour, (ii) the time spent by each party, (iii) any written offers to settle including offers that do not meet the requirements of rule 18, (iv) any legal fees, including the number of lawyers and their rates, (v) any expert witness fees, including the number of experts and their rates, (vi) any other expenses properly paid or payable; and (b) any other relevant matter.

[64] In arriving at an award of costs, I am mindful that this court must exercise its discretion based on principles of reasonableness and proportionality. [4]

[65] I have considered the Applicant’s success.

[66] I have considered the Respondent’s unreasonable behaviour which amounts to bad faith.

[67] Legal fees and disbursements, in the amount of $200,000 are fair, reasonable and proportionate to award the Applicant considering her success, the enormous volume of materials, the complexity involved, the positions of the parties, and the bad faith litigation behaviour of the Respondent.

Transfer Orders

[68] Section 9(1) (d) of the Family Law Act grants the Court jurisdiction to transfer or vest property in a spouse to satisfy an equalization claim.

[69] Section 34(1) (c) of the Family Law Act grants the Court jurisdiction to transfer or vest property in a spouse to satisfy a support claim.

[70] The Respondent’s share of net sale proceeds held in trust from the sale of 136 Arnold Avenue and 32 Apiary Gate currently held in trust by Mr. Mazzeo shall be paid to the Applicant in partial satisfaction of the amounts owed to the Applicant. The property, 53 Cedarcrest Crescent, is the home where the Applicant and the children reside. It shall be transferred to the Applicant in partial satisfaction of the amounts owed to the Applicant. The Respondent is credited with the transfers.

Apportionment

[71] The Applicant requests an Order apportioning funds currently held in trust, and any future funds received from the Respondent, by applying same to equalization and post-separation adjustments before child support and costs/interest. I am satisfied with the Applicant having the discretion to allocate funds toward equalization, post-separation adjustments and costs before child support and interest. I do so because the Respondent is unlikely, based on past actions, to make these payments voluntarily and because his income and assets are in Russia. The Court recognizes the Family Responsibility Office has mechanisms to recover child support and this will maximize the Applicant’s recovery. I do so in case the Respondent elects to declare bankruptcy.

Order

1. This is a final Order.
2. This Order is made under the Family Law Act and the Family Law Rules.
3. Final Order to issue in accordance with the draft signed by me this day.
4. SDO to issue.

The Honourable Justice G.A. MacPherson Date: March 25, 2024

[1] Wilson v. Kovalev, 2016 ONSC 163, at para.10. [2] Heuss v. Surkos, 2004 ONCJ 141. [3] DePace v. Michienzi (2000), 12 R.F.L. (5th) 341 (Ont. SCJ); Kardaras v. Kardaras, 2008 ONCJ 616. [4] Beaver v. Hill, 2018 ONCA 840.