Bartch v. Bartch

2017 BCSC 210 Bartch v. Bartch IN THE SUPREME COURT OF BRITISH COLUMBIA Citation: Bartch v. Bartch, 2017 BCSC 210 Date: 20170105 Docket: E108417 Registry: Kelowna Between: Terrylynn Marie Bartch, also known as Terry Lynn Bartch Claimant And Bradley Dean Bartch, also known as Brad Bartch Respondent Before: The Honourable Mr. Justice G.P. Weatherill Oral Reasons for Judgment In Chambers Counsel for the Claimant: R.S. Tretiak, Q.C. Counsel for the Respondent: D.L. Polley Place and Date of Trial/Hearing: Kelowna, B.C. January 5, 2017 Place and Date of Judgment: Kelowna, B.C. January 5, 2017 [1] THE COURT: This is a single-issue application. The respondent seeks an interim distribution of family property of $150,000 pursuant to s. 89 of the Family Law Act. He says he needs this distribution in order to pay past and future legal fees and the costs associated with retaining Mr. Don Spence, a business valuator. He argues that a distribution at this time would not be prejudicial to the claimant. The application is opposed by the claimant. She says that the respondent has already received his fair share of any family property that existed at the time the parties separated; that he is not entitled to any share of her after-acquired assets; and the distribution is not necessary. She asserts that if I granted the respondent's application, she would be prejudiced because she would have no way of getting the money back if the respondent's claim was dismissed. [2] The claimant is 51 and the respondent is 56. The parties were business partners for some 18 years. The parties began cohabitation in June 1995. At the time, they were personal trainers and fitness consultants. They married on September 14, 1996, in Saskatoon. They moved to Kelowna in 1999. They have no children. [3] The date the parties separated is in dispute. The claimant says that they separated on January 1, 2013, after an event she says she witnessed at a Las Vegas nightclub on December 31, 2012, involving the respondent and another person. She says the respondent had been unfaithful to her in the past, but that this event was the last straw. She says that although they continued to reside in the same residence until it was sold, they did not reside together as a couple after December 31, 2012, and "did their own thing." The respondent says the separation date was August 14, 2014, after they sold their matrimonial home and moved into separate residences. The claimant says that the separation date is important for the purposes of determining whether the respondent has a claim to business and other assets acquired by her after January 1, 2013, to which she says the respondent has no claim. [4] The parties were divorced by an order of this court dated August 17, 2015, effective September 18, 2015. [5] The parties' business relationship since moving to Kelowna is important. Between 1999 and 2011, they earned modest incomes as fitness and rehabilitation consultants. They dabbled in and attempted to earn money through various multilevel marketing companies without much success. Prior to 2010, their joint annual incomes never exceeded the $53,000 per annum range. [6] In October 2009, their fortunes began to change. They became involved in a multilevel marketing business known as NuCerity International, a U.S. Company ("NuCerity"); firstly with the claimant joining as a distributor, followed by the respondent. It would appear that they were able to get in on the ground floor of NuCerity, as it was introduced into Canada. [7] The couple operated their NuCerity distributorship initially as a partnership. In September 2010, they incorporated Bartch Mentoring Corporation ("BMC"), and rolled the partnership into BMC. They were 50-50 shareholders and directors. The evidence suggests that the parties worked together to promote the business for two or so years without too much financial success, but thereafter the company's revenues significantly increased. For example, in the fiscal year ending September 30, 2012, BMC earned $297,530 and, by 2015, it grossed over $700,000. [8] In May 2013, the claimant incorporated 0970023 B.C. Ltd. ("097") and rolled the NuCerity business BMC into 097. The claimant is 097's sole shareholder and director. The respondent says that he knew nothing about its incorporation and assumed the NuCerity income continued to be earned by BMC. He says that the claimant had complete control over the business' finances, books and records. The claimant says that following the couple's separation, she continued to operate and grow the NuCerity distributorship business without any help from or involvement of the respondent. She says he effectively abandoned the enterprise. Indeed, she says that the respondent helped himself to money from BMC's bank account and went on pleasure trips while she, instead, focused on growing the business. Since the parties separated, the claimant says the respondent has done nothing to become self-supporting despite his background in training and experience in multilevel marketing, sports, rehabilitation, and personal training. [9] On August 11, 2014, the parties met at a Red