Docket: CACV1978 Ty Reed Johnson Appellant - v. -, 2012 SKCA 87

THE COURT OF APPEAL FOR SASKATCHEWAN Citation: 2012 SKCA 87 Date: 2012-10-03 Between: Docket: CACV1978 Ty Reed Johnson Appellant - and - Twila Dawn Johnson Respondent - and - Allan Larsen Respondent Coram: Klebuc C.J.S., Lane and Richards JJ.A. Counsel: Lawrence J. Zatlyn, Q.C. for Ty Johnson Joleen L. McCullagh for Twila Johnson Nicole A. Sawchuk for Allan Larsen Appeal: From: 2010 SKQB 227 Heard: October 27, 2011 Disposition: Dismissed in part Written Reasons: October 3, 2012 By: The Honourable Chief Justice Klebuc

In Concurrence: The Honourable Mr. Justice Richards with Mr. Justice Lane concurring Klebuc C.J.S. I. Introduction [ 1 ] Mr. and Mrs. Johnson married in November of 1994, gave birth to three children, farmed, lived on their farm, had permanent jobs “off the farm,” and separated on January 20, 2005. In June of 2005, Ms. Johnson petitioned for a divorce, custody of the children and support for the children pursuant to the Divorce Act , R.S.C. 1985, c. 3 (2nd Supp.) and a division of family property pursuant to The Family Property Act , S.S. 1997, c. F-6.3. Mr.

Johnson counter-petitioned for the same types of relief sought by Ms. Johnson. [ 2 ] Following a trial, the learned trial judge granted a divorce decree, gave the Johnsons joint custody of their children and fixed the quantum of child support payable by Mr. Johnson without considering his farming losses. With respect to the division of family property, the trial judge held: (

a) the loan the Johnsons had obtained from Mr. Johnson's parents was “statute barred” and therefore should not to be taken into account in the division of family property; (

b) the New Holland combine owned by Mr. Johnson prior to the marriage was not exempt from division as family property because it was encumbered by a large loan at the time of the marriage; (

c) the land and interests in the land conveyed to Ms. Johnson by Mr. Allan Larsen, her father, were held by her in trust for her father and therefore were not divisible family property; and (

d) Ms. Johnson was to have her taxable costs. [ 3 ] Mr. Johnson appealed from the decision of the learned trial judge on the grounds that the trial judge erred: (

a) in holding the loan payable to his parents was statute barred when The Limitations Act , S.S. 2004, c. L-16.1 had not been pled; (

b) in finding the New Holland combine was encumbered by a large loan, in the absence of any evidence of any loan obligation encumbering it; (

c) by not taking into account his farming losses when calculating his child support obligation, as provided for by Federal Child Support Guidelines (SOR/97-175) (“the Guidelines ”); and (

d) by not applying the common law presumption of advancement and the "clean hands" doctrine as they applied to the lands conveyed by Mr. Larsen to Ms. Johnson. Mr. Johnson further maintained that costs should not have been awarded against him. [ 4 ] For the reasons set forth below, I would allow the appeal to the extent of setting aside the trial judge's finding that the New Holland combine was divisible family property and declaring it to be Mr. Johnson’s exempt property. Ms. Johnson shall have her costs only as against Mr. Johnson and no costs are awarded to Mr. Johnson or Mr. Larsen. II.

Background [ 5 ] The facts of particular relevance to an issue arising out of the aforementioned grounds of appeal are fully addressed in conjunction with the analysis of the issue. Thus, only a brief overview is provided by way of a factual background. For the sake of clarity and consistency with the manner in which Mr. and Ms. Johnson are identified in the trial judge's judgment, I will henceforth refer to them individually as "Ty" and "Twila" and sometimes collectively as “the Johnsons.” Furthermore, I will refer to Mr.

Johnson’s parents as “the Parents.” [ 6 ] Ty is currently employed as a firefighter and was so employed throughout the marriage. He also has operated a grain farm from the date of the marriage to the present. At all times relevant to the assessment of child support, Twila was gainfully employed. [ 7 ] In the fall of 1995, the Johnsons purchased farmland and miscellaneous farm equipment from the Parents at a purchase price of $40,000. They paid one-half of the purchase price at the time of their purchase, with the balance of $20,000 (“the Parents’ Loan”) to be paid at a later date.

Ty and Twila moved a house onto the land they purchased from the Parents and lived there until they separated in January 2005. [ 8 ] Following their separation, several interim applications were made by the Johnsons concerning custody of the children, rights of access to the children and parental financial support for the children. These applications resulted in the Johnsons being awarded joint custody of their children, with Ty paying child support, and the children residing with Ty during the four days he was not working based on his four-days-on and four-days-off work schedule.

The children reside with Twila on the days Ty works. [ 9 ] All matters related to the division of family property were resolved by the trial judge with the exception of the items that are the subject of this appeal.

III. Standard of Review [10] Two distinct standards of review apply in this appeal. The first is the standard usually applied in civil law appeals, other thanappeals involving family law. Justice Cameron succinctly articulated this standard in Gallop v. Abdoulah, 2008 SKCA 29, [2008] 5W.W.R. 231: [34] To the extent the points give rise to issues of law, in the sense they call into question the trial judge’s identification of therelevant law, including the judge’s selection and

interpretation of the law, the power of the Court to act on its own view of the law is notfettered in this or any other way. If, in the judgment of the Court, the trial judge’s identification of the relevant law is not “correct” theCourt is to substitute its own view of the law for that of the trial judge and act accordingly: Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235.

In general, this is also true of the application of the law to the facts as found, for this entails evaluatingthe facts against a legal standard, a matter that calls for a normative judgment and the drawing of conclusions in law based on the facts asfound: St-Jean c. Mercier, 2002 SCC 15 , [2002] 1 S.C.R. 491 (S.C.C.); Domtar Inc. c. ABB Inc., 2007 SCC 50 (S.C.C.);I.B.E.W., Local 894 v. Ellis-Don Ltd., 2001 SCC 4 , [2001] 1 S.C.R. 221 (S.C.C.); Farm Credit Corp. v. Valley Beef ProducersCo-operative Ltd. (2002), 2002 SKCA 100 , 223 Sask. R. 236 (Sask.

C.A.). [11] The second is the standard of review applied in appeals involving family law issues, including custody, access and child supportmatters. In Van De Perre v. Edwards, 2001 SCC 60, [2001] 2 S.C.R. 1014, the Supreme Court of Canada described this standard: [11] In reviewing the decisions of trial judges in all cases, including family law cases involving custody, it is important that theappellate court remind itself of the narrow scope of appellate review. L'Heureux-Dubé J. stated in Hickey v.

Hickey, (SCC), [1999] 2 S.C.R. 518, at paras. 10 and 12: [Trial judges] must balance the objectives and factors set out in the Divorce Act or in provincial support statutes with an appreciation ofthe particular facts of the case. It is a difficult but important determination, which is critical to the lives of the parties and to theirchildren. Because of its fact-based and discretionary nature, trial judges must be given considerable deference by appellate courts whensuch decisions are reviewed. . . .

There are strong reasons for the significant deference that must be given to trial judges in relation to support orders. This standard ofappellate review recognizes that the discretion involved in making a support order is best exercised by the judge who has heard theparties directly. It avoids giving parties an incentive to appeal judgments and incur added expenses in the hope that the appeal court willhave a different appreciation of the relevant factors and evidence. This approach promotes finality in family law litigation and recognizesthe importance of the appreciation of the facts by the trial judge.

Though an appeal court must intervene when there is a material error, aserious misapprehension of the evidence, or an error in law, it is not entitled to overturn a support order simply because it would havemade a different decision or balanced the factors differently. [Emphasis added by SCC.] Also see: C.R.H. v. D.G., 2010 SKCA 127, 362 Sask. R. 261 and King v. Stavric, 2009 SKCA 6, 320 Sask. R. 37. IV. Analysis [12] The following issues arise out of the facts, the submissions by the parties and the applicable law: A. Did the trial judge err in holding the Parents’ Loan was statute barred by The Limitations Act?

Moreover, did the trial judge err intaking into account The Limitations Act when it was not pled, as required by Rule 142 of The Queen’s Bench Rules? B. Did the trial judge err by not exempting the value of a New Holland combine Ty owned prior to the marriage? C. Did the trial judge err by awarding child support without taking into account Ty’s farming losses and by ordering Ty to contributeto the s. 7 expenses incurred by Twila? D. Did the trial judge err in holding that the interest in lands conveyed by Mr. Larsen to Twila is not divisible family property? E.

