COURT OF APPEAL FOR ONTARIO

DATE: 20241115 DOCKET: COA-24-CV-0077

Brown, Coroza and Gomery JJ.A.

BETWEEN

Mojgan Afghahi (a.k.a. Maya Mekhael) Applicant (Appellant)

and

Johnsan Mekhael Respondent (Respondent)

Counsel: Jeff Rechtshaffen and Keith Davis, for the appellant Johnsan Mekhael, acting in person

Heard: November 1, 2024

On appeal from the order of Justice George MacPherson of the Superior Court of Justice, dated December 8, 2023, with reasons reported at 2023 ONSC 6876.

REASONS FOR DECISION

Background

[1] The appellant, Mojgan Afghahi, and the respondent, Johnsan Mekhael married in 1996 and separated on April 11, 2019. They have one child, A.M, who was 19 years old at the time of separation and 24 years old at the trial’s start. The respondent father is estranged from the child.

[2] The main issues in the parties’ family law trial were: spousal support; child support; the apportionment of section 7 expenses; equalization and the unequal division of net family properties; and unjust enrichment. The trial judge made a comprehensive order dealing with all claims advanced by the parties.

[3] The appellant now advances eight distinct grounds of appeal, essentially asking this court to retry much of the case. In order to bring more focus to the appellant’s grounds of appeal, we would group the grounds into three categories:

• Errors in the imputation of income to both parties for purposes of the appellant’s support claims, including alleged errors in credibility findings;
• Errors in the calculation of the equalization payment, including determinations regarding the respondent’s numbered company, which carried on business under the name International Rug Gallery (“IRG”) and a marriage-date account receivable claimed by the appellant; and
• The dismissal of the appellant’s unjust enrichment claim.

[4] For the reasons that follow, we grant the appeal in part. We find that the trial judge erred in calculating the equalization payment, and that his order should be varied to reflect this. We are not persuaded by the other grounds of appeal advanced.

DETERMINATION OF IMPUTED INCOMES

[5] The appellant submits the trial judge erred in his determination of imputed income used to calculate spousal and family support. The trial judge imputed annual income to the appellant of $30,000 and to the respondent of $100,000. In the appellant’s view, the trial judge should not have imputed any income to her and should have imputed an annual income of $200,000 to her husband.

[6] We have not identified any reversible errors in the trial judge’s determinations on these issues.

[7] The parties married in 1996. At that time, the respondent worked for Turco Persian Rug Company (“Turco Persian”) while the appellant was operating her own business, Kimiya Trading Co. Ltd. (“Kimiya”), which sold Persian rugs. According to the appellant, her father gifted rugs to her, which she transferred into Kimiya’s inventory.

[8] The appellant turned the running of Kimiya over to her husband in 2003. He continued to work for Turco Persian. In 2013, the respondent started to display Kimiya’s remaining inventory in the Turco Persian showroom.

[9] In 2015, the respondent and his brother incorporated IRG. In 2016, the respondent left Turco Persian to set up IRG alongside his brother. There was no dispute that by the time IRG commenced business in 2017, Kimiya had transferred any remaining inventory to it; Kimiya had not proved to be a successful business and ceased all operations in 2017.

Imputing the respondent’s income

[10] The trial judge summarized his reasons for imputing $100,000 in income to the respondent at para. 72:

When I consider the income attributed to the Respondent from the Krofchick Report [2021: $45,447 and 2022: 46,046], add income because there is no revenue noted from consignment sales, and I consider historical earnings from Turco at $115,000 per annum, I conclude that the Respondent is capable of earning an income in the amount of $100,000 commencing January 1, 2021.

[11] When the trial judge’s reasons are read as a whole, it is clear that the trial judge relied on expert and non-expert evidence to reach his conclusion. The non‑expert evidence included the respondent’s liquidation of all his RRSPs to meet expenses in the first few years of IRG’s operation before and at the time of the parties’ separation (2017, 2018, and 2019), as well as the decline in the worldwide market for Persian rugs described by Mr. Douglas Stocks, who was qualified as an expert on tapestry values: at paras. 71 and 122.

[12] In terms of the expert evidence, each party heavily relied on contending expert reports regarding the respondent’s income stream. [1] The trial judge set out the vastly different opinions about the respondent’s income in 2021 and 2022: $201,445 and $223,892 according to the appellant’s expert, Karin Kidikian, versus $45,447 and $46,046 [2] according to the respondent’s expert, Matthew Krofchick. He then identified the three main areas of disagreement between the experts that resulted in such different opinions. The trial judge accepted the opinion of the respondent’s expert on the issues of the treatment of IRG’s depreciation expenses and professional fees. The appellant does not take issue with those findings.

