



COURT OF APPEAL FOR ONTARIO

CITATION: Ritchie v. Ritchie, 2018 ONCA 486

DATE: 20180528

DOCKET: C64138

Rouleau, van Rensburg and Pardu JJ.A.

BETWEEN

Charlene Danita Ritchie

Applicant
(Respondent in Appeal)

and

Philip William Ritchie

Respondent
(Appellant)

Gary S. Joseph and Stephen
    P. Kirby, for the appellant

Herschel Fogelman and C. Paterson,
    for the respondent

Heard: April 23,
    2018

On appeal from the orders of Justice Theresa Maddalena of
    the Superior Court of Justice dated July 4, 2017, with reasons reported at 2017
    ONSC 4130, and dated September 29, 2017.

REASONS FOR DECISION

[1]

Philip William appeals from two trial decisions that
    determined issues unresolved by the parties pursuant to partial minutes of settlement.
    The issues for trial were:

1.

Duration and quantum of spousal support;

2.

Child and spousal support arrears;

3.

Amount to be paid by the appellant to the
    respondent to reflect the post-valuation-day increase in the value of her shares
    in Keefer Developments Limited (KDL), which she had transferred to him;

4.

Disposition of a recreational property in the
    United States (the Allegheny Mountain property);

5.

Costs.

[2]

The appellant submits that the trial judge erred
    by refusing to deduct losses incurred by Keefer Mansion Inc. (KMI), in which KDL
    had a majority interest, in determining his income for the purpose of support. He
    also submits that the trial judge erred in her assessment of the change in the
    value of the KDL shares, in her disposition of the Allegheny Mountain property,
    and in determining costs.

[3]

The issue concerning KMI, as framed for the
    trial judge, turned on (i) whether certain losses incurred by KMI, and other corporations
    controlled by the appellant, should be taken into account in determining his
    income for the purpose of support; (ii) whether the losses incurred by KMI
    provided a purely personal benefit to the appellant; and (iii) whether this
    benefit should be considered in determining the post-valuation-date change in
    the value of the KDL shares.

Income

[4]

The appellant retained an expert in

business valuation
,
Michael
Carnegie, to provide an opinion as to his income for the purpose of
    support. This was a complex matter because the appellant controlled, in whole
    or in part, over 44 corporations. The experts calculations initially deducted
    losses generated by two corporations, KMI and
Historic Niagara
    Development LP
(HNDL), controlled by the appellant. Carnegie
    testified that HNDL was not expected to continue losing money and the trial
    judge, on this basis, declined to deduct those corporate losses from the
    appellants income. That finding is not challenged on appeal. The trial judge also
    refused to deduct the losses incurred by KMI in calculating the appellants
    income, on the ground that those losses were incurred entirely and solely for
    the benefit of the appellant and without the knowledge or consent of the respondent.
    The appellant submits that the trial judge erred in refusing to take into
    account those losses, which were real losses incurred in the operation of the
    KMI business, in determining his income for the purpose of support.

[5]

KDL owned shares in KMI, which leased a
    historical building, Keefer Mansion, that it operated from 2006 as an inn, with
    a restaurant, and then as an events venue (the Mansion). KMI was und
er
    the sole direction and control of the
appellant. From
    approximately May 2012 up to and including the trial date, the appellant, his current
    spouse and some of their respective children resided in the Mansion.  KMI had
    accumulated substantial losses which were ongoing, and its operations were
    funded by another of the appellants companies, MSANF Inc. The trial judge held
    that KMI was used to fund the appellants lifestyle, and that the continued
    operation of its business made no financial sense. KMI had cumulative losses of
    over $2 million and had lost money for ten years in a row. The appellants own
    expert testified that a prudent owner would stop the red ink, and admitted that
    there was no economic or commercial reason for the losses to be continually
    funded, except to personally benefit the appellant.

