Berdette v. Berdette, [1991] 3 O.R. (3d) 513 (C.A.)

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  • Date: 2018

Berdette v. Berdette (C.A.)

3 O.R. (3d) 513

[1991] O.J. No. 788

Action No. 496/88

ONTARIO

Court of Appeal for Ontario

Lacourciere, Carthy and Galligan JJ.A.

May 27, 1991

* Application for leave to appeal to the Supreme Court of Canada dismissed December 5, 1991 (La Forest, Gonthier and Cory JJ.). S.C.C. File No. 22583. S.C.C. Bulletin, 1991, p. 2946.

Family law — Property — Division of assets — Properties purchased with wife’s money and placed in joint tenancy — Intention of wife at time of transactions to give half- interests in properties to husband — Husband’s lack of contribution to property or marriage not vitiating valid gift.

Family law — Property — Constructive and resulting trusts — Finding of valid gifts of properties defeats any claim based on constructive or resulting trust.

Family law — Property — Division of assets — Unconscionability of equalization of net family properties — Considerations not applicable because irrelevant to issue of ownership of property and no difference between net family properties of parties — Family Law Act, 1986, S.O. 1986, c. 4, s. 5(6).

Civil procedure — Costs — Husband’s offer to settle refused — Offer reasonable and more favourable than outcome of litigation — Failure to accept such offer renders spouse liable for costs regardless of assets or novelty of point of law litigated — Trial judge has discretion to award costs of entire proceeding, irrespective of time of offer — Rules of Civil Procedure, O. Reg. 560/84, rules 49.10, 57.01 — Courts of Justice Act, 1984, S.O. 1984, c. 11, s. 141(1).

The appellant wife and respondent husband were married in 1976 and separated in 1984. There were three children of the marriage. At the time of the marriage, the wife was the beneficiary of a substantial annual income from an estate.

Shortly after the marriage the husband stopped working and returned to university. His studies were funded by the wife. After graduation the husband was rarely gainfully employed, and when he was, he kept the money that he earned for himself.

During the marriage the family was maintained by the wife’s annual income from her inheritance. The wife also had primary responsibility for the care of the children and the residence.

The issue before the trial judge concerned the determination of the parties’ rights under Part I of the Family Law Act, 1986 (the FLA) in relation to two properties, the matrimonial home and a cottage. The house and cottage were purchased in 1979 and 1982 respectively, with funds provided entirely by the wife. Title to both was taken jointly. The wife argued that she should receive the entire proceeds of the sale of the matrimonial home and the cottage. The trial judge found that the wife had made a gift of a half-interest in each of the properties to the husband. He ordered that the proceeds of the sales of the properties be divided equally. The wife appealed from the judgment on three grounds: (i) the evidence did not justify the finding that the wife had given half-interests in the properties to the husband; (ii) the judge should have found that half-interests were held by the husband by way of resulting trust or constructive trust on behalf of the wife;

  1. the judge should have applied s. 5(6) of the FLA to allow the wife a 100 per cent interest in the properties.

During the course of the litigation the wife rejected four offers to settle, all of which were more favourable to her than the result obtained at trial. The trial lasted 13 days. The trial judge awarded the husband costs of the entire proceedings on a party-and-party basis. The wife also appealed from the award of costs.

Held, the appeal should be dismissed.

    1. There was evidence to support the finding that the wife made gifts to the husband of a half-interest in each of the house and cottage at the times that they were purchased. The task of the court was not to correct a possible mistake in judgment on the wife’s part, but to ascertain her intention at the time of the transactions. When the properties were purchased the wife intended her husband to be a joint owner of them. The husband’s failure to fulfil the wife’s expectations that he would contribute to the marriage does not vitiate a valid gift. Once a valid gift is made it cannot be revoked or retracted.

Moreover, the gifts were not invalid as a result of undue influence or duress. Although it was clear that the husband was the dominant partner in the relationship, the evidence fell short of demonstrating that he had the power over her which would be necessary to find undue influence. It also falls short of showing “coercion of the will” or that she had no “realistic alternative” but to put the cottage and house in joint names.

Brooks v. Alker (1975), 9 O.R. (2d) 409, 60 D.L.R. (3d) 577, 22 R.F.L. 260 (H.C.J.); Stott v. Merit Investment Corp. (1988), 63 O.R. (2d) 545, 19 C.C.E.L. 68, 48 D.L.R. (4th) 288, 25 O.A.C. 174 (C.A.) [leave to appeal to S.C.C. refused (1988), 63 O.R. (2d) x, 49 D.L.R. (4th) viii], apld Brown v. Davy (1889), 18 O.R. 559 (Common Pleas Div.); Majer v. Majer (1977), 4 R.F.L. (2d) 383 (Ont. Co. Ct.); Young v. Young (1958), 15 D.L.R. (2d) 138 (B.C. C.A.), consd

    1. The finding that the wife made valid gifts of the half- interests in the properties defeats any claim based on either a resulting or a constructive trust. Cowan v. Cowan (1988), 13 R.F.L. (3d) 381 (Ont. C.A.); Kirikos v. Kirikos, Ont. H.C.J., Walsh J., June 3, 1988, affd Ont. C.A., Lacourciere, Blair and Labrosse JJ.A., January 29, 1991 [summarized 25 A.C.W.S. (3d) Paragraph119], folld