Robin diner and signed an agreement purporting to divide their family assets. That agreement is in evidence ("Separation Agreement"). It was drafted by the respondent without legal advice. To say that it was a rudimentary agreement would be an understatement. It is one page and double-spaced. It does not mention or deal with 097. At its conclusion, it states, "Brad Bartch will sign off any other assets and the above is final. Nothing else will come after that date." [10] The claimant's position is that the Separation Agreement should be enforced and the respondent is entitled to nothing more than it provides. She says the Separation Agreement contains all the terms the respondent wanted. She says that it was intended as a final division of their family property. [11] The respondent's position is that the Separation Agreement is unfair in the circumstances of what the claimant has been doing with the NuCerity business. He asserts that she controlled all the finances, ran BMC's business income through 097, which she failed to disclose; and she actively misrepresented the true nature and financial status of NuCerity. The Separation Agreement, the respondent says, is not valid and should be set aside. The claimant denies any impropriety with respect to the business or her handling of its affairs. [12] In August 2014, the claimant caused 097 to purchase a home in Kelowna at 1067 Westpoint Drive for $929,900. That purchase completed on August 28, 2014. The purchase price was paid using $495,000 taken from 097 and the balance by way of mortgage proceeds that 097 secured. The respondent says that this purchase was made with monies that belonged to BMC and improperly placed in 097 by the claimant and that he had no knowledge of it until the disclosure the claimant was forced to make in these proceedings. Additionally, the respondent says that on August 22, 2014, the claimant withdrew all remaining monies from BMC's bank accounts, some $162,642.69, and placed them in 097, again without his knowledge or consent. [13] Since August 2014, the claimant has had exclusive control of the NuCerity distributorship and has been accumulating assets through 097. The records disclose that the company has $904,000 in cash and other assets of $1.091 million with retained earnings of $1.625 million. 097's May 31, 2015, year-end disclosed net earnings of $556,156, after taking into account $185,000 in wages 097 paid the claimant. [14] The respondent says that the claimant has significant financial clout. He says she has resorted to "scorched earth" tactics in this litigation to try and beat the respondent into submission on her terms. He lists numerous examples of the claimant exerting her superior financial power. As examples, he says: (a) that the claimant started her claim in the New Westminster Registry of this court and refused the respondent's request to move the file to Kelowna requiring an application to move the file to Kelowna; (b) that the claimant persistently delayed or refused to provide documents and information which has made court applications necessary; (c) that the claimant set a five day trial date unilaterally in New Westminster in February 2016 and then unilaterally set the matter for five days in February 2017 in Kelowna over the respondent's lawyer's objections; (d) that the claimant would not cooperate in appointing a joint expert to value the NuCerity business and she would not agree to adjourn the trial, requiring two judicial case conferences, a trial management conference, and a contested adjournment application. [15] As a result of her position regarding the appointment of a joint expert, an order was made at the judicial case conference held November 10, 2015, to appoint Mr. Spence to value the business. He states that, since that time, the claimant has made it very difficult for Mr. Spence to complete his report by refusing to meet with Mr. Spence, insisting instead on written questions and then delaying providing information to him. As a consequence, the report is still not finalized as of this date. [16] The respondent further says that there have been four full days of examinations for discovery required and that each party has exchanged at least seven lists of documents. [17] Notwithstanding the Separation Agreement, the claimant did not pay the respondent $10,000 per month as it contemplated, seeking instead through her counsel to have its terms and additional terms formalized into a court order. It was not until March 20, 2015, at a JCC when the claimant was ordered to pay the respondent $10,000 per month, that she began to do so. Since then, the claimant points out, the respondent has been paid over $261,000, $210,000 of which was in $10,000 monthly increments and $51,000 that was ordered by Justice Beames to be paid. He has not accounted for those funds other than by saying they were used for his living expenses. [18] As mentioned, Mr. Spence has prepared a draft valuation of 097 and the NuCerity business. Although that valuation has not been finalized, I understand that the distributorship is valued in the $2 million to $2.25 million range. The claimant does