Does Failing to Report Cash in An Antique Business Spell Reduced Support Obligations?

Three Ontario Superior Court of Justice cases reported over the past two years, confirm what I had suspected as a consequence of practicing family law for close to 20 years:

Those who earn money in the antique business and fail to report that income, or consistently show business losses, stand a fairly good chance of either avoiding paying full support to their former spouses, or unfairly receiving support.

Just over a year ago I reported the case of Hewitt v. Hewitt, about a husband who had been an auction assistant, a garage sale operator and a picker for antique stores and auctions. At trial his evidence was deliberately obtuse and he was evasive and deceptive. The judge found that he only sporadically, and then inaccurately, reported his income to the tax authorities. The court could not get an accurate handle on what Mr. Hewitt was actually earning. The judge imputed income to Mr. Hewitt for support calculation purposes, of only $20,000 a year, total income before deductions for tax and sundry reductions.

Mr. Hewitt’s wife was ordered to pay him spousal support of $900 per month. At that time I suggested that Mr. Hewitt was being rewarded for his lies, deception and failing to report income. Since then I have come across two other Ontario cases which further indicate to me that the courts are not prepared to delve too deeply into the income earning of people in the antique business, and simply assume that the profits cannot be all that great (i.e.” If he’s not declaring income, then how can he really be earning that much money?”)

In Fyfe v. Jouppien, the husband claimed entitlement to interim support from the wife, at least pending trial of the matrimonial proceeding. Motions for interim support are generally based on affidavit evidence, and only at trial do witnesses take the stand when the full picture emerges.

At the motion for interim support Ms. Fyfe wanted to prove that Mr. Jouppien was earning money from appraising antiques and historical buildings, which he was not reporting to Canada Revenue Agency. She attached evidence (exhibits) to her affidavit, including the following:

• An article from the Welland Tribune website which indicated that Mr. Jouppien was appraising antiques 
• A printout from the Welland Tribune website which indicated that he was providing expert appraisals at the Port Colborne Historical and Marine Museum and that he was a member of the Appraisers Guild of Ontario 
• A printout from the website for Niagara This Week which indicated that he was appraising antiques at a museum in Thorold

Although Mr. Jouppien addressed other allegations against him regarding earning income, he did not reply to the allegations of making money carrying out appraisals of historical items. His lawyer told the court that any money earned from this type of undertaking would be so minor as to not be worthy of note.

The judge stated that although he may be earning more income than what had been declared (his disability benefits of $7,120 annually), “a motion is not the arena in which to make difficult decisions about credibility, and in any event there is insufficient evidence before the court upon which to impute income to him.” Generally speaking, motions are very important proceedings because most cases settle before trial, often based on something close to what motions court judges have decided.

In Elcich v. Olecka, Mr. Elcich wanted to terminate a support order made in 2002. The order provided that he could not apply to change support until after December 1, 2007. In 2008, Mr. Elcich retired from General Motors on a $40,000 per year pension. At the time of the hearing Mr. Elcich was 61. Ms. Olecka was 49 and employed as a cook, earning $34, 358 per year. At some point her income was reduced and she had supplementary income from employment insurance.

Mr. Elcich alleged that Ms. Olecka had income from an antique business. Ms. Olecka stated she had been losing money in the business for many years, and that her tax returns confirmed it. In fairness, she alleged extra income earned by Mr. Elcich as well. But the point is that the judge stated that total income from these additional sources (i.e. the antique business which supposedly was a losing proposition for several consecutive years … at least on paper), “in any, is negligible and as a result the court discounts such income entirely.” The judge ordered Mr. Elcich to continue paying unreduced spousal support for a further two years. Who keeps carrying on business, year after year, all along truly losing money?

The conclusions which can be drawn from these cases are:

• In order to prove that your ex is earning a reasonable or any income from the antique business, you require extremely compelling evidence 
• It’s doubtful that the evidence will come to light except at a trial Even after a trial, it’s unlikely that a judge will attribute or impute the true level of income earned from the antique business 
• If your marriage is on the rocks, and you’re in the antique business, consider staying in it.

- Alvin Starkman, Oaxaca, Mexico

Alvin Starkman received his Masters in Social Anthropology in 1978. After teaching for a few years he attended Osgoode Hall Law School, thereafter embarking upon a successful career as a litigator until 2004. Alvin, a good-standing member of the Law Society of Upper Canada, now resides with his wife Arlene in Oaxaca, Mexico, where he writes, leads small group tours to the villages, markets, ruins and other sights, is a consultant to documentary film production companies, and operates Casa Machaya Oaxaca Bed & Breakfast.

