Judge Drains Company of Funds, but Appeal Court Reverses

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There are times, thankfully not too often, where judges go way too far and make orders that are well beyond precedent and practice. One such case is Warde v. Slatter Holdings Ltd. 2016 BCCA 63.

When Elaine Warde and Brian Slatter separated, Ms. Warde brought a family law claim against her husband, and a company, Slatter Holdings, owned by his mother Fern Slatter. She also named Fern Slatter as a party. Ms. Warde alleged that Fern held shares of the company in trust for Brian which were divisible family property. Mr. Slatter had worked for the company and at one time Elaine and Brian were named directors. Of course, that changed when their marriage collapsed.

At the time of separation the Company had assets totaling approximately $1.9 million. The assets included funds in the company bank account of $749,147, an accounts receivable of $750,000, equipment valued at $260,000, and two R.V. lots with a value of $130,000.

After filing her Notice of Family Claim Ms. Warde obtained without notice orders against the company and her husband, as follows:

1. Pursuant to section 91 of the Family Law Act, Brian Grant Slatter is:

a. restrained from disposing of any property at issue in this proceeding; and

b. prohibited from disposing of, encumbering, assigning, transferring, converting, exchanging into another form, or in any similar manner dealing with property in which the Claimant has or may have an interest, pending final determination of this action, without the consent in writing of the Claimant or further Order of this Court;

2. Pursuant to the Business Corporations Act [SBC 2002] Chapter 57, including section 228, the Respondents Brian Grant Slatter and Fern Slatter are prohibited from contravening section 301 of said Business Corporations Act, and:

a. Brian Grant Slatter and Fern Slatter are directed to refrain from contravening said provision; and

b. Slatter Holdings Ltd. is enjoined from selling, assigning, transferring, encumbering, or otherwise disposing of property, rights or interests;

After the restraining orders were made, Ms. Warde was provided copies of the general ledgers and was kept informed of company matters, including the repayment of shareholder’s loan to Fern Slatter. The company also wrote several other cheques from company funds but claimed solicitor/client privilege over their details.

As a result, Ms. Warde brought an application asking for a declaration that the company and the respondents had breached the restraining orders; that no further funds be accessed by the respondents; and that the remaining funds be paid into court. The chambers judge acceded to Ms. Warde’s requests and ordered the company to pay all of its remaining funds into court. She also awarded special costs against the company.

The Court of Appeal granted leave to appeal and then allowed the appeal, finding that Ms. Warde’s application was miscast from the outset. Rather than seeking orders for contempt of court, Ms. Warde cited Rule 20-4 (1) of the Supreme Court family rules:

(1) A proceeding is not open to objection on the ground that only a declaratory order is sought, and the court may make binding declarations of right whether or not consequential relief is or could be claimed.

The Appeal Court noted that declarations could not be ordered on an interlocutory basis; neither could they be obtained to condemn previous conduct. The correct approach was a contempt application pursuant to Rule 21-7.

The Appeal Court also reviewed the provisions of the Business Corporations Act under which the company had been restrained and found that the company’s use of corporate funds did not constitute a breach.

The Appeal Court reversed all orders made by the chambers judge and ordered that the corporate funds paid into court be returned to the company, with costs of the breach application and the appeal awarded to the company.

The unusual aspect of this case is that what should have been a straight-forward contempt application, frequently brought in family law cases, became convoluted because counsel incorrectly sought a declaration and the judge followed along.

Lawdiva aka Georgialee Lang

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