J.A.C. Plaintiff v. V.R.C., 2015 YKSC 15

SUPREME COURT OF YUKON Citation: JAC v VRC , 2015 YKSC 15 Date: 20150327 S.C. No. 06-D3902 Registry: Whitehorse Between: J.A.C. Plaintiff And V.R.C. Defendant Before: Mr. Justice R.S. Veale Appearances: Debbie Hoffman Counsel for the plaintiff F.

Ean Maxwell, Q.C., and Angela Dunn Counsel for the defendant REASONS FOR JUDGMENT Introduction................................................................................................................................... 1 Background................................................................................................................................... 4 Before marriage................................................................................................................ 6 The marriage (1996-2006)............................................................................................ 17 The separation (December 12, 2006)......................................................................... 31 The Husband’s family businesses and related trusts............................................. 37 The Husband’s Delay in Providing Disclosure.................................................................... 45 The Trusts.................................................................................................................................... 84 The Norman McIntyre Trust.......................................................................................... 84 The Nahanni Drilling Bare Trust............................................................................... 103 The validity of the trusts.............................................................................................. 110 “If and when” order...................................................................................................... 135 The C.

Group of Companies.................................................................................................. 143 Kluane Drilling Limited............................................................................................... 144 Nahanni Drilling Ltd.................................................................................................... 148 C.

Holdings Ltd. ........................................................................................................... 149 H.C. and Sons Ltd....................................................................................................... 150 Loucheux Enterprises Ltd.......................................................................................... 151 Old Crow Industries Ltd. ............................................................................................ 152 Nahanni Paving Ltd. .................................................................................................. 153 Valuation of the C.

Group of Companies............................................................................ 154 The Husband’s management role and minority discount.................................... 155

The Valuation Report.................................................................................................. 170 The drilling companies’ discounted cash flow....................................................... 178 The $2.8 million error.................................................................................................. 185 The barite mill............................................................................................................... 190 The value of the Husband’s interest in the C.

Group of Companies ................ 192 Remaining Family Assets...................................................................................................... 199 Shareholder loans....................................................................................................... 199 Family Home................................................................................................................. 201 Gold in safety deposit box.......................................................................................... 204 The Fox Lake property................................................................................................ 209 The mineral claims...................................................................................................... 211 RRSPs and investments............................................................................................ 212 Airline points................................................................................................................. 216 The RESP and RRSP swaps.................................................................................... 217

Summary of Family Assets..................................................................................................... 221 Unequal Division Under the Act........................................................................................... 224 Value at Date of Trial............................................................................................................... 246 Analysis of Unequal Division................................................................................................ 264 Family Home................................................................................................................. 265 The C.

Group of Companies...................................................................................... 268 The Doctrine of Constructive Trust....................................................................................... 278 Analysis of Constructive Trust............................................................................................... 297 Distributive Taxes.................................................................................................................... 306

Summary................................................................................................................................... 309 INTRODUCTION [ 1 ] The trial of this matrimonial action took place in Whitehorse, Yukon, on the following dates: November 20 - 22, 2013; November 25 - 29, 2013; January 6 - 10, 2014; January 13 - 15, 2014; March 10 - 14, 2014; March 17 - 20, 2014; March 25 - 28, 2014; April 9 - 10, 2014; with written and oral submissions on June 17 - 21, 2014.

This judgment will address the division of family assets under the Family Property and Support Act, R.S.Y. 2002, c. 83 (the “ Act ”). The issues of child support, spousal support and costs will be addressed in a subsequent judgment. [ 2 ] The division of assets in this case requires the consideration of some complex corporate structures. The Husband is one of five sons who, along with their father, have an interest in a number of family companies.

The family assets of the Husband and Wife are impacted by various shareholder loans and trust vehicles linked to these companies. [ 3 ] At the start of trial, counsel for the Husband agreed that the Husband’s interest in the family companies and his shareholder loans are family assets. While there is some disagreement about the value of these assets, by far the most contentious issue in this litigation arises in the context of two trusts created by the Husband. The Wife claims these are family assets; the Husband disagrees.

BACKGROUND [ 4 ] The Husband and Wife commenced cohabitation in 1994, married on July 31, 1996, and separated on December 12, 2006. There are two children, aged 18 and 15 respectively. [ 5 ] The following are all findings of fact. Where there is a dispute in the evidence, I find that the Wife has a more accurate memory and prefer her version of events.

Before Marriage [ 6 ] The Husband is 53 years old. He has a degree in Economics. He is a businessman and worked briefly in Alberta before returning to Whitehorse in 1985 or 1986 to work for the family businesses. Each of five sons received one share in the family businesses in 1977. While initially focussed on gravel crushing and equipment rental in the Yukon, the family businesses have expanded to include diamond drilling worldwide. The Husband’s father started the businesses and remained active until 2008 when he received some capital in an estate freeze. [ 7 ] The Husband built a house in the late 1980s.

He hired a carpenter and later added a basement suite. He helped with some of the construction. He estimates the cost was $115,000 to $116,000. [ 8 ] The Wife was raised on a farm and obtained a Bachelor of Arts degree in 1992. She came to the Yukon in 1992 and obtained a job at the local fish hatchery. She became the station manager in 1994 and continued to work there in a managerial role until their first child was born in 1997. Her job was challenging in that she was involved in marketing fish at trade shows as well expanding the tank farm.

She met the Husband when he supplied gravel to support the tanks. [ 9 ] The Husband and Wife both clearly have a strong work ethic and assisted each other in their respective jobs.

For example, before marriage, the Wife did the following: • Borrowed a weigh scale from the fish farm to weigh loads for the Husband’s business; • Took the Husband’s business associates and potential clients on tours of the fish farm; • Applied on behalf of the family businesses for a water license so they could sell washed sand to a golf course; • Successfully applied on behalf of the family for funds available for marketing small businesses; • Travelled with the Husband around the Yukon as he scouted potential gravel crushing sites and took samples for crushing contracts; • Worked at the family companies, including reception and bookkeeping duties, and provided light janitorial services; • Accompanied the Husband to deliver fuel and supplies and groceries to job sites; • Expedited for the family companies on her own at the Husband’s request. [ 10 ] These tasks were also part of the courtship and establishment of their relationship.

Business and pleasure were both part of most events they participated in together. Part of their attraction to each other was their love of the outdoors and travel which could accommodate both business and pleasure. [ 11 ] The Husband assisted the Wife, before marriage, as follows: • He took business associates to tour the fish farm; • He took her on jobs around the Yukon mixing business with pleasure; • He assisted her at the fish farm when there was an emergency with water flow or oxygen flow to the fish.

On one occasion when there was a major emergency he provided staff and water pumps to deal with the emergency. • The Husband took the Wife to Chile where they met his work associates in Santiago and her fish farming contacts in Puerto Mont. They also travelled to Peru and Ecuador, again mixing business with pleasure. [ 12 ] Shortly before marriage, the Wife had a job offer in the United States and she travelled there with the Husband and his parents to consider the offer.

I find that the Wife declined that offer because she and the Husband wanted to pursue their relationship together in the Yukon. [ 13 ] I also find that this was very much a marriage of equals in the business sense, and the Wife gave up her career in fish farming to start raising a family. That could only be done in the Yukon where the Husband worked in the family businesses. [ 14 ] However, the Husband clearly had more assets prior to the marriage. He had the residence which became the family home.

He also had a share in the family businesses, which were primarily engaged in gravel crushing, hauling and equipment rental at the time of the marriage but subsequently expanded to include a barite mill and a diamond drilling operation. He also had a Toyota hatchback. [ 15 ] The Wife had a small Toyota pickup; some shares in the fish farm valued at $25,000; a debt to her mother; and, a student loan of $11,000.

She used the shares to pay back a loan made by her mother. [ 16 ] There was never any discussion about a marriage agreement or contract and the Husband and Wife were both prepared to work hard for the family and the family companies. The marriage (1996-2006) [ 17 ] The Husband and Wife married on July 31, 1996, and lived together in the family home. The Wife continued to work as manager of the fish farm until the first child was born in February 1997. The second child was born in April 1999.