not agree with that valuation and applied before Justice Betton on October 7, 2016, to have the business valued by her own expert. That application was dismissed and Justice Betton ordered that Mr. Spence be appointed as a joint expert. He also ordered that Mr. Spence's fees be split 50-50 by the parties. Mr. Spence's fees are currently in the $47,000 range and they have not been paid by either party. The claimant has applied for leave to appeal Justice Betton's order. That leave application was granted on December the 9th, 2016, and the appeal is set to be heard on February 1, 2017. Meanwhile, the claimant is bringing an application to stay Justice Betton's order which is set to be heard next week. [19] The respondent argues that the circumstances of this case dictate that an order be made under s. 89 of the Family Law Act. He claims that he needs money to fund this litigation. A three-week trial is imminent. It is set to commence on February 14, 2017. He currently owes $79,000 in legal fees and Mr. Spence's account of $47,000 has not been paid. In addition, the respondent has significant other debts totalling some $140,000 for credit cards, family loans, and unpaid taxes to the Canada Revenue Agency. [20] Section 89 of the Family Law Act reads as follows: If satisfied that it would not be harmful to the interests of a spouse and is necessary for a purpose listed below, the Supreme Court may make an order for an interim distribution of family property that is at issue under this Part to provide money to fund (a) family dispute resolution, (b) all or part of a proceeding under this Act, or (c) the obtaining of information or evidence in support of family dispute resolution or an application to a court. [21] As is usual in cases such as this, the evidence supplied by the parties in their respective affidavits is at odds, in some cases, diametrically opposed. Many of the facts and the merits of the allegations on both sides remain unclear. Mr. Tretiak for the claimant points out, and I agree, that given that the contested facts have not been proven on either side and will not be until after a trial decision has been obtained, I must be cautious in preferring one version over the other. Mr. Tretiak argues that the respondent's application must be dismissed because it is not necessary and would be prejudicial to the claimant. [22] The test for granting a s. 89 order requires that the respondent show necessity for the distribution and that it would not be prejudicial to the claimant. Mr. Tretiak refers me to Master McDiarmid's comments in Drinkall v. Drinkall, 2016 BCSC 373, in particular at paragraph 82 where the learned Master cites Justice Fitch, as he then was, in McKenny v. McKenny, 2015 BCSC 1345, at paragraph 57: The claimant correctly notes that the order sought by the respondent is extraordinary in nature and must be assessed carefully. The test governing interim distribution of family property has two components: 1) The applicant must show an advance is required to mount a challenge to the other spouse's position at trial; and 2) The applicant must show that the advance or payment on an interim distribution basis will not jeopardize the other spouse's position at trial. [23] I agree that this summary accurately sets out the test for granting an order under s. 89. However, I also agree that the main purpose of a s. 89 order is to level the playing field in the sense of the parties' access to justice. In I.F. v. R.J.R., 2015 BCSC 793, Madam Justice Ballance stated at paras. 190, 191, and 194: [190] In none of the cases yet decided of which I have been made aware has the court confronted the thorny question of the impact of a marriage agreement that, if enforceable, would preclude the applicant spouse from the division of family property. [191] The provision itself does not bar the making of an interim order where there is an existing agreement concerning property division. I can conceive of no principled basis to read such a limitation into s. 89 or to otherwise consider the existence of such an agreement as an absolute bar to relief. [194] In cases where the applicant may be precluded from entitlement to the family property based on a pre-existing agreement, the notion of being harmful to the other spouse's interests could also take the form of the court permitting a distribution so as to enable the funding of an unmeritorious claim. A reasonable way to attenuate that manifestation of harm is to require the applicant to show there is a reasonable prospect of success of impeaching the subject agreement. The claimant in the case at hand has satisfied that hurdle. [24] Also in Negus v. Yehia, 2015 BCSC 857, the court stated in relation to s. 89 orders: [8] The words in s. 89, "not be harmful to the interests of a spouse", have to be reasonably interpreted in accordance with the Supreme Court of Canada's instruction on statutory interpretation found in cases such as Bell ExpressVu v. Rex, 2002 SCC 42. The fact that it may be commercially inconvenient or awkward for Mr. Yehia to generate these funds does not mean that it is harmful to his interests within the meaning of the