Virc v. Blair

Ontario Reports

Court of Appeal for Ontario

Laskin, Benotto and Trotter JJ.A.

May 17, 2017

138 O.R. (3d) 191 | 2017 ONCA 394

Case Summary

Family law — Domestic contracts — Setting aside — Wife relying on husband's valuation experience when she signed separation agreement prepared by husband without confirming his valuations or receiving independent legal advice — Husband deliberately overvaluing his company at date of marriage when calculating his net family property — Misrepresentation having significant impact on equalization payment calculations — Trial judge not erring in exercising his discretion to set aside agreement.

Support — Child support — Retroactive child support — Separation agreement providing that no child support was payable — Trial judge setting aside separation agreement on basis of material misrepresentation by husband — Trial judge not erring in awarding retroactive child support on grounds that wife had made early request for child support and husband had engaged in blameworthy conduct.

Facts

When the parties separated in 2008 after 14 years of marriage, they signed a separation agreement prepared by the husband. The wife did not seek independent legal advice, as she deferred to the expertise of the husband, who had considerable experience in valuing businesses, and believed that his financial disclosure was accurate. She accepted that she owed the husband an equalization payment of $954,150. The separation agreement released her from that obligation and provided that no child support would be payable.

In 2009, the wife discovered that the husband had significantly overvalued one of his companies at the date of marriage when calculating his net family property. She brought an application to set aside the separation agreement, to recalculate the equalization payment and to review the child support arrangements. The husband successfully moved for summary judgment dismissing the wife's claims. The Court of Appeal allowed the wife's appeal and ordered a trial.

The trial judge found that the husband had deliberately misrepresented the marriage date value of his interest in the company, and that his misrepresentations were material as they had a significant impact on the equalization payment calculations. He assessed whether he should exercise his discretion to set aside the separation agreement and concluded that he should. He accepted evidence that the valuation of the company on the date of marriage was nil. He declined to allow the husband any date of marriage deduction for litigation receivables. He revised the calculations to determine the appropriate amount of equalization and support payments. Finally, he awarded retroactive child support for two of the parties' children. The husband appealed.

Held

The appeal should be dismissed.

The trial judge did not err in finding that the husband had breached his disclosure obligations and materially misrepresented his assets. The fact that the wife had the ability to independently verify the husband's valuations did not mean that the husband had fulfilled his disclosure obligations. The duty to disclose is the duty of the titled spouse to fairly value the asset. The husband's misrepresentation materially impacted the calculation of the husband's net family property and the wife's decision to sign the separation agreement. It was open to the trial judge on the evidence before him to value the company at the date of marriage at zero. It was also open to him to conclude that it was not possible for him to reasonably assess the value of the husband's litigation receivables and to decline to allow the husband any date of marriage deduction for those receivables.

The trial judge did not err in awarding retroactive child support. He determined that the wife had made an early request for child support; he turned his mind to the fact that the children lived at a high standard and the award would amount to a transfer of wealth; and he found that the husband had engaged in blameworthy conduct. There was no error in his analysis.

A. Introduction

[1] The appellant (husband) is a businessman. He and the respondent (wife), a lawyer, were married for 14 years when they separated. They signed a separation agreement prepared by the husband. The wife did not seek independent legal advice, believing that the husband's financial disclosure was accurate. She later determined that he had misstated the value of his assets at the date of marriage. She brought an application to set aside the agreement.

[2] The trial judge set aside the separation agreement. He found that the husband had misled the wife with respect to the value of his company at the date of marriage. The trial judge revised the calculations to determine the appropriate amount of equalization and support payments.

[3] The husband appeals the trial judge's decision to set aside the separation agreement, as well as the amount he awarded for the equalization payment and retroactive child support. He does not contest the spousal support award.

B. Background

[4] The parties met in 1991 when the wife was 26 years old and the husband was 46. The wife worked as a lawyer at a small Toronto litigation firm. The husband and his businesses were clients of the firm. The wife acted as junior counsel on the husband's files.

[5] When he met the respondent, the husband was separated from his former wife of 27 years. They had not, however, resolved their financial issues.

[6] A personal relationship between the husband and wife started in 1992. They began living together in 1993, and the husband commenced divorce proceedings with his former spouse. That same year, the wife left the law firm where she had been employed and began working almost exclusively for the husband on his litigation and related corporate affairs.