The Wife did not have any assistance in managing the household or caring for the children, apart from the occasional use of babysitters. For the duration of the marriage the Wife assumed most of the responsibilities for child care and household management.

[ 18 ] There was a significant incident with the first child which captures the parties’ respective parental roles. A babysitter was taking care of the first child and, while visiting the workshop of a family friend, the child broke free from the babysitter and ran into something on a welding table. The child suffered a blow to his right eye and is now blind in that eye. [ 19 ] The Husband was in Tunisia at the time looking at a drilling job. The Wife took the child to the hospital for some initial surgery.

The child was immediately referred to Vancouver for further surgery and the Wife boarded a commercial flight with the Child in bandages and the second child on her lap. The Husband’s parents met her at the airport in Vancouver and took the Wife and the injured child to the hospital for further surgery.

The grandparents looked after the second child. [ 20 ] The Husband returned as soon as he heard about the injury and the Wife and Husband took their son to Detroit to explore another medical option which was not successful. [ 21 ] On the return to Whitehorse, the Wife did most of the caregiving and the Husband was able to return to work. The first child has recovered very well and is now a successful and motivated young man. [ 22 ] After the parents separated, the first child applied to go to Pearson College and was accepted to go on a paid seat basis. The annual cost was about $35,000 per year.

The Wife wanted him to go and advised the Husband who was initially positive. It appears that money became an issue and the child did not attend Pearson College. As will be elaborated on below, this is despite the existence of a trust created by the Husband, without the knowledge of the Wife, for the beneficial interest of the children. [ 23 ] The second child presented a different challenge. The Wife enrolled him with the Child Development Centre to assist with his language development and skills. Through an assessment by the Learning Disabilities Association of Yukon, it was determined that he had dyslexia.

Both parents supported the Wilson Language Program which has given the child the resources he needs. [ 24 ] Despite these events in the children’s lives, the Wife continued to play an active role in the family businesses. Further, the basement suite in the family home was used frequently for employees, drillers and geologists.

The other half of the basement was used as storage space for supplies and records. [ 25 ] The Wife, often with the children in tow, contributed in the following ways to the family businesses: • She advised the Husband about an opportunity to acquire Crown grants from the Hudson Bay Company, which she learned about through her work at the fish farm; • She expedited for the family companies, taking groceries, drill supplies, core boxes from Whitehorse to various field camps, even while nursing the children; • She delivered fuel on the back of a pickup truck to various work sites; • She worked at the weigh scale at the aggregate quarry during pregnancy; • She provided transportation for staff and the Husband’s brothers, who also worked in the family businesses; • She entertained business clients at home and during dinner meetings; • She provided accommodation in the family home for key staff members including drillers and geologists; • She prepared dinners on a regular basis for employees and clients who stayed in the basement suite; • She cooked, baked, cleaned in camps, even when the first son was a baby, including on one occasion for a month at the Western Copper camp; • She cleaned and refueled vehicles and equipment for the companies; • She ran errands and performed janitorial chores; • She performed flagging duties; • She cleaned a turbine; • She provided occasional secretarial and office administration support, including invoicing, bookkeeping duties, banking, payroll, taking the infant children with her to the office; • She attended to business calls on the home phone; • She assisted in drafting the Quality Control Program for the businesses’ American Petroleum Industry Certification; • She assisted in claim staking of various mineral properties, including the “Gin claims”; • She discussed the business and acted as a sounding board for the Husband; • She attended trade shows with the Husband. [ 26 ] The Husband took issue with some of the contributions made by the Wife to the family businesses but his responses were vague and his memory was not good.

I find that the contributions were performed. This is supported by the fact that the Wife’s role was considered important enough to put her on the payroll. She was the only spouse who received regular income. She earned the following

from the family businesses: 2003 - $45,000 2004 - $45,000 2005 - $65,000 2006 - $50,000 [ 27 ] The only significant work done on the family home during the marriage was the landscaping of the front and back yards. While the Husband and the Wife’s father moved the heavy rocks, the Wife helped as well. She also built a hockey rink for two winters in the backyard so that the boys could play hockey. She did the floodings. [ 28 ] The Husband was not an uninvolved father. He watched the boys play hockey, hosted barbeques and picked them up at school from time-to-time.

But, I accept the Wife’s evidence that he became increasingly involved in the management of the family businesses and she provided the primary care for the children especially from 2001 onwards. The Husband would normally be at work by 6 in the morning, come home for lunch and be home for dinner, subject to the contracts they were working on and his international business travel, which was extensive. [ 29 ] Family travel during the marriage was usually a mix of business and pleasure. They went to Arizona for a rock and gem show and travelled to meet the Wife’s family in Australia.

They went to Disneyland and Cape Canaveral in Florida with the children. The Wife and children visited Nova Scotia, China, England and France without the Husband as business demands did not permit him to join them. [ 30 ] I find as a fact that the Wife did the vast majority of the care for and upbringing of the children and the management of the family home. This does not mean that the Husband did not contribute, but rather that his focus was more towards the family businesses to which the Wife also made a significant contribution.

The separation (December 12, 2006) [ 31 ] I accept the Wife’s evidence on the events surrounding and leading up to the separation, on December 12, 2006. In December 2006, she described a lot of strain on the family as the Husband was under stress negotiating drilling contracts and organizing the logistics of putting the crews in place. She needed surgery and flew out to Vancouver.

She had the surgery, visited friends in Vancouver and returned to Whitehorse, to a very tense reception from the Husband, who made allegations that she was having an extramarital relationship, which the Wife denied. [ 32 ] On December 13, 2006, the Wife fled the family home with the children following an assault by the Husband. He admitted this in his response to a Notice to Admit but then denied it at trial, on the basis that he did not physically assault her by “like punching her in the head”.

He did acknowledge that they were arguing and that he took off her sunglasses (which she was wearing because of light sensitivity after surgery) and broke them on the floor but he did not remember pulling her hair. He stated that he picked up a rock, smashed a window and kicked a few chairs around. He told her that she was fired. [ 33 ] Whatever actually happened, I accept that it was a frightening experience for the Wife and she decided to drive out of the Yukon with the children to have a break and make a plan. She did not tell the Husband about this trip.

The Husband caught up with her and the children in Watson Lake wanting her to return to Whitehorse, but she would not speak with him. The police intervened and suggested that the Husband return to Whitehorse, which he did. [ 34 ] The Wife continued on her way, eventually settling with friends in Southern British Columbia and enrolling the children in school and hockey. The Husband obtained a without notice Order, dated January 9, 2007, for her to return the children to him in the Yukon. The Order stated that the Husband would have custody of the children and the Wife would have access.

At this point, the Wife returned to the Yukon without any income. She refused the Husband’s offer to stay in the basement suite of the family home, or to take the whole house provided that she live there without her new partner. The Wife refused to accept any conditions. She acknowledged that as of February 20, 2007, she was residing in a common-law relationship. [ 35 ] A further Order dated April 12, 2007, granted the Husband and Wife interim joint custody of the children with primary residence with the Wife and specified access to the Husband.

That Order also included interim child support, payable to the Wife by the Husband, in the amount of $1,233 per month, based upon his declared income of $83,928. The Order also granted spousal support to the Wife in the amount of $2,400 per month, commencing May 1, 2007. The Husband was ordered to provide a car for her with insurance coverage. [ 36 ] There was a further Order dated September 12, 2008, which continued the interim joint custody order but changed the residency of the children to one week on, one week off with each parent.

The Husband’s family businesses and related trusts [ 37 ] Throughout the marriage, the Husband’s family business empire was thriving, and it continued to do so after the separation. Some background is necessary here. [ 38 ] The C. Group of Companies includes: • Kluane Drilling Limited; • Nahanni Drilling Corp.; • C. Holdings Ltd.;

• H.C. & Sons Ltd.; • Loucheux Enterprises Ltd.; • Nahanni Paving Ltd. [ 39 ] The shares of the C. Group of Companies are controlled 100% (directly or indirectly) by various family members, trusts, or other C. Group of Companies with the exception of Nahanni Drilling and Nahanni Paving, which involve other arm’s length parties.

