Written by Randolph Scott
"non-disclosure is the cancer of family law"
In family law, where division of assets and assessment of support obligations is at issue, the litigants rely on full disclosure of all income and assets. This is necessary to ensure fairness in the distribution of assets as well as the determination of spousal and child support obligations. The courts take a dim view where there is a lack of full and timely disclosure that details all income and assets. Morning docket courts almost daily hear applications from a former spouse or common law partner seeking to compel the opposing party to fully disclose a record of all assets and all sources of income. For this purpose, sworn statements, bank records, credit card statements and tax information is sought to provide a full picture of the opposing party’s financial status.
It is not unusual for a litigant to delay or deny full disclosure in an attempt to shelter assets or income through deferments or reassignment of assets or sources of income. Assets can be “gifted” to a parent, a source of income “reassigned” to a sibling or funds provided in cash or as a “loan” which then would be deferred to such time as the divorce or separation is completed.
Where friends or extended family members willingly partake in such deception, a 2020 Superior Court of Ontario decision provided a new action where the tort of civil conspiracy (not to be confused with criminal conspiracy) may be brought against these 3rd parties. In the matter of Leitch v. Novac, 2020 ONCA 257 (CanLii), the Court, on an appeal from a lower court decision, noted these 3rd parties often become “invisible litigants” in a family matter and thusly can be held as a conspirator in aiding a friend or family member in hiding income or assets.
When couples separate it is not unusual for extended family to support (emotionally and often financially) that family member, be they son, daughter, brother, sister, niece or nephew. Where that sibling goes through an often acrimonious and painful time, emotions within the larger family can be heightened to where they can often stoke and heighten ill-will between the litigants. At its worst, this familial ill-will may manifest itself in actively assisting in hiding assets and income in an effort to thwart child and spousal support obligations or to stymie the full and fair determination and division of all assets.
Prior to this 2020 decision, family courts tended not look at the actions of 3rd parties, noting that the courts had “imputation remedies” - that is, courts could impute income and ownership of an asset and make a final determination imputing total income and net worth. Moreover, judges often held that statutory law (i.e. The Divorce Act) provided means to remedy these types of actions through imputed income noted above and in costs awards.
However, the ongoing issue of non-disclosure continued to trouble Canadian family courts, noting that fair resolutions could be stymied, proper spousal or child support could not be determined and the full and fair examination of income and assets would be precluded from the court’s review. By 2006, the Supreme Court of Canada noted that nondisclosure is “the cancer of family law” (Leskun v. Leskun 2006 1 SCR 920 [2006] SCJ No. 25 at Paragraph 34).
In the Leitch v. Novac matter, Ms Leitch (“the wife”) brought an action against Mr. Novac (“the husband”) for divorce and corollary relief. This action was amended by the wife who also sought damages in conspiracy against the Mr. Novac, his father and his mother, certain family trusts and a related corporation, Sonco Group Inc. (“Sonco”). The wife alleged that the husband and his family conspired to keep money out of the husband’s hands for the purpose reducing her entitlement to these funds.
In a 9 day summary judgment hearing, the lower court ruled against the wife stating that she could not could not succeed in her conspiracy claim but could seek higher imputed income against the husband at trial for the purpose of determining support. The court awarded total costs of $340,000 to the husband and $900,000 in costs to the other respondents. The wife appealed this decision as well as the costs awards set against her.
The Appeal and the Finding of Civil Conspiracy
The Ontario Superior Court reviewed the decision and the facts laid out before the lower court. It noted the husband was an entrepreneur with a reported annual income of $120,000. The wife was a litigator who returned to law school to pursue a graduate legal education. They were married for 15 years and had 15 year old twins. The husband sold his online gaming platform for $11.7 million but by the time the litigation commenced several years later, this wealth “had been significantly depleted.”
The husband had 20 years experience working in the gaming and casino industry and had attained senior positions with Sonco and its related industries. The wife alleged that the husband had not disclosed income from Sonco or an ownership interest in the casino, thus prompting her to bring forward the court action.
In 2013, the husband and his father began to manage the River Cree Casino in Alberta, which was owned by the Cree Nation. The father and son entered into a 5 year contract to manage the casino but that contract was bought out by Cree Nation for $5.75 million two years later who had decided to run the casino themselves.
The husband and his father had a verbal agreement that the husband would receive 40% of these fees. Two documents were reviewed by the court, which detailed that the father would accept these funds and would loan funds from the husband’s portion to the husband, such loan to be forgiven upon completion of the divorce. This would in effect, prevent income from actually showing up in the husband’s hands.
The court also found that management funds owing to the husband in May 2015 were held back by Sunco at the request of the father so as to not show up as the husband’s income.
In allowing the appeal, the Superior Court of Ontario noted the lower court judge had made several “palpable and overriding errors” (See Appeals and Standard of Review blog on this site):
- The lower court judge erred in deciding that the wife’s conspiracy claim was appropriate for summary judgment even though both of the parties agreed to this proceeding. Despite the agreement of the parties, it was still up to the court to decide if this process was appropriate given the “complexity and importance” of the issue and that the judge had, in fact, erred in proceeding this way.
- The judge erred in rejecting the tort of conspiracy in the family law context. The judge erred in finding conspiracy “was too blunt an instrument for support purposes” and that a conspiracy finding would create “…far reaching implications where family members are involved.” In its decision, the appellate court noted friends and extended family can insert themselves as “invisible litigants” and work toward breaking both “the spirit and the letter” of family law legislation in facilitating “the deliberate hiding of assets or income.”
Further, in denying the use of the tort of conspiracy, the invisible 3rd party litigants become effectively judgment proof, preventing the court from exploring the actions and efforts of co-conspirators in thwarting a full assessment of assets and income. - The lower court judge further erred in failing to consider important evidence. The higher court noted that judge did not fully appreciate Sunco’s communications to the father detailing an agreement to forward the payout funds to the husband as a loan. Where the husband claimed no knowledge of this written communication, the appellate court noted that this information was vital in determining whether the actions of 3rd parties were, in fact, part of a conspiracy to keep funds out of the husband’s hands to lessen his apparent income.
The higher court granted the appeal and sent the matter back for a re-trial under a new judge. Consequently, the earlier costs awards against the wife were set aside. In doing so, the court noted the lower court judge failed to appreciate that the high costs set against the wife “failed to consider the justice of the case” and whether the wife “would be able to pursue her claims, including those on behalf of her children, in light of the order made.”
This decision, although made in Ontario, is of significance in that it is a warning to family law litigants, their family and friends, to take a cautious path in providing support.
Providing emotional or financial support in aid of a friend or relative, particularly someone involved in a breakdown of a marriage or relationship is a caring and proper thing to do. However, going beyond that, to actively encouraging, planning and assisting that friend or relative to thwart full review and examination of assets and income could open a conspiracy action against those who become, as the court references, an “invisible, 3rd party litigant”.