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Car Auction Reveals Seedier Side of Humanity: “A Friend of a Friend is Not Necessarily Your Friend”

In writing trial decisions, judges are typically careful describing witnesses, in an attempt to maintain the utmost professionalism as impartial arbiters of fact and interpreters of law.

Imagine, then, the case before The Honourable Mr. Justice J.W. Quinn, which compelled him to describe defendant Gurnek Singh, as:

• unblinkingly dishonest
• no aptitude for the truth
• without a conscience
• a devious man

The May 7, 2010 decision of the Ontario Superior Court of Justice in Pirbhai v. Singh et al, 2010 ONSC 2446 (CanLII), also contains several colourful words and phrases to describe how Mr. Singh gave his testimony – evasive, non-responsive, maddeningly unwilling to respond to the simplest of questions, told untruths too numerous to catalogue and insulting in their breadth.

Given the foregoing, there is no need to even mention Mr. Singh’s version of the facts. I’ll restrict my comments to the “truths,” based on a balance of probabilities as determined by Judge Quinn.

The plaintiff, Kalimuddin Pirbhai, is a medical doctor from St. Catharines. He wanted to buy a used, high-end motor vehicle. A friend told him that he had a friend (Mr. Singh) who had access to automobile auctions. Dr. Pirbhai and Mr. Singh spoke, and agreed that Mr. Singh, who owned a motor vehicle sales outlet and auto collision centre, would buy such a car at a Stouffville auction of damaged motor vehicles.

The purchased vehicle turned out to be a 1998 Lexus. The parties agreed that Dr. Pirbhai would pay Mr. Singh the auction price, plus repair costs of $5,000. Mr. Singh assured Dr. Pirbhai that $5,000 could put the vehicle into “showroom condition.”

Dr. Pirbhai was not allowed into the auction premises pursuant to auction house rules. He had his wife and son wait outside while Mr. Singh was bidding. Mr. Singh bought the Lexus for $27,065.65, but told the Pirbhais that it cost $32,913.20. After the auction had ended, Dr. Pirbhai’s wife and son provided Mr. Singh with the requested cheque, having no idea of the actual purchase price. Unbeknownst to Dr. Pirbhai, Mr. Singh used the difference between what he really paid for the Lexus, and what Dr. Pirbhai paid him, to buy a second car at the auction for himself or his company.

After Mr. Singh had received payment from the Pirbhais, the wife and son saw the Lexus for the first time. At trial Mrs. Pirbhai described the car as simply dirty, filthy and damaged. The Pirbhais had no idea of the true extent of the damage. It was at that point that Mr. Singh soothingly reassured them that he could put it into “showroom condition” for $5,000. But at the auction, Mr. Singh had been provided with a four page damage estimate showing that $24,919.69 in repairs was needed. He secretly kept that document from his prey and instead told them that $5,000 would do the trick.

Apart from paying the agreed $5,000 for repairs, Dr. Pirbhai paid an additional $7,000, and then a further $3,000 to Mr. Singh. Mr. Singh demanded the extra payments. Mrs. Pirbhai testified that she and her husband felt “trapped,” having already invested so much money in the vehicle.

Subsequently Mr. Singh arranged for an auto body repair shop to fraudulently certify that the vehicle was structurally safe. Then he had Dr. Pirbhai sign two partially blank vehicle purchase agreements, which ended up showing the purchase price as $50,000. According to Judge Quinn, the agreements were “fraudulently created and altered” by Mr. Singh “in a clumsy attempt to contractually extort $50,000 from the plaintiff.”

Dr. Pirbhai made a final payment of $4,735 to Mr. Singh, before he would release the Lexus. Thereafter the Pirbhais realized that the car had not been properly repaired. Dr. Pirbhai had it test driven and evaluated by a Lexus dealership. He took the vehicle back to Mr. Singh and was assured that he would be refunded the purchase price on the basis that Mr. Singh intended to re-sell the car. It never happened.

Mr. Singh’s deception continued for months. Dr. Pirbhai eventually secured three reports which outlined the full extent of the still existing serious damage to the Lexus. For example, the author of a report which analyzed the Lexus using a specialized piece of equipment that measures deviations from manufacturers’ standards, gave evidence that of the 4,000 inspections performed by his centre, the deviations on the Lexus were among the worst. Armed with the reports, Dr. Pirbhai began his court action.

