Dobrowolski v Dobrowolski, 2020 MBCA 105

Citation: Dobrowolski v Dobrowolski, 2020 MBCA 105 Date: 20201029 Docket: AI19-30-09359 IN THE COURT OF APPEAL OF MANITOBA Coram: Madam Justice Holly C. Beard Mr. Justice William J. Burnett Madam Justice Lori T. Spivak BETWEEN : PETER DOBROWOLSKI, in his capacity as ) M. H. Toews Executor for THE ESTATE OF ALEXANDER ) for the Appellant DOBROWOLSKI, DECEASED ) ) T. J. Fry and ) J. D.

Caligiuri (Plaintiff) Respondent ) for the Respondent ) (via videoconference) - and - ) ) Appeal heard: ANDREW DOBROWOLSKI ) April 29, 2020 ) ) Judgment delivered: (Defendant) Appellant ) October 29, 2020 COVID-19 NOTICE: As a result of the COVID-19 pandemic and pursuant to r 37.2 of the Manitoba, Court of Appeal Rules , Man Reg 555/88R , this appeal was heard remotely by videoconferencing.

On appeal from 2019 MBQB 126 BURNETT JA [ 1 ] This appeal involves a dispute between the plaintiff, the Estate of Alexander Dobrowolski, deceased (the Estate) and one of the deceased’s children, the defendant Andrew Dobrowolski (Andrew). [ 2 ] Following an eight-day trial, the trial judge found that the Estate was the legal and beneficial owner of an undivided one-half interest in 43 properties and an undivided one-quarter interest in another property (collectively, the Properties). The Properties were registered in Andrew’s name.

The trial judge ordered that title to the Properties be vested in the names of Peter Dobrowolski (Peter), in his capacity as executor for the Estate, and Andrew, as tenants in common. The trial judge also ordered that Andrew provide an accounting of all revenue, income, proceeds and expenses relating to the Properties.

Finally, the trial judge ordered party-and-party costs to June 27, 2018 (the date of an offer to settle made by the Estate to Andrew) and double party-and-party costs thereafter. [ 3 ] Andrew appeals the trial judge’s decision, primarily on the basis that hearsay evidence should not have been admitted at trial and that the trial judge erred in finding a joint business venture between his father Alexander Dobrowolski (Dobrowolski) and himself. [ 4 ] For the reasons which follow, the appeal is dismissed.

Background [ 5 ] The background and events leading to the claim are described in detail in the trial judge’s reasons. [ 6 ] Briefly stated, Dobrowolski and his wife Natalie had four children, Kristin Early, Peter, Michael Dobrowolski and Andrew. Dobrowolski died on October 25, 2013 and Natalie passed 13 days later. [ 7 ] As the trial judge observed, “The Dobrowolski family presented at trial as having many challenges, differences of

opinion and outright contempt for one another” (at para 8). [ 8 ] In or about 1999, Andrew commenced operation of a business which involved the purchase, rental and sale of real property in Winnipeg. [ 9 ] It is not disputed that, over the course of several years, Dobrowolski provided Andrew with funds for the purchase of various properties; that rental income was deposited to, and mortgage payments, taxes and expenses were paid from, a joint bank account; and that, over time, further properties were acquired with funds from that joint account and/or from two lines of credit secured by Dobrowolski or the rental properties. [ 10 ] The Estate alleged that, from the outset, Dobrowolski and Andrew entered “a business relationship as partners” whereby Dobrowolski invested monies to purchase real property in Winnipeg to be used as income-generating investments for himself and Andrew. [ 11 ] Andrew denied entering into any business relationship with his father.

In his defence, Andrew acknowledged that Dobrowolski provided him with guidance and assistance and some money relating to initial purchases of real property, but says that the “nominal amount of funds” provided by Dobrowolski were provided by way of a gift for the purpose of assisting him in commencing his business enterprise.

Simply put, Andrew’s position was that Dobrowolski’s financial contribution was a gift, and any other assistance provided by him was simply assistance that one would ordinarily expect a father to provide to his son. [ 12 ] In 2009, the relationship between Dobrowolski and Andrew deteriorated.

The Trial Judge’s Decision [ 13 ] In a lengthy written decision, the trial judge reviewed the evidence at trial and counsel’s submissions, as well as the law pertaining to resulting trusts, the doctrine of laches and delay and the issue of hearsay. [ 14 ] At the beginning of her reasons, the trial judge observed (at para 12): It is noteworthy that certain of the evidence in this case constituted hearsay. This was necessitated substantially because of the demise of Dobrowolski and his wife. Additionally, much of that evidence was self-serving and supportive of the position presented by the witness who provided it.

While necessary, the reliability and weight of the hearsay evidence will be evaluated along with any corroborative evidence. [ 15 ] Later the trial judge noted that the issue of threshold reliability had been considered earlier in the proceedings when certain de bene esse evidence had been taken before another judge (at paras 83-84): Hearsay This area constituted a significant issue throughout the trial and was also considered by Associate Chief Justice Perlmutter at the hearing of the de bene esse examinations on November 5, 2018.

At that time, it was foreseen that there would be hearsay issues as a consequence of the demise of Dobrowolski and Natalie, accompanied by the need for witnesses to testify as to their conversations and interactions with them. Perlmutter ACJ determined, based on the principled exception to the hearsay rule with respect to necessity and reliability, that the hearsay testimony would be allowed and considered. Clearly, necessity was satisfied because of Dobrowolski’s and Natalie’s deaths.

Therefore, reliability became the principle issue, which is, ultimately, one to be evaluated with regard to the weight to be afforded to the evidence. ( See: R. v. Bradshaw , 2017 SCC 35 , [2017] 1 S.C.R. 865 .) The hearsay evidence to be considered in this case significantly comes from Dobrowolski and, to an extent, from Natalie through their children and other witnesses.

