





CITATION:
McNamee v. McNamee, 2011
          ONCA 533



DATE: 20110726



DOCKET: C52000



COURT OF APPEAL FOR ONTARIO



Sharpe, Blair and Rouleau JJ.A.



BETWEEN



Connie McNamee



Applicant

(Respondent
          in Appeal)



and



Clayton McNamee



Respondent

(Appellant)



H. Hunter Phillips and James N. Eastwood, for the appellant



Philip W. Augustine, for the respondent



Heard: February 1, 2011



On appeal from the judgment of Justice G.W. Tranmer of the
          Superior Court of Justice, dated March 18, 2010, with reasons available at
          (2010), 89 R.F.L. (6th) 314.



Blair and Rouleau JJ.A.:



[1]

Connie and Clayton McNamee were married for 18 ½
    years.  By all accounts their marriage
    was one that was conducted as an equal partnership, with the parties sharing
    their incomes and expenses and holding their assets and liabilities in their
    joint names.

[2]

They separated on August 5, 2007.  As was the case with their marriage, Mr. and
    Mrs. McNamee conducted the separation of their affairs in a commendably respectful,
    civil and accommodating fashion. They resolved issues surrounding the care of
    their children and other matters, but they needed a trial to settle two issues.

[3]

The first was the amount of the appellants income for
    purposes of child and spousal support.  That issue is not the subject of appeal.  The second issue  which
is
the subject of appeal  was whether Mr. McNamees 500 common shares in his
    fathers concrete trucking company had been received by way of gift (and were
    therefore exempt from inclusion in his net family property) or in some other
    fashion (and were therefore to be included in his net family property).  The shares were transferred to Mr. McNamee in
    March 2003, as a result of an estate freeze undertaken by the father, and were
    valued at $418,200 as of the date of separation.

[4]

The trial judge found that the shares had not been
    transferred by way of gift.  Mrs. McNamee
    was therefore entitled to half of their value.  Mr. McNamee seeks to set aside that decision.

[5]

At trial, Mrs. McNamee sought a declaration that she was
    entitled to a beneficial ownership interest in the appellants shares in the concrete
    trucking company by way of unjust enrichment and constructive trust.  The trial judge did not deal with this claim because
    he believed his finding that the shares were subject to equalization was
    dispositive of the issue.

[6]

For the reasons that follow, we would allow the appeal but
    order a new trial on the issue of unjust enrichment and constructive trust.

FACTS

The Marriage

[7]

The McNamees had a long-term and relatively problem-free
    marriage.  Their separation was
    apparently part of the fallout from the tragic drowning deaths of their best
    friends 15-year old child and another friend who tried to save the boy.

[8]

It is clear on the record, as the trial judge found,
    that the appellant and the respondent agreed to and did conduct their marriage
    as an equal partnership.  Their bank
    accounts were joint.  Their earnings were
    shared.  Their two homes were in their
    joint names.  The appellant agreed in
    cross-examination that assets and liabilities during the marriage were to be
    shared equally, regardless of whose name they were in; the couple shared the
    benefits and the burdens of the marriage.

[9]

The trial judge found as a fact that [if] Clayton and
    Connie had been asked as to their intention with regard to the shares [prior to
    separation], they both would have readily confirmed their intention to share in
    that benefit equally. This finding is supported in the evidence.  The legal effect of the transfer of the
    shares in the marital breakdown context is not that simple, however.

McNamee
    Concrete and the Estate Freeze

[10]

The appellant is the son of the founder of McNamee
    Concrete Ltd., John McNamee.  Mr. McNamee
    Sr. established his company in 1977, with a single cement truck.  In 1988 he invited his two sons, Clayton and
    Trevor, to join him in the business  Clayton to establish a construction
    division, and Trevor to head up the companys sales division.  Father and sons worked very hard and the
    business has grown dramatically and successfully.  The company now has about 40 trucks, and the construction
    division itself now has 30 employees and annual sales exceeding $5 million.

Mr.
    McNamee Sr. has always controlled the business and made all major financial and
    other decisions respecting it, and still does.

[11]

In 2003, he reluctantly yielded to the advice of his
    accountant and lawyer to implement a corporate estate freeze in order to
    protect the business from creditors and as a means of limiting the impact of
    taxation in the event of his death.  This
    was accomplished by folding the business into a holding company, 1518006
    Ontario Limited (Holdco), and fixing the value of the business at $2 million
    for purposes of the freeze.  That value
    was to accrue to Mr. McNamee Sr., but future growth in value would be reflected
    in common shares of Holdco to be issued to Clayton and his brother (subject to
    controls that Mr. McNamee Sr. was to retain).  To give effect to the freeze, Mr. McNamee Sr. transferred his only two
    common shares in McNamee Concrete Ltd. to the newly created Holdco in exchange
    for 20,000 voting preference shares valued at $2 million.  He then subscribed for 1,000 common shares
    for $1 and transferred 500 of those common shares to each of his sons.

