Commission des services financiers de l’Ontario

Neutral Citation: 2007 ONFSCDRS 228

FSCO A04-000279

BETWEEN:

MICHAEL SPOHN

Applicant

and

ING INSURANCE COMPANY OF CANADA

Insurer

REASONS FOR DECISION

Before: Robert Kominar

Heard: July 5, 2005 in Guelph, Ontario and by telephone conference call on February 23, 2007.

Appearances: Robert A. Besunder for Mr. Spohn Daniel J. Rosenkrantz for ING Insurance Company of Canada

Issues:

The Applicant, Michael Spohn, was injured in a motor vehicle accident on May 9, 1995. He applied for and received statutory accident benefits from ING Insurance Company of Canada (“ING”), payable under the Schedule.¹ ING calculated the amount of Mr. Spohn’s loss of earning capacity (LEC). Mr. Spohn disagreed with the method used to calculate the prior earning capacity (PEC) element of his loss of earning capacity. The parties were unable to resolve their disputes through mediation, and Mr. Spohn applied for arbitration at the Financial Services Commission of Ontario under the Insurance Act, R.S.O. 1990, c.I.8, as amended.

The issues in this hearing are:

What is the amount of Mr. Spohn’s prior earning capacity?

Result:

Mr. Spohn’s prior earning capacity is quantified as $247.98 per week.

EVIDENCE AND ANALYSIS

Michael Spohn was seriously injured in an automobile accident on May 9, 1995. He suffered multiple skull fractures, a collapsed lung, a bruised kidney, fractures to his ribs, both legs and his left foot, as well as multiple soft tissue injuries. Mr. Spohn required several serious surgeries after the accident, was for a time confined to a wheel chair, and initially required very significant amounts of attendant care. He ultimately developed arthritis in both knees. He suffered a traumatic brain injury which manifested in various cognitive impairments that were subsequently confirmed through neuropsychological evaluations.

The dispute in this arbitration however does not relate specifically to Mr. Spohn’s serious injuries. Rather, it involves the proper calculation of his prior earning capacity (PEC) pursuant to section 29 of Bill 164.² There is no dispute between the parties that Mr. Spohn’s residual earning capacity (REC), as defined in section 30, has been assessed at zero, due to consequences of his serious injuries.

ING originally calculated Mr. Spohn’s PEC, based on their acceptance of his claim that he had at the time of the accident a contract of future employment to work for Mr. Daniel Ure, of Ure Imports, in a retail store which he operated in Elora, Ontario. Mr. Ure provided information to ING regarding his pre-accident offer of employment to Michael Spohn, including the expected hours he would have worked and the compensation rate they had agreed upon. Based on this contract of employment Mr. Spohn’s PEC was calculated by ING to be $247.98 per week.

Mr. Spohn however believes that ING ought to have also taken into account in its calculation of his PEC additional employment which he claims that he had at the time of the accident in his family’s business, Hurstbridge Holdings Limited. Mr. Spohn argues that if this income from Hurstbridge were to be included in the PEC calculation it would significantly raise his PEC to $612.34 per week.

The origin of the dispute in this arbitration is traceable back to Mr. Spohn’s specific type of involvement in Hurstbridge and the strained family relationships between himself, his sisters and his mother as those relate to family business matters. It is clear from the evidence that Mr. Spohn, from time to time, received money from Hurstbridge Holdings. ING has questioned the characterization of those payments and argues that they cannot be counted as employment income for the purpose of the Schedule. They raise further questions based on Mr. Spohn’s claim that he never actually got paid what he believed he was owed on account of his work done for Hurstbridge.³

The only oral evidence at the hearing was provided by Michael Spohn and his mother, Margaret Spohn. A large part of the background of the dispute here relates to the tense interpersonal environment within which the Spohn family business operated. It illustrates to a significant degree the volatile and problematic nature of some attempts to mix business and emotionally strained family relationships.

