YCC 435 v. Karnis et. al. DATE: November 28, 2023CASE: 2022-00183NCitation: York Condominium Corporation No. 435 v. Karnis et al. Order under section 1.44 of the Condominium Act, 1998.Member: Stephen Roth, MemberThe Applicant,York Condominium Corporation No. 435Represented by Erik Savas, CounselThe Respondents,Monika Karnis, Dana Karnis and Lawrence KarnisRepresented by Marc Kemerer, CounselHearing: Written Online Hearing – June 15, 2022 to October 30, 2023 REASONS FOR DECISIONA. INTRODUCTION[1] This is an application brought by York Condominium Corporation No. 435 (“YCC435’) asking that Monika Karnis’ (“Ms. Karnis”) sixty-pound White German Shepherd service dog, Sophie, be permanently removed from her unit pursuant to subparagraph 1.44 (1) 2 of the Condominium Act, 1998 (the “Act”) and YCC435’s governing documents.[2] Karnis resides in the unit with her husband and brother. Her parents, Dana Karnis and Lawrence Karnis own the unit. Lawrence Karnis was added as a party at the commencement of the hearing on consent of all parties. Mr. Kemerer confirmed he represented Lawrence Karnis.[3] As a preliminary matter, the Respondents asked the Tribunal to adjourn this case while Ms. Karnis’ application to the Human Rights Tribunal of Ontario (“HRTO”) proceeded. After receiving submissions from the parties, I released a decision dated August 12, 2022, dismissing Ms. Karnis’ request and ordering that the CAT case proceed.[4] This was a very lengthy hearing, in part because the parties requested time on two occasions to try to resolve the dispute. I played no role in these negotiations, and they do not factor in my decision-making. Their efforts in this regard were unsuccessful and the hearing resumed.[5] YCC435’s declaration prohibits all dogs in the high-rise unit where Sophie resides. The Respondents submit that Sophie should be allowed to remain in the unit despite the “no pets” rule as an accommodation under the Ontario Human Rights Code (“the Code”).[6] While YCC435 accepted that Ms. Karnis has a disability as defined in section 10 of the Code and requires a service dog as accommodation, it objects to Sophie’s size and breed. YCC435 supports her having another breed of dog, which it considers safer.B. ISSUES[7] Given that YCC453 acknowledges that Ms. Karnis requires accommodation, does it have a legal basis to reject Sophie on the basis of weight or breed?[8] Should Sophie be removed from Ms. Karnis’ unit?[9] Would YCC435 suffer undue hardship if Sophie remained in the unit?C. EVIDENCE AND ANALYSIS [10] The Applicant called two witnesses. YCC435’s condominium manager, Ovidiu Floroiu testified. Mr. Floroiu served as the day-to-day manager from March 2021 to December 2022. Additionally, Annie Imer, officer and director of YCC435, provided testimony. She serves as president of YCC435 and owns and occupies a unit in the complex.[11] Karnis testified on her own behalf. Elizabeth Baker, the owner and lead trainer at Thames Centre Service Dogs “(TCSD”) where Ms. Karnis obtained Sophie, also testified for the Respondents.[12] Karnis testified that that on August 16, 2021, she qualified to obtain a service dog from TCSD, an organization that specializes in breeding and training dogs for those with disabilities. She testified that she informed the lead trainer, Ms. Baker, that she suffers from a condition that can lead to vertigo, dizziness and therefore instability when walking. She testified that her application to TCSD included a July 7, 2021, medical report from Dr. Linder who supported her application. I have reviewed the report, which is brief, and indicates Dr. Linder supported her application stating that a service dog would provide significant benefit for Ms. Karnis’ condition. Ms. Karnis testified that a service dog’s role was to support her and steady her during periods of instability. Ms. Karnis could grab the dog’s harness and steady herself by holding the dog. She also testified that Sophie was trained to use her sense of smell to touch her with her nose and alert her of an impending medical event. Ms. Karnis testified that Elizabeth Baker recommended a White German Shepherd to accommodate her because this breeding line was calm, had submissive personality, would weigh at least 1/3 of her own weight and because of the breed’s strong training abilities. Ms. Karnis testified that no other breed was recommended.[13] I have reviewed a December 9, 2021, letter from specialist Dr. J. Rosenblut supporting a service animal for Ms. Karnis. Dr. Rosenblut confirmed that a service dog would be trained to alert Ms. Karnis and to provide immediate support. I have also reviewed an August 2022 report from Dr. Linder indicating that Ms. Karnis “requires a service dog that is large enough for mobility work, specifically steadying her when she feels dizzy or is experiencing vertigo.”[14] The Applicant argued that a service dog is needed only in a stabilizing role and does not accept an alerting role. Given Ms. Karnis’s testimony and Dr. Rosenblut’s report, I find that Sophie’s role extends to both a stabilizing and a preventative alert role.[15] Sophie was born on August 17, 2021. Ms. Karnis made her first payment of $2000 to TCSD on September 18, 2021 for Sophie’s breeding and training. Training began immediately after payment. In total, Ms. Karnis testified that she paid $15,000 for Sophie and her training.[16] There is no dispute that Ms. Karnis first advised YCC435 of her intention to acquire a service dog by email on September 23, 2021, three days after she made her first payment. She stated as follows:Hello, I have been approved for a service dog by my physician and a training school that specialises in my disability. The training school’s website is below. I am not yet sure when I will receive the dog, it may be the end of October or in the new year, depending on where it is in its training. Please let me know if you have any questions or concerns.[17] YCC435 acknowledged receipt on the same date and Ms. Karnis was advised that the matter would be discussed with the board at its September 29th meeting and that management would respond with updates.[18] In response, Ms. Karnis offered to speak with the board and answer any questions. This offer was politely declined with the explanation that communication from the board would be relayed through the condominium manager.[19] Between Ms. Karnis’ first email of September 23 and mid-December 2021, Ms. Karnis and Mr. Floroiu exchanged several emails addressing the threshold question as to whether the board accepted that Ms. Karnis had a disability requiring a service dog. The board was not satisfied that the first medical reports established the need for a service dog and eventually hired counsel to address Ms. Karnis’ request. While this delay frustrated Ms. Karnis, by mid-December 2021 the board accepted Ms. Karnis’ disability and the need for a service dog. At the commencement of the hearing, counsel for the Applicant confirmed that Ms. Karnis’ need for a service dog was accepted and not an issue in dispute.[20] Imer testified that on December 15, 2021, the board sent Ms. Karnis a letter confirming its agreement to accommodate by allowing a service dog and that the Board would also be sending a draft accommodation agreement (“AA”) to her after the January 5, 2022 Board meeting to sign.[21] Having not yet received the draft AA, Ms. Karnis emailed Mr. Floroiu on January 8, 2022, referencing the delay and complaining of the ongoing maintenance and training costs she was incurring:The board was to send me an accommodation agreement for my medical needs on the fifth. Could you ask them to send it as it is now three days late, and five days late by Monday. These constant delays and late responses from the board are distressing. I have been made to pay large amounts of money monthly for the dog’s maintenance and training, which I could be providing at almost no cost if I was allowed to implement my plan shown to the board. This process has been invasive and degrading. I understand the need for due diligence, but I am disappointed with the lack of decency shown by the board.[22] On January 10, 2022, Ms. Karnis’ counsel advised YCC435 that Ms. Karnis would be bringing the dog home and that the AA would be negotiated in good faith. At this time, the dispute related to the breed and weight of the dog had not yet arisen.[23] It was not until January 22, 2022, when Ms. Karnis was presented with a draft AA containing a provision prohibiting certain breeds considered dangerous by the board, including German Shepherds, and a weight restriction of twenty-five pounds, that the dispute became apparent.[24] In response, Ms. Karnis’ counsel sent a letter to the Applicant dated January 25th, 2022, advising that Ms. Karnis intended to acquire a White German Shepherd dog and objected to the weight restriction and characterization of that breed as dangerous. Additionally, the letter indicated that the board knew of the breed previously and raised no complaint. On January 27, 2022, Ms. Karnis counsel emailed YCC435s counsel indicating that Ms. Karnis would be proceeding with bringing Sophie home, and that in the meantime, on a without prejudice basis, Ms. Karnis agreed to abide by the AA terms as amended other than breed and weight restrictions.[25] On January 28, 2022, YCC435’s counsel advised Ms. Karnis’s counsel that it did not accept the German Sheppard breed and that there was no evidence that a service animal of a different breed couldn’t satisfy her request for accommodation. Furthermore, Ms. Karnis was advised that YCC435 does not have an obligation to provide MS. Karnis with her preferred method of accommodation.[26] Karnis brought Sophie home on or about February 1, 2022.[27] There is disagreement between the parties as to when the Board first became aware that Ms. Karnis’ service dog was a White German Shepherd. Ms. Karnis testified that she advised Mr. Floroiu verbally during a telephone conversation on October 19, 2021. She testified that during this conversation, Mr. Floroiu was condescending and stated to her that “anyone can get a doctor’s note” and “we can’t have dogs in here willy-nilly.” She testified that she had to correct Mr. Floroiu when he repeated back to him German Shepherd by stating that the service dog was a White German Shepherd. Mr. Floroiu testified that when he spoke to Ms. Karnis by telephone on October 19, 2021, and November 8, 2021 that Ms. Karnis never mentioned the breed on either occasion. Mr. Floroiu testified that when he first learned of the intent to acquire this breed from the January 25, 2022 letter from Ms. Karnis’ counsel, he immediately informed the Board. Ms. Imer testified that the Board first became aware of the breed when it received the January 25, 2022, letter.[28] I accept Ms. Karnis’ testimony. I find it more likely that the White German Shepherd breed was mentioned to Mr. Floriou on October 19, 2021, but that this information was not passed onto the Board because the Board was still addressing the threshold issue of the need for accommodation.[29] Ms. Imer testified and acknowledged that Ms. Karnis advised YCC435 that she had been approved for a “service dog” by her physician and a training school that specialized in her disability. She was aware that a dog may arrive by the end of October 2021 or in early 2022. However, Ms. Imer pointed out that the email chain between Ms. Karnis and the condominium management firm did not indicate the size and breed of the dog.[30] Ms. Imer acknowledged receiving the “Q and A’ document from Ms. Karnis in her email dated September 28, 2021. Ms. Karnis argues that the following passage referencing large dogs put the Applicant on notice that she was obtaining a large dog:Q. Are you able to care for a service dog in a condo living situation? A. I have grown up with large dogs and am very familiar with their needs. However, a service dog is an animal that may have an accident in public areas. I am perfectly willing and capable of cleaning up any messes that may happen. [31] I find that providing this document is evidence that Ms. Karnis was not hiding the fact that she was obtaining a large dog. However, this document does not indicate the exact size or breed.[32] It is evident that the board never made inquiries with Ms. Karnis on breed and weight prior to sending the draft AA in January 2022. The Applicants’ witnesses made no such assertion. While YCC435 is critical of Ms. Karnis for not raising the breed before January 2022, the Board was aware that Ms. Karnis had been approved for a dog from TCSD and that the dog could arrive as early as October 2021. It is not clear when the board turned its collective mind to this issue of restricting breed and weight, but it was likely first meaningfully discussed at its January 5th, 2022 Board meeting after YCC435 had accepted Ms. Karnis’ need for a service dog.[33] While the parties argued strenuously about when the board first became aware of the White German Shepherd breed, I find it inconsequential. In either version, Ms. Karnis first became aware that breed and weight were at issue in January 2022. By then, Sophie was several months into her specialized training and Ms. Karnis had committed substantial financial resources to training and boarding her service dog. While the board’s awareness of breed is imputed by their agent’s knowledge (Mr. Floriou), had the Board had actual knowledge at the end of October 2021, I find that the crystallization of the issue and the impasse between the parties would simply have arisen earlier, but not likely soon enough to result in a resolution between the parties.[34] YCC435 argued that Ms. Karnis unilaterally proceeded to bring Sophie home knowing the board’s objection, rather than engaging with YCC435 in the accommodation process as required. I do not agree. Rather, I find that the parties were quickly at an impasse. The Board was not going to accept a White German Shepherd with a weight of about sixty pounds. Ms. Karnis was not prepared to abandon Sophie’s training, accept a delay to find and train another dog with potential inferior results, and suffer the negative financial consequences of that decision.