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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This Week at the Ontario Court of Appeal: 11-10-14

Each Week, Wise Law Blog reviews recent decisions from the Ontario Court of Appeal.

Ireland v. Ireland

This case involved a mother's resistance to the enforcement of a foreign custody order. The Superior Court of Fulton Country in the State of Georgia granted sole legal custody of the parties' children to the respondent father. The appellant failed to attend the Georgia Court but she was given an opportunity to participate via Skype. However, Tuscon J. stated that the appellant neglected to locate a computer to access Skype.  As a result,  she failed to present any evidence establishing that awarding her sole legal and physical custody of her children would be in their best interests.

The following month, the appellant filed an application in the Ontario Superior Court of Justice for custody of the parties' children, child support and a restraining order.  Her position was that the children would suffer serious harm if they were returned to the respondent because they had allegedly previously been subject to physical and emotional abuse during the parties' relationship. The respondent moved to have the order of Tuscon J. of the Georgia Court recognized and enforced in Ontario pursuant to s.41 of the Children's Law Reform Act. The appellant applied for and was granted an adjournment on March 24, 2011 until April 7, 2011, to the motion in order to give her time to retain counsel. During the intervening period, the appellant applied to the Superior Court for another adjournment on the basis that she wanted to change the venue of the hearing from Oshawa to Toronto, which was rejected by the court. 

The motion proceeded on April 7, 2011 and Ferguson J. enforced the Georgia Court's order. The mother was ordered to surrender the parties' children to the father. The mother subsequently appealed Ferguson J.'s enforcement of the Georgia Court's order and her decision not to allow her to present viva voce evidence during the aforementioned motion.

The Court denied the appellant's request for an order that she be permitted to request various organizations to provide her with copies of all documents relating to her, the respondent, or their children. The Court noted that the appellant failed to request the documents at the appropriate stage in the proceeding and her litigation tactics unnecessarily expanded and slowed the proceedings. Moreover, if the Court permitted the documents, the appellant would have to make a fresh evidence application to have them admitted on the appeal.  The Court held that the documents would not meet the test for the introduction of fresh evidence on appeal, set out in R v Palmer.

The Court granted the respondent's motion for security of costs and ordered the appellant to pay the respondent $10,000.00 in costs, holding that her appeal was devoid of any merit and noting her pattern of delaying and expanding litigation.

Canadian Broadcasting Corporation v. Ontario

The Canadian Broadcasting Corporation ("CBC") had applied to the Superior Court for an order granting it access to a video that was entered as an exhibit at the 2008 bail hearing of the appellant Ishak Omar.  The Ontario Court of Justice had custody of the video. The application judge granted CBC access to the video on the condition that it would obscure Mr. Omar's identity in any subsequent use of the video. Mr. Omar appealed the order.

The CBC moved to quash the appeal on the basis that the Court had no jurisdiction and that Mr. Omar's appeal is to the Supreme Court of Canada with leave from that court pursuant to the Supreme Court Act. The appellant submitted that the appropriate forum for this appeal was the Ontario Court of appeal under s.6(1) of the Courts of Justice Act.

The Court dismissed the respondent's motion to quash the appeal. The Court's jurisdiction to hear the appeal turned on the characterization of the proceedings before the application judge. If the appeal was civil in nature then the Court of Appeal has proper jurisdiction.  However, if the proceeding was characterized as criminal, the appellant's only route is to the Supreme Court of Canada with leave of that court. Counsel for the respondents argued that the video came into possession of the Ontario Court of Justice in the course of a criminal proceeding and that this application was treated as a criminal matter in the Superior Court.  The appellant characterized the proceedings as civil, as the CBC sought access to his property. In rejecting the respondent's arguments, the Court noted that that the order under appeal was not made in the course of a criminal proceeding and had no effect on any ongoing criminal proceeding. Moreover, the Court stated that the appellant's fair trial rights were no longer at play and that the order under appeal did not rescind or vary any order made in the appellant's criminal proceedings which concluded in 2009.  Therefore, the Court concluded that the appeal was properly brought to the Court of Appeal pursuant to s. 6(1) of the Courts Justice Act.

Donley Investments Limited v. Canril Corporation

The appellants, Canril Corporation, appealed a judgment of the Superior Court of Justice holding it liable in negligence and nuisance for water damage caused to the neighbouring basement of the respondent Donley Investments Limited.  The appellants submitted that the trial judge erred both law and in fact.  The Court agreed with the appellant's position and set aside the trial judgment and ordered a new trial.

The Court of Appeal held that the trial judge made three significant legal errors. The first  occurred when the trial judge erroneously shifted the burden of proof onto the plaintiffs to rebut the presumption of negligence when in fact there was no scientific confirmation of causation that water flowed from the appellants' building to the respondent's premises.

The Court found that the  trial judge made a further, substantial legal error when she held that the appellants had owed a duty to the respondents to join them in their claim against the City for the water infiltration that occurred in February 2003. Both the appellants and respondents' buildings were infiltrated with water as a result of an open city water main. The appellants made a claim against the City for the damage to their basement and suggested that the respondent follow suit.  The respondent failed to adhere to the appellant's request.  The Court stated that they did not see any legal basis for the trial judge's imposition of a duty to assert its claim.