[12]

Whether these shares were transferred by way of gift is
    a principal issue on appeal.

[13]

Mr. McNamee Sr. insisted that he was to retain control
    of the business  he did not think his sons were ready yet to take over  and
    he was adamant that no one would get the shares he had transferred to his sons
    without his approval.  He had gone
    through a divorce himself, and was determined that neither the shares nor any
    income from them were to become part of any community of property if his sons
    marriages broke down.  As a result of
    these concerns, there were some unusual features to the estate freeze.  First, Mr. McNamee Sr. retained full control
    by ensuring that his preference shares be voting shares (in the normal estate
    freeze, the preference shares maintained by the former principal are
    non-voting).  Secondly, his voting preference
    shares entitle him to take unlimited dividends from the company at any time,
    thus enabling him  should he wish to do so  to denude the company of any
    equity or retained earnings in the future (also an unusual feature).

The Declaration of Gift

[14]

As a result of these concerns, and as part of the estate
    freeze process, Mr. McNamee Sr. executed a Declaration of Gift at the time the
    common shares were issued to his sons.  The Declaration attached two strings to the transferred shares: first,
    neither the shares, nor any increase in their value or income from them, were
    to form part of the net family property of the donee in the event of marital
    breakdown; and, secondly, the shares were to remain the donees separate
    property, free from the control of his spouse.  As these strings or conditions are of some
    importance on the appeal, we recite the Declaration of Gift in its entirety
    here:

DECLARATION
    OF GIFT

I, John McNamee, of the Village of Jasper, in the
    Province of Ontario, am the owner of 1000 Common Shares in the capital of
    [Holdco] (the Property)

I desire to gift the property to my sons, Trevor
    McNamee and Clay McNamee, (the Donees) in equal proportion.

To carry out my intended purpose, I hereby deliver
    to each of the Donees a share certificate representing 500 Common Shares in the
    capital of [Holdco] registered in the name of the Donee.

I acknowledge that it is my intent to vest absolute
    ownership and title in the Property in the Donee from the date of this
    declaration.

I hereby direct that the whole of the Property
    gifted to each Donee, the income arising therefrom, any appreciation in the
    value thereof, and any property acquired in substitution therefor shall not
    fall into any community of property which may exist between the Donnee and his
    spouse, and shall not form part of the net family property of the Donee for any
    purpose or purposes under the
Family Law Act
,
    R.S.O. 1990, c. F.3 and any amendment thereto or any successor legislation
    thereto, and is given to the Donee on the condition that it shall remain his
    separate property, free from the control of his spouse.  This direction shall apply not only to the
Family Law Act
, but also to the laws of
    any other jurisdiction dealing with the distribution of property in the event
    of death or marriage breakdown.

[15]

Subsequent to the implementation of the estate freeze,
    the appellant and his brother and his father executed a Unanimous Shareholders
    Agreement.  This Agreement provides that
    in the event a common shareholder retires or leaves the employ of the company,
    his or her common shares are to be converted into fixed-value non-voting
    preferred shares of the corporation, having a redemption value equal to the
    fair market value of the shareholders common shares on the final date of
    employment by the corporation.

[16]

Holdcos shareholders register shows that 500 common
    shares were transferred to Clayton McNamee on March 20, 2003.  The appellant knew that he had become a
    shareholder and testified that at some point in time  although he could not
    remember when  his father told him the shares were a gift.  He did not pay for the shares.  The appellant erroneously thought that he and
    his brother and father had become equal 1/3 owners of the business, and happily
    conveyed that news to the respondent.  They were excited about this because it was an indication that their
    hopes for the future were coming to fruition  i.e., that at some point the
    appellant and his brother would take over the business and it would provide for
    their future needs.  In practical terms,
    the appellant had not become an equal owner of the business, given his
    fathers overwhelming voting control.  In
    fact, however, he and his brother were 50% owners of any future increase in the
    equity of the business, provided their father did not exercise his right to
    dividend out that equity to himself  which he had not done by the time of the
    marriage breakdown.

[17]

The appellant was not aware of the details of the
    estate freeze transaction, however.  He
    remembers signing some documents in 2003, but he did not totally understand
    them.  In particular, he was not shown
    the Declaration of Gift until after he and the respondent had separated in 2007.
    Until that time he did not know about the strings attached to the transfer of
    the shares or that his father was attempting to prevent him and his wife from
    sharing the value of the shares equally in the event of a breakdown of their
    marriage.