Did the trial judge err in awarding Twila her taxable costs? [13] That said I turn to the first issue. A. Did the trial judge err in holding the Parents’ Loan was statute barred by The Limitations Act? Moreover, did the trial judgeerr in taking into account The Limitations Act when it was not pled, as required by Rule 142 of The Queen’s Bench Rules? [14] Ty testified that he and Twila owe his parents $20,000 and the debt is evidenced by a memorandum dated September 15, 1995 and

signed by Twila, the Parents and him. It provides: I (we) Ty & Twila Johnson offer to purchase SW ¼

Section 20-47-26-W2 except SW 20 acres for the sum of $40,000 (forty thousand).Also include Melcam cultivator, Massy Harris 510 combine, Harrows and Versatile sprayer.

Deposit of $20,000 (twenty thousand) dollars paid, balance paid at later date. [Appeal Book, Vol. 2, p. 202a] During his evidence-in-chief and cross-examination by Twila’s counsel, Ty was never asked whether he considered his obligation torepay the Parents’ Loan to be a legal or a moral one. [15] Twila gave the following responses during cross-examination of her by counsel for Ty: Q Okay, now you indicated that you purchased the land where the matrimonial home was located – is located, from Ty's parentsand you agreed that you had purchased the land for $40,000 and paid only $20,000, correct? A Yes.

Q And it was a written agreement to pay the balance of $20,000, correct? A Yeah. Q And was it the intent that that sum be paid? A Whenever, yeah. Q I mean, you wrote it up, correct? A Yeah, when you're asked to. Q Yeah. And the deal was that you would pay $40,000 for that land? A That was the agreed-upon price, yes. Q And the only amount paid to this point is $20,000, correct? A As far as I know. Q You haven't paid anything more? A Myself? Q Right. A No. Q And so do you agree the balance of $20,000 is still owing? A I don't know what Ty has done. Q But if Ty hasn't paid it, do you agree it's still owing?

A Yeah. [Appeal Book, Vol. 3, p. 116, line 3 to p. 117, line 5] Twila’s counsel did not re-examine her with a view of having her confirm she was not prepared to pay the Parents’ Loan. [16] Notwithstanding The Limitations Act had not been pled in accordance with Rule 142 of The Queen’s Bench Rules, or leave of thecourt sought to plead the same, Twila’s counsel submitted the Parents’ Loan was statute barred and therefore should not be taken intoaccount in the division of family property. The trial judge accepted her submission for the reasons set forth at para. 25 of his judgment: [25] ...

Ty claims it as a debt to be included in the family property. Both Twila and Ty acknowledged the money was owing;However, Russell v. Russell (1999), (SK CA), 180 Sask.R. 196 (C.A.); [2000] 1 W.W.R. 619, at para. 114 provides: [114] To the extent that the Matrimonial Property Act permits an adjustment for debts, they must be legally enforceable. As Hall, J.A..wrote in Wolff v.Wolff (cited earlier) [(1985), (SK CA), 37 Sask.R. 19; 44 R.F.L. (2d) 215 (C.A.)] at p. 218, thecourts are concerned with legally enforceable debts, not moral ones.

Accordingly, the trial judge made no error in holding that thesestatute-barred debts could not be considered as debts legally binding upon Mrs. Russell.

The debt to Ty's parents is statute barred and therefore not to be taken into account. [ 17 ] Ty submits that the Parents’ Loan should have been taken into account in the division of their family property because he and Twila acknowledged they had not paid it. Furthermore, he maintains it was unfair for the trial judge to hold the Parents’ loan was statute barred when The Limitations Act was never pled.

However, in his oral and written submissions before this Court, he never described the nature of the prejudice he suffered, the steps he would have taken had The Limitations Act been pled, or the basis on which he maintains the Parents’ Loan is not directly or indirectly affected by The Limitations Act . [ 18 ] In her written and oral submissions, Twila went no further than stating the debt owed to the Parents was barred by The Limitations Act and therefore should not be taken into account in the division of her and Ty’s family property.

She never identified the limitation period she relied on or sought leave of the trial judge or this Court to plead the provisions of The Limitations Act . [ 19 ] The positions advanced by the parties are contingent on whether the trial judge properly applied The Limitations Act and The Family Property Act when he held the Parents’ Loan was “statute barred.” Neither Act required the trial judge to take the Parents’ Loan into account in the division of family property. Thus, he was entitled not to do so provided the evidence supported his conclusion and Rule 142 did not apply.

If Rule 142 is found to apply, then the Court must consider whether the failure to plead the same can be remedied at this time. Conversely, if The Limitations Act or The Family Property Act do not empower a court to adjudicate the rights of a creditor who is not a party to the family property action before the court, consideration must be given to the extent the trial judge was entitled to take The Limitations Act into account when determining whether the Parents’ Loan was an enforceable debt. [ 20 ] I start by considering the extent to which The Limitations Act and The Limitation of Actions Act, R.S.S. 1978, c.

L-15 (“the Former Act ”) are applicable in the division of family property pursuant to The Family Property Act . [ 21 ] At common law, a loan or other form of indebtedness made with no specific date for payment is often described as a “demand loan” or “open loan” and is deemed to be repayable on a demand for payment by the creditor.

Since the creditor can demand repayment of a demand loan immediately after it is funded, the limitation of action period applicable to a demand loan at common law is deemed to start on the date the demand loan was funded, unless legislation provides for a limitation period to be calculated from a different commencement date. In Young v. Queensland Trustees Ltd ., [1956] HCA 51, (1956) 99 CLR 560 (AustLII) , the High Court succinctly articulated the history of the aforementioned common law principle: [10] A loan of money payable on request creates an immediate debt.

Speaking of a promissory note payable on demand Parke B. in Norton v. Ellam [1837] EngR 183 ; (1837) 2 M & W 463 ( 150 ER 839 ) , said: "It is the same as the case of money lent payable upon request, with interest, where no demand is necessary before bringing the action. There is no obligation in law to give any notice at all; if you choose to make it part of the contract that notice shall be given, you may do so. The debt which constitutes the cause of action arises instantly on the loan.

Where money is lent, simply, it is not denied that the statute begins to run from the time of lending" (1837) 2 M & W, at p 464 (150 ER, at p 840). This was settled at the end of the seventeenth century… [ 22 ] Also see Halsbury’s Laws of Canada, Debtor and Credito r, 1st ed. (Markham, Ont.: LexisNexis Canada, 2010), at para.

HDC-6. [ 23 ] Prior to the repeal of the Former Act in 2004, s. 3(1) thereof provided that an action to recover a debt, except in respect of a debt charged upon land, may only be brought “within six years after the cause of action arose.” Since the Former Act did not specify when a cause of action based on a demand loan is deemed to have arisen, Saskatchewan courts resorted to the common law of England, as of July 15, 1870, and based thereon held the limitation period for a demand loan commenced immediately upon the loan being funded.

See: The Northwest Territories Act , R.S.C. 1886, c. 50, s. 11 and The Saskatchewan Act , S.C. 1905, c. 42, s. 16. [ 24 ] The Limitations Act replaced the Former Act , effective as of May 1, 2005 and changed the limitation period applicable for several causes of action as well as the manner in which the commencement date for many limitation periods is to be calculated. Of particular relevance in this appeal are the following sections: 2 In this Act: (a) “ claim” means a claim to remedy an injury, loss or damage that occurred as a result of

an act or omission; (b) “ claimant ” means a person who has a claim; (c) “ former Act” means The Limitation of Actions Act , and includes any former Limitation of Actions Act ; . . .

Basic limitation period 5 Unless otherwise provided in this Act, no proceedings shall be commenced with respect to a claim after two years from the day onwhich the claim is discovered. Discovery of claim 6(1) Unless otherwise provided in this Act and subject to subsection (2), a claim is discovered on the day on which the claimant firstknew or in the circumstances ought to have known: (

a) that the injury, loss or damage had occurred; . . .

