Fedun v Korchinski, 2021 ABQB 14

Court of Queen’s Bench of Alberta Citation: Fedun v Korchinski, 2021 ABQB 14 Date: 20210107 Docket: 4803 188411 Registry: Edmonton Between: Ashleigh Elizabeth Fedun Plaintiff - and - Jerrald Glenn Korchinski Defendant _______________________________________________________ Reasons for Decision of the Honourable Mr. Justice Douglas R. Mah _______________________________________________________ A. Background [ 1 ] The Court must decide two preliminary motions in advance of determining substantive applications relating to spousal support, interim costs, security for costs and some auxiliary issues.

The two preliminary issues, as posed in the husband’s June 25, 2020 Notice of Application, are: • whether the wife’s counsel should be removed from the file because of conflict; and

• whether the husband accepted the wife’s Formal Offer, so as to put this litigation at an end. [2] I heard the application on December 9, 2020. Justice Kraus, at Family Docket Court, had directed that all matters (bothpreliminary and substantive) be heard in a half-day special chambers hearing on that day.

By the time I heard the preliminary motions,there was insufficient time to then embark on the hearing of the substantive matters. [3] I was particularly concerned that if I were to grant the first preliminary motion, it would have the effect of forcing the wife toretain new counsel for this conflictual matrimonial case. It would also put into question whether the Court should hear any of thesubstantive matters, given that the wife’s counsel would then be disqualified.

If I were to grant the second preliminary application, theentire litigation would be stopped in its tracks, rendering the balance of the matters redundant. I also felt it necessary to review theauthorities cited to me by counsel during the course of hearing the preliminary applications. [4] In the result, I stopped the hearing after taking submissions only on the preliminary applications. I advised counsel that Iwould work on this decision over the holiday break, deliver a decision as early as possible in January 2021 and direct the scheduling ofan early provisional date to hear the balance of the matters.

I understand now that Court time has been provisionally reserved for theafternoon of January 25, 2020. [5] The wife (Ms. Fedun) and the husband (Mr. Korchinski) are in the throes of a divorce and matrimonial property actionfollowing a marriage of slightly less than four years duration, having married on April 23, 2015 and separating on February 1, 2019. Thelength of pre-marital cohabitation is in dispute.

The main controversies in the litigation appear to be whether: • so far as guideline income is concerned, the husband derives significant deemed income in the form of use of corporately paidcredit cards and receipt of corporately provided non-salary benefits; • the wife is deliberately unemployed or under-employed; • so far as property is concerned, the husband has a present exigible interest for the purposes of the Matrimonial Property Act inassets situate within two family trusts; and • the valuation and inclusion or exclusion of certain assets as matrimonial property by the husband is proper. B.

Conflict of Interest? [6] The essence of the conflict of interest allegation lies in the self-evident axiom that a lawyer cannot be both counsel andwitness in the same cause: Stanfield v Low, 2019 ABCA 83 (per Antonio JA) at paras 15-24 and the authorities cited therein, includingDownham v Wawanesa Insurance Company, 2005 ABQB 299 (per Greckol J, as she then was) at paras 31-33; Forward v ZurichInsurance Co, 2002 ABCA 123 at para 6; MacDonald Estate v Martin, (SCC), [1990] 3 SCR 1235 at page 1261 andthe Law Society of Alberta Code of Conduct, Calgary: Law Society of Alberta, 2018 at para 5.2-1. [7] The difference in the present case is that it was not Ms.

Fedun’s counsel, Mr. Demas, who swore the ostensibly offendingaffidavit, but rather his legal assistant, Ms. Irwin. Counsel for Mr. Korchinski says that here Ms. Irwin can only be the alter ego of Mr.Demas and, accordingly, for all intents and purposes, it is the latter who is proffering the evidence in question. [8] Further, says Ms. Bruyer, the lawyer is always ultimately responsible for the actions of his staff and Mr.

Demas cannot off-load his responsibility by saying that it is not his affidavit. [9] I find that, in this particular factual context, the self-evident rule that a lawyer should not be counsel and witness in the samecause has not been violated. I do so for these reasons: • Having reviewed Ms. Irwin’s affidavit of November 8, 2019, I note that some of the content derives from personal knowledge(apparently from being familiar with the file) and some appears to be based on information and belief. The tenor of the words used doesnot point inexorably to Mr.

