Welsh v. Welsh, 2011 ABQB 686

Court of Queen ’ s Bench of Alberta Citation: Welsh v. Welsh, 2011 ABQB 686 Date: 20111109 Docket: 4803 144777 Registry: Edmonton Between: James Alan Welsh Plaintiff (Respondent) - and - Ina Meintiena Welsh Defendant (Applicant) ______________________________________________________ Memorandum of Judgment of the Honourable Madam Justice D.C. Read _______________________________________________________

Summary: A divorcing couple’s matrimonial property included assets located outside of Alberta as well as corporate assets. At issue was the jurisdiction of the Alberta courts to deal with the assets outside of Alberta as well as the ability of the court to pierce the corporate veil in circumstances where the spouse who was the corporation’s directing mind was unco-operative. Facts :

[ 1 ] James Welsh and Ina Welsh married on December 23, 2000 in Sherwood Park, Alberta. The parties had signed an pre- nuptial agreement on December 21, 2000, which provided for the distribution of property upon divorce. The agreement also stated that the parties agreed to be governed by the laws of Alberta. The parties separated on February 3, 2008, and Mr. Welsh initiated divorce proceedings in Alberta on February 8, 2008 by a combined Statement of Claim for Divorce and Division of Matrimonial Property (“Alberta Action”). The matter is under case management. I am case management judge.

Corollary relief was severed from the divorce by my order, and a Divorce Judgment was granted on July 18, 2011. [ 2 ] From 2004 until their separation, the parties’ matrimonial home was in Edmonton. Shortly before they separated, Mr. and Ms. Welsh decided to sell their home in Edmonton and purchase a property in Osoyoos, British Columbia. Prior to February 3, 2008, the parties had put a deposit down on the Osoyoos property, but had not completed the purchase. The Edmonton home had sold but the parties retained possession of it until the end of March.

Money from the sale of the Edmonton home was used to fund the deposit on the Osoyoos property. A line of credit with Scotiabank provided the remainder of the purchase price. At the time of their separation, the parties also owned a house in Phoenix, Arizona. [ 3 ] After the parties separated, for some time Ms. Welsh lived in the Phoenix property and Mr. Welsh lived in the Osoyoos property. Ms. Welsh has currently returned to Edmonton for family reasons. Mr. Welsh is still living in the Osoyoos property.

The parties have not resided together since separating on February 3, 2008, and have never resided together at the Osoyoos property. [ 4 ] Mr. Welsh has dual Canadian and American citizenship and could relocate to Phoenix. Ms. Welsh is Canadian and cannot live permanently at the Phoenix property. [ 5 ] In addition, Mr. and Ms. Welsh owned multiple corporations. Mr. Welsh was the sole shareholder of Markdale Ltd., which became R. J. Welsh Holdings Ltd. The primary asset of Markdale, and later R. J. Welsh Holdings Ltd. was a strip mall. This strip mall has now been sold. As of September 13, 2011 Mr.

Welsh continues to be the sole shareholder of R. J. Welsh Holdings according to corporate records. Mr. and Ms. Welsh each owned 50% of the shares of Pegasus Saddlery & Western Wear Ltd., which operated a saddle and western wear shop. The shop has now been sold. Pegasus has now been struck for failure to file annual returns. [ 6 ] Ms. Welsh estimates that the corporations received somewhere between $1.5 million to $2 million dollars from the sales of corporate assets. Mr. Welsh controls the proceeds from these sales and all the information concerning the corporations.

On March 17, 2011, at a case management hearing, I ordered all accounting and corporate documentation from R. J. Welsh Holdings Ltd., Pegasus Saddlery & Western Wear Ltd., and Markdale Ltd. to be delivered to an accountant appointed by court order. Mr. Welsh was present when the order was made. He has failed to comply with this order. [ 7 ] Ms. Welsh believes that the funds from the sale of the various assets are deposited in bank accounts in the name of Mr. Welsh and R. J. Welsh Holdings. R. J. Welsh Holdings has an account with TD Canada Trust in St.