[6]

The trial judges determination of the
    appellants income was reasonable in light of the evidence before her. The
    appellant acknowledged that his line 150 income as reported on his tax returns
    did not represent his true income. Even if he was determined to continue to
    operate KMI at a loss, the court was not, as the appellant argues, bound to
    accept his business judgment, when it came to determining his income for the
    purpose of support.

[7]

The appellant was not a credible witness. He was
    not forthcoming in his evidence about management fees he and others received
    from the various corporate entities. During cross examination, it became clear
    that he had incorporated another corporation, through which he funneled monies
    that contributed to his income. His own expert was not provided with this
    crucial information. The appellant does not challenge the trial judges
    credibility findings on appeal.

[8]

The trial judge concluded, at paras. 92-95, as
    follows:

The respondent continued to assert in his
    evidence that his actual income for support purposes is about $80,000. I find
    it is virtually impossible to determine his true income given all the
    inconsistencies in his evidence as well as the lack of relevant information.
    The applicants approach is to utilize the calculations prepared by Carnegie,
    but to back out of those calculations the losses for KMI and HNDL for reasons
    already provided.

In the absence of reliable and cogent evidence of
    the respondent, as well as the absence of a properly instructed expert report,
    I adopt the approach of the applicant as reasonable in the circumstances.

Therefore, I find the income of the respondent
    for support purposes as follows:

2012        
          $326,716

2013           
       $194,017

2014        
          $230,530

2015        
          same as 2014

2016        
          same as 2014

It remains the
    responsibility and obligation of the respondent to satisfy the court as to his
    real income for support purposes. The lack of a properly instructed report
    substantially hampers the decision-making process of the court. The evidence of
    the respondent with respect to finances has been vague and unclear. Family law
    proceedings are all about full and fair disclosure. Anything less is unacceptable
    and draws adverse inferences. In this particular case, it is clear that full
    particulars of the respondents finances have not been provided to his expert
    or to the court.

[9]

There is no basis to interfere with the trial
    judges findings about the appellants income for support purposes.

The change in share value

[10]

The appellant submits that the trial judge
    should not have considered the personal benefit he received through KMI in
    assessing the change in the value of the KDL shares. The appellant did not lead
    any expert evidence at trial about the change in the value of those shares. The
    respondents expert,
Steve Ranot,
gave evidence of two
    values. The higher value reflected an exclusion of KMIs losses after the date
    of separation. The trial judge accepted at paras. 36-38 that the losses
    incurred by KMI should not be factored into the calculation of the change in
    the value of the KDL shares:

KMI cannot repay its debt. The Mansions debt has
    continued to escalate since the date of separation. The Mansion continues to
    exist as a personal benefit for the respondent which I will also deal with
    later herein. The Mansion debt has continued solely for the benefit of the
    respondent.

The respondent is funding the continued and
    ongoing losses in KMI, where he now lives, with income from [2009104 Ontario
    Inc. and MSANF Inc.]. Under the circumstances, the losses in KMI ought to be
    ignored for purposes of determining the post-separation increase in value.

Therefore, I accept
    the high value as calculated by Ranot and in his report. I conclude that the
    value of KDL post-separation is $947,039. The respondent owes to the applicant
    20% which is $189,407. Therefore, the respondent shall pay to the applicant
    $189,407 as the increase in value of KDL. This may be rolled into a holding
    company created for the applicant for such purposes.

[11]

We agree that the extent to which a corporation
    provides personal benefits to a shareholder, which notionally claims losses or
    a negative value on the corporate balance sheet, can be a relevant factor in
    the assessment of the value of the shares.

[12]

There is no basis to interfere with this largely
    factual determination.

Allegheny Mountain property

[13]

The appellant submits that the trial judge erred in ordering him to
    pay $16,557.50 on account of the Allegheny Mountain
trailer
only, and not on account of the
    land lease where the trailer was located.

He
    conceded during the trial that he sold the trailer without the consent of the respondent
    and used the proceeds to purchase a new trailer which was placed in the name of
    his current spouse. During the trial, the appellant agreed to pay the respondent
    $16,557.50 for the trailer.