The judge awarded the plaintiff damages against Mr. Singh and his companies of $33,465.77 for breach of contract, deceit and misrepresentation, plus interest and costs. In addition, he ordered them to pay Dr. Pirbhai the sum of $50,000 for punitive damages. Punitive damages are reserved for those rare cases where a defendant’s conduct can be described as, according to the authority quoted by Judge Quinn, “malicious, high-handed, arbitrary, oppressive, deliberate, brutal, grossly fraudulent, evil, outrageous, egregious, callous, disgraceful, willful, wanton, in contumelious disregard of the plaintiff’s rights, or in disregard of ‘ordinary standards of morality or decent conduct’.” Judge Quinn wrote that at least 12 of these descriptions applied to the conduct of Mr. Singh.

Counsel for the plaintiff advised me that a decision has not yet been released regarding the amount of costs awarded to Dr. Pirbhai, but that the defendants have filed a notice of appeal, meaning that unfortunately for Dr. Pirbhai, the case is not yet over. Pirbhai v. Singh et al. took just over ten years from commencement of proceedings, until judgment. Hopefully it won’t take another ten years for Dr. Pirbhai to receive payment.

Mr. Justice Quinn began his decision with the words, “a friend of a friend is not necessarily your friend,” a life lesson for all of us.

- Alvin Starkman, Oaxaca, Mexico

Alvin Starkman received his Masters in Social Anthropology in 1978. After teaching for a few years he attended Osgoode Hall Law School, thereafter embarking upon a successful career as a litigator until 2004. Alvin, a good-standing member of the Law Society of Upper Canada, now resides with his wife Arlene in Oaxaca, Mexico, where he writes, leads small group tours to the villages, markets, ruins and other sights, is a consultant to documentary film production companies, and operates Casa Machaya Oaxaca Bed & Breakfast.

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Auction Rights and Obligations Clarified, Expanded

How can a bison auction possibly be relevant to antique collectors?

A 2007 Saskatchewan Court of Appeal decision broadened the liability of auction houses regarding their obligations to purchasers, and summarized the law concerning the three main legal relationships within the auction context.

In Saskatoon Auction Mart v. Tkachuk, Taras Tkachuk bought 31 bison through Saskatoon Auction Mart (SAM). Within 2 months several animals died from disease caused by a virus contracted while they were at the auction premises. Three days lapsed between when the bison arrived at SAM, healthy, and their removal by Mr. Tkachuk, highest bidder. Tkachuk sued SAM. The judge concluded SAM did not take reasonable care housing the bison so as to prevent infection, and awarded Tkachuk $26,225. SAM appealed, but the appeals court upheld the decision.

SAM was exploring the possibility of a new venture, bison auctions. It hired Mr. Wojciechowski, an experienced bison producer, to supervise animal handling. Wojciechowski cautioned SAM’s president, Mr. Blacklock, that mixing sheep and bison could cause a deadly disease in bison. A virus which resides in sheep, while not fatal to them, is lethal to bison. SAM kept sheep in a different part of its premises from where it housed the bison. Blacklock either didn’t heed the advice he received, or thought that physical separation was enough. Nor did he consult a veterinarian to determine the warning’s validity or about available protective measures. Between when the bison were brought to SAM by their owners, and when Tkachuk removed them, they became infected. The plaintiff’s expert testified that the virus is transmitted through the air, and that when bison and sheep are corralled within 1,000 feet of each other, the result may be fatal.

The first relationship within the auction context is between the owner of goods and the highest bidder. The owner agrees to sell, and the purchaser agrees to pay a price. The auctioneer is merely the vendor’s agent. The second is the contract between the owner and the auctioneer, stipulating terms including commission, no buy-backs, etc. The third is the contract between the auctioneer and the purchaser, the auctioneer agreeing to release the goods once paid for. Each relationship has nuances and is marked by a series of rights and obligations of each party.

In this case, the third relationship was puzzling. We know that once the bison had been sold, a contract existed between the auctioneer and the purchaser, called bailment for hire. SAM had an obligation to Tkachuk to ensure that the bison were appropriately looked after until he removed them, in exchange for which SAM earned a commission. But it was never determined if the bison developed the disease after purchase by the plaintiff or before the fall of the hammer. If it was before, there was no bailment relationship between the auctioneer and Tkachuk because Tkachuk didn’t own the animals yet.

The appeals court reasoned it didn’t matter when the former high priests of the plains became ill. Between when an auctioneer receives goods, and when they are picked up by their purchaser, the auctioneer must take reasonable care. SAM argued that the judge set the standard too high, based on a practice neither widely accepted nor published (the evidence of the veterinarian and Mr. Wojciechowski). However the court said the auctioneer had enough knowledge to do more than it did (merely separate the species). Generally speaking, an auctioneer of a particular commodity is presumed to have an exacting knowledge of it, and know about its care while in his possession, unless he expressly states otherwise (i.e., “as is, where is, no warranty as to use or condition”).

