CITATION: Mowers v. Acland, 2015 ONSC 1313
COURT FILE NO.: FC-13-961
DATE: 20150226
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Leah Mowers, Applicant
AND
Donald Bruce Acland, Respondent
BEFORE: J. Mackinnon J.
COUNSEL: Katherine L. Shadbolt, Counsel, for the Applicant
Paul Fitzgerald, Counsel, for the Respondent
HEARD: February 19, 2015
ENDORSEMENT
[1] The parties jointly retained Steve Pittman in his capacity as a chartered business valuator. The engagement letter provided for a valuation report setting out Mr. Pittman’s conclusion as to the fair market value of shares in two corporations, and for an income determination report setting out his estimate of the income available to the respondent for support purposes for the years 2009 to and including 2012. Mr. Pittman delivered his report on February 25, 2014.
[2] The respondent brings this motion for an order for Mr. Pittman to do the following:
(1) To calculate the notional income tax payable by each party and by the Acland Family Trust based on their ownership in the two corporations as if they had liquidated their holdings on July 31, 2012, taking into account the treatment of the funds detailed below both as a redundant asset and as working capital.
(2) To advise whether the sum of $793,463 he classified as a redundant asset of Selectcom in his report could reasonably have been classified as working capital; and to advise what his conclusion as to the value of Selectcom would have been had this amount been classified as working capital.
(3) To calculate the respondent’s notional income taxes inherent in his personal real estate holdings and RRSP accounts.
[3] The respondent submits the income tax calculations are essential for the court to accurately determine each party’s net family property. There are notional income tax costs associated with an individual’s personal real estate and RRSP holdings which are properly included in a net family property statement. There would have been unrealized personal income tax liability inherent in the share values calculated by Mr. Pittman. For these reasons, and because it would be less expensive and quicker, the respondent submits the court should exercise its discretion in favour of directing Mr. Pittman to do these calculations.
[4] The respondent also maintains that it is given that he will cross examine Mr. Pittman at trial about the facts in relation to what he regards as a misclassification by Mr. Pittman of an asset as redundant to Selectcom and which in the respondent’s view should have been classified as working capital necessary to the corporation’s proper functioning. The respondent submits it is far more practical, and may also facilitate settlement, to have Mr. Pittman provide a valuation now based on treating this amount as working capital.
[5] As a partial alternative the respondent suggested that actuary Guy Martel could calculate his personal income taxes with respect to his real estate holdings and RRSPs. The applicant has already retained Mr. Martel and has already had him calculate her personal notional income taxes. Mr. Martel will undertake the same work for the respondent, but only with the applicant’s consent. She does not consent.
[6] The applicant opposes the motion in its entirety. She does not agree to extend Mr. Pittman’s joint mandate to include the calculation of notional income tax costs inherent in the share values. She does not agree to ask him to reconsider whether he should reclassify or could have classified the redundant asset as working capital, and if he did so, how that would affect the value of Selectcom. The applicant says Mr. Pittman considered and dealt with the issue of redundant assets in his report and that the amount the respondent wants reclassified was held in the Acland Family Trust, not in Selectcom, at the valuation date.
[7] Nor will the applicant agree for Mr. Pittman to calculate notional personal income taxes for the respondent. She is opposed to him being retained by the respondent individually. In all respects, she submits the respondent should retain his own independent expert for these purposes.
[8] Does the court have the authority to order Mr. Pittman to perform the requested tasks without the consent of both parties? The respondent relies on the Family Law Rules, O. Reg. 114/99 [FLR] r 20.1 (1) and 20.1 (3) (4) (5) as providing the necessary authority. These provisions state:
20.1 (1) It is the duty of every expert who provides evidence in relation to a case under these rules,
(a) to provide opinion evidence that is fair, objective and non-partisan;
(b) to provide opinion evidence that is related only to matters that are within the expert’s area of expertise; and
(c) to provide such additional assistance as the court may reasonably require to determine a matter in issue. O. Reg. 383/11, s. 6.
