Cully v. Cully

2013 BCSC 2457 Cully v. Cully IN THE SUPREME COURT OF BRITISH COLUMBIA Citation: Cully v. Cully, 2013 BCSC 2457 Date: 20131210 Docket: E123337 Registry: Vancouver Between: Jennifer Elizabeth Cully Claimant And Thomas Michael Cully Respondent Before: The Honourable Madam Justice Fleming Oral Reasons for Judgment In Chambers Counsel for the Claimant: M. A. Dunnaway The Defendant, Thomas M. Cully In Person Place and Date of Trial/Hearing: Vancouver, B.C. December 5 and 10, 2013 Place and Date of Judgment: Vancouver, B.C. December 10, 2013 [1] THE COURT: The claimant, Jennifer Cully, applies for an order for divorce pursuant to s. 12 of the Divorce Act, R.S.C. 1985, c. 3 (2nd Supp.), and a number of other orders relating to the respondent's failure to comply with disclosure requirements of the Supreme Court Family Rules, B.C. Reg. 169/2009 (Rules) and any aspect of an order for production of financial documents and an updated financial statement granted by consent at a Judicial Case Conference in January 2013 ("JCC"). [2] The respondent was personally served with the claimant's application and supporting materials on November 19, 2013. He did not, however, filed any materials in response. Instead, he sought an adjournment of the claimant's application on the date of hearing, which was denied by Fitzpatrick J. I then heard the substantive application later on the same date. Background [3] The facts of this matter are as follows: The parties were married on May 17, 1974, in Surrey, British Columbia. They separated on January 25, 2012. Following the separation, the respondent moved out of the matrimonial home and into a residence in West Vancouver. The parties' children are self‑sufficient adults. The claimant was the primary caregiver to the children during the marriage. Both parties worked throughout the marriage. [4] The claimant is 65 and scheduled to retire this year from her employment with the Toronto Dominion Bank. The respondent is 62. [5] On November 1, 2012, the claimant filed a notice of family claim seeking an order for divorce, orders related to property, and costs. Her property claims include, but are not limited to, seeking an interest in the respondent's business assets, such as shares in B.R.L. and/or Z.P.C., and a compensation order for income from business assets disposed of by the respondent around the time of separation. [6] The respondent was served with the notice of family claim and the claimant's sworn financial statement on November 5, 2012. A response and counterclaim were filed late on January 9, 2013. In the counterclaim, the respondent sought spousal support and made his own property claims. On January 21, 2013, the respondent swore and filed an incomplete financial statement that included no statement of expenses and none of the requisite attachments, excepting a 2012 property assessment notice regarding the matrimonial home. In that financial statement, the respondent swears his annual income to be $30,000 which he identifies as "other income". He lists no financial assets. Under business assets, he lists a range of holdings including over 110,000 shares in Z.P.C. with a value of over $1.3 million. The remaining business assets he values at zero. [7] At the JCC, the respondent consented to the following orders: that he take all necessary steps to file his personal income tax returns for the years 2009 to 2012 by April 30, 2013; that he take all necessary steps to file company tax returns for B.R.L. for the years 2009 through 2011, by the same date, and the 2012 B.R.L. return by June 15, 2013. The parties were further ordered to deliver to the other a list of documents by February 22, 2013, and updated financial statements by May 15, 2013. [8] On March 15, 2013, the respondent provided his list of documents to the claimant with a letter from his counsel advising of the respondent's instructions not to release Documents 1 through 4, on the basis they relate to assets that are not family assets. The list of documents identifies Documents 1.1 through 4.4, making it unclear if his instructions were to refuse production of all listed documents. [9] On April 11, 2013, the respondent's counsel was provided with a draft of the order made at the JCC and no response was received. [10] Also in April 2013, the Canada Revenue Agency ("CRA") sent notices of assessment to the respondent for the tax years 2006 through 2011 to the matrimonial home, showing a range of incomes for those years from approximately $46,000 to $213,000, together with unpaid taxes and penalties. The CRA conducted the assessments based on information in their records, rather than tax returns completed by the respondent. [11] In May 2013, the CRA sent a notice showing the total amount owing by the respondent of $230,358.78. The claimant had no forwarding address for the respondent, so she returned the documents to the CRA. [12] On August 23, 2013, the claimant, through counsel, requested a response to the draft order previously sent and the documents ordered produced forthwith. She also advised the respondent that an application seeking costs would be made in the absence of compliance. [13] Respondent's counsel sought a short