    1. The trial judge was correct when he declined to apply s. 5(6) of the FLA for two distinct reasons. First, the intent of the FLA is not to provide for the equitable distribution of property, but to establish the equal sharing of the value of the assets accumulated during the marriage. As such, there is a three-step process that the court must follow to determine spouses’ rights under Part I of the FLA: (i) establish the net family property of each spouse on valuation day; (ii) determine whether one spouse’s net family property is less than that of the other; and (iii) decide whether, in view of the considerations contained in s. 5(6), it would be unconscionable to equalize the net family properties. If so, the court can make an award that is more or less than half the difference in the net family properties. The third step is to be kept distinct from the determination of ownership, and therefore the considerations contained in s. 5(6) are irrelevant to the issue of ownership of property. Secondly, s. 5(6) does not apply because there is no difference between the net family properties of the parties and thus no equalization payment owing.

Rawluk v. Rawluk, [1990] 1 S.C.R. 70, 71 O.R. (2d) 480 (note), 65 D.L.R. (4th) 161, 36 E.T.R. 1, 103 N.R. 321, 38 O.A.C. 81, 23 R.F.L. (3d) 337, affg (1987), 61 O.R. (2d) 637, 43 D.L.R. (4th) 764, 28 E.T.R. 158, 10 R.F.L. (3d) 113 (C.A.), affg (1986), 55 O.R. (2d) 704, 29 D.L.R. (4th) 754, 23 E.T.R. 199, 3 R.F.L. (3d) 113 (H.C.J.), folld

    1. On the issue of costs, the trial judge properly exercised his discretion. He was correct in giving the provisions of rule 49.10 of the Rules of Civil Procedure substantial weight in the exercise of his discretion. A spouse who fails to accept an offer to settle which is as good or better than the result obtained at trial should generally be made liable for costs, regardless of the assets of the spouses. Furthermore, the judge had the authority to award the respondent his costs of the whole proceeding, notwithstanding that under rule 49.10 the respondent was only entitled to costs incurred after the offer was served, pursuant to s. 141(1) of the Courts of Justice Act, 1984 and rule 57.01. Moreover, this authority was correctly exercised. When one spouse tries to settle, is reasonable, makes offers more favourable to the other spouse than the result obtained at trial, and the other spouse nonetheless decides to litigate a novel point and is unsuccessful, the latter should pay for the litigation.

Niagara Structural Steel (St. Catharines) Ltd. v. W.D. Laflamme Ltd. (1987), 58 O.R. (2d) 773, 19 C.P.C. (2d) 163, 19 O.A.C. 142 (C.A.), consd Other cases referred to Leblanc v. Leblanc, [1988] 1 S.C.R. 217, 47 D.L.R. (4th) 1, 84 N.B.R. (2d) 33, 214 A.P.R. 33, 81 N.R. 299, 12 R.F.L. (3d) 225

Statutes referred to

Courts of Justice Act, 1984, S.O. 1984, c. 11, s. 141(1) [am. 1984, c. 64, s. 9]

Family Law Act, 1986, S.O. 1986, c. 4, Part I “Family Property”, ss. 4 [am. 1986, c. 35, s. 1], 4(1) “net family property”, (2), 5, 5(1), (6), (6)(a) to (h), (7), 18

Family Law Reform Act, R.S.O. 1980, c. 152 Rules and regulations referred to

Rules of Civil Procedure, O. Reg. 560/84, rules 49.01(a), 49.10, 49.10(1), (2), 57.01 [am. O. Reg. 786/84, s. 10]

Authorities referred to

McLeod, James G., “Annotation to Rawluk v. Rawluk” (1990), 23 R.F.L. (3d) 338, p. 345.

APPEAL from a judgment of the High Court of Justice (1988), 66 O.R. (2d) 410, 29 E.T.R. 303, 14 R.F.L. (3d) 398 (H.C.J.), supplementary reasons (1988), 66 O.R. (2d) 410 at 428, 16 R.F.L. (3d) 360 (H.C.J.), holding, inter alia, that the proceeds of sale of two properties be divided equally and that the wife pay the husband his costs of the proceeding on a party-and-party basis.

Rodica David, Q.C., and Suzette Blom, for appellant wife. Gregory W. Cooper, for respondent.

The judgment of the court was delivered by

GALLIGAN J.A.:– In a proceeding under Part I of the Family Law Act, 1986, S.O. 1986, c. 4 (the FLA), Granger J. ruled that the appellant and respondent were joint tenants of two properties. Both properties were matrimonial homes as defined by s. 18 of the FLA. Granger J. directed that the proceeds of their sales be divided equally ((1988), 66 O.R. (2d) 410, 14 (3d) 398 (H.C.J.)). He also awarded costs to the respondent on a party-and-party scale ((1988), 66 O.R. (2d) 410 at 428, 16 R.F.L. (3d) 360 (H.C.J.)). 

The appellant appeals from Granger J.’s disposition of the property issues and from his order respecting costs.