[35] The context of when Ms. Karnis first entered into an agreement with TCSD and notified YCC435 of her disability and intention to bring home a service dog is important. In September 2021, YCC435 had one Rule that touched on accommodation for disability. In her testimony, Ms. Imer referred to YCC435’s Rule 1(g), effective September 20, 2018, which states, “No dogs are allowed in the high-rise units or on the common elements, unless licensed as a guide dog.”[36] On its face, this Rule addressed service dog accommodation because of visual impairments. This Rule was not broad enough to address the wide variety of disabilities that YCC435 may have to accommodate under the Code by permitting a service dog. It was not broad enough to capture Ms. Karnis’ disability, which was eventually accepted by the board. Significantly, the Rule in effect at the time contained no weight or breed restrictions for service dogs for visual impairments.[37] The nature of Rule 1(g) is relevant in that when Ms. Karnis proceeded to commit financial and time resources to purchase and train Sophie in September 2021, there was no indication that weight and breed would be restricted by inference to Rule 1(g). It is uncontested that she only became aware that breed and weight were contentious when the draft AA was sent to her on January 12, 2022. When Ms. Karnis was asked why no reference to breed or weight existed in the email exchanges between September 23 and December 2021, she testified that she was not aware these would be contentious issues. I accept this testimony.[38] I find that when Ms. Karnis committed to Sophie, she was relying on YCC435’s anticipated duty to accommodate that was not restricted to a visual impairment disability. No Rule was in place at the time putting her on notice that the board would restrict weight and breed when fulfilling its obligation to accommodate with a service dog.[39] In April 2022, YCC435 passed a new Rule that prohibited a number of breeds including German Shepherds and dogs weighing in excess of 25 pounds when accommodating. Counsel for YCC435 advised me at the commencement of the hearing that it would not be relying on this Rule because it was not in effect when Ms. Karnis brought Sophie home. As such, the validity and reasonableness of this Rule was not before me, nor have I considered it as to the merits of the case. Does Ms. Karnis require a service animal of Sophie’s Size? [40] Ms. Karnis described herself as 5 foot 7 inches tall and weighing 195-200 pounds. She testified that Sophie’s weight fluctuates between 60 and 65 pounds.[41] The Applicant submits that the medical reports do not prescribe the size and breed of dog required to meet Ms. Karnis’s needs.[42] Elizabeth Baker testified for the Respondents. She has held the position of owner, director and lead trainer at TCSD for twenty years, from 2003 to 2023. She testified that she had a specialty in training service dogs for persons with brain injuries, psychiatric and autistic conditions. She currently has forty-five White German Shepherds working with individuals with disabilities. Additionally, she testified that she has trained guide, hearing, and diabetic service dogs. She identifies as self-taught. She lists extensive speech engagements, published articles, teaching assignments and media experiences related to dogs and service dogs on her curriculum vitae. She testified to being a member of numerous organizations related to service animals such as the Canadian Association of Professional Dog Trainers. She stated she has trained approximately 450 service dogs during her career.[43] Ms. Baker is a participant witness who had a commercial relationship with Ms. Karnis prior to the dispute between the parties. The parties had an opportunity to make submissions on whether Ms. Baker was qualified to provide opinion evidence related to service dogs. I find that Ms. Baker possesses the skill, expertise and knowledge to provide an opinion on issues related to Sophie and her ability to accommodate Ms. Karnis’ disability. Ms. Baker was not retained solely for the purpose of providing an independent expert opinion. This is similar to a family doctor in a therapeutic relationship providing evidence on behalf of a patient. While the witness can provide opinion evidence, a relationship pre-existed the dispute. I agree with the Applicant’s submission that some of Ms. Baker’s tone suggested advocacy. However, this is insufficient for me to reject Ms. Baker’s evidence on these three key points:1) She recommended the White German Shepherd as the best breed to accommodate Ms. Karnis’ disability.2) A full-grown dog of Sophie’s weight was necessary to stabilize Ms. Karnis’ weight when unsteady.3) A full-grown dog of Sophie’s height was necessary so that Ms. Karnis could easily grab Sophie’s harness when unsteady.[44] Ms. Baker’s evidence is unchallenged by any competing qualified medical or service dog trainer witness.[45] Ms. Baker testified that potential clients undergo an interview process to qualify to obtain one of TCSD’s service dogs. She stated that White German Shepherds, like Sophie, are an ideal breed for Ms. Karnis’ condition as they are calm, emotionally intelligent, sensitive and loyal, and are not suited to work as police dogs because they are less aggressive than regular German Shepherds. She explained that Ms. Karnis required a dog of at least one-third of Ms. Karnis’ weight and that Sophie weighs 55-60 pounds fully grown and stands twenty-five inches tall. Furthermore, she stated that Sophie was trained specifically to focus on caring for Ms. Karnis and avoiding interactions with other people. She stated that a dog of twenty-five, or even forty pounds was not suitable because of the size requirements. Additionally, she stated that the Standard Poodle breed, for example, has a fine bone density and would not be able to safely and adequately support Ms. Karnis’ weight. She testified that she recommended and chose this specific breed after considering Ms. Karnis’ requirements. She stated that White Shepherds have a higher intelligence than other breeds, are less social and do not break free to seek attention from others. I accept Ms. Baker’s testimony.[46] I have considered that Ms. Baker recommended Sophie to Ms. Karnis prior to the parties’ dispute, satisfying me that her recommendation was based on her skill and experience without influence of litigation advocacy. She could have recommended any breed. The Applicant argues that Ms. Baker had a vested interest in recommending this particular breed because she was only training White German Shepherds when Ms. Karnis applied for her service dog. I am not persuaded that Ms. Baker would have recommended a White German Shepherd if it was not optimal for Ms. Karnis’ condition. I am satisfied that Ms. Baker’s evidence carries sufficient objectivity and impartiality for me to rely on her evidence.[47] Ms. Baker testified that Ms. Karnis qualified to have a trained service dog in August 2021. Throughout the process, she stated that she was not contacted by YCC435.[48] The evidence is clear that Ms. Karnis’ medical condition can result in a loss of balance and requires Sophie to help stabilize herself. Ms. Karnis’ counsel argues that Ms. Baker, who has in excess of twenty years specializing in training and providing service dogs, has confirmed that a White German Sheperd is the best service animal for Ms. Karnis. He argues that this type of opinion is beyond the expertise of medical doctors. I agree.[49] Ms. Imer conceded in testimony that the Board did not consult with any medical or dog training/breeding experts before making its determinations. She agreed that she had no experience, training or education in service dogs for disabled persons. Is Sophie dangerous and menacing?[50] Ms. Imer testified that within days of Ms. Karnis’ counsel’s letter of January 25th, 2022, Ms. Karnis was observed in the condominium lobby with Sophie.[51] Ms. Karnis testified that Sophie is a calm and well-trained service dog.[52] Ms. Imer referred to a February 10, 2022 Facebook post by Ms. Karnis posted in a condominium resident run group where Ms. Karnis introduced Sophie and the dog’s role to help manage her disability. Ms. Imer referred to a portion of the post that indicated that Sophie had not yet been fully trained. Ms. Karnis acknowledged writing the post. Additionally, Ms. Karnis testified that she printed and distributed notices to the other units on her floor about Sophie’s presence. I view Ms. Karnis’ actions as a transparent attempt to alert fellow residents as to why she has a dog in a “no pet” complex.[53] Ms. Imer testified that the board became aware that Sophie was observed leaping or jumping onto residents in the lobby. The details of these incidents, or who observed them, including the nature and frequency were not included in her evidence. Ms. Imer testified that the board also became aware of a note that Ms. Karnis wrote to another resident apologizing that her dog had “got out of the unit” and that Sophie had startled the resident. She stated that Ms. Karnis apologized in the note for her dog’s “bad manners.”[54] Ms. Imer testified that on February 15, 2022, the board became aware of an email complaint from another resident about “irritating” noises from Ms. Karnis’ unit in what sounded like a steel ball bouncing on hardwood floor and rolling from a pet playing with it.[55] In testimony, Ms. Karnis addressed the instances referred to by Ms. Imer. Ms. Karnis testified that she brought Sophie home agreeing to abide by the remainder of the AA terms and specifically that she would not allow Sophie to unreasonably bark or cause a disturbance. She testified that she has abided by these terms. She acknowledged that two weeks after bringing Sophie home, on February 16, 2022, Sophie slipped out her door and ran down the hallway as an elderly woman was opening her door. She acknowledged that the woman was startled but she was not injured. She stated that she was able to get Sophie under control immediately. She wrote to this neighbour to apologize. She states that Sophie was a five-month-old puppy in a new home at the time this incident occurred. She described this as one instance and not reflective of Sophie’s general behaviour and temperament and that Sophie continued to be trained after this incident.[56] Ms. Karnis also acknowledged the noise complaint and testified that the complaint was isolated to one occasion. She is not aware of any other issues with Sophie’s behaviour other than the two described. She testified that Sophie has fully completed her training. Since she brought Sophie home, she has devoted hundreds of hours to Sophie’s training to perform her duties and not be distracted by food, people or loud noises. She said that by May of 2022, Sophie achieved a success rate of 80-90% on behavioural first commands. As of October 2022, she described Sophie as being fully trained.[57] Ms. Imer testified that the board considered the German Shepherd breed to be dangerous and could inflict severe or fatal wounds on a resident if attacked. Additionally, the board considered the breed to be intimidating and/or menacing to residents given its breed or size. It was the Board’s view that Sophie was a very large and intimidating dog and would cause severe harm to a person if she attacked. She stated the breed is objectionable based on its size, weight, ability to frighten or intimidate residents, and ability to cause very serious harm to a person if it attacked, especially in confined areas in the condominium. Furthermore, Ms. Imer stated that Sophie is considered by the board to be an undue hardship for the corporation and its residents.[58] I find that Sophie has been trained specifically to perform as a service dog for Ms. Karnis. Both Ms. Baker and Ms. Karnis describe her as a well-trained dog with a gentle disposition. I find their evidence persuasive and on a balance of probability to be reliable and true. The behaviours described by Ms. Imer do not lead to a reasonable inference that Sophie is dangerous or menacing and such a conclusion is untenable and patently unreasonable. I accept that Sophie startled a neighbour soon after Ms. Karnis brought Sophie home. I accept that another neighbour complained of noise on one occasion. I have insufficient evidence to connect either of these issues specifically to the breed or weight of the dog. I find that these two incidences occurred in the very early stages of Sophie’s arrival and there is no evidence of repeated or ongoing issues. It appears that Sophie is living in reasonable harmony in the complex with the other residents.[59] The Applicant explained of the board’s concern that Sophie could seriously injure someone on account of her size and breed. I have no expert evidence before me on what basis the White German Shepherd breed is more dangerous than other dogs of a similar size that the board would permit. But more importantly, the evidence sways me that Sophie poses minimal risk. The board focused on the breed rather than Sophie. While it is not evident to me that the board turned its collective mind and distinguished the White German Shepherd breed from the general German Shepherd breed, it is not evident that the board turned its mind to Sophie’s personality, behaviour and training apart from the breed, but focused solely on her breed. Appropriate due diligence requires the board to consider these factors. Rather, the evidence from Ms. Imer is the bald statement that it considers Sophie dangerous given her size and breed. Given that I have found that a dog of Sophie’s size is required, I have been provided with no rationale why the board would not come to the same conclusion with another breed of similar size. The board cannot insulate itself from scrutiny when addressing accommodation requests without providing a cogent rational for its position after using reasonable diligence. I have been presented with insufficient evidence that the board took reasonable steps to fully inform itself and investigate Ms. Karnis’ request and specifically, whether Sophie posed an unreasonable risk.