ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

David Michael Farmer

Applicant

(Respondent in Appeal)

– and –

Janet Maureen Farmer

Respondent (Appellant)

Robert Snell, for the Applicant (Respondent in Appeal)

Kristy A. Maurina and Stephen Kirby, for the Respondent (Appellant)

HEARD: May 27 and 28, 2021

RELEASED: September 3, 2021

Justice Alex Finlayson

PART I: OVERVIEW

[1] The Appellant wife appeals three arbitral awards arising out of a five-day family arbitration held in November and December 2018. Her appeal lies to this Court pursuant to section 45(6)(a) of the Arbitration Act, 1991.

[2] The issues at the arbitration concerned equalization of net family property, trust claims by both parties, spousal support and claims for post-separation adjustments after the breakdown of a 34-year marriage, among others. The property and support issues were complicated by the fact that the wife’s father had made substantial gifts and bequests to her, and occasionally to the husband. A significant amount of time spent at the arbitration was devoted to determining the ownership of certain real property and cash that one or both of the parties had received from the wife’s father, and to determining the exclusions from net family property to which each party was entitled[1].

[3] The wife’s appeal is broad. The issues for the appeal identified in her Amended Amended Notice of Appeal and in her factum are:

(a) Whether the arbitrator erred by failing to exclude from her net family property the majority of the funds she had in two Credential Investment accounts at the date of separation. If so, she says the arbitrator’s calculation of the equalization payment is wrong;

(b) Whether the arbitrator erred in his determination about the beneficial ownership of the shares of a numbered company that holds two parcels of land, referred to at the arbitration as the “beach lots”. If so, she says the arbitrator’s award that she must pay the husband $150,000.00 for the transfer of the shares to her is wrong;

(c) Whether the arbitrator erred in granting the husband relief with respect to a $110,000.00 cheque that her father wrote to the parties on July 4, 2006;

(d) Whether the arbitrator erred in rejecting her claim for an unequal division of net family property;

(e) Whether the arbitrator erred in his determination about the amount required for her to buyout the husband’s interest in the matrimonial home;

(f) Whether the arbitrator erred in his calculation of lump sum spousal support;

(g) Whether the arbitrator erred by failing to award her prejudgment interest[2]; and

(h) Whether the arbitrator erred in his determination of costs.

[4] Despite the breadth of her appeal, argument centered on four of the wife’s claims. While I will deal with all of the issues she raised, the most substantial argument to the Court was about the following.

[5] First, the wife argues that the arbitrator erred by failing to grant her a significant exclusion of $791,656.89 from her net family property. This is the amount that she had in two investment accounts at Credential Investments as at February 28, 2015 [3].

[6] During closing submissions at the arbitration and again during argument of the appeal, the wife conceded that 4% of that balance on separation should not be excluded, as that small portion was traceable to funds she earned from self-employment. Otherwise, the wife says the funds in these accounts originated from gifts from her parents during the marriage, or from the inheritance she received from her father during the marriage, or to the income earned thereupon.

[7] If the arbitrator erred by not awarding the wife this sizeable exclusion from her net family property, his equalization calculation is wrong. Had the arbitrator awarded the wife her exclusion, the equalization payment would not have been the one awarded, whereby she is the payor of an equalization payment to the husband, but rather one whereby she is the recipient of an equalization payment from him.

[8] Second, there is a dispute between the parties about the ownership of the beach lots held in the numbered company. As I will explain, the beach lots formed part of a family cottage compound, originally owned by the wife’s father through his holding company. The beach lots were the third gifts of land that the wife’s father gave his daughter (and now also the husband) over almost a 30 years period.

[9] The wife’s father initially gifted a parcel of land to the wife alone, prior to the marriage. Then early on in marriage, he gifted her a cottage, once again in her name alone. In 2007, a few months before his death, he transferred the beach lots. They came out of his holding company and went into a numbered company that the husband had established 16 years earlier, in 1991.

[10] According to the husband, he set up the receiving company, taking shares in it equally with the wife, at the wife’s father’s behest. According to the wife, the 2007 transfer was said to have been done between holding companies to avoid the merger of the properties under the Planning Act. Regardless of how her father eventually effected the transfer, the wife says he always intended to give the beach lots to her alone, just like he did with the earlier properties.

[11] The wife argues that the arbitrator erred in rejecting her and her brother’s evidence of their father’s hearsay to this effect. She says the hearsay explains her father’s true intention about the beach lots. She argues that the arbitrator erred by considering divergent hearsay evidence that came through the husband. And she says the arbitrator’s errors respecting the evidence, in turn led him to reject, improperly, her claim that the husband was unjustly enriched, and the beach lots/ the shares in the numbered company should be impressed with constructive trust in her favour.

[12] The arbitrator’s rejection of the wife’s trust claim over the beach lots/ the shares in the numbered company does not impact the equalization calculation in the way that the arbitrator’s treatment of the wife’s investment accounts did. That is because the beach lots were a gift from the wife’s father during the marriage and the parties agreed that they would be excluded from one or both parties’ net family property either way, irrespective of the ruling about ownership.

[13] However, during closing submissions at the arbitration, the parties told the arbitrator that they agreed the shares in the numbered company would be transferred to the wife. They agreed that the value of the beach lots was $300,000.00 [4]. They did not agree upon whether the wife would pay the husband 50% of that amount for the transfer of the shares, or whether the shares would be transferred to her without payment. That is what they asked the arbitrator to decide, when they asked him to rule about beneficial ownership[5]. On this appeal, the wife disagrees with the result the arbitrator awarded, that she must pay the husband for the shares.

[14] Third, the wife made similar arguments respecting a cheque dated July 4, 2006, in the amount of $110,000.00, that her father wrote to the parties jointly. The wife takes issue with the arbitrator’s rejection of the hearsay evidence about that too, and with the manner the arbitrator treated the cheque in the parties’ net family properties. The arbitrator’s finding about this money is also relevant to the wife’s claim for an exclusion of the funds in the two Credential Investment accounts, since the funds had been transferred there by the date of separation.

[15] Fourth, the wife appeals the arbitrator’s lump sum spousal support award. She makes two principal arguments about spousal support.

[16] Although she disputes the arbitrator’s finding that the husband readily agreed she was entitled to spousal support, by the time of closing submissions, the husband did not contest entitlement. Rather, both parties asked the arbitrator to award lump sum support to the wife, as opposed to periodic support. Neither party wanted to endure a future variation proceeding. But they disagreed about the amount of the lump sum, because they disagreed about how their respective incomes should be determined, and about what assumptions the arbitrator should use to calculate the lump sum award.

[17] Much of the argument at the arbitration focused on what anticipated retirement age the arbitrator should use for the husband when calculating the quantum of the lump sum. The arbitrator said he would select a retirement age of 65.5 [6].

[18] The wife says the arbitrator’s selection of age 65.5 was inappropriate. She says the husband can work beyond age 65.5, and that the arbitrator failed to take into account her continuing need after the husband turns 65.5. And she challenges the arbitrator’s mathematical calculations about the income he imputed to her[7].

[19] The husband’s principal response to all of the arguments the wife now makes is that the arbitrator’s awards are entitled to deference. The husband says that the wife’s appeal mostly engages questions of mixed fact and law, subject to the palpable and overriding standard of review. He says she has not identified reversible errors.

[20] While I am finding that several of the wife’s grounds of appeal lack merit, I do not agree with the husband that the arbitrator did not err at all, or that the palpable and overriding standard of review always applies. For the reasons that follow, I find:

(a) the arbitrator erred by failing to award the wife an exclusion of most of the funds in her two Credential Investments accounts at the date of separation;

(b) the wife is entitled to an exclusion of 99% [8] of the balance of $791,656.89 in her two Credential Investment accounts at the date of separation. She is therefore entitled to an exclusion of $783,740.32;

(c) as a result, the arbitrator’s award for an equalization payment is wrong. I find the husband actually owes the wife an equalization payment of $217,055.91;

(d) the arbitrator erred in his treatment of the hearsay evidence respecting the shares of the numbered company/ the beach lots. Nevertheless, I would reach the same result as the arbitrator respecting ownership. Therefore, I find no error in the result of the arbitrator’s award that requires the wife to pay for the shares; and

(e) the arbitrator did not err in principle in determining lump sum spousal support. However, his calculation of the lump sum may contain mathematical errors that require correction. I am not yet certain of this, based on the submissions. I will allow the parties to make limited further submissions on this point.

[21] The balance of the wife’s appeal, other than her request for costs of the arbitration, is dismissed. The parties agreed to defer their arguments about the costs of the arbitration until after the release of this decision. The outcome in this judgment might impact their costs arguments. Below, I set out a process for argument about costs of the arbitration to be heard. Costs of the appeal have also yet to be argued.

PART II: BACKGROUND

A. Background Information About the Parties

[22] The parties were married for 34 years, from September 26, 1981 to March 19, 2015. At the time of the arbitration, the husband was 62 years old and the wife was 60. They are now 65 and 63 years old, respectively.

[23] The parties have two children, both of whom were adults and self-sufficient at the time of the arbitration. The parties’ daughter and her husband reside with the wife in the matrimonial home[9]. The husband lives with his new partner, who is retired[10].

[24] At the time of the arbitration, the husband had been employed by Crestview Investment Corporation for 32 years[11]. The wife had been self-employed for 25 years, as a nutritionist and applied kinesiology practitioner. She worked out of the home, providing consultations and selling nutritional supplements. She did not start this business until several years into the marriage.

[25] The wife’s father, R.A, McCoy, was a successful businessman. As the arbitrator put it, Mr. McCoy “amassed a significant amount of wealth” during his lifetime. Mr. McCoy passed away in October 2007, about 7 ½ years prior to the parties’ separation. Over the years, Mr. McCoy made a number of inter vivos gifts and then bequests in his Will, of cash and real property to his children, and occasionally to their spouses. It is Mr. McCoy’s two inter vivos gifts of the beach lots and the cheque for $110,000.00, and his bequest of $1,500,000.00 to his daughter, that are amongst the most significant issues on this appeal.

B. A Summary of the Arbitrator’s Awards

[26] The arbitrator released three awards. The first award of February 12, 2019 is the main decision. The second one dated March 3, 2019 is entitled the “Clarification/Explanation Award”. The arbitrator released this second award after both counsel wrote to him, alleging that he omitted to deal with certain exclusions in the first award. The arbitrator’s third award of July 28, 2019 deals with costs of the arbitration.

(1) The First Award dated February 12, 2019

[27] At ¶ 14-15 of the first award, the arbitrator identified some 20 property issues for the arbitration, in addition to spousal support. He then grouped them into four categories, namely “issues relating to the calculation of the equalization payment”, “a determination as to whether there should be an adjustment to the payable equalization pursuant to s. 5(6) of the FLA”, “post-separation accounting issues”, and “the determination of the appropriate amount of spousal support payable retrospectively and prospectively”.

[28] Among other things, the arbitrator:

(a) determined that the beach lots were a joint gift from the wife’s father, and made an award that the wife would pay the husband 50% of their agreed upon value for the transfer of the husband’s shares of the numbered company to her;

(b) determined that the $110,000.00 cheque was also a joint gift, determined that the wife had improperly taken the husband’s 50% share of these funds back in 2006, and made corresponding adjustments to the parties’ net family properties to account for this;

(c) awarded the husband an exclusion of $181,284.91 from his net family property, representing the amount he found could be traced to a $200,000.00 bequest the husband received from the wife’s father;

(d) awarded the wife an exclusion of $1,341,341.87 from her net family property, representing the amount he found could be traced to a $1,500,000.00 bequest to from the wife’s father, and to certain other gifts;

(e) determined a number of other exclusions, and/or made adjustments to the parties’ net family properties;

(f) determined that the wife owes the husband an equalization payment $174,813.25 in the result;

(g) determined that the wife shall pay the husband 50% of the current appraised value of the matrimonial home, less her share of the secured debt, without any deduction for notional costs of disposition;

(h) made certain other awards to address post-separation adjustments; and

(i) made an award for lump sum spousal support to the wife of $227,185.00. This sum is net of tax and net of credits to the husband for the interim support he paid.

(2) Both Counsel Sent Letters to the Arbitrator After the Release of the First Award

[29] The arbitrator’s first award contains no analysis whatsoever about the wife’s claim to exclude a substantial amount of the $791,656.89 that was in her two Credential Investment accounts at the date of separation. The only mention of these accounts in the reasons is that they appear as an asset of the wife’s, on the net family property statement that the arbitrator prepared and attached as Schedule “A” to the first award, as at the date of separation. There is no corresponding exclusion shown on his Schedule “A”.

[30] On February 22, 2019, 10 days after the release of the first award, the wife’s former counsel wrote to the arbitrator stating that while the arbitrator included the funds as assets at the date of separation in Schedule “A”, the “item was never dealt with under the exclusion provisions of the NFP, and it appears that the claimed exclusion was overlooked by the Arbitrator.” Former counsel requested a telephone call between counsel and the arbitrator, “as to the best way to resolve this unfortunate oversight”.

[31] On February 27, 2019, the husband’s counsel sent the arbitrator a letter asking for a different correction, this time in the husband’s favour. The husband alleged that the arbitrator failed to award him an exclusion of $106,584.10, representing certain funds he held in an account at TD Canada Trust. In the same letter the husband’s counsel went on to dispute the wife’s request for a correction in her favour saying, “…it was Mr. Farmer’s position at Arbitration (sic.) that Ms. Farmer’s Credential Accounts included funds from too many non-excluded sources to qualify as an exclusion”. The husband’s counsel also asked the arbitrator to convene a conference call.

[32] Four days later on March 3, 2019, the arbitrator released the “Clarification/Explanation Award”. I was not told whether he convened the jointly requested telephone conference before so doing.

(3) The “Clarification/Explanation Award” dated March 3, 2019

[33] In the “Clarification/Explanation Award”, the arbitrator declined to make either of the changes requested by either party. Regarding the wife, the arbitrator wrote that her Credential Investment accounts were already covered by the first award. He wrote that she had failed to prove the exclusion. Regarding the husband, the arbitrator wrote that the husband had not even asked to exclude any amounts from his TD Canada Trust account at the arbitration. Therefore, the husband’s request now to exclude the TD Canada Trust account amounted to a post-hearing request for new relief. There is no cross-appeal from the husband respecting the TD Canada Trust account. During submissions on the appeal, counsel for the husband advised that the husband is not now asking for any relief in connection with this TD Canada Trust account.

(4) The Costs Award dated July 28, 2019

[34] On July 28, 2019, the arbitrator made an award requiring the wife to pay costs of $67,500.00 to the husband. The wife appeals the arbitrator’s costs award, regardless of any success on the other issues she raises on this appeal. Even in a scenario where she is entirely unsuccessful on this appeal, she would still seek leave to appeal these costs on a stand-alone basis.

PART III: STANDARD OF REVIEW

A. The Parties’ Positions

[35] An appeal is not an opportunity to simply re-argue the arbitration. I must consider the wife’s various arguments through the lens of the appropriate standard of review, to assess whether the arbitrator erred in a manner that warrants appellate intervention.

[36] In their Mediation/Arbitration Agreement dated November 25, 2016, the parties agreed that the arbitration would be conducted in accordance with the law of Ontario, and the law of Canada as it applies in Ontario, to include the Divorce Act and the Family Law Act. See also sections 31 and 32(4) of the Arbitration Act, 1991 and Family Arbitration Regulation, O. Reg 134/07. They agreed that the arbitration would be conducted in a fashion similar to court, wherever possible. This meant sworn viva voce testimony subject to cross-examination, the possibility that some of the witnesses evidence might be given by affidavit in such manner as the arbitrator may direct, and that the usual rules for the admissibility of evidence would apply, as would the Family Law Rules (and Rules of Civil Procedure where applicable). The parties agreed that there may be appeals on questions of law, questions of fact, and on questions of mixed fact and law. See also sections 45(2) and (3) of the Arbitration Act, 1991 and Family Arbitration Regulation, O. Reg 134/07.

[37] Both sides generally agree about the applicable standards of review that apply in an appeal of family law arbitration awards of this nature. They do not agree about which standards of review apply to which of the wife’s arguments, however.

[38] The wife says that the correctness standard applies to some of her arguments, the palpable and overriding standard applies to others, and that there should be a different approach in relation to a natural justice argument that she makes. She makes different arguments in relation to the nature and sufficiency of the arbitrator’s reasons, too.

[39] Quoting from Costa v. Costa 2008 9609 (Ont. S.C.J.) in his factum, the husband argues that the arbitrator is entitled to a “high degree of deference”. He also says the palpable and overriding standard applies to the entirety of the wife’s appeal.

[40] There are important policy reasons behind giving deference to arbitrators hearing family law cases. As Benotto J.A. said held in Petersoo v. Petersoo, 2019 ONCA 624 ¶ 35 (albeit in the context of an appeal of a Superior Court judge’s decision overturning an arbitrator’s decision about parenting issues on procedural unfairness and natural justice grounds):

Mediation/arbitration is an important method by which family law litigants resolve their disputes. Indeed, the courts encourage parties to attempt to resolve issues cooperatively and to determine the resolution method most appropriate to their family. The mediation/arbitration process can be more informal, efficient, faster and less adversarial than judicial proceedings. These benefits are important with respect to parenting issues, which require a consideration of the best interests of children. The decision of an arbitrator, particularly in child related matters, is therefore entitled to significant deference by the courts.

[41] However, it is still important to note the context and facts of the decisions that discuss the deference being afforded to Mediation/Arbitration, and the reasons for that. In Costa v. Costa and in Petersoo v. Petersoo (unlike in this case before me), the parties chose to limit their appeal rights under the Arbitration Act, 1991. And even in Costa v. Costa, notwithstanding the Court’s policy statement about deference, the Court still reiterated the usual standards of review later in its analysis.

[42] Several decisions of this Court have held that an arbitrator sits in the same position as a judge in a lower court when a decision is appealed to a higher court. These decisions say that the decision of an arbitrator deserves as much deference on appeal as does the decision of a trial judge. See for example A.P. v. L.K., 2021 ONSC 150 ¶ 63-66; Palmer v. Palmer, 2010 ONSC 1565 (S.C.J.) ¶ 3; and Reati v Racz, 2016 ONSC 1967 ¶ 28.

[43] The husband himself says this appeal is one of mixed fact and law the engages the palpable and overriding standard of review. Despite the cases he cited about a high degree of deference, the husband did not argue for a different standard of review, like reasonableness. He did not say that either does, or ought to apply to an appeal of a family law arbitral award, on policy grounds. He did not argue whether the application of such a standard would have any significance to the outcome of this appeal. See for example the discussion at ¶ 34-39 of Nolin v. Ramirez, 2020 BCCA 274; see also ¶ 74 of Teal Cedar Products Ltd. v. British Columbia, 2017 SCC 32. This case is therefore not an appropriate one to consider that potential issue.