Demas as the source of that information and belief but rather suggests the client Ms. Fedun may be thesource. At one point (para 4), Ms. Irwin specifically adverts to Ms. Fedun advising her as to the information contained in that paragraph. • In a June 24, 2020 affidavit sworn by Ms. Fedun, she states that she is prepared to withdraw Ms. Irwin’s affidavit and replace itwith one of her own. That statement is followed up by the filing of an updated affidavit (sworn November 17, 2020) by Ms. Feduncontaining the same information as Ms. Irwin’s.

This is an after-the-fact attempt to show that the information in question originates fromMs. Fedun. • It is not clear to me from reading Ms. Irwin’s affidavit that Mr. Demas supplied facts for Ms. Irwin’s affidavit. There are parts ofthe affidavit that contain opinion, argument, and even suggestions of inferences to be drawn that might have come from Mr. Demas (ormight have come from Ms. Fedun) but these particular statements are not fact. [10] Having regard to the above, I cannot conclude on a balance of probabilities that Mr. Demas, through the instrumentality ofMs.

Irwin, has put affidavit evidence in the form of facts before the Court. [11] However, I do not think I should leave the matter there. Ms. Bruyer has correctly said that a lawyer is responsible for theactions of his staff. I realize that Mr. Demas’ purpose in having Ms. Irwin swear the affidavit was to place documents, received at the lastminute from the other side, before the Court, all of which occurred on the eve of a Court application.

Otherwise, this late-breakinginformation would not have been available to the Court. [12] It is common practice to have legal assistants swear affidavits that merely attach documents in order to get those documentsbefore the Court on an interlocutory application. In this case, the affidavit goes beyond merely attaching documents, and offers

commentary in the nature of opinion, argument and proposed inferences. For example: • At para 3 of the affidavit, Ms. Irwin makes a subjective comment about the content of two affidavits sworn and filed by Mr. Korchinski; • Also at para 3, Ms. Irwin opines on Mr. Korchinski’s motives and litigation strategy; • At para 6, Ms. Irwin makes a statement about Mr. Korchinski’s ownership interests in certain corporations and trusts, without reference to the explanatory information provided in para 7 of Mr.

Korchinski’s September 28, 2019 affidavit, and para 5 of his November 1, 2019 affidavit regarding the operation of the Family Trusts; • At para 10, there is a comment about the mysterious origin of certain credit card payments, inviting an inference that the payments are a personal benefit. [ 13 ] Comments of this nature suggest a more intimate knowledge than the deponent actually has. These types of comments are better left to counsel to make in oral or written argument. [ 14 ] The inclusion of comments of that nature exposed Ms. Irwin to the potential of cross-examination. Ms.

Bruyer was not wrong to request cross-examination, given that the affidavit went beyond merely appending documents. That would have put Ms. Irwin in the uncomfortable position of having to defend someone else’s opinions and conclusions and that, in my view (even if they were Ms. Fedun’s opinions and conclusions as opposed to Mr.

Demas’), is too much for a lawyer to ask of a legal assistant. [ 15 ] Alternatively, objectionable opinion or conclusory evidence contained in an affidavit may be struck out under Rule 3.68(4): see Pembina Pipeline Corp v CCS Corp , 1013 ABQB 662 (Wittmann CJ), aff’d 2014 ABCA 290 . [ 16 ] In the result, I dismiss the application to have Mr. Demas removed from the file for conflict, but I do not endorse the subjective commentary found in the affidavit. C. Was the Formal Offer Accepted?

What happened [ 17 ] On January 23, 2020, the wife’s counsel served on the husband’s counsel a Formal Offer to settle, in accordance with Rules 4.24 and 4.25.

Under the terms of the offer: • the wife offered to settle the action in its entirety by payment by the husband to the wife of a certain sum; • with the respective parties retaining the assets currently in their possession, and being solely responsible for the debt in their own name; and • the parties agreed to deal with a particular valuable asset, that was the subject of dispute, in a certain way. [ 18 ] Further, the offer was open for acceptance for two months from the date of service (that is, until March 23, 2020) by signing a statement of acceptance and filing the accepted offer with the Court. [ 19 ] On March 9, 2020, in a confirming letter prepared by the wife’s counsel for a special chambers application to be heard March 20, 2020, the wife gave notice that she intended to apply to the Court for leave to withdraw the offer three days early. [ 20 ] On March 15, 2020 the Court announced its form of temporary “lockdown” in response to the COVID pandemic.