(2) A claimant is presumed to have known of the matters mentioned in clauses (1)(

a) to (

d) on the day on which the act or omissionon which the claim is based took place, unless the contrary is proved. Ultimate limitation periods 7(1) Subject to subsections (2) to (4), with respect to any claim to which a limitation period applies, no proceeding shall becommenced after 15 years from the day on which the act or omission on which the claim is based took place. . . . Demand obligations 10 Unless otherwise provided in this Act, in the case of a default in performing a demand obligation, the day on which

an act oromission on which a claim is based takes place is the day on which the default occurs. [emphasis added] . . . Burden of Proof 18 If, in a proceeding, a limitation period is raised against a claimant, the claimant has the burden of proving that: (

a) the limitation period has not expired; or (

b) there is no limitation period that applies to the claim. . . . Transitional 31(1) In this section: (a) “effective date” means the day on which this Act comes into force; (b) “former limitation period” means, with respect to a claim, a limitation period that applied with respect to the claim before theeffective date; . . .

(2) This

section applies to claims: (

a) that are based on acts or omissions that took place before the effective date; and (

b) with respect to which no proceeding has been commenced before the effective date;

(3) No proceeding shall be commenced with respect to a claim if the former limitation period expired before the effective date. [25] Historically, courts have construed limitation of action provisions, similar to those in ss. 3 and 10 of The Limitations Act, to beprocedural in nature notwithstanding that many of them are expressed in imperative language. See: Ravndahl v. Saskatchewan et al.,2007 SKCA 66, 299 Sask. R. 162 at para. 17, aff’d 2009 SCC 7 , [2009] 1 S.C.R. 181; Fritz v. Knorr, (SKKB), [1993] 7 W.W.R. 303; Kammins Ballrooms Co. v. Zenith Investments (Torquay) Ltd., [1970] 3 W.L.R. 287; Linda S.

Abrams and Kevin P. McGuinness, Canadian Civil Procedure Law, 2nd ed. (Markham, Ontario: LexisNexis, 2010) at pp. 414-16. Thus, apronouncement in an action that the creditor’s right to bring an action to recover sums due from the debtor is “statute barred” does notbind the creditor if the creditor is not a party in that action.

[26] I note that in the context of a conflicts of law issue, or in certain specific rights in rem actions, a limitation period is considered to bea substantive rather than a procedural right. See: Tolofson v. Jensen, (SCC), [1994] 3 S.C.R. 1022 at para. 81-82;Castillo v. Castillo, 2005 SCC 83, [2005] 3 S.C.R. 870 at para. 10; and Markevich v. Canada, 2003 SCC 9, [2003] 1 S.C.R. 94 at para.41.

None of the aforementioned circumstances exist in the instant appeal. [27] When used in the context of a family property proceeding pursuant to The Family Property Act, the term "statute barred" takes on asignificantly different meaning than the one attributed to it in the context of an action brought by a creditor to recover money owing bythe defendant debtor, or in a conflict of laws case. The distinctive meaning of “statute barred” in the context of a family property actionis illustrated by the manner in which it was applied by this Court in Russell v. Russell, (SK CA), [2000] 1 W.W.R.619. [28] In Russell v.

Russell, Mr. and Mrs. Russell were indebted to Mr. Russell’s father for an open loan he made them. Mrs. Russell didnot want the loan to be taken into account in the division of family property because it was not an enforceable debt. The trial judge heldthat the indebtedness to Mr. Russell’s father was “statute barred” for the evidence confirmed that more than six years had elapsed sincethe date Mr. and Mrs.

Russell made a payment on account of the loan, and the Former Act, then in force, provided an action to recovermoney owed on a demand or open loan had to be commenced within six years of the date on which the loan was funded. In so doing,the trial judge did not intend to rule that Mr. Russell’s father had no right to bring a proceeding against Mrs. Russell. Rather, sheessentially determined on a balance of probabilities that Mrs. Russell would have a viable limitation defence in any proceeding Mr.Russell’s father might bring to collect the money she owed him; therefore, the debt owing to Mr.

Russell’s father should not be takeninto account in the division of Mr. and Mrs. Russell’s matrimonial property. The trial judge based her decision in part on Burke v. Burke(1987), (MB KB), 8 R.F.L. 393 (Man. Q.B. Fam. Div.) where the court stated at pp. 398-99: It is not an unusual practice within families for loans to be made by one family member to another, which loans are not evidencedin writing and which loans might or might not ever be repaid.

To require separating or divorcing spouses to account one to the other forsuch loans when no demands being made and which loans have become unenforceable in court and might never be paid would be unjust.I cannot read such an intention into the legislation. [29] While this Court upheld the trial judge's ruling that the debt owing to Mr. Russell’s father was “statute barred” for the purposes ofdividing Mr. and Mrs. Russell’s family property, it did not state that Mr. Russell’s father was barred from bringing an action to recovermoney Mrs. Russell owed him.

The Court simply used the term “statute barred” as an abbreviated way of stating that if the trial judge inthe family property action is satisfied on a balance of probabilities that a spouse has a viable limitation defence to any proceeding acreditor may bring to collect on a debt owed by the spouse, that debt should not be taken into account in the division of the spouses’family property.

In this respect, the term “statue barred” only relates to the relative rights of spouses involved in the family propertyaction. [30] Using the term “statute barred” in family property actions, of the sort in issue here, may lead to confusion for the term appears toextinguish the right of a creditor to recover money owed by one or both spouses involved in a family property action, notwithstandingthe creditor is not a party to such action.

Thus, it would be appropriate for a court in such circumstances to state that a spouse hasestablished on a balance of probabilities that he or she has a viable limitation defence to any proceeding the creditor may bring to recoverthe debt owed by him or her; and therefore the subject indebtedness should not be taken into account in the division of family propertybetween the spouses, all without prejudice to any legal right the creditor may have against either spouse. [31] I am satisfied that the trial judge in the instant case used the term “statute barred” in the same manner as it was used in Russell,supra and other family property cases.

That said, I turn to whether the trial judge was entitled to conclude on the very sparse evidencebefore him that Ty or Twila had a viable limitation defence to any proceeding the Parents may bring for the purpose of recovering themoney owed them. [32] It is well established that loans akin to the Parents’ Loan can be taken into account in the division of family property pursuant to ss.20 and 21 of The Family Property Act.

Section 20 instructs the court to presume that each spouse is entitled to an equal distribution offamily property, “subject to the exceptions, exemptions and equitable considerations mentioned in this Act.” Subsection 21(1) directs thecourt to distribute family property or its value equally between the spouses, “subject to any exceptions, exemptions and equitableconsiderations mentioned in this Act.” Subsection 21(2) authorizes the court to order an unequal distribution if it is satisfied that “itwould be unfair and inequitable to make an equal distribution of family property or its value.” Subsection 21(3) enumerates factors thecourt is to take into account when considering whether an unequal distribution of family property would be appropriate, including thefollowing: 21(3) . . . (

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

(

o) any debts or liabilities of a spouse, including debts paid during the course of the spousal relationship; It therefore follows that a court is to equally distribute family property unless it would be unfair and inequitable to do so having regard to one or more of the factors enumerated in s. 21(3). [ 33 ] In the instant case, Ty has implicitly asked the trial judge to hold that he and Twila are legally obligated to pay the Parents’ Loan and therefore it would be unfair and inequitable to make an equal distribution in circumstances where he would be left with the burden of paying the Parents’ Loan.

It is unclear whether Ty contemplated that he and Twila would immediately pay a proportionate share of the Parents’ Loan, or that he would assume sole responsibility for the Parents’ Loan on the basis that Twila's share of the family property, or the value thereof, would be reduced by $10,000. [ 34 ] Twila maintains she had and continues to have a valid limitation defence to any proceeding the Parents may bring to recover money owed them.

Thus, a question arises as to whether Twila bears the burden of establishing that she has a viable limitation defence to any action brought by the Parents to recover the debt owed them, or whether the burden rests on Ty to prove the limitation period applicable to the Parents’ Loan had not expired at the date Twila filed her petition. [ 35 ] Given that Ty is the party seeking an unequal distribution of family property based on the Parents’ Loan being an enforceable obligation of Twila and himself, I am satisfied the burden rested on him to prove that the Parents’ Loan was legally enforceable against Twila as of the date of her petition.