Working Lives

[18]

The appellant started working in the family business
    shortly after he met the respondent.  As
    noted, he ran the construction side of the McNamee Concrete business, while his
    brother ran the sales division and his father controlled the business overall
    and dealt with all important issues, including financial matters. The appellant
    worked hard, spending 10-12 hour days, 7 days a week at the beginning and later
    reducing that workload to 5 days a week as more staff was taken on.  The business did well and the appellants
    income from 2004 through 2008 ranged upward from $96,400 to $136,300 (plus the
    use of a company vehicle).

[19]

The respondent, meanwhile, was the primary parent for
    child care during the marriage.  She has
    a grade 12 education.  She was employed
    in the workforce from 1985 until 2002, at which time she switched jobs.  Shortly thereafter, however, she suffered a
    serious horse riding mishap, and the injuries she suffered prevented her from
    returning to the new job.  Thereafter,
    she did some part time work as a riding instructor, which was one of her areas
    of interest.  The respondent was engaged
    in some re-training as a legal administrator at the time of trial and her
    anticipated starting salary was in the range of $30,000-$35,000 annually.

[20]

The
    appellant readily acknowledged that his substantial contribution to the company
    would not have been possible without the respondents contribution in the home
    over the 18 ½ years of marriage. The respondent also assisted the appellant in
    his work in the company, although the trial judge made no conclusive findings
    about the nature and extent of the respondents assistance. He found that
the
    respondent did provide some valuable assistance to Clayton on job sites not
    only as company for him so he could go to work, but as a second set of hands
    that he could rely on, but that it was not possible to quantify how much work
    this amounted to or how often with any specificity.

LAW AND ANALYSIS


Were
    the Shares Transferred By Way Of Gift?

[21]

Section 4(2) of
    the
Family Law Act
, R.S.O. 1990, c.
    F.3, excludes gifts received during the marriage from a spouses net family
    property:

4(2) The value of the following property that a
    spouse owns on the valuation date does not form part of the spouses net family
    property:

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

[22]

The onus of proving exclusion under s. 4(2) is on the
    person claiming it: s. 4(3).


Elements of a Gift



[23]

Although the term gift is not defined in the
Family Law Act
, a gift, generally
    speaking, is a voluntary transfer of property to another without consideration:
Blacks Law Dictionary
, 7
th
ed. (St. Paul, Minnesota: West Group, 1999), at p. 696;
Birce v. Birce
(2001), 56 O.R. (3d) 226 (C.A.), at para. 17.  A transfer of property by contractual
    agreement involves a mutual exchange of obligations (consideration), but a
    transfer by way of gift involves a gratuitous, unilateral transaction: Mary
    Jane Mossman and William Flanagan,
Property
    Law, Cases and Commentary
, 2
nd
ed. (Toronto: Emond Montgomery,
    2004), at p. 439.  As McLachlin J. observed
    in
Peter v. Beblow
[1993] 1 S.C.R.
    980, at p. 991-92, the central element of a gift [is the] intentional giving
    to another without expectation of remuneration.

[24]

The essential ingredients of a legally valid gift are
    not in dispute.  There must be (1) an
    intention to make a gift on the part of the donor, without consideration or
    expectation of remuneration, (2) an acceptance of the gift by the donee, and
    (3) a sufficient act of delivery or transfer of the property to complete the
    transaction:
Cochrane v. Moore
,
    (1890), 25 Q.B.D. 57 (C.A.), at p. 72-73; Mossman and Flanagan,
supra
, at p. 441, Bruce Ziff,
Principles of Property Law
, 5
th
ed. (Toronto: Carswell, 2010), at p. 157.

[25]

Some authorities have sought to refine or qualify these
    elements in various ways, but they remain the substance of a valid gift.  Here, the trial judge found two
    qualifications to be significant.  First,
    he concluded, correctly, that the donor must divest himself or herself of all
    power and control over the property and transfer such control to the
    donee.  Secondly, he concluded 
    incorrectly, in our view  that the intention of the donor must be inspired by
    affection, respect, charity or like impulses and not by commercial purposes.

[26]

The trial judge based his conclusion that the transfer
    of shares to the appellant was not a gift on four factors:

a)

The
    transfer was not a gratuitous transfer but was a transfer for consideration;

b)

Mr.
    McNamee Sr. did not intend to gift the shares;

c)

Mr.
    McNamee Sr. did not divest himself of all power or control over the shares;
    and,

d)

The appellant did not accept the gift.

[27]

Respectfully, we do not think he was correct in law in
    so concluding.  The transfer was by way
    of gift.

Consideration

[28]

The trial judge concluded that the transfer of shares
    was not gratuitous but was a transfer for consideration.  We disagree.

[29]

Consideration in law is a contractual concept.  It is the value that flows from a promisee to
    a promisor as a result of a bargain.  There can be no consideration, however, when there has been no bargain
    or  to put it another way  consideration cannot flow from a promisee who does
    not know he or she is negotiating, much less passing value to a promisor in an
    exchange he or she doesnt know exists. Here, the share transaction was
    completely unilateral on the part of Mr. McNamee Sr.; his sons had no
    meaningful input with respect to it.