extension of time to comply because she was on holidays. The claimant sent a further letter on September 5, 2013, requesting a response to the letter of August 23, 2013. No reply was ever received. [14] On October 2, 2013, the respondent's counsel filed a notice of intention to withdraw, which the claimant received in November 2013. Accordingly, the respondent was personally served with the claimant's application and materials on November 19, 2013. Respondent's counsel filed a notice of withdrawal on November 21, 2013. [15] The respondent advised the court he was unaware his counsel had withdrawn until he attempted to contact her on the evening of December 2, 2013. He said he assumed she had also been provided with a copy of the claimant's materials. [16] The respondent is a defendant in a proceeding in the Alberta Court of Queen's Bench. The plaintiff is his brother, Dr. Gregory Cully, in his capacity as power of attorney for their mother. The respondent is alleged to have misappropriated her funds and breached his fiduciary duty as her attorney. He is also alleged to have failed to respond to demands for information and documentation regarding their mother's financial affairs. [17] An order in default was granted on April 19, 2013, which set a hearing for the assessment of damages for October 4, 2013. On that day, the respondent filed a document with the Court of Queen's Bench entitled "Response to the Plaintiff's Application and Application by way of Counterclaim". In that document, the respondent writes that he is a defendant in a divorce action in British Columbia in which he is seeking to exclude certain business assets. He states: The specifics of those assets, including their valuations, are confidential to my various groups of fellow shareholders and passing of corporate information is prejudicial not only to the Defendant, in my divorce action, as well as in my relationship with my business associates [18] He then refers to a web of reciprocal non‑disclosure agreements. Further on in the document he refers to his mother's investment in Z.P.C. and advises that, until recently, annual payments were made by that corporation to its common shareholders by way of capital dividends, and hence not reportable as income. [19] The claimant relies on this document to argue the respondent has no intention of complying with the JCC order or the Rules regarding disclosure of financial information. He was and remains secretive regarding his business assets. [20] In his submissions, the respondent made it clear that he has taken no steps to comply with the terms of the JCC order. He has not yet filed any of his personal or corporate income tax returns. Consequently, he has not prepared an updated financial statement with the requisite attachments. [21] The respondent complained filing of his personal returns has been delayed because he does not have the necessary documents; namely, the company ledger for W.D.L. W.D.L. is a holding company the parties' son, Patrick Cully, set up with the assistance of the respondent some years ago. [22] Patrick Cully's affidavit evidence is that the respondent has kept possession of the business books and accounts which he requested a number of times but never received. Patrick Cully complains that, unbeknownst to him, the respondent attributed some of his own income for 2008 through 2010 to W.D.L., resulting in tax and other liabilities, including payroll and tax penalties of over $40,000 by the CRA. The respondent's vehicle registered in the name of W.D.L. was seized in partial payment of these penalties. I accept this evidence. Law [23] In seeking a fine against the respondent, the claimant relies on s. 213 of the Family Law Act, S.B.C. 2011, c. 25, (FLA) which applies to failures to comply with orders for disclosure made under s. 212 or a requirement to disclose information in accordance with the Rules, or to a party providing information that is incomplete, false, or misleading. [24] Section 213(2) of the FLA provides the court with the discretion to make a range of orders in the above circumstances, including a payment of an amount to a party or a fine not exceeding $5,000, an order under s. 212 requiring financial disclosure, or any other order the court considers appropriate. [25] The FLA came into force after the JCC; therefore the order granted at the JCC requiring the respondent to provide financial disclosure was not pursuant to s. 212. [26] The claimant relies upon the decision of the court in J.D.G. v. J.J.V., 2013 BCSC 1274, where Mr. Justice Punnett granted an application pursuant to s. 213 of the FLA. In reviewing the provision, he noted it provides the court with a much broader spectrum of measures to address the problems of non‑disclosure and delayed disclosure than had previously existed under s. 92 of the Family Relations Act, R.S.B.C. 1996, c. 128 (at paras. 