His burden of proof would be similar to the burden the Parents, as claimants, would have to discharge pursuant to s. 18 of The Limitations Act . [ 36 ] The remaining question is whether Ty discharged the applicable burden of proof in the context of a family property action. The relevant evidence before the trial judge regarding the Parents’ Loan consists of: (

a) the Parents’ Loan having been made in 1995 and the outstanding balance thereof as of October 28, 2008 being the same as it was in 1995; (

b) Ty acknowledged he is obligated to pay the Parents’ Loan; (

c) Twila acknowledged during the trial that the Parents’ Loan was outstanding; (

d) Twila had not listed the Parents’ Loan as a debt or other liability in the Property Statement she filed as part of her pleadings; and (

e) there is no evidence of the Parents having demanded that Twila or Ty pay all or part of the Parents’ Loan. This limited evidence is of assistance to the extent it confirms the transitional provisions prescribed by s. 31 of The Limitations Act would apply to any proceeding brought by the Parents to recover money owed by Twila or Ty. Subsection 31(3) provides: “[n]o proceeding shall be commenced with respect to a claim if the former limitation period expired before the effective date.” Subsection 31(1)(

b) defines “former limitation period” as the “limitation period that applied with respect to the claim before the effective date.” The effective date for The Limitations Act , being May 1, 2005, the six-year limitation period imposed by s. 3 of the Former Act applies to the Parents’ Loan and that period expired no later than October 1, 2001, in the absence of a partial payment or an acknowledgment meeting the requirements of s. 11 of The Limitations Act . [ 37 ]

Section 11 provides that an acknowledgment is only effective if made in writing and signed by the person making the acknowledgment before the expiry of the limitation period applicable to a debt.

The oral acknowledgment by Twila in 2008 does not meet s. 11 requirements and, therefore, cannot be said to have extended the limitation period applicable to the Parents’ Loan. [ 38 ] In my view, Ty fell far short of establishing that Twila would not have a viable limitation defence to any proceeding the Parents may bring to recover the money she owes, at least to the extent the same is applicable in the context of a family property action. Consequently, the trial judge did not err by refusing to make the unequal distribution of family property Ty sought.

As noted in Russell , supra , moral obligations are not to be taken into account in the division of family property. [ 39 ] Moreover, the assessment of liability for a joint or joint and several debt is particularly difficult in the absence of all relevant facts, particularly evidence of the creditor to whom the debt is owed.

Consequently, in circumstances similar to those before the trial court, an unequal division of family property in favour of spouse A based upon him or her claiming to be legally liable to repay a joint or joint and several debt, while spouse B has a plausible limitation of actions defence, may be inappropriate for the following reasons: (

a) an unequal distribution in favour of spouse A leaves spouse B with the risk of the creditor successfully suing him or her to recover the entire joint debt should spouse A fail to pay it; (

b) spouse A may be able to successfully rely on a limitation of action defence should the creditor sue him or her, and thereby gain an unfair division of family property; (

c) if spouse B has a viable defence should the creditor bring an action against him or her, an unequal distribution of family property in favour of spouse A will have occurred. Each of these potential scenarios yields a result inconsistent with the requirements of The Family Property Act . The trial judge effectively avoided these risks by not making the requested unequal distribution of family property. [ 40 ] The circumstances are significantly different where the indebtedness is the responsibility of only one of the spouses and the only means of securing a contribution from the other spouse is by having the debt taken into account in the division of family property on the

basis that it may fall within the scope of s. 21 of The Family Property Act. [41] Given my conclusion on the merits of the distribution sought by Ty, I turn to his submission that the trial judge erred in consideringthe potential limitation defence raised by Twila when she had not pled the provisions of The Limitations Act, presumably s. 5, as requiredby Rule 142 of The Queen’s Bench Rules.

Rule 142 reads as follows: A party shall refer to any statute or regulation on which his action or defence is founded and where practicable shall give particulars ofthe specific sections on which he relies. [42] I reject Ty’s submission for the Parents have not demanded repayment of their loan or sued Twila to recover the money owed them. Consequently, no proceeding exists wherein Twila is entitled to plead and rely on a limitation of actions defence.

In these circumstances,Rules 142 does not apply. [43] In sum, I dismiss the ground of appeal based on the argument that the trial judge erred by not taking the Parents’ Loan into accountin the division of family property. B.

Did the trial judge err by not exempting the value of a New Holland combine Ty owned prior to the marriage? [44] Counsel for Twila conceded the evidence presented during the trial does not support the trial judge’s ruling that the New Hollandcombine Ty owned prior to the marriage was family property because it was encumbered by a large loan obligation and "[a]ny equity [inthe combine] as of the date of marriage would have been nominal” (at para. 29).

It is clear, on reading the trial transcript, the judgeinadvertently confused the New Holland combine with another combine and his error is understandable given the nature of thedocumentation before him. [45] The only relevant evidence before the trial judge regarding the aforementioned combine was the testimony of Ty. He testified thathe had purchased the New Holland combine before the marriage and the value of his exempted interest is $10,000.

His evaluation wasnot challenged by counsel for Twila during her cross-examination of him. [46] In these circumstances, I would set aside the trial judge’s decision that the New Holland combine constituted divisible familyproperty and based on the uncontested evidence before the trial judge, the provisions of s. 23(1)(

c) of The Family Property Act, and the principles delineated in Deyell v. Deyell (1991), (SK CA), 93 Sask. R. 100 (C.A.)and would declare the New Holland combine to be Ty's exempt property which is not subject to division as family property. C. Did the trial judge err by awarding child support without taking into account Ty’s farming losses and by ordering Ty tocontribute to the s. 7 expenses incurred by Twila? [47] As previously mentioned, Ty operates a small grain farm and is permanently employed as a firefighter.

His T1 General Income TaxReturn for 2007 confirmed his net income as a firefighter for the tax year 2007 was $69,784.23. It also confirmed his farming operationshad generated approximately $16,200 in grain sales, a deemed income of $60,000 by virtue of an optional inventory adjustment in 2007,and total farm expenses of $42,056. This left him with a net farm income of $34,143.

He maintained the $12,000 optional inventoryadjustments he took into income in 2006 and claimed as an expense on his 2007 tax return, and the aforementioned $60,000 inventoryadjustment recorded as income in his 2007 tax return should not be taken into account in calculating his child support obligations. Theexclusion of the $12,000 inventory adjustments claimed as an expense would reduce his 2007 farm expenses to $30,056 while theexclusion of the $60,000 inventory adjustment would reduce his gross farm income to $16,200.

This would result in his net farm loss forthe purpose of calculating his child support obligations being reduced to $13,856 [$30,056 - $16,200 = $13,856]. [48] Ty's T1 General Income Tax Returns for the years 2002 to and including 2006 confirmed he incurred net farming losses of $40,699in 2006, $30,845 in 2005, $28,335 in 2004, $45,579 in 2003 and $39,757 in 2002. These losses included capital cost allowances claimed

and inventory adjustments made in some of those years. He also incurred significant net losses in each of the years between 1998 and2001, both inclusive. [49] No evidence was presented by Ty or Twila on the long-term viability of the farming operation or its underlying purpose. [50] The trial judge determined Ty's net income for the purposes of the Guidelines and his child support obligations without consideringwhether any portion of his 2007 farming losses should be taken into account in the calculation of his net income for Guideline purposes. In doing so, he relied on his

interpretation of the ratio in Nichol v. Johnson, 2003 SKQB 486, 240 Sask. R. 275 and the fiat of Ryan-Froslie J. in the within action concerning interim child support, dated December 22, 2005 (FLD No. 7106 of A.D. 2005, Judicial Centreof Prince Albert). [51] Ty maintains the trial judge erred in law by not considering his farming losses when calculating his net income for the purposes ofthe Guidelines and otherwise by failing to take into account the principles and factors articulated by Wilkinson J. in Dean v. Friesen(1999), (SK KB), 185 Sask. R. 208.

Twila maintains the farming operation was not a viable business venture and,therefore, should not be taken into account. [52] Against this background, I turn to the question of whether farming losses are to be considered but not necessarily allowed whencalculating net income in circumstances akin to those before the Court.

In my view, the Chambers judge in Nichol, supra, correctlystated the net income of a party for the purposes of the Guidelines and his or her child support obligations is the source of incomereported by the party on his or her T1 General Income Tax Return, subject to adjustment for Guideline purposes based on the factorsarticulated in Botha v. Botha, 2000 ABQB 870, 283 A.R. 201 at paras. 21-22: [21] Most taxpayers’ income can be determined by reviewing their tax return. However, the tax return of the self-employed payor,like Dr.