[13] The appellant does challenge the trial judge’s findings on the third area of disagreement between the experts – the amount of unreported income received by the respondent.

[14] The trial judge recognized that over the years the respondent probably did not report all the income he earned, stating, at para. 65:

I do accept that, historically at least, the parties supplemented their standard of living with sales of carpets off the books. I do not have satisfactory evidence to conclude that off the book carpet sales continued after the Respondent and his brother opened International Rug Gallery. [Emphasis added]

[15] The errors now flagged by the appellant repeat Kidikian’s critique of Krofchick’s initial calculation of the respondent’s income. However, Krofchick, in his reply report, addressed Kidikian’s critique in detail and, in turn, took issue with Kidikian’s methodology and resulting opinion. As the trial judge explained at paras. 50-52, he preferred the opinion of the respondent’s expert, Krofchick, about the amount of “off-the-book” sales of rugs for three main reasons:

• Krofchick was able to verify that the vast majority of rugs in inventory at IRG were from consignments set out in invoices;
• He did “not accept the assumption made by Ms. Kidikian that an enormous number of rugs in inventory were owned by Kimiya Trading Limited and then International Rug Gallery”; and
• He preferred the respondent’s evidence that the vast majority of the rugs at IRG were on consignment over the appellant’s evidence to the contrary.

[16] The appellant has not demonstrated that the trial judge’s acceptance of Krofchick’s evidence that the vast majority of rugs in the stock at IRG at the material time were on consignment amounted to a misapprehension of the evidence or palpable and overriding error of fact. Krofchick set out his opinion on the point at para. 54 of his Limited Critique Report. During cross-examination, Krofchick acknowledged that a list of consigned rugs that post-dated the 2016 transfer of Kimiya rugs from Turco Persian to IRG (Ex. 42) had no connection with the determination of what portion of the transferred rugs were consigned merchandise. [3] However, it was not suggested to Krofchick on cross-examination that that acknowledgement somehow undermined the opinion he expressed in para. 54 of his Limited Critique Report nor was such a suggestion made by appellant’s trial counsel in closing submissions. [4]

[17] Based on our review of the record, we conclude that the trial judge’s conclusions were anchored in evidence, including the opinions of Krofchick and that expert’s description of the underlying documentation upon which his opinion was based, which incorporated a review of IRG’s general ledgers for years ending 2019-2022.

[18] As well, the trial judge identified a number of reasons why he did not find credible the appellant’s evidence about the provenance of the rugs at IRG: at paras. 55-64. While one of those reasons was irrelevant to the credibility assessment – namely, the reasons for the appellant’s father’s initial failure to attend at court to testify [5] – other reasons explained his credibility finding. Further, as set out above, the trial judge’s reasons disclose that other evidence he accepted played a decisive role in his analysis of the respondent’s income.

Imputing the appellant’s income

[19] The trial judge found that the appellant was able to work and imputed to her annual income of $30,000, based on the prevailing minimum wage, for the purpose of determining spousal support: at para. 35.

[20] The thrust of the appellant’s submission is the trial judge erred in so doing because his analysis failed to take into account her age, physical and emotional ailments, level of education, employment experience, and lack of success in her recent business as a real estate agent. We see no such error. The trial judge took all those circumstances into account, together with assessments of her functional abilities, her earning capacity, and a video of her physical mobility and flexibility. He concluded that that the appellant’s reported income of zero per annum did not fairly reflect her ability to earn income. She has not demonstrated that this finding was tainted by palpable and overriding error.

NET EQUALIZATION ERRORS

The value of the respondent’s interest in IRG at date of separation

[21] The respondent owned a 50% interest in IRG at the date of separation. Both parties filed expert reports regarding the valuation of the respondent’s interest in IRG at the date of separation. [6] The expert called by the appellant, Kidikian, valued the respondent’s interest in IRG on the date of separation at $301,592. The respondent’s expert, Krofchick, placed the value of IRG at nil. The trial judge accepted Krofchick’s valuation: at para. 123.

[22] The trial judge observed that the most significant differences between the two expert reports concerned unreported and reported inventory. As to the reported inventory, the trial judge accepted Krofchick’s evidence that when consignment rugs were returned to their owners, the inventory level would decrease while no sales would be recorded.