10-25). He concluded at para. 25 that s. 213 requires a "robust application". [27] At paragraph 28, Punnett J. held the severity of any order under s. 213 will depend on the degree of non-disclosure, the reasons for the late disclosure, and when it is made. If disclosure is made prior to the hearing of an application for disclosure, a lesser penalty may be justified. This was the case in J.D.G. where the facts also involved a failure to comply with the rules requiring production of a financial statement and an order made at a JCC. The claimant was fined $500, having provided disclosure shortly before the disclosure hearing, and an explanation for the delay relating to the financial complexity of his employment income making disclosure more time consuming. Indeed, his financial statement was more than 250 pages. [28] Section 213 of the FLA was discussed and applied more recently by the Provincial Court in J.C.P. v. J.B., 2013 BCPC 297, where the wife sought payment of the maximum amount of $5,000. Noting the husband's failure to provide basic financial disclosure, the extreme efforts required for him to comply, and the aggravating reasons for his failing to disclose, namely avoidance of child support, the court ordered the husband to pay $2,880, reducing the amount from $4,000 because of his limited financial resources. Analysis [29] Here the respondent is subject to the court's application of s. 213, because he has failed to comply with the requirement that he disclose information in accordance with the Rules and he has provided incomplete information which he has failed to remedy. The length of the delay and the depth of his failure to comply exceed the circumstances in J.D.G., where the claimant was 124 days past the date the Rules required for production of his financial statement and 84 days past the date set by the JCC order. [30] The Rules require the respondent to produce and file complete and sworn financial statements within 30 days of being served with the claimant's notice of claim, or at the very least 30 days from filing and serving a response and counterclaim. Both of these documents were required to be served on or about early December 2012. Now, more than 11 months later, it is clear the respondent has not even taken the preliminary steps required to produce a properly prepared Form 8 financial statement, which include filing and producing personal and corporate income tax returns. [31] Having prepared no response to the application, he has provided no evidence to the court of an explanation. His submissions reveal there is no reasonable basis for the extraordinary delay and a troubling lack of concern for his failure to meet his legal obligations pursuant to the Rules and the JCC order. Although he made very brief submissions claiming hardship, there is no evidence to substantiate such a finding. [32] In all the circumstances, I grant the following order pursuant to s. 213(2)(d)(ii) of the FLA: The respondent shall pay forthwith to the claimant $2,500. [33] In his submissions, the respondent stated a willingness to abandon his claim for spousal support. Despite that submission, I do not regard it as appropriate to relieve him of his obligation to disclose income information required by the Rules where such a claim is made and in light of the JCC order. [34] The claimant also seeks an order that the respondent produce, within 14 days, a range of documents set out in her notice of application, which include the documents ordered produced at the JCC and a number of additional documents. The claimant seeks, as a term of the order requiring production of these documents, that the respondent's response to the family claim and counterclaim be struck in the event he fails to provide them within the time ordered. [35] Given the range of additional documents sought in this application and the penalty imposed upon Mr. Cully set out above, I decline to grant an order that would strike his pleadings as a consequence for non‑compliance, although I caution him that such an order may well be imposed should he again fail to comply with the orders of this court. Therefore I adjourn generally that portion of the claimant's application. I am also prepared to give him a longer period of time to produce the documents sought. [36] Accordingly, I confirm the order granted at the JCC and grant an order pursuant to s. 212 of the FLA requiring the respondent to produce, within 45 days, the following: a) an updated and complete sworn F8 financial statement, including a statement of the value of the respondent's interest in each of the assets currently listed and the value of any and all additional interests listed and all required attachments, excepting notices of assessment and reassessment; b) filed copies of the respondent's personal tax returns for the years 2009 to 2012 inclusive, together with attachments; c) filed copies of company tax returns for B.R.L. for the years 2009 to 2012 inclusive; d) copies of all financial statements for B.R.L. for the years 2009 to 2012 inclusive; e) copies of all documents listed in the respondent's list of documents dated March 15, 2013, excepting any documents over which privilege is claimed; f) records and documents proving the value of the respondent's interest in each asset listed in his financial statement sworn January 21, 2013, and records and documents proving the value of any additional interests listed in his updated sworn financial statement referred to above; and g) records and documents with respect