[7] The parties married on September 14, 1994 and had three children: Michael in 1994, Jeffrey in 1997 and Grace in 1999.

[8] In 1999, the outstanding family law proceedings between the husband and his first spouse were settled.

[9] The wife continued to practice law until 2001. With the exception of some part-time work between April 2004 and March 2006, she did not otherwise work outside of the home.

[10] The parties' marriage fell into difficulties and they eventually separated in May 2008.

(1) The Separation Agreement

[11] In January 2008, the husband e-mailed the wife a template of a separation agreement. She did not initially respond. Meanwhile, the husband commissioned valuations and appraisals of the matrimonial home and the couple's art collection. He consulted with accountants, retained a chartered business valuator and prepared, with input from his previous divorce lawyer, various net family property scenarios. For the most part, the wife was unaware of these activities and did not retain a lawyer. In late May 2008, the husband sent the wife a net family property statement showing that she owed him almost $954,000.

[12] The wife did not retain a lawyer to review this information for several reasons: (i) the husband had considerable experience in valuing businesses; (ii) the financial statements had been audited; (iii) the husband was confident about the values given; and (iv) the wife knew that she would need to find a large error -- of nearly $2 million -- to negate any payment the husband claimed she owed.

[13] The parties signed the separation agreement on May 31, 2008 in their home (the "separation agreement"). The separation agreement provided, among other things: the wife was released from her obligation to make a $954,150 equalization payment, and no child support would be payable as the children would spend equal time with both parties. The issue of child support would be reviewed yearly after 2010.

(2) The Basis for the Wife's Equalization Payment

[14] On separation, spouses are entitled to share equally in the increase in value of their respective property from the date of marriage to the date of separation. For that reason, each spouse has an obligation to value his or her property as of the date of marriage and the date of separation. The difference between the two values is the party's net family property. The spouse with the higher net family property pays the spouse with the lower net family property an equalization payment representing one-half of the difference between their net family property values. A main issue in this appeal is the value of the husband's property at the date of his marriage to the respondent wife, for the purposes of calculating his net family property and, consequently, the value of any equalization payment.

[15] The husband owned a 60 per cent interest in a holding company, Renegade Capital Corporation. His former wife owned the other 40 per cent. Renegade's principal holding was Algonquin Mercantile Corporation, a publicly traded company in which Renegade held a 68 per cent interest. In turn, Algonquin held investments in two businesses -- a 50.1 per cent interest in Pharma Rexall Drug Store Ltd. and a 100 per cent interest in Dominion Citrus & Drugs Ltd.

[16] The husband listed the date of marriage value for Renegade at $7,603,685.03. This reflected a "cost" or "book value" approach calculated by multiplying Renegade's shareholders' equity of $12,672,085 by the husband's 60 per cent interest in the company.

[17] This value did not reflect any trading value in the market for Renegade's $32,363,466 in long-term investments in its operating companies. The notes to the financial statements recorded this trading value as $16,243,860. The difference between the "book value" of Renegade and its "market value" was over $16 million. By using Renegade's book value instead of its market value in disclosing his assets to the wife, the husband significantly overvalued the company.

[18] The valuation of Renegade formed the majority of the husband's $11,012,390.36 date of marriage deduction from his net family property. This deduction served to reduce his net worth, resulting in the wife owing the husband an equalization payment.

(3) The Wife's Concern About the Value of Renegade

[19] After signing the separation agreement, the wife became concerned about the value the husband had attributed to Renegade at the date of marriage.

[20] On February 1, 1994, seven and a half months before the parties' marriage, the husband swore a financial statement in legal proceedings with his former spouse. In those proceedings, he swore that he was being sued in various proceedings where the damages sought exceeded $200 million. He said that Renegade was virtually worthless. He prepared a Renegade equity value schedule showing a negative equity value of $3,446,801, adjusted for a market-to-market value of the company's long-term investment for the year ending December 31, 1994. In those proceedings, he also provided an accountant's memorandum saying that the wind-up value of the company as of October 15, 1993 would have resulted in no moneys being available for distribution to the shareholders.

[21] All of this would suggest that the husband's assets at the date of marriage to the respondent wife were zero. The husband's net family property value therefore should have been greater than what was reflected in the documents preceding the signing of the separation agreement, and the corresponding equalization payment that the wife owed should have been lower.