[44] For reasons I will explain, I agree with the wife, that different standards of review apply to different arguments that she makes. I disagree with the husband that this appeal turns entirely on the palpable and overriding standard of review. That does not matter, because even where I am finding the arbitrator erred and could be reversed on a correctness standard, the Court’s reversal could equally be done on the more onerous palpable and overriding standard.

B. The Applicable Standards of Review

[45] On a pure question of law, an appellate court is free to substitute its own opinion over that of the trial judge (or in this case the arbitrator). The standard of review is correctness. See Housen v. Nikolaisen, 2002 SCC 33 ¶ 8.

[46] The standard of review for findings of fact is that they are not to be reversed unless the arbitrator made a “palpable and overriding error”. That means an error that is “clear to the mind or plain to see”, and one which affected or “discret[ed]” the result. See Housen v. Nikolaisen ¶ 6, 10, 16-18. See also L. (H.) v. Canada (Attorney General), 2005 SCC 25 ¶ 56, 69.

[47] The palpable and overriding standard will also be met where the trier’s , “… findings of fact can properly be characterized as “unreasonable” or “unsupported by the evidence….” The reviewing court must be able to explain, “…why or in what respect the impugned finding is unreasonable or unsupported by the evidence”, and it must be, “…persuaded that the impugned factual finding is likely to have affected the result”. See L. (H.) v. Canada ¶ 56.

[48] The more onerous “palpable and overriding error” standard of review applies where it is alleged the arbitrator erred respecting any inferences of fact drawn, too. An appellate court must not second-guess the weight to be assigned to different pieces of the evidence. An appellate court should not interfere with a conclusion with which it disagrees, where that disagreement stems from a disagreement over the weight to be assigned to the underlying facts. “If there is no palpable and overriding error with respect to the underlying facts that the [adjudicator] relies on to draw the inference, then it is only where the inference drawing process itself is palpably in error that an appellate court can interfere with the factual conclusion”. See Housen v. Nikolaisen ¶ 23.

[49] However as Fish J. wrote at ¶75 of L.(H.) v. Canada (Attorney General), “…appellate courts not only may – but must – set aside all palpable and overriding errors of fact shown to have been made at trial. This applies no less to inferences than to findings of “primary facts”, or facts proved by direct evidence”.

[50] Questions of mixed fact and law involve applying a legal standard to a set of facts. They lie along a spectrum. A question of mixed fact and law can in some circumstances trigger the correctness standard of review. For example, if the trier of fact fails to consider an element of a legal test and then applies it to a set of facts, that will be reviewed on the correctness standard. See Housen v. Nikolaisen ¶ 26, 27. “Extricable questions of law” assessed on the correctness standard of review include legal errors involving “the application of an incorrect principle, the failure to consider a required element of a legal test, or the failure to consider a relevant factor.” See Deslaurier Custom Cabinets Inc. v. 1728106 Ontario Inc., 2017 ONCA 293.

[51] The failure to consider relevant evidence may amount to an error of law too, as may the making of a finding of fact for which there is no supporting evidence. See R. v. Knezevic, 2016 ONCA 914 ¶ 28; see also R. v. Riesberry, 2014 ONCA 744 ¶18. Similarly, the drawing of inferences that do not flow logically and reasonably from established facts is an error of law because it draws the trier into “the impermissible realms of conjecture and speculation”. See R. v. MacIsaac, 2015 ONCA 587.

[52] But where the trier considers the correct law and the necessary evidence and still comes to the wrong conclusion, that is not an error of law to be reviewed on the correctness standard; that assessment of error is subject to the palpable and overriding standard of review. See Housen v. Nikolaisen ¶ 26-28, 36, 37.

C. Other Standards of Review/ Possible Bases for Appellate Intervention

[53] The wife also makes arguments about the nature and the sufficiency of the arbitrator’s reasons, which she says engages the correctness standard of review. I discuss that later when I analyze the pertinent aspects of the wife’s appeal.

[54] The wife raises an issue of natural justice in relation to the arbitrator’s treatment of the funds in her two Credential Investment accounts at the date of separation as well. As I am granting that aspect of the wife’s appeal on other grounds, I need not discuss the wife’s assertion about the standard that applies when natural justice is raised.

[55] Finally, the often-quoted standard of review that applies to appeals of spousal support comes from Hickey v. Hickey, 1999 691 (SCC), [1999] 2 S.C.R. 518. I discuss that below in the section of this judgment about spousal support.

PART IV: THE WIFE’S CREDENTIAL INVESTMENT ACCOUNTS

A. The Parties’ Positions

[56] The wife asserts that the arbitrator made a number of legal and factual errors by failing to award her an exclusion of most of the funds in those accounts at the date of separation.

[57] In particular, the wife says:

(a) the arbitrator erred in law, by applying a different legal standard within the same award, to the husband’s claims for exclusions, as compared to the legal standard he applied to the exclusions that she claimed. For this, she says the correctness standard of review applies;

(b) the arbitrator was also inconsistent across awards. He treated the exclusions in a certain way in the first award, and in a different way when he wrote the “Clarification/Explanation Award”. For this, she says the correctness standard of review applies;

(c) the arbitrator’s reasons are insufficient;

(d) related to her argument about the sufficiency of the arbitrator’s reasons, the arbitrator’s second “Clarification/Explanation Award” is not a “reasoned decision”. Rather, it reads as an “after-the-fact” justification of the initial result to defend against the fact that he forgot to deal with the wife’s claim for an exclusion;

(e) the arbitrator breached the rules of natural justice; and

(f) even if the arbitrator did not err in any of the ways set out above, then he nevertheless made palpable and overriding errors respecting his treatment of the evidence or his application of the law to the evidence. For this she says the palpable and overriding standard of review applies.

[58] The husband says that the arbitrator did not err at all. He argues that the arbitrator allowed “extremely broad exclusions”, but at some point the funds became too mixed. He also argues that wife failed to call the necessary evidence at the arbitration concerning her Credential Investment accounts, making it impossible to even do a “pro rata” analysis.

[59] I agree with the wife that the arbitrator erred in his treatment of her claim for an exclusion of most of the funds in her Credential Investment accounts at the date of separation. I find his reasons are insufficient. Additionally or alternatively, I would also find that he made palpable and overriding errors.

B. Applicable Statutory Provisions

[60] Section 5(7) of the Family Law Act, R.S.O. 1990, c. F-3, as amended explains the purpose of the equalization provisions in the Family Law Act. That subsection recognizes that “child care, household management and financial provision are the joint responsibilities of the spouses and that inherent in the marital relationship there is equal contribution, whether financial or otherwise, by the spouses to the assumption of these responsibilities, entitling each spouse to the equalization of the net family properties, subject only to the equitable considerations set out in subsection (6)”.

[61] Sections 5(1) and 7(1) of the Family Law Act authorize one or both of the parties to apply for an equalization of their net family properties.

[62] “Net family property” is defined section 4(1) of the Family Law Act. I need not repeat here in full all that is entailed in the calculation of “net family property”, or the equalization payment, to dispose of this appeal. Not all aspects of the arbitrator’s net family property and equalization determinations are in issue. Suffice it to say, “net family property” incorporates the broad definition of “property”, also defined in section 4(1).

[63] The property listed in section 4(2) of the Family Law Act is excluded from the calculation of “net family property”, and therefore from the equalization calculation. There are 7 categories or kinds of excluded property listed in section 4(2) of the Family Law Act. Only sections 4(2)(1.),(2.) and (5.) are pertinent. Those provisions read:

4(2) Excluded Property – the value of the following property that a spouse owns on the valuation date does not form part of the spouse’s net family property:

1. Property, other than a matrimonial home, that was acquired by gift or inheritance from a third person after the date of the marriage.

2. Income from property referred to in paragraph 1, if the donor or testator has expressly stated that it is to be excluded from the spouse’s net family property.

3. Property, other than a matrimonial home, into which property referred to in

paragraphs 1 to 4 can be traced.

[64] Pursuant to section 4(3), the onus of proving an exclusion rests with the person claiming it.

C. Applicable Legal Principles

[65] Not every asset that the arbitrator excluded required him to engage in the same degree or complexity of analysis. Some of the gifted or inherited assets for which both parties sought exclusions still remained in their original form by the date of separation. They were easily dealt with by the arbitrator. The more contentious claims that are now the subject of this appeal mostly concerned cash gifts and bequests, which had in turn been transferred elsewhere, mixed with other funds, and/or earned income. This required the arbitrator to consider and apply sections 4(2)(2.) and (5.), and the law of tracing.

[66] In “Tracing Exclusions in Family Law (2006), 25 CFLQ 67, Ilana Zylberman and Brian Burke provide an excellent summary of the law of tracing, and the development of the tracing rules over time as they have applied in family law [12]. Although their article is somewhat dated, their summary of the law remains current and relevant to the issues that are now before the Court on this appeal.

[67] There are three approaches to tracing in the case law, although the first one, the “first in, first out rule”, which neither side argued ought to apply in this case (either before the arbitrator or on this appeal), has arguably fallen into disfavor. Other than to mention its existence, I need not discuss it further.

(1) The Pro Rata Approach

[68] In Goodyer v. Goodyer, 1999 20759 (S.C.J), Perkins J. applied the “pro rata” approach to a tracing problem in a family law case. At ¶ 64 and 65, Perkins J. noted that tracing as a remedy was created in equity to deal with the wrongful disposition of trust property. While Perkins J. went on to note that spouses are not normally trustees for each other, the tracing concept was nevertheless adopted in the family law context because the Family Law Act property scheme has a “bias in favour of sharing the value of assets in existence at the separation date and a bias against the exclusion of assets from the equalization calculation”.

[69] Nevertheless, noting the move away from the “first in, first out rule”, at ¶ 70 Perkins J. applied the Ontario Court of Appeal’s decision in Ontario (Securities Commission) v. Greymac Credit Corp.,1986 2693 to the family law context, saying, “[i]f Ontario v. Greymac represents the law of tracing generally in trust cases, on the basis that a pro rata approach is more sensible and just, it must also be the law for family law cases where tracing is to be carried out under subs. 4(2) of the Family Law Act”.

[70] Perkins J. did not aver in his judgment to the earlier decision of Metivier J. in Bennett v. Bennett, 1997 12388. In their article, Ms. Zylberman and Mr. Burke describe Metivier J.’s approach as “more flexible” than Perkins J.’s approach in Goodyer v. Goodyer.

(2) The Common Sense/Sufficient Link Approach

[71] Metivier J.’s approach in Bennett v. Bennett is referred to in some of the later case law as the “common sense” or “sufficient link” approach to tracing. The approach seems to be more of a guide to how the evidence should be treated in a tracing analysis. It need not be an alternative to the “pro rata” approach. It can also operate harmoniously, or in tandem with it.

[72] The “common sense/sufficient link” approach may be best described with reference to the facts in Bennett v. Bennett. The husband inherited $40,000 from his mother. There was some evidence of $36,000 then being paid out after the inheritance, but no evidence about where those funds went in the interim. Later a parcel of land was purchased. The husband lacked the necessary documentation to prove the entire transaction, from point A to point B.

[73] Metivier J. nevertheless allowed the exclusion of the land. At ¶ 87, he held that “strict tracing rules would not provide for this result but common sense and a reasonable view of how this couple could have found the amount of money required for the purchase of the land leads to a conclusion that the strict tracing rules should be relaxed.” Metivier J. was also prepared to reach this conclusion because “old tracing rules”, which had been developed in trust law, should be relaxed, “where there is no trustee-beneficiary equity and relationship”, and where, “[e]quity and the facts of this case call for it”.

(3) Whether the Case Law Prefers One Approach

[74] At a minimum, the pro rata and the “common sense/sufficient link” approaches to tracing are alive and are being applied in the family law cases. In Wolfe v. Wolfe, 2003 18219 (S.C.J.) Misener J. considered whether a bank account, into which funds from an inheritance were deposited and then subsequently mixed with funds from non-exempt sources, should be excluded. Some of the funds were also withdrawn after the mixing. See ¶ 48. In his analysis, Misener J. identified all three approaches in the case law. He held that neither was binding. He selected and applied the pro rata approach. See ¶ 49-53.

[75] According to I. Zylberman’s and B. Burke’s article, Misener J.’s decision in Wolfe v. Wolfe stands for the proposition that all three approaches are available at law, although they argue that a “more flexible approach” has become the trend in the jurisprudence. Subsequent cases, including those cited by the arbitrator in his award, or provided by counsel for this appeal, include those in which a mixture of the “pro rata” and “common sense” approaches were applied. Sometimes courts have relied upon both approaches within a single case, or upon elements of both approaches.

[76] For example, although Misener J. ultimately selected the pro rata approach in Wolfe v. Wolfe, at ¶ 96 of Oliver v. Oliver, 2012 ONSC 718 (S.C.J.), Nelson J. cited Wolfe v. Wolfe, but selected the “common sense approach” referred to therein. Nelson J. did so after accepting the wife’s evidence, that the only funds she deposited into the bank account in question, came from an inheritance from an aunt, or interest thereupon. Also at ¶ 96 of Oliver v. Oliver, Nelson J. relied on Perkins J.’s decision in Goodyer v. Goodyer. While Goodyer v. Goodyer was a pro rata case, Nelson J. cited it for Perkins J.’s statement about the caliber of evidence needed to make out a tracing claim.

[77] In Townshend v. Townshend, 2012 ONCA 868, Simmons J.A. allowed an exclusion, even though the husband lacked the documentary evidence to prove his claim. Although she did not specifically label it as such, her approach resembles the “common sense” one. At ¶ 35, she characterized the wife’s argument as “overly formalistic” and said that a “compelling inference” arose that the funds in an account could be traced to excluded funds. Their existence in the account was proximate in time to the time of the gift.

[78] In Ludmer v. Ludmer, 2013 ONSC 784, Penny J. adopted the “common sense” approach too, and allowed an exclusion for the entire proceeds of sale of a property. Like Perkins J., Penny J. also discussed the caliber of the evidence needed. At ¶ 85-86 of Ludmer v. Ludmer, Penny J. held that the tracing principle is not limited by the number of transactions, or changes in form of the asset, but the ability to trace may come to an end when the asset is spent or dissipated, or when it otherwise becomes co-mingled with other assets such that the original property can no longer be discerned.

[79] Perhaps as an example of a pro rata, or at least a more flexible kind of approach to tracing, at ¶ 53 of McIsaac v. McIsaac, 2004 66350 (S.C.J.), O’Neill J. held that “strict tracing rules developed almost 200 years ago ought not to be applied in the circumstances of this case where, in addition, equity demands that a portion of the exclusion claimed be permitted”. Based on the record before him, O’Neill J. went on to exclude some, but not all money in an RRSP.

[80] At ¶ 36 of Finch v. Finch, 2018 ONSC 5575 (which the arbitrator quoted in the first award), Minnema J. wrote that both approaches may apply. Minnema J. characterized them as alternative approaches, with the pro rata method being the “usual” or default one. Minnema J. said:

The usual approach for tracing monies in investment accounts has been referred to in the case law as the “pro rata method”: see Goodyer v. Goodyer, 1999 20759, [1999] O.J. No. 29 (Ont. Gen. Div.) at paragraphs 69 and 70, and Wolfe v. Wolfe, [2003] O.J. No. 3386 (Ont. S.C.J.) at paragraph 53. What this means is that a calculation is made of the ratio of exempt inheritance funds to the non-exempt funds that have been deposited into the account and that ratio is applied to the funds remaining in the account on the date of separation (Wolfe at paragraph 54). As suggested in Townshend, this approach is subject to being relaxed when common sense and a reasonable balance of probabilities calls for a different result: see Henderson v. Casson, 2014 ONSC 720, 2014 O.J. No. 519 (Ont. S.C.J.) at paragraphs 90 and 91.

[81] Whether or not they are alternatives, which approach should apply will be driven by the evidence. For example, cases in which an asset was gifted or inherited, and where the asset remains in its original form, are obvious. Such cases do not even require tracing for the exclusion to apply. In this case now before me, there are a number of examples of such assets and the arbitrator properly excluded them. While issues of ownership are sometimes raised by her, there is no serious complaint from the wife that the arbitrator erred in excluding such assets that were not converted, or transferred, or mixed.

[82] Where the evidence consists of mixed funds, as Minnema J. said in Finch v. Finch, it will generally be appropriate to apportion the exclusion. However, where some documentary evidence is lacking, but where the totality of the record still supports an exclusion, the “common sense” approach is helpful.

[83] I. Zylberman and B. Burke argue in their article that tracing is not impossible, just because the documentary evidence is less than perfect. I agree with that statement. And using the “common sense” approach does not always result in a total exclusion. There is no reason why a flexible view of the evidence cannot be taken in tandem with the pro rata approach, where documentation is missing but it might still be appropriate to apportion. This appears to have been the approach of O’Neill J. in McIsaac v. McIsaac.

[84] Viva voce evidence, in conjunction with whatever relevant documentary evidence exists, may ground a claim for an exclusion. For example, even though Goodyer v. Goodyer is a pro rata case, at ¶ 83 Perkins J. said, “the individual assets in the investment account need not be traced with any degree of detail, so long as the history and continuity of the account as a whole are proved”. Penny J. adopted a similar approach to the evidence in Ludmer v. Ludmer, a “common sense” case. As did Simmons J.A. in obiter in Townshend v. Townshend.

D. The Wife’s Argument that the Arbitrator Applied Different Legal Tests within the First Award, and As Between the Two Awards

[85] Having now identified the applicable legal principles, to assess the merits of the wife’s arguments that the arbitrator applied different legal tests, I must first identify what the arbitrator actually did.

(1) The Arbitrator’s Findings in the First Award About the Wife’s Father’s Cash Gifts and Bequests

[86] Two different amounts of cash are in issue on this appeal. The arbitrator found that during the marriage, the wife’s father gifted $190,000.00 in cash to the parties in differing amounts at different times between 1999 to 2006. Of this amount, the sum of $110,000.00 was in dispute at the arbitration. See ¶ 46 of the first award.

[87] On July 4, 2006, the wife’s father wrote the joint cheque for $110,000.00 to the parties. The arbitrator found that the wife asked the husband to sign his share of those funds over to her. When the husband refused to do so, the wife went ahead and deposited all the funds into a joint account on her own. Then, she transferred the funds into what the arbitrator described as “an account in her name alone”.