[30]

Thus, the debate about whether or not the share
    exchange was supported (a) by past consideration, in the form of the father
    supposing he was rewarding the boys for 15 years of hard work, or (b) by
    future consideration in the form of the boys continued employment with the
    company, is not particularly helpful.  Past
    consideration does not generally support a subsequent contract, and even if the
    trial judge was right in his finding that securing the continued involvement of
    the appellant and his brother in the business constituted a benefit flowing
    from the sons to their father, such a finding does not matter in these
    circumstances.  There was no bargaining;
    therefore, there could be no consideration in law.

[31]

It is helpful to remember that the issue is not whether
    the donor (or, for that matter, the donee) received some benefit from the
    estate freeze (Mr. McNamee Sr. accomplished his corporate planning; the boys
    received their common shares).  The issue
    is whether
the donee
has provided any
    consideration to the donor for the transfer of the shares.  For the reasons outlined above, the appellant
    provided no consideration in that regard.  The fact that Mr. McNamee Sr. accomplished his corporate planning goals
     including capping his value in the company at $2 million, with the right to
    draw out more if he wished; protection from creditors; and relief from possible
    tax consequences on his death  do not amount to consideration flowing from the
    appellant to him. Nor, we would add, did the appellants continued employment
    with McNamee Concrete constitute consideration for the transfer of the shares
    in the circumstances.  The appellant
    receives a good salary for his services as an employee of the enterprise, and
    the fathers vague hope that his sons would continue with the company does not
    constitute consideration flowing from the boys. The shares were not transferred
    in order to ensure the sons continued involvement in the company; they were
    transferred to give effect to the estate freeze plan.  Motive underlying a donors conduct is not
    the same thing as consideration flowing from the donee.

[32]

Moreover, the appellant is not bound to the company on pain
    of losing his shares, as the respondent contends, except in a technical
    sense.  Like many shareholders in a
    closely-held family corporation, his shares will be converted into fixed-value
    non-voting preference shares if he retires or leaves as an employee.  But those shares will not be worthless.  They will reflect the value attributed to his
    common shareholding position at the time of his departure.  The appellant does not retire or leave at the
    risk of losing everything.  Mr. McNamee
    Sr. receives no consideration flowing from his sons, in the form of forbearance
    from leaving, in this sense.

Intention

[33]

The trial judge found that Mr. McNamee Sr. did not
    intend to gift the shares to his sons; rather, he intended to complete the
    estate freeze in order to protect his company from creditors (and to avoid
    potential tax consequences).  In this
    respect, the trial judge said:

Clearly on the evidence the intention of John in
    authorizing and directing the estate freeze was not for the purpose of making a
    gift to his boys.  It was to creditor
    proof his business and thus better protect the future of his business.

The transfer of the shares was but one step that
    was necessary for the primary objective to be accomplished.

So long as the main objective was achieved with the
    requirements he demanded John was less concerned about how the shares were
    transferred to his sons.  This is evident
    from his testimony when asked why he didnt sell the shares to the boys.  He answered that it was because they didnt
    have any money.

...

A necessary step in achieving his goals involved
    transfer of shares  sale or gift.

·

Sale:  boys had no money

·

Gift: not because he wished gratuitously, out of
    generosity and as his kindly motivating intent, but because a transfer of
    shares was a necessary step and to do so by gift keeps the shares from the
    spouses and  this further protects Johns
    mandate of preserving his control.

I conclude that John
    did not have the intent to make a gift of the shares to his sons.  That was but one step in the sophisticated
    plan that John specifically directed.

[34]

Respectfully, this analysis erroneously conflates
intention
with underlying
motivation
or
purpose
.  They are not the
    same concepts and to treat them as such constitutes error in law.  That Mr. McNamee Sr.s primary purpose or
    motivation in transferring the shares was to underpin the estate freeze does
    not mean he did not intend to gift the shares in order to give effect to that
    purpose.  Had the trial judge focussed on
    Mr. McNamee Sr.s intention in relation to the transfer of the shares itself, rather
    than on his ultimate purpose or motivation in putting the estate freeze in
    place, he would have realized  on the evidence here  that Mr. McNamee Sr. did
    intend to gift the shares: the documentation to that effect (the Declaration of
    Gift) is clear; the fact that he did not sell the shares to the boys because
    they had no money  as noted by the trial judge above  reinforces the notion
    that the transfer was by way of gift; and there was no consideration in law,
    as we have earlier explained.  The
intention
respecting the transfer of
    shares was to do so gratuitously.  The
    transfer was part of the corporate structure putting the estate freeze in place.  And the estate freeze was the ultimate
motivation or purpose
.

