Farr v. Farr, [1984] 1 SCR 252

Supreme Court of Canada

Farr v. Farr, [1984] 1 S.C.R. 252

Date: 1984-05-03

Eleanor Ellen Farr Appellant;

and

Glenn Allan Farr Respondent.

File No.: 17661.

1983: November 29 and 30; 1984: May 3.

Present: Ritchie, Dickson, Estey, Mclntyre and Wilson JJ.

ON APPEAL FROM THE COURT OF APPEAL FOR SASKATCHEWAN

Matrimonial law—Divorce—Distribution of matrimonial property—Validity and applicability of Capital Base Theory—The Matrimonial Property Act, 1979 (Sask.), c. M-6.1, ss. 20, 21, 22, 23, 26(1)(b)(i)—Interest Act, R.S.C. 1970, c. I-18, ss. 13,15.

Appellant applied for a distribution of matrimonial assets under Saskatchewan’s Matrimonial Property Act. Respondent had brought land and machinery to the marriage; appellant on the other hand brought no assets but was found to have worked as hard, if not harder, than the average farm wife. The trial judge divided the net divisible property equally between the spouses but the Court of Appeal applied the Capital Base Theory and varied that disposition by reducing the wife’s share. The Capital Base Theory suggested that the husband’s pre-marital contribution had a greater value than the marriage date valuation for which he was given credit in his pre-marital exemption, and, because those assets formed the capital base on which the parties built their holdings, the distribution of the matrimonial property was to be weighed in the husband’s favour. At issue is whether or not the Court of Appeal erred in applying that theory. Also at issue is whether the interest rate on the lump sum amount payable by the husband to the wife should be at the prevailing commercial rate awarded at trial or at the rate set by the Interest Act for judgment debts as applied by the Appeal Court.

Held: The appeal should be allowed in part.

Section 23 governs how assets owned before the marriage are to be treated by the courts and the exemption given is limited to the fair market value of the contribution. The discretionary powers granted the Court by s. 23(4) and (5) do not provide a power to exempt more than the fair market value at the time of marriage and are relevant only in determining whether it is unfair and inequitable to exempt property from distribution. Sec-

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tion 21(2)(q), a general “catch-all” provision, cannot be used to defeat the specific limitation under s. 23. The Capital Base Theory is wholly incompatible with the statutory presumption of equal distribution subject only to a finite set of exemptions, and, if applied here, would result in the husband’s pre-marital contribution being accorded a greater value than permitted under s. 23.

The interest rate on the lump sum payment awarded to the wife is fixed by the Interest Act as that payment was a “judgment debt” within the meaning of s. 15 of the Act.

Werner v. Werner (1980), 1 Sask. R. 327; Evenson v. Evenson (1980), 4 Sask. R. 47, considered; Wildman v. Wildman (1980), 8 Sask. R. 115; Johnson v. Johnson (1981), 22 R.F.L. (2d) 262; Bateman v. Bateman (1981), 22 R.F.L. (2d) 384; Prayda v. Prayda (1982), 20 Sask. R. 442, referred to.

APPEAL from a judgment of the Saskatchewan Court of Appeal (1983), 21 Sask. R. 320, varying an award made by Halvorson J. under The Matrimonial Property Act. Appeal allowed in part.

Morris C. Shumiatcher, Q.C., and Reginald Watson, for the appellant.

Gordon Kuski and Michael Milani, for the respondent.

The judgment of the Court was delivered by

MCINTYRE J.—This appeal arises out of an application by a wife for a distribution of matrimonial property under the provisions of the Saskatchewan Matrimonial Property Act, 1979 (Sask.), c. M-6.1. The trial judge divided the net divisible property equally between the spouses and the Court of Appeal varied that disposition, after certain adjustments, by reducing the wife’s portion to approximately one-third.