section. I do not see credible evidence to support a finding of harm here, within the meaning of s. 89, as I understand the section and its purpose. [25] Mr. Tretiak argues that what sets the instant case apart from the s. 89 cases to which the respondent has referred is the fact of the Separation Agreement which the claimant says is binding. The respondent argues that he has demonstrated a reasonable prospect of success in impeaching the Separation Agreement and having it set aside. Whether or not he will be successful in the case remains to be seen and, of course, will be determined after the trial proper. The evidence I have reviewed suggests that the Separation Agreement was treated as an agreement to agree and / or an agreement in principle. Regardless, the respondent says he relied on his misunderstanding of BMC's financial state to his detriment in the preparation and signing of the Separation Agreement. [26] On consideration of the evidence and counsel's helpful submissions, I am in agreement with Mr. Polley that the respondent has demonstrated the need for an interim distribution and that one is required to adequately mount a challenge to the claimant's position at trial and indeed her position pre-trial. I am satisfied that the respondent, rightly or wrongly, does not have sufficient financial wherewithal to fund this litigation, the necessary expert reports, and the appeal. In that regard, I do not agree with Mr. Tretiak's assertion that, because Mr. Polley has represented the respondent and Mr. Spence has continued to be involved as an expert without their accounts being paid or kept current, money is not needed. The respondent has no income and no way to fund these proceedings. The playing field is not financially equal. There is an extreme imbalance of financial power. [27] Nor do I agree that the claimant will be prejudiced if an interim distribution order is made. I am satisfied that the claimant's company, through which she appears to run most, if not all, of her personal expenses including legal expenses related to this claim, can easily afford an advance. The claimant owns a company with significant wealth and income. She has no debt. The NuCerity business has a very impressive cash flow. The company has amassed a net worth of approximately $1.6 million. [28] Although I cannot assess at this point which party will be successful at trial, that is not the test. While it is true that many of the facts are in dispute, there are salient facts that do not appear to be, including what 097's financial statements and general ledgers disclose. I am to assess the merits as best I can on a preliminary basis which I find I am able to do. The respondent has demonstrated that he has a meritorious claim that is not bound to fail. My assessment of the merits of this application weigh in favour of the order I am going to make. The estimate of legal costs of a three-week trial is $60,000. In addition, the claimant has appealed Justice Betton's order and has added some 11 witnesses to her trial brief. I agree with Mr. Polley that the $60,000 estimate is very conservative. [29] All things considered and in an effort to level the playing field between the parties, I am exercising my discretion to grant the respondent's application. The respondent is entitled to an order that there be an interim distribution of family assets of $150,000. [30] The respondent is also entitled to costs. [31] Thank you, gentlemen. Those are my reasons. Anything further? [SUBMISSIONS AND DISCUSSION RE JUSTICE BEAMES' ORDER] [32] THE COURT: I think Mr. Polley is right, though. There is really no evidence at all of any need on her part. She is doing quite well and the evidence is to the contrary that she has paid all of her personal and other expenses through 097, including her legal expenses, and that 097 is continuing to generate a lot of cash. Whether at the end of the day a finding is made that 097's success is due to her efforts alone and it is not a family asset that the respondent is entitled to claim any part of or not, I do not know. But I think given what I have heard and hearing what Mr. Polley says about that not being an application before me, I am disinclined to do anything other than make the order that I have made. So, to the extent Justice Beames' order needs to be varied, if it does and I do not know if it does because I have not seen it, because my order requires her to pay $150,000 as an interim distribution, then that order is varied. [33] MR. TRETIAK: Yes. Will the costs be in any event of the cause or costs in the cause, My Lord? [34] THE COURT: Costs -- Mr. Polley, what do you say? [35] MR. POLLEY: I would say costs in any event of the cause. Because of the situation of his financial need and having to go through this process, I do fully appreciate there may be a result, we do not know what that result is going to be, but this is just a step that needed to be taken so that he can get to the party, so to speak. [36] THE COURT: I think the normal rule is, on an application such as this, costs follow the event. So it will be costs in any event of the cause. "G.P. Weatherill J."