



COURT OF APPEAL FOR ONTARIO

CITATION: Chiaramonte v. Chiaramonte, 2013
    ONCA 641

DATE: 20131023

DOCKET: C55971

Rosenberg, Tulloch and Lauwers JJ.A.

BETWEEN

Anna Chiaramonte

Applicant (Respondent)

and

Rosario
    Anthony Chiaramonte,

R.A.
    Chiaramonte Dentistry Professional Corporation,

1298443
    Ontario Ltd., Moutchiara Investments Ltd.,

Trident
    Services LLC, Chiaro Company LLC, Legends H.H. 1 LLC

and Titan Services Ltd.

Respondents (Appellants)

Gary Joseph and Kristy Maurina, for the appellants

Lorne Wolfson and Adam Black, for the respondent

Heard: March 21, 2013

On appeal from the order of Justice Lorna-Lee Snowie of
    the Superior Court of Justice, dated August 2, 2012.

Tulloch J.A.:

A.

introduction

[1]

This is a dispute between a husband and wife, following a 19 year
    marriage. There are two children of the marriage. The appellant husband is a
    dentist who also invests extensively in rental real estate properties
    throughout Canada, the United States and Turks & Caicos. He provided
    financial support throughout the marriage. Apart from providing bookkeeping
    services for the appellants dental practice, the respondent wife has not
    worked outside the home for 20 years.

[2]

The parties have been separated since January 2010. Since the breakdown
    of the marriage, the relationship has been acrimonious. Vitriolic allegations
    have been levied by both sides. The wife believes that the husband was
    unfaithful to her during the marriage with one of their employees. The husband
    claims that the wife has a serious alcohol problem that contributed to the
    breakdown of the marriage.

[3]

Following the parties separation, the wife brought an application
    seeking financial relief. The main controversy that has plagued the application
    is the issue of financial disclosure to be provided by the husband. Prior to
    the motion that forms the basis of this appeal, the Superior Court had issued
    at least three orders containing terms relating to the husbands financial
    disclosure.

[4]

The motion judge found that the husband had provided token disclosure
    only, and that he was in wilful breach of the three previous orders. Among
    other orders, the motion judge struck the husbands pleadings pursuant to the
Family
    Law Rules
, O. Reg. 114/99, and ordered that the matter proceed by way of
    an uncontested trial.

[5]

The husband appeals. He submits that he substantially complied with the
    court orders. As for the disclosure obligations, the husband swore affidavits
    providing detailed explanations for any non-compliance. He argues that the
    motion judge made findings of fact that were not supported by the evidence, and
    failed to apply relevant legal principles to consider alternative, less extreme
    remedies. The husband now seeks to set aside those portions of the order
    striking his pleadings and allowing the matter to proceed to an uncontested
    trial.

[6]

The wife contends that there has been significant non-compliance with
    the prior court orders and disclosure requirements. She argues that the motion
    judges findings were supported by the record, that she properly exercised her
    discretion to strike the husbands pleadings pursuant to the
Family Law
    Rules
and that her order is entitled to deference on appeal.

[7]

For the reasons that follow, I would allow the appeal.

B.

FACTS

Background

[8]

The parties were married on August 3, 1991, and separated on January 27,
    2010. There are two children of the marriage: a daughter, born June 20, 1994,
    and a son, born November 8, 1996. The children now reside with their mother in
    the former matrimonial home.

[9]

The husband maintains a successful dental practice and has compounded
    his wealth by investing in real property. He holds an interest in or is the
    sole shareholder of a number of companies that own dozens of real estate
    investment rental properties throughout Canada, the United States and the Turks
    and Caicos.

[10]

Throughout
    the marriage, the wife was the primary caregiver for the two children and also
    worked as the bookkeeper for the appellants dental practice.

[11]

Following
    the abrupt breakdown of the marriage, the situation between the parties quickly
    deteriorated, resulting in an untenable relationship. Each party has made
    scandalous and vitriolic accusations against the other.

[12]

On
    February 25, 2010, the wife brought an
ex parte
application seeking,
inter
    alia
, child support, spousal support, property vesting orders and
    non-depletion orders. The application was granted, resulting in the freezing of
    the husbands bank accounts and assets, as well as the husbands business and
    investment accounts. He subsequently retained counsel and returned the matter
    to court.

Orders Respecting Disclosure Obligations

[13]

Between
    April 2010 and March 2012, the parties attended on a number of interlocutory
    motions and consented to several orders, at least three of which imposed on the
    husband some form of financial disclosure obligations.

