Serra v. Serra,

• Jurisdiction: Ontario
• Judge: Moldaver, Armstrong and Blair, JJ.A.
• Neutral Citation: 2009 ONCA 105
• Citation: (2009), 246 O.A.C. 37 (CA),2009 ONCA 105,93 OR (3d) 161,307 DLR (4th) 1,61 RFL (6th) 1,[2009] OJ No 432 (QL),246 OAC 37,(2009), 246 OAC 37 (CA),246 O.A.C. 37,307 D.L.R. (4th) 1,[2009] O.J. No 432 (QL),93 O.R. (3d) 161
• Date: 24 September 2008
• Court: Court of Appeal (Ontario)

Serra v. Serra (2009), 246 O.A.C. 37 (CA)

MLB headnote and full text

Temp. Cite: [2009] O.A.C. TBEd. FE.021

Barbara Anne Serra (respondent/applicant) v. Harold Keen Serra (appellant/respondent)

(C46745; 2009 ONCA 105)

Indexed As: Serra v. Serra

Ontario Court of Appeal

Moldaver, Armstrong and Blair, JJ.A.

February 4, 2009.

Summary:

A husband and wife were married in 1976. They separated 24 years later, in November 2000, and were divorced in 2003. At the time of separation, the husband had shareholdings in his textile business valued at between $9.5 million and $11.25 million. By the time of trial (2006), however, the value had decreased to somewhere between $1.875 million and $2.6 million. The change was attributed entirely to shifting market forces that had adversely affected the Canadian textile industry generally. At trial, the husband argued that equalizing his and his wife's net family properties on the basis of the separation-date value of his assets would be "unconscionable" as contemplated by s. 5(6) of the Family Law Act. It would require him to make an equalization payment of $4,129,832.50, an amount that exceeded his total net worth.

The Ontario Superior Court, in a decision reported [2007] O.T.C. Uned. 177, ruled that it could not take a market-driven post-separation date decline in the value of a spouse's assets into account under s. 5(6) and ordered the large equalization payment. The court also dealt with a number of other property division issues. The husband appealed, raising an issue as to whether, and if so, in what circumstances, a market-driven post-valuation date change in the value of a spouse's assets could be taken into account in determining whether an equalization of family property was unconscionable under s. 5(6) of the Family Law Act. A second issue was whether, if the decline in value of the appellant's principal asset may be taken into account, the equalization of family property would be unconscionable in the circumstances of this case. The husband also argued that the trial judge erred in trying a constructive issue and finding that there was no constructive trust, in the face of an admission by the husband that he held 1,000 common shares in the business in trust for the wife. The husband also argued that the trial judge erred in a) failing to provide him with more than four years to make the equalization payment; b) assessing spousal support on the basis of an imputed annual income of $250,000; and c) awarding the wife post-judgment interest on the amount of the equalization payment.

The Ontario Court of Appeal held that the trial judge erred in her approach to the equalization payment and allowed the appeal on that ground, reducing the quantum of the net equalization payment. The court rejected the other grounds of appeal.

Family Law - Topic 637

Husband and wife - Marital property - Constructive trusts - [See Family Law - Topic 959 ].

Family Law - Topic 868.3

Husband and wife - Marital property - Distribution orders - Equalization payments - At the time of separation, a husband had shareholdings in his textile business valued at between $9.5 and $11.25 million - By the time of trial, however, the value had decreased to between $1.875 and $2.6 million solely because of shifting market forces - The husband argued that equalization of assets based on the separation date value would be "unconscionable" as contemplated by s. 5(6) of the Family Law Act (FLA) - That would require him to make an equalization payment of over $4,000,000, an amount that exceeded his total net worth - The trial judge rejected the husband's argument and ordered the large equalization payment - The husband appealed - The Ontario Court of Appeal allowed the appeal on this ground - The trial judge erred in refusing to take into account the market-driven downward impact on the value of the husband's interest in the textile company, in combination with the other applicable factors, in considering the application of s. 5(6) of the FLA - The court held that an equalization of net family property that required the husband to pay more than his total net worth (and arguably as much as twice his net worth) because of a marked decline in the value of his major asset post-separation, over which he had absolutely no control and in spite of his best efforts to save the business, was unconscionable - As a remedy, the court reduced the net equalization payment to $900,000 - In arriving at that figure, rather than simply applying the reduced trial-date valuation of the husband's assets, the court took that figure and made an upward adjustment of $250,000, to take into account a number of factors, including the length of the marriage and the remote possibility of a modest turn around in the textile business - See paragraphs 36 to 95.

