Court File and Parties
Ontario Court of Justice
Date: February 11, 2014
Court File No.: Toronto FO 11-10481-E0
Between:
Family Responsibility Office for the Benefit of Donna Mary D. Lee
Applicant
— AND —
Stanley Kouhwa Chiang
Payor
Before: Justice Ellen Murray
Heard on: February 7 & 10, 2014
Reasons for Judgment released on: February 11, 2014
Counsel:
- Mr. Shane Foulds, for the applicant(s)
- Dr. Stanley Kouhwa Chiang, on his own behalf
MURRAY, J.:
Decision
[1] This is my decision after a final default hearing conducted on February 7 & 10, 2014 in this matter.
[2] The Director is enforcing a series of orders requiring Dr. Chiang to pay child and spousal support made by the Superior Court in a family proceeding in Newmarket, issued between April 2007 and December 2010. Since then, the parties have agreed to termination of Dr. Chiang's ongoing support obligations—the children of the marriage are now independent, and Ms. Lee has remarried. However, there are substantial arrears which accumulated under the prior orders, now totalling $509,516.09 according to the Director's most recent statement.
[3] The enforcement proceeding has been adjourned over a two years period, while the payor, Dr. Chiang, brought a motion asking that the prior support orders be set aside or varied. Three years elapsed from the time that Dr. Chiang initially brought those motions to the time they were argued. On December 5, 2013, Justice Howden dismissed Dr. Chiang's motions. I am advised that he has filed a notice of appeal from Justice Howden's decision.
[4] In the course of the default hearing, I received viva voce and documentary evidence from Dr. Chiang, who was self-represented. The Director, besides submitting the latest statement of arrears, provided a copy of Justice Howden's judgement[1], arguing that I should take into account findings of fact made by him.
[5] The Director asks for the following orders with respect to the payor Dr. Chiang:
An order committing him to jail for 15 days, unless the sum of $25,000 is sooner paid, based on his breach of the temporary default order made on July 8, 2013. That order provided that Dr. Chiang was to pay $5,000 monthly, in default of which he was to be incarcerated for 3 days for each breach. The director asked for an immediate warrant of committal in reference to this term.
A final default order, requiring Dr. Chiang to:
- Pay $200,000 within 30 days, in default of which the payor shall be incarcerated for 180 days; and
- Pay the balance of the arrears at a rate of $5,000 monthly, in default of which the payor shall be incarcerated for 30 days for each default.
[6] The Director also asked that the Director be permitted to serve any future motions for a warrant of committal on the payor by regular mail at the last address provided by him to the Director.
[7] Dr. Chiang submitted that the appropriate order was that he pay $1,000 monthly towards arrears, an amount he could afford.
[8] The tortuous history of the main action between Dr. Chiang and his former spouse is set out in Justice Howden's judgement, and I will not repeat his recital of that history. I set out some of his observations and findings below:
Dr. Chiang's behaviour in the main action was characterized by repeated failures to appear, to comply with disclosure orders, and to comply with orders for child and spousal support and costs.
The final support order, made after his pleadings were struck and after many judicial warnings, was based on an imputed annual income of $380,000. Earlier temporary orders were based on lower income amounts.
Dr. Chiang waited an inexcusably long time before moving to have the judgment varied or set aside. Further, he displayed a leisurely attitude towards the progress of his motion to set aside, as the fact that it was pending furnished an excuse to delay the enforcement proceeding in his court.
Five years after it was ordered, Dr. Chiang furnished a report from a Mr. Hames with respect to his income. That report, untested by cross-examination, stated that his income was between $118,000 and $166,000 annually for the years 2008-2010.
It would be a hardship for Dr. Chiang not to be able to litigate the issue of the determination of his income on the merits, but it was a greater hardship to Ms. Lee to face continued litigation after 7 years of obstructive and non-compliant behaviour by Dr. Chiang. Justice Howden found that it would call the administration of justice into disrepute to allow Dr. Chiang's motion to succeed.
[9] Justice Howden made no specific finding as to Dr. Chiang's annual income currently or for any of the years in question. He did express scepticism with respect to the explanations offered by Dr. Chiang and repeated by Mr. Hames as to his precipitous decline in income after the year of separation in 2006. Justice Howden, referring to those explanations, said:
"Nevertheless, he is a dentist who, one way or the other, was earning as late as 2006, the year of the separation, gross revenue of $474,000 (rounded) according to the Hames report and by 2010 gross revenue had slumped to $280,000, a drop of almost 60% since the separation. This respondent may have caught the same disease that so many self-employed payor parties suffer from in Family Court - declining income fever."