Additionally, the appeal court ruled that  the trial judge erred in her causation analysis. There was no scientific evidence establishing a causal link between the damage to the respondent's building and any wrong committed by the appellants.  The trial judge made no reference to the "but for" test for causation in her reasons for judgment. Instead, the trial judge applied a more lenient test for causation applied in Athey v. Leonati. The Court asserted that the trial judge's omission in applying the standard "but for" test for causation was not justified.

- Alim Ramji, Toronto

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This Week At The Ontario Court of Appeal: 11-09-27

Each week, Wise Law Blog reviews recent decisions from the Ontario Court of Appeal.  Commencing this week, Alim Ramji, a student-at-law with Wise Law Office, takes over the Court of Appeal beat. 

Beck v Beckett

The appellant, Brenda Beck appealed the judgment of Magda J. concerning child and spousal support under the Family Law Act, R.S.O. 1990.

Issues raised by the appellant:

1. The amount of income imputed to the respondent, Daniel Beckett
2. Entitlement to Child Support and Spousal Support
3. The trial judge's decision to refuse to make an order for lump sum spousal support
4. Leave to appeal the costs order made by the trial judge

Background

The appellant and respondent commenced living together in 1984. The parties were never married, but this was a traditional relationship.  They had two children together ages 21, and 19.  When their children were born, the appellant left her job at Woolco look after them.  The family's primary source of income was the respondent's full-time employment at General Motors (GM).  The parties separated in September 2006.

The respondent's annual income from General Motor's was approximately $73,000.00 and he had accrued a substantial pension of approximately $400,000.00 during the period of the parties' relationship.

A significant point of contention in this appeal was the respondent's decision to take voluntary retirement from GM in April 2007 at the age of 49.  The respondent received a severance package in the sum of $70,000.00.  He chose not to pursue further employment opportunities and instead decided to live off his pension benefits.

In October 2008, the parties sold their house for $480,000.00 and the appellant received $125,000.00 from that amount.  After the parties' sold their house, the respondent continued to not pay child or spousal support and discontinued paying the home expenses. The respondent's share from the house remained in trust pending the outcome of this proceeding.

The trial was scheduled to commence in May 2009 but was adjourned at the request of the respondent.  Roswell J. ordered that the respondent pay child support in the amount of $666.00 per month based on an imputed income of $73,000.00.

In 2010, the appellant's income was $48,118.00 and the respondent was earning $41,768.00 from his pension.

Law & Analysis of Key Issues:

Imputed Income

If the respondent were laid off, his income would drop below what he would be entitled to receive from his pension if he decided to take the retirement package that was offered by GM.  The trial judge accepted the respondent's evidence concerning these risks. He held that some income must be imputed to the respondent since he made no attempt to find any employment to supplement his pension income.  Some factors that were considered was that he was 53 years old with a Grade 10 education. Thus, the trial judge imputed an income of $19,760.00 per year for minimum wage work. Coupled with the respondent's pension income, this brought his total income to $61,528.00.

The appellant submitted that the trial judge erred in only imputing income to the respondent on the basis of minimum wage skilled employment.  During trial, the parties failed to adduce evidence about employment prospects in the Oshawa area.

The Court of Appeal found that the appellant's own evidence tended to support the trial judge's conclusion.  The only employment opportunities that the she was aware that might suit the respondent were mainly minimum wage positions. Therefore, the Court decided not to vary the order of the trial judge.

Child and Spousal Support

The trial judge found that the respondent was entitled to child support in the amount of $570.00 per month, but no spousal support was awarded because the appellant had 54.7% of the parties' net disposable income at that time. 

In regard to the parties' youngest child, the trial judge found that he lived with the respondent for 21 months from May 2007 to March 18, 2009. Therefore, the respondent was entitled to be credited for child support he should have received from the appellant in the amount of $7,438.00.  Taking into account the amount of child support that the respondent failed to pay for the months of April and May 2009, the respondent was to be credited with a net amount of $6,208.00. In its review of the trial judge's decision, the Court found that the trial judge failed to take into account that the older son was living with the appellant for the entire time post-separation and that both children lived with the appellant for some periods of time.

The Court of Appeal noted that the respondent failed to make any child support payments ($666.00 per month) in accordance with the the trial judge's order. The Court ordered that the respondent pay these child support payments out of the funds currently held in trust before the funds were to released to the respondent.

The trial judge declared that the appellant could apply for spousal support once the respondent was no longer obligated to pay child support for the youngest child.  The youngest child no longer was a dependent as of November 2010.  Thus, the Appeal Court varied the judgment to eliminate the order for child support and replaced it with an order for spousal support at the rate of $433.00 per month (mid range of the Spousal Support Advisory Guidelines). The spousal support award, retroactive to November 2010, was also to be paid from the trust funds.

Lump Sum Support Award

The appellant argued that there was a real risk that the respondent would not comply with an award of periodic support payment.  One reason for this belief was that the respondent did not pay a costs order made by Roswell J.  Secondly, he did not make any child support payments ordered by the trial judge. The trial judge refused to make a lump sum payment.  Reference was made to Davis v. Crawford, where in discussing the suitability of a lump sum payment, the Court noted that,

One important consideration is whether the payor has the ability to make a lump sum payment without undermining the payor's future self-sufficiency.  

The Court in Davis also stated that most spousal support orders will be in the form of periodic payments but a lump sum award can supplement an award of periodic support.