The evidence before me is that, prior to his death in 1992, Mr. Spohn’s father was a very successful developer of commercial properties in Ontario and British Columbia. Mr. Spohn testified that his father built many commercial malls for the Eaton retail chain when it was in its heyday. After the father’s death, the family continued to operate his business. A holding company, Hurstbridge Holdings Limited, was ultimately incorporated, with Margaret Spohn and her three children, Michael, Elizabeth, and Valerie, being its four equal shareholders. Mr. Spohn clarified at the hearing that all four family members held the same number of shares, but that Margaret Spohn’s shares were of a different class and carried different rights.⁴

This much of the corporate situation seems to be uncontroversial. However, beyond this point there is a pervasive grey fog hovering over the evidence, obscuring what was really happening behind the Hurstbridge corporate veil.

In her evidence at the original hearing in Guelph, Margaret Spohn testified that she is, effectively, the matriarch of this family. The brief snapshot of corporate time which is captured in the documentary evidence in the arbitration is focused on the year 1993. Mrs. Spohn’s evidence was that, by that point in time, Hurstbridge had decided to retain professional property managers to do the bulk of the work required to manage their commercial properties in Ontario and British Columbia. It is useful to summarize the relevant documentary evidence, as it is necessary to drawn inferences from this evidence in coming to a decision.

There is a letter filed in evidence, dated April 6, 1994, addressed to Michael Spohn, from Mr. A. Fimrite, who is the President of Firm Management Corporation, the property management company working for Hurstbridge, specifying its subject matter to be: 1993 Dividends, Director’s Fees, Salaries, & Contract Management Costs. For all intents and purposes this is the most salient evidence which I have apart from the testimony of Michael and Margaret Spohn. Mr. Rosenkrantz noted that ING had been requesting production of corporate records from Mr. Spohn throughout the arbitration but that most of what ING had requested had never been provided.

Both Michael and Margaret Spohn testified that the family business was highly conflicted. Michael Spohn explicitly described it as being “completely dysfunctional.” At the reconvened hearing Mrs. Spohn conceded that her family’s business interactions with each other were, at least, “inefficient.” Mrs. Spohn’s opinion was that all of her children shared in the responsibility for the ongoing family conflict. Mr. Spohn’s evidence was that he does not really trust his sisters, or his mother, for that matter. There apparently were multiple serious disputes between Mr. Spohn and his two sisters, between Mr. Spohn and his mother, and between one sister and the rest of the family. Mr. Spohn testified that he at one point in time contemplated suing his sisters over the oppressive way they were treating him within the company, but he deferred taking such action at the request of his mother. He also stated that, despite his mother’s encouraging him to be patient, his concerns were never resolved, and that by the time he realized that he should have proceeded with his lawsuit the limitation period had expired. Evidence was also presented that one of the sisters sued the other family members for partition of the family home.

It is not unknown for closely held family businesses to encounter serious conflicts which, at times, are more directly related to family dynamics than they are to formal business concerns. In this case, Mr. Spohn is arguing that the nature of the ongoing disputes within his family are intimately connected with the claims he is making in this arbitration.

It is uncontroversial that “if” Mr. Spohn was employed by Hurstbridge at the time of his automobile accident and earning income from that employment, he would be entitled under section 29 of the Schedule to have that income included in his PEC calculation.

Review of Documentary Evidence

I shall review the documentary evidence in this arbitration in chronological order as I find that it is important to understand the evolution of the information related to Mr. Spohn’s claim to have been employed at Hurstbridge at the time of the accident.