Botha, may not be as conclusive since the Income Tax Act allows a variety of deductions to arrive at net income and taxableincome. That “net income” may not reflect real disposable income and ability to pay support. One of the objectives of the Guidelines isto establish a fair standard of support for children that ensures that they continue to benefit from the financial means of both spouses afterseparation. If the payor’s children remained part of the payor’s household they would have the advantage of and would benefit from thatdisposable income and not just the payor’s taxable income.

The drafters of the Guidelines recognized this. [22]

Section 16 of the Guidelines provides that, subject to ss. 17-20, a payor's annual income is determined using the sources ofincome set out under the heading "Total Income" in the T1 General form, adjusted in accordance with

Schedule III.

Section 16 stipulatesthat in determining income the sources of income set out in the tax return are to be used.

Section 16 does not say that the amount asdisclosed on the tax return is to be used. For most payors who are employees, the income figures are as set out in the individual’s taxreturn. However, for the self-employed payor, s. 16 is quite clear that income can be determined using the “sources of income” under theheading “Total Income” in the T1 General and the objective is to determine the fairest indicator of the payor's income from thosesources. Pursuant to ss. 17-20 and

Schedule III there may be adjustments to annual income disclosed on the tax return if the return doesnot fairly set out the payor's income. [53] Although the Chambers judge in Nichol referred to a series of decisions which appear to suggest a court may simply ignore farminglosses and focus solely on a party’s main source of net income for the purposes of the Guidelines, he did not unequivocally endorse theratio in these decisions. To the contrary, he conducted a full analysis of whether all or any part of the farming losses claimed by therespondent should not be taken into account.

The evidence before him confirmed that the respondent’s farming operation had sufferedoperating losses during the three years immediately preceding the application before him and that the respondent used his farmingoperations as a means of making some of his personal expenses tax deductible and splitting his income with his new spouse. [54] Based on a careful analysis of the financial material presented by the parties, the Chambers judge in Nichol concluded it would notbe appropriate to take the resulting losses into account when determining the respondent's net income for Guideline purposes.

Therefore,Nichol cannot be said to support the proposition that a court may simply ignore farming losses in calculating a party's net income forGuideline purposes or for the purposes of calculating child support. [55] Ryan-Froslie J. in her fiat only addressed the amount of interim child support payable by Ty pending trial or settlement of the issuesraised in Twila's petition. Based on her understanding of the decision in Nichol, supra and the authorities cited therein, she deemed itappropriate to order interim child support based solely on the net income Ty earned as a firefighter.

Given the issue before this Courtdoes not involve interim child support, I leave the question of whether farming losses can be ignored when assessing interim childsupport obligations for the Court to decide when that issue is directly before it.

[ 56 ] I am satisfied the decision by Ryan-Froslie J. is not applicable in the instant case. [ 57 ] In sum, a court may not simply ignore farming losses and determine a party's net income for the purposes of the Guidelines or permanent child support based solely on a party's largest source of income. There must be some evidence before the court which warrants the court adjusting the net income disclosed on the party’s tax return on the basis that it does not fairly reflect the party’s net income for the purposes of child support.

In my respectful view, the trial judge erred by not considering whether any portion of Ty’s farming losses should be taken into account in determining his net income for Guideline purposes. [ 58 ] A question then arises as to whether the determination of Ty's net income for Guideline purposes should be referred back to the court below, or whether there is sufficient uncontested evidence upon which this Court can determine what adjustment, if any, is appropriate to the net income reported in Ty’s 2007 tax return. [ 59 ] Ty and Twila provided little evidence relevant to the determination of whether inclusion or exclusion of the subject farming losses would be appropriate.

Unlike in Nichol , there is no evidence of the farming operation being a sideline business, or the farming operation being conducted to split income, or as a means of increasing net disposable income by claiming personal expenses as a business expense. None of these matters were adequately explored by the Johnsons. [ 60 ] In the instant case, I am prepared to rely on the evidence contained in the aforementioned tax returns for Ty entered them in evidence and they were never challenged by Twila.

Since these tax returns confirm substantial farming losses in each year between 1998 and 2007, I am satisfied that it would be inappropriate to take the farming losses into account in calculating Ty’s child support obligations.

This continuous string of losses, in my view, establishes that Ty’s farming operation was not an economically viable venture in the absence of evidence establishing that it was about to become a viable one. [ 61 ] In my view, where spouse A seeks to have farming losses included in the determination of his or her net income for Guideline purposes, spouse A is required to present evidence confirming the current or long-term viability of his or her farming operation.

It also follows that if spouse B opposes spouse A’s farming losses being taken into account in determining spouse A’s net income because it is not a viable farming operation or is carried on as a marginal sideline or “hobby farm,” spouse B must provide the trial judge with some evidence supporting his or her submissions.

Neither spouse A nor spouse B is entitled to simply dump the issue on a trial judge’s lap and expect the judge to resolve it without the benefit of appropriate evidence. [ 62 ] In sum, I reject Ty’s position that his farming losses should be taken into account when calculating his child support obligations. [ 63 ] That said, I turn to whether the trial judge correctly held that Ty was responsible for his proportionate share of the s. 7 expenses incurred by Twila.

I am satisfied the trial judge correctly applied the applicable law to the facts before him and correctly decided Ty is to pay his proportionate share of the s. 7 expenses in question. Nothing before the trial judge or this Court suggests the s. 7 expenses in question created an economic hardship for Ty or impaired his access to his sons, particularly since they reside with him during his days off on his four-days-on and four-days-off work schedule. D. Did the trial judge err in holding that the interest in lands conveyed by Mr. Larsen to Twila is not divisible family property? [ 64 ] Mr.

Larsen directly or indirectly transferred several parcels of land he beneficially owned to either Twila or Twila and her sisters. Only a brief review of the various transfers, assignments of purchase agreements and related mortgage loans is required in connection with the principal issue. Mr. Larsen and his wife jointly owned SW 1-50-6-W3rd ("Parcel 1") and transferred it to the Royal Bank in 1993 in partial payment of the debt they owed the Bank. At that time Parcel 1 was subject to several writs of execution, including one in favour of the Royal Bank. In January 1994, Mr.

Larsen entered into an agreement to purchase Parcel 1 from the Royal Bank and in due course completed the purchase thereof, with title to Parcel 1 being transferred to Twila, without her contributing to the purchase price payable to the Royal Bank. [ 65 ] In March 1996, Mr. Larsen offered to purchase the SE 7-50-5-W3rd (“Parcel 2”) and NE 18-50-5-W3rd (“Parcel 3”) from the Royal Bank. The Royal Bank accepted his offer, whereupon Mr.

Larsen arranged for Twila and her sisters to execute a formal offer to purchase Parcels 2 and 3, and financed the purchase price by way of funds he had on hand and a mortgage loan obtained by Twila and her sisters, which he guaranteed. Titles to Parcels 2 and 3 issued in the names of Twila and her sisters in September 1996.

[66] Twila and her sisters executed a declaration of trust dated March 29, 1997 wherein they acknowledged they held title to Parcels 2and 3 in trust for Mr. Larsen. In February 2006, Parcels 2 and 3 were transferred to Mr. Larsen and his wife, with no purchase pricepayable to Twila or her sisters. No writs of execution attached when Mr. and Mrs. Larsen became the registered owners of these lands. [67] Andrew Larsen, the father of Mr.

Larsen and grandfather of Twila and her sisters, in March 1997 executed a transfer of the NW 12-50-6-W3rd ("Parcel 4") and NE 12-50-6-W3rd ("Parcel 5") in favor of Twila and her sisters. Subsequently, Twila and her sisters executeda declaration of trust dated March 29, 1997, wherein they confirmed they held title to Parcels 4 and 5 in trust for Mr. Larsen and that hewas at liberty to deal with those lands as he saw fit. Title to Parcels 4 and 5 registered in the names of Twila and her sisters in August1997. [68] In April 1998, Mr.

Larsen entered into an agreement to purchase the SE 16-50-6-W3rd ("Parcel 6") and the SW 22-50-6-W3rd("Parcel 7") from Mr. Wilkins. He completed the purchase in the names of Twila and her sisters, arranged for a mortgage loan for Twilaand her sisters to cover the purchase price of the aforementioned lands, and guaranteed the mortgage loan. Title to Parcels 6 and 7 issuedin the names of Twila and her sisters. [69] Mr. Larsen also had transferred the Mont Nebo Hotel to Twila. She, in turn, resold the hotel with the net proceeds being paid toMr. Larsen. [70] Mr.