[88] Given that the $110,000.00 was a gift during the marriage and that it existed in an account in the wife’s name at the date of separation, the arbitrator treated the full amount as an exclusion from the parties’ net family properties. However, he only allowed the wife to exclude half of the funds in her side of the ledger, finding the other half belonged to the husband. He therefore deducted $55,000.00 from the total amounts the wife was claiming should be excluded. The arbitrator inserted an exclusion of the other $55,000.00 on the husband’s side of the net family property statement. He also treated half of the joint cheque as a debt between the spouses in his equalization calculation, and made necessary adjustments to the net family property statement to achieve this. [13]

[89] Second, following her father’s death in 2007, the wife received $1,500,000.00 pursuant to paragraph V(c) of her father’s Last Will and Testament. The husband also received the sum of $200,000.00 from the wife’s father, pursuant to paragraph V(a) of that same Will [14].

[90] At ¶183, the arbitrator awarded the husband exclusions of $181,284.91, which he said were the aggregate of amounts in four accounts at RBC. The arbitrator said that this comprised the amounts on the date of separation, inclusive of capital gains, dividends and interest that could be traced back to the $200,000.00 inheritance. The arbitrator’s award does not specifically explain why on the evidence only $181,284.91 could be traced back to the $200,000.00. But the arbitrator’s conclusions about the husband’s exclusions are not the subject of this appeal. (And a review of the transcript leads me to conclude that he employed a “pro rata” approach or perhaps a “pro rata” approach with some flexibility respecting the evidence, to arrive at this result).

[91] Regarding the wife’s inheritance of $1,500,000.00 which is the subject of the appeal, the evidence before the arbitrator was that the wife spent less than $6,000.00 of it on legal fees, leaving her with $1,494,128.38 to invest. Although the evidence was that the wife did not spend any more of this money thereafter, nor did she lose any of it in her investments, at ¶ 192-195 of the first award, the arbitrator only allowed the wife total exclusions of $1,341,341.87. That sum even included money from other excluded sources. The total exclusions that the arbitrator allowed amounts to over $150,000.00 less than that with which the wife started out several years earlier, following her father’s death. Although the arbitrator did not provide any calculations nor a proper explanation for how there could possibly be such a reduction to the starting balance, a review of the transcript leads me to conclude that of the $1,341,341.87 in exclusions that the arbitrator did allow, he purported to employ a “pro rata” approach.

(2) The Arbitrator’s Findings in the First Award About the Wife’s Father’s Gifts and Bequests of Real Property

[92] The wife’s father’s gifts and bequests of real property to one or both of the parties did not require the arbitrator to engage in the same level of analysis or tracing. In all but one instance, the arbitrator was not required to engage in any tracing at all.

[93] For example, in 1978, the wife’s father gifted her a parcel of land referred to as “lot in the bay” within the family’s “cottage compound”. The parties agreed that on the date of marriage, the lot was worth $35,400.00 and by the date of separation, it had increased in value to $295,000.00. As the wife received this gift prior to the marriage, the arbitrator found that its growth over the course of the marriage was to be shared. No tracing was required to conclude this.

[94] In 1985, during the marriage, the wife’s father gifted her a cottage within the compound. Similarly, this asset did not require the arbitrator to engage in any tracing exercise. Thes issue at the arbitration were whether this property was a matrimonial home, thereby eliminating the wife’s claim for an exclusion at all, or alternatively whether the husband had a valid trust claim over this property based on unjust enrichment. At ¶ 86 and 119 of the first award, the arbitrator found in the wife’s favour, ruling that the property was not a matrimonial home. He also rejected the husband’s alternative claim based on unjust enrichment. In the result, the arbitrator allowed the wife to exclude its full value at the date of separation. At ¶186, the arbitrator quantified the value of the exclusion of the cottage on valuation date as being $385,000.00. The arbitrator had to determine value to quantify the exclusion; he did not engage in a tracing exercise.

[95] The arbitrator also treated the beach lots as excluded property. The real issue at the arbitration (and now on this appeal) centered around their beneficial ownership, not tracing. Having found equal ownership, at ¶184 and 187 and at Schedule “A” to the award, the arbitrator ruled that each party was to insert the sum of $150,000.00 as the value of the shares into his and her net family property, “subject to adjustments between the parties with respect to any tax consequences once, as agreed, [the husband’s] shares are transferred to [the wife]”. Likewise, he directed that the sum of $150,000.00 was to be excluded from each party’s net family property, since the beach lots were gifted. The arbitrator was not required to engage in any tracing exercise here either.

[96] Lastly, in his Will, the wife’s father left both parties a 50% interest in a property, which they were to hold with the wife’s brother and his spouse. That property was rented out at first and the rental income was shared amongst the four beneficiaries. The parties and their co-owners later sold the property on August 15, 2014. The proceeds of this property (and of a vendor take back mortgage that was subsequently discharged) were divided equally between them.

[97] The arbitrator allowed the parties appropriate exclusions having regard to the inherited nature of this asset. For example, at ¶ 180-182, the arbitrator awarded the husband an exclusion of $154,750.16, which he found could be traced back to the amount the husband received on the 2014 sale of this property, plus some other funds he inherited from his own father in 2014. This required the arbitrator to engage in some tracing, since he lumped this money together with some funds from the husband received from his own father following his death. At ¶185, the arbitrator allowed both the husband and the wife to exclude $156,124.00, representing the amount being held in trust to which each was entitled on the discharge of the vendor take back mortgage. No tracing was required for the arbitrator to do the latter.

(3) Other Exclusions Awarded to the Wife

[98] The arbitrator awarded the wife separate exclusions pertaining to other gifts she had received, as well as an amount provided for in a marriage contract that the parties signed in 2000. I discuss this and another draft marriage contract, and their relevance to the wife’s claims about the ownership of the beach lots, later in this judgment. But here, I note that at ¶ 189-190 of the first award, the arbitrator allowed the wife exclusions in the amount of $140,000 representing a 50% interest she holds with in a property gifted from her mother in 1982, and $80,000.00 representing her investment in the matrimonial home that the parties agreed would be excluded pursuant to the marriage contract. These amounts did not require the arbitrator to engage in any tracing.

(4) Conclusion Regarding Whether the Arbitrator Applied Different Legal Tests Within the First Award

[99] The arbitrator generally allowed full exclusions for gifted or inherited assets, mostly real estate, that remained in their original form at the date of separation. Where the arbitrator only allowed partial exclusions of cash, he seems to have applied some pro rata apportioning to account for mixing.

[100] Part of the difficultly, perhaps giving rise to the wife’s differential treatment argument on this appeal, is that in his first award, the arbitrator did not specifically state that he was selecting the “common sense” approach over the “pro rata” approach, or perhaps both. Rather, after discussing the history of the tracing rules at some length, at ¶ 169 of the award, the arbitrator cites ¶ 36 of Finch v. Finch, and Minnema J.’s statement that the pro rata approach is the “usual approach” unless “common sense and a reasonable balance of probabilities calls for a different result”. But then, at ¶ 170-172, the arbitrator cites Oliver v. Oliver, Bennett v. Bennett and Ludmer v. Ludmer, all of which are “common sense” cases. Then, at ¶ 173 he cites McIsaac v. McIsaac, which in the result employs some apportioning, although also using the “common sense” approach.

[101] The arbitrator’s conclusions at ¶ 177 and 178 of the first award, after citing these cases, could be read as his adoption of either the “pro rata” or the “common sense” approaches, or perhaps both. At ¶ 177, he said:

177. An equitable, common sense approach to tracing based on the overall objectives of the Family Law Act, as favoured by the jurisprudence referenced above, is reasonable and more appropriate than traditional tracing rules developed essentially to ensure that trustees were held to their fiduciary duties when accounting for trust funds in their care.

178. The “modern” approach does not consider the trace to be cut off if inherited funds or gifts are placed in an account in which there is already some money; neither would those funds lost their exclusion characteristics if they are temporarily placed in a joint account with a clear intention that the account is being simply used as a vehicle to enable an immediate transfer into a solely owned investment. These are not hard and fast rules but common sense considerations that would have to be adapted according to individual circumstances of each case.

[102] Although the arbitrator used the words “equitable”, “common sense” and “modern” in these passages, these paragraphs do little more than reveal that the arbitrator not going to apply the more rigid, older tracing rules. They do not on their face explain why the arbitrator then made the findings allowing the exclusions that he allowed. Still, based on my review the transcript of the evidence and the tracing evidence, how the arbitrator treated the cash gifts and bequests emerges, but only some of the time (and not with respect to the wife’s Credential Investment accounts).

[103] Therefore, in regards to the wife’s argument that the arbitrator treated different assets differently within the same award, theoretically, it might be an error of law to do that. It would be an error to apply different tracing rules to two different assets of equal caliber, for which there was equivalent evidence. But it is not wrong to treat different assets differently, if there is an evidentiary basis for so doing. It was open to the arbitrator to adopt either the “pro rata” or the “common sense” approaches, or even both, and apply different approaches to different assets, if warranted based on the evidence.

(5) Conclusion Regarding Whether the Arbitrator Applied Different Legal Tests in the First and Second Awards

[104] However, it might be said that the wife’s differential treatment argument has more merit when the first award is compared to the second award. The manner in which the arbitrator treated the wife’s Credential Investment accounts in both the first award, and in the second “Clarification/Explanation Award”, is problematic.

[105] At ¶178 of the first award, the arbitrator cited the principle from Penny J.’s decision in Ludmer v. Ludmer, that the ability to trace is not limited by the number of transactions and so on. He then allowed a number of exclusions. But then at ¶ 12 of the “Clarification/Explanation Award”, he cited the corollary to that, also found in Ludmer v. Ludmer, that the ability to trace comes to an end when the funds become too co-mingled. He relied on this to deny the wife any exclusions the Credential Investment accounts in his second, “Clarification/Explanation Award”.

[106] Again, it is not necessarily inconsistent or wrong for the arbitrator to have done this, if the evidence supports such a conclusion. However, the evidentiary record did not warrant the arbitrator taking the approach that he did to the wife’s Credential Investment accounts in his second,“Clarification/Explanation Award”, after he failed to deal with them in the first award.

[107] Regardless, I prefer not to find the arbitrator erred by merely comparing the arbitrator’s first award to the second one, and concluding that they are different in principle. I prefer to examine each of the decisions on their merits.

[108] I find that the arbitrator’s reasons about the wife’s Credential Investment accounts, both in the first award and in second “Clarification/Explanation Award” are insufficient. Based on the record before him, I also find the arbitrator could not have correctly applied either the pro rata approach, nor any “common sense/sufficient link” reasoning. I also find the arbitrator significantly misapprehended the evidence.

[109] Even though this aspect of the appeal could be addressed on the correctness standard of review, I find I am able to dispose of it on the more onerous palpable and overriding standard. I find the wife should succeed with this aspect of her appeal.

E. The Sufficiency of the Arbitrator’s Reasons

(1) Applicable Legal Principles Concerning the Sufficiency of Reasons

[110] An arbitrator’s responsibilities include the duty to deliver reasons. Section 38(1) of the Arbitration Act, 1991 requires this. Where reasons are unclear or lacking, the parties may ask the arbitrator for an explanation. The arbitrator may be compelled to give an explanation by the Court. See sections 40(1) and (2). I mention these provisions because, although the importance of reasons generally has been dealt with many times in the case law, these statutory provisions further underscore their importance in the arbitral context.

[111] Reasons serve three main functions: they communicate to the affected parties why the decision was made, they provide accountability, and they permit effective appellate review. They also focus the decision-maker, to help ensure fair and accurate decision-making. See R. v. R.E.M., 2008 SCC 51 ¶ 11, 12; see also R. v. Sheppard, 2002 SCC 26 ¶ 15, 24.

[112] At ¶35, 43, 44 of R. v. R.E.M., the Supreme Court summarized three principles that guide appellate courts when considering what is required of a trier in terms of reasons. First, appellate courts should take a functional, substantive approach to the sufficiency of reasons. They are to read the reasons as a whole, in the context of the evidence and arguments at trial, and with an appreciation for the purposes or functions for which they are delivered.

[113] Second, the basis for the decision must be “intelligible”, meaning capable of being made out, and logically connected to its basis. The trier need not set out his or her process in arriving at the decision in detail, nor must he or she necessarily provide detailed recitations of the evidence or the law . Rather, the reasons must show, when read in context of the record and the submissions, that the trier has “seized the substance of the matter”. The degree of detail in any particular case may vary with the circumstances.

[114] Third, to determine whether the logical connection exists, the appellate court should look to the evidence, the submissions and the history of the trial to determine the “live issues” as they emerged during the trial.

[115] An appellate court must start from a stance of deference towards the trier’s perception of the facts. It must ask itself whether the reasons in context explains the basis for the decision. If the evidence is contradictory, it should ask itself whether the trier recognized and dealt with the contradictions. It should do so similarly with difficult or novel questions of law. The critical question to ask is whether the reasons, considered in the context of the evidentiary record, the live issues as they emerged at trial and the submissions of counsel, deprive the appellant of the right to meaningful appellate review? If the appellate court concludes that the trier, on the record as a whole, did not deal with the substance of a critical issue, then it may conclude that the deficiency constitutes an error in law. See R. v. R.E.M. ¶ 52-57.

[116] See also Canada (Minister of Citizenship and Immigration) v. Vavilov, 2019 SCC 65 ¶ 79-91.

(2) The Arbitrator’s Treatment of the Wife’s Credential Investment Accounts

[117] The first award contains no analysis about the wife’s Credential Investment accounts at all. They are not even mentioned, other than very briefly in the arbitrator’s net family property statement, attached as Schedule “A” at the end of the first award.

[118] Then, at ¶ 5, 7 and 8 of arbitrator’s “Clarification/Explanation Award”, he said:

5. I have considered the requests made on behalf of each party. In each case, the substance of the claim for exclusion was considered by the arbitrator prior to the Award of February 12, 2019 being released and, as such, there will be no change to the calculations made in the final Award with respect to either party’s net family property claim.

6. My intention all along was to provide in the final Award an explanation with respect to the outcome of all claims made for an exclusion by each side, and I did so when I dictated the Award. Unfortunately, throughout my dictation of the lengthy reasons, we encountered technical difficulties with the dictation equipment which occasionally resulted in some of the dictation being lost.

7. I assume responsibility for not realizing before the Award was released that certain aspects of my dictation were missing and for that, I apologize to Janet and David, as well as counsel.

[119] The arbitrator went on to write that he was aware of the wife’s claim to exclude the Credential Investment accounts, since the net family property statement attached as Schedule “A” to the first award makes a notation that the exclusion was being claimed. However, the arbitrator then stated at ¶ 11 that the wife, “…failed in her endeavor to trace the funds in the account on v-day to an inheritance or gift received during the marriage”. At ¶ 12, he further stated that even taking a “liberal” view of the law of tracing, the funds in the account were too mixed, drawing an analogy to “rye and coke” as opposed to “oil and water”.

[120] At ¶ 13-19, the arbitrator stated that he examined Exhibits 12 and 13, very closely. Those exhibits contain the wife’s documentary evidence in support of her claim for exclusions.[15] While the arbitrator acknowledged that a significant amount of funds that ended up in the Credential Investment accounts came from Scotiabank, he wrote that the source of the funds in Scotiabank was not always clear. At ¶ 16, the arbitrator stated that there was no evidence, adduced at the hearing with respect to the particularity of any gifts that went into these accounts, except for those which have been detailed in the arbitration award at pages 9 to 11 [16]. At ¶ 17 the arbitrator concluded that a spouse, “cannot avail themselves of an exclusion under s. 4(2) of the Family Law Act by simply making a bold statement that funds came to them by gift during the marriage”. And at ¶ 18, he said that an examination of the Credential accounts also shows a “multitude of transactions and mixture of funds from a variety of sources, that makes the tracing of inherited or gifted funds an exercise in speculation”.

(3) Conclusion Respecting the Sufficiency of the Arbitrator’s Reasons

[121] I find this explanation from the arbitrator is insufficient, even after reviewing the transcripts, the documentary evidence and the submissions made at the arbitration. This “Clarification/Explanation Award” fails to reveal why the arbitrator found the Credential Investment accounts were so mixed that they lost their exclusionary character. It does not explain what the arbitrator meant by a “liberal” view of the law of tracing. Assuming he was referring to the “common sense” approach to tracing, the arbitrator did not explain why that would not result in a significant amount of the wife’s two Credential Investment accounts being excluded. Nowhere does the arbitrator address the wife’s oral evidence, documentary evidence and the other circumstantial evidence in any detail, and explain why it should not have resulted in the drawing of any inferences to fill in gaps, if any. Instead, the arbitrator’s stated that the wife’s evidence consisted merely of a “bold statement”. That is a mischaracterization of the evidence that the wife adduced at the hearing.

[122] Even if the arbitrator was not inclined to allow an exclusion using “common sense” principles, then he failed to explain, with reference to the evidence, why the pro rata approach was not appropriate either, apart from making the general, conclusory statements that the evidence was too confusing, unclear and lacked particulars. Although at ¶ 15 of the “Clarification/Explanation” Award he said that the source of the funds that went into the Credential Investment accounts was not always clear, the arbitrator did not explain the evidence with the necessary specificity to support that conclusion. He did not delve into the actual funds that could be identified, traced to inherited or gifted money, and then explain why those shouldn’t be excluded.

[123] If I am mistaken and the reasons are sufficient, then it would nevertheless be my view that the arbitrator significantly misapprehended the evidence about the source of the funds in the wife’s Credential Investment accounts. Even though I have doubts that the arbitrator correctly applied the law to the wife’s Credential Investment accounts, I am prepared to analyze this issue and make this finding on the more onerous palpable and overriding standard of review.

(4) The Wife’s Argument that the Arbitrator’s “Clarification/Explanation Award” is an “After-the-Fact” Justification of His Omission

[124] Before so doing, I will first address the wife’s separate argument, that the arbitrator simply made up the second, “Clarification/Explanation Award” to justify his omission in the first award. The wife relies on R. v. Arnaout, 2015 ONCA 655 to make this argument.

[125] The context of R. v. Arnaout, and some of the other cases cited therein, is important to note and it is different from this case now before me. Those cases involved a lengthy delay in between a verdict in a criminal case, and the release of reasons. In R. v. Arnaout, the reasons were also amended later, without explanation, after additional events in the case transpired over which the same judge continued to preside. The Court of Appeal found on a reasonable, informed observer standard, that the ongoing proceedings created ample opportunity for the trial judge to review and consider or reconsider his oral reasons delivered earlier. See ¶ 49-53.

[126] Still, the wife argues that the arbitrator “delayed” in the delivery of the “Clarification/Explanation Award”. This argument is curious, given that the arbitrator released his first award, and then his “Clarification/Explanation Award” very promptly. The total time in between the first and second awards is less than one month, and cumulatively these two awards were released within 3 months of conclusion of the arbitration.