The Court of Appeal held that the unpaid costs order was relatively small and the respondent had otherwise complied with  previous court orders. The Court also found that once the respondent was permitted to gain access to the funds in trust, it is reasonable to believe that enforcing a periodic support order would not be an issue.

Costs

The trial judge found the respondent was successful on the appellant's claim for lump sum spousal support and his claim for retroactive child support for their youngest child.  Moreover, the trial judge felt the appellant's position on imputing income in the amount of $73,000.00 per year was "patently unrealistic" and "inappropriate". The respondent was awarded costs in the amount of $15,000.00.

The Court of Appeal found the trial judge's characterization of the appellant's position to be an error in principle and stated that it should not have been a factor in fixing costs of the trial.  Therefore, the Court  granted leave to appeal the costs award and reversed the costs Order, holding that the parties were to bear their own costs of the trial.

Disposition

Rosenberg J.A. allowed the appeal in part as follows:

1. The order of child support was to be terminated as of November 30, 2010;
2. The respondent was to pay to the appellant spousal support as of December 1, 2010 in the amount of   $433 per month;
3. Term 4 of the Order requiring the appellant to pay child support arrears was deleted;
4. Term 9 of the Order was varied to require that arrears of child support and spousal support payable by the respondent was to be paid out of monies held in trust before the funds were released to the respondent

- Alim Ramji, Toronto

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Ontario Court of Appeal: McNamee v McNamee, 2011 ONCA

McNamee v McNamee - an interesting analysis of "gifts" that may be excluded from calculation of net family property under s. 4(2) of the Family Law Act.

Facts

Clayton McNamee, appellant, and Connie McNamee, respondent, were married for 18.5 years with their marriage conducted as an equal partnership by all accounts. The parties separated on August 5, 2007.

Mr. McNamee Sr. owned a concrete trucking company. In 1988, he invited his two sons, Clayton and Trevor to join his company to establish a constructional division and sales divsion respectively. The company became very successful, with annual sales of more than 5 million. Mr. McNamee Sr. controlled the business side and made the major financial decisions.

In 2003, acting on the advice of his lawyers, Mr. McNamee Sr. implemented a corporate freeze in order to protect his business from creditors and limit his taxes upon death. This was achieved by folding the business into a holding company, "Holdco"and freezing the value of the business at 2 million. He subsequently transferred his only two common shares in his concrete company to Holdco in exchange for 20,000 voting shares valued at 2 million. Moreover, he subscribed for 1000 common shares for an amount of $1 and transferred 500 shares to each of his sons.

The key issue is whether this transfer of shares to his son Clayton McNamee constituted a gift.

Mr. McNamee Sr. was determined not to let anyone get a hold of the shares he transferred to his sons without his approval. He also took actions to guard against any of the shares becoming part of any joint property in the event that his sons experienced a breakdown in marriage. For instance, as part of the estate freeze, Mr. McNamee Sr. retained complete control by ensuring that his preference shares were voting shares.

Declaration of Gift

There were two conditions that Mr. McNamee attached to the declaration:

1.) In the event of a marital breakdown, neither the shares nor any increase in the shares would form part of donee's NFP in the event of a divorce

2.) The donee was to be in sole control of the shares without any interference from his spouse

The actual Declaration of Gift was as follows:

DECLARATION OF GIFT

I, John McNamee, of the Village of Jasper, in the Province of Ontario, am the owner of 1000 Common Shares in the capital of [Holdco] (the “Property”)

I desire to gift the property to my sons, Trevor McNamee and Clay McNamee, (the “Donees”) in equal proportion.

To carry out my intended purpose, I hereby deliver to each of the Donees a share certificate representing 500 Common Shares in the capital of [Holdco] registered in the name of the Donee.

I acknowledge that it is my intent to vest absolute ownership and title in the Property in the Donee from the date of this declaration.

I hereby direct that the whole of the Property gifted to each Donee, the income arising therefrom, any appreciation in the value thereof, and any property acquired in substitution therefor shall not fall into any community of property which may exist between the Donnee and his spouse, and shall not form part of the net family property of the Donee for any purpose or purposes under the Family Law Act, R.S.O. 1990, c. F.3 and any amendment thereto or any successor legislation thereto, and is given to the Donee on the condition that it shall remain his separate property, free from the control of his spouse. This direction shall apply not only to the Family Law Act, but also to the laws of any other jurisdiction dealing with the distribution of property in the event of death or marriage breakdown.

Proceeding to the estate freeze, the appellant along with his brother and father signed a unanimous shareholders agreement. The appellant stated that his father had told him the transferred shares were a gift.

Trial Judge's Findings

The trial judge held that the shares were not transferred by way of gift and Mrs. McNamee was entitled to half their value.

Main Issue Subject to Appeal

1.) Whether Mr. McNamee's 500 common shares in his father's (Mr. McNamee Sr.) company had been received by way of a gift and thus excluded from the appellant's Net Family Property ("NFP"). If the shares were deemed to be gifted then they would not form part of the appellant's NFP.

Application of Law & Analysis of Issue on Appeal:

Shares transferred by way of Gift:

Section 4(2) of the Family Law Act, R.S.O. 1990, c. F.3, excludes gifts received during the marriage from a spouse’s net family property:

4(2) The value of the following property that a spouse owns on the valuation date does not form part of the spouse’s net family property:

1. Property, other than a matrimonial home, that was acquired by gift or inheritance from a third person after the date of the marriage.