[60] I cannot conclude that Sophie generally exhibits menacing behaviour. I accept that she has been trained for a specific purpose and objectively is not an animal that has a propensity to be unsafe anymore than any other dog would. Realistically, the extensive nature of her training should provide comfort to the board. To restrict Sophie on the basis that she is presumed dangerous, or menacing based on nothing more than her breed and size is patently unreasonable.[61] The Applicant argues that Ms. Karnis cannot provide assurances that Sophie will not harm another person or dog. However, the Applicant also submits that any type of dog comes with risk by stating “a dog is a dog, and its good and decent behaviour cannot be assured.” This argument seemingly applies to all dogs, even a Labrador Retriever or a Poodle, which the board is prepared to accept. Asking for a guarantee is an impossible burden which Ms. Karnis is not required to meet. The Business Judgment Rule and the Duty to Accommodate[62] The Applicant relies on the business judgment rule as justification for removing Sophie. It is argued that board members are in a far better position than a court or tribunal to determine what is in the best interest of their community. It is submitted that as long as the board acts reasonably and in good faith, it should not be second guessed. Otherwise, it is submitted that the CAT runs the risk of supplanting the judgement of elected board members and managing the business affairs of the condominium. Unless patently unreasonable, it is argued that decisions of the Board should be upheld since the board is not acting judicially but rather in a policy making role. It is argued that the business judgment rule protects decisions of the board from exacting scrutiny provided they are a product of reasonable conduct of good faith judgment. It is argued that deference should be accorded to a board in enforcing its declaration and Rules where the interpretation adopted is a reasonable one and made in good faith. It is further submitted that when extending accommodation under the Code, the board has latitude under the business judgment rule to attach reasonable conditions to its accommodations in the interests of the condominium and its members as a whole. It is further argued that the board does not have to offer an evidentiary basis for adopting a particular Rule.[63] In Hanley v. Heritage Court Kingston Ltd, 2013 HRTO 808, The Ontario Human Rights Tribunal described both the procedural and substantive duty to accommodate:…duty to accommodate up to the point of undue hardship consists of two elements, one is procedural and the other is substantive…The procedural element requires an individualized investigation of accommodation measures and an assessment of the applicant’s needs. The substantive element requires a consideration of the accommodation offered or a respondent’s reasons for not providing accommodation.[64] In Central Okanagan School District v. Renaud, 1992 CanLII 81 (SCC), at para. 984, the Supreme Court of Canada noted that the duty to accommodate requires “more than mere negligible effort.”[65] YCC435 was established by the declaration as a “no pets” building and the board is required to ensure that the rules are applied, and owners and residents are required to follow the rules as set out in the declaration. A blanket prohibition against pets could be discriminatory if an owner or resident has disability-related needs and requires an animal because of those needs.[66] The Act and its governing documents are subject to the rights accorded owners and occupants of condominium units under the Code. Those rights and entitlements to accommodation are not limitless or unfettered. Accommodation must reasonably meet disability needs and must not result in undue hardship to the Applicant. These are well settled principles.[67] In part, the Applicant argues there is no basis for Sophie to remain in the unit under the Code. Essentially, the Applicant argues that the White German Shepherd is Ms. Karnis’ preferred breed. The Applicant frames the issue as whether any other permitted breed exists other than a White German Shepherd that is reasonably capable of meeting Ms. Karnis’ accommodation needs. The Applicant argues that an accepted breed such as the Labrador Retriever could accommodate Ms. Karnis’.[68] The Applicant refers me to the Ontario Court of Appeal decision 3716724 Canada Inc. v. Carleton Condominium Corporation No. 375, 2016 ONCA 650, in reference to the business judgment rule. In this matter, the Respondent condominium board refused to approve changes for an owner who wanted to rent out his commercial parking spots on an hourly versus monthly basis unless the owner provided 24-hour security because trespassers could more easily enter the building. The court indicated that the jurisprudence has occasionally recognized that decisions rendered by boards of condominium corporations should be shown some deference, however the topic had not been addressed in great detail: As representatives elected by the unit owners, the directors of these corporations are better placed to make judgments about their interests and to balance the competing interests engaged than are the courts. For instance, in this case the security concerns arose in part as a result of the condominium’s location, and the Board members’ knowledge of that area is clearly an advantage that they enjoy over any court subsequently reviewing their decision.[69] The Court went on to explain:the first question for a court reviewing a condominium board’s decision is whether the directors acted honestly and in good faith and exercised the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances. If they did, then the board’s balancing of the interests of a complainant under s. 135 of the Act against competing concerns should be accorded deference. The question in such circumstances is not whether a reviewing court would have reached the same decision as the board. Rather, it is whether the board reached a decision that was within a range of reasonable choices. If it did, then it cannot be said to have unfairly disregarded the interests of a complainant.[70] Ultimately, the Court concluded the Board acted in good faith, was transparent as to the nature of its concerns, concluding that the condominium was in a high crime area and its decision was reasonable.[71] The Applicant also referred me to the Tribunal decisions Martis v. Peel Condominium Corporation No. 253, 2021 ONCAT 60, and Simcoe Condominium Corporation No. 89 v. Dominelli, 2015 ONSC 3661), where it was found there was no evidence that the resident medically required a dog in excess of the condominium’s weight restriction for pets. I find these cases of limited value as I have concluded based on Ms. Baker’s evidence that Ms. Karnis requires a dog that weighs in the 60-pound range. The Applicant further refers to Martis and the Tribunal’s finding that in extending accommodation to a resident under the Code, the board has latitude under the business judgment rule to attach reasonable conditions to its accommodation in the interests of the condominium and its members as a whole.[72] The first question I am to answer in reviewing the board’s decision is whether the Board acted honestly and in good faith and exercised the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances. There may have been an element of skepticism when Ms. Karnis first approached the board; but, I have no evidence of bad faith when the board investigated Ms. Karnis’ need for a service animal. However, I conclude that the board did not exercise the care, diligence and skill that a reasonable board would exercise in comparable circumstances before rejecting Sophie.[73] Unlike in 3716724 Canada Inc. v. Carleton Condominium Corporation No. 375, a commercial matter where an owner desired the board to amend its Rules so that the owner could use parking spots more profitably, Ms. Karnis’ has requested accommodation in accordance with the Code based on the principles of dignity, individualization, integration and full participation. The extent to which the board is required to exercise its care, diligence and skill needs to reflect the importance of these principles. Accommodation is necessary to ensure that people with disabilities have equal opportunities. Responding to and investigating Ms. Karnis’ request to reside in the condominium complex safely requires a degree of due diligence and skill that reflects the weighty nature of this request. Generally, the more at stake requires a higher level of due diligence and skill by the board.[74] The nature of Ms. Karnis’ request is individual to her. Her request was straightforward: She asked to house a White German Shepperd who weighs approximately 60 pounds and had been trained specifically for her condition. When balancing the needs of the condominium with that of Ms. Karnis, the board must weigh all relevant factors. It has a positive duty to seek out and consider relevant information. Ms. Karnis asked if it was possible to meet with the board to discuss her request. This was denied. The board did not take the opportunity to explore the White German Shepherd breed with Ms. Baker or why Ms. Baker recommended Sophie. Ms. Imer provided testimony that suggests the board took insufficient steps to investigate if Sophie posed a real danger. I find that the board took only negligible steps.[75] The board was aware by at least January 8th, 2022, that Ms. Karnis had been made to pay large amounts of money monthly for the dog’s maintenance and training. When balancing the needs of Ms. Karnis and the condominium, it had an obligation to exercise a higher level of diligence. [76] YCC435’s rationale for rejecting Sophie is essentially the following:· The Board considers the breed dangerous· It considers Sophie menacing and dangerous and capable of causing serious harm if Sophie attacked someone· It considers Sophie a preference and that other less dangerous dogs are capable of meeting Ms. Karnis needs.[77] I find the board failed to reasonably investigate and consider Ms. Karnis’s individualized request to house Sophie and whether doing so would cause undue hardship.[78] Respondent’s counsel argues that a new service dog would take years to obtain and come at a significant cost given that $15,000 was spent on training Sophie. While it is not exactly clear how long the delay would be, I agree that the delay would be significant and come at considerable cost.[79] Given the lack of diligence and given that Sophie poses minimal threat, I do consider it patently unreasonable to order her removal.[80] Human rights case law makes it clear that the purpose of the Code is to accommodate a person’s needs, not their preferences. Based on Ms. Baker’s testimony, I find that a dog weighing approximately 60 pounds is a need. Also based on her testimony that the White German Shepherd breed is the recommended and best breed for Ms. Karnis’ condition, I find that this breed is also a need. Ms. Baker provided persuasive rationale why the White German Shepherd breed was superior to the Poodle and Labrador Retriever breeds, two breeds that the Applicant argued could have accommodated Ms. Karnis. Undue Hardship[81] The Applicant has a duty to accommodate, unless it would result in undue hardship. Section 17(2) of the Code places the onus on the Applicant to show that accommodation would cause undue hardship.[82] The Applicant refers me again to the business judgment rule. The Applicant argues that the board’s opinion on what is an undue hardship should be given substantial weight.[83] While the Applicant has argued undue hardship, no evidence or persuasive argument has been put forth to substantiate undue hardship. There is no evidence that Sophie’s presence creates a financial/cost hardship, requires outside sources of funding or requires any health and safety requirements. I accept that some residents may be leery or even afraid of dogs generally, and perhaps more so with large dogs. I appreciate that some residents may have decided to live at this condominium because of its” no pets” status. I find that that these considerations in of themselves do not rise to undue hardship. Remedy Requested[84] YCC435 asks that Sophie be removed. If I find that Sophie is not to be removed, the Applicant alternatively requests that the Respondent enter into the AA consistent with the version supplied on January 28, 2022, modified to provide for a White German Shepherd dog weighing 60 pounds. Ms. Karnis’ counsel submitted that his client is willing to negotiate an AA but submits that only if the parties come to an impasse in this negotiation, should the CAT become involved in the dispute. This, of course, would require a new Application.[85] I do not order the parties to enter into an AA. It shall not be a condition of accommodation. However, I encourage the parties to be considerate and cooperative. Ms. Karnis’ counsel has stated she is willing to enter into an AA. I expect that if the Applicant makes reasonable requests, she will endeavour to cooperate, as she has been doing. Regardless of whether the parties enter into an AA, I order that Sophie shall, at all times while on the common elements, wear a service animal vest to help ensure that other residents are aware of the reason for the exemption allowing her to reside in the condominium. Costs[86] The Tribunal’s Rule 48.1 provides:If a Case is not resolved by Settlement Agreement or Consent Order and a CAT member makes a final Decision, the unsuccessful Party will be required to pay the successful Party’s CAT fees unless the CAT member decides otherwise.[87] The Applicant was not successful in obtaining the order it desired, so it is not entitled to its incurred fees of this application.[88] Both Parties requested costs.[89] Rule 48.2, provides:The CAT generally will not order one Party to reimburse another Party for legal fees or disbursements (“costs”) incurred in the course of the proceeding. However, where appropriate, the CAT may order a Party to pay to another Party all or part of their costs, including costs that were directly related to a Party’s behavior that was unreasonable, undertaken for an improper purpose, or that caused a delay or additional expense.[90] I find that none of the parties’ behaviour during the course of the hearing was unreasonable, undertaken for an improper purpose, and did not cause any delay or additional expense. I award no costs.[91] Costs for the period before the Application was filed may be awarded where the declaration and/or rules provide for indemnification of such costs. The declaration in this case includes a general indemnification provision. The Applicant seeks those costs; however, given I have found that Sophie can remain, I award no indemnification costs. D. ORDER[92] The Tribunal orders:1. Ms. Karnis may keep Sophie with her on the condominium property as a manner of accommodation in relation to her disability.2. Ms. Karnis shall ensure Sophie shall at all times wears a service animal vest while on the condominium’s common elements. Stephen Roth Stephen Roth Member, Condominium Authority TribunalReleased on: November 28, 2023 By AlyssaBlog, Condo LawNovember 30, 2023November 30, 2023