Besides the Husband, other family members holding shares are the Husband’s father and mother, and the Husband’s four brothers. [ 40 ] The Husband also owns shares of Nahanni Drilling, which he holds as a bare trustee for the two children (the “Nahanni Drilling Trust”). [ 41 ] In January 2007, shortly after the separation of the Husband and Wife, the Husband's accountant and close friend, Norman McIntyre, began the process of a business reorganization and estate freeze, ostensibly as part of the Husband’s father’s retirement plan from the family businesses.

The Wife was not advised of this. [ 42 ] The estate freeze created the C. Family Trust, the beneficiaries of which are the Husband and his brothers and their children, but not their spouses. The Husband and Norman McIntyre are the trustees. [ 43 ] In January 2006, prior to the separation of the parties, the Husband created a third trust, again with Norman McIntyre (the “Norman McIntyre Trust”). The documentation took years to complete, and, despite the fact that the Husband and Wife were still married at the time of its creation, its existence was not disclosed to her until well into this litigation.

Norman McIntyre is the trustee and the Husband, Wife and the two children are the beneficiaries. The assets in this trust are a 50% share interest in 39055 Yukon Inc., which is a numbered company that produces drill rods for use by Kluane Drilling. The other 50% share interest in 39055 is held by Martin and Karen Loos, who are otherwise unconnected to the C. family. In 2013, 39055 declared a dividend of $700,000 to the Norman McIntyre Trust. This dividend was similarly not disclosed to the Wife in a timely fashion.

The validity and true character of the Norman McIntyre trust consumed days of this trial. [ 44 ] Another complicating factor is the Husband’s shareholder loan accounts with the C. Group of Companies and 39055, which are family assets, which he essentially used like bank accounts. THE HUSBAND’S DELAY IN PROVIDING DISCLOSURE [ 45 ] A considerable amount of trial time was devoted to issues arising from the delay of the Husband in providing financial disclosure.

I will address the issue of delay in some detail as it bears upon the Wife’s claim for an unequal division of assets. [ 46 ] The Court Order dated April 12, 2007 included the following terms: 7. the Petitioner and the Respondent shall provide to each other full financial disclosure in a timely manner which will include financial disclosure with respect to all companies, businesses and partnerships in which they have a legal, beneficial or equitable interest; 8. the Petitioner and the Respondent shall be restrained from hypothecating, mortgaging or disposing of any family or non-family assets either owned by them or in which they have a legal, beneficial or equitable interest, and amongst other [things] and without limiting the generality of the foregoing including, [C.] Holdings, H. [C.] and Sons Ltd., Kluane Drilling Ltd., Kluane International Drilling, Nahanni Drilling, Nahanni Paving Ltd., Old Crow Industries Ltd., Loucheux Enterprises Ltd., Terra Nova Gems and Ciena Minas until the conclusion of these proceedings or further order of this Court. [ 47 ] The Husband filed his first Financial Statement on April 5, 2007, which included a present market value of the Husband’s shares in the C.

Group of Companies, after personal taxes paid, of $254,884.29. It did not disclose, among other things, shareholder loans or the Norman McIntyre Trust. I add here that his next Financial Statement was not filed until November 16, 2012, after the delivery of the Valuation Report in July 2012, which valued the Husband’s interest in the C. Group of Companies at January 31, 2007, in the range of $1 million. [ 48 ] As indicated, the C. Group of Companies completed an estate freeze in 2008. The Husband and Norman McIntyre devoted a great deal of time with tax advisors to the estate freeze.

Basically, in such a freeze, the assets of the company are valued at a fair market value and placed in a family trust so that future asset increases in value will be taxed at a lower rate. The fair market value of the businesses at the time of the estate freeze would have been important information for the Wife in this matter, but it was not disclosed until July 2012. This is despite the fact that the expert retained to prepare the Valuation Report was retained in 2008. [ 49 ] The first mention of an estate freeze, unknown to the Wife, arose in January 2007, shortly after the separation of the Husband and Wife.

A memo from Norman McIntyre proposed an estate freeze of the family business assets held by the Husband’s parents via C. Holdings, H.

C. and Sons, Loucheux Enterprises Ltd. and Old Crow Industries. [ 50 ] In November 26, 2007, Norman McIntyre wrote a letter to his colleague, Dan Basso, elaborating on the estate plan, asset protection plan and tax minimization strategy. [ 51 ] The objective of the estate freeze was expressed as follows: The intent will be to transfer [the Husband’s parents] Family Business interests to the children and their offspring in such a manner that the assets will be protected from allocations resulting from marriage breakdowns of the children, possibly a trust. The trust(

s) will hold

the Equity interests of the business interests for the benefit of the children and their offspring. The structure should provide asset protection in the event of divorce or bankruptcy of the children. [ 52 ] On December 18, 2007, Norman McIntyre wrote an e-mail to Dan Basso stating: The primary purpose of what we are trying to achieve is to provide protection in case of a marital dispute and secondly have income taxed at a low rate from international operations … [ 53 ] In a March 10, 2010 memo to Norman McIntyre, Dan Basso described the 2008 reorganization: … 2) The [C.] family have extensive business interests.

Some of the key companies in the Group are now owned through 0841300 B.C. Ltd. (“084BC”) which in turn now owns “mostly all” of [C.] Holdings Ltd. 3) As a result of the December, 2008 reorganization (“the 2008 Reorganization”), [the Husband’s father’s] remaining participating share of [C.] Holdings Ltd. were exchanged for about $4.5 million worth of “estate freeze” (preferred) shares of 084BC.

These preferred shares are voting shares, and as a result, [the Husband’s father] continues to control several of the main companies in the Group, through his control of 084BC. … 5) The [C.] Family Trust was established under the 2008 Reorganization to hold the new growth shares in 084BC. [The Husband’s parents] are not beneficiaries of this Trust, nor are they Trustees. [The Husband’s parents]’s children (but not their respective spouses) and grandchildren are beneficiaries. … Freeze of the Husband’s 8% share in C. Holdings Ltd.

This plan was left in a holding pattern pending the resolution of the Husband’s matrimonial situation. I am not sure if we are any closer to being able to move forward on this item. [ 54 ] A footnote to paragraph 3 above indicates that 084BC was established specifically to allow a partial freeze recognizing that the Husband was not in a position to transfer his shares given his matrimonial situation at the time. [ 55 ] As indicated, the C.

Family Trust has the Husband and Norman McIntyre as trustees. [ 56 ] On May 27, 2008, Kluane Drilling established an Employee Profit Sharing Plan (the “EPSP”) to permit the distribution of excess profits in order to retain the small business tax status. In 2008, the Husband’s brother D. received $350,000 plus employment income, his brother K. received $357,635 plus employment income and the Husband’s father received $1,145,100. The Husband was allocated $200,000 to his investment account from the EPSP on August 20, 2008.

On the advice of Norman McIntyre, the Husband’s allocation was reversed in January 2009 and transferred to his father. The Wife had no information on the value of the C. Group of Companies or the Husband’s shareholder loans. [ 57 ] In his examination for discovery on December 7 and 8, 2009, the Husband was asked if there was a C. Family Trust. He responded there was one for his children and made reference to a trust for his children in a company that manufactured drill rods for the C. Group of Companies in the Yukon. The husband was obviously referring to the Norman McIntyre Trust, rather than the C.

Family Trust, as he went on to refer to the numbered company incorporated with Martin Loos and his wife in 2005 or 2006. He also testified that he thought that Norman McIntyre settled the trust and was the trustee. He then corrected himself and said his father was the settlor of the trust with a gold coin. At this point in the examination, counsel for the Wife requested copies of the trust documents, the settlement documents and financial statements of the numbered company.