There was no opportunity for the defence to conduct a meaningful, contemporaneous and sworn/affirmed cross-examination of the deceased individuals regarding the truth of any specific statement or document which was alleged to have been made by them. In essence, there was an inability to test the reliability of certain declared assertions. Further, the defence submits that the hearsay was substantially self-serving. Clearly, the same could be said with respect to the defence’s witnesses who also put forth hearsay evidence related to their interactions, primarily with Dobrowolski.

The determination of Perlmutter ACJ to accept such evidence, with which I agree, dealt with the issue of threshold reliability. [ 16 ] The trial judge decided that the Estate’s evidence was reliable and trustworthy, stating (at paras 86, 88): . . . I am satisfied that the evidence is clear that issues of credibility and reliability must be resolved in favour of the Estate and the Estate witnesses. Of particular importance was the significant amount of documentation that recognized a business arrangement between

Dobrowolski and Andrew. It is impossible to negate the importance of that documentation or to dismiss it. I find the hearsay evidence on behalf of the plaintiff to be ultimately reliable and trustworthy when considered in relation to all the evidence. This conclusion is significantly buttressed by the earlier outlined documentation (paras. 13 to 15, and 58).

There were sufficient guarantees of trustworthiness, particularly with respect to a case to be determined on a balance of probabilities. . . . [ 17 ] The trial judge concluded that the relationship between Dobrowolski and Andrew was, from the beginning, a joint business venture to own and manage rental properties (at paras 89, 91, 96-97, 105): . . . I am satisfied that he [Andrew] was the “face” of the business. However, that property documentation, substantially drawn by Dobrowolski, does not override the intention at the commencement of this joint business venture between himself and his father.

Additionally, it is that intention at the beginning of the business venture that is fundamental to whether a business relationship existed in these circumstances. It cannot be based on a transactional determination as each property was bought or sold. I acknowledge the comment made in Nishi with respect to evaluating the true intention of the transferor at the time of the transfer as being determinative. However, the grantor’s intention, in a parent-child relationship, was reflected by what transpired here and occurred through a standing and operative business venture . . . . . . .

I am satisfied that the evidence is clear that the relationship between Andrew and Dobrowolski was one of a business ownership interest and not a gifting situation . The intention at the commencement of the business venture was orchestrated and primarily funded by Dobrowolski to create a business opportunity for himself and Andrew to build together. Further, Andrew has demonstrated significant acumen in the running of the business. However, it would not have happened without his father’s financial backing and creditworthiness.

Dobrowolski was integral to the venture going forward and had been involved in similar property business opportunities over the years. Dobrowolski’s involvement from the beginning of the business venture facilitated its financial viability and was fundamental to it. It is based upon what has been established and intended between the parties when this venture commenced in 1999. The conclusions reached in this case are significantly bolstered by the documentation . . ..

I am satisfied that there is sufficient evidence as outlined to determine Dobrowolski’s intention based on the evidence in this case without the necessity of reliance on the presumption of resulting trust. However, if I am in error in that conclusion, the presumption of a resulting trust is determinative. The evidence has been considered and weighed, on a balance of probabilities, and results in the finding that Dobrowolski’s actual intention was to create a business relationship with Andrew.

I also conclude that the presumption of a resulting trust has not been rebutted. [emphasis added] [ 18 ] An offer to settle was served by the Estate prior to trial. In a brief endorsement, the trial judge awarded party-and-party costs to the date of the offer and double party-and-party costs thereafter. The Issues and Standards of Review [ 19 ] In his factum and at the hearing, Andrew raised four issues.

In particular, Andrew submits that the trial judge erred: 1. in admitting hearsay evidence with respect to comments made by Dobrowolski; 2. in finding that there was an agreement, or alternatively, a resulting trust with respect to the Properties; 3. in failing to dismiss the claim for delay on the basis of the doctrine of delay and laches; and 4. in awarding double costs for a portion of the proceedings. [ 20 ] Significantly, Andrew takes no exception to the principles of law stated in the trial judge’s reasons, rather his concerns relate to the application of that law to the facts of this case. [ 21 ] The authorities are clear that the admission of hearsay evidence is a question of law; however, absent an error in principle, whether such evidence was properly admitted is a question of mixed fact and law to be reviewed on a standard of palpable and

overriding error. See, for example, R v Weldekidan, 2019 MBCA 109 (at paras 32-33): It is well established that the admissibility of evidence, including hearsay evidence, raises a question of law: see, for example, Fanjoy vThe Queen, (SCC), [1985] 2 SCR 233 at para 9. This principle was confirmed in R v Youvarajah, 2013 SCC 41, where Karakatsanis J, for the majority, also set out the standard ofreview for decisions on the admissibility of hearsay evidence (at para 31): The admissibility of hearsay evidence, such as the prior inconsistent statement in this case, is a question of law.

Of course, the factualfindings that go into that determination are entitled to deference and are not challenged in this case. As well, a trial judge is well placedto assess the hearsay dangers in a particular case and the effectiveness of any safeguards to assist in overcoming them. Thus, absent anerror in principle, the trial judge’s determination of threshold reliability is entitled to deference: R. v.

Couture, 2007 SCC 28, [2007] 2S.C.R. 517, at para. 81. (emphasis added) See also Procureure générale du Québec c Inter-Cité Construction Itée, 2017 QCCA 1525 at para 19; R v Piche, 2019 SKCA 54 at para39; and R v Moir, 2020 BCCA 116 at paras 81-82. [22] In Housen v Nikolaisen, 2002 SCC 33, Iacobucci and Major JJ explained an error in principle as including “theapplication of an incorrect standard, a failure to consider a required element of a legal test, or similar error in principle”, stating that theseare errors of law to be reviewed on a standard of correctness (at para 36).