(4) The Wife's Action to Set Aside the Agreement

[22] On June 7, 2009, the wife sent an e-mail to the husband asking why it was appropriate to value Renegade at its book value for the purpose of valuing it at the date of marriage, but at its liquidation value at the end of the marriage. She testified that this was when "the penny dropped", and she realized that she had been misled.

[23] The wife brought an application to set aside the separation agreement, to recalculate the equalization payment and to review the child support arrangements. In response, the husband brought a motion for summary judgment to dismiss the wife's claim to set aside the separation agreement, together with her other claims.

[24] The motion judge granted the husband's motion for summary judgment. She concluded that even if the numbers the husband had provided were deliberately false and the wife received substantially less than her entitlement, there was no genuine issue for trial relating to setting aside the separation agreement. She held that the party who seeks to set aside a separation agreement cannot rely on the fact that she failed to undertake her own investigation into values when she had the opportunity to do so. The motion judge noted that the wife was a shareholder and eventually an officer of Renegade. She had full access to its books and records and chose not to review them. She also did not ask the husband for further information or consult with anyone regarding the value of the shares.

[25] The wife successfully appealed the motion judge's decision to this court, which concluded that the motion judge erred in shifting the onus to the wife to inquire as to the veracity of the husband's financial disclosure. This court said: "In the face of a deliberate material misrepresentation, the onus is not appropriately placed on the recipient spouse. Rather, the burden is on the party disclosing to establish actual knowledge of the falsehood by the recipient": Virc v. Blair (2014), 119 O.R. (3d) 721, 2014 ONCA 392, at para. 58. This court went on to say, at para. 68: "The law does not entitle a liar to succeed just because the recipient of the falsehoods has not ferreted them out."

[26] In addition, this court concluded that the motion judge erred in granting summary judgment when relevant factors that required a determination were left unresolved. Specifically, the motion judge did not make rulings on key factors required by Rick v. Brandsema, 2009 SCC 10, including the extent of the defective disclosure and the degree to which it was deliberate. This court ordered a trial and the decision from that trial is currently under appeal.

C. The Trial Judge's Reasons

[27] The trial lasted 19 days. The trial judge provided extensive, detailed and thorough reasons. He set aside the separation agreement, recalculated the equalization payment, and ordered spousal support and retroactive child support.

(1) Setting Aside the Separation Agreement

[28] The primary basis underlying the trial judge's decision to set aside the separation agreement involved the value of Renegade at the date of the marriage. The trial judge applied s. 56(4) of the Family Law Act, R.S.O. 1990, c. F.3, which provides:

56(4) A court may, on application, set aside a domestic contract or a provision in it,

(a) if a party failed to disclose to the other significant assets, or significant debts or other liabilities, existing when the domestic contract was made;

(b) if a party did not understand the nature or consequences of the domestic contract; or

(c) otherwise in accordance with the law of contract.

[29] He then followed the two-step procedure set out by this court in LeVan v. LeVan (2008), 90 O.R. (3d) 1, 2008 ONCA 388, at para. 51:

The analysis undertaken under s. 56(4) is essentially comprised of a two-part process: Demchuk v. Demchuk. First, the court must consider whether the party seeking to set aside the agreement can demonstrate that one or more of the circumstances set out within the provision have been engaged. Once that hurdle has been overcome, the court must then consider whether it is appropriate to exercise discretion in favour of setting aside the agreement.

[30] On the first step, the trial judge concluded that there were two bases to set aside the separation agreement under s. 56(4) of the Family Law Act: (i) pursuant to s. 56(4)(a) -- the failure of the husband to accurately disclose the value of a significant asset, namely, Renegade; and (ii) pursuant to s. 56(4)(c) -- the husband's material misrepresentation about the value of Renegade, which was contrary to the "law of contract".

[31] The trial judge held that the husband had not discharged his duty to disclose the value of Renegade. The trial judge relied, in part, on the husband's valuation expertise and the wife's deference to that expertise. In particular, he found that the husband never alerted the wife to the fact that the book value of Renegade's investments significantly exceeded their market value.

[32] The trial judge ultimately concluded that the husband had deliberately misrepresented the marriage date value of his interest in Renegade. He based this conclusion on several factors, including:

• the husband was an experienced and sophisticated businessman;
• the husband had substantial experience in valuing businesses;
• in the proceedings with his first spouse, the husband had prepared financial statements that were materially different from the representations he made to the wife;
• the representations the husband made about the value of Renegade in the proceedings with his first spouse were nearly $6 million different from those made in this case, despite the fact that both were estimates of the business' value at approximately the same point in time;
• the husband admitted that a market-to-market analysis of the value of long-term investments is easy to do, and he did them regularly, although he said he did none in this case.