Albert, Alberta and one with Bank of Montreal in Osoyoos, B.C.. Pegasus Saddlery & Western Wear Ltd. has an account with Servus Credit Union in Edmonton. Mr. Welsh has a line of credit with Scotiabank in Osoyoos, secured against the Osoyoos property. [ 8 ] In addition to the Alberta Action, Mr. Welsh also commenced an action in the State of Arizona (“Arizona Action”) and brought a parallel application concerning matrimonial property in Arizona. Mr.

Welsh agreed on the record in the Alberta Action that Alberta is the proper jurisdiction to hear the matter, and when pressed to do so at a case management hearing, Mr. Welsh promised the Court that he would end the Arizona Action. At a later case management hearing, Mr. Welsh represented that he had discontinued the Arizona Action, as promised. However, recent correspondence from counsel in Arizona seems to indicate that the Arizona Action remains live. [ 9 ] Mr. Welsh also started an action in British Columbia (“British Columbia Action”) concerning the Osoyoos property. As with the Arizona Action, Mr.

Welsh also promised to end the British Columbia Action. However, it remains live as well. [ 10 ] Since the parties’ separation, Mr. Welsh has failed to pay various expenses associated with maintaining the Osoyoos property, even though he has been living there. These include property taxes, payments on the Scotiabank line of credit, condominium fees, gas and utilities. In order to maintain the property, and to prevent Scotiabank from foreclosing, Ms. Welsh has paid these expenses herself. At previous case management hearings, held on August 20, 2008 and on September 17, 2008, Mr. Welsh was ordered to reimburse Ms.

Welsh for these expenses. On May 26, 2011, the Court again ordered Mr. Welsh to reimburse Ms. Welsh for expenditures for the Osoyoos property that she paid. Mr. Welsh did provide some funds as a consequence of these orders but has not completely complied with them. [ 11 ] At the May 26, 2011 case management hearing, it was agreed between the parties that they would proceed by desk application to obtain the divorce and that corollary relief and matrimonial property would be severed in order to permit this to occur.

The divorce has now been granted. [ 12 ] At a case management hearing held on September 13, 2011, Ms. Welsh applied for several orders: an order for exclusive possession of the Osoyoos property; an order prohibiting R. J. Welsh Holdings Ltd. from paying out, disposing of, or otherwise dissipating any assets of the corporations including any bank accounts in the name of the corporations; an order naming Ms. Welsh a Director of R. J. Welsh Holdings; an order requiring R. J. Welsh Holdings to pay Ms. Welsh the money the Court previously ordered Mr. Welsh to pay; an order requiring R. J.

Welsh Holdings to pay the outstanding amount on the Scotiabank line of credit registered against the Osoyoos property; an order for R. J. Welsh Holdings to pay both Mr. and Ms. Welsh a lump sum payment of $75,000; and an order for R. J. Welsh Holdings to deliver all financial and banking documentation, as previously ordered by the Court. Mr. Welsh did not appear at this hearing, although properly served. He did send a letter to the Court saying that he would not attend the hearing and indicating that it was now his position that there was no need for the continued involvement of the Alberta courts. Mr.

Welsh has not discontinued the Alberta Action. Issues : [ 13 ] Ms. Welsh’s application raises nine issues: 1. Does the Alberta Court have jurisdiction to grant Ms. Welsh exclusive possession of the property located in Osoyoos, British Columbia? 2. If so, should Ms. Welsh receive exclusive possession of the Osoyoos property? 3. Does the Alberta Court have jurisdiction to deal with bank accounts located outside of Alberta? 4. If so, should the Court grant a freezing order respecting the bank accounts held in the name of the matrimonial corporations and Mr. Welsh? 5. Should the Court order that Ms.

Welsh be named a Director of R. J. Welsh Holdings Ltd.? 6. Should R. J. Welsh Holdings Ltd. be ordered to pay to Ms. Welsh all funds that the Court previously ordered Mr. Welsh to pay, including ongoing monthly spousal support? 7. Should R. J. Welsh Holdings Ltd. be ordered to pay out in full the outstanding amount due and owing on the Line of Credit registered against the Osoyoos property? 8. Should R. J. Welsh Holdings Ltd. be ordered to pay Mr. and Ms. Welsh an equal lump sum amount of $75,000? 9. Should James Welsh as director of R. J.