An error of law would include failing to conduct any analysisof the reliability of proposed hearsay evidence (see Clayson-Martin v Martin, 2015 ONCA 596 at paras 42-43); misstating the legal test(see R v DAI, 2012 SCC 5 at paras 87, 89); and failing to apply the correct legal test (see Fawley et al v Moslenko, 2017 MBCA 47 atpara 55). [23] The trial judge’s alternate finding that the presumption of a resulting trust had not been rebutted is also a question ofmixed fact and law to be reviewed on the standard of palpable and overriding error (see Jensen v Jensen, 2009 ABCA 272 at para 42;Lorintt v Boda, 2014 BCCA 354 at para 72; and Belokon v Krygyz Republic, 2016 ONCA 981 at para 53). [24] This Court has recently confirmed that a decision to dismiss an action for delay is a discretionary decision entitled todeference on appeal (see Glenwood Label & Box Mfg Ltd v Brunswick Label Systems Inc et al, 2019 MBCA 12 at para 4; Oliver v TheGovernment of Manitoba et al, 2019 MBCA 62 at para 4; and the authorities referred to in those decisions). [25] Finally, the standard of review for an award of costs is well established.

For example, in Rivard (Litigation Guardianof) v Thompson, 2019 MBCA 7, Cameron JA, for the Court, said, “The parties agree that the decision of the trial judge relating to costsis entitled to significant deference absent an error in principle or a decision that is plainly wrong (see Johnson v Mayer, 2016 MBCA 41at paras 21-22)” (at para 13; see also Dunford v Birnboim, 2017 MBCA 100 at para 7; and Rummerfield v Rummerfield, 2018 MBCA 3at para 6; for cases involving an award of double costs, see Steele v Rendell, 2017 NLCA 36 at para 10, quoting from the leading case ofSun Indalex Finance, LLC v United Steelworkers, 2013 SCC 6 at para 247; and Nissen v Nissen, 2020 ABCA 8 at para 17).

Analysis and Decision [26] In my view, there are two substantive issues raised in this appeal: first, whether the trial judge erred in her approach tothe hearsay evidence introduced by both parties; and second, whether she erred when she determined that there was, from the outset, ajoint business venture between Dobrowolski and Andrew. [27] Andrew concedes that the necessity component of the principled exception to the hearsay rule was satisfied.

Hesubmits that the hearsay evidence adduced by the Estate failed to meet threshold reliability and that, even if it did, little or no weightshould be given to such evidence. [28] As noted previously, de bene esse evidence was taken from two defence witnesses prior to trial. In direct examination,one of those witnesses, Alice Teresa Dobbs (Dobbs), testified as follows: . . . Q Now did you discuss Andrew’s business at any time with Alexander?

A Yes, I did. Q And what were the nature of those discussions? A We were out for lunch, as a matter of fact, at the Norvilla Hotel and he met me and we went for lunch. And he was upset that day because Andrew had gone away on holidays and not left him in charge of his properties. And kind of found that funny and I looked at Alec and I said -- pardon me, but I call him Alec. I looked at Alec and said, Well, do you own these properties? No. Those are Andrew’s properties. And he looks after them very well. And I -- Q Alexander said no? . . .

An objection was immediately made that the evidence was inadmissible as it was clearly hearsay evidence. [ 29 ] In ruling that the evidence was admissible, Perlmutter ACJQB stated: . . . . . . Given that Mr. Dobrowolski is deceased, I would think the necessity component is achieved. The question is reliability. At the end of the day that might be something that, that has to go to weight how reliable any of this is. But on the basis of sort of a threshold analysis, I’m not sure you get around the fact that there are going to be statements that come up. . . . . . .

I am saying, assuming it’s relevant, I don’t know how you get away in a case like this where the deceased, Mr. Alexander Dobrowolski, is not here, it involves his relationship with Andrew Dobrowolski, I’m not sure how you don’t allow this in and then go to weight at the end. And I may be proven wrong. Another court may come along at a later point and say that I got this all wrong but I, I think that it has to go in with that caution that at the end of the day I may give it very little, if any, weight. . . . . . . I think you have to assume you’re making your objections now. . . . I think, Mr.

Toews, you’ll have to be sensitive to relevance and at the end of the day you’re both going to have to address reliability. But I’m going to allow it but with that understanding that it may get zero weight at the end, but for now I’m going to allow it. . . . [ 30 ] When the first objection to hearsay evidence was made at trial, the trial judge was told that Perlmutter ACJQB had made an evidentiary ruling during the de bene esse examinations that hearsay evidence could go in, in order to provide the Court with context. After hearing from counsel, the trial judge said: . . .

. . .

I am going to permit it on the same lines that Associate Chief Justice Perlmutter did, and, again, it’s something that we will look at in terms of weight and arguments as we get further along in the trial and at the end of the trial. . . . [ 31 ] Thereafter, hearsay evidence was provided by witnesses for both parties, largely without objection. [ 32 ] I am not persuaded that the trial judge erred when she determined that the plaintiff’s hearsay evidence met threshold reliability and was ultimately reliable, nor do I share the concerns of my colleague Beard JA regarding the treatment of hearsay evidence by Perlmutter ACJQB and the trial judge. [ 33 ] In Pfizer Canada Inc v Teva Canada Limited , 2016 FCA 161 , Stratas JA observed (at para 84): Sometimes courts—aiming to prevent trials from bogging down—provisionally receive evidence whose admissibility is challenged, reserving their rulings on admissibility until later.

In some circumstances, there may be much to commend that approach; in other circumstances, the trial may be more orderly and fair if rulings are made immediately so the parties know where they stand. It is a matter of discretion.

But, in the end, before a court can rely on the evidence and ascribe it any weight or draw any inferences from it, it first must determine its admissibility. [emphasis added] [ 34 ] Also instructive are this Court’s comments in Fawley (at para 95): However, the context of a given case in terms of the issues and the impact that the hearsay evidence may have to resolving them is always a consideration in the application of the principled approach to the hearsay rule ( see R v Couture , 2007 SCC 28 at para 76 ).

While that does not mean that hearsay evidence is necessarily more readily admissible in civil cases than in criminal cases, civil courts must be mindful that there are dynamics in a civil case that are different than in a criminal case, such as a lesser burden of proof, the importance of access to civil justice and the principle of proportionality.