        1. THE APPEAL FROM THE PROPERTY DISPOSITION

The particular result arrived at in this case is not one which accords with my sense of what is fair. But that, I think, is not the issue. The issue, as I see it, is whether the result is a correct one in accordance with the law laid down by the legislature when it enacted the FLA.

By the time the case came to trial, only one serious issue remained outstanding. That issue was the determination of the parties’ rights under Part I of the FLA in relation to two properties, one a house and the other a cottage. These were the only properties relevant to a determination of each party’s “net family property”, as defined by s. 4(1) of the FLA.

Both properties were purchased with funds provided entirely by the appellant. Title to each property was taken jointly.

Granger J. found as a fact that the appellant had made a gift of a half-interest in each property to the respondent. He ordered that the proceeds of the sales of the two properties be divided equally.

In this court counsel for the appellant argued on four alternative grounds that the trial judgment was in error:

  1. The evidence did not justify the trial judge’s finding that the appellant had made gifts of one-half interests in the properties to the respondent.

  1. The trial judge should have found that the half-interests were held by the respondent by way of resulting trust in the appellant’s favour.

  1. The trial judge should have found that the half-interests were held by the respondent by way of constructive trust in the appellant’s favour.

  1. The trial judge should have applied s. 5(6) of the FLA to allow the appellant a 100 per cent interest in each property, because equalization of the parties’ interests in the properties was unconscionable within the meaning of that provision.

Before examining these grounds of appeal I will give a brief outline of the circumstances leading up to this litigation. The parties were married in 1976. At that time the appellant was 21 years of age and her husband was 24. They have three children who are respectively 12, 10 and 8 years of age. At the time of the marriage, the appellant was in receipt of a substantial annual income from an estate of which she was a beneficiary. She still receives that income and will continue to do so throughout her life. At the time of the marriage, the respondent, who previously had been employed in the hotel industry, stopped working and returned to school. Some of the trial judge’s findings about the respondent, whose testimony he found to be unsatisfactory and evasive, are not flattering, but they are well founded in the evidence. Granger J. said [p. 414 O.R., p. 401 R.F.L.]:

Mrs. Berdette stated and I accept her evidence that shortly before the wedding, Mr. Berdette without any consultation announced he was returning to university. At this point Mr. Berdette was aware of the substantial income Mrs. Berdette was receiving from the Wright Estate. The cost of returning to school and maintaining the family was, as far as Mr. Berdette was concerned, to be borne by the annual income received by Mrs. Berdette. It was my impression that Mr. Berdette, after learning of the magnitude of Mrs. Berdette’s income, unilaterally decided to enhance his earning potential at the expense of Mrs. Berdette and at the same time abdicated his obligation to contribute to the marriage. During the time that Mr. Berdette was attending York University he accepted without protest a middle class standard of living, without the necessity of making any contribution to the marriage. Granger J. found that, thereafter, the appellant was rarely gainfully employed. However, on one occasion when he was, he kept his earnings segregated and permitted the family to be “funded exclusively by Mrs. Berdette’s inheritance”. Granger J. also found that from 1980 until the parties’ separation in 1984, the respondent had very little income and that he and the family “existed financially on the income Mrs. Berdette received from the Wright Estate”. Granger J. further found [p. 417 O.R., p. 404 R.F.L.] that:

In 1983, as a result of marital problems, Mrs. Berdette consulted a lawyer and then demanded that Mr. Berdette remove his name from the joint bank account. Mr. Berdette’s response to this request was “no money, no marriage”. This statement in my opinion reflects Mr. Berdette’s commitment to the marriage. Mrs. Berdette was expected to stay home and care for the children and was also the financial provider for the family. The contribution to the marriage in child care, household management and financial support on the part of Mr. Berdette was minimal when compared to Mrs. Berdette’s contributions. Mr. Berdette was taking from the relationship, while giving very little in return, which resulted in a significant disparity in contributions between the partners to the marriage. The house was purchased in 1979. The funds were provided entirely by the appellant. Title was taken jointly with her husband. The cottage was purchased in 1982. The funds were provided entirely by the appellant. Title was taken jointly with her husband. I turn now to consider the grounds of appeal. Gifts

It is my opinion that the essential question in this case is whether or not the appellant made gifts to the respondent of a half-interest in the house purchased in 1979 and a half- interest in the cottage purchased in 1982. The question of whether or not gifts were made at those times is a question of fact which the trial judge decided in the respondent’s favour. In my opinion there was evidence to support that finding. Assuming the accuracy of the opinion which the trial judge formed of the respondent, it is hardly surprising that the appellant regrets that title was taken in her husband’s name as well as in her own. However, the task of the court was not to correct a possible mistake of judgment on the appellant’s part, but to ascertain the appellant’s intention at the time of the transactions with which we are concerned. In determining that issue the trial judge heard a great deal of evidence about the circumstances of these two people from the time of their courtship until their separation. The trial lasted 13 days. Much of that time was taken up with the testimony of the two parties. Each party was in the witness box for almost three full days. Thus, the trial judge was in the unique position of being able to assess the parties and all of the testimony. Granger J. was able, therefore, to assess whether the appellant’s testimony that she really did not intend to make gifts to her husband was accurate. He did not, in express language, reject that part of the appellant’s evidence.