Welsh Holdings Ltd. be ordered to deliver all financial accounting and banking documentation to the court appointed accountant as previously ordered?

Analysis: Jurisdiction to Grant Exclusive Possession to the Osoyoos Property [14] The Osoyoos property is, of course, located outside of Alberta. As a general rule, courts in one country have no jurisdictionto deal with immovables in another: Duke v. Andler, (SCC), [1932] S.C.R. 734 at 738-39. This restriction onjurisdiction applies equally to immovables located in another province of Canada: Jean-Gabriel Castel & Janet Walker, CanadianConflict of Laws 6th ed. (Markham: LexisNexis Canada, 2005).

However, courts may affect rights to foreign immovables by exercisingin personam jurisdiction and enforcing a personal obligation between the parties: Duke, supra at 739; Mitrovic v. Mitrovic, 2007 ABQB44 at para. 25. [15] Catania v. Gianattasio (ON CA), [1999] O.J. No. 1197; (1999), 118 O.A.C. 330 (C.A.) lists fourrequirements that must be met before a court will exercise in personam jurisdiction to affect interests in foreign immovables: 1. The Court must have jurisdiction over the defendant; 2. The parties must have a personal obligation running between them; 3.

The local court must have the ability to supervise the execution of the judgment; and 4. The Court will not exercise jurisdiction if the order would be of no effect in the lex situs, but the mere fact that courts in the situswould not recognize the personal obligation will not bar the exercise of in personam jurisdiction. [16] Since an order granting Ms. Welsh possession of the matrimonial home would affect rights to a foreign immovable, I can onlygrant the order sought if these requirements are met. [17] At first blush, the requirement that the Court have jurisdiction over the defendant seems easily met.

This Court hasjurisdiction over the Defendant Ms. Welsh, who currently resides in Alberta. However, in this case, it is Ms. Welsh who has brought theapplication. As a consequence, in my view, I cannot grant the order unless this Court could also exercise in personam jurisdiction overMr. Welsh, the Respondent to the application. [18] I conclude, however, that this Court has jurisdiction over Mr. Welsh because he agreed on the record to attorn to Alberta.

Inaddition, he is the Plaintiff in these proceedings and the party who brought the action for divorce and division of matrimonial property inAlberta. [19] Historically, a contractual or equitable obligation between the parties met the second requirement: that the parties have apersonal obligation running between them. Here the requirement is complicated by the fact that unlike most cases, where the parties havea contract or trust relationship, in this case a statute, the Matrimonial Property Act, R.S.A. 2000 c.

M-8 [“MPA”], grants the Court theability to distribute property or assign rights between the parties. [20] In Mitrovic, supra, Veit J. considered whether to exercise in personam jurisdiction to award a wife an interest in property heldby the husband in Croatia, under the MPA. Justice Veit specifically addressed the second requirement, and concluded: “Mr. Mitrovic hasan obligation to his wife; this is not only the moral obligation imposed by the marriage itself but the legal obligation imposed by theMatrimonial Property Act.”: Mitrovic, supra at para. 25.

The wife received half of the husband’s interest in the property. [21] In Mitrovic, the order was made under s. 7 of the MPA which expressly provides that the court is to distribute the property “ina manner that it considers just and equitable.” Ms. Welsh seeks a matrimonial possession order under s. 19 of the MPA. This provision

does not contain a specific reference to equity. However, when read in the context of the rest of Ac t, particularly the factors set out in s. 20, it seems clear that the court is to grant an order for matrimonial home possession on equitable principles. [ 22 ] Based on the reasoning in Mitrovic , I find that Ms. Welsh meets the second requirement, and there is a personal obligation between the parties. [ 23 ] The third factor concerns the Court’s ability to supervise the judgment. This depends upon Mr. Welsh’s presence in Alberta. Currently, Mr. Welsh lives in British Columbia. However, his corporation, R. J.

