Grant v Smigelski, 2016 ABQB 20

Court of Queen ’ s Bench of Alberta Citation: Grant v Smigelski, 2016 ABQB 20 Date: 20160108 Docket: 1503 07098 Registry: Edmonton Between: Katherine Heather Grant Respondent/Plaintiff - and - William John Smigelski, J & J Excavating Ltd and J & J Excavating

(2000) Ltd Applicants/Defendants _______________________________________________________ Reasons for Judgment of the Honourable Madam Justice D.C. Read _______________________________________________________ [ 1 ] The Applicants John Smigelski, J & J Excavating Ltd, and J & J Excavating

(2000) Ltd (the “Companies”), ask for

summary judgment dismissing all claims against them.

[ 2 ] There are two actions in this Court arising from the breakdown of John Smigelski and Katherine Grant’s marriage. On November 28, 2013, Ms. Grant filed a divorce and matrimonial property action (“Divorce Action”) against Mr. Smigelski. In 2015, she filed an unjust enrichment and constructive trust action, including a claim alleging fraud in the transfer of various assets between the Companies (the “Constructive Trust Action”) against Mr. Smigelski and the Companies. This application is brought in the Constructive Trust Action. Background: [ 3 ] Mr. Smigelski and Ms.

Grant married in April 1995 and separated in November 2013. Before their marriage, they executed a pre-nuptial agreement (the “Agreement”). [ 4 ] During the course of the marriage the parties lived in a home on land registered in Mr. Smigelski’s name. This home was owned by Mr. Smigelski before the marriage. He also carried on his business operations from the land and home. Initially the business was carried on by J & J Excavating Ltd (J&J”). All of the shares of J&J were owned by Mr. Smigelski prior to the marriage. Later, during the marriage, J & J Excavating

(2000) Ltd (“J&J 2000”) was incorporated and became the operating company for the business. [ 5 ] Mr. Smigelski is the sole shareholder, and operating mind of J&J although there are two other named directors, neither of which is Ms. Grant. Mr. Smigelski is also the sole shareholder, director and operating mind of J&J 2000. [ 6 ] During the marriage Ms. Grant did work for the Companies and was issued T4s reflecting income paid or allotted to her. [ 7 ] In the Divorce Action, Ms. Grant alleges that the Agreement was entered into under duress and says that it should be set aside.

She also now alleges a collateral oral agreement that the terms of the Agreement would not be enforced if the marriage lasted for more than ten years. The validity and scope of the Agreement and the alleged oral agreement are issues that must be determined in the Divorce Action. The Divorce Action has not yet gone to trial. [ 8 ] Ms. Grant also commenced the Constructive Trust Action in 2015, some two years after commencing the Divorce Action, alleging that Mr.

Smigelski has caused transfers of funds between J&J and J&J 2000 for the purpose of defeating her matrimonial property interest in J&J 2000. [ 9 ] J&J is exempt property in the hands of Mr. Smigelski under the terms of the Agreement and not subject to matrimonial property division. J&J 2000 did not exist when the Agreement was drafted and so, of course, is not mentioned in the Agreement. Presumably, therefore, its value would be divisible as exempt property. [ 10 ] In the Constructive Trust Action, Ms. Grant alleges as well that Mr. Smigelski holds interests in both Companies for her by way of constructive trust.

Issues: [ 11 ] The only issues in this application are whether Ms. Grant has proven that she has met the test for

summary judgment and, if so, if the Respondents have refuted or countered her evidence sufficiently to show that this action requires trial. Test for

Summary Judgment: [ 12 ] Rule 7.3(1)(

b) of the Rules of Court allows defendants to apply for

summary dismissal if there is no merit to a claim or part of it. Rule 7.3 states: 7.3(1) A party may apply to the Court for

summary judgment in respect of all or part of a claim on one or more of the following grounds: (

a) there is no defence to a claim or part of it; (

b) there is no merit to a claim or part of it; (

c) the only real issue is the amount to be awarded. [ 13 ] In Hryniak v Mauldin , 2014 SCC 7 , 1 SCR 87, the Supreme Court of Canada revised the test for

summary judgment. [ 14 ] In Windsor v Canadian Pacific Railway Ltd , 2014 ABCA 108 , the Alberta Court of Appeal applied Hryniak to Alberta's

summary judgment rules, setting out the new test at para 13. [ 15 ]