The appellant, Eleanor Ellen Farr (the wife), married the respondent, Glenn Allan Farr (the husband), in 1949. They had five children, now adults, who are not concerned in this action. They separated in November of 1979 and they were divorced in June of 1981. The appellant brought

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no assets to the marriage. The respondent brought a half-section of farmland upon which was situate a home and a half-interest in a line of farm machinery, all of which he had inherited from his parents a few years earlier. The value of the husband’s pre-marital assets at the time of the marriage was fixed by the trial judge at $16,750. During the marriage the parties prospered. Various acquisitions of farm land, all at full market value, increased land holdings to 1,835 acres and, in addition, the husband developed a custom harvesting business in the United States. A number of other assets were also acquired, including farm machinery, an aircraft and a hangar, a beach cottage, an RRSP, and real property in the United States used in the harvesting business.

The value of the matrimonial assets and their identification is not in dispute in this appeal. The gross value, as fixed by the trial judge and undisturbed on the appeal, amounted to:

Land and improvements (including matrimonial home)		$ 1,353,000
Other assets		713,325
		$ 2,066,325

Liabilities amounting to $226,200 reduced the net value of the matrimonial property to $1,840,125. The trial judge deducted a further $150,000 from the net assets to account for the husband’s probable tax liability on the disposal of certain assets to effect the distribution. The husband’s pre-marital exemption, after recalculation, was reduced on appeal to $10,000, which reduction was not disputed upon this appeal. As a result the matrimonial property subject to distribution amounted to $1,680,125.

The trial judge found, and his finding in this respect was not questioned on appeal, that during the marriage the wife had performed the manifold duties of a farm wife, and indeed had probably worked harder than the average farm wife. He was of the view that the evidence before him did not engage any of the equitable considerations enumerated in s. 21(2) to justify a departure from the

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equal distribution of matrimonial assets provided for in s. 21(1). Accordingly, he ordered an equal division of the net total. On appeal, after an adjustment not disputed in this appeal which added $5,000 to the wife’s share to correct an error in the calculation of the husband’s pre-marital exemption, the Court of Appeal varied the disposition made at trial by directing that the husband retain a half-section of land allotted to the wife at trial as part of her distributive share. This resulted in a reduction in the value of the wife’s share to approximately one-third of the total of the net divisible property.

The main difference between the trial judgment and that of the Court of Appeal concerns the application of what has been referred to in some of the authorities and in argument in this Court as the ‘Capital Base Theory’. As applied in this case, the theory suggests that the husband on his entry into the marriage contributed land and machinery which had a greater value in the long run than the market value for which he got credit at the date of the marriage in his pre-marital exemption. Those assets, it was said, formed the capital base from which the parties were able to accumulate the large holdings they eventually acquired. For that reason, the distribution of matrimonial property should be weighted in the husband’s favour.

The trial judge declined to give effect to the Capital Base Theory in the case at bar, stating that [(1981), 11 Sask. R. 409, at p. 411]:

The respondent relies on the capital base theory enunciated in Werner v. Werner (1980), 1 Sask. R. 327 and Evenson v. Evenson (1980), 4 Sask. R. 47, wherein the husband was granted more than one-half of the property because all of the matrimonial assets arose from the capital brought into the marriage by the husband. Counsel claims clause (q) of section 21(2) is the head under which this could be allowed.

In my opinion, the rationale in Evenson and Werner does not fit the circumstances at hand because in those cases the family possessions at the time of the court application were not remarkably different from those which existed at the date of marriage; whereas, in the

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present case, the extensive current assets bear no resemblance to the pre-nuptial property.

The Court of Appeal accepted the theory and applied it in increasing the distributive share of the husband. Speaking for the Court (Woods, Brown-ridge and MacDonald JJ.A.), Mr. Justice MacDonald observed that the husband’s pre-marital assets enabled the acquisition of the other matrimonial property. Under the circumstances, the rationale in Werner v. Werner (1980), 1 Sask. R. 327, and Evenson v. Evenson (1980), 4 Sask. R. 47, applied, and the equal division of property ordered at trial was thus unfair and inequitable. He said [(1983), 21 Sask. R. 320, at p. 326]:

With great deference to the learned trial judge it seems to me that the rationale in the cases cited does fit the facts herein. In my view, the facts lead to a finding that the disposition of the property made by the learned trial judge is unfair and inequitable.