However, his very strong findings that “at the time title was taken in joint tenancy to the matrimonial home and cottage, Mrs. Berdette intended her husband to be an owner” [p. 418 O.R., p. 405 R.F.L.] and that she “made a gift to Mr. Berdette of one-half of the matrimonial home and cottage when title was registered in both names” [p. 419 O.R., p. 406 R.F.L.] indicate clearly that he was unable to give the appellant’s assertion very much weight.

In the appellant’s own evidence there is strong support for the trial judge’s finding that she intended to make her husband an owner. I wish to make but few references to that evidence. From very early in their married lives it is clear that the appellant wanted to share what she had with her husband. At the outset of the marriage she decided to place her income from the estate into a joint account with him. A wise grandmother suggested to her that it would be safer to keep her money in her own name. The appellant did not follow that advice, believing “everything I have is yours and everything you have is mine”. She also felt that her husband, who had feelings of inadequacy because of her income, would think that she didn’t love and trust him if she didn’t share what she had with him.

The appellant testified that at the time the house was purchased, while she did not understand all the legal implications of joint tenancy, she did understand that, if both names were on title, both owned the house. In the light of her desire, from the time of marriage, to share what she had with her husband, the inference seems to me inescapable that when she put title in both names she intended to make her husband a joint owner in the property. While to an outsider the respondent’s attitude at the time the cottage was purchased may not have been admirable, the events surrounding that purchase demonstrate that at that time the appellant still wanted to make him a joint owner of property purchased with her money. Before closing the cottage purchase, the appellant consulted the family solicitor and decided to take title to the cottage in her name alone.

Documents in the solicitor’s file suggest that she gave him instructions to that effect. When she told her husband about her decision he said that she could do that if she liked but that he would not go to the cottage or use it in any way. He said it would be her cottage alone. Thereupon the appellant changed her instructions to her solicitor and title was taken jointly. She said that she did so because she wanted her husband to use the cottage with her. She wanted it to be used by the family as a group. Further, she felt that if she didn’t put it in their joint names, she might appear to be very divisive in her marriage. To my mind those circumstances show clearly that she knew what her options were and that she made a clear decision to benefit her husband by making him a joint owner of the cottage. There can be no doubt, when she put her money in a joint account with her husband and made him a joint owner with her of the house and cottage, that she had reasonable expectations that he would contribute to the marriage. It is clear from the findings of the trial judge that the respondent wholly failed to fulfil those expectations. However, the failure of a donee to fulfil a donor’s expectations does not vitiate a valid gift. The unfortunate position in which the appellant finds herself has been accurately described by Sidney Smith J.A., speaking for the British Columbia Court of Appeal in Young v. Young (1958), 15 D.L.R. (2d) 138, at pp. 139-40:

Even if the defendant had been to blame in parting from the plaintiff which we must assume he was not, and even if the plaintiff had had in mind that he expected the defendant to keep on working continuously on the farms, the plaintiff was in much the same position as a husband who puts a residence in the joint names of himself and his wife. No doubt most husbands who do this have vague notions that they can retreat from what they have done if the wives leave them or otherwise fail them; but of course that is a delusion. Nothing is clearer than that a gift thus made cannot be revoked unless an express power of revocation is preserved. None can be implied no matter how natural such an implication might be. Here, no matter what the plaintiff’s expectations were, no power to revoke the gift to the defendant was reserved; so that was the end of the matter. Ontario cases are consistent in holding that, in the absence of the retention of an express right of revocation, once a valid gift is made it cannot be revoked or retracted: see e.g., Brown v. Davy (1889), 18 O.R. 559 (Common Pleas Div.), at p. 562; Majer v. Majer (1977), 4 R.F.L. (2d) 383 (Ont. Co. Ct.), at p. 386. I have come to the conclusion, not without reluctance on the facts of this case, that the failure of the respondent to make a fair and reasonable contribution to this marriage cannot affect the validity of the gifts made to him by the appellant. There was ample evidence to justify the finding made by Granger that at the time the properties were purchased the appellant intended her husband to be a joint owner of them. Indeed, upon the evidence, I think his conclusion was obviously correct. In this court for the first time counsel for the appellant suggested that the gifts were invalid because they were made as a result of undue influence or duress exercised by the respondent upon the appellant. Because this issue was not raised below, this court does not have the benefit of the trial judge’s views upon that contention.

I adopt the definition of undue influence found in the judgment of Henry J. in Brooks v. Alker (1975), 9 O.R. (2d) 409, 22 R.F.L. 260 (H.C.J.) at p. 416 O.R., p. 266 R.F.L. There, undue influence was defined as the “unconscientious use by one person of power possessed by him over another in order to induce the other to” do something. Finlayson J.A., speaking for the majority of this court in Stott v. Merit Investment Corp. (1988), 63 O.R. (2d) 545, 48 D.L.R. (4th) 288 [leave to appeal to S.C.C. refused (1988), 63 O.R. (2d) x, 49 D.L.R. (4th) viii], at pp. 561-62 O.R., p. 305 D.L.R., said that in order for pressure to amount to duress it must be “a coercion of the will”, or it must place the party to whom the pressure is directed in such a position as to have no “realistic alternative” but to submit to it.