What Should You Do When a Co-Owner Doesn’t Want to Sell? If you partly own property, but your co-owner does not want to sell (or develop, or mortgage, etc.), don’t worry, you have options. Sometimes we make a foolish investment; sometimes we split up with our partners; sometimes we fight with our family members. Sometimes we just aren’t in agreement about what to do next. If you are a registered owner and you feel stuck, the answer is simple: bring an application for partition or sale under the Partition Act, RSO 1990 c P4. The Partition Act Under the Partition Act, any co-owner, whether by joint tenancy or tenants in common, seeking to force the sale or division of land they own with others can bring an application for a partition or sale of the land. This would allow a joint-owner of a property whose co-owner does not want to sell to seek an order that their property be sold or divided. Any person with an interest in land in Ontario may make an application for partition under the Partition Act. This includes the guardian of a minor who is entitled to the possession of an estate. Though, a proceeding for partition or sale by or on behalf of a minor needs to be on notice to the Children’s Lawyer. An application for the partition or sale of land will proceed under the directions of the court to ensure that everything proceeds fairly. This is to prevent the partition or sale of land being advantageous or disadvantageous to any of the parties. The Result In most cases, the court will order the sale or division of the property even if all of the owners do not agree to it. If the property is a condominium or home, and the property cannot reasonably be divided, then it must be sold and the profits be divided amongst the co-owners. In Brienza v. Brienza, 2014 ONSC 6942, the decision of Davis v. Davis, 1953 CanLII 148 (ON CA) was considered, which sets out the general principles to determine when partition and sale should be granted. The Court of Appeal stated as follows: “There continues to be a prima facie right of a joint tenant to partition of sale of lands. There is a corresponding obligation on a joint tenant to permit partition or sale, and finally the Court should compel such partition or sale if no sufficient reason appears why such an order should not be made.” It is therefore likely that the application for partition or sale will usually be granted. There are, however, exceptions. For example, the court will not order the sale or division of property if the application is brought in extreme bad faith, or if the application is part of a family law claim. The court in Brienza stated that the court’s discretion to refuse partition and sale is narrow and that in order to justify the refusal to grant partition and sale there must be “malicious, vexatious or oppressive conduct.” If this is the case, the onus is on the party resisting the partition or sale to demonstrate why the application should be refused. It is becoming more and more common to purchase a property with a co-owner in today’s economy. If you have questions or concerns about your jointly-owned property or would like to bring an application for partition or sale, please contact our legal team to arrange a consultation. “This article is intended to inform. Its content does not constitute legal advice and should not be relied upon by readers as such. If you require legal assistance, please see a lawyer. Each case is unique, and a lawyer with good training and sound judgment can provide you with advice tailored to your specific situations and needs.” This blog was co-authored by Articling Student, Samantha Lawr. By AlyssaBlog, Real EstateNovember 13, 2023
Ontario Court Acknowledges Estate Trustees’ Right to Indemnification, Denies Use of Estate Funds for Litigation Estate distribution and the associated legal battles often bring forward intricate legal questions, especially when changes are made to wills or disputes arise among the beneficiaries. In the recent decision of Santos et al v. Coghlan et al, 2023 ONSC 4862 from the Ontario Superior Court of Justice, the intricacies of estate distribution and the denial of using estate funds for trustees’ litigation costs were brought to light. Background Hans and Colleen Luettge, who married in 1987 and had children from prior marriages, made wills in January 2005. Their wills specified that the surviving spouse would inherit the deceased spouse’s estate. Upon the passing of the surviving spouse, the estate would be divided equally among their combined seven children.[i] In August 2011, Colleen passed away, transferring a significant portion of her assets to Hans prior to her death.[ii] After Hans’ passing in May 2021, a legal dispute arose. It was revealed that Hans had made significant alterations to his will in November 2020, deviating from the initially planned equitable distribution among all seven children.[iii] Instead, he designated his four children as primary beneficiaries, providing $30,000 each to two of Colleen’s children and completely excluding one of her children, Terry, from any inheritance.[iv] Litigation The legal proceedings commenced when the applicants, Hans’ children, filed for a certificate of appointment of estate trustee with a will. The respondents, Colleen’s children, opposed by filing a notice of objection, contending that Hans lacked the mental capacity to formulate the 2020 will.[v] The applicants commenced an application on January 27, 2022, seeking, inter alia, an order to strike the respondents’ Notice of Objection and a declaration affirming the validity of Hans’ November 2020 will. Alternatively, they sought an Order for Directions. A hearing for the application was scheduled for June 14, 2022.[vi] In response to the applicants’ request to strike their objection, the respondents presented evidence supporting their claims. They also extended a Rule 49 offer on April 25, 2022, allowing the applicants to withdraw their request to strike the objection and validate Hans’ last will with no cost implications.[vii] The offer also provided that the parties would consent to a mutually acceptable Order for Directions. Order for Directions from Justice Phillips The parties appeared before Justice Phillips on June 14, 2022, and a consent Order for Directions was issued on June 16, 2022. The order, among other things, provided that “the remaining relief sought by the Applicants in their Notice of Application is hereby dismissed” and that “the determination of costs relating to this appearance is hereby postponed to a date to be decided upon by any of the parties.”[viii] The Order for Direction also explicitly stated that the Estate Trustee “may not distribute or disburse any estate assets, unless such distribution is approved under this Order or agreed upon in writing by the parties involved in this proceeding.” Respondent’s Motion for Further Directions The respondents later brought forth another motion for directions, pursuing two specific orders: Firstly, they requested costs associated with the applicants’ earlier abandoned attempt to strike their notice of objection. Secondly, they sought an order preventing the applicants from utilizing estate assets to cover their legal expenses.[ix] Court’s Ruling and Analysis The respondents’ motion for the specific orders hinged on the interpretation of the Order for Directions provided by Justice Phillips. Entitlement of Costs Kaufman JA found that based on the resulting Order of Justice Phillips, it can be inferred that the Offer was in fact accepted.[x] The applicants agreed to no longer pursue orders striking the respondents’ Notice of Objection or affirming the validity of Hans’ November 2020 will. The applicants were also found to have consented to an Order for Directions agreeable to the parties. These terms aligned with the respondents’ offer.[xi] According to the offer’s terms, if accepted after that date, the applicants would have to pay the respondents’ partial indemnity costs.[xii] Kaufman JA found that the applicants ultimately accepted the respondent’s offer after the specified deadline, and therefore should cover the respondents’ partial indemnity costs, which were fixed at $14,000.[xiii] Coverage of Litigation Costs from Estate Funds The Order explicitly stated that the Estate Trustee could not distribute or disburse any estate assets without approval under the order or written agreement from the involved parties.[xiv] While it granted the trustee the authority to manage the estate, including consolidating assets and paying the deceased’s debts, it did not directly address the funding of litigation costs. Although the Court agreed with the applicants that trustees were generally entitled to reimburse themselves for expenses reasonably incurred in connection with the administration of the Estate without obtaining the beneficiaries’ prior consent or a court order, it nonetheless concluded that the Order for Directions precluded them from paying out litigation fees from the Estate.[xv] The court argued that the listed actions in paragraph 14 (d) of the Order primarily pertained to the administration of the estate, as opposed to litigation concerning claims against the estate. Additionally, the court emphasized the need for equity and the importance of “maintaining a level playing field during estate litigation.”[xvi] Kaufman J also noted that Colleen Luettge had transferred a significant amount of her assets to Hans during her lifetime, likely with the intention of those assets being shared among her and Hans’ children after his passing.[xvii] This created a situation where the applicants had ample resources to finance their legal battle against the respondents. The Court ultimately ruled that the applicants were prohibited from paying any further legal fees in relation to this proceeding out of the Estate.[xviii] Additionally, the applicants shall reimburse the Estate for any legal fees incurred in this proceeding that have been paid out of the Estate within 45 days of the decision.[xix] Conclusion Santos et al v. Coghlan et al, 2023 ONSC 4862 offers a fascinating glimpse into the complexities and nuances of estate planning and inheritance disputes. It serves as a reminder that the court’s role in estate litigation extends beyond the mere interpretation of wills and distribution of assets. It also involves ensuring a level playing field and protecting the integrity of estate assets. While estate trustees usually have the right to be indemnified for expenses related to estate administration, the court’s discretion and the specific details of an Order for Directions can impact their ability to use estate funds for litigation costs. In this case, the court’s decision reflects a commitment to fairness and the maintenance of equitable conditions for all parties involved, making it a significant precedent in estate litigation matters. For more information regarding Estates Litigation-related topics, please contact Kelli Preston at Devry Smith Frank LLP at (416) 446-3344 or kelli.preston@devrylaw.ca. “This article is intended to inform. Its content does not constitute legal advice and should not be relied upon by readers as such. If you require legal assistance, please see a lawyer. Each case is unique, and a lawyer with good training and sound judgment can provide you with advice tailored to your specific situations and needs.” This blog was co-authored by Articling Student, Owais Hashmi. [i] Santos et al v. Coghlan et al, 2023 ONSC 4862 at para 1. [ii] Ibid at para 2. [iii] Ibid at para 3. [iv] Ibid. [v] Ibid at para 4. [vi] Ibid at para 7. [vii] Ibid at para 9. [viii] Ibid at para 11. [ix] Ibid at para 5. [x] Ibid at para 16. [xi] Ibid. [xii] Ibid at para 17. [xiii] Ibid. [xiv] Ibid at para 29. [xv] Ibid at para 21. [xvi] Ibid at para 34. [xvii] Ibid at para 33. [xviii] Ibid at para 41. [xix] Ibid. By AlyssaBlog, Wills and EstatesOctober 23, 2023October 19, 2023