In the distribution of the farm land the learned trial judge gave the wife 6 quarters of land. This places the husband in the position where he has equipment suitable for a farm of 1835 acres and he has fewer than 6 quarters of land. The wife has no machinery and although not a farmer she was given 6 quarters of land. As the husband is a man of 54 years of age there is little possibility that he can again rebuild his land holdings particularly as the cost of farm land has increased so greatly.

The court then proceeded to reduce the wife’s portion by the value of the one-half section of land referred to above.

There are two issues raised in this appeal. The first is whether it was error on the part of the Court of Appeal to apply the Capital Base Theory in altering the division made at trial. The second concerns the rate of interest on the unpaid cash sum awarded to the wife to complete her share of the distribution.

Dealing with the first issue, I must note at the outset that The Matrimonial Property Act, which came into force on January 1, 1980, fundamentally altered the régime for the distribution of

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matrimonial property upon the break-up of a marriage that had been established by The Married Women s Property Act, R.S.S. 1965, c. 340 (as amended in 1974-75 (Sask.), c. 29, and 1978 (Sask.), c. 36). Section 22(2) of the previous Act permitted a judge to make any order with respect to property in dispute that he considered “fair and equitable”. In making a distribution order the judge was directed by s. 22(4) to take into account the respective contributions of the parties in the form of money, services, management, home and family care, or in any other form.

These features have been abandoned. The Act now presumes a joint contribution to the accumulation and maintenance of matrimonial assets, entitling each spouse to an equal distribution subject to certain specified exceptions, exemptions and equitable considerations. Section 20 declares the purpose of the Act and, in particular, of the part governing the distribution of matrimonial property in these terms:

20. The purpose of this Act, and in particular of this Part, is to recognize that child care, household management and financial provision are the joint and mutual responsibilities of spouses and that inherent in the marital relationship there is joint contribution, whether financial or otherwise, by the spouses to the assumption of these responsibilities that entitles each spouse to an equal distribution of the matrimonial property, subject to the exceptions, exemptions and equitable considerations mentioned in this Act.

The main property distribution provision is s. 21 which creates a presumption of equal entitlement to matrimonial assets and then lists certain factors which may justify an unequal division. It is in this form:

21.—(1) Upon application by a spouse for the distribution of matrimonial property, the court shall subject to any exceptions, exemptions and equitable considerations mentioned in this Act, order that the matrimonial property or its value be distributed equally between the spouses.

(2) Subject to section 22, where, having regard to:

(a) any written agreement between the spouses or between one or both spouses and a third party;

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(b) the length of time that the spouses have cohabited before and during their marriage;

c) the duration of the period during which the spouses have lived separate and apart;

(d) the date when the matrimonial property was acquired;

(e) the contribution, whether financial or in some other form, made directly or indirectly by a third party on behalf of a spouse to the acquisition, disposition, operation, management or use of the matrimonial property;

(f) any direct or indirect contribution made by one spouse to the career or career potential of the other spouse;

(g) the extent to which the financial means and earning capacity of each spouse have been affected by the responsibilities and other circumstances of the marriage;

(h) the fact that a spouse has made:

(i) a substantial gift of property to a third party; or

(ii) a transfer of property to a third party other than a bona fide purchaser for value;

(i) a previous distribution of matrimonial property between the spouses by gift or agreement or pursuant to an order of any court of competent jurisdiction made before or after the coming into force of this Act;

(j) a tax liability that may be incurred by a spouse as a result of the transfer or sale of matrimonial property or any order made by the court;

(k) the fact that a spouse has dissipated matrimonial property;

(l) subject to subsection 30(3), any benefit received or receivable by the surviving spouse as a result of the death of his spouse;

(m) any maintenance payments payable for the support of a child;

(n) interests of third parties in the matrimonial property;

(o) any debts or liabilities of a spouse including debts paid during the course of the marriage;

(p) the value of matrimonial property situated outside Saskatchewan;

(q) any other relevant fact or circumstance;

the court is satisfied that it would be unfair and inequitable to make an equal distribution of matrimonial property or its value, the court may:

(r) refuse to order any distribution;

(s) order that all the matrimonial property or its value be vested in one spouse; or

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(t) make any other order that it considers fair and equitable.

