M.D. ACTON QUEEN’S BENCH FOR SASKATCHEWAN Date: 201208 29 Citation: 2012 SKQB 350 Docket: Div. No. 538 of 2009 Judicial Centre: Saskatoon, Family Law Division BETWEEN: JOHN WILLIAM RANDELL and KRISTY LEE RANDELL Counsel: R. Steponchev for the petitioner V. Watson for the respondent FIAT WILKINSON J. August 29, 2012 1) The issue is the interpretation of consent judgment based on negotiated family property settlement. Present counsel for the husband is new to the file, and was not the lawyer involved in the settlement. 2) The wife seeks an order requiring the husband to pay the equalization payment under a consent judgment, or alternatively that the consent judgment be set aside and trial dates ordered. 3) The disputed portion of the consent judgment of November 6, 2011, (which is simply reflection of the agreement reached on the morning of trial) states this: (i) The Petitioner shall make an equalization payment of One Hundred and Five Thousand ($105,000.00) Dollars to the Respondent to be composed of cash and/or rollover of retirement funds. 4) The dispute arises because the wife says she is entitled to $105,000 net (in cash or cash equivalents) with at least $65,000 being the cash composition. She says this is what the husband said he could borrow. She says she was not aware the husband had significant RRSPs. 5) The husband wants to satisfy the judgment by paying the sum of $5,000 in cash and rolling over $100,000 in RRSPs, unreduced for tax, and says he was only informed of the wife’s position when he attempted to tender payment of the same, on December 16, 2011. He denies that he ever offered to pay $65,000 in cash. He does acknowledge that he made formal offer of settlement on October 18, 2011 in the amount of $65,000 cash, and that he was able to obtain financing from the Bank of Montreal at that time. This offer was rejected. Since then, he has borrowed in order to acquire more RRSPs and has no ability to come up with other financing. 6) The application initially came before Sandomirsky J. whose comments are recorded on the Court file on April 27, 2012. He stated: The relief being sought in the notice of motion is somewhat unusual. You have your judgment and there is mechanism to enforce it. The argument is that there is some ambiguity in the language and how to interpret the judgment. can’t change the language of the judgment. can’t grant you an order saying the judgment says what it says, so obey it. It is comfort order. It would be unfortunate if, and perhaps the time is beyond you to appeal but you could always seek leave to appeal, to say that the judgment is so ambiguous as not to be enforceable. There is decision that was written by Mr. Justice Popescul in Iverson v. Iverson (a 2007 [sic] decision) [2009 SKQB 246 (CanLII), 334 Sask. R. 299] and it is beautiful dissertation of the law as to whether two litigants have come to an agreement that is binding and enforceable by way of judgment. One of the tests to determine whether there has been meeting of the minds is that it is not what the parties thought the agreement meant, but what reasonably informed third party would conclude. It is what reasonable person viewing the same would conclude those words meant. That would undoubtedly be the test of law if you are before the Court of Appeal or this matter had to be re‑litigated as to whether an agreement is binding between the parties or not. have expressed my opinion, but may not be the reasonably informed person... would have read that to say the equalization payment was $105,000.00. You can pay it by cash or you can pay it by roll‑over of RSP’s or you can pay it as combination of both. At the end of the day, the net result is that she walks away with $105,000.00. If there is to be roll-over of RSP’s, we all know that when you cash in RSP, you have to pay income tax on that money. And so, $105,000.00 roll‑over, is not the net of $105,000.00. It will be less the effective rate of income tax is, probably in the neighbourhood of, would guess, they are not wealthy, 17‑25 percent would be the effective rate so she walks away with $105,000.00 less 17 percent. That’s not what reasonable person would have interpreted it to mean. She thought she would get $105,000.00 and take it to the bank or combination. If he doesn’t have that kind of money, he would roll‑over the money but he would gross it up so she could cash it in and still walk away with $105,000.00 as her equalization payment. At the end, each spouse walks away with an equal net worth of the family property. It would be tragedy if these people would have to litigate this further because they are paying lawyers large sums of money which would quickly eat up the tax payable on the roll‑over or not. Mr. Randell should accept the language and how it is interpreted. That is my interpretation of the judgment. 