According to the Court of Appeal, SAM had a duty to heed Wojciechowski’s warning, investigate further, and seek professional advice. This was an implied term of the contract between SAM and Tkachuk, the reasonable care to be taken. In a contract, written or oral, it’s not always possible to confine the terms to those expressly stipulated. There are circumstances where a court may conclude that everything agreed by the parties which appears to constitute the contract, is not only contained in their documents or statements. Sometimes additional terms must be implied. While some courts favour a restrictive approach to implying terms, it’s often necessary to give business efficacy to agreements.

Tkachuk wouldn’t have succeeded suing the vendors of the bison because they did nothing wrong. Nor would he have prevailed against the sheep owners, because the virus is common in sheep, and their owners didn’t have knowledge of SAM’s practices or procedures. His only recourse was against the auctioneer, even though there was no express term about what steps SAM would take to ensure Tkachuk received healthy animals.

This case is rare because not often are goods damaged as a result of an auctioneer’s negligence. Usually bidders learn of defects through visual inspection or the auctioneer’s disclosure when an item is put on the block. The auctioneer’s statements at the beginning of this auction, and terms contained in his flyers about “no warrantees,” could not be binding on a purchaser such as Tkachuk. Why: The most careful bidder’s eye could never have detected this problem. Sometimes you have to rely on your auctioneer to have been doing the right thing. Nothing he says or does can reduce or over-ride his liability if a judge determines that the auction rules contain a contrary implied term.

Parallels exist within the antiques context: What is the reasonable care of a particular class of collectible within an auctioneer’s temporary care, which he must take? Would any buyer bid on an item knowing that the auctioneer had not taken proper care of it? The standard, and therefore the implied term, will vary depending on the nature of the antique, and the particular auctioneer and his reputation in the community.

A decoy auction advertises a rare J.R. Wells mallard in exceptional condition, pictured in the catalogue. It’s the annual Schmidt-Guyette sale at St. Charles, Illinois, attended by continent-wide collectors. The consignor delivers the decoy and all is well, until a new employee places the bird, pending auction, beside a furnace. A crack develops, not noticed by the auctioneer’s staff. Auction attendees see the crack and bid accordingly. However a phone bid takes the decoy. Gary Guyette and Frank Schmidt are expert North American decoy auctioneers and appraisers. Are they liable for failing to ensure the decoy was not exposed to extreme heat? Would the crack have developed regardless? Any different if it was a contemporary decoy which had not already been cured through decades of temperature and humidity fluctuations? What if the auctioneer was John Simpson who conducts sporting collectible auctions and usually sells a few decoys? What about an auctioneer specializing in urban and rural estate auctions? Knowing John, Gary and Frank, no doubt each practices proper employee training procedures, and in the unlikely event that something untoward occurred, they would do the right thing. In fact a somewhat similar incident happened to me years ago at the Illinois auction, and management rectified the problem on the spot. This hypothetical with its permutations illustrates the difficulty in stating hard-fast rules. But we now know some factors used to determine the standard of care to which an auctioneer may be held accountable.

An auctioneer’s duty of care is one of a number of obligations in the auctioneer – purchaser relationship. To whet the appetite for future auction articles, let’s conclude with another example: Our estates auctioneer sells a cranberry epergne. There’s an article on the internet about contemporary versions of Victorian glass. By chance the winning bidder reads it and has a glass expert confirm his suspicions: It’s a reproduction. Should “buyer beware” govern? What if the auction was advertised as Smith’s Monthly Antique Auction? Is Smith protected by his boilerplate limitation of liability in his advertisements?

AUTHOR’S NOTE: Taras Tkachuk, our winner in this case, is the same Taras Tkachuk who lost against Ritchie Bros.

- Alvin Starkman, M.A., LL.B, Oaxaca

Alvin Starkman received his Masters in Social Anthropology in 1978. After teaching for a few years he attended Osgoode Hall Law School, thereafter embarking upon a successful career as a litigator until 2004. Alvin, a good-standing member of the Law Society of Upper Canada, now resides with his wife Arlene in Oaxaca, Mexico, where he writes, leads small group tours to the villages, markets, ruins and other sights, is a consultant to documentary film production companies, and operates Casa Machaya Oaxaca Bed & Breakfast.

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