The matrimonial home is given special treatment under the Act in s. 22, which is reproduced hereunder:

22.—(1) Where a matrimonial home is a subject of an application for an order under subsection 21(1), the court shall, having regard to any tax liability, encumbrance or other debt or liability pertaining to the matrimonial home, distribute the matrimonial home or its value equally between the spouses except where the court is satisfied that it would be:

(a) unfair and inequitable to do so, having regard only to any extraordinary circumstance; or

(b) unfair and inequitable to the spouse who has custody of the children;

and in that case the court may:

(c) refuse to order any distribution;

(d) order that the entire matrimonial home or its value be vested in one spouse; or

(e) order any distribution that it considers fair and equitable.

(2) Where there is more than one matrimonial home, the court may designate to which matrimonial home subsection (1) applies and any remaining matrimonial home shall be distributed in accordance with section 21.

The contrast between the distribution scheme in The Matrimonial Property Act and its predecessor has been aptly expressed by Dickson J. of the Saskatchewan Court of Queen’s Bench in Wildman v. Wildman (1980), 8 Sask. R. 115, at pp. 118-19:

In my view, section 20 expresses a different approach to the question of contribution than that expressed by the Legislature in section 22(4) of the Married Persons’ Property Act. The court is no longer vested with the “very wide discretion” referred to by Brownridge, J.A. The relative value of the respective contributions of the husband and wife is not to be assessed by the court. The Legislature of this Province now recognizes an equality of contribution in the discharge of the duties assumed by each spouse. A greater or lesser value is not to be assigned to the role of either. Therefore, it makes no difference if a farm wife spent time in the fields or not. Her care of the children and her management of the household is acknowledged by the Legislature in section 20 to be equal in value to her husband’s tending of the crops and management of the farm. This joint contribution entitles each spouse to an equal share of the

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matrimonial property. Having so expressed the purpose of the Act, the Legislature then directs the court in sections 21 and 22, to distribute the matrimonial property equally between the spouses unless there are relevant facts or circumstances that would make such distribution unfair and inequitable. Examples of the relevant facts and circumstances to be considered, when distributing matrimonial property other than matrimonial home, are set out in section 21(2) of the Act. When distributing the matrimonial home, the relevant facts and circumstances that the court may take into consideration are limited to the custody of the children and what the Legislature refers to as “any extraordinary circumstance”.

The Saskatchewan Matrimonial Property Act, unlike many other provincial statutes dealing with this subject, does not expressly distinguish business assets from family assets for the purpose of dividing matrimonial property. Subject to the equitable factors enumerated in ss. 21(2) and 22(1), all matrimonial property is presumed to be divisible in equal shares between the spouses and contributions to the acquisition, maintenance, and improvement of such property are presumed to be equal. Similarly, the growth in value of matrimonial assets after the marriage is presumed to result from the joint efforts of the spouses and to be equally divisible unless such division is considered unfair and inequitable. Section 23 provides an exemption for matrimonial property that a spouse brings into the marriage other than the matrimonial home or household goods. The fair market value of that property at the time of the marriage is exempted from distribution unless as set out in subs. (4) such an exemption would be unfair and inequitable, in which case it can be reduced. Section 23 is reproduced hereunder:

23.—(1) Where matrimonial property, other than a matrimonial home or household goods, is:

(a) property acquired before the marriage by a spouse by gift from a third party, unless it can be shown that the gift was conferred with the intention of benefitting both spouses;

(b) property acquired before the marriage by a spouse by inheritance, unless it can be shown that the inheritance was conferred with the intention of benefitting both spouses;

(c) property owned by a spouse before the marriage;

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the fair market value of that property at the time of the marriage is, subject to subsection (4), exempt from distribution under this Part.