7) With the benefit of this blunt and unambiguous opinion from the bench, the parties were urged to try and resolve the matter themselves. They were unable to do so, and some four months later the application has been returned to chambers. Counsel for the husband says the comments of Sandomirsky J. were in no way dispositive or binding on the parties. 8) Evidence of positions taken at the pre-trial settlement conference, and formal offers of settlement made before trial, have been introduced into evidence without objection from either side. 9) Before proceeding to the information provided, it is useful to outline the governing principles that bear on the issue. 10) adopt the approach taken by Forgeron J. in Power v. Jackman, 2008 NSSC 389 (CanLII), 61 R.F.L. (6th) 144. There, the issue was the interpretation of previous Court order to determine which option the Court would approve to effect the equal division of the pension held in the husband’s name. At paras. 15 to 18 the Court stated: [15] consent Corollary Relief Judgment is an order sanctioning an agreement entered into by the parties. It is not declaration of rights imposed by the court: Canada Deposit Insurance Corp. v. Commonwealth Trust Co., 1997 CarswellBC 2175 (C.A.); and 155569 Canada Ltd. v. 248524 Alberta Ltd., 1992 CarswellAlta 357 (Q.B.). [16] The consent Corollary Relief Judgment is to be interpreted in the same manner as an agreement. Negotiations are not relevant. The factual background leading up to the resolution is relevant to ensure that the understanding of the parties as to the effect of the order can be ascertained: Toronto Dominion Bank v. Cariboo Trail Hotel Ltd., 1996 CarswellBC 2687 (S.C.) at para. 14 and as affirmed at 1998 CarswellBC 1422 (C.A.). [17] In Royal Bank v. 1542563 Ontario Inc., 2006 CarswellOnt 5761 (S.C.J.), at para. 4, Mossip J. summarized the principles to apply when court is asked to interpret the language of an order. These principles are as follows: a) broad and liberal interpretation is to be used to achieve the objective of the court in making the order; b) The language must be construed according to its ordinary meaning and not in some unnatural or obscure sense; c) certain flexibility must be available in recognition of the fact that life is not static; developments beyond the contemplation of the parties often arise; d) The court must examine the context in which the order was issued, evaluate the order in accordance with the circumstances of the case, and question whether the acts or omissions could reasonably have been contemplated to fall under the terms of the order; and e) party cannot hide behind restrictive and literal interpretation to circumvent the order and make mockery out of the administration of justice. [18] Similar principles of interpretation have been applied in family law cases: Tetarenko v. Tetarenko, 2005 CarswellAlta 588 (Q.B.) and Randall v. Randall, [2003] B.C.J. No. 1095 (C.A.). 11) The factual background leading up to the resolution is only relevant to determine the understanding of the parties as it would appear to the objective observer. What the parties had in their minds, or what they believed they were negotiating, is irrelevant to the analysis. As explained in Iverson v. Iverson, 2009 SKQB 246 (CanLII), 334 Sask. R. 299 (the case referred to by Sandomirsky J.) the law is concerned not with the parties’ intentions but with their manifested intentions. It is not what an individual party believed or understood was the meaning of what the other party said or did that is the criterion; it is what reasonable person in that situation would have believed and understood. Although the context was an agreement, as opposed to judgment, the same principles apply. 12) The assets of any significance consisted of the family home and RRSPs. The husband received the family home in the division, non‑taxable asset. 13) On August 13, 2010, in his reply to notice to disclose, the husband indicated he had the following RRSPs: BMO Mutual funds 36,603.46 Sun Life 75,013.54 $111,617.00 14) The wife disclosed she had Sun Life RRSP in the amount of $41,826. 84. 15) settlement pre-trial conference was held in May, 2011. Relying on these RSP values and discounting them by 25% for tax, the wife calculated her family property entitlement on the basis of an equal division. No issue was raised regarding unequal division, although the husband did want the wife to pay roughly $10,000 for half of the family debts the husband had serviced since separation. 