[10] In the enforcement proceeding in this court, a variety of temporary default orders have been made, sometimes on consent and sometimes not, all of which have provided for incarceration in the event of default. Initially a temporary payment towards ongoing child support of $1,281 monthly (the amount of the original table order) was ordered, and those payments were usually made. Later, a requirement to pay $2,000 monthly towards the ongoing spousal support obligation was added to the temporary default order; the amount of spousal support in the judgement was substantially higher. The spousal support payment required by the temporary default order was rarely made.
[11] On July 8, 2013 the Director, concerned about the delay in Dr. Chiang's variation proceeding, asked for a higher temporary default payment of $5,000 monthly. The Director's counsel noted that, based on the information furnished to them by Dr. Chiang that he had in excess of $300,000 in RSPs. That order was made, providing for incarceration of 3 days on each default. Dr. Chiang did not appeal the order. He has made only two payments on it; nothing has been paid since September 4, 2013.
The Law
[12] The Family Responsibility and Support Arrears Enforcement Act ("the Act") sets out in section 41(9) certain presumptions which apply on a default hearing, which are set out below.
Presumptions at hearing
(9) At the default hearing, unless the contrary is shown, the payor shall be presumed to have the ability to pay the arrears and to make subsequent payments under the order, and the statement of arrears prepared and served by the Director shall be presumed to be correct as to arrears accruing while the order is filed in the Director's office.
[13] The onus is on a payor to rebut these presumptions.
[14] A payor, if he is to rebut the first presumption, must demonstrate an inability to pay for valid reasons. Caselaw has established that "valid reasons" do not include self-induced unemployment or underemployment. Valid reasons do not include the payor's desire to pay other debts which the payor in preference to his support obligation[2].
[15] The Act provides that if a court is not satisfied that a payor is unable for valid reasons to pay arrears, which a range of orders can be made, including imposition of a term of incarceration of up to 180 days, unless arrears are paid. These orders may be made on a temporary or final basis[3].
[16] The Court of Appeal has held that imprisonment for non-payment is not a punishment for the debtor, but a means of enforcing payment, which should be imposed only when other reasonable measures have been attempted. If imprisonment is justified, the duration of the term should be proportionate, considering the amount owing and other factors related to the non-payment[4].
[17] A motion for committal does not constitute a default hearing de novo. The court shall entertain the debtor's explanations for non-payment that have arisen since the date of the default order, but the debtor should not be allowed to advance reasons for non-payment which were present at the time of the default order[5].
The Evidence and Argument
[18] Dr. Chiang challenges both the amount of arrears in the Director's statement and submits that he is unable to pay those arrears for valid reasons.
[19] Dr. Chiang attempted to argue the accuracy of the Director's statement based on his argument that the support orders were based on incorrect evidence about his income. I explained that, given the failure of his motion before Justice Howden, this argument was not open to him.
[20] Dr. Chiang then asserted-- but provided no documentary evidence of-- payment to Ms. Lee in excess of what was shown on the Director's statement. Specifically, he asserted some direct payments and a transfer of some funds from the sale of the parties' home. The Director's counsel consulted with Ms. Lee, who confirmed some of these payments, but counsel demonstrated that they were already accounted for in adjustments on the Director's statement of arrears. I find that Dr. Chiang has not rebutted the presumption that the statement is correct.
[21] Dr. Chiang is a dentist who has been in private practice for 28 years. With respect to inability to pay, Dr. Chiang provided a personal sworn financial statement; statements from his solely-owned personal corporation from August 2007- August 2013; income tax returns and notices of assessment from 2007-2012; Mr. Hames' report; a printout from his TD accounts; and viva voce evidence. His evidence can be summarized as follows:
His income is substantially less than it was at the time of separation because he no longer works part-time for a former colleague, who is now deceased, and because he has assumed responsibility for the clerical and administrative work previously done by his former spouse, Ms. Lee. These explanations were put forth in the Hames report, and were repeated by Dr. Chiang in his evidence before me.
As noted by Justice Howden, Dr. Chiang's gross income fell from $474,000 at the year of separation to $280,000 by 2010. More recent income statements from his personal corporation show a further significant drop in gross income, to $165,347 in 2012 and $150,235 in 2013.
Dr. Chiang maintains that he is working full-time. According to Mr. Hames report, "full-time" work for Dr. Chiang means any day upon which he is scheduled to see at least one patient.