Larsen acknowledged that all of the aforementioned conveyances of land to Twila or to Twila and her sisters and landpurchased in their names were made for the purpose of avoiding writs of execution attaching to those lands. He further acknowledgedhaving outstanding debt obligations at the time he conveyed his beneficial interest in several of the aforementioned parcels to hisdaughters. [71] Ty maintained the trial judge erred in holding that Twila or Twila and her sisters held the subject lands in trust for Mr. Larsen andtherefore the lands were never family property. He submits the trial judge: (

a) failed to apply the presumption of advancement; (b)misapplied the law of resulting trusts; (

c) misapplied the law on fraudulent conveyances; and (

d) failed to apply the clean hands doctrineto the evidence. [72] Twila’s position is the trial judge made no error in his

interpretation of the law or in his application thereof to the facts before him. That said, I will address the arguments advanced by the Johnsons by way of the following questions: (

i) Did the learned trial judge err in the manner in which he applied the common law presumption of advancement or the common lawpresumption of a resulting trust? (ii) Does the law of fraudulent preferences and conveyances or The Fraudulent Conveyances Act, 1571 (U.K.), 13 Eliz. I, c. 5 (the“Statute of Elizabeth”) or The Fraudulent Preferences Act, R.S.S. 1978, c. F-21, apply in the instant appeal? (iii) Does the doctrine of "clean hands" apply in the instant appeal? [73] I turn to the first sub-question. (

i) Did the learned trial judge err in the manner in which he applied the common law presumption of advancement or thecommon law presumption of a resulting trust? [74] Ty submits the common law presumption of advancement applies to Mr. Larsen’s conveyance of his interests in the subject lands toTwila or Twila and her sisters. Thus, it is to be presumed that Mr. Larsen intended to unconditionally gift his interest in the subject landsto her and not to create a resulting trust. In support of this submission, he relied on: Goodfriend v. Goodfriend, (SCC),[1972] S.C.R. 640, Maysels v.

Maysels (1974), (ON CA), 45 D.L.R. (3d) 337) (Ont. C.A.), aff’d [1975] 1 S.C.R. v; andPecore v. Pecore, 2007 SCC 17, 2007 SCC 17 , [2007] 1 S.C.R. 795.

In Goodfriend, Spence J. described the common law presumption of resulting trust and thecommon law presumption of advancement, as they existed in 1971 (at pp. 646-47): It is of course, trite law… that where a person transfers his property into another's name gratuitously a resulting trust in favour ofthe grantor is created and the transferee must prove, in order to retain title, that a gift was intended by the transferor.… When, however, the relationship between the transferor and transferee is husband and wife or father and child, there is apresumption of advancement, that is, that the transferor intended to make a gift of the subject-matter of the transfer to the transferee....

He also cited the decision in Walsh v. Walsh, (ON SC), [1948] O.R. 81 (H.C.J.), aff’d (ON CA),[1948] 4 D.L.R. 876 (C.A.) [75] In Maysels, supra, the Ontario Court of Appeal held that although the presumption of a resulting trust or the presumption ofadvancement is displaceable, the onus of displacing the presumption rests upon the party who seeks to displace it.

It further stated thepresumption of a gift to a wife or child is more readily displaced. [76] The Supreme Court in Pecore, supra considered whether the long-standing common law presumption of a resulting trust andpresumption of advancement were appropriate given societal changes. Writing for the majority, with Abella J. concurring in the result,Rothstein J. reviewed the common law presumptions of resulting trust and the common law presumption of advancement and where theburden of rebutting each presumption lies.

With respect to the presumption of resulting trust and the burden of rebutting the presumption, he confirmed they remained essentially the same as stated in Goodfriend, supra. He stated: [24] The presumption of resulting trust is a rebuttable presumption of law and general rule that applies to gratuitous transfers. When atransfer is challenged, the presumption allocates the legal burden of proof. Thus, where a transfer is made for no consideration, the onusis placed on the transferee to demonstrate that a gift was intended: see Waters' Law of Trusts, at p. 375, and E. E.

Gillese and M.Milczynski, The Law of Trusts (2nd ed. 2005), at p. 110. This is so because equity presumes bargains, not gifts. [25] The presumption of resulting trust therefore alters the general practice that a plaintiff (who would be the party challenging thetransfer in these cases) bears the legal burden in a civil case.

Rather, the onus is on the transferee to rebut the presumption of a resultingtrust. [77] With respect to the presumption of advancement, Rothstein J. confirmed the presumption no longer applies between a parent and anindependent adult child, but continues to apply to gratuitous transfers from a parent to a child who is a minor or a child in need. He setout the basis for the change: [35] Heeney J. also noted that the fact that the child was independent and living away from home featured very strongly in KerwinC.J.'s reasons for finding that no presumption of advancement arose in Edwards v.

Bradley [ (SCC), [1957] S.C.R. 599].A similar conclusion was reached by Klebuc J., as he was then, in Cooper v. Cooper Estate (1999), 27 E.T.R. (2d) 170 (Sask.

Q.B.), atpara. 19: "I have serious doubts as to whether presumption of advancement continues to apply with any degree of persuasiveness inSaskatchewan in circumstances where an older parent has transferred property to an independent adult child who is married and livesapart from his parent." Waters et al., too in Waters' Law of Trusts, at p. 395, said: "It may well be that, reflecting the financialdependency that it probably does, contemporary opinion would accord [the presumption of advancement] little weight as between afather and an independent, adult child." [36] I am inclined to agree.

First, given that a principal justification for the presumption of advancement is parental obligation tosupport their dependent children, it seems to me that the presumption should not apply in respect of independent adult children. AsHeeney J. noted in McLear [(2000), 33 E.T.R. (2d) 272], at para. 36, parental support obligations under provincial and federal statutesnormally end when the child is no longer considered by law to be a minor: see e.g. Family Law Act, s. 31.

Indeed, not only do childsupport obligations end when a child is no longer dependent, but often the reverse is true: an obligation may be imposed on independentadult children to support their parents in accordance with need and ability to pay: see e.g. Family Law Act, s. 32. Second, I agree withHeeney J. that it is common nowadays for ageing parents to transfer their assets into joint accounts with their adult children in order tohave that child assist them in managing their financial affairs.

There should therefore be a rebuttable presumption that the adult child isholding the property in trust for the ageing parent to facilitate the free and efficient management of that parent's affairs. [78] It, therefore, follows that the presumption of advancement does not apply in the instant appeal for Twila at all times was an adultchild who was able to provide for herself. Consequently, the submission by Ty that Mr. Larsen bore the burden of rebutting thepresumption of advancement is not sustainable.

To the contrary, the burden of establishing that it applied rested on Twila and indirectlyon Ty to the extent he claimed an interest in Parcels 1 to 7, inclusive. [79] In sum, the trial judge did not err in his

interpretation of the common law presumption of advancement or by leaving the burden ofrebutting the common law presumption of a resulting trust with Twila and her sisters, being the grantees. Twila never relied on thepresumption of advancement or attempted to rebut the presumption of a resulting trust on the grounds that it would be inequitable todeprive her of the lands. To the contrary, Twila and her sisters claimed no interest in lands they held in trust for their father.

The trialjudge accepted their evidence. (ii) Does the law of fraudulent preferences and conveyances or The Fraudulent Conveyances Act, 1571 (U.K.), 13 Eliz. I, c. 5 (the“Statute of Elizabeth”) or The Fraudulent Preferences Act, R.S.S. 1978, c. F-21, apply in the instant appeal? [80] In Moody v. Ashton, 2004 SKQB 488, 248 D.L.R. (4th) 690, Justice G. Baynton comprehensively reviewed the Statute of Elizabethand The Fraudulent Preferences Act, R.S.S. 1978, c. F-21, along with the jurisprudence and jurisprudential writings applicable thereto.

At paras. 122-23 he described the factors to be considered when determining whether a conveyance constitutes a fraudulent conveyanceunder the Statute of Elizabeth or The Fraudulent Preferences Acts of several provinces: [122] I move on to consider the cases that distinguish the factors to be considered in determining whether a conveyance constitutes afraudulent conveyance under the Statute of Elizabeth and the factors to be considered in determining whether a conveyance constitutes afraudulent conveyance under the Fraudulent Preferences Acts of the provinces.