As Adams J noted in Clark v Horizon Holidays Ltd , 1993 CarswellOnt 929 (Gen Div) , the principled exception to the hearsay rule signals “a willingness in the judiciary to design procedures and evidentiary rules to enhance the accessibility and, therefore, the relevance of our courts” (at para 37). See also Dodge v Kaneff Homes Inc , 2001 CarswellOnt 1099 at paras 23-24 (Sup Ct J) . In her reasons, my colleague has provided a

summary of some of the legal principles relating to hearsay evidence. While I am generally in agreement with her remarks, I would not want this decision to be taken as a complete endorsement of that

summary or as an endorsement of a rigid approach to the admission of hearsay evidence in a civil proceeding. Regarding the former, I am particularly concerned that my colleague is attempting the impossible task of definitively stating the law of hearsay upon which all admissibility decisions must be based.

Regarding the latter, this runs contrary to the purpose of the principled approach to the hearsay rule, which is to move from ossified rules about the admission of hearsay evidence to a more flexible case-by-case approach. [ 35 ] The trial judge clearly made her own independent assessment of threshold and ultimate reliability.

She took a functional approach to threshold reliability which was both efficient and proportional, she did not confuse threshold reliability with ultimate reliability, she considered all of the corroborative evidence in the context of the case, and she was satisfied that there were sufficient independent circumstantial or evidentiary guarantees that the hearsay was inherently reliable.

She attached particular importance to “the significant amount of documentation that recognized a business arrangement between Dobrowolski and Andrew” (at para 86 ), and she said, “It is impossible to negate the importance of that documentation or to dismiss it” ( ibid ). [ 36 ] The main thrust of Andrew’s submission is that little or no weight should be attached to the hearsay evidence relied upon by the plaintiff.

However, even if no weight is given to that evidence, there is extensive documentary evidence which supports the trial judge’s finding that there was a joint business venture between Dobrowolski and Andrew.

That documentary evidence includes: the business records regarding Dobrowolski’s contributions to the acquisition of the Properties; the use of the joint account to deposit rent, make mortgage payments and pay taxes and other expenses relating to the Properties; the use of some or all of the Properties to support the North Winnipeg Credit Union line of credit; the cohabitation agreement signed by Andrew in which he specifically acknowledges that he “is in partnership with his father, Alexander Dobrowolski”; the disclosure letter dated April 2007 prepared by Dobrowolski and signed by Dobbs in which Dobbs confirmed that Dobrowolski had told her that he had a financial interest in the purchase of one of the Properties; and the transfer of land signed by Andrew on April 6, 2006 conveying title to the rental properties held at that time from Andrew to Dobrowolski. [ 37 ] The trial judge’s finding that there was a joint business venture was a factual finding that was available on the documentary evidence and inferences from the other admissible evidence, without the need to rely on the hearsay evidence.

Thus, I have not been persuaded that the trial judge erred in her finding that there was a joint business venture. [ 38 ] As the trial judge did not make a palpable and overriding error when she determined that the relationship between Dobrowolski and Andrew was a joint business venture, it is not necessary to consider whether she erred when she determined, in the alternative, that there was a resulting trust.

[ 39 ] In my view, there is no merit to the remaining issues raised by Andrew. [ 40 ] Andrew has failed to establish that the trial judge made any palpable and overriding error when she found that: there was no significant delay in the advancement of the claim; there was no evidence Andrew altered his position over the time that a claim was not advanced; and there was no prejudice suffered by Andrew and no acquiescence by Dobrowolski or the Estate.

In short, the trial judge’s decision regarding delay and the doctrine of laches is entitled to deference. [ 41 ] Finally, the trial judge’s decision with respect to costs was a discretionary decision and is entitled to deference absent an error in principle or a decision that is plainly wrong. The essence of Andrew’s submission is that the offer to settle was nothing more than a nominal reduction in the amount claimed and therefore double costs should not have been awarded. The trial judge considered and rejected that submission.

The Estate correctly observes that the offer was not insignificant and did represent a real compromise. The trial judge did not err in principle and her decision is not plainly wrong or unjust. Accordingly, there is no basis to set aside the cost award. Disposition [ 42 ] For the foregoing reasons, the appeal is dismissed with costs.

JA I agree: JA BEARD JA (concurring): [ 43 ] While I agree, for the most part, with my colleague Burnett JA, including his conclusion that the appeal should be dismissed with costs, I find myself in disagreement with his findings regarding the trial judge’s treatment of the hearsay evidence. [ 44 ] As my colleague notes, the admission of the hearsay evidence was an issue at the taking of the de bene esse evidence and at the trial, and it remains so on appeal.

My colleague has found that “the trial judge clearly made her own independent assessment of [the] threshold and ultimate reliability” of the hearsay evidence (at para 35 herein). With respect, I do not agree. In my view, there were errors in the treatment of the hearsay evidence by both the judge hearing the de bene esse evidence and by the trial judge. It is useful to begin with a review of some basic legal principles related to hearsay evidence.

Hearsay Principles [ 45 ] First, while the principles governing the admissibility of hearsay evidence have more often been developed in the context of criminal law cases, they apply equally to criminal and civil cases, including family law cases. (See Jung et al v HSBC Trust Company (Canada) et al , 2006 BCCA 549 at para 31 ; Clayson-Martin v Martin , 2015 ONCA 596 ; Pfizer Canada Inc v Teva Canada Limited , 2016 FCA 161 ; and Fawley et al v Moslenko , 2017 MBCA 47 at para 94 .) There are, however, some circumstances in which they do not apply, such as in bail hearings, sentence hearings and in many administrative proceedings. (See Vancouver Airport Authority v Commissioner of Competition , 2018 FCA 24 at para 25 ; and Sidney N Lederman, Alan W Bryant & Michelle K Fuerst, The Law of Evidence in Canada, 5th ed (Toronto: LexisNexis, 2018) (at pp 422-25). [ 46 ] The question of the application of these rules in the civil context is addressed in David M Paciocco & Lee Stuesser, The Law of Evidence , 7th ed (Toronto: Irwin Law, 2015).