On June 8, 1995 Mr. Spohn executed an Application for Accident Benefits. This is one month after his accident. In that form he describes himself as a Director/Clerk at Hurstbridge. He states that he has been employed there from September 1994 through May 1995, working approximately 20 hours per week.
On June 9, 1995 Mr. Spohn prepared and signed on behalf of Hurstbridge an Employer’s Confirmation of Income. In that form he states that he was earning $500.00 per month - in his oral evidence Mr. Spohn said that he meant to write $500.00 per week - and that he had worked for the previous 36 weeks. He further testified that “we [the family] prefer to extract our pay in the form of dividends.” Mr. Spohn describes himself at this point in time as a Director with clerical duties.
On January 20, 1999 Mr. Spohn’s sister Valerie wrote a letter to her mother wherein she describes her brother at the time of the accident as “preparing” to make a contribution to Hurstbridge. She states in that correspondence that the family hoped that he “eventually” would become more involved in the business and “in time” participate in the its daily operations.
On March 3, 1999 Mrs. Spohn wrote a letter describing a family meeting which took place in 1995, at which time Mr. Spohn was described as having been “fired” but then “put on leave” instead. Mrs. Spohn goes on to say that Mr. Spohn had never actually been “put on the books” at Hurstbridge as he was in his “training period.”
On March 9, 2000, Valerie Spohn executed a new Employer’s Confirmation of Income. She states that Mr. Spohn earned $2000.00 in the 4 weeks prior to the accident. She further states that his period of employment was only from May 1, 1995 through May 9, 1995 and that he was completing a training period as an office administrator.
On March 11, 2000 Mr. Spohn completed another Application for Accident Benefits. This time he described himself as being unemployed at the time of the accident but having an offer to start work within a year. He entered no details related to his employment with Hurstbridge.
On March 2, 2006 Mr. Spohn executed Minutes of Settlement in a dispute related to the winding up of Hurstbridge, and the other members of his family did so as well, shortly afterwards. In those Minutes of Settlement there is a clause providing that “Michael Spohn shall be paid, in addition to dividend distributions, $40,000.00 in full satisfaction of all claims which he may have arising out of his employment with or services rendered to the Company and the termination thereof.” A further provision of these Minutes is that at the time of the distribution all parties were to exchange mutual releases, releasing one another from all claims they may have against the others, including claims arising out of being an employee of Hurstbridge. Mrs. Spohn, in her supplementary evidence, testified that these disputes within the company are not yet resolved and that these releases had not been exchanged as of the date of her evidence. In addition, she testified that she did not believe that Mr. Spohn had been paid the $40,000.00 either.

According to the Hurstbridge compensation synopsis filed in evidence, prepared by Firm Management, in 1993 Hurstbridge had 2 Directors, Margaret Spohn and a relative described only as “Aunt Pat.” In 1993 each of them drew $6,000.00 as Director’s Fees. The evidence of Margaret Spohn was that Aunt Pat was never actually involved with the business and was effectively only an honorary director. Mrs. Spohn stated that, at some unspecified point in time after 1993, Hurstbridge stopped paying Director’s Fees to Aunt Pat. In 1993, Margaret Spohn and the three children also drew $9,000.00 each in what are described as Shareholder Dividends. Finally, in 1993, Michael Spohn is recorded as having earned $3,000.00 as salary, while his sister Elizabeth earned $23,000.00 and his sister Valerie earned $30,000.00. In addition to these various family drawings on the company, the property managers charged Hurstbridge $83,697.00 for their various contractual management services provided in 1993.

The factual quandary here lies in what Michael Spohn’s involvement with Hurstbridge actually was at the time of his accident, if any. It is clear from the 1993 summary prepared by Mr. Fimrite that Hurstbridge funds were distributed to family members in three distinct ways. Directors’ Fees were paid to Margaret Spohn and Aunt Pat. The evidence I have is that Michael Spohn, whether he was a Director or not - a point which is unclear from the evidence I heard - did not receive director’s fees, so it is irrelevant to the decision which I have to make. Margaret Spohn and each of the three children received the identical dividend distributions in 1993.

Dividends are normally understood to be distributions of corporate profits to shareholders. Each of these family members was an equal shareholder in Hurstbridge, which plausibly explains why they each received the same amount of dividend distribution. Differential fees were paid to each of the three children as “salaries.” Both Mr. Spohn’s and Mrs. Spohn’s evidence at the hearing strongly leads me to conclude that the two daughters were doing substantially more work for Hurstbridge in 1993 than Michael was. This I find explains why he only was paid $3,000.00 in salary that year, while his sisters were paid approximately eight to ten times that amount.

Mr. Spohn testified, and it is not disputed, that he has had a variety of sporadic, short term forms of employment during his life. He has worked as a chef, in the film industry in some capacity, and in a feed mill. The longest continuous period of employment which he had lasted approximately one year according to Mr. Spohn. His academic credentials suggest that he completed the requirements for a bachelor’s degree in arts at the University of Guelph, but that he never applied to graduate. During the spring semester of 1995 he registered in two courses at Conestoga College related to property management but he withdrew before completing them. His evidence was that, after his father’s death, he decided to become more involved in the family business. His belief was that his father always intended him to come back from school and take over the business. This decision had a certain serendipity associated with it, as Mr. Spohn’s sister, Elizabeth, was apparently concurrently preparing to transition out of some of her duties with Hurstbridge and become more involved with her own family.