[14]

First,
    in April 2010, Eberhard J. ordered on consent that the husband provide
    financial disclosure in respect of his dental practice, including the
    production of financial statements and the preservation of bank statements and
    deposit books for inspection. Also pursuant to this order, the husband agreed
    to provide monthly accounting and bank statements for each account associated
    with his real estate investment properties. He also agreed to provide records
    for the use of certain funds and to produce certain credit card statements.

[15]

Second,
    in January 2011, Goodman J. ordered, again on consent, that the husband produce
    copies of his monthly statements for certain credit cards.

[16]

Finally,
    in March 2012, Thompson J. ordered that the husband complete and submit to the
    wife an expert valuation of the appellants dental practice and a preliminary
    analysis of the appellants income for at least the previous three years.

The Respondents Motion Below

[17]

This
    appeal arises out of the wifes motion, brought in February 2012, to strike the
    husbands pleadings for alleged breaches of the prior court orders and alleged
    bad faith conduct by the husband in attempting to prolong the litigation, increase
    the wifes costs and generally prevent her from pursuing her claim.

[18]

The
    husband denied these allegations and brought a cross-motion seeking an order
    that the wife comply with certain terms set out in the orders of Bielby and
    Belleghem JJ., dated October 1, 2010, and December 17, 2010, respectively.

[19]

Snowie
    J. heard the motion on August 2, 2012. She made specific findings of fact
    regarding the husbands financial disclosure and, in particular, found that the
    husband had wilfully breached the orders of Eberhard, Thompson and Goodman JJ.:

It is clear to this court the Father considers himself above
    the law and has repeatedly thumbed his nose at the outstanding court orders.
    It appears to be a game of power and control for the father. He has made
    little effort to comply with this courts order for the last 2 ½ years as
    witnessed by the outstanding disclosure (15 pages) attached to this endorsement
    as Schedule A.

I accept all the outstanding disclosure listed in schedule A.
    The disclosure made to date by the father has been token only. He has
    produced a handful of documents here and there in order to feign compliance.
    It is a game for him. He clearly believes that he is smarter than counsel and
    this court and can avoid disclosure. The disclosure he has made is of little
    value.



I find that the father is clearly and wilfully in breach of the
    orders of Justice Eberhard, paras. 8, 10, 11, 12, 13, 14, 17, 18, 19, 20; and
    Justice Thompson dated March 29, 2012, para. 13.



I further find that the father is in breach of Justice
    Goodmans order of January 18, 2011, para. 6. No monthly credit card statements
    have been provided by any of the Respondents as ordered.

[20]

The
    motion judge granted the wifes motion. Among other relief, the motion judge
    struck the husbands pleadings and ordered that the matter be set down for an
    uncontested trial. The motion judge also dismissed the husbands cross-motion
    in its entirety. The husband appeals those portions of the order striking his
    pleadings and setting the matter down for an uncontested trial. Leave to appeal
    the interlocutory aspects of the motion judges order was refused by van
    Rensburg J. on December 31, 2012.

C.

the parties POSITIONS

[21]

The
    crux of the parties dispute concerns the nature and amount of financial
    disclosure provided by the husband to the wife.

[22]

The
    husband submits that he has substantially complied with the disclosure
    obligations set out in the prior court orders. In support of his position, he
    offers a detailed list of bank statements, credit card statements, financial
    statements and records that have been provided to the wife. The husband claims
    that the motion judge simply ignored the evidence.

[23]

The
    husband submits that the wife has changed counsel on three occasions since
    commencing these proceedings and that these changes may have contributed to her
    inability to track the documentation that he provided.

[24]

The
    husband also claims that the wife made it difficult for him to access his
    computer and documents left in the matrimonial home. He points out that she had
    been his bookkeeper and was responsible for entering financial information into
    an accounting program. He alleges that she failed to enter this financial
    information for many months, which further impeded his ability to provide information
    as intended.

[25]

In
    addition, the husband submits that the wife was aware that he was involved in
    legal proceedings with his former accountants, and that the proceedings
    included a request for the return of his files. Eventually, on October 14,
    2011, the appellant moved to compel his former accountants to release his
    files. Thompson J. granted the appellants requests and extended the timeline
    in Seppi J.s order dated August 18, 2011, for the delivery of the husbands
    income tax returns and financial statements. According to the husband, the
    required materials were provided to the wife as they were completed.