Principal Residence Exemption Ineligibility – House Flipping As a general rule, the sale or disposition of any residential property in Canada triggers a capital gain, or, in an unlikely scenario, a capital loss. The capital gain is equal to the difference between the adjusted cost base (the amount for which the property was purchased) and the price at which it was sold. It is not necessary for the property to have actually been sold; it is enough for a tax rule or regulation to deem that a sale (disposition) took place to trigger a capital gain. Fortunately, the Principal Residence Exemption (“PRE”) can offset or even eliminate completely a capital gain, whether the property was sold or otherwise deemed to have been disposed of. The purpose of the PRE is to allow Canadian property owners to sell their properties and reinvest into the purchase of a new home on a tax-free basis. This exemption can be used for the property that the taxpayer designates as their “principal residence.” A principal residence is defined as one that is “ordinarily inhabited” by the taxpayer. The meaning of “ordinarily inhabited” varies depending on the exact factual circumstances. Filing Requirements and the T2091 In 2016, the government announced an administrative change with respect to reporting requirements for the sale of a principal residence. Prior to this, taxpayers were not required to report the sale of a home on their income tax if they were eligible for the full tax exemption. However, beginning in the 2016 taxation year, all taxpayers are required to report basic information (such as the date of acquisition, proceeds of disposition, and description of the property) on their income tax returns to claim the PRE. Form T2091 is used for this purpose and is included in the income tax return for the year of sale or disposition. Not all homeowners will be eligible for the PRE. As with many rules under the Income Tax Act, there are exceptions to the exemption and conditions that must be satisfied. Exceptions to the Principal Residence Exemption – Frequency of Sales The 2022 Federal Budget brought in a new “Residential Property Flipping Rule” that pertains to ‘house-flipping’ – the act of purchasing and selling real property over a short period of time. Prior to this legislation, there were no rules regarding how often a person can buy, build, or sell real property. The “principal residence” designation was evaluated on a case-by-case basis and typically required the taxpayer to prove that they intended, at the time they acquired the property, to reside in it “permanently.” The new legislation, applicable to properties sold after January 1, 2023, stipulates various new tax consequences for frequent purchase-and-sale transactions of real properties. The consequences are twofold: first, a “flipper” is ineligible for the PRE, even if it would otherwise apply; and second, any profits realized on the sale of “flipped” residential properties are taxable as business income, not as capital gains. In most circumstances, this is a much more costly tax liability. The previous “informal 1-year” rule became a statute: residential properties held for less than 12 months will generally be considered “flipped” unless the sale is the result of a death, disability, new job, separation, or another exemplary life event. Conclusion In conclusion, while an owner may be exempt from tax on the sale or disposition of real property by utilizing the PRE, the eligibility to claim the full amount of the exemption is affected by (among other things) the ownership of more than one property and the frequency at which the properties are bought and disposed of. Taxpayers who have owned a property for less than a year, or who own multiple properties, should consider the implications of selling their home. If you have concerns about your principal residence designation or any other potential tax consequences of the transfer or sale of a property you own, please contact our legal team to arrange a consultation. This blog was co-authored by law student Julia Ponedelnikova. “This article is intended to inform. Its content does not constitute legal advice and should not be relied upon by readers as such. If you require legal assistance, please see or speak to a lawyer. Each case is unique, and a lawyer with good training and sound judgment can provide you with advice tailored to your specific situation and needs.” By AlyssaBlog, Real EstateOctober 16, 2023October 10, 2023
Did I Just Enter a Legally Binding Contract By Texting an Emoji? According to a Saskatchewan Court, You Might Have The use of technology in the legal field is rapidly evolving. From the use of artificial intelligence tools like ChatGPT to the shift from in-person to virtual courtrooms, it is clear that the law needs to be adaptable and flexible in this new digital age. A recent shift in this direction came with the recent ruling of Justice T.J. Keene of the Court of the King’s Bench in Saskatchewan. This decision broadened the scope of what constitutes “acceptance” of a contract. The case arose within the context of a dispute over a grain company’s contract to buy flax from a farm.[1] In a sensational decision which attracted the interest of media outlets across Canada, the US, the UK, and even India, Justice Keene held that a “thumbs-up” emoji (“👍” ) constituted valid acceptance of a contract. Facts of the Case The plaintiff in this case was South West Terminal, a grain and crop inputs company. Kent Mickleborough worked as a Farming Representative for South West and acted as the primary grain buyer for the corporation. The defendant was Achter Land & Cattle, a farming operation owned and operated by Chris Achter. Since 2012, South West regularly purchased grain for their operations from Achter. The dispute resulted from an agreement formed on March 26, 2021, when Mr. Mickleborough texted Mr. Achter to obtain a new contract for flax. Following a phone call with Mr. Achter to finalize the amount of flax, the price, and the delivery date, Mr. Mickleborough drafted a contract with the terms discussed in the phone call. Under this agreement, Achter would sell 86 metric tonnes of flax at $17.00 per bushel, or $669.26 per tonne, to South West, with delivery scheduled for November. Mr. Mickleborough signed the contract, then texted a photo to Mr. Achter with the message “Please confirm flax contract.” Mr. Achter responded with a “thumbs-up” emoji.[2] When November came, Achter failed to deliver the flax to South West. By that time, the price of flax had skyrocketed to $41.00 per bushel or $1,614.09 per tonne.[3] In response, South West sued Achter for breach of contract and damages in the amount of $82,200.21.[4] The defendant took the position that he never entered into a contract and that the emoji represented his acknowledgement of the contract, not his acceptance. The Court had to consider the following question: was there a contract that Achter agreed to via an emoji? Was There a Meeting of the Minds? A contract is formed when there is an offer made by the offeror and an acceptance by the offeree, with the intention of creating a legal relationship supported by consideration.[5] Acceptance of the offer by the offeree must be communicated to the offeror so that there is consensus ad idem between the parties or a “meeting of the minds.”[6] However, as Achter argues, a mere acknowledgement of an offer is insufficient to constitute acceptance and make the offer binding on both parties.[7] Whether a contract exists is determined through the objective theory of contract formation, or how each party’s conduct appears to an objective and reasonable person in the other party’s position.[8] As such, acceptance does not need to be made in express terms, but can be implied through the parties’ conduct. For instance, courts have determined that by clicking the “I Agree” box to terms of service agreements online, you agree to be bound to a “click-wrap” agreement.[9] What the parties subjectively had in mind is irrelevant to the analysis, and courts can consider the surrounding circumstances of the agreement and the parties’ relationship in their analysis.[10] In this case, Mr. Achter had a long-standing business relationship with Mr. Mickleborough. Mr. Mickleborough would call Mr. Achter or speak with him in person and determine the essential terms of the contract in terms of quantity of grain, the price, and the time of delivery. After they had come to a consensus, Mr. Mickleborough would draft a contract based on their discussion and send it to Mr. Achter. Mr. Achter previously agreed to contracts sent over text by Mr. Mickleborough by responding, “Looks good,” “Ok,” and “Yup.”[11] Justice Keene found that: The parties clearly understood these curt words were meant to confirm the contract and were not a mere acknowledgement of the receipt of the contract by Chris [Mr. Achter]…Chris delivered the grain as contracted and got paid. There was no evidence he was merely confirming the receipt of a contract and was left just wondering about a contract.[12] Justice Keene then addressed Mr. Achter’s denial that the “thumbs-up” emoji can mean “I agree.” Justice Keene utilized the Dictionary.com definition of the “👍” emoji, which states that it “is used to express assent, approval, or encouragement in digital communications, especially in Western cultures.” As such, Justice Keene concluded that: …[W]hen considering all of the circumstances that meant approval of the flax contract and not simply that he had received the contract and was going to think about it. In my view a reasonable bystander knowing all of the background would come to the objective understanding that the parties had reached consensus ad item [sic] – a meeting of the minds – just like they had done on numerous other occasions.[13] Were the Terms too Uncertain? For a contract to be binding, there must be certainty concerning the material or essential terms of the contract, such as the quantity of goods, payment, and delivery.[14] Where parties fail to reach an agreement on essential terms or express themselves in a way that prevents the Court from interpreting their agreement, the agreement will be unenforceable due to lack of certainty of terms.[15] However, where the parties intended a binding agreement, courts will attempt to fill gaps and find meaning in agreements.[16] Here, Mr. Achter relied on two main facts to support his contention that the contract should be declared void for uncertainty: (1) Mr. Mickleborough did not include a photograph of the “General Terms and Conditions” located on the back of the contract; and (2) The contract described the delivery period as “Nov,” which is too vague. Justice Keene rejected these arguments. The modern approach to interpreting contracts requires the courts to look at the “factual matrix” or the surrounding circumstances of the contract. This requires the Court to interpret contracts in light of what the parties intended and what they knew at the time of contract formation.[17] Here, the parties had a long-standing business relationship. Mr. Achter entered into many purchase contracts with South West in the past, and the terms and conditions were repeatedly set out in these contracts and had never changed. Justice Keene found that Mr. Achter would have already known the contract’s terms and conditions from the previous agreements’ terms and conditions. Moreover, Mr. Mickleborough provided the essential terms of the contract – namely, the parties, goods, and price – to Mr. Achter in the picture on the first page of the contract. Justice Keene also rejected Achter’s argument that there was any uncertainty surrounding the delivery date. Based on previous dealings and the context of discussions surrounding the contract, the only logical interpretation was that “Nov” referred to November 2021. Did the Contract Meet Statutory Requirements? Finally, Achter challenged the contract based on section 6 of the Saskatchewan Sale of Goods Act: 6(1) A contract for the sale of goods of the value of $50 or upwards shall not be enforceable by action unless the buyer shall accept part of the goods so sold and actually receive the same or give something in earnest to bind the contract or in part payment or unless some note or memorandum in writing of the contract is made and signed by the party to be charged or his agent in that behalf. (2) This section applies to every such contract notwithstanding that the goods may be intended to be delivered at some future time or may not at the time of the contract be actually made, procured or provided or fit or ready for delivery or that some act may be requisite for the making or completing thereof or rendering the same fit for delivery. (3) There is an acceptance of goods within the meaning of this section when the buyer does any act in relation to the goods which recognizes a pre-existing contract of sale whether there be an acceptance in performance of the contract or not.[18] A similar provision in the Ontario Consumer Protection Act, 2002 requires that all agreements for goods and services over $50 must be in writing.[19] The question here is whether the “in writing” and “signature” requirements are met in this case. Justice Keene determined that the requirements were met. The contract was in writing and signed by Mr. Mickleborough on behalf of South West. Moreover, the “thumbs-up” emoji sent by Mr. Achter from his unique cell phone number satisfied the signature requirement on his part. Although Justice Keene admitted that this was a non-traditional signature, the underlying purpose of s. 6 of the SGA is to prevent fraud. In this case, there was no question of the authenticity of the text message. As a result, Justice Keene found that Achter was liable to South West for $82,200.21 in damages, plus interest accumulated after November 30, 2021, and granted South West’s motion for summary judgment. Conclusions As seen in South West, a “thumbs-up” emoji can, in some circumstances, constitute a party’s acceptance of a contract. However, this finding is highly fact-specific and depends on the parties’ prior relationship and past conduct. Despite concerns about opening up the floodgates for the judicial interpretation of emojis, the courts cannot ignore this new development in Canadian contract law. Justice Keene concluded that: [T]his Court cannot (nor should it) attempt to stem the tide of technology and common usage – this appears to be the new reality in Canadian society, and courts will have to be prepared to meet the new challenges that may arise from the use of emojis and the like.[20] While it remains to be seen whether Ontario courts will follow this ruling, business owners and consumers should be aware of the potential legal implications of emojis in this new digital era. For more information regarding commercial litigation and contractual interpretation, please contact David Heppenstall at Devry Smith Frank LLP at (416) 446-5834 or david.heppenstall@devrylaw.ca. This blog was co-authored by Summer Law Student, Leslie Haddock and Articling Student, Toni Pascale. “This article is intended to inform. Its content does not constitute legal advice and should not be relied upon by readers as such. If you require legal assistance, please see a lawyer. Each case is unique, and a lawyer with good training and sound judgment can provide you with advice tailored to your specific situation and needs.” [1] South West Terminal Ltd v Achter Land, 2023 SKKB 116 [South West]. [2] Ibid at para 15. [3] Ibid. [4] Ibid at para 1. [5] Ethiopian Orthodox Tewahedo Church of Canada St. Mary Cathedral v Aga, 2021 SCC 22 at para 35 [Aga]. [6] Carlill v Carbolic Smoke Ball Company [1893] 1 QB 256. [7] McIsaac v Fraser Machine & Motor Co, 1910 CarswellNS 153. [8] Aga, supra note 5 at para 35. [9] See Rudder v Microsoft Corp, 1999 CanLII 14923 (ON SC). [10] Aga, supra note 5 at paras 37-38. [11] South West, supra note 1 at para 19. [12] Ibid at para 21. [13] Ibid at para 36. [14] May and Butcher Ltd v The King [1929] ADR L R 02/22. [15] South West, supra note 1 at para 43. [16] Ibid. [17] Sattva Capital Corp v Creston Moly Corp, 2014 SCC 53 at para 46. [18] RSA 2000, c S-2, ss 6(1)-(3) [SGA] [emphasis added]. [19] SO 2002, c 30, Sched A. [20] South West, supra note 1 at para 40. By AlyssaBlog, Commercial LitigationOctober 10, 2023October 4, 2023