As a result, the special chambers application scheduled for March 20, 2020 was adjourned sine die . [ 21 ] On March 23, 2020 the husband purported to accept the offer in writing and this acceptance was communicated by his counsel to the wife’s counsel on that date.

Two days later, the husband’s counsel purported to file the accepted offer with the Court. [ 22 ] Paragraph 10 of Master Order #2, governing Court operations during the pandemic and issued by Chief Justice Moreau on March 20, 2020, stated: All filing deadlines under the Alberta Rules of Court, including Rule 13.41(4) are suspended until May 1, 2020, with the exception of those Rules applicable to the commencement of proceedings, including originating applications. [ 23 ] Rule 4.24(3) provides that a Formal Offer, once made, remains open for acceptance for a period of two months, or any longer time specified in the offer.

Thus, but for the pandemic resulting in a temporary Court shutdown, the offer was not accepted on time. [ 24 ] At the hearing before me on December 9, 2020, I advised counsel that, in my view, this provision in Master Order # 2 effectively extended the deadline for acceptance of the offer. However, I further stated that it would be grossly unfair to Ms. Fedun to permit the Court closure on March 15, 2020 to deprive her of the opportunity to have her revocation application heard, and at the same time allow Mr.

Korchinski the benefit of the deadline extension, when both were occasioned by the pandemic. [ 25 ] With the agreement of counsel, I treated the application before me as Ms. Fedun’s application to withdraw the Formal Offer, on the understanding that if the application is successful then Mr. Korchinski’s purported acceptance of the offer is rendered a nullity. [ 26 ] Conversely, if the application is dismissed, then the filed acceptance is valid.

The Law [ 27 ] Rule 4.24 (4) further provides that a Formal Offer to settle may not be withdrawn unless: • the Court first gives permission for the withdrawal, which may only be given if the Court is satisfied that there are special circumstances that justify withdrawal; and • the party who made the offer serves written notice of withdrawal. [ 28 ] In this case, the written notice of withdrawal can be found in the March 9, 2020 confirming letter. [ 29 ] The Rules of Court, rather than the common law of contract, govern where Formal Offers have been made under those Rules: Collins v The National Life Assurance Company of Canada , 1995 ABCA 332 at para 6 . [ 30 ] Material non-disclosure may be a ground upon which a Formal Offer is allowed to be revoked: KEM Presentations Inc v Shell Canada Products Ltd, 2003 ABCA 217 at para 8 .

Here, the plaintiff sued because failed contract negotiations with the defendant had reportedly caused the plaintiff to cancel a different contract and suffer a commission loss. It turned out that the plaintiff had not disclosed that it had retained the supposedly cancelled contract through a third party. Had the defendant known this, no offer or a different offer would have been made.

This material non-disclosure was sufficient to permit the Court to endorse revocation of the offer. [ 31 ] In dissent, O’Leary JA observed that a Formal Offer made under the Rules is open for acceptance until the expiry date and should not be withdrawn except on “very special grounds.” In his view, those grounds were not present in that case. [ 32 ] Applying KEM , Kenny J in McJane Developments Ltd v Kazanecki , 2003 ABQB 584 would not enforce an accepted Formal Offer where to do so was “inherently unjust” (at para 16). In this case, a stucco contractor had sued the defendant owner for an unpaid bill.

The defendant made its Formal Offer and then learned, by consulting an expert, that the stucco job had been performed incompetently and would have to be redone. The Court found that, in the face of this information, acceptance by the stucco contractor was opportunistic and should not be allowed. [ 33 ] These cases interpret the former Rule 169. No authority was provided to me interpreting the meaning of “special circumstances” in Rule 4.24 (4), although there is O’Leary JA’s comment in dissent in KEM . Ms. Fedun contended that Mr. Korchinski had proffered a “false” property statement in an earlier affidavit.