[35]

Had he given effect to these distinctions, the trial
    judge would have recognized that Mr. McNamee Sr. had the requisite intention as
    donor to transfer the shares by way of gift.

[36]

In his analysis, the trial judge relied upon a Superior
    Court decision,
Traversy v. Glover
(2006), 30 R.F.L. (6
th
) 372 which, in turn, at para. 39, cited the
    following statement as part of the definition of gift from
Blacks Law Dictionary
, 5
th
ed. (St. Paul, Minnesota: West Group, 1979):

In tax law, a payment
    is a gift if it is made without conditions, from detached and disinterested
    generosity, out of affection, respect, charity or like impulses, and not from
    the constraining force of any moral or legal duty or from the incentive of
    anticipated benefits of an economic nature.

[37]

We are not able to find this reference in later
    editions of
Blacks
.  In any event, we are not persuaded that inspired
    by affection, respect, charity, or like impulses is the only type of donor
    intention that may found a valid gift  the spirit of, say, cufflinks under
    the Christmas tree, as the trial judge put it.  Here, the intention to transfer the shares had a perfectly legitimate
    legal objective, namely, to underpin the corporate restructuring in the form of
    an estate freeze.  To the extent that
Traversy
and the trial judge here are suggesting
    that for a gift to be valid the donors intention may only be motivated by
    altruism, we respectfully disagree.  A
    transfer of property by way of gift may equally be motivated by commercial
    purposes provided the transfer is gratuitous, i.e., as McLachlin J. (as she
    then was) put it in
Peter v. Beblow,
    supra
, provided it involves [the] intentional giving to another without
    expectation of remuneration.

Delivery



[38]

Delivery of the shares is not an issue.  Everyone concedes that the shares were transferred
    to the appellant.

Acceptance and
    Divesting of Power and Control

[39]

To be valid a gift must be accepted by the intended
    donee.

[40]

On behalf of the respondent, Mr. Augustine makes two
    arguments in support of the respondents position that the shares were not
    accepted in a fashion that would validate them as a gift.

[41]

First, he submits that Mr. McNamee Sr. did not divest
    himself of all power and control over the shares and therefore did not effect
    an irrevocable transfer of them to the appellant.  Why does he say this?  Because Mr. McNamee Sr. retained control over
    the
value
of the gift since he could
    dividend out the equity at any time, and because if the appellant did not
    continue to work for the company the shares themselves were subject to being
    converted to preferred shares and being redeemed.

[42]

Secondly, Mr. Augustine submits that the gift fails
    because the appellant was unaware of the conditions attached to it prior to the
    critical date, namely, the date of separation.  His lack of knowledge in this respect vitiated his acceptance and
    therefore vitiated what would otherwise have been a valid gift (assuming for
    these purposes that the other criteria for a gift had been met).

[43]

We do not accept either of these submissions.

[44]

The fact that the donor could affect the value of the
    shares at any given time reflects the nature of the estate freeze in
    question.  It has no bearing on whether
    the shares as transferred were or were not a gift.  The shares could be of no value, of limited
    value or of substantial value.  As it
    turned out, they were of substantial value  $418,200  when it counted.  The appellant received what he received, and
    the donor irrevocably transferred the shares for what they were.  That the Unanimous Shareholders Agreement
    calls for the conversion of the appellants common shares into fixed-value
    preference shares, should the appellant retire or leave the company, is of little
    significance in this respect.  Such a
    provision is a common protector for shareholders in closely-held corporations against
    the consequences of another shareholder leaving but still retaining unwanted
    leverage through potentially mischievous voting rights.  It has nothing to do with whether or not the
    shares were transferred and received as a gift.

[45]

Nor do we think the fact that there were unknown
    strings attached to the gift  unknown to the appellant at the time of his
    separation  invalidates the gift in these circumstances.

[46]

For one thing, the appellant clearly knew about and
    accepted the transfer of the shares.  He,
    and everybody else, operated on the basis that he was a common shareholder of
    the company for a period of several years.  He signed papers in the presence of his father and brother at the time
    of the estate freeze, and although he did not totally understand the
    documents he read, he knew that he and his brother were the owners of 500
    shares in the company that had been transferred to them, and he knew they had
    not paid anything for the shares.  Although he could not remember when it happened, he was told by his
    father that the shares were a gift.  As
    noted above, the appellant (erroneously) thought that he, his brother, and his
    father were equal shareholders and happily conveyed that news to the respondent.  The fact that he was mistaken about the
    relative strength of his shareholding position does not mean that he did not
    accept the transfer of the shares.