The General Anti-Avoidance Rule: Supreme Court Rules that Company Was Illegally Acquired for Tax Avoidance The saying remains true. There are two things you cannot avoid in life: death and taxes. The Supreme Court of Canada (“SCC”) recently released a huge judgment on the case of Deans Knight Income Corp. v. Canada, reiterating one of the most important principles of Canadian tax law: the general anti-avoidance rule (“GAAR”). Background The following sections of the Income Tax Act were at issue in this case: 111(1)(a), which “allows non-capital losses to be carried back 3 years or carried forward 20 years in order to offset income in those years”; and 111(5), which has the following limiting effect on the above à “if control of the corporation has been acquired, non-capital losses from before the acquisition cannot be carried over, unless the corporation continues the same or similar business that incurred the losses”.[i] In 2008, a venture capital company called Matco entered into an investment agreement with a struggling corporation, Deans Knight Income Corporation (“DKIC”) (F.K.A. Forbes Medi-Tech) whereby the former seized control of the latter, restructured it, renamed it, and changed its business operations. Deans Knight Capital Management (“DKCM”) was then brought in by Matco to use DKIC as a corporate vehicle for a stock launch by using its Tax Attributes. The effect of these transactions was the creation of a loophole, offsetting non-capital losses as in s.111(1)(a) of the Income Tax Act, thereby gaining a substantial tax break without triggering the limitation under s.111(5). Though the transactions were highly complex, their essence and goal was tax avoidance. Corporate transactions motivated in this way are subject to certain specific rules against avoidance. S.111(5) is a prime example of a specific anti-avoidance rule. But since it was not triggered by way of a highly convoluted loophole created by DKIC, the SCC held that the GAAR kicks in to nip the avoidance in the bud. What is the GAAR? Section 245 of the Income Tax Act establishes the GAAR, which serves as a “provision of last resort” against tax avoidance, penalizing offenders who abused the system without violating any specific provision of the Act.[ii] Think of the GAAR like a superhero’s sidekick. If a taxpayer can avoid a specific anti-avoidance rule through a loophole, but nevertheless engages in abusive corporate transactions, the sidekick GAAR will swoop in to save the day. This rule is intended for situations that undermine the rationale and objective of those Income Tax Act provisions relied on by the taxpayer.[iii] The SCC reiterated the three questions courts and government officials must ask when determining whether the GAAR applies: Was there a tax benefit? Was the transaction giving rise to the benefit based on avoidance? Was this avoidance-based transaction an abuse of the taxation system? The SCC noted that in situations where there was a series of corporate transactions, the second question can be answered with a ‘yes’ if at least one of the transactions was for tax avoidance.[iv] The question of abuse at inquiry number three is where those evaluating corporate transactions look to the rationale behind the provision of the Income Tax Act avoided by the taxpayer.[v] If the taxpayer undermined the rationale of the provision, then the transaction was abusive and the GAAR was broken. How did DKMI break the GAAR? It was clear on the facts of the case that DKIC received a major tax benefit through an avoidance transaction. So, the SCC honed in on the third step of the GAAR analysis. It was through careful consideration of the “object, spirit and purpose” of s.111(5) that DKIC undermined its rationale. Justice Rowe, writing for an eight-judge majority, explained how s.111(5) vitiates a corporate taxpayer’s ability to carry over past losses only where it has undergone a shift in control and “there is a break from the corporation’s past business”.[vi] Prior to its investment agreement with Matco, DKIC was actually a scientific research company. After Matco gained control over DKIC did DKIC switch its business dealings to the financial sector. This directly opposes s.111(5), which is meant to protect the controlling party’s interest “in strengthening the corporation’s business, rather than using the corporation as a vessel for unrelated activities that would have distorted its identity”.[vii] There was no continuity between the identity of DKIC before and after the series of transactions with Matco and DKCM. DKIC became a corporate vessel for DKCM to use for “an unrelated venture planned by DKCM and selected by Matco”.[viii] Justice Rowe concluded that there was certainly abuse, because the impugned transactions “achieved the very result s.111(5) seeks to prevent” through a series of highly complex dealings which managed to avoid the relevant sections of the Income Tax Act.[ix] Summary The GAAR exists to protect the taxation system from abuse by covering up loopholes discovered by taxpayers when abiding by the terms of specific provisions found in the Income Tax Act. It is meant to be a last resort, applying only where a taxpayer successfully avoided a specific anti-avoidance rule. In DKIC v Canada, the appellant corporation engaged in a number of transactions with two other corporations, resulting in a loophole that allowed DKIC to avoid the rule under s.111(5) of the Income Tax Act. The SCC thus held that the GAAR had to apply, as this abuse undermined the rationale and objective of s.111(5). Corporations cannot stave off taxes, and by applying the GAAR, the SCC was able to hold DKIC accountable for its nefarious operations. If you are considering a scheme that purports to provide you with a huge tax benefit, it is always worth seeking the advice of legal counsel. If you are later on found to have violated the GAAR, severe penalties and interest may apply. Contact a lawyer at DSF today to discuss your tax planning needs. This article was co-authored by law student Rachel Weitz. “This article is intended to inform. Its content does not constitute legal advice and should not be relied upon by readers as such. If you require legal assistance, please see a lawyer. Each case is unique and a lawyer with good training and sound judgment can provide you with advice tailored to your specific situation and needs.” [i] Deans Knight Income Corp. v Canada, 2023 SCC 16 at para 2 [DKIC v Canada] [ii] Ibid at para 62. [iii] Ibid at para 45. [iv] Ibid at para 55. [v] Ibid at para 57. [vi] Ibid at para 82. [vii] Ibid at para 111. [viii] Ibid at para 127. [ix] Ibid at para 140. By AlyssaBlog, TaxOctober 2, 2023September 25, 2023
Is Base Monthly Child Support Ever Too High? Can High-Income Earners Get A Break From The Child Support Guidelines Tables? Base, or table, child support is based on the payer’s income. As the payer’s income goes up, the table amount keeps going up along with it – even for high income earners. That can result in the table amount of support being tens of thousands of dollars in child support a month. Will Family Court Judges order more child support than a parent could ever spend on the child? This blog looks at some factors the court may consider in setting child support for high-income earners. To start, Canadian courts have long held that child support is the right of the child; both parents have an obligation to financially support their child, based on their income, and this obligation cannot be waived by the payee parent and is not destroyed by the breakdown of the parents’ relationship. Moreover, child support should, as much as reasonably possible, provide children with the same standard of living that they were accustomed to when their parents were together.[1] However, there is a limit to how much support a child needs and there are some factors that courts are willing to consider adjusting the amount of child support. But there are also factors that judges will not consider and raising them will just get a parent on the judges’ bad side. The Starting Point: What the Child Support Guidelines Say About High Incomes The first step to calculating the child support owed by you or your child’s parent is to determine the proper “table amount.” These amounts are prescribed by regulation under the Federal Child Support Guidelines and the Ontario Child Support Guidelines. The amounts are the same under both tables; however, if you are applying for child support under section 15.1 of the Divorce Act, you should refer to the federal guidelines and if you are applying for child support under section 33 of the Family Law Act, you should refer to the provincial guidelines. You can only apply under the Divorce Act if you were married to your child’s parent; otherwise, you must apply under the Family Law Act. The regulations provide a set amount of child support depending on the payor parent’s income and the number of children that the payor parent is obligated to support. The highest income on the table is $150,000 but that does not mean the tables stop there. At the end of every table, there is a percentage of the payor’s income that should be paid as child support. That percentage goes up with the number of children. With that percentage, the amount of child support continues to grow indefinitely as the payor’s income goes up. Even if the payor’s income is in the billions of dollars, the formula gives a table amount. For an income over a billion dollars per year, the child support would be over a million dollars each year. Section 4 of both the federal and provincial guidelines explain the procedure for determining the child support obligation for a payor parent who earns more than $150,000: Incomes over $150,000 Where the income of the parent or spouse against whom an order for the support of a child is sought is over $150,000, the amount of an order for the support of a child is, (a) the amount determined under section 3; or (b) if the court considers that amount to be inappropriate, (i) in respect of the first $150,000 of the parent’s or spouse’s income, the amount set out in the table for the number of children under the age of majority to whom the order relates, (ii) in respect of the balance of the parent’s or spouse’s income, the amount that the court considers appropriate, having regard to the condition, means, needs and other circumstances of the children who are entitled to support and the financial ability of each parent or spouse to contribute to the support of the children, and (iii) the amount, if any, determined under section 7. Section 3 of the federal and provincial guidelines provides that: Presumptive rule (1) Unless otherwise provided under these guidelines, the amount of an order for the support of a child for children under the age of majority is, (a) the amount set out in the applicable table, according to the number of children under the age of majority to whom the order relates and the income of the parent or spouse against whom the order is sought; and (b) the amount, if any, determined under section 7. As such, there are two options to determine the amount of child support owed by payor parents who earn over $150,000: The Table Amount For a payor parent who earns more than $150,000, the table amount would be the set amount for $150,000 plus a percentage of any of the payor parent’s income over $150,000. For example, take a payor parent who has two children and earns $400,000. Under the federal and provincial guidelines, the base amount for two children for the first $150,000 of income, as of the writing of this article, is $2,077 per month. Additionally, the payor parent owes a prescribed percentage of any of their income over $150,000. Here, the prescribed 1.2% of the remaining $250,000 would be $3,000. As such, according to the table, the payor parent would owe $5,077 per month for their two children. An Amount the Court Considers Appropriate However, per section 4(b) of the federal and provincial guidelines, these amounts may not always be appropriate and can be varied by the courts if necessary. To do so, the payor parent must establish that the amount is in excess of the child’s reasonable needs that it is inappropriate or unsuitable. If so, the payor parent will be responsible for paying the table amount, depending on the number of children, for their first $150,000 of income, and an additional amount which the court finds appropriate. Here, courts will consider: the condition, means, needs and other circumstances of the children who are entitled to support; and the financial ability of each parent or spouse to contribute to the support of the children.[2] When Can Child Support Be Varied Under Section 4? In general, courts are highly reluctant to depart from the table amount of child support. Likewise, there is a strong presumption towards using the table amount for all incomes over $150,000. This presumption can only be rebutted by the payor spouse with clear and compelling evidence.[3] The closer that a payor parent’s income is to $150,000, the more likely it is that the table amount will be upheld.[4] In general, the table amount will not be varied under section 4 for the following reasons: 1. Lower Child Support Payments Made to Other Children of the Payor In Pakka v Nygard, the payor parent had an income of $2.2 million, owed $15,091 per month in child support per the table amount, and was only paying $3,000.