She said she relied on this false information in making her Formal Offer. [ 34 ] Ms. Fedun asserts that, only as the litigation progressed and further disclosure was received, did she realize that the offer had been premised on false information. The argument before me focused on whether there had been material non-disclosure on Mr. Korchinski’s part so as to vitiate the Formal Offer. Material Non-disclosure? [ 35 ] I have had the benefit of reviewing the extensive materials filed on behalf of both parties for the purposes of this application. It is fair to say that Ms. Fedun believes that Mr.

Korchinski has access to considerable wealth and that he engages in obfuscation in order to avoid his legal obligations to her. Mr. Korchinski, on the other hand, insists that Ms. Fedun is mistaken about his financial state and that he has disclosed just about everything it is possible to disclose. [ 36 ] Ms. Bruyer, on Mr. Korchinski’s behalf, points out that prior to January 23, 2020: • Mr.

Korchinski furnished a Partial Response to Notice to Disclose on October 8, 2019 which provided his income tax returns for 2016-2018, NOAs for 2015 to 2018, latest paystub showing YTD earnings, latest tax returns and financial statements for the two companies in which he is a shareholder, corporate structure chart for Mr. Korchinski’s father’s corporations, the terms of the two Korchinski Family Trusts, 2016-2018 tax information for the Korchinski Family Trust #2, bank account statements, credit card statements, savings plan and RRSP statements; • In an affidavit sworn November 1, 2019, Mr.

Korchinski confirmed that he did not own shares in corporate entities in which Ms. Fedun alleged he did; • On January 7, 2020, Ms. Bruyer wrote Mr. Demas an extensive letter explaining that Mr.

Korchinski could not produce financial statements for corporations where he is not a shareholder or for inactive corporations, providing financial information related to JNJ Developments, explaining transactions with the Family Trusts, providing updated RRSP statements, ownership information with regard to the Pigeon Lake property, the Scottsdale properties, an explanation of the wind-up of Family Trust #1, an unsworn statement of income, assets and liabilities, and a list of claimed exemptions. [ 37 ] Mr. Korchinski also swore an affidavit on January 8, 2020 and filed the next day.

In that affidavit, he disclosed: • He is paying $10,000 in monthly child support, to his previous partner, in respect of their four children; • Further detail respecting his employment earnings and net available cash after deductions and child support; • How nearly all corporate assets are owned by discretionary Family Trusts; • His belief that assets in which he has an interest have decreased since the date of marriage or cohabitation. [ 38 ] In the same affidavit, Mr.

Korchinski attached his version of the matrimonial property statement and took the position that, apart from exempt assets, the value of the matrimonial estate is ($428,273.00). This means that Ms. Fedun should be paying him an

equalization payment of $219,517, although he realizes that she is not a position to ever pay it. [ 39 ] In his material, Mr. Korchinski asserts that Ms. Fedun fundamentally misunderstands that the Family Trusts are totally discretionary, controlled by his parents and that he does not have an interest in those assets. Further, he says she is confused by the amount shown as “debt to corporations” which relates to using his credit cards to pay personal expenses. The credit cards would in turn be paid by his father’s corporations and his shareholder loan account would be debited.

During their marriage, the couple lived beyond their means and he accrued significant debt in his shareholder account. He explained in a March 9, 2020 affidavit that an unused gain in the Family Trust from 2008 was gifted to the siblings by his father and used to reduce the debt accumulated during the marriage. [ 40 ] Ms. Fedun’s position, as explained at para 16 of her March 11, 2020 affidavit, is that she realized the Formal Offer was too low after receiving further disclosure from Mr. Korchinski.

She was not satisfied with some of the values put forward in his matrimonial property statement: In an effort to try to bring matters to a prompt conclusion, I served a Formal Offer on January 23, 2020. This was prior to Jerry providing more substantial disclosure and was based on some of the values provided in his own property table. Now that I have received further disclosure it appears that some of the values used by Jerry are substantially wrong.

This has the effect of substantially changing my thoughts on a fair settlement some and I believe the terms set out in my Formal Offer are far too low and unfair in the circumstances. As a result, I would like to end Jerry’s ability to accept the Formal Offer which, by rule, I understand to remain open until March 23, 2020 – three days after the special chambers hearing.