The authors state (at pp 129-30): . . . It is also true that expediency in introducing evidence is a valid concern given the costs of [civil] litigation and there is no countervailing concern about protecting the liberty interest of an accused. There is much wisdom, however, in treating the law of hearsay the same. A general across-the-board relaxing of the hearsay rules in civil cases is too blunt an approach. Admitting hearsay without due scrutiny would impair the fact-finding process.

The search for truth remains important in civil cases where much can be at stake. . . . [footnotes omitted] [ 47 ] The authors suggest that consideration be given to a more flexible application of the rules as they relate primarily to the necessity criterion, to balance the importance of the issues in the case against the impact of receiving evidence in a hearsay form and the cost of requiring a witness to testify.

As an example, they state that, depending on a witness’s role in a case, it may not be reasonable to incur a prohibitive expense to produce that witness—i.e., it may not be necessary to require the witness to testify in person. They state that “it is here that ‘expediency’ may well be more of a factor in civil cases” (at p 130). However, on the issue of reliability, they say ( ibid );

. . . On the other hand, in terms of assessing the reliability of the hearsay statements, the indicia of reliability do not change whether it is a civil or criminal case. . . . [footnotes omitted] [ 48 ] In this case, necessity has been acknowledged—what is at issue is the reliability of the hearsay evidence. [ 49 ] Second, it is important to understand what constitutes hearsay evidence.

Not every out-of-court statement where the maker is not called in the proceeding is hearsay; it is only those statements offered to prove the truth of the contents (see Paciocco at p 113; R v Baldree , 2013 SCC 35 at para 1 ; Pfizer at para 89; and R v Bradshaw , 2017 SCC 35 at para 1 ). What is important to note is that the status of being hearsay is not inherent in a piece of evidence; rather, it is determined by the use to be made of the evidence.

Thus, no evidence, including evidence of statements made by the late Alexander Dobrowolski (Dobrowolski), is, on its face, hearsay. (See Baldree at para 36 ; Pfizer at para 89; CBS Canada Holdings Co v Canada , 2017 FCA 65 at para 20 ; and Paciocco at p 115.) [ 50 ] Third, all hearsay evidence is presumptively inadmissible.

This rule is subject to many exceptions, with the onus being on the proponent of the evidence to prove, on a balance of probabilities, that an exception applies to render the evidence admissible. (See Baldree at para 2 ; Pfizer at para 87; Bradshaw at para 1 ; Paciocco at pp 82-83, 113; and Lederman at

section 6.62.) [ 51 ] Fourth, evidence coming within a traditional exception is presumptively admissible; it may be excluded if the prejudicial effect exceeds the probative value or if, although this will be rare, it does not meet the principled approach requirements of necessity and reliability.

The burden is on the party challenging the admissibility of evidence falling within a traditional exception to show that the evidence should be excluded. (See R v Starr , 2000 SCC 40 , at paras 211-14 ; and Lederman at sections 6.81-6.85.) [ 52 ] Fifth, the admissibility of hearsay evidence is first considered in the context of the traditional exceptions to the hearsay rule and, if none apply, then it can still be admitted if the proponent is able to establish that it comes within the principled exception of necessity and reliability. (See R v Khelawon , 2006 SCC 57 at paras 42 , 47, 59-60; and Baldree at para 34 .) This is the Starr/Mapara (see R v Mapara , 2005 SCC 23 ) framework that is explained later. (See the analysis at paras 61-78 herein.) [ 53 ] Sixth, the determination of the admissibility of hearsay evidence is a very contextual analysis that depends on the underlying facts and the circumstances under which the evidence came about, and this starts with the determination of whether the proposed evidence is being offered for a hearsay purpose. (See, for example, Khelawon at paras 57, 62-63 ; and Bradshaw at paras 30- 31, 40, 44 .) [ 54 ] Seventh, the courts have emphasised that, when applying the principled exception, the threshold reliability finding to determine admissibility must be addressed and kept separate from the ultimate reliability finding to determine how much weight to give to the evidence. (See Starr at para 215 ; Pfizer at paras 83-84; and Bradshaw at paras 39-42 .) Stratas JA’s comments in Pfizer are worth repeating (at para 83): Recently, some rules of evidence have been liberalized, allowing for more flexibility.

Seduced by this trend towards flexibility, some judges in various jurisdictions have been tempted to rule all relevant evidence as admissible, subject to their later assessment of weight. But according to our Supreme Court, this is heresy. The trend towards flexibility has not undermined the need for judges to take a rigorous approach to admissibility, separating that analytical step from others, such as determining the weight to be given to evidence : R. v.

Khelawon , 2006 SCC 57 , [2006] 2 S.C.R. 787 (S.C.C.) at para. 59 . [emphasis added] [ 55 ] These comments have recently been strongly endorsed by the Ontario Court of Appeal in Bruno v Dacosta , 2020 ONCA 602 , wherein Lauwers JA, for the Court, stated (at para 65): This case highlights the deplorable tendency in civil cases of admitting evidence subject only to the weight to be afforded by the trial judge: “Seduced by this trend towards (evidentiary) flexibility, some judges in various jurisdictions have been tempted to rule all relevant evidence as admissible, subject to their later assessment of weight”: Teva Canada Ltd. v.