[5] The payor had several children with different women; some lived in Canada and some in the United States. In an effort to treat all of his children fairly, he sought to pay only $3,000 in support for each child. Justice Kitelely rejected this argument; parents cannot unilaterally determine what is “fair and equal treatment” and the payor was acting contrary to the laws of Ontario.[6] 2. The Proposed Budget for the Child is Lower than the Table Amount and Includes a High Amount of Discretionary Spending The fact that the table amounts exceed the budget prepared by the payee parent is not determinative and courts have awarded table amounts which allow for a large amount of discretionary spending. In Pakka, as discussed above, the payee parent prepared a budget for the child of $6,545 per month, and was awarded the full table amount of $15,091, resulting in $8,000 a month in discretionary spending. Justice Kiteley found that the needs of the child, as expressed in the budget, was only one factor in the court’s analysis and the size of the table amount is not a sufficient reason to vary it.[7] Also relevant to this case was the $300,000 that the payor owed in child support arrears. In cases involving very wealthy payor parents, reasonable amounts of child support often include high amounts of discretionary spending.[8] Moreover, it is reasonable for the payee parent to incur similar discretionary expenses as the payor parent to ensure that the child enjoys a similar standard of living in both households.[9] 3. The Payor Has High Debts Courts are generally unsympathetic to payors who attempt to vary the table amount based on their debt. In Sordi v Sordi, the payor parent argued that it would be unconscionable for him to pay the table amount of child support for his full income because of his high debt load. If the children’s needs could not be met, then the payee should move to cheaper accommodations or sell the former matrimonial home. At the time of the trial, the payor had spent $1.5 million in legal and expert fees; both Justice Timms and the payee parent considered this debt to be self-imposed and unnecessary.[10] In Ridley v DeRose, the payor parent included a $6,000 loan repayment to his mother in his monthly expenses. Justice Tobin ruled that the payor had not established that the table amount was inappropriate; he could support himself, his wife and her children, accumulate assets, pay an “apparently arbitrary amount of the monthly debt payment”, and has discretionary spending.[11] 4. The Payor has a Higher Cost of Living In McGouran v Connelly, Justice Feldman rejected the payor parent’s argument that the higher costs of living in the United Kingdom compared to Canada made the table amounts in appropriate. He recognized the slippery slope of such a recognition: …if one were to begin to recognize and adjust for discrepancies in the cost of living just to calculate income, such discrepancies would not be limited to countries, but could extend to cities or even smaller areas, and would require extensive evidence in each case. The inquiry would become cumbersome, expensive and potentially unworkable.[12] 5. When the Payor Parent Has an Uncertain Income In Simon v Simon, the Court of Appeal considered whether the table amount should be ordered for a professional hockey player, who earned $1.4 million, but worked in a career characterized by uncertainty and risk. Justice MacPherson declined to vary the amount and held that child support payments should not be varied in anticipation of a decreased future income.[13] However, the table amount will not be retroactively awarded when the payor parent has a single year of extraordinarily high income which will likely not be repeated.[14] However, the table amount will likely be varied in the following circumstances: 1. When the Table Amount Constitutes a Wealth Transfer Between Parents Francis states that “…at a certain amount, support payments will meet even a wealthy child’s reasonable needs” and that table amounts can be “so in excess of the children’s reasonable needs that it must be considered to be a functional wealth transfer to a parent or de facto spousal support.”[15] Courts have often found that the table amounts of child support constitutes a wealth transfer when the payee parent includes in their proposed budget funds for future expenses which do not meet the current needs of the child.[16] 2. In Accordance with the Family’s Established Lifestyle and Pattern of Expenditures The purpose of the provincial and federal Guidelines is to establish fair levels of support in a predictable and consistent manner and to ensure that the dissolution of the parents’ relationship affects the children as little as possible.[17] As such, the established lifestyle and pattern of expenditures of the family unit prior to the separation is a relevant consideration. In R v R, the payor parent earned $4.1 million, and the payee parent sought the table amount of $65,000 for the parties’ four children. The Court of Appeal only awarded $32,000 due to the family’s modest lifestyle during the parties’ relationship. Justice Laskin held that: If the children’s reasonable needs, including reasonable discretionary expenditures, are being met by the parties’ pre-separation lifestyle — even if that lifestyle is comparatively modest — and the paying parent’s income does not increase after separation, I do not think it is for the court to award child support that reflects a different, more lavish lifestyle. The Guidelines are meant to ensure fair levels of support, but to repeat Bastarache J.’s words in Francis v. Baker, also to ensure “that a divorce will affect the children as little as possible”.[18] 3. When the Payee Parent Seeks a Higher Standard of Living When the payor parent can prove that a child’s needs have been adequately met with a lower amount of child support, then the courts are more likely to stray from the higher table amount. However, Justice Cleghorn held that the payee parent cannot use the table child support amounts to make the child’s standard of living higher in their home than the standard of living in their payor parent’s home.[19] This does not mean that child support payments can never be used to increase the child’s standard of living; courts have allowed this when the payor parent’s income increases dramatically post-separation. In R, the payor parent earned $1.4 million during the relationship, and his income skyrocketed to $4.1 million post-relationship. Justice Laskin found that in these cases, the children are entitled to benefit from their parent’s increase in income: It is one thing for the family to live modestly and save money while together; it is quite another, and seemingly unfair, for the paying parent to hold his children to the family’s pre-separation lifestyle while saving the increase in his post-separation income, but now for his benefit alone.[20] Even in this case, as noted above, the Court of Appeal only ordered half of the table amount of child support. This also does not apply when the payor parent’s increase in income is only temporary; the court rejected a payee parent’s application for $650,000 a year in child support (or $55,000 a month) for the payor parent’s one-time annual income of $7.5 million, followed by $445,000 and $236,000 in subsequent years. Here, the court found that the payee parent would not be able to sustain the child’s higher standard of living on the payor parent’s dwindling income.[21] It may seem that some of these considerations are contradictory. When parent’s incomes are high, or complex, child support issues can be complicated. It is no longer a case of taking a figure off a tax return and plugging it into an online calculator or cross-referencing it on a child support table. There are additional considerations and opportunities that make it worthwhile to speak to an experienced family law lawyer. If you have more questions about your family law matter, please contact Certified Specialist in Family Law, John P. Schuman at Devry Smith Frank LLP at 416-446-5080 or john.schuman@devrylaw.ca. This blog was co-authored by law student, Leslie Haddock. “This article is intended to inform. Its content does not constitute legal advice and should not be relied upon by readers as such. If you require legal assistance, please see a lawyer. Each case is unique and a lawyer with good training and sound judgment can provide you with advice tailored to your specific situation and needs.” [1] For example, see DBS v SRG, 2006 SCC 37 at para 38. [2] See sections 4(b) of the Federal Child Support Guidelines, SOR/97-175 and the Child Support Guidelines, O Reg 391/97. [3] Francis v Baker, 1999 CanLII 659 (SCC) at paras 42-43 [Francis]. [4] Deslauriers v Pommainville, 2017 ONSC 3162 at para 77 [Deslauriers]. [5] Pakka v Nygard, 2002 CanLII 62431 (ON SC). [6] Ibid at para 51. [7] Ibid at para 66. [8] Tauber v Tauber, 2000 CanLII 5747 (ON CA) at para 40; Jung v Johnson, 2015 ONSC 6734 at para 30 [Jung]. [9] Deslauriers, supra note 4 at paras 59 and 81-82. [10] Sordi v Sordi, 2010 ONSC 2344 at paras 226-227. [11] Ridley v DeRose, 2017 ONCJ 877 (CanLII) at paras 162-163. [12] McGouran v Connelly, 2006 CanLII 7668 (ON CA) at para 29. [13] Simon v Simon, 1999 CanLII 3818 (ON CA) at para 27. [14] Tamo v Husband, 2023 ONCJ 233 (CanLII) where the payor parent earned $7.5 million in one year due to the exercise of stock options and sale of shares [Tamo]. [15] Francis, supra note 3 at para 41. [16] Tamo, supra note 14 at para 73; Jung, supra note 8 at para 30. [17] Francis, supra note 3 at para 39. [18] R v R, 2002 CanLII 41875 (ON CA) at para 51 [R]. [19] Tamo, supra note 14 at para 63. [20] R, supra note 18 at paras 57-58. [21] Tamo, supra note 14 at para 63. By AlyssaBlog, Family LawSeptember 25, 2023September 22, 2023
Common Law Relationship? You Do Not Have the Same Rights as Married Spouses in Ontario Defining a Spouse Under the Family Law Act Under the Family Law Act, RSO 1990, c F3 (FLA) a spouse is defined as two persons who are legally married unless otherwise noted. Common law partners are considered a spouse under certain sections of the FLA and are defined as two persons who are not married to each other and have cohabited for a period of not less than three years. However, this is not the case when awarding property rights. Under the FLA, common law partners are not entitled to the same property rights as married spouses. More specifically, common law partners are not entitled to the equalization of net family properties. Equalization of Net Family Properties Under the FLA, when a divorce is granted or spouses separate with no reasonable prospect of resuming cohabitation, the spouse whose net family property is less than the other’s is entitled to one-half of the difference between them. As discussed above, in Ontario, this right is only available for married spouses. Common law partners are not awarded these rights and must establish an interest in property when seeking to equalize property. This process can be quite complicated. The Push for Common Law Partners’ Entitlement Over the years, as common law is becoming more and more common, there has been a push for common law partners to be entitled to the same rights as married spouses in Ontario. As mentioned above, there is a process that common law partners can take in order to establish a property right. As a common law partner, you would need to make a claim for a constructive trust if you contributed to the value of an asset and believe your partner would be unjustly enriched if they were to retain the full value of this asset. This process can be complex and relies on the court process, therefore creating a lengthy delay in gaining your property entitlement. British Columbia has re-visited their old family rules and now award all of the same rights to common law partners as married spouses. So why not Ontario? Until our FLA re-visits the definition of spouse under the property regime, if you are in a common law relationship, it is important that you understand that you are not entitled to the same property rights as married spouses. For more information on this issue or other Family Law topics, please contact Kenna Bromley at Devry Smith Frank LLP at (249) 888-6641 or kenna.bromley@devrylaw.ca This blog was co-authored by law student Samantha Lawr. By AlyssaBlog, Family LawSeptember 18, 2023September 19, 2023