I am concerned that this is simply another tactic by Jerry in that he wishes to run up my legal fees through the special chambers hearing only to then accept the Formal Offer at some point in three days subsequent to the hearing that the offer remains open. [ 41 ] In her June 23, 2020 affidavit, Ms. Fedun suggested at para 28 that Mr. Korchinski had actually perjured himself: I was aware that further litigation steps were contemplated at the time the Formal Offer was made. My mistake was trusting that Jerry would not falsify evidence in his affidavits.

After I received further disclosure arising from the undertakings it became clear that Jerry’s evidence was false. I’ve detailed this in my concise letter. [ 42 ] It is quite true that, over the course of the litigation, further proceedings took place that resulted in the parties sharing additional information. For example, as para 2 of her March 11, 2020 affidavit indicates, Ms. Fedun received the annotations to Mr.

Korchinski’s matrimonial property statement, the financial statements for 885670 Alberta Ltd, and the property tax assessments for two corporately owned properties. [ 43 ] As one might expect in these cases, Ms. Fedun objects to a number of the values and assertions made in Mr. Korchinski’s matrimonial property statement (originally found in his affidavit of January 8, 2020). These objections are enumerated in two different places. There is a list found at pages 5 and 6 of her counsel’s March 9, 2020 confirming letter, and slightly different list at Exhibit J of Ms. Fedun’s June 23, 2020 affidavit.

I will not reproduce the entirety of both lists, but rather give a few examples in order to convey the flavour of the objections: • Most of the values are nothing more than guesses on Mr. Korchinski’s part; • The registered investments are discounted by a notional tax rate of 40%, rather than between 20% to 25% as proposed by Ms. Fedun; • She believes that cohabitation began in 2013, not 2014; • He cannot justify the values given to assets claimed as exempt; • He has been unable to justify the amount for “debt to corporations”; • Mr. Korchinski has placed no value on his interest in the Family Trusts; • Mr.

Korchinski has not characterized the line of credit secured against the former matrimonial home as an asset (i.e. as a loan to the Blue Sky Limo company), worth $500,000; • Mr. Korchinski should not be claiming that his former partner (before Ms.

Fedun) has a half interest in the matrimonial home; • The matrimonial home is valued too low, and no appraisal has been done; • The valuations for the two Scottsdale properties were supplied by the Korchinski family lawyer; • There should be no exemption for the Dodge Ram 5500 as it was acquired after cohabitation began. [ 44 ] I reiterate that the bullet points above represent only what I consider to be a fair sampling of the objections. There are more objections. [ 45 ] Ms.

Fedun prepared her own version of the matrimonial property statement, inserting what she feels are more appropriate values, found at Exhibit E of her March 11, 2020 affidavit. Under this version of the matrimonial estate, Ms. Fedun asserts that she is entitled, in the least, to an equalization payment of just under $700,000. [ 46 ] Mr. Korchinski’s position has been consistent throughout. As late as his affidavit of November 10, 2020 (at para 13), he continues to stand by and rely on the original matrimonial property statement from January.

He insists: • He has no exigible interest in the Family Trusts for the purposes of the Matrimonial Property Act ;

• The assets he brought into his marriage with Ms. Fedun have only diminished in value during the period of cohabitation; • He used corporate funds to pay living expenses during the marriage (by having his father’s companies pay the credit card balances), resulting in the “debt to corporations” or a deficit in his shareholder’s account. After an injection of funds from his father, the “debt to corporations” continues to fluctuate. (See para 13 of Mr. Korchinski’s March 5, 2020 affidavit and Exhibits M and O.) [ 47 ] Further, Mr.

Korchinski has never hidden the fact that he took on a revolving line of credit, with a limit $500,000, to secure the lease financing for the limousine company (see Mr. Korchinski’s questioning on affidavit of January 27, 2020, page 56, lines 3-25). This line of credit is secured against the matrimonial home and, as Mr. Korchinski states, continues to revolve. The mortgage was disclosed in his January 9, 2020 affidavit. Whether the funds advanced form a receivable in Mr.

