Court of Appeal for Ontario
Date: 2019-07-24 Docket: C66206
Judges: Hoy A.C.J.O., Trotter and Jamal JJ.A.
Between
Laurie Anne Rados Applicant (Respondent)
and
Michael Rados Respondent (Appellant)
Counsel
For the Appellant: Nicholas J. Cartel and Glenn Brandys
For the Respondent: Aaron Franks and Adam Prewer
Heard: July 18, 2019
On appeal from: The order of Justice Caroline E. Brown of the Superior Court of Justice, dated March 26, 2018.
Reasons for Decision
Introduction
[1] The appellant appeals from orders relating to the division of net family property and spousal support. The principal issues relate to the trial judge's decisions: (1) to discount by 90%, for equalization purposes, a $5,000,000 promissory note that the appellant had signed on behalf of his personal holding company in favour of his parents, in respect of a loan to finance a condominium project during his marriage to the respondent; and (2) to award spousal support to the respondent for an indefinite period.
[2] None of the trial judge's other orders are challenged, including the claims for divorce, child support, or the quantum of spousal support.
[3] Following the oral hearing, we dismissed the appeal with costs, with reasons to follow. These are our reasons.
Background
[4] The parties were married in October 1995 and separated in December 2012. Their two children were born in 1998 and 2001. The appellant is a pilot who has been employed by Air Canada since 2000. The respondent was employed as a part-time x-ray technician at the time of her marriage, but she stopped working for a period due to language barriers when they lived in Quebec and then to care for their children. She returned to work part-time in 2009, but in 2014 stopped working again because of serious health issues. She is currently retraining to become an MRI technician, although that is on hold because of her health challenges.
[5] In addition to working as a pilot, the appellant was involved in a substantial condominium development project to build 46 residential units in Grimsby, Ontario. Between 1994 and 1996, the appellant bought the land for the project. In 2000, he incorporated a numbered company, 1502418 Ontario Inc., of which he was the sole officer and shareholder. The company later became the owner of the land and built two buildings as part of the project, while the appellant controlled the day-to-day construction operations.
[6] The appellant testified that the project cost over $8,000,000 to complete. He was initially unable to obtain outside financing, so his father, a real estate entrepreneur, stepped in to provide funding. The appellant also used funds from a joint line of credit secured against the matrimonial home, credit card advances, and funds from his employment income. The appellant obtained third party financing beginning in around 2004.
[7] The project began in late 2003 and was completed in 2007. In early 2008, the appellant signed a promissory note, on behalf of the numbered company, in favour of his parents in the amount of $5,000,000 as a demand loan. The promissory note did not provide that interest was payable. The company made no payments under the note until July 2013, after the appellant and respondent had separated. Further periodic payments were made between 2013 and 2016.
[8] The appellant's evidence at trial was that his father had advanced the numbered company about $3,700,000 for costs related to the project, while the remaining $1,300,000 was a risk premium. The appellant testified that the funding was always intended to be a loan, not a gift. He said that he and his father agreed that he would begin repaying the loan, with interest, as the condominium units were sold and after the financial institutions were repaid.
[9] The respondent acknowledged that the appellant's father had funded the condominium project, and while she was not aware of the financial discussions with the father, she was certain that they were not expected to repay him. She testified that shortly before she and the appellant separated, the appellant had told her that they had no debt. She learned of the promissory note only through her lawyer after the couple had separated. She also testified that the appellant's father had specifically told her, more than once, that the money he had provided was for the family and that the couple did not owe him anything.
The Trial Judge's Findings
[10] The 13-day trial included an agreed statement of facts, but the trial judge also heard testimony from the parties, the appellant's and his parents' accountant, and the appellant's mother. The appellant's father had passed away in 2016.
[11] The trial judge's 118-page reasons comprehensively reviewed the parties' evidence, made credibility findings, and canvassed the applicable law.
(1) The Discounting of the Promissory Note
[12] The trial judge accepted that the appellant's father had funded the project and that a $5,000,000 corporate debt existed on the date of separation: paras. 263-264.
[13] The trial judge also reviewed the case law permitting the court, when calculating net family property, to discount a debt owing by a spouse to reflect the likelihood that the spouse would ever be called to repay the debt: paras. 229-235, citing Salamon v. Salamon, [1997] O.J. No. 852 (Gen. Div.); Poole v. Poole (2001), 16 R.F.L. (5th) 397 (Ont. S.C.); and Cade v. Rotstein, aff'd (2004), 181 O.A.C. 226 (C.A.).
[14] Applying this legal principle to the evidence – including 33 specific factors regarding the timing and circumstances of the promissory note and whether the corporate loan was ever expected to be repaid (para. 274) – the trial judge found that any monies advanced by the appellant's parents to the corporation "were advanced for the future benefit of [the appellant] (and his family) and that there was almost certainly no intention that the monies were to be repaid": para. 275. She found that the prospect of a call for repayment was "extremely unlikely" and "close to non-existent", but it was "difficult to say with one hundred percent certainty that there was absolutely no possibility whatsoever": paras. 276, 278.