Dr. Chiang's sworn financial statement sets out that his current income is $7,700 monthly or $92,400 annually. His 2012 and 2011 tax returns show similar income. Since the year after separation, Dr. Chiang has organized his affairs so that the bulk of his income is paid to him in dividends from his personal corporation. Those payments cannot be garnished by the Director.
Although in the early years after separation Dr. Chiang's personal corporation had significant retained earnings which he did not distribute, the current statement shows no retained earnings, and in fact shows that the corporation is running at a loss.
Dr. Chiang's only significant asset, aside from his practice, is his RRSP.
Dr. Chiang has begun to deplete this RRSP at a rapid rate. In September 2013 the account held $378,338; today it holds $284,416. Dr. Chiang testified that he was drawing from his RRSP to "keep my practice afloat"; despite the taxes he is required to pay on the withdrawals. He gave no evidence that he has investigated applying for a loan for this purpose.
Dr. Chiang recently received a demand from CRA for $15,000 in taxes owing, which he promptly paid. He also recently paid $10,000 to the lawyer who represented him before Justice Howden and who is preparing his appeal. This debt was paid using a credit card.
Dr. Chiang acknowledged that his driver's license and his passport have been suspended since April 2010 because of non-payment of support, and that he has not driven since that time. Despite this, he pays $1,680 monthly in expenses to pay for and maintain a Lexus automobile.
[22] The Director submits that Dr. Chiang falls far short of establishing that he is unable to pay the arrears for valid reasons. Counsel suggests that the findings of Justice Howden foreclose argument from Dr. Chiang that he has insufficient income to pay these arrears, and that Dr. Chiang's long history of both non-payment of support orders, non-compliance with other court orders, and strategic delay are further considerations for me in assessing whether a term of incarceration need be imposed to facilitate payment on the arrears.
[23] Counsel submits further that the evidence is clear that Dr. Chiang is underemployed by choice, as the explanations offered purporting to explain his steep post-separation income decline are not credible.
[24] Counsel submits further that a term of incarceration is required to insure compliance, as the payor has chosen to structure his income stream so that it cannot be attached by the Director, and because the suspension of his driver's license and passport have been insufficient to prompt compliance. Counsel argues that the large lump sum payment requested, coupled with the maximum period of incarceration for default, is justified because of the payor's recent attempts to deplete assets available to satisfy the arrears.
[25] Dr. Chiang replies that it is unfair to make an order which in fact requires him to cash in his RRSPs; he is 53 years old, and the RRSPs are his retirement savings. He says that no one will be served by his incarceration, and that he has always honoured his obligations to the best of his ability.
Analysis
Committal for failure to obey the temporary default order
[26] I deal first with the Director's request for an order of committal based on Dr. Chiang's breach of the temporary default order of July 8, 2013 requiring him to pay $5,000 monthly towards arrears, with incarceration of 3 days for each default. As stated above, the committal hearing with respect to default on this order is not a hearing de novo. Dr. Chiang advanced no evidence with respect to changes in his financial situation since that order was made, other than the fact that he has recently started drawing down his RRSP.
[27] Despite the fact that there has been no change in the facts relevant to this order since July 2013, I still have discretion as to whether to impose a term of imprisonment to facilitate payment. The fact that Dr. Chiang chose to pay other debts during this period, sometimes by resorting to credit, and that he also chose to pay over $1,500 monthly to maintain an automobile that he has been unable to drive for over three years are facts relevant to the exercise of my discretion. These facts belie Dr. Chiang's assertions that he has been meeting his obligations to the best of his ability.
[28] I order that Dr. Chiang be incarcerated for 15 days, or until the sum of $25,000 is sooner paid.
Final Default Order
[29] I am not satisfied that Dr. Chiang has rebutted the presumption that he is able to pay the arrears. The real question is what payment terms are reasonable?
[30] One issue in assessing Dr. Chiang's ability to pay concerns his current income and his ability to earn income. Justice Howden's scepticism about Dr. Chiang's explanations for his sudden decrease in income is clear. I do not accept that Justice Howden made findings of fact with respect to Dr. Chiang's income that bind me. I do share his scepticism.
[31] With respect to whether the amount Dr. Chiang sets out in his tax returns represents the actual income earned available for support purposes, I have some questions as to the reliability of Dr. Chiang's tax returns. I simply note that Dr. Chiang's own income specialist put forth income figures for the years 2008-2010 which varied significantly from the figures in Dr. Chiang's tax returns for those years (sometimes more, sometimes less than Dr. Chiang reported). Some of the adjustments he made were for personal expenses paid by Dr. Chiang's corporation, which needed to be added to income.
