COURT OF APPEAL FOR ONTARIO
CITATION: Bortnikov v. Rakitova, 2016 ONCA 427
DATE: 20160601
DOCKET: C60474
Hoy A.C.J.O., Blair and Roberts JJ.A.
BETWEEN
Aleh Bortnikov
Applicant (Appellant/ Respondent by way of cross-appeal)
and
Marina Rakitova
Respondent (Respondent/ Appellant by way of cross-appeal)
Aleh Bortnikov, in person
Eric Shapiro, for the respondent/appellant by way of cross-appeal
Heard: April 18, 2016
On appeal from the judgment of Justice Michael A. Penny of the Superior Court of Justice, dated April 29, 2015, with reasons reported at 2015 ONSC 2546 and 2015 ONSC 3898, and from the costs order, dated June 17, 2015, with reasons reported at 2015 ONSC 3898.
By the Court:
[1] The parties were married on August 9, 2002 and separated on February 7, 2011. The parties appeal and cross-appeal from the trial judgment of April 29, 2015, in which the trial judge granted the parties a divorce and dealt with equalization of property, spousal support, and various other claims, including costs.
[2] For the reasons that follow, we would allow the appeal with respect to one aspect of the equalization calculation, but would otherwise dismiss the appeal and cross-appeal.
Equalization
[3] The principal asset in issue in these proceedings is a motel property called the Grand Motel, owned by 1291937 Ontario Inc. (“the numbered company”). The respondent is the sole shareholder of the numbered company. During the marriage, the parties resided in a two-storey house attached to the motel, which was their matrimonial home. On separation, the appellant left the matrimonial home and lived in the parties’ cottage property until it was sold and the proceeds divided between them.
[4] The appellant raises again on appeal his claims for a share of the income and equity of the numbered company and his request that the motel property be sold. Although the appellant argues that he is pursuing those claims in the context of equalization, we agree with the trial judge that, as reflected in the January 26, 2015 Trial Management Conference Endorsement of Kiteley J., the appellant abandoned those claims before trial. He therefore cannot resurrect them on appeal.
[5] The parties submit that the trial judge erred in his evaluation of the motel property, and the respondent challenges the trial judge’s evaluation of the matrimonial home.
[6] We would not give effect to those grounds of appeal and cross-appeal.
[7] The trial judge was entitled to rely on some, all or none of the expert’s report. His reasons demonstrate that he was alert to the deficiencies in the report and that he made appropriate adjustments in his calculation of the values of the motel and matrimonial home to account for those deficiencies. For example, he increased the value of the motel to take into account the comparable property that the expert had mistakenly excluded from his valuation. The trial judge also considered other relevant factors in his determination of value, such as the nature and size of the motel property and the motel market. It was within his discretion to increase the value of the property by $100,000.00. We see no error and would not interfere.
[8] With respect to the matrimonial home, the trial judge acknowledged the difficulty in assessing the value of this property because of its uniqueness as part of the motel property. His calculation of the value of the matrimonial home was logical, fair and based on the portions of the expert’s report that he did accept. In particular, it was common ground that the house could not be sold other than in the context of a sale of all of the motel property. It therefore was appropriate to use a percentage of the value of the entire property as the basis for his evaluation. We see no error in his reasoning and would not interfere.
[9] The appellant further submits that the trial judge erred in deducting notional real estate fees from the value of the motel because there was no evidence that the prospect of such a sale was reasonably likely.
[10] The respondent included in her calculation of net family property “debts and other liabilities”, consisting of capital gains and real estate fees as disposition costs for the motel property. The motion judge did not deduct the notional capital gains, finding that he did not have enough information to be able to determine that those gains were reasonably likely on disposition. He concluded, however, that notional real estate fees of 5% of the date of separation value of the motel property should be deducted because “It is clear that sooner or later the respondent will sell the Grand Motel” and “the prospect of a sale [was] sufficiently likely within the foreseeable future”. While the trial judge noted that there was evidence that standard real estate fees are 5%, he did not indicate what evidence or inference led him to the conclusion concerning the foreseeability of the sale of the motel property.