[33] The trial judge found that the wife did not have actual knowledge that the husband had overvalued his marriage date interest in Renegade.

[34] The trial judge also held that the husband's representations about the value of his marriage date interest in Renegade were material, as they had a significant impact on the equalization payment calculations.

[35] Moving to the second step of the LeVan analysis, the trial judge assessed whether he should exercise his discretion to set aside the separation agreement. He concluded that he should, noting that the wife had deferred to the husband's financial expertise, and the agreement was unfair to her because it substantially misstated the parties' net family properties.

(2) Calculating the Equalization Payment

[36] Having set aside the separation agreement, the trial judge determined the value of Renegade at the date of marriage and recalculated the husband's net family property on that basis. The husband submitted that he was entitled to deduct the value of his litigation receivables at the date of marriage, in addition to Renegade's value. Apart from these two issues, there was no real disagreement about the husband's net family property. The trial judge dealt extensively with Renegade and the litigation receivables. I will address each in turn.

(a) Renegade

[37] Peter Weinstein is a business valuator who testified about the value of the husband's business interests at the marriage and valuation dates. Using an adjusted book value assets approach at both the marriage and valuation dates, he concluded that the husband's interest in Renegade on the date of marriage was $0. This was because the company's significant bank debt and total liabilities of $20,300,000 exceeded its value of $17,761,399.

[38] The husband maintained that the value of his interest was $7,889,904 (which was slightly more than $7,603,685.03 -- the amount he listed in the net family property statement attached to the separation agreement). He used a book (or cost) value for Renegade's investments, not their market value.

[39] The husband sought to have Professor Douglas Cumming qualified as an expert to provide a valuation of Dominion Citrus (a wholly owned subsidiary of Algonquin, which was 68 per cent owned by Renegade). Cumming was tendered to provide an opinion about the enterprise value of Dominion Citrus, which is a discounted net-present-value cash flow methodology that relies on hindsight information.

[40] Cumming was not engaged to express any marriage date opinion about the value of the husband's interest in Renegade, the value of Renegade or the value of Algonquin. The husband submitted this was not necessary. Since Dominion Citrus was wholly owned by Algonquin, it was simply a mathematical exercise to follow its value through to the husband's share of Renegade.

[41] The trial judge did not accept this submission. Nor did he allow Cumming to testify as an expert witness. The trial judge concluded, at the qualification stage, that the relevance of the proposed evidence was compromised by the selective and circumscribed nature of Cumming's engagement by the husband. The husband had provided Cumming with only the information that the husband decided was required, including some of the husband's own valuations that Cumming had relied on. The trial judge expressed concern that Cumming's work product was more of a collaborative effort with the husband, not expert testimony.

[42] The trial judge accepted Weinstein's evidence that the value of Renegade on the date of marriage was nil.

(b) Litigation Receivables

[43] The husband claimed $1,500,000 as part of his date of marriage deduction for a number of interrelated legal proceedings in which he was involved. The lawsuits were based on pre-marriage events, but were not resolved until after the marriage date.

[44] By December 19, 1995 (over a year after the date of marriage), six of the proceedings had been settled, and the husband had received $1,500,000, less $135,000 withholding tax deductions, for a total of $1,365,000. The husband did not offer an explanation for why he sought to have $1,500,000 included as his date of marriage deduction, rather than the $1,365,000 he actually received. The husband's financial statement sworn in his family law proceedings with his first spouse on February 1, 1994 did not disclose any litigation receivables, but said the husband's exposure to damages was in excess of $200 million.

[45] After reviewing these facts, the trial judge concluded that the husband had not met his onus of proving that the various legal proceedings in which he was personally involved would be either adjudicated or settled in his favour in the amounts claimed. As the trial judge could not reasonably assess the value of any litigation receivables, he declined to allow any date of marriage deduction.

(3) Retroactive Child Support

[46] The wife sought retroactive child support.

[47] The trial judge discussed the principles from S. (D.B.) v. G. (S.R.), 2006 SCC 37, with respect to the choice of date from which a court should make a retroactive award for child support.