[26]

The
    husband seeks to have the order striking his pleadings set aside and to
    participate in the trial of this matter. He argues that the motion judge departed
    from the established principle that pleadings should only be struck in
    exceptional circumstances, and that the motion judge erred in law by failing to
    consider alternative, less extreme remedies. The husband also argues that the
    motion judge made palpable and overriding factual errors in finding that he had
    provided token disclosure only, that only a handful of documents had been
    produced and that all of the allegedly outstanding disclosure was in fact
    outstanding.

[27]

The
    wife argues that the motion judges decision to strike the husbands pleadings,
    and to deny him participation in the trial of this matter, is entitled to
    deference on appeal. Those remedies were within the broad discretion of the
    court under the
Family Law Rules
to deal with a party who is in breach
    of court orders. The wife contends that the motion judge was entitled to prefer
    her evidence as to the sufficiency of the disclosure provided by the husband.
    The motion judges findings that the husband failed to disclose financial
    information, and that he wilfully breached multiple court orders, is supported
    by the record.

D.

Analysis

[28]

As
    a preliminary matter, the wife argues that this court should not entertain the
    appeal since an appellate court has the discretion to refuse to hear the appeal
    of a party who continues to be in wilful breach of an order:
Dickie v.
    Dickie
, 2007 SCC 8, [2007] 1 S.C.R. 346, at paras. 4-6.

[29]

It
    is true that the court has an inherent power to control abuse of its process
    and to refuse to entertain the appeal of a party who is in wilful breach of
    court orders. However, because one of the husbands primary arguments in this
    case is that the motion judge erred in finding that the husband wilfully
    breached court orders for disclosure, it is necessary to consider the merits of
    this appeal.  I note that the parties agreed, at the time of the hearing of the
    motion below, that the husband was up to date with his child and spousal
    support payments based on the imputed income attributed to him by Eberhard J.
    It is also acknowledged that, although the household and s. 7 expenses were not
    being paid, the entitlement to these expenses was in dispute.

The Family Law Rules

[30]

The
Family Law Rules
provide as follows, in relevant part:

1(8) The court may deal with a failure to follow
    these rules, or a failure to obey an order in the case or a related case, by
    making any order that it considers necessary for a just determination of the
    matter, on any conditions that the court considers appropriate, including:

(a) an order for costs;

(b) an order dismissing a claim made by a party
    who has wilfully failed to follow the rules or obey the order.



10(5) If a respondent does not serve and file an
    answer as this rule requires, or the answer is struck out by an order,

(a) the respondent is not entitled to any further
    notice of steps in the case (except as subrule 25 (13) (service of order)
    provides);

(b) the respondent is not entitled to participate
    in the case in any way;

(c) the court may deal with the case in the
    respondents absence; and

(d) the clerk may set a date for an uncontested
    trial.



14(23) A party who does not obey an order that was made
    on motion is not entitled to any further order from the court unless the court
    orders that this subrule does not apply, and the court may on motion, in
    addition to any other remedy allowed under these rules,

(a) dismiss the partys case or strike out the
    partys answer or any other document filed by the party;

(b) postpone the trial or any other step in the case;

(c) make any other order that is appropriate,
    including an order for costs.

Striking a Partys Pleadings

[31]

In
    family law cases, pleadings should only be struck, and trial participation
    denied, in exceptional circumstances and where no other remedy would suffice:
Purcaru
    v. Purcaru
, 2010 ONCA 92, 75 R.F.L (6th) 33, at para. 47. The exceptional
    nature of this remedy is rooted in the significance of the adversarial system,
    as this court recognized in
Purcaru
, at para. 49:

The adversarial system, through cross-examination and argument,
    functions to safeguard against injustice. For this reason, the adversarial
    structure of a proceeding should be maintained whenever possible. Accordingly,
    the objective of a sanction ought not to be the elimination of the adversary,
    but rather one that will persuade the adversary to comply with the orders of
    the court.

[32]

Striking
    a partys pleadings is a drastic remedy that should only be applied in
    exceptional circumstances. The rules authorizing this remedy must be
    interpreted in light of the draconian effect of rule 10(5)(b). That rule
    provides that a respondent whose answer has been struck is not entitled to
    participate in the case in any way.  For example, in
Kim v. Kim
, 2001
    CarswellOnt 502 (ONSC), on the basis of rule 10(5)(b), an uncontested hearing
    was held on custody, support and property without further notice to the party
    whose pleadings had been struck. Similarly, in
Costabile v Costabile,
2004
    CarswellOnt 4860 (ONSC), a party whose pleadings had been struck was not
    entitled to notice of further proceedings nor was he entitled to participate in
    any way.