Korchinski’s favour and is therefore an asset would be a matter for argument and a question for the Court to decide if an adjudication were to take place with regard to matrimonial property. [ 48 ] He has continued to offer to make the Korchinski family lawyer and corporate accountant available to Ms. Fedun and her counsel for a meeting to answer all questions regarding the trusts and the family business. For one reason or another, the meeting has never materialized. [ 49 ] Mr. Korchinski continues to assert that, if the matrimonial property issue is adjudicated, the equalization payment would be flowing from Ms.

Fedun to himself. [ 50 ] I remind myself that I am not being asked to distribute matrimonial property in this case under sections 7 and 8 of the Matrimonial Property Act . Rather, I am tasked with the determining whether there are special circumstances present that would permit the revocation of a Formal Offer made by Ms. Fedun under Rule 4.24. [ 51 ] It is clear to me that there is a high degree of antipathy between the parties, and that each takes a dim view of the other as a human being. Ms. Fedun says that Mr.

Korchinski is mean-spirited and vindictive, using the legal process to exhaust any settlement she might achieve. She accuses him of lying in his affidavits. Mr. Korchinski says that Ms. Fedun has an alcohol problem (that brought about their relationship breakdown) and that she is a fortune-hunter. There is nothing special about pronounced personal animosity in matrimonial litigation which, unfortunately, is all too common. [ 52 ] It is also obvious to me that, on the issue of matrimonial property, the parties diverge to a significant degree.

That is also not a special circumstance. [ 53 ] Further, it is clear that Ms. Fedun disbelieves Mr. Korchinski, does not trust him, is suspicious of the information that he has provided and believes that he is holding out on her. These are also normal emotions and beliefs for a party to have in litigation of this type. [ 54 ] Ms. Fedun asks that I make a finding that there has been material non-disclosure, tantamount to the making of a false matrimonial property statement on Mr. Korchinski part back in January 2020.

She says that the falsity of the statement induced her to make the offer, which constitutes special circumstances justifying the vitiation of the offer. [ 55 ] I do not find that there has been material non-disclosure. Mr. Korchinski has made substantial disclosure. Mr. Fedun knew, or ought to have known, at the time of making the offer that it was early days in the disclosure process and that further information would be forthcoming. Mr.

Korchinski has provided further information, which has come from questioning and additional documentary disclosure and which, for the most part, is intended to explain or justify his position. [ 56 ] Ms. Fedun does not accept what Mr. Korchinski says. She disagrees with it. She is not satisfied with the explanations that have been provided. She takes a totally different position with regard to the issue of equalization. [ 57 ] Mr. Korchinski takes a different legal position from Ms.

Fedun with respect to whether certain assets fall within the meaning of divisible matrimonial property, and differs with her with regard to the value of some assets. That does not mean he is lying. [ 58 ] In KEM , the party repudiating the offer was able to prove that the loss claimed was not actually sustained. In McJane , the repudiating party was able to show that the other side’s claim had essentially evaporated due to poor workmanship. These reasons were accepted by the Court as sufficient to vitiate a Formal Offer. These cases are distinguishable in that there were proven facts. [ 59 ] That Ms.

Fedun disagrees with Mr. Korchinski does not amount to material non-disclosure. She has taken the position that Mr. Korchinski presented false information in his matrimonial property statement. I find that she has not discharged her onus of proving this allegation on a balance of probabilities. At most, she has raised issues which, but for the Formal Offer, would have been litigable. [ 60 ] I find that special circumstances as contemplated in Rule 4.24 are not present and the application for approval to withdraw the Formal Offer is dismissed. D.

Outcome [ 61 ] As I said earlier, the effect of Master Order #2 was to extend all deadlines for filing under the Rules of Court, except those relating to commencement of actions. That being so, the result of my dismissal of the application to withdraw means that the Formal Offer was validly accepted. [ 62 ] Since this ruling puts an end of the litigation, I direct that the January 25, 2021 hearing date be cancelled. [ 63 ] Counsel are at liberty to approach me, in writing, with respect to costs if they are unable to agree.

Heard on the 9 th day of December, 2020. Dated at the City of Edmonton, Alberta this 7 th day of January, 2021. Douglas R. Mah J.C.Q.B.A. Appearances: Mark H. Demas TC Family Law Group for the Plaintiff Laura H. Bruyer Bruyer Mackay Family Law for the Defendant