Family Law - Topic 868.3

Husband and wife - Marital property - Distribution orders - Equalization payments - Section 5(6) of the Family Law Act allowed the court to make an unequal division of net family properties where equalizing the net family properties would be unconscionable having regard to a number of enumerated factors - The Ontario Court of Appeal stated that "The steps to be taken when s. 5(6) is engaged are well-established. The court must first ascertain the net family property of each spouse, by determining and valuing the property each owned on the valuation date (subject to the deductions and exemptions set out in s. 4). Next, the court applies s. 5(1) and determines the equalization payment. Finally - and before making an order under s. 5(1) - the court must decide whether the equalization of net family properties would be unconscionable under s. 5(6), having regard to the factors listed in paragraphs 5(6)(a) through (h)" - See paragraph 37.

Family Law - Topic 868.3

Husband and wife - Marital property - Distribution orders - Equalization payments - Section 5(6) of the Family Law Act allowed the court to make an unequal division of net family properties where equalizing the net family properties would be unconscionable having regard to a number of enumerated factors - The Ontario Court of Appeal stated that "... a court may take into account a post-separation date change in the value of a spouse's assets, and the circumstances surrounding such a change, for purposes of determining under s. 5(6) of the Family Law Act whether equalizing net family properties would be unconscionable. An order for an unequal division of net family properties is exceptional, however, and may only be made on such a basis (i) where the circumstances giving rise to the change in value relate (directly or indirectly) to the acquisition, disposition, preservation, maintenance or improvement of property (s. 5(6)(h)), and (ii) where equalizing the net family property would be unconscionable, having regard to those circumstances (taken alone or in conjunction with other factors mentioned in s. 5(6)). In this regard, the threshold of 'unconscionability' under s. 5(6) is exceptionally high. The jurisprudence is clear that circumstances which are 'unfair', 'harsh' or 'unjust' alone do not meet the test. To cross the threshold, an equal division of net family properties in the circumstances must 'shock the conscience of the court'" - See paragraphs 46 and 47.

Family Law - Topic 868.3

Husband and wife - Marital property - Distribution orders - Equalization payments - Section 5(6) of the Family Law Act allowed the court to make an unequal division of net family properties where equalizing the net family properties would be unconscionable having regard to a number of enumerated factors - The Ontario Court of Appeal (Blair, J.A.), stated that "There is a jurisprudential theme running through the cases to the effect that relief may only be granted under s. 5(6) where there has been fault-based conduct on the part of the asset-owning spouse, that is, that the word 'unconscionable' embraces factors relating to 'unconscionable conduct' only ... Respectfully, I do not think this proposition is correct" - Blair, J.A., stated further that "There is no principled reason that I can see, given the language of the Act and its purpose or objects, to confine the word 'unconscionable' in s. 5(6) only to circumstances arising from fault-based conduct on the part of one of the spouses. Although unconscionable conduct is obviously an appropriate consideration in determining whether equalizing the net family properties would be unconscionable, in my opinion the true target of the limited exception to the general rule is a situation that leads to an unconscionable result , whether that result flows from fault-based conduct or not" - See paragraphs 36 to 63.

Family Law - Topic 868.3

Husband and wife - Marital property - Distribution orders - Equalization payments - The Ontario Court of Appeal noted that since the threshold for an unequal division of net family property under s. 5(6) of the Family Law Act (FLA) was unconscionability, some had argued that the appropriate disposition in such circumstances was simply to roll back the award in favour of the recipient spouse to the point where it was just shy of "unconscionable" - The court disagreed with that approach based on the meaning of s. 5(6) and because an order that was just shy of unconscionable remained, by jurisprudential definition, an order that was at least unfair, unjust and inequitable, if not worse - The court stated that s. 5(6) did not call for an award that was just short of unconscionable - Rather, s. 5(6) provided that the court could award a spouse "an amount that is more or less than half the difference between the net family properties" if "equalizing the net family properties would be unconscionable" - The court held that once unconscionability was established (which was an exceptionally high threshold), the court should exercise its discretion by doing what was just, fair and equitable in the circumstances - Such an approach, was "(a) true to the language of s. 5(6) itself, (b) reflective of the wording in s. 5(7) establishing that the presumed equal contribution of the spouses leading to the normal equal division of net family property is subject only to the 'equitable' considerations set out in s. 5(6); and (c) consistent with the call in the preamble of the Act for 'the orderly and equitable settlement of the affairs of the spouses upon the breakdown of the partnership'" - See paragraphs 68 to 71.