16) The wife’s outline of the family property and debts provides the necessary context for an appreciation of the discussions that followed, and it is therefore necessary to outline the calculations in some detail. 17) The property and debts in her possession were her RRSP discounted by 25% for tax ($31,370.13), 2003 Pontiac ($7,000), $150 in miscellaneous items, and bank account of $624.18, for total of $39,144.31. Her Mastercard debt was $3,208.86. 18) The property and debts in the husband’s possession were the family home ($312,000), household goods ($20,000), trailer ($20,000) truck ($10,500), two quads ($4,500), sporting equipment ($10,000), bank accounts ($6,656.94), his RRSPs discounted for tax ($83,751.15) and funds from the sale of an investment property ($40,000), for total of $507,408.09. Family debt (mortgage on the home, line of credit, trailer loan and his Master Card) was $229,049.78. 19) Accordingly, on her calculations, the total combined assets were $546,552.40, the total combined debt was $232,258.64 and the net equity available for division was $314,293.76. Accordingly, each party was entitled to one‑half, or $157,146.88. 20) The husband offered no valuation particulars other than proposing an equal division of the family home (which should be transferred to him) and attributing value to the home of $299,000. As to the rest, he simply indicated there were vehicles, bank accounts and RRSPs to be divided, as well as family debts being the trailer debt, line of credit, the mortgage on the family home, credit cards, and 2008 RRSP loan. He provided no figures for anything except the family home. Not surprising in light of this meagre information, settlement was not achieved at the pre‑trial conference. 21) subsequent appraisal obtained by the wife for trial purposes indicated the family home had value of $335,000. This would have adjusted her calculations as follows: the husband’s assets would increase by $23,000, to $530,408.09. The total family assets would increase to $569,552.40. Deducting total debt of $232,258.64 would leave net equity of $337,293.76 for division. On an equal division, each party would receive $168,646.88. 22) Before trial, the husband made formal offer of settlement proposing the wife would get $65,000 as an equalization payment. Each would keep the property in their possession. The wife would be responsible for her Mastercard debt and he would be responsible for the remaining family debts. 23) His lawyer’s accompanying letter helpfully identifies the only items in dispute in the family property division from the husband’s perspective. These were $20,000 differential on the value of the family home (which he valued at $315,000, and she valued at $335,000), his sporting equipment (which he valued at $150, and she valued at $10,000) and 2008 RSP loan of $30,000 (he said it was family debt, she said it was not). Thus, they were at odds over $29,850 on the property side and $30,000 on the debt side. 24) If one adjusted the figures under discussion to incorporate all the husband’s values on the disputed items he would have assets of $500,558.09 and debts of $259,049.78. In the result, he would have net equity of $241,508.31, compared to $35,935.45 for the wife. Thus, on the husband’s best case scenario adopting all the values he proposed, and increasing his debt by $30,000 an equalization payment of $102,786.43 in cash to the wife would have been required. 25) The wife countered with formal offer of settlement proposing that each keep the property and debts in their possession and that the husband pay an equalization payment of $130,461.43. Although not broken down in any fashion, she did specifically acknowledge the disputed RRSP loan as family debt. 26) The parties settled on an equalization payment of $105,000 by cash and/or rollover of retirement funds, and this provision was incorporated in the judgment that is now the subject of dispute. 27) His proposal to pay the equalization payment by way of $5,000 cash and $100,000 in RSP rollover is, effectively, cash equivalent of $80,000 (applying 25% discount for tax). 28) In the context in which the judgment was issued, and applying broad, liberal, flexible interpretation to the language used, cannot conclude this is what the judgment reasonably contemplates. 29) judgment speaks from the time it is pronounced. At the time of the judgment, what was known to both sides was that the husband had RRSPs of $111,617 but discounted in value to $83,751.15 for purposes of family property division. This is the maximum RRSP component that was available to apply in satisfaction of the judgment. 