The phrase “non-disclosure of assets is the cancer of matrimonial property litigation” is an oft-quoted phrase, arising from the seminal case of Cunha v. Cunha, 1994 CanLII 3195. In Cunha, the Honourable Mr. Justice Fraser of the Supreme Court of British Columbia found that where a family law litigant actively engages in the concealment of assets, the consequences of the concealment should be visited upon the party that sought to conceal their assets, and not the innocent party. “Not only is it a matter of doing justice in any particular case, it is also a matter of general interest. The system should not give offence to the honourable litigant by treating the dishonourable litigant the same.”
As a result of Cunha, family law cases across BC and in fact across Canada have judicially denounced the concealment of assets. Where the Court has found that a party has concealed assets, the Court will often draw an adverse inference that “the value of undisclosed assets is at least equal to the value of disclosed assets”. This often results in the known family assets being unequally divided in favour of the innocent party.
The other issue that often arises in non-disclosure cases is where those undisclosed assets have gone. Were the assets dissipated? Frittered away on lavish living expenses or depreciating assets? Transferred to third parties, so that the non-disclosing party could effectively become “judgment proof”? What if the third parties had actively assisted in the deception, helping the concealing party by allowing for a fraudulent transfer of assets for little or no consideration?
Until recently, the only relief that an innocent party could obtain in such a case was an unequal division of the existing assets and an award of special or solicitor/client costs. The assets that had already been squandered or transferred to third parties would typically be impossible to recover. The innocent party could attempt to seek relief from the third parties directly by suing the third parties under the Fraudulent Conveyance Act, however, that was often an uphill battle, with little likelihood of success.
However, a recent Ontario Court of Appeal case has laid new ground on this issue. In Leitch v. Novac, 2020 ONCA 257, the wife sought damages against the husband and his family members, for conspiracy to divert the husband’s business income in order to reduce the husband’s child support payments. After the parties separated, the husband’s father incorporated a management company to manage a casino in Alberta. There was an informal agreement that the husband would act as project manager and receive 40% of the management fees payable to the company. The management company was sold a few years later, with all the proceeds of sale being paid to the husband’s father. The wife then alleged that the husband ought to have been paid at least 40% of the proceeds of the sale, and that the husband, his father, mother, and the management company had conspired to temporarily divert the husband’s share so that she would receive less in support payments. She also alleged that there was a conspiracy to conceal the management fees owing to the husband.
The husband’s father, mother, and the management company then filed a motion for partial summary judgment, to dismiss the wife’s conspiracy claim. The motion judge awarded the partial summary judgment and found that there was no unlawful conspiracy. The motion judge found that the husband’s father had the right to allocate the entire sale proceeds of the buyout to himself, but also that at trial, the wife could still pursue a claim against the husband to have additional income imputed on him.
The Ontario Court of Appeal found that in doing so, the motion judge created a risk of inconsistent results at trial, and erred in law in failing to consider the risk before bifurcating the proceeding. As a result, the Court of Appeal overturned the motion judge’s determination, finding that the motion judge failed in their analysis of the tort of conspiracy. The Court established that conspirators who were prepared to facilitate non-disclosure had to be properly deterred, and that a judgment against the conspirator would often be the only means by which a recipient would be able to satisfy a judgment. The Court stated as follows:
[44] As the Supreme Court suggested in Leskun v. Leskun, [2006] 1 S.C.R. 920, [2006] S.C.J. No. 25, 2006 SCC 25, at para. 34, nondisclosure is the cancer of family law. This is an apt metaphor. Nondisclosure metastasizes and impacts all participants in the family law process. Lawyers for recipients cannot adequately advise their clients, while lawyers for payors become unwitting participants in a fraud on the court. Judges cannot correctly guide the parties to a fair resolution at family law conferences and cannot make a proper decision at trial. Payees are forced to accept an arbitrary amount of support unilaterally determined by the payor. Children must make do with less. All this to avoid legal obligations, which have been calculated to be a fair quantification of the payor’s required financial contribution. In sum, nondisclosure is antithetical to the policy animating the family law regime and to the processes that have been carefully designed to achieve those policy goals.
[45] There is a related malady that often works hand-in-hand with nondisclosure to deny justice in family law proceedings. The problem is what I will call “invisible litigants”. These are family members or friends of a family law litigant who insert themselves into the litigation process. They go beyond providing emotional support during a difficult time to become active participants in the litigation. Usually, their intentions are good, and their interference makes no difference in the ultimate result. However, sometimes they introduce or reinforce a win-at-all-costs litigation mentality. These invisible litigants are willing to break both the spirit and letter of the family law legislation to achieve their desired result, including by facilitating the deliberate hiding of assets or income.
[46] If we were to accept the analysis of the motion judge, co-conspirators who engage in such behaviour could do so with impunity. Contrary to the observation of the motion judge, [page599] conspiracy is not a “blunt instrument” to respond to this misconduct. It is a valuable tool in the judicial toolbox to ensure fairness in the process and achieve justice. If the tort of conspiracy is not available, then co-conspirators have no skin in the game. Their participation in hiding income or assets is a no-risk proposition. If their conduct is exposed, all that happens is that the payor will be forced to pay what is appropriately owing. If there is to be deterrence, there must be consequences for co-conspirators who are prepared to facilitate nondisclosure.
[47] There is a further practical reason for permitting the use of the tort of conspiracy in family law claims. Where income or assets have been hidden with the assistance of a co-conspirator, often the family law litigant will be effectively judgment-proof. That, after all, is the whole purpose of the conspiracy. In those circumstances, the imputation of income or the inclusion of hidden assets into the net family property calculation will be a futile exercise, as the recipient cannot collect on what is owing. A judgment against a co-conspirator will often be the only means by which a recipient will be able to satisfy a judgment.
The Ontario Court of Appeal ordered a new trial before a different judge, to determine the wife’s claim for conspiracy against the husband and his family. The husband and his family sought leave to the Supreme Court of Canada to appeal the Ontario Court of Appeal’s judgement but leave was denied in Novac et al. v. Leitch, 2020 CanLII 87108 (SCC).
The key takeaway from this case is that there continues to be judicial concern about parties failing to disclose all of their assets and income in family law litigation. Parties who engage in such deceptive conduct, including third parties who assist in such deceptive conduct, put themselves at risk of costs awards and significant judgments against them. For more information regarding non-disclosure of assets or any other family law issue, please contact any member of our Family Group.
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Fanda Wu Associate | Family Law Vancouver |
This article is intended to be an overview of the law and is for informational purposes only. Readers are cautioned that this article does not constitute legal or professional advice and should not be relied on as such. Rather, readers should obtain specific legal advice in relation to the issues they are facing.