[48] Although the trial judge found that the effective date of notice was June 7, 2009 (the date the wife e-mailed the husband requesting a review of the child support arrangements), he concluded that the retroactive date should be July 1, 2008 (when the wife and children left the matrimonial home). He made this conclusion on the basis that the husband's income was higher than anticipated in the separation agreement, the wife's income was lower than anticipated and the husband had engaged in blameworthy conduct by misleading the wife about the value of his interest in Renegade.

[49] The trial judge then conducted a lengthy analysis to determine the wife's income, the husband's income and the children's residence.

[50] He calculated the adjusted amount under the Federal Child Support Guidelines, SOR/97-175 (the "Guidelines") (taking into account what the husband paid and what the wife should have paid) as $506,865. He ultimately decided that the Guideline amount was inappropriate and reduced it to $450,000, in light of approximately $350,000 the husband had spent on the children that did not qualify as "special or extraordinary" expenses under s. 7 of the Guidelines, but still benefited the children.

D. Fresh Evidence

[51] On appeal, the husband seeks to introduce fresh evidence showing his correspondence with his lawyers and accountants in connection with his previous divorce and with the respondent. The correspondence, he submits, demonstrates that he did not disclose a lower value for Renegade to his former spouse. Rather, the correspondence confirms a value in excess of $13 million. He also seeks to rely on several financial reports relating to the valuation of Renegade -- particularly the Cumming report -- which the trial judge ruled inadmissible.

E. Issues

(1) Is the fresh evidence admissible?

(2) Did the trial judge err in setting aside the separation agreement?

(3) Did the trial judge err in calculating the equalization payment?

(4) Did the trial judge err in awarding retroactive child support for Michael and Jeffrey?

F. Analysis

(1) Fresh Evidence

[52] The principles governing the admissibility of fresh evidence on appeal are outlined in R. v. Palmer, [1980] 1 S.C.R. 759, at p. 775 S.C.R. The Palmer test requires the applicant to satisfy four criteria: (i) the evidence could not have been adduced at trial; (ii) the evidence must be relevant in that it bears on a decisive or potentially decisive issue; (iii) the evidence must be reasonably capable of belief; and (iv) the evidence must be such that, if believed, it could reasonably, when taken with the other evidence adduced at trial, be expected to have affected the result.

[53] The proposed evidence does not meet the test. The correspondence could have been adduced at trial. It also could not reasonably have affected the result at trial, since the trial judge had the benefit of the same information in the husband's sworn financial statements (also referred to later in these reasons.) With respect to the Cumming report, the husband attempted to introduce it at trial, but the trial judge declined to qualify Cumming as an expert. The Cumming report is therefore not properly the subject of a fresh evidence motion. Rather, what the husband is challenging is the trial judge's exercise of discretion to exclude Cumming's testimony (and accompanying report). The Cumming report is discussed in more detail below.

(2) Did the Trial Judge Err in Setting Aside the Separation Agreement?

[54] The husband submits the trial judge misapprehended the evidence and consequently erred in setting aside the separation agreement. I disagree.

[55] The trial judge correctly followed the two-step process directed by this court in LeVan. As discussed, step one requires the party seeking to set aside the agreement to demonstrate that one or more of the circumstances in s. 56(4) is engaged. The trial judge concluded that the husband had breached his disclosure obligations (s. 56(4)(a)) and, in accordance with the law of contract (s. 56(4)(c)), had materially misrepresented his assets. The trial judge then moved to step two and exercised his discretion to set aside the separation agreement.

(a) The Husband's Breach of His Disclosure Obligations (s. 56(4)(a))

[56] The husband submits the trial judge misapprehended the evidence and misunderstood the disclosure he made to the wife. He submits he did disclose the existence of his assets as required by the Family Law Act. His wife, he argues, had the ability to value the assets, but did not do so.

[57] The trial judge found, at para. 94 of his reasons:

[T]he husband never alerted the wife to the fact that the book value of Renegade's investments significantly exceeded their market value. At best, the husband's evidence is that he did nothing to prevent the wife from testing the veracity of his representation of the company's value.

The trial judge concluded this was not a sufficient discharge of the duty to make full disclosure, especially given the husband's valuation expertise and the wife's deference to that expertise.

[58] In my view, the husband's submission is improperly characterized as an alleged misapprehension of fact on the part of the trial judge. In reality, the husband asserts an error of law, in that the husband submits he fulfilled his disclosure obligations because the wife could have sought to independently verify his valuations.