[23] The more significant difference concerned unreported inventory. As was the case in the experts’ valuation of the respondent’s income stream, they took different views about the composition and value of the rugs in Kimiya’s inventory in 2016. As in the case of the income stream valuation, the trial judge preferred Krofchick’s evidence on the point. The trial judge stated, at paras. 120-123:

The Krofchick Report does not assign “unreported inventory” as he accepted that the vast majority of the inventory was on consignment after reviewing supporting documents.

I prefer the evidence of ‘unreported inventory’ contained in the Krofchick Report over the evidence of ‘unreported income’ contained in the Kidikian Report. The Krofchick Report is based on supporting documentation. The Kidikian Report is based on speculation.

In addition to the above, the evidence regarding sales of Persian Rugs was clear. Mr. Stock testified that Persian rugs have fallen out of favour. The worldwide market is down in the past 15 years. The explanation for this is that older people are downsizing and do not have the space for rugs. The younger generation is largely uninterested in Persian rug designs. This is consistent with International Rug Gallery pivoting to provide mostly cleaning services and valuations rather than sales of rugs. Indeed, it is also consistent with International Rug Gallery closing its showroom and sub-leasing the showroom space to Avenue Rugs.

I accept the Krofchick value of the business as of April 11, 2019, at nil.

[24] On this issue, the appellant essentially repeats the arguments she made to challenge the trial judge’s acceptance of Krofchick’s evidence about the respondent’s income stream. Just as we are not persuaded that the appellant has demonstrated a palpable and overriding error in the trial judge’s conclusion on that point, we similarly conclude she has not done so on the issue of IRG’s valuation.

The appellant’s claim for marriage-date deduction in respect of money owed to her by Kimiya

[25] At trial, the appellant submitted that at the date of the parties’ marriage Kimiya owed her $248,567. She recorded this amount on her net family property statement as a debt owed to her on the date of marriage, which she treated as a deduction in the calculation of her net family property on the date of separation.

[26] The trial judge did not accept the $248,567 as a marriage-date deduction stating, at paras. 102-104:

The Applicant’s own evidence regarding the date of marriage deduction is confusing. She states:

“As of the date of marriage, the company had sales of $134,305 and a net profit of $5,010. It claimed assets of $263,640 but had a shareholder debt owed to me in the amount of $248,567 and a loan to the Respondent in the amount of $12,538.”

The court was not provided with a valuation of Kimiya Trading Limited on the date of marriage. It does appear, on the Applicant’s evidence, that when one considers the assets and debts of Kimiya Trading Limited claimed by the Applicant, there is no deduction available on the date of marriage as the assets and debts are awash.

Counsel for the Applicant advanced the argument that the pre-marital deduction available to the Applicant would be the equivalent of the shareholder loan set out in Kimiya’s balance sheet. I disagree. One cannot cherry-pick items from a balance sheet and request a deduction. Any deduction would require a valuation of Kimiya at marriage and that was not provided. Further, a shareholder loan is a debt owed to a corporation. It is not a shareholder’s advance. Accordingly, if I was to accept the argument advanced by the Applicant that only the shareholder loan be a date of marriage deduction, the Applicant would have a negative date of marriage deduction which equates to nil.

[27] The evidence before the trial judge on this issue was as follows:

(a) As mentioned, the appellant recorded the debt owed by Kimiya to her as a marriage-date deduction on her net family property statement;

(b) In her June 20, 2023 affidavit, the appellant deposed, at para. 64, that at the date of marriage Kimiya was liable for two debts owed to shareholders: one in the amount of $248,567 owed to her and a loan to the respondent in the amount of $12,538. The appellant appended to her affidavit, as Exhibit GG, copies of Kimiya’s financial statements for 1995 and 1996. Unfortunately, those statements were not included in the appeal record. However, during the appeal hearing both parties agreed that Kimiya’s 1996 balance sheet recorded as a corporate liability a “note payable to Afghahi” of approximately $248,500;

(c) In para. 65 of her affidavit, the appellant deposed that about five years before her marriage her father gifted her his personal collection of rugs worth about $500,000. The appellant, in turn, “lent the rugs to my company and attempted to sell them”;

(d) The respondent’s examination of IRG’s accountant, Ms. Zhao, on November 27, 2023 included some questions on the Kimiya financial statements that displayed the information for 1994 through 1996, which the appellant had attached as Ex. GG to her affidavit. [7] Ms. Zhao testified that the balance sheets recorded total assets of $284,000 for 1995 and $254,000 for 1996. The responded then questioned Ms. Zhao about Kimiya’s liabilities to its shareholders. The following exchange took place:

JOHNSAN MEKHAEL: Q. Okay, now that we look at that -- sorry, liabilities and total liabilities in 2000 -- 1994, can you just move forward to 2010 and just give me your comments about those numbers. Tell me what the liabilities are and how much it's -- they owe to the shareholders and so on, in 2010.