[15] Accordingly, the trial judge found that the debt was a contingent liability that had to be "significantly discounted": para. 277.
[16] Based on her appreciation of all the evidence, the trial judge exercised her discretion to discount the promissory note by 90% of its face value as a "true reflection of the practical reality": para. 279.
[17] The trial judge also rejected the appellant's alternative claim that, if the funds were not a debt, then they were a gift, to be excluded when considering the corporation's value pursuant to s. 4(2) of the Divorce Act, R.S.C. 1985, c. 3 (2nd Supp.). The trial judge noted that, during opening submissions, the appellant's trial counsel had taken the position that the monies were not a gift: para. 283. The appellant's evidence was to the same effect: para. 287 (emphasis in original). In the circumstances, the trial judge found that it would be unfair and inappropriate to consider this alternative position in closing argument: para. 290.
(2) The Award of Indefinite Spousal Support
[18] On the issue of spousal support, the respondent had argued that spousal support should be payable indefinitely, while the appellant did not make any submissions on this issue: para. 545. The trial judge ordered indefinite spousal support based on the circumstances of this case, including the age of the parties, the duration of the marriage, and the respondent's longstanding health issues, which have impacted her ability to maintain employment, as well as the compensatory nature of spousal support: paras. 546-548.
Issues on Appeal
[19] The appellant raises two grounds of appeal:
Did the trial judge err in discounting the promissory note by 90%?
Did the trial judge err in ordering indefinite spousal support without imposing periodic reviews or an end date?
Analysis
(1) Did the Trial Judge Err in Discounting the Promissory Note by 90%?
[20] The appellant's first ground of appeal raises three points.
[21] First, the appellant says that the trial judge made a palpable and overriding error by discounting the promissory note by 90%. The appellant says that several of the 33 factors considered by the trial judge involved irrelevant considerations, and if these are excluded, what remains could not justify the discount applied.
[22] We do not agree with this submission.
[23] Substantial deference is owed to the trial judge's determinations of fact and mixed fact and law, especially in family law cases. This court will interfere "only where the fact-related aspects of the judge's decision in a family law case exceeds a generous ambit within which reasonable disagreement is possible and is plainly wrong": Johanson v. Hinde, 2016 ONCA 430, at para. 1.
[24] The trial judge correctly considered the applicable law. The case law relied on by the trial judge is consistent with this court's guidance in Zavarella v. Zavarella, 2013 ONCA 720, 117 O.R. (3d) 641, at para. 40, that the debt is to be valued based on the reasonable likelihood that it will ever be repaid.
[25] The trial judge's application of that law to the facts and her decision to discount the promissory note by 90% as a true reflection of the practical reality of the situation is owed substantial deference.
[26] We also do not agree that any of the factors listed by the trial judge were irrelevant. She set out the nature of the parties' relationship based on all the evidence and evaluated whether there was any reasonable likelihood that there would ever be a call to repay the debt. We see no basis to interfere.
[27] Second, the appellant argues that the trial judge erred in piercing the corporate veil in respect of the appellant's numbered company.
[28] We do not agree with this submission.
[29] In our view, the trial judge did not pierce the corporate veil. In his "Form 10: Answer of the Respondent Michael Rados dated December 12, 2013", filed with the court for purposes of the division of net family property, the appellant stated: "I do own a corporation that owns a condominium development (the "condominium project"). I am sole shareholder of the corporation." The trial judge then appropriately considered the true value of the corporation's debt to the appellant's parents. The trial judge analyzed the role of the appellant and his corporation separately, concluding that "the possibility that the [appellant] or his corporation would have been called upon by his parents to ever repay them the monies they had advanced" was "extremely unlikely": para. 276 (emphasis added). Thus, the trial judge respected the corporation's separate legal personality from the appellant.
[30] Third, in his factum, the appellant argues in the alternative that the trial judge erred in failing to find that the demand loan to the corporation was a gift. This argument was not pursued at the hearing of the appeal.
[31] In our view, the trial judge was entitled to conclude that it would be unfair to permit this new theory to be advanced during closing argument, especially in view the appellant's evidence and his counsel's opening submissions disclaiming this theory. We see no basis to interfere.
(2) Did the Trial Judge Err in Ordering Indefinite Spousal Support Without Imposing Periodic Reviews or an End Date?
[32] Finally, the appellant argues that the trial judge erred in awarding indefinite spousal support. He says that the trial judge should have ordered a periodic review of spousal support every five years, to expire when the appellant reaches age 65.
[33] We do not agree with this submission.
[34] As the trial judge noted, at trial the appellant did not make any submissions on the claim for indefinite spousal support.
[35] Even if it were open to the appellant to take this position for the first time before this court, we see no basis to interfere. The trial judge exercised her discretion to order indefinite spousal support having regard to the age of the parties, the duration of the marriage, the respondent's health issues that have impacted her employment, and the compensatory nature of spousal support. That exercise of discretion was reasonable in the circumstances.
Disposition
[36] For these reasons, the appeal is dismissed with costs fixed at $18,500, plus the applicable HST.
"Alexandra Hoy A.C.J.O."
"G.T. Trotter J.A."
"M. Jamal J.A."