The onus of proving exclusion under s. 4(2) is on the person claiming it: s. 4(3).

Elements of a Gift:

In order to constitute a valid legal gift, there must be:

1.) An intention to make a gift on the part of the donor, without expectation of consideration

2.) An acceptance of the gift by the donee

3.) A sufficient act to transfer the property to complete the transaction

The trial judge concluded that the transfer of shares to the appellant was not a gift based on four circumstances:

1.) The transfer was not a gratuitous transfer but a transfer for consideration

2.) Mr. McNamee Sr. did not intend to gift the shares

3.) Mr. McNamee Sr. did not divest himself of power or control over the shares; and

4.) The appellant did not accept the gift

Consideration Factor:

Consideration is the value that flows from a promissee to a promisor as a result of a bargain. The Court of Appeal stated that the appellant did not bargain for the shares he received. Also, the Court determined that the shares were not transferred by Mr. McNamee Sr. to his sons to ensure their continued involvement with the company. Rather, they were transferred in order that the estate freeze could be implemented.

Intention of Donor/Transferor:

The trial judge held that Mr. McNamee Sr. only intended to transfer the shares to his sons in order the complete the the estate freeze and not for the purposes of gifting. In particular the trial judge asserted:

Clearly on the evidence the intention of John in authorizing and directing the estate freeze was not for the purpose of making a gift to his boys. It was to creditor proof his business and thus better protect the future of his business.

The transfer of the shares was but one step that was necessary for the primary objective to be accomplished.

So long as the main objective was achieved with the requirements he demanded John was less concerned about how the shares were transferred to his sons. This is evident from his testimony when asked why he didn’t sell the shares to the boys. He answered that it was because they didn’t have any money.

The Court stated that the fact that the Mr. McNamee Sr. transferred shares to the appellant in conjunction with the estate freeze did not disregard the main purpose of the transfer of shares, which was the intention to transfer by way of gift. Moreover, the Court held that since the father did not sell his shares to the appellant, this reinforced the notion that a valid gift was made.

Delivery:

There is no issue concerning the delivery of the shares.

Acceptance of Shares and Divesting Power of Control:

The Court held it was of no consequence that the appellant was unaware about the Declaration of Gift until after the divorce . The appellant was aware that his father had previously indicated to him that the transfer of shares was intended to be a gift and that he paid no consideration for the shares.

The respondent contended that the appellant must understand the nature of the transaction and willingly accept title to the property is that transferred (see Ziff, supra, at p. 157). The trial judge held:

These authorities indicate that the question of whether or not the husband in the case at bar is found to have accepted his father’s gift would require that he know of the transfer of shares, at the time it was made. Indeed, at the very minimum, he would be required, under the rule in Wilson v. Hicks which is still good law in Ontario, to have understood the nature of the transaction and to have willingly accepted title to the shares. This understanding presumes an element of knowledge that he was the donee to the transfer of the shares at the time the transfer was made and of the terms and conditions attached to the shares.

Professor Ziff qualifies this concept:

Acceptance of a gift involves an understanding of the transaction and a desire to assume title. This is a requirement that is treated with little rigour: in the ordinary case, acceptance is presumed to exist.

The Court asserted that there was no evidence to suggest the respondent's inference that if the appellant had been aware of the Declaration of Gift at the time it was created he would not have accepted the transfer of shares from his father.

The Court declared that the trial judge erred in ordering half the value of the shares be included in the equalization payment to the respondent. Referencing s. 4(2) Family Law Act, the Court was satisfied that the shares were transferred by way of gift and thus should not form part of the appellant's NFP and be subject to an equalization payment.

Disposition:

The Court allowed the appeal and set aside the order of the trial judge requiring the appellant to pay the respondent the amount of $209,100 in addition to prejudgment interest on that amount.

- Alim Ramji, Toronto

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Schreyer v. Schreyer: Canada's Divorce-Bankruptcy Loophole

In a unanimous decision in Schreyer v. Schreyer, released Thursday, June 14, 2011, the Supreme Court of Canada ruled that that a bankrupt Manitoba man is not required to pay his former wife an equalization payment for her share of the family farm they operated together.

The couple filed for divorce in 2000 after a nineteen year cohabitation. Under their divorce agreement, the husband was to continue to live on the family farm, which he solely owned, and their assets were to be valued. At the end of the valuation, the husband was to make an equalization payment to the wife, equal to the value of the farm. Before the valuation was complete, however, the husband filed for bankruptcy. It was determined the the husband owed the wife an equalization payment of $41,063.48 after the valuation was complete.

The wife was considered to be a creditor of the husband's estate in bankruptcy. Under Manitoba law the farm was exempt from creditors by way of seizure and sale, and while the husband was allowed to keep the farm, the wife's claims against him for equalization were extinguished by his bankruptcy.

When the husband was discharged from bankruptcy he was cleared from his debts and thus could keep the farm. The wife, however, was out of luck - her entitlement to an equalization payment did not survive the bankruptcy.