[47]

While a valid gift may be made without the donees
    knowledge, subject to the donees right to repudiate the gift upon learning of
    the transfer, the respondent contends the donee must ultimately understand the
    nature of the transaction and willingly accept title to the property
    transferred, as transferred, before the gift is completed: see Ziff,
supra
, at p. 157.  In this regard, the trial judge concluded
    (para. 208):

These authorities
    indicate that the question of whether or not the husband in the case at bar is
    found to have accepted his fathers gift would require that he know of the
    transfer of shares, at the time it was made.  Indeed, at the very minimum, he would be required, under the rule in
Wilson v. Hicks
[1]
which is still good law in Ontario, to have understood the nature of the
    transaction and to have willingly accepted title to the shares.  This understanding presumes an element of
    knowledge that he was the donee to the transfer of the shares at the time the
    transfer was made and of the terms and conditions attached to the shares.

[48]

In the passage cited above, however, Professor Ziff qualifies
    this concept:

Acceptance of a gift
    involves an understanding of the transaction and a desire to assume title.
This is
    a requirement that is treated with little rigour: in the ordinary case,
    acceptance is presumed to exist
. [Emphasis added.]

[49]

Here, contrary to the trial judges view, the appellant
    understood the essential nature of the transaction  he had received shares in
    the company and had paid nothing for them  and he willingly accepted title to those
    shares.  In the circumstances of this
    case, we do not think the appellants lack of knowledge of the terms and
    conditions attached to the gift is particularly germane.  We say this for a number of reasons.

[50]

First, the inference suggested by the respondent is
    that the appellant would not have accepted the shares, had he known of the
    strings attached.  But there is no
    evidence to support that suggestion.  While the trial judge found that, if asked, the appellant and the
    respondent would have confirmed their intention to share the benefits of the
    transfer equally, he made no finding that the appellant would have rejected the
    shares had he been aware of the strings attached to them.  This is not surprising, as such a finding
    would have cut against the grain of the parties expectations, i.e., that the
    appellant and his brother would help develop, and ultimately take over, the
    business enterprise, and that the appellants interest in the company would
    provide for them and their family in the future.

[51]

Secondly, a scenario in which the appellant repudiated
    the gift upon learning of the strings attached to it (and assuming that he
    acquired this knowledge before the operative date) assists no one in this
    proceeding.  In the absence of valuable
    consideration supporting the transfer  which we have concluded is the case
    here  the failed gift would revert to the failed donor, Mr. McNamee Sr.  The respondent would not have benefitted from
    this, nor would the appellant.  And
    whatever benefits had accrued from the estate freeze to that point might well be
    jeopardized.  A rejection scenario is
    highly unlikely, in our view.  Whatever
    else might have been done is pure speculation.

[52]

Thirdly, the conditions or strings attached to the transfer
    of shares are of little relevance or weight here.  They add nothing in the circumstances.  The requirement that neither the shares, nor
    any increase in their value, form part of the parties matrimonial property
    regime is simply a reflection of the law as it presently stands:
Family Law Act
, s. 4(2).  Nor is the condition that the shares remain
    the property of the appellant and not be transferred to his spouse
    affected.  For purposes of the gift
    analysis, and given Ontarios family law equalization payment regime  as
    opposed to a division of property regime  the shares remain the property of
    the appellant notwithstanding the breakdown of the parties marriage.

The Transfer
    of Shares Was a Gift

[53]

For the foregoing reasons, we are satisfied that the
    appellant received his 500 common shares in the company as a gift.  Subject to the constructive trust/unjust
    enrichment analysis, to which we now turn, it follows that, by operation of s.
    4(2) of the
Family Law Act
, neither
    the appellants ownership interest in the shares, nor any increase in the
    shares value, form part of the appellants net family property for purposes of
    calculating the equalization payment. The trial judge erred in ordering that
    half the value of the shares be included in the equalization payment to be made
    to the respondent.

Beneficial Ownership/Constructive Trust Claim

[54]

Our determination that the shares were a gift to the
    appellant is not the end of the matter, however. This is because the respondent
    has advanced a claim for a beneficial ownership interest in the shares on the
    basis of unjust enrichment and constructive trust.

[55]

The respondents constructive trust claim was a live
    issue at trial, but unfortunately the parties had framed the issue as follows:
    If the shares are excluded [from the husbands net family property], has the
    husband been unjustly enriched such that the wife is entitled to a remedy by
    way of constructive trust? Because the trial judge found that the shares were
    not to be excluded from net family property, he did not find it necessary to
    assess the respondents claim for a constructive trust.

[56]

In our view, the trial judge should have determined
    claims of ownership, including beneficial ownership, of all assets
prior
to dealing with the net
    equalization payment exclusions under s. 4(2) of the
Family Law Act
.