Welsh Holdings is registered in Alberta and Mr. Welsh also has family in Alberta. In addition, he has bank accounts in Alberta. [ 24 ] Mr. Welsh has not obeyed all of this Court’s orders in the past. Indeed, he has now questioned the jurisdiction of this Court. However, in my view, he has a sufficiently significant connection to Alberta that the execution on the judgment can be supervised by this Court. Therefore, the third requirement is satisfied. [ 25 ] The fourth requirement has created some confusion.

Although it sounds limiting, it merely requires that the defendant have the ability to transfer an interest in the immovable according to the laws of the lex situs . In other words, such a transfer must not be illegal or impossible according to the laws where the property is situated: Minera Aquiline Argentina SA v. IMA Exploration Inc ., 2006 BCSC 1102 at paras. 175-77 . [ 26 ] Nothing in British Columbia law prevents Mr. Welsh from giving exclusive possession of the home in Osoyoos to Ms. Welsh. Such a transfer is neither illegal nor impossible. [ 27 ] As Ms.

Welsh meets all four criteria for the Court to exercise in personam jurisdiction over Mr. Welsh, I find that this Court may order Mr. Welsh personally to give Ms. Welsh exclusive possession of the Osoyoos property. Should Ms. Welsh Receive Exclusive Possession of the Osoyoos Property? [ 28 ]

Section 19 of the MPA allows the Court to grant a spouse exclusive possession of the matrimonial home. The MPA does not allow the Court to grant a spouse exclusive possession of real property that is not the matrimonial home. [ 29 ] The definition of “matrimonial home” requires that the property “is or has been occupied by the spouses as their family home.”: MPA , s. 1(c)(ii). The parties did not obtain possession of the Osoyoos property until after they had separated, and never lived in it together. However, before they separated, Mr. and Ms.

Welsh had already sold their Edmonton matrimonial home, and had put a deposit down on the Osoyoos property. They intended it to be their new family home. Both have lived in the Osoyoos property separately. The parties had no other family home from March, 2008 onwards. Because both parties have occupied it, and it was intended to be their family home, I conclude that the Osoyoos property is a “matrimonial home” for the purposes of the MPA . [ 30 ]

Section 20 of the MPA , supra , lists the factors the Court should consider when determining whether to grant an order for exclusive possession of the matrimonial home: (

a) the availability of other accommodation within the means of both the spouses; (

b) the needs of any children residing in the matrimonial home; (

c) the financial position of each of the spouses; and (

d) any order made by a court with respect to the property or the support or maintenance of one or both of the spouses. [ 31 ] In this case, all of the factors favour granting Ms. Welsh exclusive possession of the Osoyoos property. As an American

citizen, Mr. Welsh could live permanently in the Arizona property whereas Ms. Welsh lacks the necessary status in the United States torelocate there. There are no children, and so the second factor is not applicable. Mr. Welsh is in a significantly better financial positionthan Ms. Welsh. [32] In addition to the factors listed in the MPA, Mr. Welsh’s actions indicate a desire not to maintain the Osoyoos property. Onseveral occasions he has failed to pay many of the expenses associated with the property despite the fact that he was living there.

Ms.Welsh has paid these expenses and prevented the property from going into foreclosure. [33] Weighing the factors in the MPA as well as Mr. Welsh’s failure to properly maintain the Osoyoos property, I find that Ms.Welsh should receive exclusive possession of the Osoyoos property. Jurisdiction to Affect Rights to Bank Accounts Outside Alberta [34] Ms. Welsh seeks an order prohibiting the paying out or dissipation of assets in bank accounts.

Some of these accounts are inBritish Columbia, which again raises the problem of the Court issuing an order affecting rights to property located in a foreignjurisdiction. [35] The Bank Act, S.C. 1991, c. 46, s. 461(4), states that the indebtedness of a bank by reason of a deposit in an account is locatedin the same place as the branch of the account. Therefore, bank accounts in branches outside of Alberta are located in a foreignjurisdiction. [36] Bank accounts are moveable property. Unlike immovables, courts have jurisdiction to deal with moveables located in aforeign jurisdiction: Jeske v.