Pfizer Canada Inc. , 2016 FCA 161 , per Stratas J. A. at para. 83 . This is legal heresy, as Stratas J.A. noted, citing R. v. Khelawon , 2006 SCC 57 , [2006] 2 S.C.R. 787 , at para. 59 . I agree with his trenchant comments. [ 56 ] Stratas JA’s finding in Pfizer , while not specifically mentioned, is a significant element of the reasons in Bradshaw . In that case, the Supreme Court of Canada made it clear that the determination of threshold reliability (admissibility) must remain separate from that of ultimate reliability (weight) (at paras 39, 41):

The distinction between threshold and ultimate reliability, while “a source of confusion”, is crucial (Khelawon, at para. 50). Threshold reliability concerns admissibility, whereas ultimate reliability concerns reliance (Khelawon, at para. 3). . . . In short, in the hearsay context, the difference between threshold and ultimate reliability is qualitative, and not a matter of degree,because the trial judge’s inquiry serves a distinct purpose. In assessing substantive reliability, the trial judge does not usurp the trier offact’s role.

Only the trier of fact assesses whether the hearsay statement should ultimately be relied on and its probative value. [57] Karakatsanis J, for the majority in Bradshaw, rejected the Crown’s position that threshold reliability involved aconsideration of all of the corroborative evidence. (See paras 34, 36.) She stated that, in assessing threshold reliability, “the trial judgeconsiders only corroborative evidence that goes to the truthfulness or accuracy of the material aspects of the [hearsay] statement” (at para46) and that “not all evidence that corroborates the declarant’s credibility, the accused’s guilt, or one party’s theory of the case, is ofassistance in assessing threshold reliability” (at para 44). [58] While Bradshaw was a jury trial, in my view, these comments would also apply to a trial without a jury.

That said, thedynamics of a civil case can be different from those in a criminal case, including a lesser burden of proof, the importance of access tojustice and the need for proportionality. This does not, however, change the law or the legal tests. (See Fawley at para 95). Stratas JAcommented on this difference in Pfizer (at para 84): Sometimes courts—aiming to prevent trials from bogging down—provisionally receive evidence whose admissibility is challenged,reserving their rulings on admissibility until later.

In some circumstances, there may be much to commend that approach; in othercircumstances, the trial may be more orderly and fair if rulings are made immediately so the parties know where they stand. It is amatter of discretion.

But, in the end, before a court can rely on the evidence and ascribe it any weight or draw any inferences from it, itfirst must determine its admissibility. [emphasis added] [59] This is consistent with the analysis in Paciocco, which concluded that there could be more flexibility primarily in thedetermination of necessity in a civil case, but that the principles for determining reliability would remain the same in both criminal andcivil cases. (See paras 46-47 herein.) [60] Thus, even in a civil case, it remains incumbent on both counsel and the judge, when applying the principled exception,to ensure that both steps—first determining threshold reliability and admissibility and then assessing ultimate reliability and weight, eachbased on the appropriate evidence—do not merge and become one, as the failure to correctly apply the law is an error of law. [61] My colleague is not comfortable with my

summary of the applicable principles of hearsay evidence and raises a concernabout taking a rigid approach to the admission of hearsay evidence in a civil proceeding. He states that “this runs contrary to the purposeof the principled approach to the hearsay rule, which is to move from ossified rules about the admission of hearsay evidence to a moreflexible case-by-case approach” (at para 34 herein). He offers no jurisprudential or other support for this very broad statement. Withrespect, I do not agree with his

interpretation of the law. [62] The Supreme Court of Canada began its most recent adoption of the principled exception to the hearsay rules with itsdecision in R v Khan, (SCC), [1990] 2 SCR 531. In a unanimous decision, McLachlin J (as she then was) stated that“[i]n Canada, too, courts have been moving to more flexibility in the reception of the hearsay evidence of children, although not underthe aegis of the spontaneous declaration exception to the hearsay rule” (at p 544).

In R v Smith, (SCC), [1992] 2 SCR915, Lamer CJC, for the Court, stated (at p 933): This Court’s decision in Khan, therefore, signalled an end to the old categorical approach to the admission of hearsay evidence.

Hearsay evidence is now admissible on a principled basis, the governing principles being the reliability of the evidence, and itsnecessity. . . . [63] The move to the new exception was explained in R v U (FJ), (SCC), [1995] 3 SCR 764 (at para 20): Briefly stated, Khan and Smith announced this Court’s commitment to ensure that the rule against the admission of hearsay asevidence would be sufficiently flexible to adapt to new situations. The hearsay rule and its rigidly formulated exceptions had become asometimes illogical and frequently confusing series of pigeon-hole categories.

Khan and Smith examined the principles underlying thehearsay rule to ensure that new developments in the evidentiary treatment of hearsay would reflect those tenets.

[64] By the time that the Supreme Court of Canada issued its reasons in Starr, it was clear that there was a difference ofopinion on the Court as to the relationship between the traditional exceptions and the new principled approach, with some justices takingthe position that the principled exception would prevail. McLachlin CJC, in dissent, set out what she later called a framework ofprinciples governing the admissibility of hearsay, beginning with the application of the traditional exceptions and, if none wereapplicable, moving to the principled exception (at para 2).

She explained (at para 3): In short, the common law exceptions to the hearsay rule remain the law, as interpreted and updated to conform to the twinrequirements of necessity and reliability. Additionally, evidence not falling within an exception may be admitted if the requirements ofnecessity and reliability are established. This retains the certainty and predictability associated with the common law exceptions to thehearsay rule and avoids the need to hold a voir dire when evidence falls within an established exception.

At the same time, it permits theexceptions to evolve and evidence outside the exceptions to be admitted where necessity and circumstantial guarantees of reliabilityexist. As with all evidence, the trial judge has an overriding discretion to exclude the evidence if its prejudicial effect outweighs its probative value. [emphasis added] (See, as well, the comments of L’Heureux-Dubé J, also in dissent, at paras 21-22.) [65] In R v Parrott, 2001 SCC 3, LeBel J, who was in the dissent, stated (at para 3): A hallmark of the principled approach to hearsay is flexibility.