[127] The wife says the actual time does not matter for there to be “delay”, and that any subsequent delivery of a decision is “delay” that can engage this principle in R. v. Arnaout. I do not accede to this argument. There was no delay here. This is not a situation of a decision-maker changing a ruling after learning of more developments in an ongoing case, or even of a decision-maker releasing reasons much later after first announcing orally the intended result, thereby triggering the concern that the reasons were written to justify the result earlier delivered.

[128] In this case now before me, the arbitrator only released the second award because he was asked to do so by counsel. By releasing the second “Clarification/Explanation Award”, the arbitrator acted as he ought to have, under sections 40 and 44 of the Arbitration Act, 1991. The real issue is whether the arbitrator, having been made aware of an error in the first award, allowed that error to drive the contents of the second “Clarification/Explanation Award” in an inappropriate attempt to save the first award.

[129] In R. v. Arnaout, the Court held that a trial judge is entitled to benefit from a presumption of integrity. Counsel did not provide me with any law as to whether this presumption applies, or does not apply, to an arbitrator. Assuming that it does, the decision in R. v. Arnaout goes on to state that the test to displace the presumption of integrity is similar to the test for a reasonable apprehension of bias. The appellant must present “cogent evidence showing that, in all the circumstances, an informed and reasonable observer would think that the reasons are an after-the-fact justification for the decision, rather than an articulation of the reasoning that led to the decision”. See ¶ 18, 19.

[130] To decide whether the test is met, I have considered ¶ 10 and 11 of the arbitrator’s “Clarification/Explanation Award”. I considered the arbitrator’s statement that it is “evident” that he was “aware” of the claimed exclusion, because the Credential Investment accounts are listed as assets on the date of separation in the net family property he prepared, attached as Schedule “A” to the first award. I note that part of this statement itself comes from the wife’s counsel’s own letter requesting the correction, in which counsel suggested to the arbitrator that he was probably aware of the asset, since it was on the net family property statement. But the arbitrator did not adopt the balance of the wife’s former counsel’s submission, in which counsel surmised that the arbitrator had “overlooked” the accounts.

[131] While the arbitrator’s assurance of awareness and consideration probably offered the wife little comfort, I would still not find that a reasonable observer would conclude that the arbitrator either made up the second award, after the fact. On the one hand, I do not find the arbitrator’s comment, that he was aware and considered the accounts because they were listed in the net family property statement, to be dispositive of this issue. I note that the net family property statement at Schedule “A” of the first award also contains other numbers that are part of net family property, but that were not litigated during the arbitration. There is a fundamental difference between being aware of an asset, and saying that it was also considered/analyzed as part of the reasoning.

[132] However, I have also carefully considered the arbitrator’s reason for failing to write about the wife’s Credential Investment accounts in the first award, being the broken/lost dictaphone. The fact that the arbitrator was prepared to admit this to the parties is a candid indication of honesty on his part.

[133] More importantly, what the arbitrator said in the second award about his failure to discuss the Credential Investment accounts (being caused by the dictaphone) must be looked at in the context of what the arbitrator otherwise said in the first award, specifically at ¶ 191. In that paragraph, the arbitrator lists, neatly, all of the investment accounts that he said the wife was seeking to exclude. The paragraph refers only to accounts at Scotiabank; there is no mention of her Credential Investment accounts there. Not only that, the dollar amounts he listed as exclusions add up to less than the wife’s starting balance of just under $1,500,000.00 that wife inherited. Another plausible explanation is that the tracing evidence was tedious, the arbitrator was confused by it, the arbitrator then lost his dictation making matters worse, and as such he misapprehended the evidence in finalizing the award, that he was trying to dictate (but lost) in the first place. The wife has not displaced the presumption of integrity.

F. The Record That Was Before the Arbitrator

[134] I now turn to the actual record that was before the arbitrator to explain why I am finding the wife is entitled to exclude most of the amounts in her two Credential Investment accounts. In light of the dictaphone error that he acknowledged, and given the not insignificant amount that was at stake and its potential impact on the other claims in this proceeding (like spousal support), it is my view that it was incumbent on the arbitrator to have provided more detail in his “Clarification/Explanation Award”, rather than just making conclusory statements. But he did not. The Court will therefore summarize the evidence to explain why I have said the arbitrator misapprehended it.

[135] The evidence was the following:

(a) The wife opened a “MoneyMaster” account at Scotiabank, ending in # 81, on May 26, 2004. The source of this information is the wife’s viva voce evidence, as bank statements were not available;

(b) The $110,000.00 cheque that the wife’s father wrote to the parties on July 4, 2006, which the arbitrator determined should be excluded, was deposited into the wife’s MoneyMaster account at Scotiabank ending in #81, on July 20, 2006. The source of the evidence for this is both documentary (see Exhibit 12, Tab 5), and the wife’s oral evidence. She later transferred this money to her Credential Investment accounts, something which the arbitrator does not appear to have appreciated;

(c) After that deposit in 2006, the MoneyMaster account had a balance of $133,584.56. The documentary evidence to support this in located in Exhibit 12, Tab 5. Obviously, that meant that $23,584.56 of the money in the account, before the $110,000.00 deposit, came from somewhere else;

(d) The wife’s oral evidence to explain the source of that pre-existing money, was that she had deposited miscellaneous other gifts that she received through the marriage. This is the evidence that the arbitrator appears to have described as the “bold statement”. The amount pales in comparison to the gifts and inheritances that she proved with documentation. If the wife’s evidence as to this smaller amount had been accepted, then those funds were also entitled to an exclusion, apart from any income earned later on those pre-existing funds (because there was no evidence of an express statement from the donor for the exclusion of the income earned on them. See again section 4(2)(2.) of the Family Law Act);

(e) By September 30, 2008, the wife now had $153,784.70 in the Scotiabank Money Master account. There is also documentary evidence to this effect in Exhibit 12, Tab 5. Again, this included the $110,000.00 gift;

(f) The wife received her $1,500,000.00 inheritance in November of 2008, about 1 year after her father’s death. As confirmed in the letter from the lawyers involved with her father’s estate dated November 7, 2008, the wife specifically received the net amount of $1,494,127.38. Just under $6,000.00 had been spent on legal fees. The cover letter to this effect is located in Exhibit 12, Tab 1;

(g) On November 22, 2008, the wife purchased three GICs in the amounts of $499,000.00, $499,000.00 and $402,000.00. The aggregate of those three amounts is $1,400,000.00 of the $1,494,127.38 that she received. There is documentary evidence to this effect in Exhibit 12, Tab 3;

(h) That left $94,127.38 from the inherited funds. The wife testified that she left this balance behind in the bank. That meant that $94,127.38 of inherited funds was added to the earlier gift of $110,000.00 and the pre-existing monies that were in the bank before the $110,000.00 deposit;

(i) After the wife purchased the GICs with her inheritance money, the wife closed her Scotiabank MoneyMaster account ending in # 81 and opened a different account at Scotiabank ending in # 88. She did this on November 24, 2008. There is documentary proof to this effect in Exhibit 12, Tab 4. The money from the MoneyMaster account just moved over to account # 88;

(j) The next statement at Exhibit 12, Tab 6 shows the wife now had $247,236.30 in the new account at Scotiabank as of June 30, 2009, in addition to her separate GICs (which had started to grow in value). Although not quite 100% precise, the wife’s counsel on this appeal points out that this balance in the new account is more or less the aggregate of the $153,784.70 that existed before the wife received the inheritance of $1,500,000.00, plus the $94,127.38 left behind from the inheritance after she purchased of the GICs referred to above;

(k) By the following year, March 31, 2010, there was another $10,000 or so, or $257,000.41 in the account at Scotiabank. But then, between the end of March 2010 and the end of June 2010, the balance in the account dropped to $53,497.41. This can be seen at Exhibit 12, Tab 7 (as well as in the wife’s Credential Tracing Brief, Exhibit 13, Tab 2, which I come to next);

(l) The balance in the Scotiabank account dropped because on June 4 and 7, 2010, the wife transferred two x $100,000.00 amounts from Scotiabank to her Credential Investment accounts. To do this (and to do all other transfers to Credential that would follow), she first transferred the funds into her business account ending in # 29 at Scotiabank, and from there the funds were sent to Credential by cheque. This can be seen at Exhibit 13, Tab 2. In each instance, her transfers in to, and then out from the business account were proximate in time, and the other monies in the business account were insufficient to cause me any doubt that the money transferred over came from account # 88 (ie. that it originated from gifted or inherited sources);

(m) It is important to note again, that the source of these first two transfers to Credential Investments in the aggregate sum of $200,000.00, came from the wife’s Scotiabank account #88. That is where she had deposited the $110,000.00 cheque from her father (that the arbitrator ruled was excluded funds), plus the $94,127.38 left over from her $1,500,000.00 inheritance (also excluded funds). After these transfers totaling just over $200,000.00, there was at most $52,873.03 left in Scotiabank # 88;

(n) By the end of 2010, the wife now had $223,091.67 in her first Credential Investment account ending in MA-1. This solely consists of the $200,000.00 that she transferred over. The balance increased on account of market growth. This can also be seen at Exhibit 13, Tab 2;

(o) On or about May 21, 2011, the wife’s GICs that she purchased with her $1,500,000.00 inheritance matured. She received a payout of two amounts of $551,751.22, and one amount of $444,496.97, for a total of $1,547,999.41. She earned growth of $147,999.41 on her investment. This can be seen in Exhibit 12, Tab 3;

(p) On June 11, and 30, 2011, the wife made two transfers to her business account ending in # 29 in the amounts of $75,000.00 and $100,000.00. On June 22, 2011, again by cheque, the wife sent $175,000.00 to her Credential Investment account, also ending in MA-1. This can be seen at Exhibit 13, Tab 3;

(q) On June 30, July 4 and July 15/16, 2011, the wife made transfers, through her business account of $75,000.00, $75,000.00 and $50,000.00. The wife only transferred $175,000.00 of this $200,000.00 over to Credential and $25,000.00 remained behind in her business account. Specifically, on July 15, 2011, the wife sent the sum of $175,000.00 via cheque to her second Credential Investment account, ending in MA-2. That sum of $175,000.00 originated from her inheritance. All of these transfers can be seen at Exhibit 13, Tab 4;

(r) By the end of 2011, there was $180,220.03 in this second Credential Investment account. This too can be seen at Exhibit 13, Tab 4. The evidence was that these were the only funds that ever got sent to the Credential Investment account ending in #MA-2;

(s) On November 9, 2011, the wife made another transfer of $20,000.00 into her business account at Scotiabank ending in #29 from her account # 88 containing the excluded funds, and then sent $25,000.00 over to Credential Investmetns, once again returning to the account ending in MA-1. This can be seen at Exhibit 13, Tab 3. The wife conceded at the arbitration that the sum of $5,000.00 should not be excluded as it consisted of funds from her business account. She made this concession again on this appeal;

(t) The wife did not make any transfers into her Credential Investment accounts in 2012;

(u) On July 26 and 31, 2013, the wife made another transfer of $25,000.00 in the same fashion, first into her business account and then to her Credential Investment account ending in #MA-1;

(v) The wife did not make any transfers into her Credential Investment accounts in 2014;

(w) The date of separation was March 19, 2015; and

(x) The wife made a further transfer of $25,000.00 into her Credential Investment account in May of 2015, but this was after the date of separation.

[136] The evidence is that no other amounts were deposited into the wife’s two Credential Investment accounts. Including her post-separation deposit of $25,000.00, the wife made total deposits via transfers from her Scotiabank account # 88, in the sum of $625,000.00.

[137] The balances in the wife’s two Credential Investment accounts ending in MA#1 and MA#2, as of February 28, 2015 (before the wife’s post-separation deposit of $25,000.00), were $596,068.90 and $195,587.99, for a total of $791,656.89. As such, other than the $5,000.00 that came from her business account, these balances are all traceable back to the account she maintained at Scotiabank, the vast majority of which originated from her $1,500,000.00 inheritance or the $110,000.00 gift from her father.

[138] As I indicated earlier, in her factum, the wife claimed an exclusion of the entire balances on the date of separation. In argument at the appeal (and at the arbitration), the wife took the position that a pro rata approach is appropriate, having regard to her concession that $5,000.00 of the above transfers came from her business account. She calculated that the ratio of excluded to non-excluded funds was 96%, by adding up her pre-separation deposits less the $5,000.00 from business funds, and dividing the amount by total deposits of $620,000.00.

[139] As I set out at the outset of this judgment, the wife’s pro rata calculation contained a small error. Her calculation is not correct because the total deposits into the accounts were $625,000.00, not $620,000.00, and $25,000.00 of that was a post-separation deposit. The correct approach would be to take the $595,000.00 traceable to exclusions (ie. pre-separation deposits in Credential of $600,000.00 less the $5,000.00 of business funds) and those divide by the total deposits at the date of separation of $600,000.00. That yields a percentage of 99%. And 99% of the February 28, 2015 balance of $791,656.89, is $783,740.32.

G. The Arbitrator’s Errors With Reference to the Evidence

[140] Having now summarized the evidence, I return once more to the arbitrator’s awards. I have identified several problems with them as they pertain to the wife’s Credential Investment accounts.

[141] First, the arbitrator treated the $110,000.00 that the parties received from the wife’s father inconsistently. He treated the funds both as excluded, and then inadvertently, as not excluded. There is no explanation for this.

[142] More particularly, at ¶ 191 to 195 of the first award, the arbitrator allowed the wife an exclusion for the money remaining in the Scotiabank Account # 88, not transferred to Credential. The only deduction the arbitrator made from the balance was $55,000.00, since the arbitrator believed that is where the $110,000 cheque from the wife’s father had been deposited and the wife ought not to benefit from her improper appropriation of the husband’s funds.

[143] However, the record before the Court demonstrates that the wife transferred the $110,000.00 from her father over to the Credential Investment account ending in MA-1 in 2010. On the one hand, the arbitrator found the $110,000.00 still existed (in Scotiabank) and should be excluded. But on the other hand, it was actually located in the wife’s Credential Investment account at the time of separation, which the arbitrator said in the “Clarification/Explanation Award” was too mixed to exclude.

[144] Second, at ¶ 15 of the “Clarification/Explanation Award”, although he already allowed exclusions for the money she had in Scotiabank, the arbitrator says that the source of the funds in Scotiabank was not always clear. This statement is not supported by the record. As summarized above, the wife adequately demonstrated orally and through documentation the source of the funds that went into account #81, and then #88, and then Credential via her business accounts.

[145] In the second, “Clarification/Explanation Award”, the arbitrator was critical of the wife for making a “bold statement” that the other money in her Scotiabank account, not from her inheritance, came from gifts from her parents over the years. The arbitrator characterized this as a “bold statement”, because she did not have documentary support for some the previous gifts she had received from her parents. The arbitrator did not address that only a very small magnitude of money of this nature (compared to the balance of the funds in the account and then in the Credential Account) was in issue.

[146] Third, the arbitrator did not properly consider that viva voce evidence can support an exclusion in appropriate circumstances. He did not address the wife’s oral evidence in light of the other circumstances of this marriage and the wife’s parents’ past generosity, to draw the inference that any other funds in the accounts (apart than the $110,000.00 cheque and the inheritance) did actually come from her parents. The wife was in a long-term traditional marriage. Her self-employment income was secondary to the husband’s and she only started to earn self-employment income mid-marriage. There was a compelling inference to be drawn that the source of this money was the wife’s parent’s generosity.

[147] Furthermore, there is the 2000 marriage contract that supports such an inference. The arbitrator allowed the wife an exclusion of $80,000 pursuant to paragraph 6 of that contract. However, in paragraph 2 the parties acknowledged that the wife’s father had given her property and cash in varying amount from time to time since the date of marriage. The parties acknowledged that the purpose of the contract was to identify only “some” of the property and to exclude it from net family property. The parties themselves agreed in the contract that there had been other gift giving.

[148] The fact that the wife did not have documentary evidence to prove every dollar in the Scotiabank account and thus the Credential Investment accounts was by no means fatal to her claim for an exclusion, when considered in the context the documentary and oral evidence as a whole. In my view, the “common sense” approach to tracing and to the treatment of the evidence called upon the arbitrator to draw the inference that the other funds the wife said she received from her parents were also entitled to an exclusion. And even if this inference couldn’t have been drawn, the funds were not too mixed. At most, there was other money of no more than $50,000.00 (see paragraph (k) and (m) above), making a pro rata analysis easy to do.

[149] Before concluding about the wife’s claim for an exclusion of most of the funds in her two Credential Investment accounts, I wish to address the application of section 4(2)(2.) of the Family Law Act to the evidence.

[150] Regarding her inheritance of $1,500,000.00, some of which remained in Scotiabank at the date of separation and some of which had been sent over to Credential Investments, it was not disputed that the wife’s fathers’ Will had the necessary clause in it to engage the operation of section 4(2)(2.) of the Family Law Act. However, the cheque for $110,000.00 that the wife’s father gave the parties in 2006, the sum of $23,584.56 that was already in the wife’s Scotiabank account before she deposited the $110,000.00 cheque (see paragraph (c) above), and some other small (relatively speaking) amounts (see paragraphs (e), (k) and (m) above), came from inter vivos gifts or income on those amounts. There was no evidence of an express statement by the donor to exclude that income. The parties did not differentiate between the principal and the income.

[151] The financial impact of this was not argued either at the arbitration, or at the appeal. At both levels, the husband took the position that the funds were just too mixed. The wife did not aver to the distinction between the excludability of inter vivos gifts of cash, and the income thereupon. Neither counsel provided any calculations to enable the arbitrator (or me) to make the necessary adjustments.

[152] I am aware that an additional downward adjustment would normally be required under the pro rata approach to back out the income on the inter vivos gifts, in the absence of the express statement from the donor. However, I note the following. Had calculations about the income earned on the $110,000.00 been supplied, using the arbitrator’s logic, that income would have inured to the benefit of both parties equally, since these were joint funds. That would not likely have impacted equalization, therefore. Regarding any income on the other inter vivos amounts (referred to in paragraphs (c), (e), (k) and (m) above), while I do not know precisely what that income would have amounted to, it is arguably not significant. And as I have already said, the wife did not claim all of the excluded funds that she could have. She did not claim the $25,000.00 that she left in the business account (see again subparagraph (q) above). I do not see how the income would have exceeded that amount. Quoting O’Neill J. in McIsaac v. McIsaac and Metivier J. in Bennett v. Bennett, equity requires the wife should receive a sizeable exclusion here.

H. Conclusion Respecting the Wife’s Credential Investment Accounts

[153] The wife did not ask for a new arbitration hearing on this (or on any issue). She asked the Court to substitute the arbitrator’s award with its own determination.