Family Law - Topic 875

Husband and wife - Marital property - Distribution orders - Statutes requiring equal division - Exceptions - [See all Family Law - Topic 868.3 ].

Family Law - Topic 888

Husband and wife - Marital property - Considerations in making distribution orders - Valuation (incl. time for) - [See first Family Law - Topic 868.3 ].

Family Law - Topic 959

Husband and wife - Marital property - Distribution orders - Practice - Discontinuance of application (incl. withdrawal of claim or admissions) - Upon separation, a husband held 3,000 common shares in a textile business - His wife claimed the shares through a constructive trust - The husband had received 1,000 of the shares as a gift from his brother - The husband initially denied the trust claim; however, he ultimately delivered a formal withdrawal of his answer on this issue with respect to his non-gifted 2,000 shares under rule 12 of the Family Law Rules and an admission accepting that he held 1,000 shares in trust for his wife - At the beginning of the trial, the wife sought leave to withdraw her trust claim - The trial judge refused the wife's withdrawal request and also declined to act upon the husband's admission - The judge tried the issue, finding no constructive trust and that the 1,000 gifted shares were not family property - The husband appealed, arguing that the trial judge erred in failing to find that he held one-half of his non-gifted shares in the textile business in trust for the wife, given the withdrawal of his answer defending those claims and his formal admission to that effect - The Ontario Court of Appeal declined to give effect to this ground of appeal - The court discussed how the trial judge dealt with the wife's attempt to withdraw her trust claim and the husband's withdrawal of his admissions, holding that the judge did not err procedurally - Further, there was no basis for interfering with the trial judge's finding that there was no constructive trust - See paragraphs 6 and 96 to 120.

Practice - Topic 2128

Pleadings - Amendment of pleadings - Statement of defence - To withdraw admission - [See Family Law - Topic 959 ].

Practice - Topic 4959

Admissions - Withdrawal, amendment or setting aside of - [See Family Law - Topic 959 ].

Practice - Topic 9809

Discontinuance - With leave - General - [See Family Law - Topic 959 ].

Words and Phrases

Unconscionable - The Ontario Court of Appeal discussed the meaning of the word "unconscionable" as used in s. 5(6) of the Family Law Act, R.S.O. 1990, c. F-3 - See paragraphs 36 to 63.

Cases Noticed:

Rawluk v. Rawluk, [1990] 1 S.C.R. 70; 103 N.R. 321; 38 O.A.C. 81, refd to. [para. 37].

Berdette v. Berdette (1991), 47 O.A.C. 345; 3 O.R.(3d) 513 (C.A.), refd to. [para. 37].

Stone v. Stone et al. (2001), 156 O.A.C. 345; 55 O.R.(3d) 491 (C.A.), refd to. [para. 37].

LeVan v. LeVan, [2006] O.T.C. 794; 82 O.R.(3d) 1 (Sup. Ct.), refd to. [para. 37].

Warne v. Warne (1992), 8 O.R.(3d) 571 (Gen. Div.), refd to. [para. 42, footnote 9].

Kelly v. Kelly (1986), 50 R.F.L.(2d) 360 (Ont. H.C.), refd to. [para. 42, footnote 9].

Arndt v. Arndt (1991), 6 O.R.(3d) 97 (Gen. Div.), refd to. [para. 42, footnote 9].

Skrlj v. Skrlj (1986), 2 R.F.L.(3d) 305 (Ont. H.C.), refd to. [para. 42, footnote 9].

Heon v. Heon (1989), 69 O.R.(2d) 758 (H.C.), refd to. [para. 42, footnote 9].

Merklinger v. Merklinger (1992), 11 O.R.(3d) 233 (Gen. Div.), affd. (1996), 26 R.F.L.(4th) 7; 30 O.R.(3d) 575 (C.A.), refd to. [para. 42, footnote 9].

Davies v. Davies (1988), 13 R.F.L.(3d) 278 (Ont. H.C.), refd to. [para. 42, footnote 9].

McCutcheon v. McCutcheon (1986), 2 R.F.L.(3d) 327 (Ont. Dist. Ct.), refd to. [para. 42, footnote 9].

Perrin v. Perrin (1988), 17 R.F.L.(3d) 87 (Ont. Dist. Ct.), refd to. [para. 42, footnote 9].