In dismissing the wife's appeal, Supreme Court of Canada Justice Louis Lebel noted that at root, the entitlement to an equalization payment is not an entitlement with respect the actual property of a spouse:

[16] The Manitoba scheme is one of equalization. It is based on a principle of equal division of the value of the family assets after a process of accounting and valuation (ss. 13 and 14 FPA). The accounting process results in a value that is divided between the spouses, and any amount payable must be paid to the creditor spouse. A debtor spouse retains the property he or she owns, but must pay a sum of money, the equalization payment, if the spouses did not own assets of equal value (s. 15 FPA). The court retains a discretion to alter the equal division of the value of the assets where “the court is satisfied that equalization would be grossly unfair or unconscionable” (s. 14(1) FPA). No provision of the FPA vests title in one spouse to the other spouse’s property (s. 6(1) FPA) in the course of the accounting and valuation. At the end of the equalization process, a monetary debt is owed...

[18] Under the FPA, an equalization claim is a debt owed by one spouse to the other. The Court of Appeal did not err in treating the appellant’s claim as a debt. The characterization of the equalization claim is particularly important here — in the context of the application of the BIA — for the purpose of determining whether the appellant’s claim survived her husband’s discharge from bankruptcy.

[17] Proprietary interests are not granted until the stage of payment of the equalization claim, at which point they may be granted as a form of execution, to ensure that the payment is actually made. Section 17 FPA provides that the amount established in the accounting may be paid by means of a money payment, a transfer of assets, or both.

The Court held that bankruptcy extinguished the husband's equalization-related debt to the wife. Under Manitoba's family law regime, she had no interest in his actual property.

Unfair Loophole?

Recognizing the gross unfairness of this outcome for the wife, Justice Lebel noted that law reform on this issue has long been recommended and is urgently required:

[25] I do not doubt that an outcome like the one in this appeal looks unfair, given that the appellant’s equalization claim was based primarily on the value of an asset — the farm property — which was exempt from bankruptcy and therefore not accessible to other creditors. None of the policies underlying the BIA require that the appellant emerge from the marriage with no substantial assets. Parliament could amend the BIA in respect of the effect of a bankrupt’s discharge on equalization claims and exempt assets. But the absence of such an amendment makes the outcome of this case unavoidable. The only way Ms. Schreyer could have avoided it would have been to obtain an order from the bankruptcy court lifting the stay of proceedings imposed by operation of s. 69.3 BIA so that she could seek a proprietary remedy under s. 17 FPA. As will be discussed below, however, the circumstances were such that Ms. Schreyer did not pursue these recourses.

... [39] Before 1997, claims for support or alimony were not expressly provable under the BIA, potentially giving spouses no access to the bankrupt’s estate. After the 1997 amendments (S.C. 1997, c. 12), s. 121(4) BIA was added to specifically provide that these claims were provable. They remained unaffected by a discharge pursuant to ss. 178(1)(b) and (c) BIA. Parliament has also shown a willingness to give spouses limited priority over unsecured creditors for support payments that accrued before the bankruptcy (s. 136(d.1) BIA). Further amendments to address the issue of the division of matrimonial property have also been considered by the Standing Senate Committee on Banking, Trade and Commerce. In its report released in November 2003 (Debtors and Creditors Sharing the Burden: A Review of the Bankruptcy and Insolvency Act and the Companies’ Creditors Arrangement Act), the Committee took the view that inequities like the one perceived to exist in the case at bar required “prompt resolution” (p. 85). To this end, it recommended that the BIA be amended to provide that “bankruptcy does not stay or release any claim for equalization or division against exempt assets under provincial/territorial legislation regarding equalization and/or the division of marital property” (p. 86).

[40] More than seven years have elapsed since the Committee issued its report. It seems to me that this matter is ripe for legislative attention so as to ensure that the principles of bankruptcy law and family law are compatible rather than being at cross-purposes.

[41] However, until such legislative changes are made, creditor spouses should be alive not only to the pitfalls of the BIA, but also to the importance of the remedies available under it in such situations. In the case at bar, however, given the nature and the state of the proceedings now before this Court, I am of the view that the Court of Appeal made no errors and that the specific remedies sought by the appellant may not be granted.

Justice Lebel's comments on bankruptcy law reform make plain sense. Instead of permitting bankruptcy legislation to override the intent and effect of provincial family property equalization laws, there ought to be permitted exceptions to ensure that spouses are not excluded from their rightful entitlements by spousal bankruptcy two-steps.

The "Schreyer loophole" ought to be closed.

- Garry J. Wise and Alim Ramji, Toronto

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This Week at the Ontario Court of Appeal: 11-06-24

Each week Wise Law Blog reviews recent decisions from the Ontario Court of Appeal.

Di Tomaso v. Crown Metal Packaging Canada LP. An appeal in a wrongful termination case. Mr. Di Tomaso was employed by Crown Metal for over 33 years as a mechanic, and informed him on September 9, 2009 that he would be terminated on the following November 6. On November 4, he was informed that his termination date would now be December 18. Crown Metal changed his termination date two more times subsequent to this, finally terminating him on February 26, 2010. Each letter that he received characterized his employment as having been temporarily extended. Upon his termination Crown Metal paid Mr. Di Tomaso severance pay and accrued vacation pay and benefits.

Mr. Di Tomaso then sued Crown Metal for failure to provide proper notice and wrongful dismissal. Crown Metal characterized the period after the initial termination notice as a period of "working notice," and suggested that in regards to the wrongful dismissal claim Mr. Di Tomaso was at most limited to 12 months' notice as he was an unskilled low-level worker. Mr. Di Tomaso argued that each subsequent notice was a new notice and therefore only the final notice (on February 24) should count as clear, unequivocal notice of termination.