Even though the trial judge was not called upon to consider the contention of undue influence and duress, he did give his impression of the relationship between these spouses. He said [pp. 413-14 O.R., p. 400 R.F.L.]:

After observing both parties and listening to their evidence, it was clear to me that Mr. Berdette was the dominant partner in the relationship and, on most occasions before and after the marriage, Mrs. Berdette accepted without protest Mr. Berdette’s decision in order to continue the relationship.

The evidence of the appellant reveals that she was quite anxious to please her husband and agreed to many of his wishes, albeit reluctantly, in the hope that by doing so her marriage would be preserved. However, her evidence also shows that on occasion she acted as she saw fit notwithstanding her husband’s advice or suggestion to the contrary. While the respondent was “the dominant partner in the relationship”, the evidence falls short of showing that he had that “power” over her which would be necessary to find undue influence. It also falls far short of showing “coercion of the will” or that she had no “realistic alternative” but to put the house and cottage jointly in both their names. The evidence therefore does not justify a finding that she made the gifts of half-interests in the house and cottage under duress. If undue influence or duress had been present, the gifts would be voidable. However, neither has been established and, therefore, the gifts are valid. I am thus of the opinion that Granger J. was correct when he found that the appellant made gifts to the respondent of half- interests in the house and cottage. This ground of appeal must therefore fail. Trusts The second and third grounds of appeal can be dealt with together and briefly. Counsel for the appellant contended that on the facts of this case the respondent’s half-interest in the two properties are held by him in trust for the appellant under either a resulting trust or a constructive trust. Granger J. concluded that the finding of gifts defeated any claim based upon either resulting or constructive trusts. I agree. In Cowan v. Cowan (1988), 13 R.F.L. (3d) 381, this court held that a valid gift defeats a claim based on either a resulting trust or a constructive trust. In Kirikos v. Kirikos, released June 3, 1988, Walsh J. of the High Court of Justice stated at p. 7 of the reasons that “an absolute and irrevocable gift defeats both a resulting trust and a constructive trust”. That decision was affirmed by this court in a decision released January 29, 1991 [summarized 25 A.C.W.S. (3d) Paragraph119].

Therefore, it is now clear that a gift defeats a claim based on either a resulting trust or a constructive trust. Granger J. correctly decided these issues and the grounds of appeal based upon a claim of trust must therefore fail.

Section 5(6) of the FLA

Granger J. held that s. 5(6) of the FLA should not be applied because it was not unconscionable for the respondent to retain the value of property which had been given to him by gift.

Counsel for the appellant argued that he erred in failing to apply it to allow her client a 100 per cent interest in the two properties, because it was unconscionable that the parties should have equal interests in them. In my opinion, Granger J. was correct when he declined to apply s. 5(6) in the circumstances of this case. The language which he used in doing so, however, might leave open the impression that s. 5(6) might have been applicable had the respondent’s interests in the properties not been obtained by gift. In my opinion, for two reasons which I will develop, s. 5(6) was inapplicable to this case. First, s. 5 is found in Part I of the FLA. That Part is entitled “Family Property”. In order to interpret s. 5 it is necessary to read it together with s. 4 [am. 1986, c. 35, s. 1]. These sections provide that: 4.(1) In this Part,

“court” means a court as defined in subsection 1(1), but does not include the Provincial Court (Family Division);

“matrimonial home” means a matrimonial home under section 18 and includes property that is a matrimonial home under that section at the valuation date;

“net family property” means the value of all the property, except property described in subsection (2) that a spouse owns on the valuation date, after deducting,

    1. the spouse’s debts and other liabilities, and

    1. the value of property, other than a matrimonial home, that the spouse owned on the date of the marriage, after deducting the spouse’s debts and other liabilities, calculated as of the date of the marriage;

“property” means any interest, present or future, vested or contingent, in real or personal property and includes,

  1. property over which a spouse has, alone or in conjunction with another person, a power of appointment exercisable in favour of himself or herself,

  2. property disposed of by a spouse but over which the spouse has, alone or in conjunction with another person, a power to revoke the disposition or a power to consume or dispose of the property, and

  1. in the case of a spouse’s rights under a pension plan that have vested, the spouse’s interest in the plan including contributions made by other persons [clause (c) rep. & sub. 1986, c. 35, s. 1(1)];

“valuation date” means the earliest of the following dates:

  1. The date the spouses separate and there is no reasonable prospect that they will resume cohabitation.

  1. The date a divorce is granted.

  1. The date the marriage is declared a nullity.

  1. The date one of the spouses commences an application based on subsection 5(3) (improvident depletion) that is subsequently granted.

  1. The date before the date on which one of the spouses dies leaving the other spouse surviving.

      1. 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.

  1. 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.

  1. Damages or a right to damages for personal injuries, nervous shock, mental distress or loss of guidance, care and companionship, or the part of a settlement that represents those damages.

  1. Proceeds or a right to proceeds of a policy of life insurance, as defined in the Insurance Act, that are payable on the death of the life insured, [this para. rep. & sub. 1986, c. 35, s. 1(2)].