to all payments received by the respondent as dividends, capital gains, shareholder loans, cash, and any other form of payment from all company and other sources for the years 2009 to 2013 inclusive. [37] I also order the respondent to produce forthwith, upon receipt, all notices of assessment and or reassessment for his personal and corporate returns for the years 2009 through 2012 inclusive to the claimant. [38] I further order the respondent at his election to produce documents in possession of CRA which gave rise to his assessed incomes as reflected in the notices of assessment before the court at this hearing, within 45 days, or a signed authorization in a form acceptable to CRA within 14 days. Costs [39] The claimant also seeks an order for special costs against the respondent, arguing his litigation conduct to date is reprehensible. She submits that he has not only failed and refused to produce a proper Form 8 financial statement pursuant to the Rules, he is also in breach of a court order which he consented to being granted. [40] Finally, the claimant argues the respondent's conduct in the Alberta litigation is consistent with an intention to delay and thwart the resolution of issues in both proceedings. On the facts of the case, the court should find the respondent has abused the court process. In the alternative, the claimant seeks fixed costs for the application payable forthwith. [41] The claimant relies on two authorities in seeking special costs against the respondent. The first is the leading case of Garcia v. Crestbrook Forest Industries Ltd., [1994] 9 B.C.L.R. (3d) 242 (C.A.), a decision of the Court of Appeal, where it was determined that the threshold for awarding special costs is reprehensible conduct - a word of "wide meaning" that encompasses all forms of misconduct deserving of the court's reproof or rebuke (at para. 17). The decision made clear the purpose of special costs is to chastise a litigant and to distance the court from the conduct at issue. [42] The claimant also relies upon the recent decision of Gropper J. in Ng v. Ng, 2013 BCSC 1494, where she discussed her own review of the law of special costs in Westsea Construction Ltd. v. 0759553 B.C. Ltd., 2013 BCSC 1352. She noted at para. 41 that the standard of reprehensibility has been difficult to apply in cases where misconduct is of a milder form. Gropper J. drew a number of conclusions with respect to the jurisprudence at para. 42, among them that abuse of the court's process will amount to reprehensible conduct, but that the court must exercise restraint in awarding special costs. [43] Both Garcia and Ng dealt with the issue of special costs following trials. Neither case involved a family proceeding. I am mindful of the oft‑cited passage in Cunha v. Cunha, [1994] 99 B.C.L.R. (2d) 93 (S.C.), where Fraser J. ordered special costs at the conclusion of a matrimonial proceeding in response to the husband's ongoing failure to disclose assets throughout the proceeding and during the hearing. He said this at paragraph 9: Non‑disclosure of assets is the cancer of matrimonial property litigation. It discourages settlement or promotes settlements which are inadequate. It increases the time and expense of litigation. The prolonged stress of unnecessary battle may lead weary and drained women simply to give up and walk away with only a share of the assets they know about, taking with them the bitter aftertaste of a reasonably‑based suspicion that justice was not done. [44] Ironically, here the respondent spoke of his desire to settle this matter. He is apparently unable to recognize how his own failure to disclose financial information has made that no doubt impossible. [45] I do not have any authority before me discussing or ordering special costs based on a single application for breach of disclosure obligations. I am also aware of the general approach that, where special costs are awarded, they are to be for the entire proceeding. In other words, it is much more uncommon for them to be awarded at the interlocutory stage. Further, I am concerned that the purposes of the payment I have imposed pursuant to s. 213 of the FLA may, to some extent, overlap with those of an order for special costs. But for this, I may have been inclined to award special costs for this single application, despite the general approach, given the respondent's prolonged failure to comply with the Rules and the terms of the consent order granted at the JCC without any reasonable or rational explanation. I note, however, also the claimant's own late production of an updated financial statement contrary to a single term of the JCC order. [46] In all of these circumstances, I decline to order special costs. [47] In the alternative, the claimant has sought the costs of this application, fixed and payable forthwith, which I am prepared to order. I fix those costs at $2,000, which the respondent shall pay to the claimant forthwith. [48] I further order that the requirement to obtain the respondent's approval as to the form of this is dispensed with. [49] I grant the order for divorce. [50] That just leaves the issue of the authorization. [SUBMISSIONS RE TERMS OF ORDER] "Fleming J."