The evidence before me leads to the inference that Elizabeth Spohn conducted the day-to-day operations of Hurstbridge in Ontario at the time of the accident, to the extent that the property management companies did not. There is a document in evidence which Mr. Spohn states his sister prepared which is a job description, of sorts. It is a four page hand written document, which appears to have had portions written by different people. Mr. Spohn’s evidence is that it sets out Elizabeth’s, and later his, job duties with Hurstbridge included photocopying invoices, filing documents, sending and collecting mail from the post office, collecting rent on the first of the month from two addresses, making occasional bank deposits, reconciling bank statements, recording details of pay cheques, remitting taxes to the Receiver General, paying regular office bills. Michael Spohn testified that this document was in fact a job description which Elizabeth prepared for him when she was transitioning out of the business and expecting that he would take over her duties.

Mr. Spohn testified that he took over the above noted responsibilities from his sister when she left and that, as a result of this, he expected to be paid a comparable salary to the one his sister had been paid by Hurstbridge. The only evidence that was offered to support the quantification of Elizabeth’s salary is the $23,000.00 figure described in the correspondence from Mr. Fimrite for the year 1993.

Both Mr. Spohn and his mother testified that there was significant family conflict between Michael and his sisters during this whole period of time. There is a letter in evidence from Valerie, who resides in Victoria, BC, dated January 20, 1999, which reads in relevant part:

It was expected that Michael would eventually be more involved with the actual day-to-day operations of the Company.

“It was my understanding that he was taking courses of a business/financial nature in the KW area and that this was helping prepare him to make more of a contribution to Hurstbridge and that he was and continues to scrutinize the property management reports concerning our investments in B.C. and Ontario. We expected that in time Michael would participate more fully in the daily operations of Hurstbridge.” [Emphasis added]

There is also a letter in from Margaret Spohn, dated February 7, 1999 addressed to Michael Spohn’s then counsel, Mr. Raphael, attaching the January 20, 1999 correspondence to her from Valerie stating that:

In 1995 Michael was working in the office, doing routine work and learning more about the company properties. We had not quite formalized an agreement but Michael was counting on a comparable wage, as he was doing Elizabeth’s job when he was involved in the nearly fatal car crash. My daughter Valerie has access to more complete records in Victoria.

In a letter, or memorandum, which is not addressed to anyone specific and dated March 3, 1999, Margaret Spohn further wrote:

During the family meeting - business meeting - in 1995 following Michael’s accident he was fired from Hurstbridge Holdings - because of his severe injuries which incapacitated him. Later it was reversed to say that he was on leave from the company. We never put Michael on the books [emphasis added] - because his employment was cut short by the accident. At this time everyone was upset and documenting his employment for the month of May, following his training period, did not seem important.

There is a letter, dated October 5, 1994, from Mr. Fimrite advising Elizabeth Spohn that Hurstbridge needed to remit source deductions related to two payments made to Michael, in the amounts of $250.00 and $500.00, in that year. I note that this letter corroborates other evidence that Elizabeth’s job included remitting source deductions to Revenue Canada. Mr. Fimrite’s opinion was that these two payments Hurstbridge made to Mr. Spohn would be deemed to be employment income by Revenue Canada. Michael Spohn’s evidence was that these payments related to some grass cutting he undertook at some of the company’s properties. It is clear from the same letter that Hurstbridge paid an additional $1,000.00 to Mr. Spohn in that year which did not, according to Mr. Fimrite, qualify as employment income. There is no evidence before me as to what this $1,000.00 was for or how it ought to be characterized.

The question which ING raises, resulting from this evidentiary background, is whether Michael Spohn has met his burden of proof on a balance of probabilities showing that he, in any meaningful way, was employed by Hurstbridge at any time relevant to the Schedule. As best as I can understand Mr. Spohn’s argument, it is that I should infer from the documentary evidence of the small amounts which he earned in 1993 and 1994 as “income” from Hurstbridge that he was employed in a more significant and remunerative capacity with the company in May of 1995.