[59] The trial judge did not err. Inherent in the duty to disclose is the duty of the titled spouse to fairly value the asset. This is a basic principle of disclosure. The onus is on the party asserting the value of an asset that he or she controls to provide credible evidence as to its value: Menage v. Hedges, [1987] O.J. No. 1512, 8 R.F.L. (3d) 225 (Dist. Ct.), at para. 44; Homsi v. Zaya, 2009 ONCA 322, [2009] O.J. No. 1552, 65 R.F.L. (6th) 17, at para. 38. The husband's submission to the contrary is wrong in law.

(b) The Husband's Misrepresentation (s. 56(4)(c))

[60] The husband's overall submission is that the trial judge erred in finding he misrepresented the value of Renegade at the date of marriage. The husband represented that it was worth $7.6 million. The trial judge found it was worth nothing.

[61] In arriving at this conclusion, the trial judge relied on the expert evidence of Weinstein. The husband alleges the trial judge should not have relied on this evidence for two reasons: first, Weinstein relied on hindsight in valuing the company; and second, the trial judge did not allow the husband's valuator, Cumming, to testify. I do not agree with either proposition.

[62] The Weinstein report was not based on hindsight. Early in the proceedings, the husband obtained a report from another valuator, Glenn Bowman, of Capital Canada. This report was not produced at trial, but was given to Weinstein. Weinstein compared his independent results to those in the Bowman valuation.

[63] As to Cumming, the trial judge concluded, after conducting a voir dire, that his report was a collaborative effort with the husband and did not meet the requirements for expert testimony as set out in White Burgess Langille Inman v. Abbott and Haliburton Co., 2015 SCC 23. In particular, the trial judge found that Cumming's evidence lacked relevance, as he was not engaged to express any marriage date opinion about the value of the husband's interest in Renegade; the value of Renegade; or the value of Algonquin.

[64] The husband's position at trial, which the trial judge summarized, at para. 261 of his reasons, was that it was not "necessary to value Renegade and its holdings because, as Dominion Citrus was wholly owned by Algonquin, it was simply a mathematical exercise". Expert evidence, the husband submitted, was not required to follow Dominion Citrus' value up through Algonquin to Renegade, and ultimately to the husband. The husband maintained that this was "neither complex nor challenging and in argument we would all have the ability to assist the court with that exercise". For the reasons outlined above, the trial judge rejected the husband's position.

[65] I agree with the trial judge's analysis of the admissibility of Cumming's evidence. The trial judge correctly considered independence and impartiality as a threshold admissibility issue. White Burgess, at para. 54, states: "[T]he [trial] judge must still take concerns about the expert's independence and impartiality into account in weighing the evidence at the gatekeeping stage". Cumming's lack of independence and close association with the husband, together with his inability to opine on the date of marriage value of the asset, justified the exclusion of his testimony. I would not interfere with the trial judge's exercise of discretion in this regard.

[66] Having excluded Cumming's evidence, it was open to the trial judge to accept Weinstein's evidence as the "only" evidence of value. Hence, it was open to the trial judge to value Renegade at the date of marriage as zero.

[67] I now turn to the more specific errors the husband focused on during his oral submissions.

[68] The husband alleges that the trial judge erred, in para. 94 of his reasons, when he found that "the husband never alerted the wife to the fact that the book value of Renegade . . . exceeded [its] market value". This error, the husband submits, was exacerbated in para. 114(e) of the reasons, when the trial judge said that the representations the husband made in the divorce proceedings with his former spouse could not be reconciled with the representations he made to the wife in this proceeding. The husband contends these are errors of fact that informed the trial judge's conclusion that the husband had misrepresented his financial circumstances.

[69] I do not agree with the husband's characterization of these statements. The statements did not form the basis for the trial judge's determination of the value of Renegade at the date of marriage. In any event, the evidence supported both of the impugned statements.

[70] I begin with para. 94, the entirety of which reads:

The evidence in this case is that the husband never alerted the wife to the fact that the book value of Renegade's investments significantly exceeded their market value. At best, the husband's evidence is that he did nothing to prevent the wife from testing the veracity of his representation of the company's value. That, in my view, is not a sufficient discharge of his duty. In the circumstances of this case, especially given the husband's valuation expertise and the wife's deference to that expertise, it was incumbent on him to do more than stand by silently and leave it for the wife to verify the accuracy of his representation.