The Husband responded that no financial statements had been produced for the trust but stated he did not know why. [ 58 ] At the time of the discovery of the Wife in December 2009, the trial had been set for May 10, 2010. [ 59 ] Counsel for the Wife made numerous telephone calls and sent a letter dated December 17, 2009, asking for the documents

requested in the examination. The trial was adjourned and a new trial date, later vacated, was set for 10 days, starting November 13, 2012. Again, on August 23, 2010, counsel wrote asking for outstanding documents, including the valuation of the companies and documentation related to the Norman McIntyre Trust. . By September 17, 2010, counsel for the Husband indicated she now had a number of these documents in her possession. [ 60 ] On December 16, 2010, counsel for the Husband provided a response to the List of Requests from the examination for discovery on the Husband on December 7 – 8, 2009.

It included the following: Request 49 Response [The Husband] to produce copies of the trust documents relating to the numbered company; copies of the settlement documents; copies of any financial statements the company may have. The numbered company is not a family asset. Documents relating to it are not relevant. [ 61 ] I interject at this point to express the view that this was not a legitimate basis on which to refuse production. There was clearly a live issue about whether the trust shares in the numbered company were a family asset.

The numbered company was incorporated on December 29, 2005, a year before the separation. [ 62 ] The Wife’s letters and Notices with respect to financial disclosure continued through to October 2011, with no real response. [ 63 ] On October 21, 2011, counsel for the Husband indicated that she had met with the Husband and was preparing his financial statement and was hoping to provide it and a supplementary List of Documents in the next two weeks. This did not happen. [ 64 ] On February 8, 2012, counsel for the Wife sent another letter with new requests made by Mr.

Goodburn, a chartered business valuator and chartered accountant, retained by the Wife. [ 65 ] Finally, on July 16, 2012, counsel for the Husband produced the Valuation Report entitled “Fair Market Value of the Share Interests held by the Husband in the C. Group of Companies”, prepared by Douglas Welsh of the Clark Valuation Group Ltd. This is the first time that some details of the Norman McIntyre Trust were disclosed as follows: 2.02 In addition to the value identified above, there is a trust that holds a 50% share interest in 39055 Yukon Inc. (“39055”).

The other 50% share interest is held by a third party. 39055 produces drilling rods for use by KDrill. 2.03 The trustee of the trust is Mr. Norm McIntyre, CA. Mr. McIntyre is a partner with WHI MacKay Chartered Accountants and is a long-time consultant and accountant working on behalf of the [C.] Group and the [C.] family. Beneficiaries of the trust are [the Husband]. and [the Wife] and the two children, […]. Under the terms of the trust agreement, Mr. McIntyre has stated that the beneficiaries lose their rights if there is a divorce, however the children remain as beneficiaries.

In this report, no value has been assigned to the common shares of 39055 held by the trust, although we note that [the Husband] has a shareholder loan balance owing from 39055 of $108,900 . (my emphasis) [ 66 ] I note, parenthetically, that it is highly troubling that, an asset whose documents had not been disclosed for several years was suddenly raised and dismissed without being assigned any value. [ 67 ] Counsel for the Husband also finally delivered his updated Financial Statement sworn September 26, 2012, to counsel for the Wife on November 16, 2012.

Significantly, although the document was sworn almost two months earlier, it was delivered just one business day before a Settlement Conference set for Monday, November 19, 2012. It made no reference to the Husband’s shareholder loans or the Norman McIntyre Trust for the two children. It did include his 2011 Income Tax Return and proceeds from the sale of publicly-traded shares in the amount of $213,072.61. [ 68 ] Counsel for the Wife made requests for additional financial documents sought by Mr. Goodburn in January and February 2013.

A Notice of Application for further document production was ultimately heard and ordered on April 15, 2013. I note that counsel for the Husband had made significant efforts to obtain all the documents requested and the Order of April 15, 2013 dealt with those that remained outstanding. [ 69 ] This Order required counsel for the Husband to provide an extensive list of financial documents dating from 2007 to 2012, including: 1. An affidavit of documents; 2.

An up-to-date Financial Statement of the Husband which shall include disclosure of the Husband’s income and all of the Husband’s current assets, liabilities and disclosure of property;

3. A written explanation for any documents not provided by May 10, 2013; [ 70 ] In addition, the April 2013 Order set a Case Management Conference on May 30, 2013 and trial dates of November 20 – 29, 2013. [ 71 ] In the meantime, on February 6, 2013, the Wife, on the instructions of her counsel, had gone to Mr. McIntyre’s office and requested a copy of the trust documents and was for the first time, provided with a copy of a document entitled, “Norman McIntyre Trust” dated January 27, 2006.

Although the document’s date preceded the parties’ separation by almost a year, this was the first time the Wife had seen the Norman McIntyre Trust, although she knew that the Husband had wanted to establish “a trust for us” as early as 2004. [ 72 ] On May 10, 2013, the Husband provided an Affidavit of Documents but failed to produce a Financial Statement. [ 73 ] A Court Order dated May 30, 2013 (the May 2013 Order) ordered the Husband to produce a complete and up-to-date Financial Statement to include disclosure of the Husband’s income and all of the Husband’s current assets, liabilities and disposal of property by June 7, 2013. [ 74 ] The May 2013 Order also stated that the continued examination for discovery of the Husband and Wife shall be completed by September 13, 2013. [ 75 ] The Husband produced his updated Financial Statement on June 7, 2013. [ 76 ] I find that the three Financial Statements of the Husband were incomplete in that they did not disclose: 1. the Husband’s interest as a beneficiary of the Norman McIntyre Trust or the trust’s investment in 39055 Yukon Inc., the company producing drill rods for Kluane Drilling; 2.

The Norman McIntyre Trust agreement and three most recent financial statements (as per Rule 63A of the Rules of Court); 3. Complete particulars of his shareholdings in the C. Group of Companies which he initially valued at $253,884, but which his business valuator opined to be in excess of $1,000,000 in 2012; 4. The shareholder loans owing to the Husband by the C. Group of Companies and 39055 Yukon Inc.; 5. The fact that there had been a corporate reorganization of the C. Group of Companies in 2008 resulting in the C.

Family Trust and his position in that Trust (i.e. his 50% shareholding, with the other 50% held by Norman McIntyre, in 42267 Yukon Inc., the corporate trustee of the C. Family Trust); 6. Mineral claims in his name; 7. “Swaps” carried out by him in his RRSP account and the children’s RESP account; 8. His ownership of 2,200,000 shares in Swift Resources, as well as other shares in Kildeer Minerals and Dawson Gold Corp. [ 77 ] The disclosure problems continued throughout the trial. In the November 2013 hearing, counsel for the Husband was ordered to produce, by December 16, 2013, the file of Mr.

Welsh, the Husband’s expert, and the file of Norman McIntyre, the Husband’s accountant and tax advisor, as both had collaborated closely in the preparation of the Valuation Report dated July 16, 2012. During the examination in chief of Norman McIntyre on January 2014, Mr. McIntyre candidly admitted that he did not produce his entire file relating to the Valuation Report of July 16, 2012, as he misunderstood the amount of documentation he was required to produce.

This required another adjournment of the trial to the next day to permit both counsel to review the additional documentation during the evening of January 14, 2014. [ 78 ] On January 15, 2014, counsel for the Husband requested an adjournment of the trial because of her discovery that there were documents for a five-year period from 2008 to 2013 that had not been produced. These documents were discovered after counsel for the Wife had left Mr. McIntyre’s office the evening of January 14, 2014. There was also some misunderstanding on the extent to which Mr.

McIntyre’s documents were required to be produced. [ 79 ] In any event, counsel for the Husband did not feel comfortable in continuing with Mr. McIntyre’s examination in chief without having reviewed Mr. McIntyre’s entire file. Counsel for the Wife opposed this adjournment application on the grounds of prejudice to his client in terms of costs and timing. [ 80 ] I ordered that the trial be adjourned on the condition that the Husband produce the transcript of the hearing. [ 81 ] The trial resumed on March 10, 2014.