[154] While the Court would be reluctant to order a new hearing in an appeal of this nature in general, it is not always appropriate for the Court to substitute the award with its own Order either. Nevertheless, even though this aspect of the wife’s appeal engages questions about the sufficiency of the arbitrator’s reasons, I find I am still able to substitute this part of the arbitrator’s award with an Order of the Court to remedy the errors. This aspect of the wife’s appeal does not require the Court to reconcile critical conflicting evidence, resolve critical determinations about credibility or reliability, or interfere with a discretionary decision, in circumstances where the arbitrator ought to have done so but did not. Had that been the case, a new hearing might have been required. See Bruno v. DaCosta, 2020 ONCA 602 ¶ 20-30.

[155] In conclusion, I find the arbitrator erred respecting his treatment of the wife’s two Credential Investment accounts ending in MA-1 and MA-2. The tracing exercise, while extremely tedious and time consuming, was possible based on the record before the arbitrator.

[156] I find the wife is entitled to an additional exclusion from net family property in the sum of $783,740.32, being 99% of $791,656.89. In light of these findings, I need not deal with the wife’s other argument that the arbitrator breached the rules of natural justice.

PART V: THE OWNERSHIP OF THE BEACH LOTS

[157] The arbitrator’s first award requires the wife to pay $150,000.00 to the husband, for the transfer of the shares in the numbered company to her, subject to some later accounting for tax. That sum is 50% of the agreed upon value of the beach lots at the time of the arbitration. This aspect of the arbitrator’s ruling can be found at ¶ 168, 298, 300 and 302 of the first award.

[158] There are two components to this part of the wife’s appeal. The first is an evidentiary one. If she succeeds, then the second argument turns upon the application of equitable and trust principles to the evidence.

A. The Parties’ Positions

[159] The wife says that the arbitrator improperly excluded certain hearsay that she sought to adduce at the arbitration. The wife says that hearsay proves her father always intended to gift the beach lots to her alone. The wife says that her when father eventually transferred the beach lots to the numbered company in 2007, he was ill and dying of cancer, he made the transfer under circumstances of urgency, and he did this at a time he had questionable faculties. It is her view that her father was confused or acting out of character, and the beach lots were misdirected to her and the husband jointly, rather than to her alone. She says the husband took advantage of her father in his frail condition, too. The wife’s brother gave similar evidence about their deceased’s father’s intentions, and to a lesser degree about his health.

[160] In her factum, the wife frames the arbitrator’s errors respecting the evidence as a failure to apply the “principled exception to the rule against hearsay evidence, in failing to consider the necessity of the hearsay evidence and in refusing to consider the corroboration offered by the draft marriage contract”. She says he conflated threshold reliability, and ultimate reliability, during the hearsay analysis. She also says he did not adopt the “flexible approach” to hearsay “applicable in civil cases, generally”.

[161] Although the wife’s factum focuses on the principled exception to the rule against hearsay, during submissions, the wife also argued that the arbitrator failed to apply the “state of mind” or “present intentions” exception, too. The arbitrator did refer to this traditional exception in his award, but he found that it did not apply.

[162] The wife further says the arbitrator erred by accepting the hearsay evidence presented by the husband, as to her deceased father’s intentions. The wife says that evidence is contradicted by other evidence and the husband’s own pleading. Therefore, the wife says the arbitrator relied on hearsay evidence from the husband that he ought not to have, while refusing to admit reliable hearsay evidence that came through her and her brother.

[163] If the wife succeeds with this evidentiary aspect of her appeal, then she says the arbitrator erred even more by failing to apply the test for unjust enrichment to the evidence that he excluded. The wife says that the application of that test to the evidence leads to the conclusion that the husband was unjustly enriched, and therefore a constructive trust over the shares of the numbered company should be imposed in her favour.

[164] The husband says the arbitrator did not err in his treatment of the hearsay evidence. The husband disagrees that the wife’s father’s intention is even relevant. But if intention is relevant, then the husband says, “…there is no admissible evidence that [the wife’s father’s] intention was different from what he actually did”. The husband also says there was no opinion evidence as to the wife’s father’s cognitive decline at the time of the transfer of the beach lots, and the wife’s suggestion otherwise is “self-serving”.

[165] I disagree with aspects of both parties’ arguments.

B. Applicable Legal Principles Concerning Ownership of the Beach Lots

[166] I begin with the applicable legal principles into which these arguments must be situated to be properly analyzed.

[167] At ¶ 104 and 130 of the first award, the arbitrator correctly identified that the determination of ownership of an asset is a threshold question that must be answered before the parties’ net family property and equalization can be determined. Section 10 of the Family Law Act allows a person to apply for a determination of a question between that person and her spouse about the ownership of a property. Pursuant to that section, the arbitrator was empowered to make a number of awards, including a determination as to ownership of the property in question.

[168] The wife argued this appeal as if a finding of unjust enrichment would automatically follow from a ruling in her favour on the evidence. The husband’s counsel did not really make submissions about the legal test that might apply, should this Court accept the wife’s arguments about the hearsay. The husband instead chose to focus on resisting the evidentiary component of the wife’s appeal.

[169] Without needing to comment on the second part of the wife’s arguments about unjust enrichment, based on how she herself framed the argument at a minimum she must persuade the Court that the arbitrator’s rejection of the hearsay evidence that she tendered was an error that should be overturned.

[170] Although I am finding the arbitrator’s approach to the hearsay to have been problematic in a number of respects, I would still find the wife fails respecting this aspect of her appeal of the arbitrator’s award that requires her to pay for the shares.

C. Applicable Legal Principles Concerning Hearsay

(1) The Meaning of Hearsay

[171] As Karakatsanis J. said in R. v. Bradshaw, 2017 SCC 35 ¶ 1:

Hearsay is an out-of-court statement tendered for the truth of its contents. It is presumptively inadmissible because – in the absence of the opportunity to cross-examine the declarant at the time the statement is made – it is often difficult for the trier of fact to assess its truth. Thus hearsay can threaten the integrity of the trial’s truth-seeking process and trial fairness. …

See also R. v. Khelawon, 2006 SCC 57 ¶ 2, 34; R. v. Starr, 2000 SCC 40 ¶ 158, 159, 162.

(2) The Exclusionary Rule and the Exceptions

[172] The rule excluding hearsay is a well-established exception to the general principle that all relevant evidence is admissible. The central reason for the exclusion of hearsay is the general inability to test its reliability. Without the declarant in court, “…it may be impossible to inquire into that person’s perception, memory, narration or sincerity. The statement itself may not be accurately recorded. Mistakes, exaggerations or deliberate falsehoods may go undetected and lead to unjust verdicts. Hence, the rule against hearsay is intended to enhance the accuracy of the court’s findings of fact, not impede its truth-seeking function.” See R. v. Khelawon ¶ 2.

[173] However, the extent to which hearsay is problematic depends on the context of the case. In some instances, such evidence presents minimal dangers and its exclusion, rather than its admission, would impede accurate fact finding. In those instances, a hearsay statement may be admitted if it is necessary, and if its contents are trustworthy because of the way it came about, or if circumstances permit the ultimate trier of fact to sufficiently assess its worth. This is the principled exception to hearsay described by Charron J. in R. v. Khelawon ¶ 2.

[174] Hearsay statements may alternatively be admitted if they fall within a traditional exception to the rule against hearsay, but such statements must still be reliable.

(3) The “State of Mind” or “Present Intentions” Exception

[175] The “state of mind” or “present intentions” exception is a traditional exception to the rule against hearsay. The exception may apply when a statement is adduced to demonstrate the present intentions, or state of mind, of the declarant at the time the statement was made, to infer that the declarant acted in accordance with the stated intention.

[176] The burden rests on the person seeking to adduce the hearsay evidence under this traditional exception to prove its admissibility on a balance of probabilities. Once a judge (or an arbitrator) determines that the evidence falls within one of the traditional common law exceptions, the finding is conclusive and the evidence will be admissible, subject to a challenge of the kind set out below. See R. v. Khelawon ¶ 60; see also R. v. Starr ¶ 214.

[177] At p. 927 of R. v. Smith, 1992 79 (S.C.C.), Lamer C.J. adopted Doherty J.’s (as he then was) description of the scope and limitations of the exception in R. v. P.(R.) (1990), 58 C.C.C. (3d) 334, as follows:

An utterance indicating that a deceased had a certain intention or design will afford evidence that the deceased acted in accordance with that stated intention or plan where it is reasonable to infer that the deceased did so. The reasonableness of the interference depends on a number of variables including the nature of the plan described in the utterance, and the proximity in time between the statement as to the plan, and the proposed implementation of the plan.

The rules of evidence as developed to this point do not exclude evidence of utterances by a deceased which reveal her state of mind, but rather appear to provide specifically for their admission where relevant. The evidence is not, however, admissible to show the state of mind of persons other than the deceased (unless they were aware of the statements), or to show that persons other than the deceased acted in accordance with the deceased’s stated intention, save perhaps cases where the act was a joint one involving the deceased and another person. The evidence is also not admissible to establish that past acts or events referred to in utterances occurred.

[178] At ¶ 168 R. v. Starr, Iacobucci J., citing Wigmore on Evidence, added that the statement be of a “present existing state of mind, and must appear to have been made in a natural manner and not under circumstances of suspicion”.

[179] Although traditional exceptions to the rule against hearsay remain in place even after the development of the principled approach, in R. v. Starr, R. v. Mapara and R. v. Khelawon, the Supreme Court refined the approach to the traditional exceptions, to ensure that they operate harmoniously with the principled approach. Evidence sought to be adduced under a traditional exception must still be necessary and reliable. Even where evidence might be admitted under a traditional exception, it may still be challenged to determine whether it is supported by indicia of necessity and reliability, required by the principled approach. The traditional exception may also be modified, if necessary, to bring it into compliance. And in “rare cases” evidence falling within a traditional exception may be excluded where the indicia of necessity and reliability are lacking in the particular circumstances of a case. See R v. Khelawon ¶ 42, citing R. v. Mapara, 2005 SCC 23 ¶ 15; see also R. v. Starr ¶ 202-208, 213. In the rare case where the exception is challenged, the burden shifts to the person challenging its admissibility. See R. v. Khelawon ¶ 60; see also R. v. Starr ¶ 214.

(4) The Principled Exception

[180] Hearsay may be admitted according to the principled exception, if indicia of reliability and necessity are established on a voir dire. See R v. Khelawon ¶ 42, citing R. v. Mapara, 2005 SCC 23 ¶ 15, and also ¶ 47. “Under the principled exception, hearsay can be exceptionally admitted into evidence when the party tendering it demonstrates that the twin criteria of necessity and reliability are met on a balance of probabilities”. See R. v. Bradshaw, 2017 SCC 35 ¶ 23.

[181] In R. v. Khelawon, Charron J. set out a multi-step “functional approach” to hearsay. The first step, before embarking on a hearsay admissibility inquiry, is to determine whether the proposed evidence is even hearsay. As Charron J. said, misguided objections and misunderstandings about what constitutes hearsay are not uncommon. See R. v. Khelawon ¶ 56-58.

[182] At this stage, the judge (or arbitrator) should also consider the potential impact of the hearsay to the issues in the case, and he should immediately identify the hearsay dangers of admitting the evidence. See R. v. Khelawon ¶ 56-58.

[183] Prior to admitting a hearsay statement under the principled exception, a judge (or arbitrator) should first determine on a voir dire that necessity and reliability have been established. The onus is on the person seeking to adduce the evidence to establish the necessary criteria for its admission. See R. v. Khelawon ¶ 47.

[184] Only admissibility, which under the principled approach involves the assessment of necessity and threshold reliability, are determined on the voir dire. The evidence’s ultimate reliability, if admitted, is considered by the judge (or arbitrator) when he or she considers the evidence as a whole to arrive at a decision. See R. v. Khelawon ¶ 50.

[185] Threshold reliability is established when the hearsay is “sufficiently reliable to overcome the dangers arising from the difficulty of testing it”. This is why the judge (or arbitrator) must have first identified specific hearsay dangers at play, in order to consider whether the dangers can be overcome. The hearsay dangers relate to difficulties assessing the declarant’s perception, memory, narration or sincerity. They are to be defined with precision, to permit “a realistic evaluation of whether they have been overcome”. See R. v. Bradshaw ¶ 26, and R. v. Khelawon ¶ 49.

[186] The hearsay dangers may be overcome if there are adequate substitutes for testing truth and accuracy; this is procedural reliability. Or, if there are sufficient circumstantial or evidentiary guarantees that the statement is inherently trustworthy; this is substantive reliability. Procedural reliability and substantive reliability may work in tandem and are not necessarily mutually exclusive. Factors relevant to one may compliment the other. See R. v. Bradshaw ¶ 27, 32 and R. v. Khelawon ¶ 61-63, 65.

[187] Procedural reliability is established when “there are adequate substitutes for testing the evidence” given that the declarant has not “stated the evidence in court under oath and under the scrutiny of contemporaneous cross-examination”. Examples include a video recording of the statement, the presence of an oath, and a warning about the consequences of lying. Some form of cross-examination, such as preliminary inquiry testimony or cross-examination of a recanting witness will usually be required. See R. v. Bradshaw ¶ 28 and R. v. Khelawon ¶ 63.

[188] Substantive reliability means that the statement is inherently trustworthy. The judge (or arbitrator) should determine the circumstances in which the statement was made, and evidence, if any, that corroborates or conflicts with the statement. The standard for substantive reliability is high, but the “circumstantial guarantee of trustworthiness” does not require “absolute certainty”. The judge (or arbitrator) must be satisfied that the statement is “so reliable that contemporaneous cross-examination of the declarant would add little if anything to the process”. See R. v. Bradshaw ¶ 30, 31 and R. v. Khelawon ¶ 4, 62, 94-100.

[189] In determining whether cross-examination of the hearsay declarant would add anything, the judge (or arbitrator) must decide on the availability of competing explanations, and whether he or she may chose between them by means of adequate substitutes for contemporaneous cross-examination. As Karaksatanis J. wrote in R. v. Bradshaw, procedural reliability concerns whether there is a satisfactory basis to rationally evaluate the statement, whereas substantive reliability is concerned with whether the circumstances and the corroborative evidence provide a rational basis to reject alternative explanations for the statement, other than the declarant’s truthfulness or accuracy. See R. v. Bradshaw ¶ 40.

[190] Corroborative evidence, if relied upon, must go to the truthfulness or accuracy of the material aspects of the hearsay statement. Its function is to mitigate the need for cross-examination on the point the hearsay is tendered to prove, not cross-examination in general. It must work to overcome the specific hearsay dangers raised by the statement. Corroborative evidence will show that the material aspects of the statement are unlikely to change under cross-examination when it shows that the only likely explanation for the hearsay statement is the declarant’s truthfulness about or the accuracy of the material aspects of the statement. Otherwise alternative explanations could have been elicited in cross-examination, and the hearsay dangers persist. See R. v. Bradshaw ¶ 45, 47.

[191] The judge (or arbitrator) must identify alternative, even speculative explanations for the hearsay statement. Corroborative evidence is of assistance if it shows the alternative explanations are unavailable. By contrast, corroborative evidence that is “equally consistent” with the truthfulness and accuracy of the statement as well as another hypothesis is of no assistance. See R. v. Bradshaw ¶ 48.

[192] It insufficient to find that the declarant’s truthfulness or accuracy is more likely than alternative explanations. The judge (or arbitrator) must rule out plausible alternatives on a balance of probabilities. And the corroborative evidence itself must be trustworthy. See R. v. Bradshaw ¶ 49, 50.

[193] In summary, at ¶ 57 of R. v. Bradshaw, Karatkatsanis J. said the judge (or arbitrator) should deal with the principled exception and corroborative evidence as follows:

(a) identify the material aspects of the hearsay statement that are tendered for their truth;

(b) identify the specific hearsay dangers raised by those aspects of the statement in the particular circumstances of the case;

(c) based on the circumstances and these dangers, consider alternative, even speculative, explanations for the statement; and

(d) determine whether, given the circumstances of the case, the corroborative evidence led at the voir dire rules out these alternative explanations such that the only remaining likely explanation for the statement is the declarant’s truthfulness about, or the accuracy of, the material aspects of the statement.

D. The Arbitrator’s Conduct During the Arbitration

[194] The arbitrator’s approach to the hearsay evidence in this case was unfortunate. Based on my review of the transcript, it appears that during the arbitration, the arbitrator did not initially understand the arguments that the wife intended to make and therefore why she was attempting to introduce hearsay in the first place. The arbitrator intervened inappropriately during the wife’s former counsel’s examinations multiple times. He sometimes even offered commentary about the merits of the legal arguments the wife wanted to pursue, before the evidence was complete.

[195] It also appears to the Court that the arbitrator lacked some understanding about the appropriate process to deal with the hearsay. The arbitrator did not hold a voir dire about the hearsay evidence adduced by the husband at all, and he did so only eventually and begrudgingly about the evidence offered by the wife, after much argument with the wife’s former counsel about it.

[196] I wish to be clear that counsel for the wife did not argue that the arbitrator erred based on inappropriate interventions during the hearing. Nor, as I indicated earlier, did the wife’s counsel ask for a new hearing as a remedy. I mention this because the record on the hearsay could have been better developed. However, in light of how the wife framed the arguments on appeal, it would not be appropriate for me to comment about who bears the responsibility for that.

E. The Hearsay Statements

(1) Identifying the Hearsay

[197] Each of the husband, the wife and the wife’s brother offered hearsay statements they attributed to the wife’s deceased father. The statements the husband sought to adduce conflict with those tendered by the wife and her brother.

[198] The statements adduced by the parties and the wife’s brother were hearsay because they were tendered for the truth of their contents, to either prove or to have the arbitrator draw an inference, that the wife’s deceased father either intended to gift the beach lots to the parties’ jointly, or to the wife solely.

[199] I will now identify the hearsay.

(2) The Hearsay Tendered by the Husband

[200] The evidence tendered by the husband was that in 1991, his father-in-law told him to set up a corporation to receive title to the beach lots. He said he was to do this to avoid merger of the properties under the Planning Act. According to the husband’s “recollection”, his father in law “indicated that he was worried that if it was given to [the parties] in [their] names alone, there would be problems with the planning act with the properties merging”. The husband testified that the wife’s father “directed” him to go to his law firm, “who then prepared a numbered company, which would then hold that property”.

[201] The husband testified that his father-in-law actually told both parties that the lots would be transferred to them together, in this fashion. He said the wife’s father wanted to “pass [the beach lots] on” to both himself and the wife.

[202] In cross-examination, the husband agreed that the beach lots were not then transferred for another 16 years. He claimed the delay had to do with the need to deal with certain “road allowances that were open and running” and the inability of the lawyer to “actually put in place documentation to allow the transfer to happen and to allow for all the changes in services, etc.”