[71] During cross-examination, the husband stated that he did not tell the wife what "book value" meant, nor did he tell her that Renegade's financial statements valued its Algonquin shares at cost. This evidence supported the trial judge's conclusion that the husband did not alert the wife to the fact that the book value of Renegade exceeded its market value.

[72] The trial judge was correct to conclude the onus was on the husband to establish that the wife had actual knowledge. As this court stated when it allowed the appeal from the summary judgment motion [Virc v. Blair, supra, at para. 58]:

In the face of a deliberate material misrepresentation, the onus is not appropriately placed on the recipient spouse. Rather, the burden is on the party disclosing to establish actual knowledge of the falsehood by the recipient. The respondent could point to no authority for the proposition that the suggested duty of a spouse receiving financial disclosure in a matrimonial case, to investigate or test the veracity of the information provided, overtakes deliberate material non-disclosure by the other spouse.

[73] I now turn to the trial judge's statement that he could not reconcile the representations the husband made to his former spouse with those made to the respondent wife. The trial judge said, at para. 114(e):

[T]he representations about the depressed value of their interests in Renegade made to his former spouse in their litigation, reduced the husband's [equalization payment] exposure in that case. Conversely, the representations made to the wife in this case about Renegade's value when they married suggested a different value, more than $6,000,000 higher, at almost the same point in time. This latter representation increased his marriage date net worth, dramatically reducing the value of his net family property and, it follows, his equalization payment exposure. These representations were made in different legal proceedings, but it terms of content, proximate in time to each other. They cannot be reconciled. Each was financially advantageous to the husband.

[74] In further support of his submission, the husband also relied on various documents, including a five-year summary of operations with respect to a company called the Enfield Corporation Limited; excerpts from a pre-trial memorandum and financial statements provided in his previous matrimonial matter; and a 1989 valuation of Renegade by his then accountants.

[75] The Enfield Corporation was founded by the husband in 1984. In 1985, he incorporated Renegade to hold 25 per cent of its shares. The husband was president and CEO until 1989, when a hostile takeover took place. There was no evidence before the trial judge that the Enfield Corporation affected the value of Renegade at the date of marriage. The trial judge treated the corporation as a separate asset with no value at the date of marriage. I see no error in this regard.

[76] The documents from the husband's divorce proceedings with his former spouse -- including the pre-trial conference memo and financial statements, and his then accountants' valuation -- disclose a value of $13,888,000 for Renegade at the date of separation from his former spouse. The husband submits that this shows that the values in his two divorce proceedings can be reconciled and the trial judge misinterpreted the evidence.

[77] The documents the husband relied on must be read in their entirety and in the context of all of the representations the husband made to his former spouse. The trial judge did just that. The trial judge had, and relied on, extensive disclosure, testimony and representations that the husband made in the prior proceedings with his former spouse. The evidence disclosed that some seven months before his marriage to the respondent wife, the husband had told his former spouse that Renegade was essentially insolvent. His net family property statement to the respondent wife, however, set Renegade's date of marriage value at $7.6 million.

[78] In summary, there was evidence upon which the trial judge could conclude that the husband misrepresented the value of his date of marriage assets. The trial judge also found that the misrepresentation materially impacted the calculation of the husband's net family property and the wife's decision to sign the separation agreement. I would therefore not interfere with the trial judge's exercise of discretion to set aside the separation agreement.

(3) Did the Trial Judge Err in Calculating the Equalization Payment?

[79] The parties were largely in agreement as to the net family property of the husband, except for the value of Renegade and any litigation receivables at the date of marriage. I have discussed Renegade and now turn to the litigation receivables.

[80] The husband claimed $1,500,000 as part of his date of marriage deduction from his net family property for a number of interrelated legal proceedings in which he was involved. The amount claimed was the proceeds of the legal proceedings that were not resolved until after the marriage date, but were based on pre-marriage events.

[81] The husband submits that these litigation receivables were contingent assets at the date of marriage and the trial judge erred in finding their value at the date of marriage to be nil.

[82] After reviewing the facts in some detail, the trial judge concluded that the husband had not met his onus of proving that the various legal proceedings in which he was personally involved would be either adjudicated or settled in his favour in the amounts claimed. The trial judge concluded, at para. 298, "given the swamp of litigation in which the husband was involved and the lack of any credible evidence with which to determine the imminence or likelihood of settlement about any of the litigation receivables claimed", he was unable to reasonably assess their value and awarded none.

