Superior Court of Justice - Ontario

CITATION: Reiss v. Garten, 2016 ONSC 1508

COURT FILE NO.: FS-13-390699

DATE: 20160302

RE: Vivian Reiss, Applicant

AND:

Irving Garten, Respondent

BEFORE: Kiteley J.

COUNSEL: Avra Rosen, for the Applicant

David Milosevic, for the Respondent

HEARD: March 1, 2016

ENDORSEMENT

[1] This is a motion for an order declaring that the 2015 year end statements prepared for the Arijo Investments Ltd. properties are admissible as evidence in the arbitration between the parties that is scheduled to resume on March 7.

[2] The parties were married in 1975 and separated in February 2011. In August 2011, they entered into an interim separation agreement that addressed interim financial arrangements and the interim operation of the businesses and corporations, including Palmerston Gates Inc. and Arijo Investments Ltd.

[3] This application started in 2013 and in 2014, Ms. Reiss started a civil action which was joined with the family law case by order of Mesbur J.

[4] In 2014, there were several motions to court to deal with various properties. The Respondent owned 100% of the shares of Palmerston Gates Ltd. and Arijo Investments Ltd. each of which owned 5 rental properties. On November 25, 2014, I made a consent order for a plan of arrangement that provided for the appointment of a Manager to manage the properties owned by Arijo and Palmerston Gates.

[5] In her order of March 11, 2015, Mesbur J. estimated the trial would take 8 weeks on the basis of the issues and witnesses she identified and she referred counsel to me to set a trial date. In her endorsement, Mesbur J. ordered that at least 45 days prior to trial the parties would prepare joint document briefs containing only the documents essential to adjudicating the issues in the case. On April 27, 2015, I set the trial to start on January 18, 2016 for 33-35 days. In the Trial Scheduling Endorsement I ordered delivery of experts’ reports, including delivery of updated reports by December 3. I scheduled the Trial Management Conference for November 16, 2015.

[6] Counsel and their clients agreed to a mediation with Stephen Grant which was held on Saturday October 31 and Sunday November 1. Counsel subsequently provided a copy of the Minutes of Settlement signed by the parties which, given the complexities referred to above, reflected significant and remarkable progress. The parties settled many of the challenging issues and agreed to the following with respect to Arijo Investments Ltd. and Palmerston Gates Ltd.:

(a) Mr. Garten would include 100% of the net value of those corporations in his net family property, such value to be as at approximately November 30, 2015 (described as “current value”);

(b) the current value of those corporations would be arbitrated during weeks in January that had been set aside for the trial;

(c) Stephen Grant would select the arbitrator;

(d) the arbitration would be no longer than 4 consecutive days;

(e) each expert’s evidence in chief would be his report attached as Exhibit A to a sworn affidavit which reports would be delivered/served no later than December 18, 2015 (which was about 2 weeks later than the TSE referred to above);

(f) there would be no dispute as to the expertise of the expert;

(g) the arbitration is not a family arbitration and the appeal is to the Court of Appeal with no leave required;

(h) once the arbitrator found the “current value”, G. Jessup would then calculate the value of Arijo and Palmerston based on the arbitral award including corporate taxes, shareholder loans and receivables and Mr. Garten’s personal income taxes;

(i) once G. Jessup did his calculations, Mr. Garten shall pay to Ms. Reiss 50% of the net difference within 60 days of release of the arbitral award, or appeal if any;

(j) neither party owed an equalization payment to the other;

(k) Ms. Reiss would vacate her art gallery in the Palmerston Gates property by December 11, 2015 and thereafter management and rental would be exclusively done by Mr. Garten.

[7] As a result of the Minutes of Settlement, the 6 – 7 week trial was avoided; there would be an immediate focused arbitration on Palmerston and Arijo; and then a 5 day trial on two remaining issues which are not relevant to this motion.

[8] The parties signed an Arbitration Agreement to which I will refer below. And they both complied with the Minutes of Settlement by delivering their updated experts’ reports by December 18, 2015. Counsel had a pre-arbitration conference call with the Arbitrator Sidney Troister. The arbitration was scheduled for February 1–4. It began on February 1. On February 3, Mr. Troister issued an Arbitral Award that included the following:

2. On January 27, 2016, I held a pre-arbitration conference call with counsel by conference call [sic] when it was confirmed that the arbitration would be fixed for February 1-4, 2016, and that the only witnesses at the arbitration would be each party’s expert appraiser. Counsel agreed to provide me with the experts most recent appraisal reports in advance of the arbitration for my review.