A. Okay. From 2010, the asset, total asset is 17,000. I'll just say the whole number, 17,000. At the end of 2019, the total asset is 380,000 but to reduce that by 360.

Q. Thousand, okay.

A. Although the liability part we can see at the end of 2010, due to shareholder, which means that company owe the shareholders 80,000. At the end of 1994, the company owed to the shareholder was 410,000 -- 410,000 . The total reduced by 330,000, which means the company paid back for -- by 330,000 to the shareholders. [8] [Emphasis added.]

(e) Finally, during his cross-examination at trial on November 29, 2023, the respondent was asked about his wife’s assertion that at the date of marriage Kimiya owed her a shareholder’s loan of $248,567:

MR. RECHTSHAFFEN: Q. So, with respect to Kimiya, it’s been Mia’s position and she states it on her financial statements that at the date of marriage she was owed 248,567 from Kimiya to her? And this is a debt to shareholder.

A. Mmhmm.

Q. Okay. And so if I look at Exhibit X of the trial affidavit,....

MR. RECHTSHAFFEN: Q. GG -- okay, sorry that took so long. I can help.

A. Please. H.

Q. HH. There is it.

A. Yes.

Q. All right, so this exhibit depicts the Kimiya Trading Corporate tax return and it was Mia’s evidence that it ceased to exist, this company, in 2017, so at this time it was still in existence. And on the second page, halfway down it says “liabilities.” It refers to long-term liabilities and it shows an amount, and it shows the prior year’s amount. So, the suggestion is that the debt to shareholder was a declining balance throughout the marriage up until the company’s last year. Are you -- were you involved in doing the books for Kimiya?

A. She had her own accountant.

Q. Yeah.

A. Same accountant that we used for both of us, but she dealt with her accountant...

Q. Okay.

A. ...with these numbers.

Q. Okay.

A. I wasn’t involved on that. [9]

[28] The appellant submits the trial judge erred in disallowing the appellant’s Kimiya shareholder loan on the basis that she had not adduced a valuation of Kimiya at the date of marriage. We accept her submission. The evidence before the trial judge, set out above, was sufficient to establish that at the date of marriage Kimiya owed her a shareholder loan in the amount of $248,567. Significantly, in his examination of Ms. Zhao the respondent led evidence that supported such a finding.

[29] Consequently, the trial judge committed a palpable and overriding error in disallowing Item 24 on the appellants Net Family Property Statement: namely, the Value of Property Owned on the Date of Marriage in the amount of $248,567. The trial judge’s calculation of the payment of equalization in para. 146 should be varied to include the recognition of the marriage date deduction claimed by the appellant.

Order Regarding the Appraisal of Tapestries

[30] As part of his equalization analysis, the trial judge was required to make findings regarding the value of certain tapestries in the possession of each party. The respondent called Mr. Douglas Stocks to give opinion evidence on the value of two tapestries. The trial judge accepted Mr. Stocks’ valuation: at para. 107.

[31] The appellant submits the trial judge erred in accepting that evidence as the respondent did not permit the appellant’s appraiser to value the tapestries, as required by a pre-trial order made by Himel J.

[32] We see no error. First, the cross-examination of the respondent revealed that there was a disagreement about the events which resulted in the appellant’s appraiser not viewing the tapestries. [10] Second, the appellant did not object to the admission of Mr. Stocks’ evidence at trial and conducted a cross-examination of that witness. In those circumstances, the trial judge was entitled to accept Mr. Stocks’ valuation opinion.

APPELLANT’S UNJUST ENRICHMENT CLAIM

[33] The appellant asserted a claim for unjust enrichment based on her husband’s use of joint lines of credit. As described in her factum, when IRG started up in 2016, the respondent withdrew funds from the National Bank joint line of credit secured by the matrimonial home to fund the company. This continued until the date of separation. While the respondent made payments to reduce the balance on the line of credit, according to the appellant the principal balance increased from 2016 until the 2019 date of separation. In her notice of appeal and factum, the appellant seeks an order that the respondent pay her damages of $72,484 for her unjust enrichment claim.