30) The husband argues that the parties were represented by experienced legal counsel and, accordingly, if tax implications were controlling factor they should have been specifically addressed in the judgment. 31) As noted in Corbeil v. Corbeil, 2001 ABCA 220 (CanLII), 21 R.F.L. (5th) 1, it is common practice in family property distributions to discount RRSPs to their after‑tax value. The Alberta Court of Appeal explained the rationale for doing so at paras. 24 and 25: [24] Regarding the RRSPs, the husband argues that the trial judge erred in failing to discount the value of funds held as RRSPs to adjust for tax implications. In particular, the husband received more of his share of assets in the form of RRSP funds than did the wife. He argues that RRSP assets should be significantly discounted to reduced after‑tax cash value as at the date of division. This method of valuing RRSP funds at trial on their after tax value is not uncommon. [25] The valuation of an RRSP is difficult issue. For instance, if the holder of the fund is young, and there is no need, or plan, to cash the fund early, the ability to appreciate assets within an RRSP has its own value. That is because an RRSP can earn income for many years without attracting tax on that income. In such case, the taxable nature of the asset upon receipt may be outweighed by the benefit of deferring tax. On the other hand, where conversion of the fund is anticipated in the near future, discount for tax is important for valuation purposes. 32) Beaulac v. Beaulac, 2005 SKQB 20 (CanLII), 256 Sask. R. 243, offers typical illustration of the Court’s approach where family property equalization is to be satisfied by way of an RRSP rollover. There, McIntyre J. stated at para. 35: [35] In order to equalize family property Shirley is required to make an equalization payment to Louis of $4,994.11. The petitioner shall have judgment as against the respondent in this amount. Should Shirley choose to rollover RRSP monies to satisfy the equalization payment, the amount of RRSP funds to be transferred must be increased by factor of 1.3. This is to account for the taxable nature of RRSP funds. 33) These principles are engrained in family property law. The fact it was not specifically spelled out in the judgment is not fatal. Recognition of a discount for tax on RRSPs was explicit in the wife’s position in her pre‑trial calculations, and in all valuations of property discussed thereafter. The wife having laid out discounted values for the RRSPs, one would expect the husband to have demanded explicit language in the judgment if he wanted to use unreduced RRSP values to satisfy the equalization payment. To entertain the husband’s proposition would be to construe the judgment in an unnatural sense in all the circumstances. 34) I order that the respondent may satisfy the judgment by way of rollover to the petitioner of $111,617 in RRSPs, representing a discounted value of $83,751.15. The cash balance required to satisfy the judgment is therefore $21,248.85. direct this be done within 14 days. 35) The child support issues raised were not in serious dispute. It was acknowledged slight adjustment was in order. trust the parties can present an order to me on the appropriate terms. 36) In light of the mixed success, there will be no order as to costs. J. Y. Wilkinson
The applicant wife sought an order requiring the husband to pay the equalization payment under a consent judgment or alternatively that the consent judgment be set aside and trial dates ordered. The consent judgment provided that the husband should make an equalization payment of $105,000 to be composed of cash and/or a rollover of retirement funds. The husband wants to satisfy the judgment by paying the sum of $5,000 in cash and rolling over $100,000 in RRSPs, unreduced for tax. Applying a 25% discount for tax, the proposal is equivalent to $80,000. The husband argued that the consent order was not dispositive and that if the tax implications were a controlling factor they should have been specifically addressed in the judgment.HELD: The Court held that it is common practice in family property distributions to discount RRSPs to their after-tax value. The fact that that principle was not stated explicitly in the judgment was not fatal to the application. The evidence introduced at the hearing of the wife's position in pre-trial calculations clearly indicated that she expected the discount for tax on RRSPs. Therefore, the Court ordered that the judgment be satisfied by way of rollover of RRSPs in the amount of $111,600.