(2) Property acquired as a result of an exchange of property mentioned in subsection (1) is, subject to subsection (4), exempt from distribution under this Part to the extent of the fair market value of the original property mentioned in subsection (1) at the time of the marriage.

(3) Where matrimonial property, other than a matrimonial home or household goods, is:

(a) an award or settlement of damages in tort in favour of a spouse, unless the award or settlement is compensation for a loss to both spouses;

(b) money paid or payable under an insurance policy that is not paid or payable in respect of property, unless the proceeds are compensation for a loss to both spouses;

(c) property acquired after a decree nisi of divorce, a declaration of nullity of marriage or a judgment of judicial separation is made in respect of the spouses;

(d) property acquired as a result of an exchange of property mentioned in this subsection;

(e) appreciation on or income received from and property acquired by a spouse with the appreciation on or income received from property mentioned in this subsection;

it is, subject to subsection (4), exempt from distribution under this Part.

(4) Where the court is satisfied that it would be unfair and inequitable to exempt property from distribution, the court may make any order that it considers fair and equitable with respect to the matrimonial property mentioned in this section.

(5) In making an order under this section, the court shall have regard to:

(a) any of the matters mentioned in clauses 21 (2)(a) to(p);

(b) contributions in any form whatsoever made by the spouses to their relationship, children or property prior to their marriage;

(c) a contribution, whether financial or in any other form whatsoever, made by a spouse directly or indirectly to the acquisition, disposition, preservation, maintenance, improvement, operation, management or use of property mentioned in this section;

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(d) the amount of other property available for distribution;

(e) any other relevant fact or circumstance.

(6) All matrimonial property is presumed to be shareable unless it is established to the satisfaction of the court that it is property mentioned in this section.

The respondent, while not disputing the determination by the trial judge of the market value of his pre-marital exemption, contended that the exemption provided under s. 23 is not exhaustive as far as the pre-marital assets are concerned but leaves it open for the court in order to achieve a fair and equitable result to take into account the factors listed in s. 21(2). It is the asserted existence of such a discretionary power that is relied upon to justify the application in this case of the so called Capital Base Theory. Werner v. Werner, supra, decided by Johnson C.J.Q.B., was the first case to enunciate and apply the Capital Base Theory. It is difficult to say how much the wife’s share was diminished by the application of the theory, since other factors relating to the husband’s having custody of the children were also influential in the distribution. The significance of the theory was made clear, however, in the statement at p. 335, that:

In circumstances such as the ones found in this case, I think it is fair and equitable that the court recognize that prior to the marriage the husband had acquired a substantial interest in farm land which formed the capital base for the farming operation in which he and his wife were engaged after their marriage. The distribution of the matrimonial property for this one reason alone must be weighted in his favour.

In the result, the wife received thirty-five per cent of the divisible property.

Johnson C.J.Q.B. again applied the Capital Base Theory in Evenson, supra, saying, at p. 53:

In the case at bar, at the time of the marriage the husband was the owner of personal and real property which had a gross value of at least $58,335.00. Debts attributable to the acquisition of that property amounted to $10,800.00. In other words, the debts were somewhat less than 20% of the gross value of the assets so that at the time of the marriage the husband owned

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about 80% of the assets which he brought into the marriage. The assets which the husband owned at the time of the marriage formed the capital base from which he has been able to acquire the assets which he presently owns. While it is true that the wife has assisted in the acquisition of the matrimonial home and in the support and maintenance of the family down through the years, I think it must be acknowledged fairly that it was the husband’s ownership of the capital base which made the farming operation a success.