  1. Property, other than a matrimonial home, into which property referred to in paragraphs 1 to 4 can be traced.

  1. Property that the spouses have agreed by a domestic contract is not to be included in the spouse’s net family property.

      1. The onus of proving a deduction under the definition of “net family property” or an exclusion under subsection (2) is on the person claiming it.

      1. When this section requires that a value be calculated as of a given date, it shall be calculated as of close of business on that date.

      1. If a spouse’s net family property as calculated under subsections (1), (2) and (4) is less than zero, it shall be deemed to be equal to zero.

5.(1) When a divorce is granted or a marriage is declared a nullity, or when the spouses are separated and there is no reasonable prospect that they will resume cohabitation, the spouse whose net family property is the lesser of the two net family properties is entitled to one-half the difference between them.

  1. When a spouse dies, if the net family property of the deceased spouse exceeds the net family property of the surviving spouse, the surviving spouse is entitled to one- half the difference between them.

  1. When spouses are cohabiting, if there is a serious danger that one spouse may improvidently deplete his or her net family property, the other spouse may on an application

under section 7 have the difference between the net family properties divided as if the spouses were separated and there were no reasonable prospect that they would resume cohabitation.

  1. After the court has made an order for division based on subsection (3), neither spouse may make a further application under section 7 in respect of their marriage.

  1. Subsection (4) applies even though the spouses continue to cohabit, unless a domestic contract between the spouses provides otherwise.

  1. The court may award a spouse an amount that is more or less than half the difference between the net family properties if the court is of the opinion that equalizing the net family properties would be unconscionable, having regard to,

  1. a spouse’s failure to disclose to the other spouse debts or other liabilities existing at the date of the marriage;

  1. the fact that debts or other liabilities claimed in reduction of a spouse’s net family property were incurred recklessly or in bad faith;

  1. the part of a spouse’s net family property that consists of gifts made by the other spouse;

  1. a spouse’s intentional or reckless depletion of his or her net family property;

  1. the fact that the amount a spouse would otherwise receive under subsection (1), (2) or (3) is disproportionately large in relation to a period of cohabitation that is less than five years;

  1. the fact that one spouse has incurred a disproportionately larger amount of debts or other liabilities than the other spouse for the support of the family;

  1. a written agreement between the spouses that is not a domestic contract; or

  1. any other circumstance relating to the acquisition, disposition, preservation, maintenance or improvement of property.

  1. The purpose of this section is to recognize 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).

The intent of this legislation is to establish partnership and equal sharing of property accumulated during marriage. That intent is not effected, however, by the sharing of the assets themselves as was done under the Family Law Reform Act, R.S.O. 1980, c. 152, which preceded the FLA. It is done by the sharing of the value of the assets. The distinction is crucial and is one that is not infrequently overlooked. For example, in his “Annotation to Rawluk v. Rawluk” (1990), 23 R.F.L. (3d) 338, at p. 345, Professor James G. McLeod speaks of “a statute that, by its terms, provides for the equitable distribution of property”. In my view, the definition of “net family property” contained in s. 4(1), the opening words of s. 4(2), s. 5(1) and s. 5(6) all show that the FLA does not provide for the distribution of property. Rather, it provides for the payment of money when the net family property of one spouse is less than that of the other.

I make particular reference to s. 4(1), which defines “net family property” as the value of all property which a spouse owns on valuation day. In this way, net family property is distinct in nature from “property” in the statutory sense found in s. 4(1) and from the word “property” in its ordinary sense.

In giving the majority judgment of the Supreme Court of Canada in Rawluk v. Rawluk, [1990] 1 S.C.R. 70, 23 R.F.L. (3d) 337, Cory J. set out certain principles which seem to me vital in defining the approach a court must take when determining the rights of separating spouses pursuant to Part I of the FLA. He said, at pp. 93-94 S.C.R., p. 366 R.F.L.:

Under the Act a court is, as a first step, required to determine the ownership interests of the spouses. It is at that stage that the court must deal with and determine the constructive trust claims. The second step that must be taken is to perform the equalization calculations. Once this is done, a court must assess whether, given the facts of the particular case, equalization is unconscionable. The s. 5(6) analysis, even if it could be considered, would be a third step — a last avenue of judicial discretion which might be used in order to bring a measure of flexibility to the equalization process. This step in the process, if it could be used, would have to be kept distinct from the preliminary determinations of ownership.

In light of this statement and the definition of “net family property” contained in s. 4(1), the court must take the following steps in determining spouses’ rights under Part I of the FLA:

  1. The court must establish the net family property of each spouse. It is only when that function has been performed that the court is in a position to apply s. 5(1) of the FLA, which is the next step. This first step must be undertaken in light of the provisions of s. 4. This means that the court must:

  1. determine what “property” each spouse owned on valuation day, and

  2. value that property after making deductions and allowing exemptions as provided in s. 4.

  1. The court must determine whether one spouse’s net family property is less than that of the other. If so, s. 5(1) provides for equalization, which is effected by ordering a payment of one-half of the difference between them. However, before making that order, the court must proceed to the third step.

  1. The court must decide whether, because of the considerations contained in s. 5(6), it would be unconscionable to equalize the net family properties. If so, the court may make an award that is more or less than half the difference between the net family properties. If not, the net family properties are equalized as set out in step 2.