3. Ms. Reiss has retained David Atlin of Integris Real Estate Counsellors as her expert appraiser and Mr. Garten has retained Robert Marcutti (for the Palmerston properties) and Norman Height (for the Lowther properties) of Bosley Farr Associates Limited. Mr. Atlin’s effective date of his reports were at November 1, 2015 and the Bosley Farr reports were effective November 30, 2015. Their respective reports have been marked as Exhibits at the arbitration. Counsel confirmed in their opening statements to me that there was no dispute as to the qualifications or expertise of any of the expert appraisers. The experts agreed that the difference in the date of their respective reports has no impact on the current market value of the properties pursuant to the agreed statements of facts which they prepared for each of the properties, and which statements were also filed as Exhibits. Counsel have agreed in their opening statement to me that the current market value as at November 1, 2015 (being equivalent to November 30, 2015 by way of agreement).

4. Under the Arbitration Agreement, signed by both parties, it was agreed that proceedings would be in accordance with the rules set out under s. 4.1 and 4.2 of the Arbitration Act, SO 1990, c.17.

5. On February 1, 2016 I heard the opening statements, examinations-in-chief and cross-examinations on each expert with respect to the Palmerston properties. We were scheduled to commence the same process for the Lowther properties [i.e Arija] on February 2, 2016. However, at the conclusion of the Palmerston portion of the arbitration on February 1, 2016 and prior to the Lowther portion of the arbitration, Mr. Milosevic provided Ms. Rosen with documents relating to the Lowther properties which she says neither she, her client nor Mr. Atlin had ever received. Consequently, I adjourned the arbitration in order to allow Ms. Rosen and Mr. Atlin, together with Ms. Reiss, time to review the documentation which I have not received, in order to determine how to proceed with the arbitration.

6. I spoke with counsel by phone on February 2, 2016. Ms. Rosen objects to the introduction of the documents to either expert witness at the arbitration. Mr. Milosevic wishes to introduce those documents. They have agreed to seek direction from a Superior Court Judge in the family action, pursuant to section 6.1 of the Arbitration Act, 1991, and have requested that I issue a Consent Arbitral Award, requesting such direction from the Superior Court, as well as fixing the date for the closing arguments on the Palmerston properties and a new three-day hearing for the continuation of the arbitration of the current market value of the Lowther properties.

Decision

7. Under section 6.1 of the Arbitration Act, I ask the Superior Court of Ontario, to intervene in this arbitration and assist by making a determination of the admissibility of the documents presented by Mr. Milosevic to Ms. Rosen on February 1, 2016.

8. I will hear closing arguments from counsel on February 4, 2016 on the Palmerston properties and will reserve my arbitral award on the matter until the completion of the arbitration.

9. The arbitration with respect to the Lowther properties is adjourned for 3 days fixed for March 7, 9, 10.

10. Finally, I confirm that either party can seek their costs thrown away for the adjournment of the arbitration before the Motions Judge of the Superior Court of Ontario.

[9] I assume that the Arbitration Agreement which is dated February 1, 2016 was signed by the parties before the arbitration started on that morning. It contains the following:

3. APPLICABLE LAW

3.1 Subject to paragraphs 4.1 and 4.2, the arbitration shall be conducted in accordance with the Arbitration Act, 1991, S.O. 1991, c. 17 (the Act), the Ontario Rules of Civil Procedure and any arbitration agreement now or to be entered into by the parties.

4. EXCLUSION OF OPERATION OF EVIDENCE ACT AND RULES OF CIVIL PROCEDURE

4.1 Insofar as the admissibility of evidence is concerned, the parties do not require the Arbitrator to adhere to strict compliance with the rules of evidence analogous to the standards and rules for admissibility and exclusion of evidence that would apply in a criminal or civil trial at common law; instead, the Arbitrator may receive and consider any and all evidence he considers trustworthy and credible.

4.2 Insofar as the Ontario Rules of Civil Procedure are concerned, the parties do not require the Arbitrator to adhere to strict compliance with same and hereby agree to provide the Arbitrator with authority to give such directions as to procedural matters as may be fair, just and convenient, including directions with respect to adjournments, exclusion of witnesses, disclosure of documents from parties and amendments to claims and defences.

7. PROCEDURE FOR ARBITRATION

7.2 The Arbitrator may determine a timetable for the delivery of briefs, financial disclosure and other documents.

11. APPEAL

11.1 Subject to the appeal remedies in the Minutes of Settlement and rights to apply to set aside the Arbitrator’s Award under sections 46 and 46, respectively, of the Arbitration Act and subject to the other applicable provisions of the Arbitration Act, all awards of the Arbitrator shall be binding upon the parties.

Jurisdiction

[10] Counsel take the position that this motion is before me pursuant to s. 6.1 of the Arbitration Act and specifically with reference to assist in “the conducting of arbitrations”.

[11] At the outset, I asked counsel to make submissions as to the jurisdiction of the Superior Court to hear the motion. Paragraph 4.1 clearly leaves the admissibility of evidence within the jurisdiction of the Arbitrator. Even though counsel had asked the Arbitrator to make an order on consent and even though he had made that order, I was concerned about the implications of interrupting an arbitration to make a trip to court, particularly when the subject matter of the motion was squarely within the jurisdiction of the Arbitrator.