Summary judgment is no longer to be denied solely on the basis that the evidence discloses a triable issue. The question is whether there is in fact any issue of "merit" that genuinely requires a trial. [ 16 ] The Court of Appeal held in Windsor that there will be no genuine issue requiring a trial when the judge is able to reach a fair and just determination on the merits on a motion for

summary judgment. This will be the case when the process: (1) allows the judge to make the necessary findings of fact, (2) allows the judge to apply the law to the facts, and (3) is a proportionate, more expeditious and less expensive means to achieve a just result. [ 17 ] This Court therefore must determine if there is any issue of merit that genuinely requires a trial or if a disposition that is fair

and just to both parties can be made based on the court doing its fact finding on the existing record. Position of the Applicants: [ 18 ] With respect to the Companies, the Applicants make five arguments. [ 19 ] First, they say that the Constructive Trust Action is a duplicative proceeding because the alleged fraudulent transfer of assets has also been claimed in the Divorce Action. [ 20 ] Secondly, they argue that Ms. Grant has made no claim against the Companies themselves in the prayer for relief in the Constructive Trust Action but rather only claims relief against Mr. Smigelski as shareholder.

They argue the Constructive Trust Action should be dismissed against the Companies because it does not show a cause of action against the Companies themselves. [ 21 ] Thirdly, they argue that the Constructive Trust Action is out of time, as it relates to the Companies because any claim that Ms. Grant may bring against the Companies must be based upon her employment with the Companies for whom she last worked in April of 2013.

As the Constructive Trust Action was filed on May 15, 2015, it was outside the two-year limitation period insofar as the Companies are concerned. [ 22 ] Fourthly, in respect to the claim of fraud between the Companies, they argue that the claim is against Mr. Smigelski as shareholder and should be dismissed against the Companies. [ 23 ] Lastly, they argue that the Agreement governs in respect to both Companies.

J&J is specifically referenced in the Agreement and J&J 2000, because it acquired its assets from J&J and they were exempt in J&J, are also exempt from distribution under the Matrimonial Property Act (“ MPA ”). [ 24 ] With respect to the claim against Mr. Smigelski, personally, the Applicants argue that because the parties did not reside together before their marriage, the MPA governs all potential issues that have arisen between the parties, including the consideration of contracts, exemption claims and unjust enrichment principles which they say are codified by s. 8 of the MPA .

In addition, they say that the signed Agreement provides a juristic reason for any enrichment that may be established, so that if the validity of the Agreement is upheld in a judgment in the Divorce Action, a constructive trust claim would be precluded against Mr. Smigelski. On the other hand, if the Agreement is not upheld in a judgment in the Divorce Action, then the MPA provides a complete code for the division of assets. [ 25 ] Lastly, and in respect to Ms.

Grant’s claim that there was a collateral oral agreement, the Applicants say this claim cannot succeed because the Agreement is clear on its face and the terms of the oral agreement contradict these terms and violate the parol evidence rule. Position of the Respondents: [ 26 ] Ms. Grant says that much of the Applicants’ argument rests upon the enforceability of the Agreement and that is not an issue that is clear on the evidence tendered in support of this application.

She points to the evidence in her affidavit that although she signed the Agreement, she did so under duress and this duress is supported by the statements by her lawyer in the Certificate of Acknowledgment by Spouse. This acknowledgement says in part that “[Ms. Grant] is executing this Agreement with compulsion [emphasis added] on the part of William John Smigelski”. [ 27 ] She says that her allegation of a collateral oral agreement calls into question the enforceability of the Agreement and may bar Mr.

Smigelski from reliance on the Agreement or may constitute a misrepresentation that he would not rely upon the terms of the Agreement made in order to induce Ms. Grant to enter into the Agreement. If that is shown to be so, the Agreement will be rescinded. [ 28 ] Secondly, Ms. Grant argues that the Applicants are mistaken in saying that the law is that a claim for a constructive trust cannot be advanced by a married person on the basis that the common law has been subsumed by the MPA .

They point out that the Applicants have not offered any Alberta authority for this proposition and cite authority to the contrary, notably Milavsky v. Milavsky , 2015 ABQB 395 . [ 29 ] Thirdly, Ms. Grant argues that the language of the Agreement does not clearly exclude both J&J and J&J 2000 from her claims under the MPA and even if it is enforceable, the Agreement requires construction. She says that the Agreement makes no mention of J&J 2000 and no clause of the Agreement should be construed to extend any exemption in Mr. Smigelski’s shares in J&J to his shares in J&J 2000.

She also notes that the Agreement does not expressly release equitable claims such as those raised in the Constructive Trust Action. [ 30 ] Lastly, she says that her claim against the Companies is grounded upon the Fraudulent Conveyances Act , 1571 (“the Statute of Elizabeth”). She says that the relief sought under the Statute of Elizabeth is not damages but declaratory relief that the transfers between the Companies moved assets from J&J 2000 to J&J and were fraudulent, and had the effect of rendering the value of the assets exempt under the Agreement and thus of depriving Ms.