[33]

It
    is true that a motion judges decision to strike pleadings and deny
    participation at trial is entitled to deference if exercised on proper
    principles:
Purcaru
, at para. 50. Absent palpable and overriding
    factual error, appellate courts ought not to interfere with a motion judges
    properly exercised discretion to strike pleadings. However, given the
    exceptional nature and significant implications of denying a party
    participation at trial, it is essential that this remedy of last resort be
    granted only on a proper evidentiary basis.

Application to the Present Case

[34]

In
    the case at bar, the motion judge concluded that the husband was clearly and
    willfully in breach of three previous orders. In her reasons, the motion judge found
    that the husband had thumbed his nose at the outstanding court orders, and,
    in respect of the disclosure that he did make, that this was token disclosure
    only. She found that the husband had produced only a handful of documents
    here and there.

[35]

A
    review of the record indicates that these findings were erroneous.

[36]

There
    was evidence that the husband had provided a considerable amount of the
    disclosure specifically ordered by Eberhard, Thompson and Goodman JJ. in their
    respective orders. In addition to identifying allegedly outstanding disclosure,
    the wifes affidavit dated July 24, 2012, acknowledges the records that had
    already been produced. These included various personal and corporate bank
    statements, credit card statements, invoices, income tax returns, year-end
    financial statements and listing agreements, much of which addressed the terms
    of the prior court orders referred to by the motion judge.

[37]

In
    my view, the motion judge clearly mischaracterized the husbands disclosure.
    The efforts made by the husband to comply with the court orders were more than
    just token attempts at compliance. Keeping in mind that the husbands financial
    situation is considerably more complex than that of the average family law
    litigant, it is apparent from the record that the husband had been making
    serious efforts to comply with his disclosure obligations. The exhibits
    attached to the husbands affidavit of April 27, 2012, include a personal
    income tax return and year-end financial statements for two of the husbands
    corporations. The exhibits attached to the husbands affidavit of July 10,
    2012, many of which were also attached to an earlier affidavit, include
    personal and corporate bank statements for various accounts; a chart listing
    approximately 40 properties owned by the husband, including purchase price and
    mortgage information; a property appraisal; listing agreements for certain
    properties owned by the husband; and an invoice for valuation services. None of
    this evidence was referred to by the motion judge. It is not clear from her
    reasons that she even considered the affidavit evidence tendered by the husband.

[38]

I
    do not mean to suggest that the husbands disclosure has been perfect. However,
    in my view, the motion judge committed palpable and overriding errors in finding
    that the husband had willfully breached the existing court orders. Justice
    would be best served in this case by allowing the husband to participate at
    trial. The extent of the husbands disclosure may well lead a trial judge to
    conclude that his income or assets exceed the figures disclosed. That
    determination is best left to the trial judge, based on all the evidence,
    including such further evidence as the husband may provide to substantiate his
    position.

[39]

For
    these reasons, I would allow the appeal and set aside those portions of the
    motion judges order striking the husbands pleadings and allowing the matter
    to proceed by way of an uncontested trial.

[40]

The
    husband has been successful on this appeal and is entitled to costs of the
    appeal on a partial indemnity scale plus disbursements and HST.

[41]

The
    husband also asks this court to set aside the costs order of Snowie J. dated
    February 1, 2013, which ordered costs in favour of the wife on a full indemnity
    basis in the amount of $90,616.91 for fees and $10,724.89 for disbursements. The
    wife argues that this court cannot consider the costs order of Snowie J.
    without leave to appeal. However, the general principle is that, when an appeal
    is allowed, the order for costs below is set aside and the costs below and the
    costs of the appeal are awarded to the successful appellant:
St. Jean
    (Litigation Guardian) v. Cheung
, 2009 ONCA 9;
Hunt v. TD Securities
    Inc.
(2003), 43 C.P.C. (5th) 211 (Ont. C.A.). Leave to appeal is not
    required if the substantive disposition is different from that of the decision
    under appeal:
Dines v. Harvey A. Helliwell Investments Ltd.
, [1992]
    O.J. No. 2107 (Ont. C.A.). Accordingly, the motion judges costs order is set
    aside. However, given that the husband does not seek an order for costs below,
    and because the result of this appeal leaves the wife with partial success on
    the motion, no costs below are awarded to the husband.

[42]

As
    to costs of this appeal, if the parties cannot agree, they may make brief
    written submissions. The appellant shall make submissions within 15 days of the
    release of the decision; the respondent will have 15 days to respond.

Released: MHT October 23, 2013

M.H Tulloch J.A.

I agree. M.
    Rosenberg J.A.

I agree. P.D. Lauwers
    J.A.