[57]

In
Rawluk v.
    Rawluk,
[1990] 1 S.C.R. 70, the Supreme Court of Canada articulated a
    two-step process in which which ownership is determined before any
    consideration of equalization under the
Family
    Law Act
. The Court wrote at p. 90:

Sections 4 and 5 of the
Family Law Act, 1986
create a two-step
    property division process that emphasizes the distinction between the determination
    of legal and equitable ownership and the equalization of net family
    property.  These sections require a court first to determine individual
    "ownership piles" and then to equalize the spouses' assets by
    ordering the spouse with the larger ownership pile to pay money to the spouse
    with the smaller pile.

[58]

The
    Court also held that the regime created by the
Family Law Act
did not oust the equitable remedy of constructive
    trust in the process of settling the affairs of married couples upon separation.  Far from excluding the remedy of constructive
    trust, the fundamental objectives of the Act are furthered by the use of the
    constructive trust remedy in appropriate circumstances (
Rawluk
at p. 90).

[59]

Rawluk
makes clear that a claim of ownership is
    distinct from a claim for a share in property value; the constructive trust
    claim addresses the former and the equalization regime of the
Family Law Act
covers only the
    latter.  As explained by Cory J. on
    behalf of the majority, the court needs to determine the owner of an asset
    before it makes an inventory of each spouses assets and carries out the
    equalization calculation. In other words, the consideration of constructive
    trust claims occurs as an essential preliminary step before the determination
    of net family property and before equalization.

[60]

Cory
    J. pointed to s. 10 of the
Family Law Act
as support for his conclusion that the legislature intended ownership issues to
    be resolved before equalization is calculated.  As he noted at p. 94, s. 10
allows a spouse to apply to a court
    to determine a question of ownership or possession prior to equalization, and
    thus to assert some degree of control over matrimonial property during
    cohabitation.

[61]

Section 10(1) reads:

A
    person may apply to the court for the determination of a question between that
    person and his or her spouse or former spouse as to the ownership or right to
    possession of particular property, other than a question arising out of an
    equalization of net family properties under section 5, and the court may,

(a) declare the ownership or right to
    possession;

(b) if the property has been disposed of, order
    payment in compensation for the interest of either party;

(c) order that the property be partitioned or
    sold for the purpose of realizing the interests in it; and

(d) order that either or both spouses give
    security, including a charge on property, for the performance of an obligation
    imposed by the order,

and may make ancillary orders or give ancillary
    directions.

[62]

Rawluk
also highlights the significance of the
    distinction between an ownership interest and entitlement to equalization of
    value. Cory J. wrote at p. 92:

The distinction between a share
    in ownership and a share in property value through an equalizing transfer of
    money is more than an exercise in judicial formalism. This distinction not only
    follows the
two
-step structure of the Family Law Act, 1986 but reflects
    conceptual and practical differences between ownership and equalization.
    Ownership encompasses far more than a mere share in the value of property. It
    includes additional legal rights, elements of control and increased legal
    responsibilities. In addition, it may well provide psychological benefits
    derived from pride of ownership. Where the property at issue is one to which
    only one spouse has contributed, it is appropriate that the other spouse
    receive only an equalizing transfer of money. But where both spouses have
    contributed to the acquisition or maintenance of the property, the spouse who
    does not hold legal title should be able to claim an interest in that property
    by way of a constructive trust and realize [page93] the benefits that ownership
    may provide. The imposition of a constructive trust recognizes that the titled
    spouse is holding property that has been acquired, at least in part, through
    the money or effort of another. The non-titled spouse's constructive trust
    interest in this property is distinct from the right to an equalizing share of
    property value that is derived not from an independent property right but from
    the status as a married person.

[63]

The two-step process described in
Rawluk
has been applied consistently by this court: see e.g.
Hamilton v. Hamilton
(1996), 92 O.A.C.
    103 (C.A.);
Roseneck v. Gowling
(2002), 62 O.R. (3d) 789 (C.A.).  In
Hamilton
, Osborne J.A. stated at paras.
    25-26:

The first step required by s. 4 is to identify all
    relevant property.  Then ownership has to
    be determined.  At this stage, trust
    principles may be brought to bear such that ownership of property for net
    family property purposes is deemed to be different from that which may be
    recorded in a titled document.  Once the
    ownership of property is established, the value of the property at the
    valuation date must be determined.

Next the court must determine the relevant
    deductions and exclusions under ss. 4(1) and 4(2) of the
Family Law Act
.

[64]

In
Roseneck
,
    Weiler J.A. put it succinctly at para. 2:

Under s. 4, the calculation begins by ascertaining
    the title to property owned by each spouse as at the date of separation.  Beneficial ownership of that property is then
    ascertained taking into account trust principles where applicable.  Following this, the court determines the
    relevant deductions and exclusions under the Act.

[65]

Therefore, a court must first apply trust principles to
    determine ownership before turning to the exclusions listed in s. 4(2).
This is supported by the language of
    s. 4(2), which provides: 
The value of the following property that a
    spouse
owns
on the valuation date
    does not form part of the spouses net family property (emphasis added).
A spouse cannot exclude
    property that is beneficially owned by someone else.