Grant of a claim under the MPA against the value of Mr. Smigelski’s shares in J&J 2000. Reasons for Decision: [ 31 ] The application for

summary judgment is denied for four reasons.

[ 32 ] Firstly, I cannot make the necessary findings of fact on the material before me to determine there is no triable issue. [ 33 ] There are numerous factual issues and I will provide some examples without attempting to be exhaustive. [ 34 ] The Applicants argue that the Constructive Trust Action was commenced out of time and is caught by a two-year limitation period. However that argument is premised on the ‘fact’ that Ms. Grant was an employee of the Companies and, therefore, had to make any claim she had against the Companies within two years of leaving employment. However, Ms.

Grant also pleads the Statute of Elizabeth in the Statement of Claim in the Unjust Enrichment Action. This claim does not rely upon her status as an employee of the Companies and, indeed, this action is not subject to a limitation period. Whether or not she is a creditor or otherwise a person able to make a claim under this statute is unclear and dependent, among other things, upon whether at the ‘relevant time’ there was an intent to defeat, delay or defraud (see Milavsky v. Milavsky , 2011 ABCA 231 at para 30 ).

There is an insufficient factual matrix in the sworn evidence provided to enable any decision to be made respecting whether or not Ms. Grant has standing to make such a claim. [ 35 ] Secondly, a number of the Applicant’s arguments are premised on a finding that the Agreement is valid and enforceable and will be interpreted in a fashion they suggest is the correct one. However, Ms. Grant swears to the existence of a collateral oral agreement between them to the effect that Mr. Smigelski would not rely on the Agreement or would “tear it up” if the marriage subsisted for ten years. In his sworn evidence, Mr.

Smigelski denies the existence of any collateral agreement to “tear up” the Agreement if the marriage subsisted for over ten years. I cannot resolve this conflicting evidence on affidavits in this venue. [ 36 ] Mr. Smigelski also relies upon a no collateral agreements provision in the Agreement. Again, however, that argument is premised on a finding that the Agreement is valid and enforceable. I cannot conclude it is valid and enforceable before there has been an adjudication in respect to Ms. Grant’s claim that she signed the Agreement under duress. [ 37 ] Mr. Smigelski also says that Ms.

Grant’s pleadings in this action are deficient in that she has not plead the existence of an oral agreement nor a fraudulent misrepresentation and this is necessary at law. I have reviewed the Statement of Claim filed in this matter and it does not appear that either a collateral oral agreement or a fraudulent misrepresentation have been specifically pleaded. [ 38 ] However, Ms. Grant’s counsel prepared and served an application to amend pleadings returnable together with this application.

This application was filed late, did not comply with the Practice Notes in respect to special applications such as the one being heard today and for these reasons, was not heard. Whether this application is necessary or will be successful is unknown at this time and I must simply ignore it for the purpose of the

summary judgment application that is properly before me. [ 39 ] I cannot, however, ignore the sworn evidence that is before me. Ms. Grant’s evidence is that there was an oral collateral agreement. I cannot find as a fact that there was, or that there was not. [ 40 ] My second reason for denying the application is that I am unable to apply the law to the facts, even if they were clear, because the law in respect to a principal issue is unclear and may not, in fact, support the argument of the Applicants. [ 41 ] Central to their argument for

summary dismissal of the Unjust Enrichment Action is the Applicants’ assertion that the MPA has codified the law in respect to constructive trusts insofar as married people in Alberta are concerned leaving no ability for a married person to bring an action in constructive trust. However, two Alberta cases, cited by the Respondent call this statement into question. In Hinton v. Hinton , 2004 ABQB 369 , Watson, J, as he then was, considered an application to sever the issue of whether a pre-nuptial agreement was valid from the remainder of the issues in a matrimonial property trial.

In Hinton , the pleadings made a claim in constructive trust within the context of the divorce and matrimonial property action. At paragraphs 38 and 39, Justice Watson commented upon the nature of a constructive trust claim in the face of a pre-nuptial agreement, saying this: 38 I would point out that in relation to constructive trust, as pointed again fairly by Mr. Pollock, the question of unjust enrichment, detriment and no juristic reason is possibly answered by the existence of a valid Pre-nuptial Agreement.

Whether it has been answered by the existence of an invalid or not provincially recognized Pre-nuptial Agreement is an open question. At common law, one has to doubt that. 39 But I have to say this, though, that a Pre-nuptial Agreement that does not reach everything would not be a juristic reason not to proceed with the constructive trust action.