[11] As a general rule, in determining whether disposition costs should be deducted from an asset’s value, the analysis should take into account evidence of the probable timing of the asset’s disposition. It is appropriate to deduct disposition costs from net family property “if there is satisfactory evidence of a likely disposition date and if it is clear that such costs will be inevitable when the owner disposes of the assets or is deemed to have disposed of them”: Sengmueller v. Sengmueller (1994), 1994 8711 (ON CA), 17 O.R. (3d) 208 (C.A.), at pp. 216-17. An allowance for disposition costs from net family property should not be made in the case “where it is not clear when, if ever, a sale or transfer of property will be made”: McPherson v. McPherson (1988), 1988 4732 (ON CA), 63 O.R. (2d) 641 (C.A.), at p. 647. However, it is not necessary for the court to determine whether the disposition of the assets is inevitable; rather, the court should determine on the basis of the evidence whether it is more likely than not that the assets would be sold, at which point disposition costs would inevitably be incurred: Buttar v. Buttar, 2013 ONCA 517, at para. 20.
[12] Specifically, when dealing with a business, as is the case here, this court gave the following guidance in Sengmueller, at p. 215:
In dealing with a business, one should fairly consider the nature of the business, the possible requirement that the business could only operate if the owner spouse continued to be involved, any shareholder agreement which required sale of his or her shareholding in specified circumstances, and myriad other possible considerations in the individual case.
[13] In the present case, there was no clear and satisfactory evidence that the respondent was contemplating the possible sale of the motel property or her shares of the numbered company in the foreseeable future. Rather, the evidence and the respondent’s submissions appeared to the contrary.
[14] At the time of the parties’ separation, there seems to have been some discussion between the respondent and her former husband about his repurchasing the business. However, in a subsequent email dated February 23, 2011, the respondent confirmed that she did “not need to sell the motel in the near future”, although she asked her former husband if he would agree to the transfer of the business’ shares to her children for the reason, among others, that “in case of a good offer and sale of the motel this will cut the taxes”. When cross-examined about this email, the respondent did not agree that she had received an offer to sell the motel property nor did she testify that she intended to sell the motel property in the foreseeable future. The respondent also testified that she had not transferred the shares to her children. In any event, the transfer of the shares to the respondent’s children would not require the sale of the motel property and therefore give rise to real estate commission fees.
[15] Finally, in his opening and closing submissions, counsel for the respondent indicated her objection to the sale of the motel property, as requested by the appellant, and submitted that the respondent was capable of financing an equalization payment to the appellant without selling the motel property. As counsel stated in his opening submissions, the motel property represented not only the respondent’s livelihood but also her residence. At 55 years of age at the time of the hearing, and based on her counsel’s submissions, it was unlikely and there was no evidence that the respondent would retire in the foreseeable future.
[16] As a result, without indicating the basis for his conclusion that “the prospect of a sale [was] sufficiently likely within the foreseeable future” and without an evidentiary foundation supporting it, the trial judge erred in allowing notional real estate fees of 5% to be deducted from the respondent’s net family property calculation. The notional fees calculated by the trial judge totalled $80,000.00. That figure is material and must be added back in to the equalization calculation, resulting in an increase of $40,000.00 to the equalization payment owing to the appellant.
Spousal support
[17] The trial judge ordered the respondent to pay $35,000.00 as a tax neutral lump sum support payment to the appellant.
[18] The appellant submits that the trial judge erred in calculating the spousal support on the basis of net rather than gross amounts and in reducing the support to make it tax neutral.
[19] We disagree.
[20] First, the trial judge correctly arrived at an average gross income figure for the purpose of calculating spousal support. It is clear that the trial judge considered gross as well as averaged figures in his estimate. In particular, the trial judge used the gross income figure of $36,000.00 from the respondent’s financial statement and the averaged amount of $40,000.00 that was given to the respondent’s children and then returned to the respondent. As a means of testing his estimate, the trial judge compared the gross average of $76,000.00 against a rough average of amounts representing deposits to the respondent’s bank account. There is no evidence that all of the deposits in the respondent’s bank account were net income amounts. Indeed, the respondent’s evidence was that some of the deposits did not represent net income amounts. Accordingly, not all of the deposits to her bank account were the respondent’s net income.
[21] The trial judge was also entitled to make the lump sum figure tax neutral. He reasoned that consistency required him to exercise his discretion and make the amount tax neutral because he had treated the amount awarded as overdue spousal support bearing interest from the date of separation. This was fair and reasonable. There is no basis for interfering.