Jeske (1982), (BC SC), 39 B.C.L.R. 396. Therefore, this Court may affect rights to bankaccounts located in British Columbia. Should the Court Grant a Freezing Order Respecting the Bank Accounts? [37] Ms. Welsh applies for a freezing order on all bank accounts, citing

section 34 of the MPA in support of her application.Section 34 provides: 34(1) If the Court is satisfied that a spouse intends to transfer property to a person who is not a bona fide purchaser for value or to makea substantial gift of property that may defeat a claim of the other spouse under this Act, the Court may, by order, restrain the making ofthe transfer or gift.

(2) An application for an order under subsection (1) may be made while the spouses are cohabiting.

(3) An application for an order under subsection (1) may be made as an application in proceedings commenced under this Act or byseparate application.

(4) An application for an order under subsection (1) may be made ex parte.

(5) If an application is made ex parte, the Court may dispense with service of notice of the application or direct that the application beserved at a time and in a manner that it sees fit. [38] I do not read s. 34 as creating a general prohibition on disposition of property before trial. Nor am I able to find any otherexpress general prohibition on disposition of property within the MPA.

[39] In Katz v. Katz (1993), 1993 ABCA 221 , 141 A.R. 287 on a motion for a stay of execution pending an appeal, CôtéJ.A., stated “[a]nd I daresay that she is right when [counsel for one of the parties] says that ordinarily orders intended to stop thefrittering away of assets pending trial in a matrimonial property case are made under the court's equitable jurisdiction as Marevainjunctions... and not under express words of the Matrimonial Property Act. [40] In Hamza v.

Hamza, 1997 ABCA 263 , 200 A.R. 342 [Hamza], a husband kept significant assets in societiesincorporated in Switzerland to prevent the Court from distributing the assets to his wife in a matrimonial property dispute. Among thenumber of interim orders made by a chambers judge and appealed to the Court of Appeal was an order for a Mareva-type injunction.

Speaking for the majority of the Court, Conrad J.A. found that while the order was discretionary, the chambers judge had properlyexercised his discretion in granting the order and there was no error in principle in the chambers judge granting the Mareva injunction. [41] I conclude that there is no authority under the MPA to grant Ms. Welsh the freezing order she seeks and I will treat herapplication as an application for a Mareva injunction. [42] Mareva-type injunctions are an exceptional remedy: Aetna Financial Services v. Feigelman, (SCC), [1985]1 S.C.R. 2. In order to obtain a Mareva-type injunction, Ms.

Welsh must establish a strong prima facie case and a real risk that Mr.Welsh will dissipate the assets. The balance of convenience must also be in favour of granting the injunction: Fiegelman, supra. [43] Ms. Welsh meets all three requirements for a Mareva injunction. She has a strong prima facie case. The parties’ pre-nuptialagreement and matrimonial property law entitle her to a portion of the matrimonial property. Indeed, the MPA presumes an equaldivision of non-exempt matrimonial property, unless an equal division would be unjust and inequitable.

In such a case, the Act allows foran unequal distribution of property and dissipation of assets is one of those considerations for an unequal division. In addition, the MPAprovides for setting aside improper transfers. [44] Ms. Welsh has not provided any evidence that Mr. Welsh intends to dissipate assets. However, Mr. Welsh has failed tocooperate in many ways, including failing to follow a court order requiring him to provide financial and banking information for R. J.Welsh Holdings. Given that Mr. Welsh has not been forthcoming, it is difficult to determine his intentions.

I conclude that without aninjunction there is a real danger that he could dissipate the matrimonial property. [45] I find that the balance of convenience favours granting a Mareva injunction. Freezing the bank accounts of R. J. WelshHoldings Ltd. will not prevent the corporation from running a business, as the corporation has no business to operate. Failing to freezethe bank accounts could result in Mr. Welsh dissipating the assets, which would prejudice Ms. Welsh’s ability to collect her share of thematrimonial property. [46] Ordinarily, Mareva injunctions are limited to assets within the jurisdiction.