The issue of costs on the adjournment was not addressed but the Husband paid an advance on capital to the Wife. [ 82 ] I find the following: 1. The Husband delayed in providing full financial disclosure to the extent that it has taken seven years to provide the financial information ordered to be provided on April 12, 2007. 2. Full financial disclosure could have been made in 2008 when the estate freeze took place. 3. The failure to provide timely financial disclosure has prevented the Wife from being able to place a value on her share of the family assets.

4. Despite the disclosure of the Norman McIntyre Trust in the July 16, 2012 Valuation Report, the financial disclosure requested as early as December 2009 was not produced until 2013. [ 83 ] The conduct of the Husband and Norman McIntyre in the delays and lack of disclosure leads me to doubt their credibility. THE TRUSTS The Norman McIntyre Trust [ 84 ] The Norman McIntyre Trust, and the lack of disclosure about the details of its creation and the assets in the trust, has contributed to the significant delay in this case.

While its existence was acknowledged, somewhat obscurely, in the examination for discovery of the Husband on December 7 and 8, 2009, documentation about it was not provided until early 2013, and it ended up coming from Norman McIntyre directly, rather than through counsel for the Husband. [ 85 ] In the December 2009 examination, the Husband stated: 1. He did not know the number of the numbered corporation, i.e. 39055; 2. He wasn’t sure but he thought the other shareholders were Martin Loos and his wife, Karen Loos; 3. He said there was a trust for the other shareholders and the beneficiaries were his boys; 4.

He did not know for sure when the numbered company was incorporated but thought it was 2005 or 2006; 5. The numbered company manufactured drill rods for Kluane Drilling; 6. He thought it was Norman McIntyre who settled the trust but he wasn’t sure. He corrected this by stating it was his father who settled it with a gold coin; 7. He thought Norman McIntyre was the trustee; and 8. He did not know if financial statements were produced for the trust. [ 86 ] There will be some repetition of facts from the previous

section as they bear upon the issue of the validity of the trusts. [ 87 ] As indicated above, in response to a request for the trust document and financial statements of the numbered company on December 16, 2010, counsel for the Husband took the position that the numbered company was not a family asset and the documents relating to it were not relevant.

This position of refusing to disclose an asset, whether family or a non-family asset, led to significant delays in getting this matter to trial, not to mention delays in the trial itself. [ 88 ] In July 2012, the Valuation Report revealed further information about the Norman McIntyre Trust set out above. [ 89 ] As stated above, the Wife asked Norman McIntyre for a copy of the trust documents on February 16, 2013. She received a copy of the Norman McIntyre Trust and the income tax returns for the trust. Mr.

McIntyre immediately informed counsel for the Husband that he had given the Wife the Norman McIntyre Trust documentation. [ 90 ] At this point, the Wife and her counsel became aware of the following additional details of the trust: 1. The trust dated January 27, 2006, was called the Norman McIntyre Trust; 2. The shareholder equity in 39055 Yukon Inc. increased from $242,896 on January 31, 2007 to $5,002,556 on January 31, 2013; 3. The Husband’s shareholder loan of $108,980 on January 31, 2007, had increased to $158,000 by January 31, 2008. 4.

The Husband and Wife were included as beneficiaries in addition to the children; 5. The Trustee was not responsible for any error in judgment, exercise of discretion, or act of commission or omission not amounting to actual fraud; and 6. The Trustee acting personally and not as a fiduciary could add any person or class of persons as a beneficiary. [ 91 ] The Norman McIntyre Trust agreement also contained the following clause: 9.

Exclusion from Net Family Property The income, including capital gains, arising from any interest passing to a Beneficiary under this Deed shall be excluded from such Beneficiary’s net family property or from the value of the Beneficiary’s assets on the death, divorce or separation of such Beneficiary, pursuant to the Family Property and Support Act . [ 92 ] This clause was interpreted by Norman McIntyre and reported by Mr. Welsh in the Valuation Report as removing the Husband and Wife as beneficiaries on divorce. “Net family property” is not a concept in the Act but appears to arise from Ontario legislation.

[ 93 ] At trial on November 21, 2013, the Husband testified that the Norman McIntyre Trust agreement was entered into on January 27, 2006. He confirmed this date in cross-examination on November 28, 2013. As a result of court-ordered document disclosure during the trial from Norman McIntyre on January 15, 2014, it was determined that the Norman McIntyre Trust deed was actually signed in 2008, after this litigation was commenced, but backdated to January 27, 2006. However, legal counsel had been instructed to draft the trust agreement on January 31, 2006.

In these instructions to legal counsel, Norman McIntyre included the Husband and Wife as beneficiaries to the trust. He said that he included the Husband and Wife as alternative beneficiaries in the event that something happened to the children. I note that, despite it being contemplated in 2006, the Norman McIntyre Trust was not drafted until after the reorganization of the C.

Group of Companies in 2008, one of the purposes of which was to provide asset protection in the event of a divorce. [ 94 ] Norman McIntyre also understood that if no distribution is made from the trust to a beneficiary, it is not considered family property.

When asked in examination in chief how he came up with that determination, he answered: At some point I was doing some research at the internet, like looking up court cases and that, and legal documents to see how these things operated in the case of a divorce, like because we were in that scenario. [ 95 ] Norman McIntyre stated in e-mails in 2007 that he filed a trust return with the Canada Revenue Agency, ticked the box indicating that the trust agreement was enclosed, but did not enclose the trust agreement as he was still requesting legal counsel to prepare it. [ 96 ] At the date of Norman McIntyre’s testimony in January and March 2014, the trust bank account had not been set up. [ 97 ] Until February 2013, the Husband was the only person to have a copy of the Norman McIntyre Trust deed, apart from Norman McIntyre.

The Husband did not want the C. family name on the trust. At trial, the Husband stated that he just found out a couple of days earlier from Norman McIntyre that he and the Wife were included as beneficiaries in case the children passed away. [ 98 ] The Husband further stated that he did not know whether there was cash available for the children in the trust and that he thought the children did not need it anyway, despite being aware of his son’s financial inability to go to Pearson College as he wanted. In January 2006, when the trust was created, the Wife was a client and friend of Norman McIntyre.

Norman McIntyre recalled having a discussion with the Wife about the second child also being interested in going to Pearson College. [ 99 ] The Husband stated that he knew nothing about financial distribution of the Norman McIntyre Trust from 39055. In fact, shareholder loans were repaid to other shareholders well before the Husband’s shareholder’s loan was repaid in August 2013. [ 100 ] Rather than making distributions from 39055 to shareholders, Martin and Karen Loos borrowed $650,000 from 39055 at January 31, 2011.

The net profit of 39055 was as follows: 2007 $601,658 2008 $1,193,191 2009 $742,000 2010 $1,034,057 2011 $1,388,985 2012 $1,404,592 [ 101 ] On July 23, 2013, 39055 declared a dividend of $700,000 to the Norman McIntyre Trust. The dividend distribution was not disclosed to the Wife, despite the fact that she knew about the trust at this point. Norman McIntyre testified that he was also not sure that he told the Husband about the $700,000 cheque “but in all probability, I might have told him that, yes, I don’t know”.

He carried the cheque for $700,000 in his pocket for six months until he deposited it into his own personal account in January 2014 to avoid the cheque being stale-dated. Mr. McIntyre estimated the lost interest amounted to approximately $3,500 which he did not intend to repay to the trust. Although he intended to open a trust bank account in January 2006, he never did.

He explained that his wife had passed away in July 2013, and he was taking a lot of time off as a result and he simply did not get around to it. [ 102 ] I find that, while there is absolutely no suggestion that Norman McIntyre derived any personal benefit, his keeping the cheque in his pocket for six months can only be explained as part of the general pattern of secrecy and non-disclosure pertaining to the Norman McIntyre Trust.

Norman McIntyre did have a personal tragedy with the death of his spouse during this period but I am not satisfied that that tragedy can explain the delay in creating a trust account or cashing a $700,000 cheque for six months with this trial pending. I conclude that the delay in full disclosure of all aspects of the Norman McIntyre Trust was a significant factor in the delay and length of this trial.