20.1 (3) The court may, on motion or on its own initiative, appoint one or more independent experts to inquire into and report on any question of fact or opinion relevant to an issue in a case. O. Reg. 383/11, s. 6.
20.1 (4) An order under subrule (3) appointing an expert shall name the expert and, where possible, the expert shall be a person agreed on by the parties. O. Reg. 383/11, s. 6.
20.1 (5) An order under subrule (3) appointing an expert shall contain the instructions to be given to the expert, and the court may make any further orders that it considers necessary to enable the expert to carry out the instructions. O. Reg. 383/11, s. 6.
[9] The respondent submits that these are new rules, intended to signal a change to the approach taken to the use of experts. I disagree. The court has had the power to appoint an expert under the Rules of Civil Procedure [RCP] r 52.03 since 1984. It is established law that court appointed experts are solely reserved to assist the court in understanding the evidence the parties will or have presented at trial. FLR r 20.01(3) was added in 2011, in what is for all intents and purposes identical wording to the civil rule. It ought not to receive a different interpretation, such as the respondent suggests, namely that it confers on the court a broad discretion to expand the agreed upon retainer of a jointly retained expert.
[10] Nor would I describe Mr. Pittman as an independent expert for the purpose of rule 20.01(3) having regard to the existing joint retainer relationship he has with each of the parties.
[11] The expert’s duty set out in FLR r 20.1(1) and RCP r 53.03(2.1) are recent additions to both sets of Rules. Very recently the Court of Appeal for Ontario has held in Moore v. Getahun, 2015 ONCA 55 at paras 51 and 52 that these amendments did not introduce a change in the role of expert witnesses. Rather, the court held the rules were a restatement of the common law duties of expert witnesses, intended to clarify and emphasize those existing duties.
[12] The respondent relies on FLR r 20.1(1) (c) as a source of jurisdiction for the court to order an expert to provide notional income tax calculations because the court may reasonably require them in order to properly calculate a party’s net family property. He relies on Perlin v. Danishevsky 2011 CarswellOnt 1277 (SCJ) [Perlin]. In that case the respondent’s expert had only provided an indication of value of his business interests, but not an opinion or estimate of fair market value, due to limitations in her retainer. The court referred to (c) and went on to say:
[27] The income of the Respondent from his business interests may be the most important consideration in valuing his business interests and thus I find that he is obliged to provide 2008, 2009 and 2010 income reports to the satisfaction of his expert, as the expert’s obligation is independent and intended to assist the court.
[32] Ms. Prussky [respondent’s expert] needs to provide an answer to:
If she was acting for the Applicant, would she be satisfied with her January 20, 2009 business valuation report for equalization purposes so as to advise her client based on the material she received and reviewed; and if not, what she still needs.
[33] The Respondent claims he needs to have access to funds to allow him to complete the work of Ms. Prussky, including income reports for 2008, 2009 and 2010 and no doubt for the additional work necessary to satisfy the court for Ms. Prussky to consider the question I posed in the previous paragraph.
[34] 5. According to the Applicant’s net family property statement she is the one indebted for the mortgage and trailer loan. Subject to returning the issue of spousal support, based on better income information of both parties, the Respondent’s obligation to pay on account of these loans are suspended as of October 1, 2010. The suspension is subject to review and re-instatement if the Respondent fails to make satisfactory arrangements to have Ms. Prussky answer my question and to provide Income Reports (assuming that the Respondent has satisfied her requirements) by April 30, 2011. (Emphasis added).
[13] It is not clear to me that the court was in fact ordering the respondent’s expert to do anything; rather the respondent was ordered to take various steps. If the court did intend to order the respondent’s expert to provide information based on advice she would give to the opposing party, then I must respectfully disagree. I would not interpret (c) as authorizing a court to require an expert to act in direct conflict of interest to his or her client. In my view, so doing would not meet the reasonableness requirement of the provision. In a case such as Perlin the respondent should be able to instruct an expert to proceed on a limited foundation and this expert, if called as a witness will have to disclose her foundation and handle questions in cross examination as to its adequacy or limitations. The applicant should be entitled to seek full disclosure from the respondent in order to instruct her own expert to provide an opinion on a more fulsome foundation. I do not regard the provisions of FLR 20.1 (1) and (3) as intruding so far into the adversarial process as to enable a court to require one party’s expert to essentially give advice to the other party.