These factors are similar but there is one principaldifference. Despite the existence of a fraudulent intention to defeat creditors on the part of a transferor, a voluntary conveyance is notvoid under the Fraudulent Preferences Acts unless the transferor is, at the time of the conveyance, (

a) in insolvent circumstances, (b)unable to pay his debts in full, or (

c) knows that he is on the eve of insolvency. [123] Although a fraudulent intent to delay, hinder or defraud creditors on the part of a transferor at the time of the impugnedconveyance is a requirement under both statutes, the insolvency of the transferor as defined above is not a requirement of the Statute ofElizabeth. This material difference in turn affects another difference. A state of insolvency cannot exist unless there are existing orimminent creditors.

Accordingly, an intent to defraud existing creditors or imminent creditors is required to satisfy the intent requirementof the provincial Fraudulent Preferences Acts. The intent requirement of the Statute of Elizabeth is satisfied whether the intent to defraudcreditors pertains to existing, imminent or even future creditors (i.e those who are not yet creditors but who may become creditors).

Inother words conveyances intended to defeat potential or future creditors constitute fraudulent conveyances under the Statute of Elizabethbut do not constitute fraudulent conveyances under the provincial Fraudulent Preferences Acts. [81] In Royal Bank of Canada v.

North American Life Assurance Co., (SCC), [1996] 1 S.C.R. 325, Gonthier J. atparas. 62-63 confirmed the Statute of Elizabeth allows creditors to challenge fraudulent conveyances without having to prove the debtorwas insolvent when the challenged conveyance was made or was unable to pay his or her debts in full, or knew that he or she was on theeve of insolvency. Also see: Stewart v. Zacharuk, (SK KB), [1949] 1 W.W.R. 213 (Sask. K.B.). [82] The principles to be considered in determining whether an imputed conveyance contravened the Statute of Elizabeth werespecifically identified in Proulx v.

Proulx, 2002 ABQB 151, 316 A.R. 150 at para. 14: [14] It seems to me that the basic principles defining the remedy in 13 Elizabeth, c. 5 are now well settled. 1. There must be a conveyance of either real or personal property; 2. The transaction must have been for no or nominal consideration; 3. It must have been the intent of the settlor to defraud, hinder or delay his creditors; 4. The intent of the settlor may be inferred from his circumstances and the circumstances of the settlement or may be the result ofdirect evidence; 5.

The fact that there was no consideration or voluntary consideration will in most cases justify the inference of the necessary intentabsent evidence rebutting that inference; 6. Inference of intent will be strong if the settlor was insolvent at the time of settlement or the settlement effectively denuded him ofassets sufficient to cover existing obligations; 7. The party challenging the conveyance must be a creditor or someone with a legal or equitable right to claim against the settlor; 8. The conveyance must have had the intended effect. Fillier v. Bubley, [1997] A.J.

No. 1285; (AB KB), 215 A.R. 62 (Q.B.); Dwyer v. Fox et al., (AB KB), [1996] A.J. No. 769; 190 A.R. 114 (Q.B.); Rogers Realty Ltd. v. Prysiazny (1996), (AB KB), 182 A.R. 118 (Q.B.); Commerce Capital Mortgage Corp. v. Jemmett, [1981] O.J. No. 1242 (H.C.); and Chez Beat Restaurant Ltd. v. Beciaris, [1991] B.C.J. No. 2459 (S.C.). [83] In the instant case, Ty is not entitled to rely on either the Statute of Elizabeth or The Fraudulent Preferences Act, for Mr. Larsenwas never indebted to him and there is no evidence of the impugned conveyances to Twila in any way being adverse to his interest.

Tothe contrary, the evidence suggests that he only stood to benefit if the subject lands were never reconveyed to Mr. Larsen, or handed overto Mr. Larsen’s creditors. Moreover, there was no evidence before the trial judge of Mr. Larsen being insolvent at the time he conveyedthe subject lands to Twila or of any creditor of Mr. Larsen having looked to those lands as a means of recovering an enforceable debtowed by Mr. Larsen, and being unable to do so by virtue of the transfers to Twila and her sisters.

(iii) Does the doctrine of “clean hands” apply in the instant appeal? [84] The “clean hands” rule essentially provides that a party who seeks the assistance of a court of equity must come before the courtwith clean hands. Thus, evidence of an illegal scheme will not be admitted in evidence by a court of equity for the purpose of rebuttingthe presumption of advancement or other form of equitable relief. See: Goodfriend, supra at p. 643; D.W.M. Waters, Waters’ Law ofTrusts in Canada, 3rd ed. (Toronto: Thomson Carswell, 2005 at p. 358; Tribe v. Soiseth, 2006 BCSC 652, 26 R.F.L. (6th) 28; andHaaksma v.

Haaksma, , [2008] O.J. No. 4929 (QL) (Ont. S.C.J.) [85] Ty maintains the trial judge failed to apply the clean hands rule when he took into account the agreements Mr. Larsen and Twilaentered into for the purpose of defrauding his creditors and when he allowed Mr.

Larsen to rely on the common law presumption ofresulting trust given the nature of his illegal scheme. [86] Ty’s submissions are not sustainable on several grounds; first, the common law presumption of advancement is not applicablebecause Twila is an adult child who is not dependent on her father and thus he did not have to rebut it; second, since Twila and her sistersagreed that they held the subject lands in trust for their father, Mr. Larsen did not have to rely on the common law presumption of aresulting trust. In this respect, the circumstances in this case are materially different than those in Holland v.

Holland (2007), (ON SC), 49 R.F.L. (6th) 97, [2007] O.J. No. 4329 (QL), where the grantee was not prepared to acknowledge the existenceof an actual trust and the grantor had to rely on the court to exercise its equitable jurisdiction and set aside the presumption ofadvancement to avoid an inequitable result in favour of the grantee. In sum, the clean hands doctrine is not applicable in the instant case. E.

Did the trial judge err in awarding Twila Johnson her taxable costs? [87] It is well established that an appellate court should not interfere with an order for costs unless it can be demonstrated that the lowercourt erred in the exercise of its discretion. See: Rimmer v. Adshead, 2002 SKCA 12, [2002] 4 W.W.R. 119. The trial judge made noerror in awarding Twila her taxable costs. V. Conclusion [88] With respect to the issues between Ty and Twila, the appeal is granted to the extent the judgment of the trial judge is varied asfollows.

The New Holland combine is declared to be the exempt property of Ty and, as such, is not subject to distribution as familyproperty. Twila shall have her costs only as against Ty. No costs are awarded to Ty or Mr. Larsen. In all other respects, the appeal isdismissed. DATED at the City of Regina, in the Province of Saskatchewan, this 3rd day of October, A.D. 2012. “Klebuc C.J.S.”_____________________ Klebuc C.J.S. Richards J.A. I. Introduction [89] I agree with the disposition of this appeal proposed by Klebuc C.J.S. I also largely agree with his analysis.

However, I respectfullyfind myself unable to fully accept his approach on all matters and wish to offer brief comments on three aspects of this appeal. Like theChief Justice, I will refer to Mr. and Ms. Johnson as “Ty” and “Twila”. II. Analysis A. The Limitations Act Issue [90] My first caveat with respect to the Chief Justice’s reasons for decision in this matter concerns the loan made to Ty and Twila byTy’s parents. As will be recalled, Twila contended at trial that any claim the parents might have in relation to the loan would be barred

by The Limitations Act and, therefore, the loan should not be factored into the property division. The trial judge agreed. [91] In his factum, as a minor part of his overall presentation, Ty took issue with this aspect of the trial decision by submitting that “TheLimitations Act was not pleaded.” That was the sum total of his argument. In oral submissions, counsel for Ty said only that it was“unfair” for the trial judge to have relied on The Limitations Act.

The Chief Justice rejects Ty’s position on the basis that, because Twilais not relying on The Limitations Act in response to a claim advanced by Ty’s parents, Rule 142 is not applicable here. [92] I take a somewhat different approach. Rule 142 is found in Part Ten of the Rules, entitled “Pleading”, and speaks generally to howpleadings are to be drafted. But, the Rules also contain Part Forty-Eight, entitled “Family Law Proceedings”. It deals specifically withfamily law matters such as those at issue in this appeal.