Out of net divisible assets fixed at approximately $300,000 the wife was awarded $100,000. As in Werner, it is difficult to determine precisely how much of the reduction of the wife’s distributive share was attributable to the Capital Base Theory as other factors bore on the distribution. Capital Base reasoning has since been applied in several reported trial decisions: Johnson v. Johnson (1981), 22 R.F.L. (2d) 262; Bateman v. Bateman (1981), 22 R.F.L. (2d) 384; Prayda v. Prayda (1982), 20 Sask. R. 442.

In my opinion, the Court of Appeal erred in law in invoking the Capital Base Theory to reduce the appellant’s distributive share of the matrimonial property. The theory is premised on the special contribution made by a spouse who brings into the marriage assets that appreciate in value and by their existence permit the acquisition of further assets. As has been mentioned, however, contribution to the growth of assets after the marriage is presumed to be equal and the proceeds therefrom to be equally divisible. Contribution of assets owned before the marriage is governed by s. 23 and the exemption is limited to the fair market value of the contribution at the date of the marriage. It is evident at once that the Capital Base Theory as applied in the case at bar depends upon the attribution to the pre-marital contribution of the husband of a value greater than that permitted under s. 23. A reading of the section makes it clear that spousal contributions are valued at their fair market value at the date of the marriage, and any discretionary powers vested in the court by subss. (4) and (5) of s. 23 are only relevant in determining whether it is unfair and inequitable to exempt property from distribution. They do not provide a power to exempt more than fair market value at

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the time of the marriage. Nor, in my view, can s. 21(2)(q) be resorted to for this purpose. To do so would be to permit this general ‘catch-all’ paragraph to defeat the specific limitation on the exemption permitted under s. 23. Moreover, the Capital Base Theory seems to me to be wholly incompatible with the statutory presumption of equal distribution subject to a finite set of exemptions which characterizes the legislation. It follows from what I have said that I would resolve the first issue in favour of the appellant.

I now turn to the question of the interest rate fixed by the trial judge on the lump sum payable as part of the wife’s distributive share. The trial judge made the award in these words:

The respondent shall pay $60,050 to the applicant before August 15, 1981 failing which interest shall accrue on that sum from this date until the date of payment at the rate of twenty-two per cent per annum.

He appears to have fixed the rate in an attempt to equal the commercial rate at the time, although there is no evidence on this point in the record. In the Court of Appeal the interest rate was reduced without reasons to five per cent. Section 26(1)(b)(i) gives the trial judge the discretion to impose interest in order to effect the distribution. It provides:

26.—(1) The court, in order to effect a distribution under this part, may

…

(b) make any order that it considers fit in the circumstances whether or not it affects title to matrimonial property, and, without limiting the generality of the foregoing, the court may:

(i) order a spouse to pay money in a lump sum or over a period of time, with or without interest, or vest an interest in any matrimonial property in the other spouse;

That provision must, however, be read in the light of the Interest Act, R.S.C. 1970, c. I-18, which deals with the rate of interest on judgment debts in Saskatchewan as well as other western provinces and northern territories. It is, in my opinion, clear that the lump sum payment awarded to the wife in the case at bar is a “judgment debt” within the

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meaning of s. 15 of the Interest Act, which provides:

15. Any sum of money or any costs, charges or expenses made payable by or under any judgment, decree, rule or order of any court whatever in any civil proceeding shall for the purposes of this Act be deemed to be a judgment debt.

Section 13 of the Act fixes interest on “judgment debts” at five per cent per annum until satisfied and thus it follows that the Court of Appeal was correct in reducing the rate on the cash award to five per cent.

For the foregoing reasons, I would allow the appeal and restore the judgment at trial, subject to the increase in the wife’s lump sum payment to $65,050 and the reduction in the interest rate on that payment to five per cent per annum. In view of the divided success of this appeal, the parties will each bear their own costs.

Appeal allowed in part.

Solicitors for the appellant: Shumiatcher-Fox, Regina.

Solicitors for the respondent: McDougall, Ready, Wakeling, Regina.