[14] Moreover, as specifically relates to the case before me it is the respondent who needs to establish the income tax liability attached to his assets so that he may achieve a reduction in his net family property. It is he who needs the assistance of an expert, not the court.
[15] For these reasons I find the court lacks the authority to make the orders sought by the respondent.
[16] Although not necessary to my decision the applicant does have legitimate reasons for not agreeing to extend Mr. Pittman’s joint retainer. Whereas the respondent asks that the tax calculations assume liquidation at the date of separation Mr. Pittman rejected the liquidation approach to value for Selectcom, and the applicant does not agree that it is a valid fact scenario. Her evidence will be that at the date of separation the respondent had no foreseeable plans to dispose of his shares in either corporation. In determining net family property if there is satisfactory evidence of a likely disposition date and if it is clear that income taxes will be incurred when the owner disposes or is deemed to have disposed of an asset, the future tax calculated as at the future disposition date, and discounted back to the date of separation is properly entered as a liability attached to the asset.
[17] The respondent’s request that the taxes should be calculated as if the parties and the Trust liquidated their holdings at the date of separation is not consistent with this well-established approach. In Sengmueller v. Sengmueller 1994 CanLII 8711 (ON CA), [1994] O.J. No. 276 the Court of Appeal for Ontario held at para 33:
[33] From the McPherson case I glean three rules to apply in all cases:
(1) Apply the overriding principle of fairness, i.e., that costs of disposition as well as benefits should be shared equally;
(2) Deal with each case on its own facts, considering the nature of the assets involved, evidence as to the probable timing of their disposition, and the probable tax and other costs of disposition at that time, discounted as of valuation day; and
(3) Deduct disposition costs before arriving at the equalization payment, except in the situation where "it is not clear when, if ever" there will be a realization of the property.
[18] The applicant’s position will be that it is not clear when if ever the respondent will dispose of his shares and accordingly the future disposition costs, including inherent income taxes, should not be taken into account. Without commenting on the merits of her position, I do not think she should be compelled to provide contrary instructions to a jointly retained expert. Similarly she does not agree that Mr. Pittman erred in his classification of the redundant asset or that he was lacking in any factual foundation relevant to that issue, and she should not be compelled to instruct him to reconsider or to hypothesize in these circumstances.
[19] Although Ontario does not yet have a rule specifically directed to the retainer of joint experts, there are strong policy reasons to encourage their use. These include saving time and expense, narrowing conflict, and promoting early resolution of disputes. Enabling a court to expand the terms of a joint retainer without the consent of both parties would deter litigants from agreeing to retain a joint expert. I expect it would also deter experts from accepting joint retainers so as to avoid the possibility of being unwillingly placed in a position of conflict of interest with one or other client at some future point in time.
[20] Mr. Martel has stated he will not act for the respondent absent the consent of the applicant. I have no jurisdiction to require him to alter that position.
[21] Accordingly, the motion is dismissed. If counsel are unable to agree on costs, I will receive brief written submissions from them, not to exceed three pages plus attachments of bills of costs and any offers to settle. The applicant shall deliver her submissions by March 13, the respondent by March 23, and any necessary reply by March 27.
J. Mackinnon J.
Date: February 26, 2015
CITATION: Mowers v. Acland, 2015 ONSC 1313
COURT FILE NO.: FC-13-961
DATE: 20150226
ONTARIO
SUPERIOR COURT OF JUSTICE
RE: Leah Mowers, Applicant
AND
Donald Bruce Acland, Respondent
BEFORE: J. Mackinnon J.
COUNSEL: Katherine L. Shadbolt, Counsel, for the Applicant
Paul Fitzgerald, Counsel, for the Respondent
ENDORSEMENT
J. Mackinnon J.
Released: February 26, 2015