I also find that the Husband and Norman McIntyre deliberately attempted to keep financial information on the Norman McIntyre Trust away from the Wife during this court action, and I can only infer this was to prevent her from discovering the true value of this asset. The Nahanni Drilling Bare Trust [ 103 ] The Valuation Report prepared by Douglas Welsh dated July 12, 2012, stated the following in footnote 7: NDrill’s shareholders also include [the Husband] with a 6.46% share ownership (1,000,000 Shares out of 15,490,000). However, we

understand that [the Husband] holds these shares as a bare trustee on behalf of [the children]. No value has been assigned to these shares of NDrilling that are held in trust. If it is later determined that these shares are matrimonial property, then [the Husband] and [the Wife’s] share of this value would be in the rage of $336,000 to $342,000. [ 104 ] The two Declarations of Trust, one for 500,000 shares to one child and one for 500,000 shares to the other child, were signed by the Husband and dated May 18, 2006.

The Declarations of Trust are the same for each child: DECLARATION OF TRUST This declaration of trust is made by [the Husband] (the “Trustee”) in favor of his son […] (the “Beneficiary”). The Trustee solemnly declares that he holds 500,000 shares of Nahanni Drilling Corporation (the “Property”) in trust solely for the benefit of the Beneficiary. The Trustee further promises the Beneficiary:

a) not to deal with the Property in any way, except to transfer it to the Beneficiary, without the instructions and consent of the Beneficiary; and

b) to account to the Beneficiary for any money received by the Trustee, other than from Beneficiary, in connection with holding the Property. [ 105 ] I note that there is no fiduciary obligation expressed in the Declaration of Trust. [ 106 ] Norman McIntyre stated that the Husband’s shares were “founder shares” for which he paid nothing.

He also testified in cross- examination that he was not sure the Nahanni Bare Trusts were actually dated May 18, 2006. [ 107 ] Norman McIntyre also stated that a trustee could allocate trust capital to adult children who in turn could gift the allocation to a parent. [ 108 ] When the Husband was asked in examination in chief why he put his Nahanni Drilling shares in trust for his children, he stated: Well at the time I kind of felt like I wanted to put some assets in their name just for tax purposes. [ 109 ] There is no evidence that the Husband has acted on these Trust Declarations.

The validity of the trusts [ 110 ] In order to settle property on trust, the settlor must either own the property, have an interest in the property or have a power of appointment. As set out in Waters’ Law of Trusts in Canada , 4 th ed. (Donovan W.M. Waters, Mark Gillen & Lionel Smith (Toronto: Thomson Reuters, 2012)), a trust has three essential characteristics (pp. 140-141): 1. The language of the settlor must be imperative and establish a certainty of intention; 2. The subject matter of the trust must be certain; and 3.

The object of the trust must be certain. [ 111 ] Counsel for the Wife submits that both trusts are shams based on the principle in Antle v. Canada , 2009 TCC 465 , confirmed on appeal at 2010 FCA 280 . In Antle, the trial judge found that the trust in issue was a sham because it lacked certainty in intention and subject matter. Mr.

Antle had created a Barbados Spousal trust for the purpose of avoiding capital gains in Canada, but the court found that he never intended to settle shares in a discretionary trust with the trustee. [ 112 ] The Federal Court of Appeal confirmed that surrounding circumstances and not just the formal expression of the parties could be considered in determining the validity of a trust. Antle was decided in the context of a tax avoidance scheme rather than in a matrimonial context.

Nevertheless, the Court approved, at para. 16, the following text from Waters’, at p. 154 with reference to the concept of “sham”: … Used in the trust law setting, now a practice in Canada as elsewhere, it describes a trust that the courts will declare void because the provisions in the trust instrument do not represent the settlor’s true intent as to the terms upon which the trustee is to hold the trust asset(s). Though the trust instrument sets out the persons or purposes that are to benefit, the settlor’s true intent is to retain control of the

assets purportedly held in trust because the true intent, for instance, is to appear to have disposed of the assets and so to evade tax, todefeat personal creditors, or prejudice the claims of an estranged spouse or the children of the relationship. A trust created by the settlorwho declares himself the trustee of the property, rather than make a transfer of asset to another as trustee, lends itself to themisrepresenting behaviour. When the trustee is another person, any false misrepresentation the settlor intends to make does not, ofcourse, affect the trustee, who is expected to act honestly and in good faith.

But another as trustee who agrees to assist the falsity, or whois indifferent to whether, in fact, he merely implements the settlor’s decisions, will enable the assertion to be made that the trust is but a“sham”, a deception, and consequently void. (my emphasis) 1. No Intention to Create a Trust An intention to mislead others may mean there is no true intention to create a trust at all. The whole suggestion of a settlor who intendeda trust is a fabrication; the defendant is and always has been the owner of an interest in assets that others are now claiming.

No evidenceis available of a trust instrument or, if there is a trust instrument, it has been withheld from anyone’s knowledge and produced when aclaim is being made against the property described in the instrument. A declaration of trust by the alleged settlor would be the likelymethod of such alleged trust creation; it requires no co-operation from others. If there is, in fact, no intention to create a trust, one of thethree certainties is missing, and the alleged trust is void. The assets remain in the settlor’s name, available to claimants against him or tothose assets.

This, all are agreed, is a sham trust. [113] Waters’ goes on to say that a sham requires both the settlor’s deceptive behaviour as well as a trustee, who may be a friend orrelative, willing to advance the deception. [114] Waters’ elaborates at p. 157: Canadian courts to this date have used the term “sham” with regard to trusts only occasionally, and as yet no judicial analysis has beenmade of the scope of its meaning, and its effect.

The infrequency of usage may in part be due to the fact that retention of control by theCanadian settlor has highly deleterious tax effects for the control, the trust may be regarded by the CRA as a trust simply of asset title,and the taxable capital gain will be imputed to the settlor, and taxed in the settlor’s hands as his retained property. Both domestic andoffshore trusts are subject to this attack in Canadian courts. [115] In the context of family law litigation, the cases are quite fact specific. In Antflick v. Antflick, [1980] O.J.

No. 1240 (S.C.), thehusband established an inter vivos trust in 1969 with his wife and three children as beneficiaries. The parties separated in 1978. Nomeetings of the trustees were held and the trust had been under the absolute control and management of the husband. The children wereto receive the capital with the income at the discretion of the trustees to first meet the needs of the wife. No payments had been made tothe wife. Counsel for the wife submitted it was a sham and all of its assets should be taken as assets of the husband.

The trial judgeconcluded that the corporate documentation and the manner of operation “[led] only to this conclusion.” [116] In Merklinger v. Merklinger (1992), (ON SC), 11 O.R. (3d) 233 (Gen. Div.) at 241 – 242, affirmed (1996), (ON CA), 30 O.R. (3d) 575 (C.A.), the husband and wife were married in 1972 and separated in 1990. A Muskokaproperty was a valuable asset in the wife’s name prior to separation but the husband stopped paying the mortgage and taxes.

The husbandthen purchased the Muskoka property in 1992 in the name of a limited company, the shares of which were owned by his solicitor in trustfor his children. The trial judge had little difficulty finding the husband’s claim of a trust for the children to be a sham. [117] In Sagl v. Sagl (1997), (ON SC), 31 R.F.L. (4th) 405 (Ont. Gen. Div.), the husband created the Sagl FamilyTrust in 1982, two years before the marriage. The beneficiaries were Mr. Sagl, his three sons from his first marriage and their issue. Theparties separated in 1992.

The issue was whether the value of certain common shares held in trust should be included in the net familyproperty of Mr. Sagl. The value of the shares was between 26 and 30 million, subject to income tax. [118] Counsel for the wife urged the inclusion of the shares in Mr. Sagl’s net family property because he had treated the trust propertyas his own, included the value in his personal net worth, and had friends as trustees. The trial judge rejected that submission, and statedat para. 36: I agree with Mr.