The action proceeded by way of a motion for summary judgement. The motion judge agreed with Mr. Di Tomaso's arguments, pointing out that the existing authorities (such as Minott) did not limit a worker's wrongful dismissal damages based on the type of work they were performing. She found Crown Metal liable for 22 months' worth of notice to Mr. Di Tomaso. Crown Metal appealed.

The Court of Appeal dismissed both appeals. A termination extension, according to the Termination and Severance of Employment Regulations, can last up to thirteen weeks; if it exceeds that period (as it did here) then fresh notice is required. The Court stated that to find otherwise would allow employers to effectively extend termination indefinitely and be contrary to the intent of the legislation. The Court also stated that in these instances, "clear and unambiguous" notice of termination must include the final termination date, which meant that Mr. Di Tomaso had received only two days' notice before his termination.

The Court also agreed that in Minott it had previously rejected the notion that an unskilled employee's wrongful dismissal damages could be capped at 12 months and did not see the purpose of overruling that decision. The Court considered the appropriate period of notice in Mr. Di Tomaso's case, and agreed with the motion judge's decision that 22 months was appropriate notice for him. In doing so, the Court once again underlined that "character of employment" is but one of the many Bardal factors considered in determining duration of notice. Read-the-whole-case rating: 4.5 for employment law aficionados; 2.5 for everyone else.

Cunningham v. Moran. Following a separation resolved through mediation/arbitration where the parties maintained joint custody of their child, the father, Mr. Cunningham, launched a claim against his former common-law partner claiming that Ms. Moran had fraudulently induced him to pay more child support than he should have, and fraudulently concealed her ability to pay child support to him. Ms. Moran moved to strike the claim on the grounds that it was outside the court's jurisdiction by virtue of the mediation/arbitration agreement, that the claim amounted to a collateral attack on the existing orders, and that Mr. Cunningham's claims were res judicata, frivolous, vexatious and an abuse of process. Mr. Cunningham cross-moved for summary judgement in response. The motion judge agreed with Ms. Moran and struck the claim without leave to amend on the grounds that it was vexatious and frivolous, and that res judicata barred the claim. Mr. Cunningham appealed.

The Court of Appeal dismissed the appeal. The Court found that Mr. Cunningham's claim for damages was, in essence, a claim for repayment of child support payments he felt he either overpaid or should not have made at all, and payments from the respondent he felt he should have properly received. Other than his claim for general and punitive damages arising from the claimed wrongful conduct of Ms. Moran, these were not a true claim of damages but rather an attempt to attack agreements and awards made in a family law action. They also pointed out that to move for an adjustment to support orders, the proper action would have been to apply for a remedy under the Family Law Act or Child Support Guidelines. Allowing this action to proceed would therefore be endorsing an abuse of process.

The Court also noted that Mr. Cunningham should have raised the issue of deficiencies in Ms. Moran's financial statement when he first became aware of them, and that there was ample evidence that he had been aware that her finances were not fully documented and that he had raised the issues in his action during mediation. Therefore he was, at all material times, aware of the problems with Ms. Moran's disclosure and still consented to a mediation/arbitration agreement in spite of that knowledge. Under these circumstances, even if his motion had not been abusive and frivolous, the action would still fail. Read-the-whole-case rating: 3.

R. v. Nguyen. A Crown appeal from the acquittal of two property owners whose property contained a marijuana grow-op. An anonymous tip indicated that the Nguyens' house had been used as a grow-op location and that the appearance and character of the property was currently similar to that of a grow-op (windows and doors covered with blinds and sheets to prevent viewing into the house). A thermal flyover test demonstrated an unusual amount of heat emanating from the building, and there was visible moisture damage to the roof of the house unlike any other in the neighborhood (associated with grow-ops where moisture was not properly vented).

However, hydro consumption showed less power use, which was inconsistent with most grow-ops. On further investigation, it was found that the building was directly across the street from a hydro box, a location grow-operators often use so they can monitor the hydro box in case police visibly surveil it. The investigator also noted light timers by the exterior patio door, which are often used by grow-operators to simulate a lived-in residence. Finally, it was noted that in winter, when other homes were covered with snow, the property was emanating so much heat that its roof was bare due to melt-off. A search warrant was issued and the owners of the property arrested for cultivating mass quantities of marijuana (as they in fact were).

At trial, the judge concluded that the search warrant was improperly issued. She stated that the Information to Obtain the warrant was "carelessly drafted, materially misleading and factually incomplete." She emphasized that five statements in the ITO were misleading. The Court of Appeal disagreed with all of these: the Court felt that although the investigating officer had no formal training in recognizing grow-ops, his practical on-the-job knowledge meant that he could reasonably state that he was "trained," that an instance of referring to a wrong address was a typo rather than an attempt to mislead, that his testimony regarding the state of the lawn differing from his notes was not evidence to mislead, that he had in fact made no claim that he was an expert in thermal detection, and that his statement regarding potential electricity diversion could either be construed as belief or as a collection of facts which could contribute to that belief.

The trial judge was also critical of the investigator's use of anonymous sources, but the Court of Appeal did not see this as reason to invalidate the warrant either, pointing out that the anonymous sources had only prompted an initial informal investigation and that the cause for the ITO was the collected evidence rather than the source's tip.