(3) The Hearsay Tendered by the Wife

[203] The wife’s testimony was more about the circumstances surrounding the hearsay statements she wished to adduce, as opposed to telling the arbitrator what the actual hearsay statements were. There were fewer instances of the latter, and some were repetitive. The specific hearsay statements she offered were:

(a) Shortly after her father gave the wife the cottage in 1985, he “told [her] and assured [her] and promised [her]”… “[f]or 25 years, the piece of property was promised to [her], that it would be gifted to [her]”;

(b) The wife’s father always referred to the beach as “your beach” when talking to the wife (or “[her] beach” when talking to others);

(c) The wife’s father was ready to transfer the beach lots to the wife in the late 1990s, but the wife asked him to wait because she could not afford the tax bills at the time. The wife’s children were young, the wife did not have a lot of income, and the parties had a mortgage at the time. The wife’s father told the wife he would hold on to the lots and pay the taxes for her, with the lots to be transferred later; and

(d) At the end of his life, when the wife’s father was very ill, he started calling, “three or four times and he said you’ve got to get that beach switched into your name”. The wife said her father wanted to enjoy the time he had left, and not be dealing with “things like this”.

(4) The Hearsay Tendered by the Wife’s Brother

[204] The wife’s brother was also of the opinion that his father intended to give the beach lots to the wife. The wife’s brother began to testify that he had worked with his father in the family business. He explained that his father “generally threw any land changes into [his] lap and in this case, he said, you know, he was just playing around with his affairs, he said…..”. Unfortunately, he did not finish this statement, because of an objection and the subsequent arguments that ensued.

[205] When the brother was allowed to resume testifying, he did tell the arbitrator that there had been seven other cases of their father passing title of pieces of property to himself, or to the wife, and to “a couple of others”. He said the father “always put them in our names”.

[206] The specific hearsay statement, offered by the wife’s brother, is that the father had asked the wife “to get the job done [referring to the transfer of the beach lots] and she didn’t’ get to it, for whatever reason”. Their father “continuously, over a number of years, probably two to three times a year” said to him, “…[the wife] got that done yet, have you talked to [the wife]?”.

[207] Finally, although not a hearsay statement, the wife’s brother also testified about his father’s health at the time the father transferred the beach lots. He said his father was “not himself”.

F. The Arbitrator’s Treatment of the Hearsay

[208] At ¶ 140 of the first award, the arbitrator mentions the husband’s evidence, that his father-in-law “discussed with him the transfer of the property adjoining the cottage” but was concerned about title merging. The arbitrator does not specifically state whether he accepted the husband’s evidence to this effect, and why or why not.

[209] The arbitrator’s hearsay analysis then begins at ¶ 142 of the first award. It is focused entirely on the evidence tendered by the wife and her brother, and more specifically on the wife’s credibility and reliability, not the reliability of the hearsay itself.

[210] At ¶ 147, the arbitrator first cites the decision of Doherty J., as he then was, in R. v. P.(R.), about the “historical exceptions to the hearsay rule”.[17] Next, the arbitrator quotes, mostly from R. v. Bradshaw’s discussion about the principled exception. Then, at ¶ 152 the arbitrator writes, “[h]earsay evidence is being offered not to indicate the state of mind of [the wife’s father] at a given point in time, but to urge me to find that as a matter of fact [he] intended to benefit only his daughter with the gifts irrespective of his actions to the contrary”.

[211] At ¶ 142-145, the arbitrator says that throughout the hearing, the wife “vehemently and consistently repeated” her father’s intention, with respect to “any” gifts before his death, was to benefit only herself, and not the husband. He characterizes the wife’s evidence as “general” in nature respecting her father’s “historical general intention”, although he said that evidence “was somewhat supported by the testimony of her brother”. He also says the wife advanced a theory that her husband took advantage of her father when he was sick, anxious and desperate to transfer the property before his death, a theory the arbitrator did not accept.

[212] It is in ¶ 153, 154, 156 and 158 in particular that the arbitrator made findings about the wife’s credibility and reliability. He found that the wife was “extremely disappointed” with the wealth transfer from her father to her, believing that she did not receive enough inheritance. He found she was disappointed with her relationship with the marriage. He found she was not an “unbiased, objective observer” when it came to her recollection of statements made by her father. He found her evidence about her father’s intentions was “driven by her beliefs, which in turn are motivated by her financial expectations”.

[213] And again here, he found her evidence was of “a general nature and contained no details that usually contribute towards assessing the reliability of the hearsay such as the occasion when an utterance was made, who was present, what was the context, what was the date in relation to the transaction under consideration, and other context that reduces the otherwise self-serving assertions made about [her father’s] intentions that are contradicted by his overt actions”.

[214] Then, at ¶ 160, the arbitrator concluded that the hearsay statements tendered by the wife did not fall within any exception to the hearsay rule. Although he identified evidence that was potentially corroborating, for example, at ¶ 135 to 141 of the first award, he did not really analyze that evidence as part of any reliability analysis about the hearsay. He concluded that there were no substitutes for the testing and accuracy of the statements so as to overcome the lack of opportunity to cross-examine the wife’s father, that the wife’s and her brother’s evidence was vague and lacked particularity, and that it did not meet “the test for threshold reliability, never mind its trustworthiness and substantive reliability”.

G. Whether the Arbitrator Erred in his Treatment of the Hearsay

(1) Necessity

[215] The wife argues that the arbitrator did not consider the question of necessity at all. This is true in that there is no discussion about necessity in the award.

[216] However, I do not find that anything turns on this. In his analysis, the arbitrator purports to go straight to threshold reliability. It is likely that necessity was presumed, given that the wife’s father was deceased and therefore could not testify. Necessity would have been established, had the arbitrator written about it. And the arbitrator did not reject the hearsay for a lack of necessity anyway.

(2) Threshold Reliability

[217] As set out above, the arbitrator’s application of the hearsay principles that he cited focused almost entirely on his view of the wife as a witness. As the wife’s counsel identified during argument of the appeal, although he purported to do so, the arbitrator did not engage in an analysis of the threshold reliability of the statements themselves.

[218] The arbitrator conflated two distinct issues. Before a judge (or an arbitrator) can determine the admissibility and weight of hearsay evidence, he or she should first be satisfied on a balance of probabilities that the statement was actually made by the declarant (in this case, the wife’s deceased father). See Creutz v. Winther Estate, 2007 BCSC 1463 ¶ 99; see R. v. Ferris 1994 ABCA 20 ¶ 17-27, aff’d by 1994 31 (S.C.C.); and see also Professor D. Paciocco (as he then was) article entitled, “The Principled Use of Hearsay in Civil Cases: A Technical Guide to Avoiding Technicality”, 2009CanLIIDocs 138 at page 307.

[219] Second, there is the arbitrator’s failure to address properly the hearsay evidence tendered by the husband. While the arbitrator discussed in some detail why he found the wife not to be credible or reliable, he did not do the same respecting the statements adduced by the husband.

[220] Yet as the arbitrator identified in the first award, the husband’s credibility was in issue. At ¶ 30 of his Application dated December 22, 2015, filed in this Court prior to the parties submitting their dispute to Mediation/Arbitration, the husband said the following:

During the marriage a property adjacent to the cottage became available for sale and the parties purchased same. The parties placed the title of the cottage in a holding company 921806 Ontario Limited and each party is a 50% shareholder of this company.

[221] As this passage reveals, the husband pleaded, inaccurately, a different purpose for the numbered company. The statement is contained in the part of the husband’s Application in which he asks for a finding, either that the cottage was a matrimonial home, or that he held a 50% interest in it, two claims which the arbitrator rejected on their merits.

[222] At ¶ 146 of the first award, the arbitrator found that the husband “did not give a satisfactory explanation as to his version of the facts recited in the Application which was signed by him personally on December 21, 2015.” However, the arbitrator did not go on to explain whether he would find the husband credible or not, and how such a finding might in turn impact the evidence tendered by the wife. [18]

[223] Third, also regarding the husband’s credibility, the arbitrator did not address one of the husband’s admissions during cross-examination. The wife’s former counsel suggested to the husband that the wife’s father merely transferred the lots to the corporation to avoid planning act implications (as opposed to gifting them to the husband). In response, the husband said, “I can’t speak for Mr. McCoy” and “I can’t speak to his true intention on it at all”. Yet earlier, he testified otherwise as to the wife’s father’s intentions.

[224] Fourth, after having not addressed the husband’s credibility, the arbitrator did not recognize (at least not in the reasons) the evidence tendered by the husband as hearsay, the hearsay dangers associated with it, nor how they would be overcome. Assuming that he accepted that the statements adduced by the husband had actually been made by the wife’s father, the arbitrator did not assess their threshold reliability in the award.

[225] Fifth, and related to the fourth, the arbitrator failed to hold a voir dire concerning the admissibility of the hearsay evidence tendered by the husband. As Charron J. held in R. v. Khelawon, a voir dire is required to admit hearsay under the principled exception. Even if the husband’s evidence of the father’s hearsay had been sought to be admitted under the “state of mind” or “present intentions” exception, as opposed to the principled exception, as the wife was challenging it, a voir dire was arguably required for that reason, too.

[226] One difficulty here was that the wife’s former counsel did not object in a timely way, when the husband testified as to what his deceased father-in-law instructed him to do. Counsel only raised what could be seen as an objection, at the end of the case, in closing submissions, and even then it was only mentioned in passing.

[227] Nevertheless, the failure of counsel to object to inadmissible evidence in a timely way is not be an invitation for a trial judge (or an arbitrator) to rely on inadmissible evidence. In Myrvold v. Johnston, 2011 ONSC 830, a case involving the “state of mind” or “present intentions” exception, Goodman J. noted that timely objections about the hearsay evidence were sometimes raised, and sometimes they were not. Still, she still instructed herself as to the proper admissibility and use of such statements. See ¶ 116, 118. Even in the absence of an objection, a judge (or arbitrator) remains the gatekeeper.

[228] It is for all these reasons that I said earlier the arbitrator’s approach to the hearsay evidence was problematic. The Court cannot rely on the arbitrator’s analysis or conclusions.

[229] Consequently, the Court will now determine on its own whether the hearsay statements are admissible, and if so, then it must weigh them accordingly. See R. v. Bradshaw ¶ 60.

H. Whether the Wife’s Father’s Hearsay Is Admissible Under the “State of Mind” or “Present Intentions” Exception

[230] I do not find the statements adduced by the husband, that the wife’s father told him to set up a corporation to receive the transfer of the beach lots, to be admissible evidence under the “state of mind” or “present intentions” exception to the hearsay rule. In this case the transfer of the beach lots did not happen for approximately 16 years after that conversation. Far too much time passed between the alleged instructions and the transfer of the property for the Court to infer the intention that the husband would ascribe to his deceased father-in-law.

[231] Nor may the husband adduce the wife’s father’s alleged instructions to him under this traditional exception, to bolster the credibility of his own evidence as to why he set up the corporation. That is not a proper use for this traditional exception. See again p. 927 of R. v. Smith, 1992 79 (S.C.C.), citing R. v. P.(R.) (1990), 58 C.C.C. (3d) 334.

[232] Although the wife’s counsel raised it orally during the appeal, the “state of mind” or “present intentions” exception does not assist her either. Some of the hearsay statements tendered by the wife are dated too, spanning back as many as 25 years.

[233] But more importantly, in the case of the hearsay evidence offered by the wife, her father did not act in accordance with her account of his stated intention. The wife’s father did not transfer the beach lots to her alone. The conclusion that the wife would have the Court draw, is that he meant to act in accordance with his stated intention, but he did something else at the end of this life, for other reasons related to his health and to being taken advantage of by the husband. The “state of mind” or “present intentions” exception does not allow for such an inference to be drawn.

I. Whether the Wife’s Father’s Hearsay Is Admissible Under the Principled Exception

[234] As already indicated, there were credibility and reliability issues on the part of both parties. Both parties’ evidence was imperfect. Had I been required to resolve a contest of credibility between the parties (which the arbitrator did not do), this might have posed a problem on the appeal. See again Bruno v. Dacosta ¶ 28-29. But I need not resolve credibility between the parties.

[235] I will assume that the hearsay statements tendered were actually made. I am still unable reach the conclusions the wife seeks about threshold reliability.

[236] I must first identify the hearsay dangers associated with the hearsay statements that both parties adduced. During argument of the appeal, counsel did not assist the Court by identifying the hearsay dangers that are to be overcome. All of the hearsay dangers are present respecting the statements in one way or another. They pertain to the declarant’s perception, his memory, his narration and his sincerity.

[237] Turning to threshold reliability, in this case that means only the substantive reliability of the statements themselves. That is because there were no indicia of procedural reliability upon which either side may rely. I will therefore consider the circumstances in which the statements were made, and the availability of other evidence that either conflicts with or corroborates the statements in question.

[238] I am mindful again here that the standard is high, and that the statement(s) should be “so reliable that contemporaneous cross-examination of the declarant would add little if anything to the process”. I must consider whether the circumstances and the corroborative evidence provide a rational basis to reject alternative explanations for the statement, other than the declarant’s truthfulness or accuracy.

[239] To do this, I turn to the evidentiary record before the arbitrator. It consisted of certain other oral evidence, some not contested, and documentary evidence.

(1) The Other Property Within the Cottage Compound

[240] The circumstances in which the hearsay statements were made includes the mostly uncontested evidence about the beach lots, and their place within the rest of the family cottage compound.

[241] It was not seriously disputed that the beach lots form part of a “compound” of cottage property[19], formerly owned by the wife’s father (or perhaps her parents), in their personal capacity(ies), or through a holding company. It was also undisputed that the wife’s father gifted two parts of this “compound” to the wife alone, a piece of land called the “lot in the bay” that she received in 1978, prior to the marriage, and the cottage that she received earlier during the marriage, in 1985. The arbitrator was also of the view that ownership of both these assets rested with the wife, despite the husband’s trust claim, which he rejected.

[242] More specific information about the geographic location of the properties has some significance. The “lot in the bay” fronts onto the water adjacent to the neighboring property. The beach lots consist of wild forest, without buildings. They are located on the side of and behind the cottage property. See ¶ 135 of the first award.

[243] The wife’s oral evidence about these properties, and about her father’s intention was:

(a) Her parents bought the cottage first in 1969. When the beach lots became available, the wife’s father bought them too. He bought the beach lots for his sailboats, and for swimming, and for privacy;

(b) Her father held the beach lots in a holding corporation, since the cottage was owned by her parents in their personal capacities. The wife said this was done to avoid merger. Her father sometimes used numbered companies to keep side-by-side lots from merging together;

(c) Her father gave her the cottage in 1985, because he decided to build a larger cottage for himself at another location;

(d) Nevertheless, since the early 1970s, the beach lots and the cottage had always been used simultaneously together, according to the wife. The wife testified, “[m]ost people don’t even know it’s two lots. [The parties’ children] didn’t’ know it was two lots;

(e) There are little stone steps between the two lots and you can walk from one to the other. There would be bonfires on the beach, and the beach was also used to store canoes and aluminum boats;

(f) The parties used the beach lots, swam there, cut the grass. “No one knew that it wasn’t part of the cottage. It was just a technicality to have it switched over”;

(g) Her brother also received three cottage lots and the wife was supposed to receive three cottage lots;

(h) The beach lots create the family compound. The lot in the bay was supposed to go to the parties’ children when they are old enough and “we’d all be together”. “It was his dream to do this. And it took him many year to get these lots all together and to create what he wanted to be a family compound;”

(i) Her father was a “man of his word, always, always, always. If he said he was going to do something, he always did it”;

(j) After the wife’s father asked the wife to “start working on it”, the wife called “the lawyer in Minden that he told me to call”, and they had discussions “about the transfer and so on”, but when the wife called again she learned that the lawyer had retired; and

(k) Towards the end of his life, her father was “panicky” about getting this transaction completed. He was even asking the wife’s brother to get it done. The wife’s brother confirmed this. The wife described her father as “very old fashioned” and “old school”, and most of the time he dealt with men. He would deal with the husband in the relationship because the husband was in the “property industry”.

(2) The Creation of the Numbered Company that Received the Beach Lots

[244] The husband arranged for the incorporation. The incorporation was completed on February 22, 1991.

[245] The arbitrator considered three pieces of documentary evidence concerning the numbered company. The documents reveal that the lawyer who prepared the documents was the wife’s father’s lawyer.

[246] In cross-examination, the wife testified that the lawyer who prepared the articles of incorporation, also did the wife’s father’s previous divorce in the 1970s. This lawyer is also the same lawyer who prepared the draft marriage contract, which I discuss below. This latter evidence led the arbitrator to make a finding about the wife’s father’s knowledge at a certain point in time.

[247] The address of the numbered company on the documentation was the parties’ home at the time. Both parties were named as officers and directors of the numbered company. They each owned one share. Both parties signed the articles of incorporation.

[248] Until it received the beach lots 16 years after its creation, the numbered company was inactive. There was no evidence that it engaged in any business activities or held other property.

(3) The Marriage Contracts

[249] As the arbitrator identified at ¶ 24-27 of the first award, a marriage contract had been prepared by the wife’s father’s lawyer, in 1994. According to the paragraph 2 of the draft, its purpose was to acknowledge that already by the marriage the wife owned the “lot in the bay” and she then received the cottage after the marriage[20]. The contract, if signed, would have provided for the wife’s sole ownership of this property and for their exclusion from net family property. Paragraphs 2(4) and 2(5) of the draft contains an acknowledgement that the wife’s father had gifted cash from time to time, some of which was put into the former matrimonial home. The draft made provision for adjustments to net family property as a result of this, too. Finally, paragraph 2(6) is an apparent statement of the wife’s father’s future intention. It says that the wife’s father intended to convey to the wife the beach lots. Elsewhere in the draft like with the “lot in the bay” and the cottage, the wife would have been the sole owner of the beach lots, and they would have been excluded from net family property.

[250] The 1994 draft marriage contract was never signed. But as the arbitrator also identified, the parties did sign a later marriage contract on September 26, 2000. Paragraph 2 of this contract contains another acknowledgement that the wife had received gifts of property from her father since the marriage. It says the parties wished to identify “some of the property received by the wife, and confirm and declare that such property shall remain the exclusive property of the wife” and not be subject to equalization. The parties then agreed that the wife would receive an exclusion only of $80,000 representing gifted money that went into the matrimonial home. The contract does not otherwise deal with either of the “lot in the bay” or the cottage that the wife had already received, nor does it discuss the beach lots to be transferred in the future.

