avr. 26. 2020

Tort of Conspiracy Has a Place in Family Law Says Appeal Court

Leitch v. Novac, 2020 ONCA 257 (CanLII)

Anthony Novac was an entrepreneur who worked in the casino and gaming industry for 20 years. Anthony’s father, Michael Novac, incorporated Sonco Group Inc. which held real estate and various gaming enterprises. Anthony worked as an executive for Sonco. However, by the time of the parties’ separation, Jennifer and Anthony’s wealth had been significantly depleted.

During the disclosure phase of their matrimonial litigation, Anthony said his income was $125,000 per annum. Ms. Leitch took the position that Anthony had hidden assets in the casino industry and had additional income he failed to disclose.

She sued Anthony, his father Michael, other Novac family members, the company Sonco, and two Novac family trusts for six separate tortious conspiracies and engaged in a nine-day summary trial in Ontario’s Superior Court of Justice.

Mr. Justice Gilmore dismissed her conspiracy claims, and made the following findings:
a. There is no evidence of an agreement;
b. Inaccurate representations by Anthony about his income were not made in concert with Michael;
c. The steps taken by Michael were not intended either actually or foreseeably to harm Jennifer; and
d. None of the actions of Michael or Anthony were wrong at law.

The chambers judge held that Jennifer could still pursue her theory of undisclosed income by seeking imputation of income at trial. Jennifer was ordered to pay costs of $340,000 to her husband and costs of $900,000 to the other defendants. Her assets were frozen when the court acceded to Anthony’s application for security for costs.

On appeal Jennifer asserted that “the factual footprint of the conspiracy claim is substantially the same as the support issues that remain for trial.” Her submission was that, by finding that her father-in-law had the right to allocate to himself the entire proceeds of the buyout, but also that it was open to a trial judge to impute to Anthony part of those proceeds as a remedy for the artificiality of Michael’s allocation to himself, the motion judge created a material risk of inconsistent results. The appeal court agreed, finding an error in law, and noted the absence of any legal analysis for the chambers judge’s decision to bifurcate this issue from the trial issues.

Jennifer’s main appeal centred on Judge Gilmore’s order focusing on one particular allegation of conspiracy involving the River Cree Casino, owned by the Enoch Cree Nation, where her husband, Anthony, was the project manager on behalf of Sonco and was to be personally paid 40% of the management fees payable to Sonco over the term of the contract.

In 2015 the Enoch Cree Nation decided to take over management of the casino and bought out Sonco’s contract for $5.75 million. At the heart of the conspiracy was the fact that Anthony’s father, Michael, retained the entire buy-out payment. Jennifer asserted that her husband and her father-in-law conspired to temporarily divert Anthony’s share of the proceeds so she would receive less in spousal support.

In support of her position she submitted three memos drafted by Sonco’s external accountants, documents that were only disclosed when Jennifer commenced her conspiracy action naming multiple parties. Portions of the memos read:

“Michael Novac takes his tax free proceeds and lends to Antony [sic] his portion as a loan that will be forgiven when Anthony’s divorce is final…
This keeps income out of Anthony’s hands….So based on this model the complete after tax cash flow, both corporate and personal, will be $5,030,772? This will be the cash available personally for distribution between Michael and Anthony?”

The appeal court found that the lower court’s hesitation to permit a tort action to invade the realm of family law was misconceived, recognizing that the Superior Court was clearly motivated by the view that the family law statutory scheme was a complete code and that “conspiracy was too blunt an instrument to use to get at the buyout proceeds for support purposes”.

The appeal court determined that the tort of conspiracy was a valuable tool in the judicial toolbox to respond to the type of misconduct alleged by Jennifer and if it was not available, co-conspirators would have “no skin in the game.” The court rejected the notion that compensation paid by the defendants for conspiracy was contraindicated because it was akin to “punitive damages”.

The appeal court also observed that while nondisclosure in family law cases was the “cancer” of family litigation, equally problematic was the issue of “invisible litigants”, namely family members and friends willing to break both the spirit and letter of the law by facilitating the deliberate hiding of assets or income.

The court allowed the appeal, set aside Judge Gilmore’s order and vacated the costs orders against Jennifer. She was awarded costs of the appeal in the amount of $50,000. Leitch v. Novac 2020 ONCA 257