Having considered all of the oral and documentary evidence before me, the only reasonable inference which I can draw here is that Michael was not meaningfully “employed” by Hurstbridge Holdings at the time of the subject motor vehicle accident.

Michael Spohn unquestionably received remuneration from Hurstbridge prior to his accident. His evidence was that he “chose” to take his remuneration in the form of dividends, as this mode of compensation held certain income tax advantages. The challenge in this arbitration is that there is black hole of missing information which might potentially corroborate Mr. Spohn’s claims in some salient way and assist him in meeting the burden of proof which he bears. In the absence of more information, I simply am not able to discern any reasonably plausible coherence to Mr. Spohn’s interpretation of the facts in evidence.

Although I have, do to the paucity of evidence presented, no clear picture as to what was actually going on within the Hurstbridge business at the relevant time period, I find that it is much more probable that Michael Spohn was merely exploring the “possibility” of working for the family business, as opposed to “actually” working in it. My role as an arbitrator is to decide this matter on the evidence adduced before me. In this case what stands out is the notable lack of explanatory evidence, evidence which I believe is within the control of the Spohn family, and that was not tendered. ING has asked me to draw a negative inference from its non-production, and in this particular case, I find that it is reasonably warranted that I do just that.

The specific grounds supporting my conclusion are as follows:

In 1993 Michael earned $3,000.00 as salary from Hurstbridge, in contrast to his sisters’ earning roughly eight to ten times that amount for their work. Margaret Spohn earned no employment income, which is consistent with her oral evidence that she had nothing to do with the day to day management of the company. The inference which I draw, given that dividend distribution was equal for all of the family members, is that Michael’s work on behalf of Hurstbridge in 1993 was minimal at best.
In 1994 the only evidence I have before me is that Michael Spohn earned $750.00 from Hurstbridge in income which would be treated as salary for income tax purposes. Clearly his involvement with Hurstbridge was declining from the previous year. Mr. Spohn specifically testified that this employment consisted in cutting the grass a few times at some of their properties.
In 1995, the evidence which I have from Valerie Spohn’s letter is that dividends were, once again, paid out to all shareholders at the equal rate of $2,000.00 per month during that year. She noted that Michael was taking courses to “prepare himself to make more of a contribution to Hurstbridge.” The inference which I draw from these comments is that Michael still was not making any significant contribution to the management of the company at that point in time. He was continuing to draw dividend income, as was all of the family. However, I find that this was not at all related to any employment and I specifically find that there is no evidence before me which can support the claim that the dividends which he was drawing are actually salary under another name for income tax purposes.

It is reasonable for people to structure their income tax situations in whatever way legally maximizes their position. However, I have no evidence to support that Michael was working for Hurstbridge in 1995 in any manner that would allow me to reasonably infer that the $2,000.00 per month dividend which Valerie Spohn alludes to was in fact salary which Michael “elected” for tax purposes, to take as a dividend. Since Valerie reports that Michael was only ‘preparing’ himself to become involved in the family business, and given the essentially “clerical” and unskilled nature of the family business work Michael testified that he was doing, it is difficult to understand how the dividends which he was receiving are in any way related to “employment” at Hurstbridge; especially when one recognizes that all of the shareholders received the same dividend that year while ostensibly doing quite different amounts of work, including Elizabeth, who, if Michael Spohn and Margaret Spohn are to be believed, was no longer working in Hurstbridge as Michael had ostensibly taken over her job.

These circumstances, to my mind, are much more consistent with profit distribution than they are with employment income. The evidence which I have supports the conclusion that Mr. Spohn’s remuneration from Hurstbridge was completely independent of whether he worked for the company or not.