Rule 585(2) says that, unless otherwise provided by statute or the Rulesthemselves, the general procedure and practice of the Court of Queen’s Bench is to be adopted and applied, with necessary modification,in a family law proceeding. [93] Part Forty-Eight provides that family law proceedings are to be commenced by petition in prescribed form (Rule 589(1)). A petitionis followed by an answer and, if necessary, a counter-petition (Rule 598). All of this is perhaps doubly significant because, in at leastpartial contrast to Rule 142, Rule 591(3), found in Part Forty-Eight, provides as follows:

(3) Unless the Court determines otherwise, a Petition has the effect of raising all issues concerning or in any way relating to thematters for which relief is specifically sought notwithstanding that an issue is not specifically referred to in the Petition, and the Courtmay make any judgment or order that the justice of the case may require. [94] Twila did not list the loan from Ty’s parents in the “Debts and Other Liabilities”

section of the Property Statement she swore onSeptember 27, 2005. Ty did list it in his Statement of October 31, 2005. This should have flagged for Ty the fact that the status of theloan was in dispute. [95] It would have been technically open to Twila to file an Answer to Counter Petition speaking to The Limitations Act argument but,failing that, she did go on to refer to it in her trial brief. Ty also referred to the status of the loan in his brief. [96] Ty has not suggested or tried to demonstrate that he was in any way actually prejudiced by the way this matter unfolded.

In myopinion, and given the circumstances as a whole, I would not interfere with the trial judge’s decision to consider The Limitations Actargument. [97] I would also respectfully add some additional qualifications. First, I would prefer not to make any comment at all on the question ofwhether a limitation period, for present purposes, should be considered substantive or procedural in nature.

The real point is that Twilahas established there is a good defence to any suit the parents might bring in an attempt to collect on the loan. [98] Second, and in terms of the operation of The Limitations Act, I would have thought that the essential inquiry here should involve thequestion of whether the loan is enforceable against either Ty or Twila, not only whether it is enforceable against Twila. As explained bythe Chief Justice, Twila has a Limitations Act defence to any action that Ty’s parents might bring with respect to the loan. Ty, by parityof reasoning, is in the same position.

As a result, the loan should not be factored into the distribution of family property. [99] Third, I simply note that Ty did not suggest the loan from his parents should weigh into the property division on the strength ofwhat might be called a “moral” obligation to repay it. As a result, I make no comment one way or the other on this question. B.

Farming Losses [100] My next point concerns the question of whether Ty’s farming losses should have been taken into account for purposes ofdetermining his support obligations and his contribution to s. 7 expenses. [101] In this regard, I of course agree with the Chief Justice that, as a matter of general principle, farming losses incurred by a spousewith employment or other non-farming income are not somehow automatically excluded from the calculation of his or her income forpurposes of determining support obligations.

Rather, income for purposes of support and extraordinary expenses calculations must bedetermined in the manner set out in ss. 15 to 20 of the Guidelines.

Section 19 is particularly relevant in the present circumstances as itempowers a court to impute such amount of income “as it considers appropriate in the circumstances”. As a result, s. 19 would allow atrial judge, if necessary, to impute income amounts effectively cancelling out farming or other losses. [102] However, in my view, this should not be framed as an “all or nothing” proposition, i.e. a judge need not feel obliged to choose onlybetween the options of giving full effect to farming losses and excluding them completely from an income calculation.

There are halfwaypoints which might sometimes lead to more just results. By way of illustration, in some situations a court might have reason to add backspecific capital cost allowance claims so as to reduce the size of the loss. See, for example: Shmyr. v. Shmyr, 2003 SKQB 209, 233Sask. R. 87. Further, there might be cases where it can be established that an individual has attributed personal expenses to a farmingoperation in order to increase farm losses. In such situations, those expenses might be edited out of the picture. See: Dean v. Friesen(1999), (SK KB), 185 Sask. R. 208 at p. 214 (Q.B.).

In short, s. 19 is designed to be a flexible tool for trial judgesand its flexibility should be preserved. [103] Like the Chief Justice, I also conclude that the trial judge made no bottom-line error in deciding to exclude Ty’s farming lossesfrom the calculation of his income. In this regard, it would have been very much preferable if the parties had developed a more completefactual record.

But, that said, both the trial judge and this Court are nonetheless required to resolve the matters put in issue, if possible, onsuch evidence as has been presented. [104] That evidence reveals Ty to have a very modest farming operation (with revenues of between $11,628 and $16,200 per year for2005 to 2007). Further, it is an operation which has generated a decade of uninterrupted losses. (The only exception was in 2007 when a

significant inventory adjustment created a profit.) [ 105 ] As a result, this case lines up with the sort of reasoning employed in Myketiak v. Myketiak , 2001 SKCA 17 , 203 Sask. R. 90, where this Court confirmed a trial decision to deny the deduction of farming losses in the calculation of income.

In light of five years of such losses, Tallis J.A. had this to say on behalf of the Court: 20 If the appellant chooses to operate his farm at a loss over such an extended period, he cannot expect his former wife and children or the public to subsidize such operations when there are reasonable alternatives open to him. [ 106 ] Counsel for Ty suggested in oral argument that, rather than disregarding the whole of Ty’s farming losses, the Court should consider backing out the inventory adjustment from the calculation of his 2007 farming loss.

In my view, we simply do not have an evidentiary record that would allow us to determine whether such an approach would be reasonable. [ 107 ] That said, I also wish to respectfully add that I do not accept that the test for deciding whether farming losses should be allowed in computing spousal income is whether a farming operation is economically viable either currently or in the long term.

I also prefer not to endorse, as inflexible rules, the Chief Justice’s formulation of the various onuses of proof and evidentiary onuses which are said to attach to the farming and non-farming spouse in situations such as the one at hand. [ 108 ] An approach driven only by the viability of a farming enterprise may prove less than ideal. First, even a viable farming operation might nonetheless not represent a reasonable utilization of property ( Guidelines s. 19(1)(e)).

In other words, viability might not be the only consideration expressly noted in s. 19(1) which is properly applicable to the question of whether farming losses should be included or excluded in calculating income.

Second, notions such as “viability” and “long-term” viability seem to be ones which will invite perhaps unnecessary debate as to their proper meaning and application. [ 109 ] Counsel did not direct any attention to this issue and, if it is necessary to open this door at all, I would prefer (for present purposes at any rate) a more straightforward approach rooted directly in the wording of the Guidelines themselves.

I would say no more than that, if a judge considers it appropriate in light of the evidence adduced, he or she may impute into a spouse’s income an amount equivalent to part or all of claimed farming losses. His or her decision in that regard should be based on the overall equities of the situation at hand and aimed at the goal of achieving a fair and reasonable result consistent with the scheme of the Guidelines . The economic strength of a farming operation will be a significant factor in the judge’s decision-making equation, but it will not necessarily always be the only factor. C.

The Statute of Elizabeth [ 110 ] My third point is simply made. In his decision at para. 19, the trial judge said Ty had argued that the conveyances from Mr. Larsen to Twila were void by virtue of The Statute of Elizabeth . Ty’s counsel indicated in argument before this Court that no such submission had been made at trial. There is a root logic in this because, if the transfers were void, Twila would have had no land to be distributed to Ty. Simply put, Ty had no interest in arguing that the transfers to Twila were ineffective.

It might have been, therefore, that there was some miscommunication between Ty’s counsel and the trial judge. [ 111 ] In any event, in his oral submissions to this Court, I did not understand Ty’s counsel to contend that The Statute of Elizabeth was somehow engaged so as to void the transfers of land to Twila. Rather, he submitted that the presumption of advancement should be read as putting the land in Twila’s hands and that the land should therefore be considered family property unless it was held by Twila in a resulting trust in favour of Mr. Larsen.

It was at this last point, the existence of a trust, that Mr. Larsen’s alleged fraudulent purposes were argued to be important in that they were said to estop him from asserting the existence of a trust. This line of argument fails because, as the Chief Justice points out, its foundation - the presumption of advancement - does not apply here. IV. Conclusion [ 112 ] I concur with the Chief Justice’s conclusions and, with the qualifications noted above, his lines of reasoning. I too would dismiss Ty’s appeal with the exception that the combine must be excluded from distribution as family property.

I would award costs to Twila, payable by Ty, in the usual way and would not award costs either to or against Mr. Larsen. DATED at the City of Regina, in the Province of Saskatchewan, this 3 rd day of October, A.D. 2012. “Richards J.A.” _____________________ Richards J.A. I concur “Lane J.A.” _________________________

Lane J.A.