Ontario Court of Appeal Rules Creditors May Challenge Fraudulent Conveyances Existing Prior to the Debtor-Creditor Relationship In the recent case of Ontario Securities Commission v. Camerlengo Holdings Inc., 2023 ONCA 93, the Ontario Court of Appeal (ONCA) determined that when property is conveyed with a general intent to defraud creditors, the transfer can be contested by subsequent creditors, irrespective of their creditor status at the time of the transaction. Background The personal respondents, Fred and Mirella Camerlengo, are spouses who purchased a family home in 1988 as joint tenants. Fred is the sole director and shareholder of the corporate respondent, Camerlengo Holdings Inc. (“HoldCo”). In February 1996, Fred and his business partner established Gridd Electrical Services Inc. (“Gridd”), an electrical contracting business that operated through various corporations such as HoldCo. Both Fred and his business partner transferred their family homes to their respective spouses without any consideration. The transfers were facilitated by the same lawyer, and on the same day. Following the transfer, Fred continued residing in the family home, which Mirella occasionally mortgaged to support Fred’s business endeavours. Fred and Mirella allegedly made the transfer due to concerns about Fred’s potential exposure arising from their rapidly expanding electrical services business, which involved undertaking high-risk projects. In 2011, financial troubles arose for Fred and to address this, Fred obtained a $200,000 loan through Bluestream International Investments Inc. (“Bluestream”). Bluestream came under scrutiny from the Ontario Securities Commission (OSC) when its business associate was discovered to be engaging in fraudulent activities, including trading without registration, and unlawfully distributing securities in an investment scheme. In 2018, the OSC issued a disgorgement order against Bluestream on behalf of the defrauded investors, leading the OSC to initiate a lawsuit against Fred, Mirella and HoldCo to recover the loan amount. The OSC challenged the 1996 transfer of Fred’s interest in the family home to Mirella, alleging that the transfer was made fraudulently, with the intent of avoiding future creditors. Motion to Strike Fred and Mirella brought a motion to strike the statement of claim on the basis that the OSC’s pleadings did not disclose a reasonable cause of action. The motion was dismissed, except with respect to the claims of fraudulent conveyance. The motion judge considered section 2 of the Fraudulent Conveyances Act (FCA), which states: Every conveyance of real property or personal property and every bond, suit, judgment and execution heretofore or hereafter made with intent to defeat, hinder, delay or defraud creditors or others of their just and lawful actions, suits, debts, accounts, damages, penalties or forfeitures are void as against such persons and their assigns. The motion judge concluded that because Bluestream, and consequently OSC, were not creditors when Fred transferred his interest in the home to Mirella, they did not fall under the category of “creditors or others” per section 2 of the FCA. Court of Appeal overturns Lower Court Decision The Court of Appeal (ONCA) overturned the motion judge’s decision, ruling that the law against fraudulent conveyances can still apply to transfers made to avoid potential future debts. Citing IAMGOLD Ltd. v. Rosenfeld, [1998] O.J. No. 4690, the ONCA clarified that a subsequent creditor, one who was not a creditor at the time of the transfer, can challenge the transfer if it was intended to “defraud creditors generally, whether present or future.” To support the inference of an intention to defraud creditors, the ONCA outlined various “badges of fraud,” such as the debtor’s precarious financial state at the time of the transaction, the existence of family or close relationships between parties, divestment of a substantial portion of assets, and evidence of defeating, hindering, or delaying creditors. The OSC presented several relevant facts in their plea, which the ONCA found compelling in inferring an intention to defraud creditors: Fred transferred the property to his wife without consideration; The transfer occurred after 16 years of joint ownership and 4.5 months after incorporating Gridd with his business partner; Fred and his business partner used the same lawyer to transfer their family homes to their wives simultaneously; The transfer coincided with Fred’s concerns about personal liability from his rapidly expanding high-risk electrical contracting business; and Despite the transfer, Fred continued treating the property as his own. Based on the above, the ONCA found sufficient grounds to support the inference of an intention to defraud creditors, allowing the OSC’s claim to proceed. Conclusion The ONCA’s ruling has significant implications for cases where individuals or entities attempt to shield assets from potential liabilities by transferring them to others (such as spouses and children), and it highlights the importance of considering the broader intent behind such transfers when assessing their validity. It is important to note that during the oral hearing, the respondents attempted to raise an argument about the statute of limitations. However, since this argument was not presented in the lower court, new arguments can only be introduced on appeal with special permission. The ONCA, in this case, declined to grant permission for the introduction of the new argument. For more information regarding Bankruptcy, Collections, Fraud, and/or Trusts related topics, please contact Hyland Muirhead at Devry Smith Frank LLP at (416) 446-5092 or hyland.muirhead@devrylaw.ca. “This article is intended to inform. Its content does not constitute legal advice and should not be relied upon by readers as such. If you require legal assistance, please see a lawyer. Each case is unique, and a lawyer with good training and sound judgment can provide you with advice tailored to your specific situations and needs.” This blog was co-authored by Articling Student, Owais Hashmi. Sources: Ontario Securities Commission v. Camerlengo Holdings Inc., 2023 ONCA 93 By AlyssaBlog, Collections and Mortgage RecoverySeptember 4, 2023September 5, 2023
Views of the Child – Should I Get a Voice of the Child Report? We all know that children suffer the most in family law proceedings. However, giving weight to a child’s preferences in the proceedings can give them a sense of autonomy and control of the situation. As a result, the provincial Children’s Law Reform Act and the federal Divorce Act both emphasize that courts must consider the views and preferences of the child when it comes to determining their best interests, in accordance with the child’s age and maturity.[1] This is not an easy task; the Ontario Court of Appeal acknowledged that: It has always been a challenge for family law courts to find a way for children to express their views without exposing them to further trauma or causing more damage to the family. Those who work in the family law system are all too aware that children remain part of the family long after a judicial decision is reached. The process of determining the child’s true wishes and preferences requires delicacy, for to undertake the process without expertise may further hurt the child and fracture family relationships.[2] The courts have approached this challenge in various ways. This article will discuss one such method: Voice of the Child Reports. What is a Voice of the Child Report? A Voice of the Child Report (VOC) is a short report written by an expert clinician or lawyer for the court which summarizes a child’s views, preferences, and statements on a particular issue in a determination of decision-making responsibility or parenting time. This report is often only completed for children over the age of seven, as it can be difficult for children under that age to meaningfully communicate their views. A VOC does not include: formal interviews of the parents; observation visits of the child and parents; gathering of information from third parties, such as teachers and family doctors; disclosure meetings; or recommendations Courts have generally been receptive of this new measure. VOCs are considered to be “an effective and efficient process for ensuring the right of the child to participate in proceedings that affect them and for fulfilling the court’s mandate to consider their views and preferences.”[3] Aside from testifying in court or speaking directly to a judge in private, which can be intimidating and traumatizing for a child, VOCs are one of the few methods which allow courts to receive direct information on the child’s preferences.[4] A clinician of the Office of the Children’s Lawyer (OCL) may also complete a more detailed Children’s Lawyer Report, or a s. 112 assessment.[5] In this report, the clinician is required to meet with the parents and child; observe the child with the parent; contact other adults in the child’s life, like teachers, doctors, day care workers, and therapists; and write a report with details of their investigation and recommendations. This report is more time-consuming and expensive than a VOC and takes approximately 90 to 120 days to complete, compared to 30 days for a VOC. How do I Obtain a VOC? To obtain a VOC from the OCL, you must complete the following steps: Request from the Court You must first obtain a court order requesting that the OCL intervene and provide a VOC. The court will define the issues to be addressed in the report via a Voice of the Child Endorsement Form. Complete Intake Form Upon receiving the order, the parties must complete a Voice of the Child Intake Form and send it to the OCL within one business day of the order. The intake form can be emailed to OCL.LegalDocuments@ontario.ca or faxed to 416-314-8050. If the parties complete the intake form immediately after the order is made before leaving the courthouse, then the court staff can send the court order and completed intake form to the OCL together. Acceptance of Case by OCL When the OCL receives the court order and intake form, they must decide whether to accept or refuse the case. The OCL will notify the parties and the referring judge of their decision in writing. If accepted, an OCL clinician will be assigned to the case. If the OCL refuses the case, then you can still obtain a VOC by retaining your own expert or children’s lawyer and paying for the report yourself. Contact from Clinician After receiving the assignment, the clinician will contact the parties involved to introduce themselves, describe the VOC process, request a copy of all relevant court documents and endorsements, gather information about the referral, and arrange a time and place to interview the child. Interviews with Child The child will attend two interviews with the clinician on two separate days. At the end of each interview, the clinician will review the child’s statements with them to ensure that they accurately reflect their views. Notification of Final Report The clinician will inform the parties when the interviews have been completed. The VOC will be filed with the court and sent to the parties within 30 days of the clinician’s initial involvement with the case. After the report is completed, OCL’s involvement with the case will end. Who Can Write a VOC? If the OCL agreed to be involved in your case, then the VOC will be written by an OCL expert. The OCL expert can be a clinician or a children’s lawyer with expertise in the areas of child development and children in families with conflict. You can also hire a non-OCL clinician to write a VOC for you. Here, it is important that the writer is a neutral and non-biased third party. Courts have rejected the parties’ choices to write a VOC when they had a pre-existing relationship with the child, a professional relationship with one of the parties, or had already rendered opinions or recommendations in the proceedings.[6] Furthermore, a non-clinician should ideally be a children’s lawyer sitting on the personal rights panel for the OCL. In Stefanska v Chyzynski,[7] after the OCL declined involvement due to lack of resources, the mother retained a lawyer to write the report. This lawyer only practiced family law in a limited capacity, was not an expert in child psychology, and had never prepared a VOC before. Her expertise was limited to a three-hour consultation from a child and family therapist who had prepared VOCs before. Justice Horkins emphasized that it was preferable that the VOC was prepared by a trained professional. However, as the report is only a “vehicle to present the views of the children to the Court without any evaluation”, he reluctantly admitted the report.[8] Despite this ruling, if you want your VOC to carry more weight, it is best to do your research and retain a professional with experience in preparing VOCs. When Should I get a VOC for My Child? A VOC may be appropriate in the following circumstances: When your child is an appropriate age. VOCs are generally not available for children under the age of seven, although this cut-off is not strictly enforced and is highly dependent on the individual child’s maturity.[9] A VOC can be created so long as the child is capable of conveying their preferences in a meaningful way. VOCs also may not be as useful for older teenagers, as courts are often reluctant to make parenting time decisions for children close to the age of majority.[10] When you and your former partner disagree about your child’s preferences. VOCs allow parents to get a better understanding of their child’s views and preferences. This can help resolve issues surrounding parenting time and decision-making responsibility earlier in the litigation process, which saves time, costs, and stress for everyone involved. When your child wants to express their views. A VOC will be much more impactful if your child is interested in communicating their views and preferences to the writer. As noted above, this experience may give your child a sense of control and autonomy in the situation without feeling like they’re taking a parent’s side. While VOCs may be less useful in cases where there are issues of parental alienation[11] or allegations of abuse or neglect, for the vast majority of parenting and decision-making disputes, a VOC is an excellent way for your child to feel heard and acknowledged in the court process. If you have questions about obtaining a VOC or another other family law matter, please visit our website or contact Jillian C. Bowman from Devry Smith Frank LLP at 249-888-4639 or Jillian.Bowman@devrylaw.ca. This blog was co-authored by law student, Leslie Haddock. “This article is intended to inform. Its content does not constitute legal advice and should not be relied upon by readers as such. If you require legal assistance, please see a lawyer. Each case is unique and a lawyer with good training and sound judgment can provide you with advice tailored to your specific situation and needs.” [1] For example, see Children’s Law Reform Act, RSO 1990, c C12, ss 24(3)(e) and 64(1) and Divorce Act, s 16(3)(e). [2] Ontario (Children’s Lawyer) v Ontario (Information and Privacy Commissioner), 2018 ONCA 559 at para 65. [3] Byers v Byers, 2023 ONSC 297 at para 21 [Byers]. [4] Ibid at para 22. [5] This assessment is provided for in the Courts of Justice Act, RSO 1990, c C43, s 112(1). [6] See Svirsky v Svirsky, 2013 ONSC 5564 at para 27 and Religa v Nesrallah, 2017 ONSC 1491 at paras 16-18. [7] Stefanska v Chyzynski, 2020 ONSC 3048. [8] Ibid at para 93. [9] See Byers, supra note 3 at para 25, where Justice Tellier ordered a VOC for a six-year old child. [10] In Medjuck v Medjuck, 2019 ONSC 3254 at paras 28-29, Justice Kristjanson refused to order a VOC for a seventeen-year old who chose to reside with his father and have no contact with his mother. [11] For instance, see ibid at paras 31-32 and Canepa v Canepa, 2018 ONSC 5154 at para 23. By AlyssaBlog, Family LawAugust 28, 2023August 24, 2023