In the above-quoted extract from Rawluk, Cory J. held that the third step is to be kept distinct from the determination of ownership of property. Ownership of property is determined in the first step. It is therefore my opinion that the considerations set out in subparagraphs (a) through (h) of s. 5(6) are irrelevant to determining the net family properties of each spouse. This opinion, I think, is additionally supported by reference to the structure of Part I. The provisions of s. 5 are all founded upon the concept of net family property, and assume that net family property has been established. There is nothing in s. 4 which incorporates consideration of elements of s. 5(6) into the determination of which spouse owned what property on valuation day. Moreover, my reading of the judgments in Rawluk v. Rawluk at trial ((1986), 55 O.R. (2d) 704, 3 R.F.L. (3d) 113 (H.C.J.)) and in this court ((1987), 61 O.R. (2d) 637, 10 R.F.L. (3d) 113) is that it was assumed that the provisions of s. 5(6) had no bearing upon the ownership issues essential to the determination of the net family properties under s. 4(1).

I think it must now be taken as settled that the considerations which could lead a court to find unconscionability under s. 5(6) can have no bearing upon the issue of ownership of property, which is fundamental to the determination of net family property under s. 4(1). Therefore, those considerations could have no bearing upon whether, on valuation day, the respondent was a joint owner of the two properties with the appellant. Thus the trial judge could not have applied those considerations to deprive the appellant of joint ownership in the properties, which had been given to him as a gift.

My second reason for holding that s. 5(6) does not apply in this case is that there is no difference between the net family properties of these parties. As mentioned earlier, no assets or properties other than the two at issue in this case were found by the trial judge to be included in the net family property of either spouse. Because he found each of them to have a half- interest in the properties, their net family properties were of equal value. Section 5(1) provides that the spouse whose net family property is the lesser of the two is entitled to one- half of the difference between them. The entitlement in s. 5(1) is a statutory one. In order for a spouse to benefit from it he or she must come within the statutory condition of entitlement. In this case there is no difference between the two net family properties. There is no “lesser of the two”. Thus, by its terms, s. 5(1) does not apply in this case. Because s. 5(1) is inapplicable, s. 5(6) can have no application either. The latter subsection authorizes an award of more or less than half the difference between the net family properties. Where, as here, there is no difference between the net family properties, s. 5(6) can have no operation. Because s. 5(6) by its terms is inapplicable to the issues to be decided in this case, the unconscionability considerations in paragraphs (a) to (h) were irrelevant. I conclude, therefore, that this ground of appeal must fail.

Before leaving this aspect of the case I wish to make reference to one of the conclusions reached by Granger J. He held that because of the decision of the Supreme Court of Canada in Leblanc v. Leblanc, [1988] 1 S.C.R. 217, 12 R.F.L. (3d) 225, a court, in determining unconscionability under s. 5(6), was required to take into account considerations set out in s. 5(7). Counsel for the respondent in this court argued that there was a significant difference between the language of the New Brunswick statute [Marital Property Act, S.N.B. 1980, c. M-1.1] which was under consideration in Leblanc and the relevant provisions of the FLA. As I have found that s. 5(6) of the FLA is inapplicable to the facts of this case, it is unnecessary to decide that issue here. In fact, I think it is undesirable to make any comment upon it. I therefore leave that issue open until it is necessary to decide it. In the result I would dismiss the appeal from the property disposition made by Granger J.

 

B. THE APPEAL FROM THE ORDER RESPECTING COSTS

Granger J. awarded the respondent costs of the proceeding on a party-and-party scale. He did so because the respondent had made offers of settlement to the appellant, all of which were substantially more favourable to her than the result she obtained at trial.

As is not uncommon in marriage failures, these parties became involved in a plethora of legal proceedings. The divorce petition was filed on August 18, 1986. A previous petition had been issued almost two years earlier. It led to several interlocutory motions which I need not describe. Due to the enactment of the FLA, and the changes which that statute brought to the law relating to property issues, the parties agreed that the first petition would be discontinued and that the appellant would lodge a new one.

It is patently obvious that, while at times custody, access and the right to certain assets were subjects of dispute, these parties were really fighting about rights to the house and cottage. Resolution of that dispute would, in all likelihood, have ended the litigation.

Extended litigation in family law matters can be ruinously expensive. In this case, the trial alone lasted 13 days. Due to the nature of marriage relationships, breakups can be bitter and contentious. Litigation conducted in that context often gets completely out of hand. It is only if the parties approach their problems reasonably and realistically that the assets of a family can be saved from evaporating because of legal expense.

Granger J. held that, in family law proceedings, the provisions of rule 49.10 of the Rules of Civil Procedure, O. Reg. 560/84, should be given substantial weight in a judge’s exercise of discretion respecting costs. He also said that the principles enunciated by Morden J.A., speaking on behalf of this court in Niagara Structural Steel (St. Catharines) Ltd. v. W.D. Laflamme Ltd. (1987), 58 O.R. (2d) 773, 19 C.P.C. (2d) 163, at p. 777 O.R., pp. 168-69 C.P.C., should, barring exceptional circumstances, apply in family law cases as it does in others. I agree. A spouse who fails to accept an offer to settle which is as good as or better than the result obtained at trial should generally be made liable for costs.