[83] This issue is a factual one. I see no palpable or overriding error in the trial judge's reasons.

(4) Did the Trial Judge Err in Awarding Retroactive Child Support for Michael and Jeffrey?

[84] The husband submits that the trial judge erred in awarding retroactive support for Jeffrey and Michael for three reasons: (i) the trial judge relied on an understated 2008 income figure for the wife; (ii) the wife acknowledged in her application that the children "generally" spent equal time with each parent, so the presumptive Guideline amount does not apply; and (iii) Jeffrey (age 19) and Michael (age 21) were not children of the marriage at the time of the award.

[85] I do not agree with the husband's submissions.

[86] First, the trial judge carefully outlined the wife's income sources and determined her income for each of the relevant years. The husband has failed to identify a palpable and overriding error in the trial judge's findings of fact.

[87] Second, the trial judge conducted a detailed analysis of the children's primary residence for the years 2008-2015. He made findings of fact that although the children went back and forth between the parents' homes, for the period from July 2000 to March 2009, the children resided primarily with the wife.

[88] Third, at the time of the trial, both Michael and Jeffrey were in university and thus qualified as children of the marriage.

[89] The trial judge outlined the directives in S. (D.B.), where the Supreme Court held that a court may order retroactive child support if the child was eligible for support at the date of the application. The trial judge determined as follows, at para. 334:

In this case, the wife unequivocally requested a review of the child support arrangements in her June 7, 2009 email, and the husband, just as clearly, refused the same day. That date should be the date of effective notice. And, in my view, the retroactive date from which the parties' support obligations should be determined is July 1, 2008, for these reasons:

(a) as will be noted below, the husband's line 150 income for 2008 was $773,487, not "approximately $590,000 a year." This is a material difference. In fact, it was not until 2014 that his income was lower than $590,000. It was substantially greater for most of the intervening years;

(b) the husband did engage in blameworthy conduct by misleading the wife about the value of his interest in Renegade. This impacts the choice of commencement date because, absent such conduct, it is not an unreasonable inference that different child support arrangements would have been made; and

(c) the wife's income was not "approximately $390,000 a year." Excepting 2010, when the balance of the Renegade retainer was paid, the wife's income never exceeded the $260,470.15 that she earned in 2008, and for most of the years up to and including 2014, it was substantially less.

[90] In S. (D.B.), at paras. 94-116, the Supreme Court outlined four factors to consider when determining whether a court should make a retroactive child support award:

• whether there is any reasonable excuse for why support was not sought earlier;
• the conduct of the payor parent;
• the circumstances of the child; and
• any hardship occasioned by a retroactive award.

[91] It is only after discussing these factors that the Supreme Court in S. (D.B.) went on to consider the date of retroactivity: paras. 118-25. Thus, a court must first determine whether to make a retroactive award before it considers the date of that award.

[92] The period from July 2008 to March 2009 attracts S. (D.B.) considerations. The husband submits that the trial judge only focused on the conduct of payor and did not address the other issues. I do not agree.

[93] The trial judge's reasons, read as a whole, make it clear that the husband's conduct was blameworthy. The trial judge also addressed the circumstances of the children. Although the children lived a privileged lifestyle, the husband's assets, according to the trial judge, "enabled him to fund a lifestyle for himself and the children that was materially different from what the wife could offer": at para. 352. The Supreme Court confirmed the appropriateness of balancing the discrepancies in the parents' households in Francis v. Baker, [1999] 3 S.C.R 250, [1999] S.C.J. No. 52.

[94] Ultimately, the trial judge determined that the wife had made an early request for child support; he turned his mind to the fact that the children lived at a high standard and the award would amount to a transfer of wealth; and he found the husband had engaged in blameworthy conduct. In considering the appropriateness of the award determined by the Guidelines, he exercised his discretion to reduce it from $506,865 to $450,000.

[95] I see no error in the trial judge's analysis, and I would therefore not interfere with the award of retroactive child support.

G. Disposition

[96] I would dismiss the appeal with costs payable to the wife. Her counsel requested partial indemnity costs of $67,000. I would award costs in the amount of $25,000, inclusive of disbursements and HST. Of that amount, I would direct that $10,000 is related to support and therefore enforceable by the Family Responsibility Office.

Appeal dismissed.

Notes

1 On appeal, the husband does not contest the child support ordered for Grace, or the spousal support award.

End of Document