[14]

The precise nature of the parties agreement was
    not made clear to the trial judge. The appellant has parked his new trailer on
    the leased land. The respondent has not in fact had access to the leased land,
    and does not oppose a change to the judgment to include a release of the lease
    as well as the trailer. Paragraph 5 of the order shall be changed to add and
    on account of the leased land upon which the trailer was located, provided that
    the appellant shall indemnify the respondent for any income tax consequences to
    her flowing from the release of the lease.

Costs

[15]

The appellant seeks leave to appeal costs and
    submits that the trial judge erred in awarding costs of $314,566 to the respondent,
    which was inclusive of over $80,000 in expert fees and other disbursements.

[16]

The respondent sought costs on a full indemnity
    basis and submitted a bill of costs for over $450,000. The appellant submitted his
    own bill of costs in the sum of $186,045.50.

[17]

The appellant submits that the trial judge erred
    in her costs decision. He argues that no costs should have been awarded since
    there was a partial settlement, and since he did no worse at trial than he
    would have had he accepted the offer to settle.

[18]

We do not accept these arguments. Spousal and
    child support were in issue from the beginning of the litigation. This case was
    quite different from one such as
Blank v. Micallef,
[2009] O.J.
    No. 4636
(S.C.), which is relied upon by the appellant, in
    which the parties settled all the issues between them, except for costs, and
    then asked the judge to decide costs without the benefit of a factual context.

[19]

The appellant has not articulated any basis to
    disagree with the trial judges assessment of the offers made by the parties,
    at paras. 35-37:

Generally, I accept that the applicant
    obtained an order that is as favourable as the offer on most of the issues
    including property, spousal and child support, and arrears, save and except for
    the equalization payment.

The offer to settle of the respondent, dated
    May 12, 2016, ignored child and spousal support arrears, and ignored ongoing
    spousal support.

The offer of the
    respondent further did not realistically consider any increase in the value of
    the applicants 20% interest in KDL. Generally, the respondents offer was far
    below what the court ordered. [Footnote omitted.]

[20]

The trial judge appropriately applied the relevant
    cost factors set out in r. 24 of the
Family Law Rules
, O. Reg.
    114/99
. At paras. 40-47, she explained:

The issues for trial were of paramount
    importance to the applicant. The financial issues of the case were complex.
    Separate and apart from the evidence of the applicant and the respondent, most
    of the time at trial dealt with the evidence of the experts.

The respondents actions in this case, no
    doubt, clearly contributed to the higher costs of this litigation for the
    applicant. I made various findings in my reasons concerning lack of proper
    disclosure by the respondent. Further, for unknown reason, the respondent did
    not engage his expert to prepare an analysis of his income for 2015 and 2016.
    The respondent formed a new corporation into which he was funneling monies and
    yet this was not disclosed in advance of trial.

The court found the respondents answers
    regarding his finances to be vague and unclear, all of which are outlined in
    the courts reasons released July 4, 2017.

Whether from bad judgment, carelessness,
    negligence or otherwise, I concluded that the conduct of the respondent was
    unreasonable. Legal fees could have been substantially reduced if the
    respondent had taken a more reasonable approach to this litigation.

The respondents offer to settle was clearly
    not a reasonable one.

The court agrees that a consequence of the
    respondents offer to settle was that the trial became inevitable with
    additional costs to the applicant.

The concealment of information relevant to the
    issues leads the courts to conclude unreasonable conduct which could amount to
    bad faith on the part of the respondent.

Under the
    circumstances, it would have been reasonable for the respondent to expect
    substantial cost consequences given his behavior during the litigation.

[21]

The appellants conduct alone would have
    justified considering full indemnity costs.

[22]

Accordingly, we dismiss the appeal, with costs
    to the respondent in the agreed sum of $22,000, inclusive of disbursements and
    HST.

Paul Rouleau J.A.

K. van Rensburg J.A.

G. Pardu J.A.