(4) The Transfer/Deed of Land Respecting the Beach Lots

[251] Finally, there is the transfer/deed. As the arbitrator identified at ¶ 136(d)-(f) of the first award, the transfer/deed of land was signed by the wife’s father, on behalf of his holding company, on February 28, 2006. It was stamped as registered in March of 2009, but there is a cover letter dated February 28, 2007, signed by the wife’s father and directed to a lawyer saying that the “transaction for the transfer from [the wife’s father’s holding company to the numbered company] has been completed, and the Deed may be delivered to the purchaser”. The letter was copied to “David Farmer – 921806 Ontario Limited”.

(5) Conclusions Respecting the Threshold Reliability of the Proposed Hearsay

[252] I cannot determine that the hearsay, sought to be adduced by either party, is inherently trustworthy, when considered in the context of this other evidence. I cannot determine the hearsay that either party tendered is “so reliable that contemporaneous cross-examination of the declarant would add little if anything to the process”. See again R. v. Bradshaw ¶ 30, 31 and R. v. Khelawon ¶ 4, 62, 94-100.

[253] The statements that the wife seeks to adduce to prove that her father intended to gift the properties to her, are the very alternative explanations for those the husband seeks to adduce (ie. an intention to jointly gift the properties), and vice versa. The other evidence does not provide a rational basis to reject these (and other) alternative explanations, on a balance of probabilities.

[254] On the one hand, the location of the beach lots within the “compound”, coupled with the wife’s father’s past gifting of land within that compound to her alone, tends to support the wife’s theory. However, the prior property transfers to the wife occurred prior to the marriage, and much earlier in it. An alternative explanation, even if the wife’s father previously intended to gift the beach lots to the wife, is that by 2007 the parties had been married for much longer, they had used the cottage for years as a family and the wife’s father’s intentions changed.

[255] At ¶ 155, the arbitrator noted the wife’s description of her father as a “staunch traditionalist” when it came to the roles of men and women in the marriage. He noted her evidence that her father liked the husband, and that he was not aware of any marital difficulties between them. Perhaps in keeping with these views, the wife’s father transferred the property to the parties as a couple by that point, later on in their marriage.

[256] Furthermore, despite the wife’s and her brother’s evidence about her father’s frail health towards the end of his life, joint gift giving including real estate, was not unprecedented. An argument was made at the arbitration that the wife’s father did not exclusively gift real estate to his children alone, and that he also benefitted their spouses, too. In his Will, the wife’s father did leave to the wife, to her brother and to their spouses, equal interests in the different piece referred to earlier in this judgment. However, as the wife’s brother testified, although that property is in the vicinity, it does not form part of the cottage compound. Still, it is not accurate to say that the wife’s father only gave land to his children, and not to their spouses, as the wife sometimes claimed at the arbitration.

[257] Turning to the numbered company, there was no dispute that it was used to take title to the beach lots and there was no evidence of any other historical use. Both parties agreed that the wife’s father-in-law used numbered companies to avoid merger under the Planning Act. The wife herself participated in the creation of the numbered company that eventually took title of the beach lots, in that she signed the documentation. When asked if the company was incorporated to take ownership of the beach lots, the wife testified “not to my understanding”, but she also testified she could not recall why she signed the articles of incorporation.

[258] At a minimum, the wife was aware of the existence of the numbered company. This could support the husband’s account, about what he was told by his father-in-law. Or, it could also support the wife’s account that her father was dealing with him because he was “old school” and “women were typically raising children and men kind of did business”. Or again, perhaps the wife’s father was doing both things, for both reasons.

[259] Likewise, when the transfer was effected in 2007, the wife’s father’s lawyer sent the deed to the husband on behalf of the numbered company. This could suggest that the wife’s father knew about the joint ownership of the company, when he transferred the beach lots.

[260] The wife argues that the draft 1994 marriage contract is evidence of her father’s intention. The husband argues that there was “no evidence that Janet’s father provided instructions for the preparation of the [draft marriage contract]”, and that the evidence was only that the wife’s father referred the wife to his lawyer.

[261] With respect to the husband’s argument, the arbitrator found otherwise. The arbitrator found that the wife’s father, “who had been divorced himself, was aware of the property provisions of the Family Law Act” and that he “instructed his lawyer to draft marriage contracts on behalf of [the wife], one of which was signed”. This finding is contained in ¶ 157 of the first award. The husband has not appealed this finding of fact.

[262] Nevertheless, a careful review of the actual oral evidence from the wife may not fully support this finding by the arbitrator. The wife’s evidence was not as detailed as what the arbitrator ultimately found. The wife only testified that her father was aware of the contract, and it was his suggestion for the wife to have his lawyer “have something drawn up”. The wife recalled having a conversation with her father, who told her to contact his lawyer.

[263] The 1994 draft marriage contract was sent to the husband under cover letter of the lawyer dated April 28, 1994. The cover letter says that the contract was prepared pursuant to the wife’s instructions. Separately, the wife admitted that the September 26, 2000 marriage contract (the signed one) was her idea. The wife testified that she wanted to enter into the 2000 contract because she had put a down payment on the matrimonial home and she wanted to get a credit if the marriage broke down. Again, that contract is silent about the beach lots.

[264] Regarding the arbitrator’s finding about the wife’s father’s awareness of the provisions of the Family Law Act, the evidence was only that he had been divorced before. There was not much other mention about his knowledge of the legislation. I gather the arbitrator inferred knowledge based on the prior divorce.

[265] In any event, without needing to determine one way or the other whether the arbitrator’s finding about the wife’s father’s knowledge of family law and that he directed the creation of the 1994 draft contract is supported by the evidence, I am able to observe that the 1994 marriage contract could be evidence of the wife’s father’s intention, but as it existed in 1994. There was no evidence as to what the wife’s father knew about the eventual, revised contract that was signed in 2000, what it contained or didn’t contain. Even if the 1994 draft is reflective of the wife’s father’s intention in 1994, it does not assist the Court in determining whether that was still his intention in 2007.

[266] There is missing evidence that would have been important to this analysis. But neither party called it at the arbitration. Neither party called any evidence from the lawyer(s) who incorporated the numbered company, prepared the contracts, gave advice on the contracts, or participated in the transfer of the beach lots. While the wife testified that the father’s former lawyer had retired at some point, no evidence was led about any attempt to get documentation from his file. This more objective kind evidence might have tipped the scales one way or the other.

[267] Then there is the issue of the wife’s father’s health. Without any medical evidence, the wife wanted the arbitrator to conclude that her father was in ill health and had been taken advantage of by the husband, to corroborate her account of the hearsay. The arbitrator did not accept that evidence.

[268] I note that the wife launched a lawsuit over the father’s Will, after his death. Not much evidence was called about that lawsuit in the arbitration either. I do not based on her testimony that the wife later abandoned her challenge of her father’s Will.

[269] Although the beach lots were inter vivos gifts and did not form part of the estate and the Will that she would have been challenging, I gather that she raised the issue about the father’s capacity in that other lawsuit. Even though she abandoned that lawsuit, she still tried again to raise the question of her father’s capacity before the arbitrator, to impact the hearsay analysis.

[270] The wife did not prove anything concrete about her father’s mental state at the arbitration. That evidence can therefore not be relied upon as either corroborating, or conflicting, in the analysis about the threshold reliability of the hearsay.

(6) The Wife’s Argument About the Relaxed Approach in Civil Cases

[271] At ¶ 52 and 55 of her factum and orally, the wife argues that the arbitrator did not consider the “flexible approach [to hearsay] applicable in civil cases, generally.” As part of this, her counsel argued that because the wife’s father is deceased, there should be a more generous approach to threshold reliability. Counsel did not really elaborate about this, or explain how the so-called relaxed approach might operate in this case, beyond this generality.

J. Conclusions About the Requirement that the Wife Must Pay for the Shares in the Numbered Company/ the Beach Lots

[272] In conclusion, I am unable to rely on the hearsay adduced by either side. That leaves the best evidence, which is the documentary evidence of the transaction, and the deed itself. It provides for joint ownership of the beach lots in the numbered company.

[273] Given this result, I need not go on to consider whether the wife’s arguments about unjust enrichment and constructive trust. The wife’s appeal of the arbitrator’s award requiring her to pay for the transfer of the beach lots is dismissed.

PART VI: THE $110,000 CHEQUE

[274] I turn now to the aspect of the wife’s appeal that concerns how the arbitrator treated the $110,000.00 cheque in the parties’ net family properties. As explained earlier, the arbitrator only allowed the wife an exclusion for 50% of this amount, since he found the wife should not benefit from an exclusion of the other half of the funds that she took from the husband. At ¶163 and 193 and at Schedule “A” to the award, the arbitrator made adjustments to the parties’ net family properties to reflect this. Although I have already dealt with the relevance of these funds in the wife’s appeal respecting her Credential Investment accounts, how the arbitrator dealt with these funds in the parties’ net family properties is the separate subject of the wife’s appeal, in two ways.

[275] First, the wife says that the husband did not seek any relief in connection with the cheque, and in granting him relief in the award, the arbitrator ventured beyond the scope of the pleadings. There is no merit to this argument.

[276] In this case, it is not just the pleadings that framed the litigation. The parties signed a Mediation/Arbitration Agreement by which they submitted a number of issues for arbitration. In ¶11 to 14 of the first award, the arbitrator lists the numerous issues that the parties submitted. They included “all property issues”.

[277] The purpose of requiring a litigant to specifically claim relief in a written pleading is to provide notice to the other side, which will afford that opposing party the opportunity to respond and to fully present his or her case. And ultimately the pleading will frame the issues at the hearing.

[278] At ¶ 128 of the first award, the arbitrator found that it was actually the wife who raised the issue about the cheque in the arbitration. Based on my review of the transcript, the parties each called evidence about the cheque. The wife claimed she was the owner of these funds. She had notice and an opportunity to present her case. Both sides made arguments about how the cheque should be treated. The wife conceded during closing submissions that if the arbitrator found the cheque was a joint gift, half of it would not be excluded from her net family property. Even in the absence of that submission, the arbitrator had to deal with the cheque when determining net family property, since it was part of the property issues and the exclusions claimed. There was no unfairness to the wife based on what the arbitrator did, in relation to the pleading.

[279] Second, the wife makes a similar argument about the cheque, as she did respecting the beach lots, that her father intended to give her this money alone. There is additional hearsay evidence, tendered by the wife’s brother, about the cheque.

[280] The wife’s brother testified that his father had given him a cottage property and a property on which the family’s factory had been situated. The latter had a value of $110,000.00 or $120,000.00 according to the brother. The wife’s brother said that his father told him he was going to give him the property and give the wife a cheque “to make it equal”.

[281] However, in contrast to that, the arbitrator made a number of other findings of fact about the cheque, adverse to the wife. See ¶ 131-134 of the first award.

[282] I do not need to embark upon much additional analysis about the threshold reliability of the hearsay of the wife’s father’s intention, through the brother, about this cheque. The wife’s father may very well have said the above to his son about the cheque. But in the result, the wife’s father himself wrote the cheque. He wrote it to both parties, jointly in their personal capacities. The wife’s father’s actions did not depend on another actor, like the husband to go and first set up a corporation, thereby leading to a dispute about why that was done and what was said. A very plausible alternative to the hearsay offered by the wife’s brother is that the wife’s father meant to give the $110,000.00 to the wife’s household, as he had done at other times during their marriage too.

[283] The cheque really speaks for itself. Again, the medical evidence about the wife’s father’s faculties at the time he wrote the cheque was inadequate.

[284] This ground of appeal is also dismissed.

PART VII: THE MATRIMONIAL HOME

[285] The matrimonial home was jointly owned by the parties at the date of separation and at the date of the arbitration. At the outset of closing submissions, the husband’s counsel told the arbitrator that the parties agreed the wife would purchase the husband’s interest in the home. They could not agree upon the transfer price for her buyout. The wife took the position that the date of separation value of $590,000 should be used, that the husband should be responsible for a line of credit secured against the home in the sum of $67,836.00, and that notional disposition costs of 2.5% should be deducted[21]. The husband’s position was that the appraised value of $832,500.00 at or around the date of the arbitration should be used, that the line of credit was a joint debt to be shared, and that no disposition costs should be deducted.

[286] At ¶206, 211, 261 and 298-302 the arbitrator ruled that the transfer price would be based on the appraised value at the date of the arbitration, that the line of credit was a joint liability that had to be retired by both spouses, and that notional costs of disposition would not be deducted [22].

[287] In her Amended Amended Notice of Appeal the wife seeks an order that the buy-out be calculated using the value at the date of separation after “anticipated costs of disposition”. Alternatively, if the date of arbitration value is used, the wife says that “anticipated costs of disposition” and half of the carrying costs of the property, capital improvements, property tax and insurance from the date of separation to the date of the transfer should be deducted.

[288] Unfortunately, at ¶ 205 of the first award, the arbitrator framed the parties’ agreement to let him determine the amount of the buyout as a “contractual arrangement”. He found that they omitted future costs of disposition from their “agreement”. He also found that he “lacked jurisdiction to deviate from the fair market value of the property and change the terms of the contract between the parties”.

[289] During submissions on the appeal, the husband conceded that this statement by the arbitrator was an error or misunderstanding, because there was no “contract”. At the end of the arbitration, the parties had merely consented to an outcome whereby the wife would keep the house, but the financial terms of the transaction needed to be set by the arbitrator. This was not a “contract” in the sense that the arbitrator wrote, but more of a joint position about what was outstanding, what needed to be decided and what could be decided by the arbitrator, based on their consent.

[290] Despite his misunderstanding, the arbitrator still went on to consider the wife’s arguments for adjustments, in the alternative. At ¶ 248-261, he explained why it was appropriate to use the current appraised value. At ¶196-206 of the first award, he correctly identified the legal principles respecting disposition costs and he found that in this case disposition costs were not appropriate. At ¶ 284-291, the arbitrator considered the wife’s other claims for adjustments. He awarded her $6,762.33 for 50% of capital improvements she made to the matrimonial home post-separation. The arbitrator did not specifically award the other claims for post-separation adjustments, but he explained why and how they would be treated elsewhere.

[291] This Court is not entitled to substitute the award with its own Order just because it might have ordered a different result. The wife has failed to identify a legal error warranting appellate intervention. This aspect of her appeal is likewise dismissed.

PART VIII: THE WIFE’S CLAIM FOR AN UNEQUAL DIVISION OF NET FAMILY PROPERTY

[292] After determining the equalization payment, the arbitrator went on to consider the wife’s claim for an unequal division of net family property. The arbitrator’s failure to award an unequal division in her favour is another issue raised by the wife in this appeal.

[293] In her Amended Amended Notice of Appeal the wife says the husband was “unjustly enriched and that it would also be unconscionable for the [wife] to pay an equalization payment to the [husband] in the circumstances of this case, including, but not limited to the numerous gits and inheritances received by the [husband], and without adjustment pursuant to section 5(6) of the Family Law Act.” However, as a result of this Court decision about the excludability of the wife’s Credential Investment accounts, the wife is no longer the payor of an equalization payment. But that does not resolve the wife’s appeal; she still pursues other arguments under section 5(6).

[294] Elsewhere in her Amended Amended Notice of Appeal the wife claims an unequal division of net family property regardless, including an order that she be “compensated for [the husband’s] unjust enrichment”. Later in the Amended Amended Notice of Appeal, she asserts without elaboration, that the arbitrator erred in not ordering an unequal division in her favour. She goes on to say that the husband was enriched by the post-separation increase in the matrimonial home.

[295] In her factum, the wife’s claim for an unequal division is based on the post-separation increase of the matrimonial home, the fact that the husband received an interest in the beach lots and other cash, and inheritances from her father. During argument, she said that an equalization payment of $400,000.00 should be awarded to compensate her for these things.

[296] At the arbitration, the basis of the wife’s claim for an unequal division was even more multi-faceted. For example, as I have already indicated, in 1978, the wife’s father gifted her a parcel of land within the cottage compound ie. the “lot in the bay”. The parties agreed that on the date of marriage, the lot was worth $35,400.00 and by the date of separation, it increased to $295,000.00. As the wife received this gift prior to the marriage, she had to share its growth over the course of the marriage. The arbitrator wrote at ¶120-127 of the first award that the wife took issue with this (ie. the operation of the equalization provisions of the Family Law Act themselves), and this too, formed part of the basis for her request for an unequal division of net family property. The wife also complained about the husband’s use of a line of credit as grounding her claim.

[297] I do not propose to go into any more detail about these arguments, either those which she advanced at the arbitration, or in this appeal. Throughout the first award, the arbitrator considered and rejected the wife’s various arguments. See ¶ 43, 120-127, 207-211, 248-261 and 266-283 of the first award. The wife has not identified an error that warrants appellate intervention.

PART IX: SPOUSAL SUPPORT

A. The Arbitrator’s Spousal Support Award

[298] By the time of their closing submissions, the parties jointly asked the arbitrator award lump sum rather than periodic support. In the result, the arbitrator’s award requires the husband to pay lump sum support of $227,185.00.

[299] To consider the wife’s appeal of spousal support, it is important to set out in some detail how the arbitrator arrived at his award.

[300] The parties signed a partial separation agreement dated December 8, 2017, in which, they acknowledged that the husband had paid the wife spousal support of $4,500 per month from June 1, 2016 to October 1, 2016. The agreement further provided for the payment of prospective support of $4,500 from December 1, 2017 to April 1, 2018.

[301] On May 7, 2018, the arbitrator rendered an award for continued interim spousal support in the amount of $4,500, from May 1, 2018 to October 1, 2018. The award stipulated October 1, 2018 to be the end date, because it was anticipated that the arbitration would be concluded by the end of October (which did not occur).

[302] Although both parties took different positions about the other’s income for the determination of the lump sum, the arbitrator embarked upon his own income determination for both. At ¶ 337-341, the arbitrator determined the wife’s income to be $84,489.00, consisting of net self-employment income of $25,000.00, $45,000.00 in investment income, and $10,000.00 for cash and home office expenses that he added to her self-employment income and grossed up using DivorceMate.

[303] The arbitrator calculated the wife’s investment income to be $45,000.00, by using 3% on liquid assets of $1,500,000.00 million. That is the sum he said the wife would have to invest, after paying the husband the equalization payment, buying out the husband’s interest in the matrimonial home and the shares of the company (the beach lots).

[304] The arbitrator calculated the husband’s income as the aggregate of his employment income of $198,836.00 for 2017, and investment income of 3% on $750,000.00, or $22,500 yearly, for total income of $221,336.00. Regarding the investment income, at ¶ 345, the arbitrator arrived at this figure, “taking into consideration that a significant amount of his assets consist of a pension and registered funds and making consideration for the fact that he could legitimately purchase a home for him to live in, [the husband] should still have the sum of about $750,000 to invest.”