[12] In explaining how this all came about, counsel referred to the evidence and to their agreement to the course of action so that the Arbitrator would not be asked to review the challenged document and avoid the prospect that, whether he ruled in favour or against admissibility, he might be perceived as not impartial. The Arbitrator had acquiesced in that approach.

[13] I heard submissions from counsel and I reserved on the issue of jurisdiction until after I had heard submissions on the motion.

[14] I remain concerned about interrupting an ongoing arbitration in order to obtain a declaratory order as to the admissibility of evidence before the Arbitrator. The Arbitrator has a responsibility to make decisions as to admissibility and then those decisions would be, pursuant to the Minutes of Settlement and the Arbitration Agreement, subject to appeal following release of the arbitral award. Arbitrators, like judges, are expected to review challenged evidence in order to decide on its admissibility and if found inadmissible to disabuse him/herself as to the contents. It creates a bad precedent for courts to accept responsibility for making a decision as to admissibility of the evidence that an arbitrator will hear. In addition, it would mean ignoring the arguably lower standard for admissibility contained in s. 4.1 of the Arbitration Agreement and instead imposing the usual standard of admissibility applied in court proceedings.

[15] I have decided that I will reluctantly accept jurisdiction because (a) the parties consented to this unusual procedure to address admissibility of a document and therefor are precluded from challenging that unusual procedure in the future; (b) the Arbitrator acquiesced; (c) as mentioned above, the parties and their counsel and mediator made significant progress in the Minutes of Settlement following the weekend of mediation and arrived at a clever and creative approach to resolution which freed up at least 6 weeks of court time, and the Court ought to respond to the request so as to allow them to carry on in the direction they have chosen after more than 4 years of litigation conflict; and (d) the circumstances are sufficiently unique that the risk of others following suit is negligible.

Admissibility

[16] I turn now to the issue of admissibility. The document is Exhibit L to the affidavit of Mr. Garten. It consists of 53 pages and relates to 6 properties. As indicated below, I will dismiss the motion and for that reason, I will not go into detail. Although the documentation is not the same for each of the properties, in general it is a year-end statement for the period January 1 to December 31, 2015 with a summary page and then detailed ledger entries. There is no author stated on any of the documents although it is known that it was prepared by someone employed by the Manager appointed pursuant to the consent order in November 2014.

[17] Mr. Milosevic does not intend to call the author as a witness at the arbitration. If admissible, Mr. Milosevic intends to use it to cross-examine Mr. Atlin and try to establish that the documentation reflects actual revenue and actual expenditures for that period of time that are accurate and that would result in a significant difference in Mr. Atlin’s valuations and ultimately reduce the amount that Mr. Garten might have to pay to Ms. Rosen.

[18] I am not persuaded that it is admissible. The document is just numbers and calculations and is hearsay which Mr. Milovec intends to put forward for the truth of the contents. Absent evidence from the author as to the source of the underlying data and its integrity and reliability, it is not possible to determine whether the document does reflect actual revenue and actual expenditures. The document was created at the request of Mr. Garten in January under the circumstances described in his affidavit. I accept the explanation for the belated request by Mr. Garten for the preparation of the document. But the document cannot be described as a business record, for which in any event notice was not given. The only way in which it could be considered admissible is if the author was called as a witness. The Minutes of Settlement, the Arbitration Agreement, the pre-arbitration hearing and the Arbitral Award dated February 3 all make it clear that the only witnesses to this arbitration are the experts. No request was made either of the Arbitrator (before the Arbitral Award dated February 3 was issued) or before this court to expand the list of witnesses. Indeed given the discrete focus of the arbitration and the very clear agreement that only two witnesses would be called, it would be unfair to Ms. Reiss to consider expanding the list of witnesses after the arbitration has already started.

[19] Counsel for Mr. Garten and Ms. Reiss raised a number of other reasons why the document should be or should not be found to be admissible. I do not intend to deal with any of them, partly because I expect that the Arbitrator will be given a copy of this endorsement and I do not want to include information that the parties do not want him to see but also because I do not need to.

[20] I reserved and did not hear submissions as to costs. I am optimistic that counsel will be able to resolve the costs of the motion and the costs thrown away referred to at paragraph 10 of the Arbitral Award. If not, they can agree on a timetable for written submissions after the conclusion of the arbitration.

[21] As mentioned above, following the arbitration, there will be a trial of not more than 5 days on the Dadco issues and outstanding costs issues. That trial is set for the week of March 7, 2016. Counsel agreed that the trial should be postponed but asked to defer the setting of the new date until after receipt of this endorsement.

ORDER TO GO AS FOLLOWS:

[22] The motion on behalf of Mr. Garten is dismissed.

[23] Costs are reserved.

[24] Trial date set for the week of March 7, 2016 is vacated. Counsel shall arrange a case conference before me to set the date for the trial of the two remaining issues.

Kiteley J.

Date: March 2, 2016