Michael Spohn also admits that he was not actually being paid by Hurstbridge for his “employment” at the time of the accident. Margaret Spohn’s evidence supports this reality but adds that her son “expected” to be paid. Mrs. Spohn also stated in her 1999 memo that, during 1995, Michael was not “on the books” yet. I appreciate that the serious motor vehicle accident which occurred in 1995 would have been the primary focus of attention for the family right after it occurred. However, Michael Spohn’s evidence is not that he started working for Hurstbridge immediately before the accident, but rather he claims to have been working for the company at least since 1993. I find it difficult to comprehend how a company, particularly one with the advantages of professional legal and management consulting services, could neglect, for that length of time, to “put Michael on the books,” or to pay him for work which he did. Clearly, Mr. Fimrite’s communication specifies that Michael Spohn had been paid a small salary in 1993. How could Mr. Spohn not have “been on the books” at that point in time? I have no idea what that could possibly mean in this context. There is also no evidence before me that Michael Spohn was ever “taken off the books” after 1993. In fact, Mr. Fimrite writes in 1994 to Elizabeth to advise that the $750.00 of remuneration Hurstbridge paid to Michael would likely be deemed income by Revenue Canada and so taxes would have to be paid on it. He also noted that the amount was “small enough” that there was no need for Hurstbridge to withhold source deductions and therefore that they should recover the money from Michael and remit it to Revenue Canada. The only inference which I can reasonably draw from this evidence is that Michael did very little in 1994 that would support any conclusion that he was actively working for Hurstbridge. Mr. Fimrite would not need to write such a letter if Michael was earning income in 1994 that required source deductions for tax purposes. The $750.00 would never have been an issue if he had other income from the company at the time. Michael Spohn’s involvement with Hurstbridge 1994, based on the evidence I have, clearly declined from the minor involvement he had in 1993.
Neither Michael Spohn nor Margaret Spohn produced any corporate or tax records of Hurstbridge to support their claims that Michael was working at the time of the accident. Mr. Spohn’s evidence was that he did not file tax returns for the relevant years until recently because he earned so little money. However, he did not produce his recently filed returns at the arbitration. Margaret Spohn was asked in cross-examination whether she brought any documentation with her from Hurstbridge to the hearing and she stated that she was not advised that she should have done so. I find this to be completely implausible and evasive. Given the matriarchal status which Margaret Spohn holds in this family and company she clearly was able to secure and produce financial records if she chose to do so. I also find that she, in all likelihood, would have been advised by her counsel to bring any supporting documentation to the hearing with her. I find that Margaret Spohn chose not to bring any supportive evidence which might exist within Hurstbridge to the arbitration. I draw an adverse inference from this failure to produce records, which were requested from the time of the pre-hearing in the case. Had those records anything to say that would support Michael Spohn’s claims regarding his employment with Hurstbridge, I believe that they would have been produced in this arbitration. Since nothing was produced, my inference is that no such documents exist.
The documentary evidence from the family filed in the arbitration was all generated years after the accident and reflects the tone of documents produced to prop up or dispute Michael Spohn’s claims for income replacement benefits. Mr. Spohn’s view is that any challenges within the documentation to his position can be explained away by a pattern of negative family dynamics. I heard no evidence about the precise nature of this ongoing family dispute. Margaret Spohn’s evidence, although it confirmed that her children did not get along, shed no light on the nature of that conflict or why she did nothing, for such a long time, to bring about some form of resolution. This is all the more puzzling in the light of Mrs. Spohn’s evidence that she thought her son should have been paid for work he did, yet she apparently did nothing to make that happen, notwithstanding that her daughters apparently had no difficulty in drawing salaries, in addition to dividends, for work they did for Hurstbridge. I find that the most plausible conclusion to draw from this is that there was an actual dispute within Hurstbridge as to whether Michael was “working” for the company or not. That dispute, and the lack of clarity around its parameters, casts a very large shadow over Michael Spohn’s evidence in this arbitration.
Mr. Spohn did not call either of his sisters as witnesses in the arbitration to corroborate his evidence. There is, as I noted earlier, some documentary evidence confirming conflict between siblings. However, my view is that there would have been no “family” consequences associated with Elizabeth testifying at this hearing about Michael Spohn’s stepping into her role at Hurstbridge and explaining why he was not being paid for that work. In the absence of Elizabeth’s evidence, or Valerie’s evidence, or some further documentation clarifying what was actually going on within Hurstbridge, I believe the reasonable inference to draw is that the sisters would not have assisted Michael Spohn’s case if called to give evidence.