In moving away from the categorical approach of the past to hearsayexceptions, the Court signalled in the last decade an intention to render the rules governing the reception of hearsay evidence moreresponsive to individual situations. . . . [66] The appeal was about the necessity criterion, and the majority neither adopted nor commented on LeBel J’s statement. [67] In Mapara, McLachlin CJC, writing for the majority, adopted what she called the framework of principles that she hadset out in her dissenting reasons in Starr, as noted above, including the principle, at point (d), that “[i]f hearsay evidence does not fallunder a hearsay exception, it may still be admitted if indicia of reliability and necessity are established on a voir dire” (Mapara at para15).

LeBel J, now in the minority, took issue with that part of her reasons. He quoted from U (FJ) at para 21, and then stated,“[r]eliability and necessity have thus become the predominant criteria governing the admissibility of hearsay evidence” (at para 45). This view, as evidenced in Smith, U (FJ) and Parrott, did not prevail, either in Mapara or in the Court’s subsequent decisions. (See DonStuart’s annotation to Mapara (WL Can).) [68] In the unanimous decision of Khelawon at para 42, Charron J unreservedly adopted both McLachlin J’s frameworkfrom Starr, and her

summary of that framework in Mapara at para 15, as reflecting the law. She confirmed this (at para 60): The Court in Starr also reaffirmed the continuing relevance of the traditional exceptions to the hearsay rule. More recently, thisCourt in Mapara reiterated the continued application of the traditional exceptions in setting out the governing analytical framework, asnoted in para. 42 above.

Therefore, if the trial judge determines that the evidence falls within one of the traditional common lawexceptions, this finding is conclusive and the evidence is ruled admissible, unless, in a rare case, the exception itself is challenged asdescribed in both those decisions. (See Don Stuart’s annotation to Khelawon (WL Can).) [69] My colleague refers to a move from “ossified rules about the admission of hearsay evidence to a more flexible case-by-case approach” (at para 34 herein).

This is found in Charron J’s decision in Khelawon at para 45; however, that comment does not relateto the Starr/Mapara framework or to the traditional exceptions at all, but to the need to avoid a “rigid pigeon-holing analysis” (ibid) thatwould lead to the adoption of fixed categories of factors within the principled exception. [70] Having just endorsed and adopted the Starr/Mapara framework in Khelawon at para 42, Charron J next considered theprincipled exception and, in that context, explained that “it is my view that neither B. (K.G.) [R v B (KG), (SCC),[1993] 1 SCR 740] nor U. (F.J.) [specific applications of the principled exception in cases of prior inconsistent statements] should beinterpreted as creating categorical exceptions to the rule against hearsay based on fixed criteria” (at para 45).

In this context, she stated(ibid):

. . . Further, to interpret [ B (KG) and U (FJ) ] as creating new categories of exceptions would not be in keeping with the flexible case- by-case principled approach. We would simply be replacing the traditional set of exceptions with a new and (for the time being) less ossified one. . . . [ 71 ] The continued commitment to the Starr/ Mapara framework set out in para 42 is demonstrated when she applies those principles to the facts of the case, which she begins by stating (at para 102): Mr. Skupien’s hearsay statements were presumptively inadmissible.

None of the traditional hearsay exceptions could assist the Crown in proving its case. The evidence could only be admitted under the principled exception to the hearsay rule. [ 72 ] The admissibility issue in this appeal is not about whether the evidence can be admitted under existing factual categories within the principled exception or about needing case-by-case flexibility to create new categories for the reason that the trial judge failed to carry out any analysis of threshold reliability and admissibility under any exception.

The flexibility referred to in Khelawon at para 45 and adopted by my colleague as a generalization does not provide an answer for that failure. [ 73 ] Finally, in addition to being adopted in Khelawon , the Starr/Mapara framework has been adopted by the Court in R v Couture , 2007 SCC 28 at para 78 ; R v Blackman , 2008 SCC 37 at para 33 ; R v Griffin , 2009 SCC 28 at para 89 (LeBel and Fish JJ, in dissent, but not on this point); and Baldree at para 34 .

This is also acknowledged to be the law in texts on evidence. (See Paciocco at p 127; Lederman at pp 272-77; and S Casey Hill, Louis P Strezos & David M Tanovich, Canadian Criminal Evidence , 5th ed (Toronto: Thomson Reuters, 2013) (loose-leaf updated 2020, release 3), pt III, ch 7 at paras 7.40.20.10 to 7.40.20.30 (online: WL Can (date accessed 21 October 2020)).) [ 74 ] In conclusion, the flexibility referred to in Khelawon did not introduce a general flexibility that either replaced the hearsay rules and the traditional exceptions, or declared open season on their application.

In my view, it is clear that the Starr/Mapara framework still applies to all applications to admit hearsay evidence in both civil and criminal cases. [ 75 ] As the law has evolved, additional flexibility can be seen in three areas: - First, the admissibility of hearsay evidence has been expanded with the addition of another exception to the hearsay rule, being the principled exception, which adds flexibility by providing an additional basis for admitting evidence, where it does not meet the requirements of the traditional exceptions. - Second, when applying the principled exception, there is flexibility regarding the factors to be considered in determining whether the hearsay evidence should be admitted. - Third, there is some flexibility in the application of the principled exception in a civil case to allow for a cost/benefit analysis, primarily in the application of the necessity criterion. [ 76 ] It must be stated, however, that notwithstanding this evolution, there is no flexibility in the requirement to apply the Starr/Mapara framework.

Further, when considering the principled exception, it remains incumbent on the trial judge to address necessity, threshold reliability and admissibility, and to do that separately from a consideration of the weight and ultimate reliability of the evidence. [ 77 ] I make no comment as to exactly when or how the admissibility analysis should take place, or how detailed it must be.

Those would be procedural decisions to be made by the trial judge, based on the nature of the case and of the hearsay evidence at issue, and after hearing from counsel. (See, for example, Pfizer at para 84.) It is not, however, open to a trial judge, under the guise of exercising discretion, to either completely omit the threshold reliability/admissibility analysis or to merge it with the ultimate reliability/weight analysis so as to make them indistinguishable. That would be an error in the application of the law. [ 78 ] In

summary, to address my colleague’s comments at para 34 herein, I am of the view that, while there is flexibility in applying the principled exception to the hearsay rule in a civil case primarily as regards necessity, and in developing that exception to fit new factual situations, that flexibility has not done away with the need to follow the Starr/Mapara framework or, when applying the principled exception, to determine admissibility and weight separately. That was not done, even summarily, in this case, which constitutes an error.