Finally, the trial judge complained that the ITO did not expressly mention eleven specifically negative facts about the case: that there was no smell of marijuana, that they had not yet found grow-op equipment, that there was no hard evidence of electricity theft and that no suspicious activity had been observed. The Court of Appeal pointed out, however, that these were not facts but rather things that were not known, and that in most cases the absence of a reference to something not observed will "lead to the sensible inference that whatever it is was not seen, not heard or not done." The Court further stated that requiring a warrant applicant to anticipate and explain away in advance every possible aspect of a crime would be overly burdensome.

The Court also pointed out that in the investigator's testimony, he had explained that in his experience with investigating grow-ops, many of the negative factors that he had not included in the ITO were not present at other grow-ops: only rarely, for example, would you smell marijuana outside of the house or hear the whine of fans or blowers inside it from outside. Therefore the Court felt that there was little to nothing on the record to indicate that the "omissions" that the trial judge disliked would necessarily indicate the presence of a grow-op inside the residence. For all of these reasons, the Court of Appeal allowed the Crown's appeal, set aside the order quashing the warrant, and ordered a new trial. Read-the-whole-case rating: 3.

- Christopher Bird, Toronto

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Chief Justice Warren Winkler at Family Law Summit

Ontario Court of Appeal Chief Justice Warren Winkler has just completed a impassioned speech at the 5th Annual Family Law Summit at Toronto.

Continuing his call for reform to Ontario's family law system, and underlining his postion that the entire system is broken and needs restructuring from the ground up, Mr. Justice Winkler emphasized the need for change now.

Here are Justice Winkler's key, quoteworthy points (reproduced, in part from our live-tweets):

• The Family law system in Ontario needs reform now. He intended his September 2010 comments as a lightning rod for change to the whole system. He observes that much dialogue has resulted.
• Trend in Family Law: The well-to-do are opting out of the system and choosing private mediation/arbitration; Others going self-rep (up to 70% in Toronto)
• Asks if we are trending toward a two-tiered system? Notes Canadians don't like two-tiered systems.
• Family law system needs affordability, timing, efficiency.
• He proposes "presumptive judicial mediation" as cornerstone of new system..
• Justice Winkler's proposal: Triage Judge to handle cases that can't or shouldn't be mediated. The Triage judge will send an immediate message: It "won't be pleasant" for those acting badly
• Access to justice is a double-edged sword - it can also be used by one party to harass the other. The family justice system should not be permitted to be used to perpetrate wrongful conduct by either party. We must "take the system out of play"
• Under his proposed new system, every court attendance must be meaningful. Must eliminate wasteful court appearances.
• Need system of "one family, one judge"
• Goals of new family law system - Must be cheap, simple, understandable and affordable
• We have "studied" Unified Family Court far too long. Need UFC's across the Province now.
• He is committed to getting this change done now, and asks family law bar to help make it happen.

- Garry J. Wise, Toronto

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Ontario A.G. Chris Bentley at Toronto Family Law Summit

I'm spending today and tomorrow attending (via live videostream) the Law Society of Upper Canada's 5th Annual Family Law Summit at Toronto.

Ontario Attorney General Chris Bentley has just concluded a short speech, recapping the Province's family law initiatives launched during his four-year tenure in the role.

In opening, Mr. Bentley candidly remarked that he likely knows less about family law than any other person attending the Summit. He did little to dispel that impression in the remainder of a twenty-minute, rather self-congratulatory presentation that was surprisingly short on substance.

Here are a few highlights from the speech, which I've also been live-tweeting:

• The A.G. favours a Unified Family Court throughout the Province, but noted that the constitutional issues presented by overlapping federal and provincial jurisdictions in family law present an obstacle, as the Province can't create these courts on its own. While his enthusiasm for streamlining family law with one, unified system was clear, he made no mention of any consultations with the federal government aimed at actually getting there.

• On simplifying the court system by "getting rid of the paper and streamlining steps in the Family Courts," the A.G. was clear that he "won't do it." Curiously, he indicated he simply leaves it to the legal profession to address these concerns. I am not sure how the profession can directly facilitate any of the real solutions here, such as a court system that allows e-filing of documents or the elimination of duplicative court forms, at least some of which result from the Attorney General's own initiatives.

• Finally, with respect to the long-awaited implementation of the pension-equalization reforms provided for in Bill 133, Mr. Bentley stated "the period of consultations is over... An announcement on implementation will be made very, very soon." There were audible groans from the audience in response to this remark. Bill 133 received Royal Assent in May, 2009. The legislation's pension reform has been in limbo ever since, awaiting necessary, enabling regulations.

- Garry J. Wise, Toronto

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This Week At The Ontario Court of Appeal: 11-06-03

Each week, Wise Law Blog reviews recent decisions from the Ontario Court of Appeal.

Maccaroni v. Kelly. An appeal of a summary judgment in an Ontario personal injury case where the appellant, Ms. Maccaroni, was rear-ended in a vehicular collision with Mr. Kelly. Mr. Kelly was insured by Co-operators General Insurance, while Ms. Maccaroni was insured by ING. Ms. Maccaroni sued Mr. Kelly. Co-operators, added itself as a third party and took the position that it was not liable to Mr. Kelly, who was driving with a suspended license, and that it was only liable to Ms. Maccaroni for $200,000 under the Insurance Act. As a result of this position, ING faced liability to Ms. Maccaroni for additional coverage where the tortfeasor was underinsured, to a limit of an additional $1,000,000.