[66]

It must be stated that, in the vast majority of cases,
    any unjust enrichment that arises as the result of a marriage will be fully
    addressed through the operation of the equalization provisions under the
Family Law Act
; the spouse who legally
    owns an asset will ordinarily share half its value with the other spouse as a
    result of the equalization provisions under the Act.  However, a fair and contextual reading of the
    equalization and net family property provisions of the
Family Law Act
ensures that married spouses are not deprived of
    equitable remedies they would otherwise have available to them because, as
    noted above, ownership issues  equitable or otherwise  are to be determined
    before the net equalization payment exercise is undertaken.

[67]

The appellant, however, submits that the conditions
    imposed by the appellants father in the Declaration of Gift prevent the
    respondent from being able to acquire an interest in the shares.

[68]

In our view, the conditions in the Declaration of Gift
    are of no force or effect.  When the
    appellants father gave the shares to the appellant, he did not disclose the
    conditions to the appellant, nor did he provide the appellant with a copy of
    the Declaration of Gift.  The appellant
    accepted the gift of the shares believing they were without conditions.  The shares were transferred into his name and
    the appellant subsequently entered into a unanimous shareholder agreement with
    his brother and father.

[69]

For several years after receipt of the gift, the
    appellant worked for the company on the understanding that the shares were
    unconditionally his.  It was not until
    after the appellant and respondent separated that the Declaration of Gift was
    shown to the appellant.  By that date, if
    the shares were impressed with a constructive trust, the conditions would not
    operate so as to invalidate such a trust or the gift.  In the peculiar circumstances of this case, and
    where the conditions were not communicated to the appellant until well after
    the gift was accepted and it became impossible for the appellant to comply, the
    conditions could not operate so as to invalidate the gift or prevent the
    imposition of the constructive trust: see e.g.
Yates v. University College, London
(1875), L.R. 7 H.L. 438, and
In Re
Macklem
and
    Niagara Falls Park Commissioners
(1887), 14 O.A.R. 20 (C.A.).

[70]

In the present case, therefore, the trial judge should
    have assessed the respondents claim of a beneficial ownership interest in the
    shares pursuant to s. 10 of the Act
before
engaging with the equalization scheme. Since the trial judges reasons focus
    mainly on the issue of whether the shares were a gift, he did not seem to direct
    his full fact-finding powers to the constructive trust issue. Indeed, he explicitly
    declined to resolve the factual disputes between the parties concerning the nature
    and duration of the respondents assistance to the appellant in his contributions
    to the company, other than to say that he found that her testimony demonstrated
    considerable knowledge about this work.

[71]

Reviewing the record, we are not satisfied that there
    are sufficient factual findings for this court to determine on its own whether
    the respondent is entitled to a constructive trust. The only recourse, then, is
    a new trial on that issue. A new trial shall only be ordered when a substantial
    wrong or miscarriage of justice has occurred:
Courts of Justice Act
, R.S.O. 1990, c. C.43, s. 134(6). In our
    view, the error with respect to the gift issue, which led to the constructive
    trust issue never being addressed despite being pleaded by the parties, was a
    substantial wrong. A new trial is warranted in order to give full consideration
    to the constructive trust claim.

DISPOSITION

[72]

For all of the foregoing reasons, we would allow the
    appeal and set aside the order of the trial judge dated March 18, 2010,
    requiring the appellant to pay to the respondent the sum of $209,100, plus
    prejudgment interest on that amount, in full and final satisfaction of all
    right, claim and interest of the respondent in the 500 common shares in 1518006
    Ontario Limited in the name of the appellant.  However, we would direct a new trial on the issue of whether the
    respondent has unjustly enriched the appellant and is entitled to a beneficial
    ownership interest in the shares in the form of a constructive trust.

[73]

There is also an outstanding order restraining the
    appellant from depleting the said shares without the written consent of the
    respondent until such time as the sum of $209,100.00 plus accrued interest has
    been paid in full. Since the appellant is no longer liable for this amount, it
    no longer serves as basis for preventing the appellant from depleting his
    shares.  However, given that there may be
    a new trial to determine the parties respective rights and interests in the
    shares held in title by the appellant, we would modify the order so that the
    appellant is restrained from depleting the said shares without written consent
    of the respondent, and that this order shall continue until further order of
    the Superior Court.

[74]

As the results of the appeal are mixed, we would make
    no order as to costs.

R.A. Blair J.A.

Paul Rouleau J.A.

I agree Robert J.
    Sharpe J.A.

RELEASED:  July 26,
    2011





[1]

Wilson v. Hicks
(1911), 23 O.L.R. 496
    (C.A.).