Wolfson that were I to approach this issue on this basis, I would be "turning trust law upside down." The fact is that theTrust was legitimately created after receiving income tax and estate planning advice from Mr. Lyle Hepburn. It was created some twoyears before the marriage. There is no evidence that it was done so to defeat Mrs. Sagl. She was very well provided for at the time. TheTrust is not a sham. [119] The trial judge concluded at para. 37 that the best way to determine the wife’s entitlement was to determine Mr.

Sagl’s interestin the trust at the date of valuation, without dissolving the trust, and distribute a proportion of that value to the wife. [120] However, in E.J.R. v. K.D.A., 2002 BCSC 1649, the trial judge decided that dividing a family trust was undesirable as it “wouldeffectively expropriate assets which were intended to benefit the parties’ children. While the R. Family Trust was a family asset by theterms of the Family Relations Act, the extent to which others, including minor children, may have had a legitimate legal or beneficialinterest in that family asset must be recognized.”

[121] Similarly, in Anderson v. Anderson, 2004 BCSC 300 (var’d on other grounds, 2005 BCCA 208), the husband and wife began tolive together in 1970 or 1971, married in 1977 and separated in about 2000. The husband operated several dental practices over the yearsand established a family trust which enabled funds to be paid out of the practice for the family’s support with minimum tax liability.Although there was no specific date establishing the commencement of the trust, it was in existence during the marriage.

The trial judgeconcluded that the family trust was an intrinsic part of the family’s financial structure but declined to divide it as a family asset as neitherthe ownership nor the rights of the children as beneficiaries were clear. The trial judge could not conclude that the family trust wasowned by one or both spouses and some or all of the children. She states the reasons for her decision at para. 67: That the trust was created for the benefit of the family as a whole from funds generated by the dental practice does not diminish the legalsignificance of the rights and interests it may have created.

If the parties have for financial or tax planning purposes created for thechildren separate rights to some of the family property, it is not open to the parties or the court to divide that property between the partieswithout representation of the children's interests. [122] In Fisher v. Fisher, 2009 BCCA 567, the husband and wife were married in 1990 and separated in 2005. At issue was a Whistlerproperty which the trial judge concluded was not a family asset. The wife’s mother acquired the Whistler property before the 1990marriage and held title in the name of a company in which she held 100% of the shares.

The wife’s mother transferred her shares tograndchildren and the company signed a declaration of trust for the grandchildren. The husband alleged that the wife was the truebeneficial owner of the Whistler property and it was therefore a family asset.

The trial judge found that it was always the intention of thewife’s mother to give her interest in the Whistler property to her grandsons, and declined to delve into the validity of the trust on thebasis that many of the interested parties did not have notice of the attack on it. [123] The Court of Appeal agreed, stating at paras. 50 and 51: 50 I agree with the trial judge's refusal to decide this complex trust issue on the basis that it would be prejudicial to the respondent andthe Company to do so in the absence of notice through proper pleadings.

It may well be that the respondent and the Company wouldhave chosen to lead evidence on this issue, which may have shed light on the circumstances in which the 1998 Declaration of Trust wasformulated and signed. See Emmett v. Arbutus Bay Estates Ltd. (1994), 95 B.C.L.R. (2d) 339 at para. 9 (C.A.), Scott Bros. Gravel Co.v. N.W.

Hullah Corp. (1967), (BC CA), 59 W.W.R. 173 at paras. 9-11 (C.A.). 51 More importantly, however, is the fact that R. and S., who hold the shares in the Company and claim to be the beneficial owners ofthe Whistler Property, are entitled to notice of such a claim and to be given the opportunity to address the issue. It is their ownership ofthe assets, being the shares of the Company, that are being attacked by this argument and they may well have something to say about theclaim. [124] I draw the following general principles with respect to the issue of sham trusts in the family law context: 1.

Family trusts are subject to the requirement of having three essential characteristics of certainty of intention, certainty of subjectmatter and objects; 2. The concept of sham trusts applies to those trusts prepared to defeat spouses or that lack one or more of the three essentialcharacteristics; 3. The finding of a sham trust has been made in situations where the trust may be formally created or documented but the settlorretains total control and management thereby lacking the intent to transfer the asset to a trustee; 4.

Courts are reluctant to strike down family trusts that have been operating prior to the separation of the spouses, even incircumstances where the settlor retains considerable control, as they have a history or track record; and 5. Courts are reluctant to strike down family trusts that have a history and track record particularly where some of thebeneficiaries have not been notified of the application to strike down the trust which may affect their interests. [125] Counsel for the Wife submits that the Norman McIntyre Trust is a sham. There are a number of factors that support thissubmission: 1.

There has never been a payment to the children, or on behalf of the children since the trust was created on January 27, 2006,despite the opportunity to draw on it to send a child to Pearson College; 2. The Trustee has never opened a trust bank account, although he did open a bank account in his own name which he intended toconvert to a trust account but had not done so at the time of trial; 3. The Husband and the Trustee are close friends and kept the details and even the existence of the trust a secret until the 2009examination of the Husband; 4. No financial statements for the trust have been produced; 5.

The trust document was not disclosed to the Wife, a beneficiary, until she requested a copy in February 2013; 6. The Trust document was backdated to January 21, 2006, but was actually signed in 2008;

7. Neither the Husband nor the trustee can explain why there are clauses granting the trustee diminished liability and the power to add additional beneficiaries or the attempt to exclude payments to a beneficiary from his or her “net family property”; 8. The trustee carried a cheque for $700,000 in his pocket for six months during the pre-trial Judicial Settlement Conferences and the early months of trial; 9.

Although the Husband’s father is the settlor, it was the Husband that made a shareholder’s loan to 39055 that was not repaid until July 2012. [ 126 ] The “sham” quality of the trust can also be inferred from the secrecy surrounding the creation of the trust suggesting that it was less a real trust and more a means to deprive the Wife of her share of family assets. [ 127 ] On the other hand, there are a number of factors which tend to support the validity of the trust: 1.

The e-mail to Greg Fekete, the trust lawyer, dated January 27, 2006, confirmed that the trust was created before the separation on December 12, 2006; 2. The 1,000 Class A common shares of 39055 were issued to the trustee on January 30, 2006; 3. the Wife was aware that the Husband wanted to create a trust for the family; 4. The Wife was included as a beneficiary two years after separation; 5. The drafting of the trust document was requested on January 27, 2006, although it was not prepared until 2008; 6.

The trustee filed a trust return with the Canada Revenue Agency; [ 128 ] I also have to consider that the children, who are beneficiaries, did not receive any notice that the validity of the trust is in issue. [ 129 ] If the trust is declared to be invalid, the trust property reverts back to the settlor, the Husband’s father on behalf of the C. Group of Companies, although his participation in the trust appears to be minimal. The evidence, in my view, supports the fact that the Husband and Norman McIntyre were instrumental in creating the trust.

It was the Husband who named it the Norman McIntyre Trust and the Husband was the person that Norman McIntyre reported to during the creation of the trust. The use of the Husband’s father signature as settlor was more pro forma to give the trust the appearance of not being entirely at the instigation of the Husband. [ 130 ] These circumstances do not compare favourably to the valid trusts considered in the caselaw. The Anderson and E.J.R. v. K.D.A . cases are factually quite distinguishable from the case at bar for the following reasons: 1.

The Norman McIntyre Trust was not created early in the marriage for the benefit of the family and children; 2. The Norman McIntyre Trust was created in secrecy and not disclosed to the Wife; 3. The asset of the Norman McIntyre Trust was not used for any family purpose in its history from the date of separation to the date of trial. [ 131 ] In other words, this trust does not have the history, full disclosure and benefit for the family as found in Anderson and EJ.R. v. K.D.A. [ 132 ] Similarly, in Fisher v.

Fisher , the trust was in existence before the marriage and was quite independently owned by the wife’s mother through a corporation and not part of the husband and wife’s family assets. [ 133 ] Nevertheless, a declaration that the trust is void, while initially attractive, may have unintended tax consequences. It would deprive the children of their benefit. As well, the Norman McIntyre Trust was created during the marriage before separation, even if the Husband acted in a surreptitious and secretive way.