Margaret Spohn testified that she believed that Michael should have been paid “adequately” for his work at Hurstbridge. She did not elaborate further on what this meant. Michael Spohn testified that his mother typically encouraged him to be patient in the hope that the family issues would be resolved “next month.” Taking into account the understandable desire for a mother not to escalate conflict among her children, I still find it implausible for Mrs. Spohn not to have taken a position that Michael Spohn should be paid an appropriate amount for his work if that, in fact, was what he was justly owed. Clearly this company had no problem paying the other siblings and professional managers for their efforts. There is no reason to believe that paying Michael Spohn was in any way beyond the financial ability of Hurstbridge to handle. I was provided with no evidence of any intervention Margaret Spohn made in this regard. She also testified that, and I find this particularly salient, that if such payments were appropriate, her role in the company could have mandated them. No evidence was offered of the actual corporate structure of Hurstbridge, although Michael Spohn stated that he thought that he might be a Director but did not really know. I find that Margaret Spohn’s failure to take up her son’s cause in any way is evidence contradicting Mr. Spohn’s version of his role within Hurstbridge, and that it supports Valerie Spohn’s view that he was only “preparing” to work for the company at the time of his accident. Valerie signed , on behalf of Hurstbridge, an Employer’s Confirmation of Income, dated March 9, 2000, some five years after the accident, stating that Michael had only been working for Hurstbridge for eight days prior to the automobile accident, May 1, 1995 - May 9, 1995, and that he was “completing trainings” during that period. She also went on to say in that form that her brother had earned $2,000.00 in income during the four weeks prior the accident. Although there is no direct evidence of this, it is salient to note, that this $2,000.00 amount is equal to the amount of dividend income which Valerie Spohn reported, in her letter dated January 20, 1999, each shareholder received in 1995 and 1996. The inference which I draw from this again is that Michael Spohn was not really working for Hurstbridge in any meaningful capacity, but rather was “training.” I have no evidence to support that this “training” amounted to employment that was compensable. I also find, based on the evidence I have, that the funds Mr. Spohn was paid by Hurstbridge for the four weeks prior to the accident, were in fact dividend income which shareholders were entitled to draw, irrespective of any employment with the corporation.
On cross-examination Michael Spohn was confronted with the multiple incongruities in the evidence supporting his case. He agreed that his evidence appeared “odd”, but added that his family is also “odd.” It is not my role as an arbitrator to pass judgement on the Spohn family dynamics or on the inner workings of Hurstbridge Holdings; but it is clear to me that there appears to have been an almost archetypal animosity between the Spohn siblings and their mother. Considering the oral and documentary evidence as a whole, it seems much more plausible to conclude that Michael Spohn is pursuing the claim for a higher PEC at least partially as an alternative to dealing with the family conflict, than it is that he was actually working for Hurstbridge in the way he suggested.
Michael Spohn’s evidence was that, at the time of the accident, he was hoping to take classes, work for Hurstbridge while also becoming actively involved with the operation of Ure Imports, and also planning to move to Kenya with his new spouse. ING raises the question of how any one person could have simultaneously done all these things. They suggest that Michael Spohn’s clear desire to work for and travel with Mr. Ure, along with his plans for moving to Kenya, contradict his evidence that he wanted to work with Hurstbridge. Although multitasking is now commonplace, I find that the evidence in the hearing supports, with a strong degree of probability, that Michael Spohn was actually hoping to move in a direction more related to working with Mr. Ure than with Hurstbridge. His oral evidence was animated when he stated that he thought it would be “a rush” to work with Mr. Ure in this capacity and I accept that that is what Mr. Spohn actually believed and desired. Given Mr. Spohn’s background and varied employment interests, it seems much more probable to me that he would be more interested in pursuing exporting opportunities in Indonesia than he would have been in doing routine bank deposits and picking up mail in Elora. Michael Spohn married a woman from Kenya just before the accident who intended to move back home to work in the field of international development. She apparently was set on going back to practise in her field and Mr. Spohn testified that he was seriously considering the possibility of joining her. All of this generates a striking dissonance with his evidence that he had decided to settle down and work in the family business, particularly when one recognizes that his “income” from the business had never been predominantly dependant on salary or wages, as opposed to shareholder dividend income.
With regard to the Minutes of Settlement which were filed at the resumed hearing, I find that they do not persuade me that the decision which I have reached based on the other evidence should be changed. Although I accept that this family conflict has been a longstanding one and that there is nothing untoward with the family only reaching an accord after Mr. Spohn’s initial arbitration hearing, I also must observe that the Minutes of Settlement in the family dispute do not actually shed any particular light on Mr. Spohn’s status as an employee at Hurstbridge. It is true that the agreement provides that Mr. Spohn be paid a certain amount of money, in consideration of settling all claims “which he may have arising out of his employment with or services rendered to the Company and the termination thereof.” However standard the legal language of such a clause is, its evidentiary value is minimal. One would have assumed that if Mr. Spohn and his family wanted to clarify his past employment status with the company, the wording of this clause would have been carefully drafted to acknowledge that he was employed and that this sum was for past owed earnings. Although one might anticipate that ING would have argued that such language, produced well after the fact, would be self serving for Mr. Spohn to produce late in the arbitration, nonetheless it would have been something worth weighing in the balance with the other evidence. Coupled with the fact that Mrs. Spohn testified that her belief was that the releases required for this agreement had not been executed by all of the parties, and that the funds had not actually been paid to Mr. Spohn, I can only draw the conclusion that there is still a disagreement within the Spohn family about Mr. Spohn’s involvement with Hurstbridge and that the best evidence to illuminate how that factors into this arbitration would have come through having one of the sisters testify. Even had they been adverse to Mr. Spohn’s interests, it may have supported his argument that his family was conspiring against him in some way.