[22] The respondent argues that the trial judge erred in awarding any spousal support to the appellant. While not pursued in oral argument, in her factum, the respondent submits that the trial judge erred by disallowing the respondent’s counsel to fully explore in cross-examination of the appellant whether the appellant was receiving support from his “good friend”, who was also his landlord. Further, the respondent contends that the trial judge erred in failing to apply Novakovic v. Kapusniak, [2005] O.T.C. 554 (S.C.), varied 2008 ONCA 381, to reject the appellant’s claim for spousal support.
[23] We see no merit in those submissions.
[24] The trial judge did not improperly curtail cross-examination of the appellant and correctly identified the relevant issue of whether the appellant was receiving financial support. The trial judge was entitled to accept the appellant’s evidence that he intended to use his equalization payment to satisfy his debt to his friend. In his reasons, the trial judge was alert to the fact that the appellant was receiving limited financial assistance from others.
[25] We also see no error in the trial judge’s determination that the appellant was entitled to spousal support, which was based on the evidence before him that the appellant worked at the motel at the respondent’s request and to the respondent’s benefit. Those factors distinguish the present case from Novakovic, where the husband had an independent career and was paying his own way. The trial judge’s decision as to spousal support is entitled to deference and we would not interfere.
Other claims
[26] The appellant argues that the trial judge erred in dismissing his claims for occupation rent from the respondent in relation to the matrimonial home, and for payment of a portion of the carrying costs of the cottage where he resided after the separation.
[27] We agree with the trial judge’s determination that the appellant was not entitled to those amounts. As we have already noted, the appellant had abandoned any claims in relation to the business. He had no beneficial ownership in the motel or the matrimonial home. We also agree that the circumstances did not warrant requiring the respondent to pay the carrying costs of the appellant’s residence.
[28] The appellant submits that the trial judge erred in rejecting his evidence and accepting the respondent’s evidence concerning the value of the respondent’s household goods because of her alleged bad faith conduct throughout these proceedings. We see no error in the trial judge’s rejection of the appellant’s estimate or the argument challenging the respondent’s credibility. The trial judge was entitled to accept the respondent’s figures.
Costs
[29] Both parties accuse each other of bad faith conduct that supports their respective claims for costs. The parties’ claims are without merit. The trial judge did not err in concluding that neither party’s conduct met the very high threshold for bad faith under r. 24(8) of the Family Law Rules, O. Reg. 114/99. While this was a high conflict case, there was no evidence of bad faith sufficient to invoke an entitlement by either party to full recovery costs.
[30] The respondent cross-appeals the costs award to the appellant. The respondent submits that the trial judge pre-judged the appellant’s entitlement to costs and gave no reasons for his award, and that the appellant is not entitled to any costs. The respondent maintains that she should be awarded costs in the amount of $75,000.00. Although we would grant leave to appeal the costs award, we would not give effect to the respondent’s submissions.
[31] The trial judge’s observation that the appellant was the “substantially successful party” and that he might seek costs was not a determination in relation to entitlement or quantum of costs prior to the parties’ submissions, but merely an observation that the appellant could seek costs.
[32] While the trial judge gave no specific reasons for his determination that the appellant enjoyed greater success in the proceedings, it was obvious from the outcome of the trial that the appellant had been the more successful of the two. Specifically, the appellant’s equalization payment and spousal support were significant. As such, there was no reason for the trial judge to depart from the ordinary rule that the successful party is entitled to costs.
[33] The respondent submits that the trial judge erred in failing to exclude from the costs award the appellant’s costs from a case conference before Klowak J., because the endorsement was silent as to costs.
[34] Islam v. Rahman, 2007 ONCA 622, 228 O.A.C. 371, at para. 2, confirms that a trial judge should not make an order for costs in relation to any earlier step where no costs were ordered or where there was silence on the issue.
[35] The trial judge’s order allowed two-thirds of the appellant’s out-of-pocket payments to his former lawyers, which included the costs in relation to the case conference before Klowak J. This was an error.
[36] Nevertheless, we would not alter the quantum of the costs award. In our view, the amount of $31,894.00 awarded was reasonable, fair and proportionate in the circumstances of this case.
Disposition
[37] Accordingly, the appeal is allowed with respect to the deduction of notional real estate fees. As a result, the equalization payment must be increased by the amount of $40,000.00. The appeal and cross-appeal are otherwise dismissed.
[38] Success was divided on the appeal and cross-appeal. There shall be no order as to costs and the parties shall absorb their own costs of the appeal and cross-appeal.
Released: June 1, 2016
“Alexandra Hoy A.C.J.O”
“R.A. Blair J.A.”
“L.B. Roberts J.A.”