Macedo v. Macedo (1996), 19 R.F.L.(4th) 65 (Ont. Gen. Div.), refd to. [para. 42, footnote 9].

LeVan v. LeVan (2008), 239 O.A.C. 1; 51 R.F.L.(6th) 237 (C.A.), leave to appeal denied (2008), 391 N.R. 391; 2008 CarswellOnt 6207 (S.C.C.), refd to. [para. 43, footnote 11].

Roseneck v. Gowling (2002), 167 O.A.C. 203; 62 O.R.(3d) 789 (C.A.), refd to. [para. 47].

McDonald v. McDonald (1988), 11 R.F.L.(3d) 321 (Ont. H.C.), refd to. [para. 47].

Rizzo & Rizzo Shoes Ltd. (Bankrupt), Re, [1998] 1 S.C.R. 27; 221 N.R. 241; 106 O.A.C. 1, refd to. [para. 51].

Bell ExpressVu Limited Partnership v. Rex et al., [2002] 2 S.C.R. 559; 287 N.R. 248; 166 B.C.A.C. 1; 271 W.A.C. 1, refd to. [para. 51].

von Czieslik v. Ayuso (2007), 223 O.A.C. 364; 86 O.R.(3d) 88 (C.A.), refd to. [para. 54].

Marchand v. Public General Hospital Society of Chatham et al. (2000), 138 O.A.C. 201; 51 O.R.(3d) 97 (C.A.), refd to. [para. 106].

Highley v. Canadian Pacific Railway (1930), 64 O.L.R. 615 (C.A.), refd to. [para. 111].

Henderson v. Tudhope (1930), 65 O.L.R. 238 (C.A.), refd to. [para. 111].

Norlympia Seafoods Ltd. v. Dale & Co. (1982), 141 D.L.R.(3d) 733 (B.C.C.A.), refd to. [para. 114].

Gardiner v. Minister of National Revenue, [1964] S.C.R. 66, refd to. [para. 114].

Zellers Inc. v. Group Resources Inc. (1995), 21 O.R.(3d) 522 (Gen. Div.), refd to. [para. 114].

Abacus Cities Ltd. v. Port Moody (Municipality) (1981), 26 B.C.L.R. 381 (C.A.), refd to. [para. 114].

Rawluk v. Rawluk, [1990] 1 S.C.R. 70; 103 N.R. 321; 38 O.A.C. 81, refd to. [para. 117].

Sorochan v. Sorochan, [1986] 2 S.C.R. 38; 69 N.R. 81; 74 A.R. 67, refd to. [para. 117].

Statutes Noticed:

Courts of Justice Act Regulations (Ont.), Family Law Rules, rule 12(1) [para. 98].

Family Law Act, R.S.O. 1990, c. F-3, sect. 5(6) [para. 36].

Family Law Rules - see Courts of Justice Act Regulations (Ont.).

Authors and Works Noticed:

Bala, Nicholas, Case Comment on LeVan v. LeVan: Overreaching in the Formation of a Pre-nuptial Contract (2007), 32 R.F.L.(6th) 374, p. 388 [para. 49, footnote 12].

Driedger, Elmer A., Construction of Statutes (1st Ed. 1974), p. 67 [para. 51, footnote 13].

Epstein, Phil, and Madsen, Lena, This Week in Family Law, Fam. L. News, 2008-15 (2008), generally [para. 42, footnote 10].

Hovius, Berend, Unequal Sharing of Net Family Properties under Ontario's Family Law Act (2008), 27 Can. Fam. L.Q. 147, p. 198 [para. 42, footnote 10].

Phipson on Evidence (15th Ed. 2000), para. 28-11 [para. 111].

Sopinka, John, Lederman, Sidney N., and Bryant, Alan W., The Law of Evidence in Canada (2nd Ed. 1999), pp. 1051 [paras. 106, 111, 118]; 1052 [para. 111].

Sullivan, Ruth, Sullivan and Driedger on the Construction of Statutes (4th Ed. 2002), p. 1 [para. 51, footnote 13].

Counsel:

Philip M. Epstein, Q.C., and Nancy J. Iadeluca, for the appellant;

James C. Morton and Victor Nikitine, for the respondent.

This appeal was heard on September 24, 2008, before Moldaver, Armstrong and Blair, JJ.A., of the Ontario Court of Appeal. Blair, J.A., released the following decision of the court on February 4, 2009.