[34] The trial judge addressed the appellant’s claim in two parts of his reasons. First, in the section headed “Unjust Enrichment”, he stated at para. 163 to 165:

The Applicant advances the position that, when the Respondent started his company, International Rug Gallery in 2017, he used money from the line of credit to fund the venture. The Applicant states that the Respondent was enriched by the contribution from the parties’ joint line of credit. The Applicant argues that she was deprived of her equity in the matrimonial home.

When the Respondent started his company in 2017, the parties were married. The lines of credit used to fund the business were almost entirely before the date of separation.

Pursuant to the Family Law Act, the parties’ net family property is to be equalized. Unjust enrichment that arises during a marriage, as is argued by the Applicant, is addressed through equalization. Accordingly, the Applicant’s claim for unjust enrichment is unnecessary, unjustified and dismissed.

[35] Second, the trial judge considered the appellant’s claim regarding her husband’s use of the line of credit earlier in his reasons when dealing with the appellant’s claim for an unequal division of net family properties. In the course of so doing, the trial judge made specific findings about the respondent’s use of the line of credit stating, at para. 139:

The Applicant claims that the withdrawals from the line of credit used to start International Rug Gallery in 2016 were a reckless depletion of assets. I do not agree. The Respondent commenced International Rug Gallery in good faith two years before the parties’ separation. He again used money from the line of credit to fund the business two years before the separation. I do not accept that doing so was reckless. I accept that the Respondent did so to improve the family’s financial situation.

[36] Those findings amply support the trial judge’s dismissal of the appellant’s unjust enrichment claim. The appellant has not demonstrated that those findings are tainted by palpable and overriding error. Accordingly, the appellant has not demonstrated that the trial judge erred in dismissing her unjust enrichment claim.

ISSUES RAISED BY THE RESPONDENT

[37] In his factum, the respondent seeks several variations of the trial judge’s order. However, the respondent did not file a notice of cross-appeal. Consequently, we cannot consider his requested variations.

[38] As well, the respondent included in his factum many references to facts that are not based on the evidence that was before the trial judge. As a result, we cannot consider those matters.

[39] Finally, the respondent has filed a motion seeking leave to adduce fresh evidence. The fresh evidence is part of a Canada Revenue Agency Goods and Services Tax/Harmonized Sales Tax Return for Registrants for Kimiya for the period June 1, 2010 to August 31, 2010. The document appears to append Kimiya’s balance sheet for the period ending August 31, 2010. The balance sheet records assets of slightly over $17,000 and liabilities that include a debt owed to the appellant of just over $80,000.

[40] The trial record discloses that the document the respondent now seeks to adduce as fresh evidence in fact was used by him during his examination-in-chief of the accountant, Ms. Zhao, set out in para. 23(d) above. At trial, the document was marked as Exhibit C. [11] There is nothing fresh about this document. Consequently, the respondent’s motion for fresh evidence is dismissed.

DISPOSITION

[41] We allow the appellant’s appeal in part and order that the trial judge’s calculation of the payment of equalization in para. 146 should be varied to include the recognition of the marriage date deduction of $248,567 claimed by the appellant. We dismiss the balance of the appellant’s appeal.

[42] The respondent’s motion for leave to file fresh evidence is dismissed.

[43] In light of the divided success on this appeal, we make no order regarding the costs of the appeal.

“David Brown J.A.”

“S. Coroza J.A.”

“S. Gomery J.A.”

[1] August 18, 2023, Income Determination Report [by Krofchick] (Ex. 39); Income Determination Report, dated September 1, 2023 [by Kidikian] (Ex. 31); and Critique [of the Kidikian Income Determination Report] by Mr. Krofchick, dated August 18, 2023 (Ex. 35).

[2] Adjusted for support purposes to $69,816 and $59,269 respectively.

[3] Transcript of November 24, 2023, pp. 145-146.

[4] As well, see the trial judge’s expression of frustration about the state of the record regarding the proper allocation of the rugs at the material times as either owned by IRG or on consignment with the company: Closing Submissions, Transcript of November 24, 2023, at pp. 24-26.

[5] Reasons, paras. 56-60.

[6] Kidikian Fair Market Value [of IRG] Report dated June 23, 2023 (Ex. 30); Business Valuation [of IRG], July 3, 2020 from Krofchick (Ex. 41); [Krofchick’s] Limited Critique of Kidikian, dated August 18, 2023 (Ex. 40)

[7] Transcript of November 27, 2023, at pp. 19-22.

[8] Transcript of November 27, 2023, at pp. 24-25.

[9] Transcript of November 29, 2023, at pp. 92-95.

[10] Transcript of November 29, 2023, at pp. 75-78.

[11] Transcript of November 27, 2023, at p. 24.