I was referred to a number of arbitration decisions dealing with questions related to whether dividends can count as employment income for income replacement benefit purposes. Most of the cases counsel referred me to are not helpful on the particular issue which I have to decide. However I endorse the reasoning of Arbitrator Bayefsky in Swain v. Zurich Insurance (FSCO A97-002019, October 8, 1999) particularly in his comment that “[the applicant] is not required to establish that the draws/dividends were directly related to her particular efforts at the company. It is sufficient that she demonstrate that she received the draws/dividends as a contributing member of the company’s staff, not simply as a financial investor in the business.”

This reflects precisely the issue in this case, as I find that Michael Spohn was not, on the evidence, a “contributing member of the company’s staff.” He was not in fact, according to the evidence adduced in the arbitration, “employed” in Hurstbridge at the time of the accident, and thus the question of whether his dividends were “actually” salary is moot. I find that the dividends he received were actually distributions of corporate profits. I make this finding on the basis of my conclusion that Michael Spohn did not present sufficient evidence in the arbitration to meet the balance of probabilities burden of proof that he is required to satisfy if he is to prevail in this claim. To the contrary, my conclusion is that the paucity of evidence supporting his employment at Hurstbridge at the time of the accident, coupled with the significant gaps in the evidence occasioned by the failure of Michael Spohn or Margaret Spohn to provide me with documentary evidence to bolster their oral evidence, very strongly points to the conclusion that Michael Spohn was not actually employed by Hurstbridge at the relevant time.

The best case which Mr. Spohn can assert, based on the evidence which he chose to provide, is that he was “training” to potentially be involved in the company some day, but was not being directly remunerated for that, other than through his regular receipt of shareholder dividend income. Mr. Besunder argued that there should at a minimum be some quantum meruit analysis applied to Mr. Spohn’s situation, and that I should find that what he “ought to have been paid” should be deemed to be income for purposes of a PEC calculation. I decline to do this, as I am not satisfied by the evidence which was supplied that Michael Spohn actually worked for Hurstbridge at the time of the accident in the capacity which he says he did. This conclusion is strongly supported by my further finding that Michael Spohn and Margaret Spohn could have supplied further evidence to support this conclusion had they chosen to do so.

In conclusion, I find that Michael Spohn was not employed by Hurstbridge Holdings as of the date of the automobile accident, May 9, 1995 and therefore that ING is not required to include any monies received from Hurstbridge in the calculation of his Prior Earning Capacity for purposes of the Schedule. Mr. Spohn’s PEC is quantified at $247.98 per week.

EXPENSES:

The parties made submissions on expenses. I remain seized if they are unable to resolve the issue between themselves.

November 20, 2007

Robert A. Kominar Arbitrator

Date

Financial Services Commission of Ontario