Ms. Maccaroni settled with Mr. Kelly and Co-operators for the $200,000, a settlement to which ING did not consent, signed a release, and then sought to recover additional monies from ING. In response, ING moved for summary judgement on the basis that there was no issue for trial, since there had never been a legal determination of Co-operators' position and therefore their reduced limit had no basis in "operation of law," and further that there could no be no determination of that fact as Ms. Maccaroni had released both Co-operators and Mr. Kelly from the action. The motion judge accepted this argument and dismissed the case.

The Court of Appeal overturned the motion. Justice McFarlane stated that it was now incumbent upon the appellants, rather than ING, to demonstrate Co-operators' position. The fact that Co-operators and Mr. Kelly were no longer parties to the action was thus irrelevant as they could be called as witnesses. The Court also noted that there was precedent for an individual pursuing action against his or her own insurer under a similar (but not identical) fact scenario as found in this case. Read-the-whole-case rating: 2.

A.M.R.I. v. K.E.R. An appeal on an application on the Hague Convention on the Civil Aspects of International Child Abduction, the first in the Court of Appeal's history. A divorced couple had a child. The mother lived in Cancun, Mexico and the father in Toronto. The girl came to Canada to visit her father accompanied by her maternal grandmother. During the visit, the girl and her grandmother told her father that her mother was abusing her. As a result, the girl did not return to Mexico, but instead stayed with her father. She was found to be a refugee by the Immigration and Refugee Board of Canada, by reason of abuse. Shortly thereafter her father was denied refugee status and moved to Norway; the girl continued to live in Ontario with her aunt and her aunt's same-sex partner.

A year and a half later, the girl's mother brought a Hague Convention application for an order compelling her daughter's return to Mexico. Before the father's time to respond expired, the mother arranged for a hearing date without providing notice to her daughter or to her daughter's aunts. The father claimed he also did not receive timely notice of this hearing. The hearing proceeded on an uncontested basis, and the application judge found that the girl was being wrongfully retained in Ontario. She was removed one month later from her school with police assistance. The girl was at this time 14. She was not allowed to return home to retrieve her refugee papers despite asking to do so, was not allowed to communicate with her aunts, and was flown to Mexico in the care of her mother. The father appealed the application judge's decision.

The Court set aside the order and directed a new hearing. The Court first noted that the mandatory return requirements of the Hague Convention had limited exceptions, including exceptions where more than one year had elapsed and the child settled into their new environment, where the return would place the child at risk of harm and where the child was mature enough to object to returning. The Court also noted that the principle of non-refoulement - that a recognized refugee should not be returned to a territory where they would be at risk of harm - was paramount to refugee protection schemes, and recognized in s.115(1) of the Immigration and Refugee Protection Act.

The appellants charged that s.115(1) of the IRPA, by recognizing the principle of non-refoulement, had the effect of granting that principle paramountcy under Canadian law and that therefore s.46 of the Children's Law Reform Act, which incorporates the Hague Convention into Ontario law, was void under the doctrine of paramountcy.

(Normally the Court of Appeal would not rule on constitutional issues first raised on appeal, but in this case, stated that the interests of justice demanded it, due to the improperly non-contested nature of the original hearing.)

The Court of Appeal rejected the paramountcy argument, arguing that due to Canada's commitment to the Vienna Convention on the Law of Treaties, Canada's international treaty commitments are to be interpreted in good faith regarding existing international law. Canada's commitment to the Hague convention must be taken into account as one in conformance with its commitment to the United Nations Refugee Convention, as the latter predates the former. Therefore, the CLRA does not violate the paramountcy doctrine, but must instead be interpreted consistently with Canada's treaty obligations regarding refugees.

The Court interpreted this obligation under existing law, along with Canada's treaty obligations under the United Nations Convention on the Rights of the Child, by suggesting that, where a child with refugee status as determined by the Immigration and Refugee Board is targeted by a Hague Convention application, "a rebuttable presumption arises that there is a risk of persecution on return of the child to his or her country of habitual residence." The Court also suggested that in this context, there should be no burden on the child to prove that the conditions which created refugee status have since changed.

Having determined that the CLRA did not violate the doctrine of federal paramountcy and articulated the test as to how the two laws should interact, the Court of Appeal then considered how this case should be decided on its merits.

The Court found that the one-side nature of the application hearing had harmed the proceeding's merit, and further found errors in the judge's reasoning. The Court stated that the judge had not adequately considered the child's refugee status or the exceptions to mandatory return laid out in the Hague Convention, even though the transcripts showed that the judge was at least aware of these concerns. The appellate court held further that the trial judge did not adequately consider affidavit materials which "cried out for a meaningful assessment of whether and to what extent the child faced a persisting risk of persecution if she was returned to Mexico," instead simply seeming to accept all of the mother's denials of abuse at face value. This failure to properly assess the child's risks in the course of the Hague Convention application constituted a violation of her rights under s.7 of the Charter of Rights and Freedoms.

For these reasons the Court found that the order of return was improper, but further noted that the case obviously satisfied multiple exceptions under the Hague Convention itself which the judge had also not considered. Finally, the Court held that the failure of the trial court to ensure that the child was present for the hearing violated her s.7 Charter rights and denied procedural fairness to her. Read-the-whole-case rating: 4. A major decision by the Court, and although lengthy it's very readable.

- Christopher Bird, Toronto

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