In any event, a Pre-nuptial Agreement may not be a juristic reason to completely overcome a trust.., because the nature of the Pre-nuptial Agreement may have some characteristics to it which give rise to some loophole - for lack of a better way of describing it. [ 42 ] In the second case, Milavsky v. Milavsky , 2015 ABQB 395 , my brother Mahoney, J. dealt with a

summary dismissal application in a matrimonial action and a companion but separate unjust enrichment action, similar to the present case. In Milavsky the wife alleged that the husband had transferred various assets to a trust settled by the husband. The trust and three trustees sought to have the wife’s actions against them dismissed summarily. [ 43 ] One of the arguments made by the applicants was that the wife’s claims of fraudulent preference under the Statute of Elizabeth had merged into her rights as a spouse under the MPA .

At paragraph 51, of the decision, Justice Mahoney found that the wife had a legal claim under the divorce and matrimonial property legislation and also had standing to make an equitable claim in unjust enrichment. At paragraph 59, Justice Mahoney specifically addressed the argument that a claim for unjust enrichment cannot be made where parties are bound by the provisions of the MPA . He said this: 59 I do not accept that there is a merger of rights that occurs when common-law spouses marry, nor that, upon marriage a common-law

spouse's right to complain about a fraudulent transfer is extinguished and replaced with specific statutory rights under s. 10 of theMatrimonial Property Act. Nowhere in the Act does it state that this is the case. 60 In Rawluk v Rawluk, (SCC), [1990] 1 SCR 70, the Supreme Court of Canada held that the statutory scheme forthe equalization of spouses' property on marriage breakdown does not completely supersede the remedial constructive trust.

The Courtheld that matrimonial legislation is not always an exclusive code for determining the division and ownership of matrimonial property andthat courts should deny equitable remedies only if the applicable legislation clearly and unambiguously forbids the use of these remedies.There is no such express or unambiguous statement in Matrimonial Property Act. [44] The Applicants argue Milavsky is distinguishable because Mr. and Ms. Milavsky lived together before they were married.

However, I do not understand Justice Mahoney to conclude that the claim of constructive trust there being asserted must be confined onlyto the period before they were married. [45] I bear in mind, as well, that neither Hinton nor Milavsky are final judgments made after full argument on the issue. The lawin Alberta is not clear on this issue in my view and deserves full argument at a trial. [46] Thirdly, the arguments raised by the Applicants require a decision respecting whether the Agreement must be set asidebecause of undue influence. I disagree with the Applicants that

summary judgment can be ordered without deciding this issue sincewhether the Agreement is enforceable or not, all Ms. Grant’s claims can be decided in the MPA action. As Justice Watson explained atparagraphs 38 and 39 of Hinton “[w]hether [the necessary elements to found a claim for constructive trust] has been answered by theexistence of an invalid or not provincially recognized Pre-nuptial Agreement is an open question. At common law, one has to doubtthat”.

He goes on to conclude “[i]n any event, a Pre-nuptial Agreement may not be a juristic reason to completely overcome a trust ..because the nature of the Pre-nuptial Agreement may have some characteristics to it which give rise to some loophole”. In other words,whether the Agreement is determined to be enforceable or not is not the end of it. Even if it is found to be valid, it must be construed todetermine whether or not it covers the specific actions alleged in the Constructive Trust Claim. [47] Lastly, and particularly in respect to the claim against the Companies, I agree with the Respondent.

It is not fatal to the claimagainst the Companies under the Statute of Elizabeth that no specific remedy, other than a declaration, is sought against the Companiesin the prayer for relief in the Constructive Trust Action. The relief sought under the Statute of Elizabeth is not damages against theCompanies, it is declaratory relief – sought to increase the value of the claim against Mr. Smigelski’s interest in J&J 2000. [48] The application for

summary dismissal of the Constructive Trust Action is dismissed both insofar as Mr. Smigelski and theCompanies are concerned. [49] At the hearing of this application, the parties agreed that if I dismissed the

summary dismissal application, it would beappropriate to order that both the Divorce Action and the Construction Trust Action be consolidated and heard together. I agree and I soorder. [50] I was also invited to make directions respecting trial management of these actions but I decline to do so as I do not havesufficient information about the steps already taken in these actions and those left to be completed to make any directions in this regard. The parties may approach me or any other judge, on further application if they wish to obtain directions. I am not seized. [51] Costs may be spoken to if required.

Heard on the 9th day of December, 2015. Dated at the City of Edmonton, Alberta this 7th day of January, 2016. D.C. Read J.C.Q.B.A. Appearances: Stephen Mulrain

DLA Piper (Canada) LLP for the Plaintiff Tina Huizinga Huizinga, Di Toppa, Coles & Layton for the Defendant