Broadly speaking, the view expressed by Granger J. at p. 44 O.R., p. 366 R.F.L. of his reasons is well taken:

Given the enormous cost of litigation, a spouse who allows the litigation to continue without making a reasonable settlement offer, or fails to accept a reasonable offer should bear the costs of the trial. This approach should be followed regardless of the assets of the spouses. The application of this approach is valid in actions involving modest assets, as these disputes can result in hard-earned assets being consumed by the costs of the litigation.

My view, however, is somewhat more restrictive. It seems to me that before a party will be entitled to recover costs, he or she must have made a realistic and reasonable offer of settlement to the other spouse. I do not think that failure to make such an offer, however, should necessarily make him or her liable for costs. It is in this respect only that I do not share the views of Granger J. quoted above.

In this case, Granger J. awarded the respondent his costs of the whole proceeding. A technical application of rule 49.10 would not justify an award of all of those costs. The provisions of that rule are as follows:

49.10(1) Where an offer to settle,

    1. is made by a plaintiff at least seven days before the commencement of the hearing;

    2. is not withdrawn and does not expire before the commencement of the hearing; and

    1. is not accepted by the defendant, and the plaintiff obtains a judgment as favourable as or more favourable than the terms of the offer to settle, the plaintiff is entitled to party and party costs to the date the offer to settle was served and solicitor and client costs from that date, unless the court orders otherwise.

(2) Where an offer to settle,

  1. is made by a defendant at least seven days before the commencement of the hearing;

  1. is not withdrawn and does not expire before the commencement of the hearing; and

  1. is not accepted by the plaintiff, and the plaintiff obtains a judgment as favourable as or less favourable than the terms of the offer to settle, the plaintiff is entitled to party and party costs to the date the offer was served and the defendant is entitled to party and party costs from that date, unless the court orders otherwise.

Because rule 49.01(a) provides that “defendant” includes a respondent, rule 49.10(2) was applicable in this case. Under that rule, the respondent was only entitled to costs incurred after the offer was served.

In this case, that would have meant only costs incurred after January 8, 1987, which was the date of the respondent’s final offer. Some of the earlier offers had been made before the present petition had been issued and therefore they do not fall within the provisions of the rule. Thus, a strict application of rule 49.10(2) would have been less favourable to the respondent than the order in fact made by Granger J.

Nevertheless, the general discretion respecting costs conferred by s. 141(1) [am. 1984, c. 64, s. 9] of the Courts of Justice Act, 1984, S.O. 1984, c. 11, and rule 57.01 [am. O. Reg. 786/ 84, s. 10] authorized Granger J. to make the order which he did. Granger J. further said that, but for the appellant’s limited success in the settlement of non-property issues, he would have applied the principles in Niagara Structural Steel, supra, and ordered her to pay the respondent’s costs on a solicitor-and- client scale. Rule 49.10 would not have authorized such an order. Rule 49.10 only authorizes an award of solicitor-and- client costs to a plaintiff. It should be noted as well that Niagara Structural Steel, supra, was a case involving a plaintiff’s entitlement to solicitor-and-client costs under rule 49.10(1). It is, therefore, not authority for the awarding of costs to a defendant on a solicitor-and-client basis.

Nevertheless, even though rule 49.10 would have been unavailable as a means of awarding the respondent solicitor- and-client costs, I think the general discretion conferred by s. 141(1) and rule 57.01 once again would have authorized Granger J. to make that order had he chosen to do so.

I note that Granger J. had the opportunity to assess the conduct of the parties throughout the litigation. He concluded that the respondent took a reasonable position and was prepared to negotiate a settlement. He took into account offers made prior to that dated January 8, 1987, including one which had been made in November 1984, long before this petition was launched. If that offer had been accepted all of the subsequent litigation would have been unnecessary.

At pp. 433-34 O.R., p. 367 R.F.L., of his reasons for judgment, Granger J. said this:

It is obvious in this case that the husband was prepared to negotiate a settlement and the settlement position which he took was reasonable. The wife argues that as the case involved a novel point which had not been previously decided she should not be penalized by an order for costs. The husband was not interested in litigating a novel point in law, and merely wished to avoid the cost of trial.

It seems to me that when one spouse tries to settle, is reasonable, and makes offers more favourable to the other spouse than the result obtained at trial, whereas the other spouse wants to litigate a “novel point” and is unsuccessful, the latter should pay for the litigation. This was the situation here. This was a case where Granger J. had legal authority to exercise his discretion in the way he did. In the circumstances of this case, far from any error in principle being shown, it seems to me that Granger J. exercised his discretion correctly.

I think the last sentence of his reasons for judgment, at p. 434 O.R., p. 367 R.F.L., bears repeating:

This decision should be a warning to all spouses of the risks of litigating, rather than negotiating a determination of the dispute. For these reasons, I would dismiss the appeal as to costs. Counsel have requested an opportunity to make submissions regarding the costs of the appeal. Counsel for the appellant may file written submissions within ten days of the release of these reasons. Counsel for the respondent will have seven days to respond to them.

Appeal dismissed.

ESTT

CIVT FAM