[32] I also note that Dr. Chiang presented no evidence of a change in his lifestyle over the past 7 years, during which his income appears to have been in free fall. His personal financial statement shows that, exclusive of payment of any debts other than his car lease, he spends approximately $80,000 annually in after-tax dollars on his personal expenses[6].
[33] However, my questions about the accuracy of the income shown on Dr. Chiang's returns are relatively minor. My bigger question is whether Dr. Chiang is working to the best of his ability, or whether he is underemployed. I conclude that he is. Mr. Hames addressed the reasons for the initial income drop offered by Dr. Chiang; he counted any day on which Dr. Chiang had even one appointment as a day on which he worked "full-time". As Justice Howden noted, Dr. Chiang's gross income fell almost 60% in the 4 years following separation, from 2006-2010. In the 3 years since, it has fallen further, so that it has now fallen almost 70%.
[34] The explanations offered by Dr. Chiang for this plunge do not add up. Some decrease may be explained by the fact that he no longer works part-time helping out at another colleague's dental practice. But his explanation that-- because his former wife no longer works in the practice that he now has to perform administrative/clerical duties --makes no business sense. Why would an experienced dentist choose to undertake these duties rather than hiring a lower-paid individual to perform them?
[35] I conclude that, even working at his current level, Dr. Chiang has the ability to pay towards the arrears. If he chose not to be underemployed, those payments could increase.
[36] Accepting Dr. Chiang's current income figures at face value, in my view he is able to pay $2,500 monthly towards arrears. I arrived at this figure by considering his 2012 income figures (actual dividend amount of $67,000 plus interest income of $7,500) less tax paid that year of approximately $8,000, leaving after-tax income of approximately $66,500. An order for continuing payments of $2,500/mo. would require payment of somewhat less than 50% of his net reported income.
[37] My order is that commencing April 1, 2014 and on the first day of each month following, Dr. Chiang shall pay $2,500 towards the arrears; in default of any payment, he shall be incarcerated for 5 days. I expect that Dr. Chiang will take the necessary steps to increase his income following this decision, and wish to give him some time to make this adjustment. Commencing December 1, 2014, his payment towards arrears shall increase to $3,250 monthly; in default of any payment, he shall be incarcerated for 5 days.
[38] In determining Dr. Chiang's ability to pay, the court can consider not only his income, but his assets. Dr. Chiang has retirement savings totalling almost $300,000. He has seen fit to encroach on those savings to pay other debts, such as his debt to CRA.
[39] I understand that, perhaps attempting to follow the advice of Justice Howden with respect to settlement on the issue of arrears set out in the last paragraph of his decision, that the parties have had negotiations as to settlement of arrears that were unsuccessful. That is unfortunate, as it appears that Dr. Chiang's only assets to pay a significant amount of those arrears are his RRSPs.
[40] Other courts have found that a payor in arrears of support may be expected to cash in his RRSPs to pay those arrears[7]. I see no reason that an order should not be made which may have this effect, unless Dr. Chiang raises the funds elsewhere.
[41] Based on his experience from his recent RRSP withdrawals, Dr. Chiang estimated that the bank would hold back between 35-40% of the funds for taxes. (He presented no evidence from an accountant on this issue.) Taking this estimate into account, I order Dr. Chiang to pay the sum of $175,000 towards the arrears on or before March 12, 2014, in default of which he shall be incarcerated for 120 days. Given the factors outlined by the Director, I agree that a substantial period of incarceration is warranted to insure this payment.
[42] I order that the Director may serve any future motion for a warrant of committal by regular mail addressed to Dr. Chiang at his address at 5 Multiflora Place, Thornhill, ON, L3T 2W4, or at any address that he subsequently provides to the Director.
Released: February 11, 2014
Signed: "Justice Ellen Murray"
Footnotes
[1] Reported at 2013 ONSC 7965
[2] See, for example, Director, F.R.O. v. Carney, 2004 ONCJ 11; Baumann v. Clathworthy, 35 R.F.L. (3D) 200; Director, S.C.O.E. v. McLeod, (1991) 356 R.F.L. (3D) 331
[3] Family Responsibility and Support Arrears Enforcement Act, s. 41(10) and (14), and Fischer v. Ontario (Director, Family Responsibility Office), 2008 ONCA 825.
[4] Fischer v. Ontario (Director, Family Responsibility Office), 2008 ONCA 825.
[5] Ontario (Director, Family Responsibility Office) v. Buffan, 2012 ONCJ 768
[6] $6,000 monthly shown on actual expenses, plus $630 monthly for his car lease.
[7] Director of Maintenance Enforcement v. Campbell, 30 R.F.L. (3d) 76