Analysis [ 79 ] I will first address the finding of the judge at the de bene esse evidence hearing. He found that the hearsay evidence was necessary because Dobrowolski was deceased, and he concluded by stating: . . . . . . [A]t the end of the day you’re both going to have to address reliability. But I’m going to allow it but with that understanding that it may get zero weight at the end, but for now I’m going to allow it.

. . . [80] He undertook no analysis of the reliability of the evidence. He fell into the very error that Stratas and Lauwers JJAdescribed, of avoiding a determination of threshold reliability and admitting the evidence, leaving any assessment of reliability to takeplace by way of the determination of the weight of the evidence, at the end of the trial. In my view, he erred, as explained by Stratas andLauwers JJA, by failing to properly determine threshold reliability and, from that, admissibility.

That said, in this case, given the limitedinformation available at the de bene esse evidence hearing upon which to make any determination of threshold reliability, it may havebeen better to record the evidence and leave any determination of threshold reliability and admissibility to the trial judge, given that thedetermination of admissibility requires a contextual analysis based on the underlying facts. [81] The trial judge, as well, failed to address the threshold reliability of any of the hearsay evidence. She began heranalysis by stating (at paras 83-84): . . .

Permutter ACJ determined, based on the principled exception to the hearsay rule with respect to necessity and reliability, that thehearsay testimony would be allowed and considered. . . . Therefore, reliability became the principle issue, which is, ultimately, one tobe evaluated with regard to the weight to be afforded to the evidence. . . . . . . The determination of Perlmutter ACJ to accept such evidence, with which I agree, dealt with the issue of threshold reliability. [emphasis added] [82] She then went on to discuss ultimate reliability (see para 85).

Shortly after, she states, “I find the hearsay evidence onbehalf of the plaintiff to be ultimately reliable and trustworthy when considered in relation to all the evidence” (at para 88).

There wasno finding, or even a discussion, of threshold reliability. [83] In my view, it is clear from her comments that the trial judge understood Perlmutter ACJQB to have held that all of thehearsay evidence related to Dobrowolski, not just that called at the de bene esse evidence hearing, would be admitted on the basis of thenecessity and reliability exception, and its ultimate use would be determined on the basis of its weight.

Even if it could be said that shewas not accepting his finding of admissibility but was accepting and following the same admissibility procedure as he did, that wouldstill be an error for the same reason that Perlmutter ACJQB erred, being the failure to carry out any threshold reliability analysis. Although admissibility for contextual purposes was discussed at the de bene esse evidence hearing, neither Perlmutter ACJQB nor thetrial judge admitted the evidence on that basis. [84] I am of the view that the trial judge erred in three ways.

First, while Perlmutter ACJQB stated that he was admitting thehearsay evidence, he did not deal with threshold reliability at all, so her finding that he had made that determination was wrong. Second,Perlmutter ACJQB was dealing only with one specific piece of hearsay evidence. There was a significant amount of other hearsayevidence given by a number of witnesses during the trial, all unrelated to that at the de bene esse evidence hearing, none of which wasbefore him. Therefore, his comments could not have applied to any of that other hearsay evidence.

Third, she failed to carry out her ownassessment of the threshold reliability and, therefore, the admissibility of any of the hearsay evidence. She limited her findings to theweight and ultimate reliability of that evidence. [85] While Perlmutter ACJQB suggested to counsel that the evidence before him might be admissible under the traditionaldeclarations against interest exception, that was not the basis of his finding.

At the trial, there was no argument by counsel regardingadmissibility based on the traditional exceptions and, therefore, no determination in that regard by the trial judge. [86] It strikes me that some of the hearsay evidence may well have been admissible under traditional exceptions such asdeclarations of existing mental or emotional condition or intention, particularly regarding the relationship between Dobrowolski and thedefendant Andrew Dobrowolski (Andrew), declarations accompanying and explaining relevant acts, regarding certain of the documentsprepared by Dobrowolski, and the declarations against interest referred to by Perlmutter ACJQB.

I make no finding regarding thesepossible exceptions except to point out that counsel should have pursued them. [87] In my view, both judges erred in law by failing to correctly apply the law relating to the admissibility of hearsayevidence, including not addressing the requirement to determine the threshold reliability of that evidence. [88] In this case, however, I would not find that these errors resulted in a substantial wrong or a miscarriage of justice. (SeeMarchand (Litigation Guardian of) v Public General Hospital Society of Chatham, (ON CA), 2000 CarswellOnt4362 at para 69 (CA); and Fawley at para 124.) [89] As noted by my colleague, the main thrust of Andrew’s submission was that little or no weight should be attached to thehearsay evidence relied upon by the plaintiff.

I agree with my colleague that, even if no weight is given to that evidence, there isextensive documentary evidence, as described by my colleague at para 36 herein, that supports the trial judge’s finding that there was ajoint business venture between Dobrowolski and Andrew. [90] In finding that there was a joint business venture, the trial judge attached particular importance to “the significantamount of documentation that recognized a business arrangement between Dobrowolski and Andrew” (at para 86), and she said “[i]t isimpossible to negate the importance of that documentation or to dismiss it” (ibid).

[ 91 ] I agree with my colleague that the trial judge’s finding that there was a joint business venture was a factual finding that was available on the documentary evidence and inferences from the other admissible evidence, without the need to rely on the hearsay evidence. Thus, I, too, have not been persuaded that the error in the treatment of the hearsay evidence had a material effect on the finding that there was a joint business venture. [ 92 ] I, therefore, share my colleague’s view that the finding that there was a joint business venture should be upheld and the appeal dismissed. JA