The “sham” attributes arise primarily from the secrecy of the Husband and the trustee in creating and operating the trusts, including the trustee’s conduct in not disclosing or cashing a $700,000 cheque. [ 134 ] I have concluded that the Norman McIntyre Trust should not be declared to be a sham, despite the conduct of the Husband and trustee in keeping the details and financial information from the Wife until she requested a copy of the trust agreement.

I find that the Husband and Wife had discussed the issue generally, and it would be unfair to visit the outrageous conduct of the Husband and Norman McIntyre on the children.

There are other ways to ensure that the Husband does not unjustly benefit from the trusts and to ensure that the Wife receives an appropriate share. “If and when” order [ 135 ] Counsel for the Husband submitted that it would be appropriate for the Court to make an “if and when” order so that if the trustee exercises his discretion to distribute income or capital directly or indirectly to the Husband, then he or she will hold 50% of the distribution in trust for the Wife. [ 136 ] The application of an “if and when” order arose in Grove v. Grove , [1996] B.C.J. No. 658 (S.C.) .

There, the husband had a contingent interest in a family trust created by his parents for the benefit of the husband, his siblings and their children. The trial judge found it to be a family asset and apportioned the interest in the amount of 80% for the husband and 20% for the wife, despite her having made no contribution to the trust. The court ordered the wife receive her share only upon the husband receiving his share. [ 137 ] The application of an “if and when” order in the case at bar has a different purpose.

In this case, the Wife has a legitimate concern that the assets of the Norman McIntyre Trust could be distributed to the Husband directly or indirectly or to additional

beneficiaries added by the trustee so that she and the children would be disadvantaged. I have concluded that an “if and when” order isappropriate in this situation to ensure that the trustee exercises his trust powers for the benefit of the children. Therefore, I order that ifthe Husband or additional beneficiaries receive a direct or indirect distribution from the Norman McIntyre Trust, including the $700,000dividend paid out in 2013, there must be an equal distribution made to the Wife.

I use the term indirect distribution to encompass anysituation where the distribution is made to the children and then gifted back to the Husband or another beneficiary. I also order thetrustee to give the Wife 30 days’ notice of any intended distribution including the name of the beneficiary and the amount to bedistributed. [138] I should add that the trustee has an obligation to provide all beneficiaries with financial statements of 39055 and the trust, as wellas CRA filings on an annual basis. I also order the trustee to immediately advise the Wife of the details of the Norman McIntyre Trustbank account.

I add that in making these orders, I do so for the protection of the children and the Wife and rely upon the trustee’sprofessional designation and integrity. [139] The Nahanni Drilling Bare Trust, on the other hand, does not have a trustee to whom the Husband’s shares have beentransferred. The trust property remains solely in the hands of the Husband. The beneficiaries have received no benefit from it, and Iconclude that the true intent was not to create a trust but to prejudice the claim of the Wife.

The certainty of intent is missing and I findthat the Nahanni Drilling Bare Trust is void. [140] In my view the assets of both trusts, valid or not, are family assets for reasons that follow. The Norman McIntyre Trust fallsunder s. 4(

b) of the Act: 4 In this Part, "family assets" means a family home as determined under

Part 2 and property owned by one spouse or both spouses andordinarily used or enjoyed by both spouses or one or more of their children while the spouses are residing together for shelter ortransportation, or for household, educational, recreational, social, or aesthetic purposes, and includes … (

b) if property owned by a corporation, partnership, or trustee would, if it were owned by a spouse, be a family asset, shares in thecorporation or an interest in the partnership or trust owned by the spouse having a market value equal to the value of the benefit thespouse has in respect of the property; … See Tratch v.

Tratch (1981), (BC SC), 30 B.C.L.R. 98 (S.C.), at para. 37. [141] However, as I have upheld the trust and created an “if and when” order, only the shareholder’s loan of $158,000 to 39055 needsto be divided equally between the Husband and the Wife. [142] With respect to the void Nahanni Drilling Bare Trust, the trust is void and the Wife shall receive one-half of the value of theHusband’s shares at $342,000, the value established by Mr. Welsh. THE C. GROUP OF COMPANIES [143] Another major issue in this trial is the Wife’s claim for a share of the Husband’s interests in the C.

Group of Companies and hisshareholder loans in them. As the Husband’s shareholding and shareholder loans in the C. Group of Companies are admitted to be afamily asset, it is acknowledged that the Wife will receive a share. The dispute is whether changes in the value of these assets betweenDecember 12, 2006, and the date of trial make the equal division of family assets inequitable. The value of the C. Group of Companiesincreased substantially between date of separation and date of trial.

Kluane Drilling Limited [144] Kluane Drilling provides diamond drilling services for mineral exploration companies in the Yukon and internationally. It ismanaged from Whitehorse but has a significant international focus. It owns three Longyear 38 drills built in 1986 valued at $50,000altogether. In 2006, three new drills were built in Whitehorse, valued at $360,000.

The drills are portable and can be transported toremote locations in the Yukon by helicopter or bulldozer. [145] The drilling business is cyclical and income depends on commodity prices and financing for junior exploration companies.Kluane Drilling is very profitable when commodity prices are strong. [146] Internationally, Kluane Drilling initially had a joint venture with another drilling company called Energold and had drillingoperations in Ecuador, Guatemala, Brazil, Peru and the Dominican Republic with minor operations in Zambia and Vietnam.

Neitherparty was satisfied with the arrangement and in 2006, the international assets were divided up. Kluane Drilling received the Ecuador andGuatemala drilling operations. [147] To give some perspective of the success of Kluane Drilling, the shareholders’ equity was $6,061,216 as at January 31, 2007, and$44,130,237 as at January 31, 2013.

Nahanni Drilling Ltd. [ 148 ] Nahanni Drilling, which is primarily owned by Kluane Drilling, was incorporated in 2005 to seek mineral and drilling opportunities in China. It generated revenues in excess of $4.5 million in 2006, in no small part due to the management of the Husband who travelled an average of 30 – 40 times to China from 2005 to 2009. Most of the Chinese business was generated in the summer of 2006 but has since declined rapidly because of difficulties of operating in China. C. Holdings Ltd. [ 149 ] C.

Holdings is a holding company with no assets except for advances to related companies and common shares of Kluane Drilling and H. C. and Sons. H. C. and Sons Ltd. [ 150 ] H. C. and Sons is a Yukon-focussed business consisting of gravel and construction operations. It has heavy duty equipment and is wholly owned by C. Holdings. It has an interest in the Peruvian operations of Kluane Drilling and owns industrial real estate in Whitehorse. It is the company built up by the Husband’s father.

Its shareholders’ equity was $5.12 million as at January 31, 2007, and $2.17 million as at January 31, 2013, as a result of a capital dividend of $1.49 million in 2009. Loucheux Enterprises Ltd. [ 151 ] Loucheux Enterprises owns industrial real estate in Whitehorse. It generates most of its income from renting loaders and gravel crushing equipment to other C. companies. Old Crow Industries Ltd. [ 152 ] Old Crow Industries began as a barite crushing mill and acquired its major asset, a crushing mill in Ross River, in 1997. Barite is used in oil and gas drilling.

This corporation is no longer in the barite milling business but rents equipment to other C. companies. Nahanni Paving Ltd. [ 153 ] Nahanni Paving owns an asphalt plant, asphalt paver, rollers and other assets. It was 50% owned by the family and is not active. THE VALUATION OF THE C. GROUP OF COMPANIES [ 154 ] Because January 31 is the year-end for most of the companies, January 31, 2007, is a useful reference date for valuation as it is close to the actual separation date of December 12, 2006. Similarly, I will fix the date of trial value at January 31, 2013.

The Husband’s management role and minority discount [ 155 ] There has been some disagreement between the Wife and the Husband as to the role that the Husband has played in the daily operations and success of the C. Group of Companies, which is a C. family operation. Mr. Welsh reports that: The job responsibilities for each […] brother is not clearly defined, but in general terms, [the Husband] oversees the financial and administrative end of the […] businesses. [D.] is on the ground in the Yukon dealing

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