[305] Paragraphs 351-355 of the award reveal that the next dispute between the parties was over what assumptions the arbitrator should make to calculate the lump sum. The parties disagreed about what anticipated age the arbitrator should select for the husband’s future retirement. The wife took the position that the husband should be expected to work until age 69 or 70, whereas the husband said he would retire at age 65. On his DivorceMate calculation, the arbitrator selected a duration of 8 years from the date of separation, on March 19, 2015. In the body of the award, the arbitrator said that would result in a retirement at age 65.5 [23].

[306] At ¶ 356-363, the arbitrator went on to determine, based on the circumstances of the relationship and other factors relevant to spousal support, that the lump sum should be calculated based on $5,270 monthly. This is the high range of the Spousal Support Advisory Guidelines. In net of tax dollars, the arbitrator determined the equivalent lump sum to be $274,462.00. He then deducted the interim support the husband paid, resulting in his award of $227,185.00.

B. The Basis of the Wife’s Appeal of Spousal Support

[307] In her Amended Amended Notice of Appeal, the wife seeks lump sum support of $348,000.00. Even though the wife asked for lump sum support at the arbitration, she asks for periodic support in the alternative in the Notice.

[308] Some statements in the wife’s appeal materials describing what the arbitrator did are either inconsistent, and sometimes they are factually inaccurate. For example, the wife claims in her Amended Amended Notice of Appeal that the arbitrator did not base lump sum support on the high range of the Spousal Support Advisory Guidelines. Then at ¶ 36 of her factum, she acknowledges that he did.

[309] The wife claims that the arbitrator did not determine whether the support he ordered was compensatory or non-compensatory. However, it is clear from the facts he found in ¶356 of the first award that he recognized the wife has a compensatory claim to support. He also cited the law about both compensatory and non-compensatory support in this analysis.

[310] At ¶ 7 of her factum, the wife argues that in determining the lump sum, the arbitrator effectively only awarded 2.5 years of support after a lengthy marriage, to the date the husband wanted to retire. That is a misstatement. Very clearly, the arbitrator’s lump sum also calculates support back to the date of separation, but with credit for amounts the husband already paid for interim support.

[311] In addition, the wife primarily takes issue with the arbitrator’s selection of the retirement age, and therefore the duration that the arbitrator used to quantify the lump sum, and therefore the ultimate quantum. She also takes issue with the arbitrator’s determination of both parties’ incomes, which she says also impacts the quantum.

C. The Retirement Date Selected by the Arbitrator

[312] Two of the cases the wife relies upon in her Book of Authorities are about the variation of a periodic support Order upon early or voluntary retirement. They consider the reasonableness of the choice to retire. While the principles about that issue are helpful, these cases are not entirely on point.

[313] In another case cited by the wife, Pollitt v. Pollitt, 2011 ONSC 1186 at ¶ 6, after Czutrin J. determined that a lump sum was appropriate, he invited additional submissions about various variables that he felt needed to be considered. In this appeal before me, the wife seems to be relying on Pollitt v. Pollitt, to argue that the arbitrator engaged in “crystal ball gazing”, did not properly consider the variables that Czutrin J. identified, and selected an arbitrary retirement age for the husband not connected to the evidence.

[314] I do not see how the arbitrator made any such error in principle. At ¶ 306 of the first award, the arbitrator recognized the statutory jurisdiction to award spousal support, including a lump sum. At ¶ 308, he cited the principles from the Ontario Court of Appeal’s decision in Davis v. Crawford, 2011 ONCA 294. And at ¶ 309, the arbitrator recognized that he was not bound by the parties’ joint request for lump sum, but he recognized the rationale behind it, including that the parties wished to avoid future litigation.

[315] The arbitrator did not need to invite submissions about variables or contingencies. As the lawyers went into the closing submissions asking for a lump sum, they made submissions about contingencies. They decided what variables to argue for. They also chose what evidence to call, to create the record upon which they later asked for a lump sum. They focused on the husband’s estimated retirement age.

[316] The arbitrator recognized the need to take into consideration future contingencies. That is identified at ¶ 311(c) of the first award. Those which he identified include possible disadvantages of a lump sum award, too. See also Davis v. Crawford ¶ 68. The arbitrator was not required to direct a further hearing for more evidence or additional submissions, just because the parties decided to ask for a lump sum at the end of the arbitration after adducing the evidence they chose to call.

[317] It was open to the arbitrator to select a retirement age of 65.5, based on the evidence that was before him, and the submissions. His reasoning for so doing is identified at ¶ 351-355 of the first award. The standard of review for a support order (or in this case a support award) is well known. A trier hearing a spousal support case must consider the various objectives, factors and criteria in the Divorce Act and apply them to the context of, and the facts of the case. That process also involves the exercise of discretion. Because of its fact based and discretionary nature, the arbitrator is entitled to “considerable deference” by an appellate court. Support orders should not be overturned unless, “...the reasons disclose an error in principle, a significant misapprehension of the evidence, or unless the award is clearly wrong. See Hickey v. Hickey ¶ 10, 11.

[318] In addition to arguing that the arbitrator’s selection of age 65.5 for the husband’s retirement was wrong, the wife also argued that the arbitrator’s award does not address her need after the retirement at age 65.5. One way to address that would be to have the Court recalculate support based on a retirement at age 70. I have rejected that approach already, for the reasons already identified.

[319] But the wife also appeared to argue at this appeal that even if the arbitrator’s selection of a retirement at age 65.5 stands, some additional amount ought to have been ordered based on some post-retirement income to the husband. Yet no such argument was made to the arbitrator during the arbitration.

[320] The wife could have asked for periodic support at the arbitration. There would have been then the opportunity for a variation proceeding on the husband’s retirement and for the wife to make these arguments. But that is not what either party did. Nor is it what either party said they wanted, to the arbitrator. After having participated in the creation of the record before the arbitrator and after deciding to ask him, jointly, to award a lump sum, I fail to see how the wife can make this argument about post-retirement income on appeal.

[321] The wife has not identified an error in principle on any of these issues, having regard to the standard of review for spousal support, such that appellate intervention is warranted.

D. The Arbitrator’s Mathematical Calculation of the Lump Sum

[322] At ¶ 6, 33 and 35 of her factum, the wife argues that the arbitrator did not include a specific payment term in his award. She says this may have impacted the quantification of the lump sum.

[323] Although the individual payment components of the award are specified throughout it, the arbitrator did not tally them all up and map out who owes who what amount in the end, taking into account the equalization payment, the transfer price for the matrimonial home, the buyout of the shares of the corporation, the retirement of the line of credit, the other post-separation adjustments, any legal and accounting fees to effect this, and lump spousal support. However, that is not an error in itself. But for my Order now setting aside and substituting the equalization payment to correct the arbitrator’s failure to award the wife the exclusion (and possibly but for costs, yet to be argued), the awards were sufficiently clear as to who owes what to whom, and what ought to have happened next to complete the various transactions. The parties have experienced counsel who were more than able to implement the award.

[324] Nevertheless, insofar as the failure to include a specific payment term relates to the wife’s spousal support appeal, the wife says that has caused a lack of clarity about how the arbitrator concluded that the wife will end up $1,500,000.00 to invest, from which the arbitrator then imputed investment income of 3%. Yet the wife’s counsel did not provide this Court with any calculations as to what the wife would actually have available to invest to demonstrate how the arbitrator erred. Counsel did not do so based on the evidence before the arbitrator and compared to the arbitrator’s award. Nor did counsel do so based on different scenarios that this Court might order, should there be partial or full success on this appeal.

[325] When the Court asked questions about this, the wife’s co-counsel, Mr. Kirby, told the Court orally that he had reviewed the wife’s financial statement used at the arbitration, and that the wife would only have about $1,200,000.00. Counsel indicated that more detailed information could be provided later, but Mr. Kirby submitted that the lump sum spousal support calculation was $40,000.00 too light on that basis alone. Revised DivorceMate calculations were not provided to show this, either.

[326] I also note the following in regards to this argument:

(a) even if the arbitrator said the wife would have $1,500,000.00 available to invest but she only had $1,200,000.00, more money will now be available to the wife to invest as a result of my ruling about equalization;

(b) but conversely, as the husband now owes the wife an equalization payment, less will be available to him. He may have less of an asset base to invest, and to which 3% of investment income will be calculated;

(c) again, at one place in the award, the arbitrator said he was awarding support for 7 to 8 years, from the date of separation up to the selected retirement age for the husband of 65.5. His DivorceMate calculation is based on 8 years. In reviewing and considering this matter, I discovered that in awarding 8 years of support from the date of separation, this actually takes the husband to age 66.5 [24]. Neither party drew this discrepancy to the Court’s attention; and

(d) even if it had been drawn to the Court’s attention, the husband does not have a cross-appeal before the Court. Whether that is significant in this context or not, has not been argued.

[327] The parties were too lax in making submissions about the mathematical aspect of the spousal support, including about the potential impact of this Court’s ruling on the various property issues to the lump sum support calculation. Nevertheless, I will give the parties another opportunity to address the math, if they wish. I do so particularly in light of the other potential error that I have discovered respecting the retirement age and thus in the arbitrator’s DivorceMate calculation.

[328] If they do decide to argue this, the Court requires specific submissions about the assets available to earn investment income and fresh DivorceMate calculations. If any of the matters identified in (a) to (c) now results in a reduction to the lump sum to the wife, I will need to hear submissions about the significance of the lack of a cross-appeal from the husband before the Court. I will require case law.

PART X: OTHER ISSUES

[329] In her Amended Amended Notice of Appeal, the wife claims an order for pre-judgment and post-judgment interest. At ¶ 40(g) and 71 of her factum, the wife says that the arbitrator did not address pre-judgment interest. However, she says this with reference to the award for lump sum spousal support. It is not fully clear to me whether in this appeal, she is referring to pre-judgment interest only on the lump sum, or on all amounts.

[330] Regardless, I was not given any calculations, nor otherwise told with more precision what the error is, other than it was not dealt with. Pre-judgment interest was not argued at the arbitration either. The arbitrator asked counsel for the husband about it during closing submissions. He said there was a claim for it, but said nothing further about it. The wife’s former counsel did not make submissions about it at the arbitration. Nor was it pursued in argument at the appeal.

[331] At the argument of the appeal, I was told that the parties had not implemented any aspect of the arbitrator’s awards. The arbitrator’s awards were never converted into Orders. Counsel should come prepared with a draft Order at the next date that incorporates the operative portions of the awards and this Court’s Order. Any amounts that are to be determined, like costs and possibly spousal support, may be left blank for me to fill in. I ask the parties to create a joint draft Order. If there is any dispute about the contents of the Order, then each side may file his and her own, and I will settle it.

[332] At ¶ 298 to 302, the arbitrator set out a process for the parties to attend to retiring the joint line of credit, to the transfer of the matrimonial home, and to the transfer of the shares of the corporation. At ¶ 302, the arbitrator stated that he would remain seized if there were any issues that arose in the implementation of his award. Again, the parties have two experienced counsel. They should now be able to implement the award, as adjusted by this Court’s Order. They may not need any assistance at all. But if they need assistance, and it is no longer the case that the arbitrator is still seized (or if there is some other issue with that, that I am unaware of), such new information may be brought to my attention at the next date.

[333] Finally, in addition to resolving the outstanding issue about spousal support, I urge counsel to settle the outstanding issue of costs of the arbitration and of the appeal. If they cannot, then I also set out below a process for those issues to be dealt with.

PART XI: SUMMARY AND CONCLUSION

[334] At ¶ 262 to 265 and in Schedule “A” to the first award, the arbitrator determined that the wife owes the husband an equalization payment of $174,813.25.

[335] The arbitrator’s equalization calculation is incorrect because of how the arbitrator treated the wife’s Credential Investment Accounts. I have reproduced and revised the net family property statement, now with the amount the Court finds ought to be excluded, inserted into the statement. I attach it as Schedule “A” to this judgment. With the exclusion the Court has ordered, the husband owes the wife an equalization payment of $217,055.91.

[336] If either party sees any input or calculation errors in my revised net family property statement, they should draw that to my attention when this matter next comes before me.

PART XII: ORDERS

[337] Based on the foregoing, I make the following Orders:

(a) The arbitrator’s award that the wife owes the husband an equalization payment of $174,813.25 is set aside and substituted with an Order that the husband owes the wife an equalization payment of $217,055.91. Please see the revised net family property statement attached Schedule “A” to this judgment;

(b) If either party sees any input or calculation errors in the Court’s revised net family property statement attached as Schedule “A” to this judgment, they should draw that to the Court’s attention at the date to be set for additional argument;

(c) The balance of the wife’s appeal is dismissed, except for her appeal about costs of the arbitration which has yet to be argued, and the outstanding issue about spousal support;

(d) The parties and counsel shall appear before me on a date to be set for argument of the wife’s appeal about costs of the arbitration, costs of the appeal itself, the potential outstanding issue about spousal support, and any other procedural matters identified above; and

(e) A zoom call shall proceed before me on October 1, 2021 @ 3 PM to set the date for argument. The parties should be prepared on October 1, 2021 to advise me what more will be filed, in connection with the outstanding issues. Except as set out above regarding spousal support, the draft Order, and whatever will be needed to deal with costs of the appeal, there should not likely be any need for additional material.

[338] If either counsel is not available on October 1, 2021 @ 3 PM, I may be contacted to re-arrange the date and time for the zoom call.

[339] I wish to thank counsel for their assistance.

Justice Alex Finlayson

Released: September 3, 2021

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

David Michael Farmer

Applicant

(Respondent in Appeal)

– and –

Janet Maureen Farmer

Respondent (Appellant)

REASONS FOR JUDGMENT

Justice Alex Finlayson

Released: September 3, 2021

[1] The husband also received an inheritance from his father, which the arbitrator dealt with.

[2] It is not clear to me from the wife’s materials whether the allegation is that the arbitrator erred in failing to award pre-judgment interest in general, or just on his lump sum spousal support award.

[3] In her factum, the wife provided a rounded balance of $791,655 as at February 28, 2015, but the precise amount as per the statement was $791,656.89. There was no evidence of the precise balance on the date of separation, 19 days later on March 19, 2015. However, the evidence was that there had been no transactions in this account between the end of February 28, 2015 and March 19, 2015. The parties treated $791,656.89 as also being the balance on separation.

[4] The corporation holds no other assets.

[5] They also agreed about how capital gains taxes would be dealt with, depending on the outcome about ownership.

[6] As I will explain, although the arbitrator selected age 65.5 for the husband, he may have made a mathematical error. In one place in his award, he said lump sum support for 7 to 8 years from the date of separation was appropriate. His DivorceMate calculation actually used 8 years from the date of separation. That takes the husband to age 66.5, not 65.5 which is the retirement age the arbitrator selected. Neither counsel averred to this during argument of the appeal. I discuss this in more detail later.

[7] The wife’s challenge to the math was based on the investment income the arbitrator imputed, not the potential error I have just identified in footnote 6 about the retirement age.

[8] I have adjusted the percentage from 96%, as submitted by the wife’s counsel, to 99%. This is in the wife’s favour. I have done so to correct a small mathematical error on the part of her counsel identified during submissions.

[9] At the arbitration, the husband argued the arbitrator ought to impute rental income to the wife in the spousal support analysis, but the arbitrator declined to do so.

[10] The evidence at the arbitration was also that husband’s new partner contributes minimally to their household expenses.

[11] The arbitrator took the length of the husband’s career at Crestview into account, in selecting the anticipated retirement age to calculate lump sum spousal support.

[12] One aspect of their article was cited with approval by the Ontario Court of Appeal: see Townshend v. Townshend, 2012 ONCA 868 at ¶ 28. (The wife included Townshend v. Townshend in her Book of Authorities. The arbitrator also quoted ¶ 36 of Finch v. Finch, 2018 ONSC 5575 in his first award. Paragraph 36 of Finch v. Finch references Townshend v. Townshend).

[13] As I will explain, while the wife did in fact transfer these funds into “an account in her name alone”, the arbitrator misapprehended the evidence about where these funds ultimately ended up by the time of separation (namely in one of the wife’s two Credential Investment accounts). I will discuss the relevance of that in relation to the wife’s claim for an exclusion of the amounts in her two Credential Investment accounts shortly. Later, I address the separate arguments that the wife makes about the arbitrator’s treatment of the $110,000.00 cheque itself, in the parties’ net family properties.

[14] The husband separately received an inheritance from his own father. The arbitrator dealt with that as an exclusion for the husband. How he dealt with that inheritance is not an issue in this appeal. I mention it later, to address the wife’s arguments that the arbitrator treated different claims for exclusions differently.

[15] Exhibit 12 the wife’s “Bank of Nova Scotia tracing brief”, and Exhibit 13 is her “Credential tracing brief”.

[16] It is not clear what the arbitrator was referring to by citing pages 9 to 11 of the first award. Pages 9 to 11 of the first award list the sources of the funds for which exclusions were later claimed, including the full amount of the wife’s inheritance of $1,500,000.00, before she invested it. As I will explain, this inheritance was a significant source of funds from which money was transferred into the wife’s Credential Investment accounts.

[17] To be precise, the passage from Doherty J.’s decision is the often quoted passage defining the “state of mind”, or “present intentions” exception to the rule against hearsay.

[18] I would be remiss if I did not also observe a different problem here with this evidence. The wife’s former counsel did not cross-examine the husband on this point during the arbitration. The wife’s former counsel waited until submissions and then pointed out the inconsistency in the pleading as compared to the testimony. That was a potential violation of the rule in Browne v. Dunn: see R. v Quansah, 2014 ONCA 237 ¶ 75-86. Unfortunately, the rule in Browne v. Dunn was not argued at the arbitration or on this appeal either. The arbitrator did not identify this potential Browne v. Dunn problem when mentioning the issue with the husband’s credibility in his award.

[19] The husband did take issue with the use of the word “compound” during his testimony, but the arbitrator also characterized the various pieces of property as falling within a family “compound” in his award.

[20] The draft states (perhaps incorrectly) that the cottage had been transferred to the husband and to the wife jointly, but it would be conveyed back to the wife.

[21] Some of these same arguments were also advanced as grounding her claim for an unequal division of net family property, too.

[22] Later in the net family property statement he attached as Schedule “A” to the first award, the arbitrator actually included notional “tax” of 5% on the sale of the matrimonial home. I assume the arbitrator meant to say notional disposition costs, rather than tax, and I assume it should not have been put in the Schedule “A”, given his ruling. However, as he placed the same figure in both parties’ ledgers, this inaccuracy does not impact the equalization calculation.

[23] But see again footnote 6 and the additional analysis that follows. The husband will actually be 66.5 years old at the 8-year mark after separation.

[24] The husband was born in September 1956. The date of separation was March 19, 2015. Eight years from the date of separation ends in March 2023. That would make the husband 66.5, not 65.5.