However, in Hamza, Conrad J.A. ruled that insome cases “world-wide” Mareva injunctions are appropriate. If granted, a world-wide injunction is an in personam order prohibitingthe person enjoined from disposing of the frozen assets. [47] I will grant Ms. Welsh a Mareva injunction freezing the assets of Mr. Welsh and those of R. J. Welsh Holding Ltd. Should Ms. Welsh be Named a Director of R. J. Welsh Holdings Ltd.? [48] A corporation is a separate legal entity, and it would be highly intrusive of the Court to simply dictate that a person be nameda director.

A party that requests such an order must provide a good reason why such an intrusive order is necessary. [49] Ms. Welsh relies upon S.L.T. v. A.K.T., 2008 ABQB 76, in support of her application to be named co-director of R. J. WelshHoldings Ltd. In that case, a corporation, Teem Energy, was the subject of a matrimonial property dispute. Prior to the litigation, the

husband was the sole director of Teem. In a previous related decision, the Court had found that Teem was matrimonial property, and ordered the husband to transfer 50% of the shares to his wife, but the husband did not comply with the order. Teem was also involved in litigation with another company, Tycholis, and a monitor had been appointed for Teem. However, evidence indicated that the husband failed to cooperate with the monitor.

The Court was concerned that the husband’s failure to cooperate with the monitor could prejudice the rights of those beneficially interested in Teem, and as a result decided to appoint the wife a co-director of Teem. This would give her the ability to give litigation instructions to the Monitor.

Madam Justice Veit held at para. 16: There is an urgent need for those who are beneficially interested in Teem to provide direction and assistance to the Monitor in the management of Teem’s affairs: although the Tycholis litigation did not commence in October, 2007 as originally scheduled, the new trial of that claim is looming and the need to provide instructions concerning that litigation affects the very core of the [family’s] interests in Teem. Mr.

A.K.T. has been consistently uncooperative with the Monitor, in relation to the Tycholis litigation as well as in every other respect. [ 50 ] The reasons for naming the wife in A.K.T. , a co-director do not exist in the present case. Although Mr. Welsh has been uncooperative in the past, there is no necessity for him to give instructions to anyone in respect to the corporation. The primary danger is that Mr. Welsh, as sole director of R. J. Welsh Holdings, will dissipate assets held by the company. The freezing order is sufficient to protect Ms.

Welsh’s interests in those assets. [ 51 ] I decline to order that Ms. Welsh be named a co-director of R. J. Welsh Holdings as such an order is unnecessary to protect her rights and because such an order intrudes on the affairs of a separate legal entity. Orders for R. J. Welsh Holdings to Pay Monies to Ms. Welsh [ 52 ] Ms. Welsh has also asked for an order to require R. J. Welsh Holdings Ltd. to pay her amounts ordered to be paid to her by Mr. Welsh. However, it is Mr. Welsh, personally, who has the obligation to reimburse Ms. Welsh for expenses related to the Osoyoos property and the responsibility of paying Ms.

Welsh spousal support. R. J. Welsh Holdings is a stranger to those obligations. I decline to make the requested order. [ 53 ] Similarly, although I would be prepared to order that Mr. Welsh pay the outstanding amount of the Scotiabank line of credit secured against the Osoyoos property, I am not going to order that R. J. Welsh Holdings pay the line of credit. [ 54 ] Finally, there is no justifiable reason to order that R. J. Welsh Holdings pay Mr. and Ms. Welsh lump sum payments of $75,000. Delivery of Financial and Banking Information of R. J.

Welsh Holdings to the Court Appointed Accountant [ 55 ] This Court has previously ordered on three occasions that the financial and banking information for R. J. Welsh Holdings be provided to the court appointed accountant. I reaffirm that this information must be provided, and both Mr. and Ms. Welsh must cooperate fully and completely with the accountant, as was also ordered previously. If Mr.

Welsh fails to provide all of the previously ordered financial information within 30 days of the date that this order is sent to him at the address for service that he has provided to this Court, then I order that he be arrested and brought before me or another justice of this Court to show cause why he should not be found in contempt. Heard on the 13 th day of September, 2011. Dated at the City of Edmonton, Alberta this 8 th day of November, 2011.

D.C. Read J.C.Q.B.A. Appearances: No appearance by the Plaintiff Harold Hinz Skovberg Hinz for the Defendant