Court File and Parties

COURT FILE NO.: 68233/03

DATE: 20050505

ONTARIO

SUPERIOR COURT OF JUSTICE

DIVISIONAL COURT

O’Driscoll, Matlow AND sWINTON JJ.

B E T W E E N:

WILLIAM JAMES INNES Applicant (Appellant)

• and -

PATRICIA DOROTHY INNES Respondent (Respondent in Appeal)

Julie K. Hannaford, for the Appellant Debra L. McNairn, for the Respondent

HEARD at Newmarket: March 8 and 11, 2005

Reasons for Decision

SWINTON J.:

1William Innes (“the Appellant”) appeals from a decision of Klowak J. dated July 16, 2003, which ordered him to pay spousal support of $2,000.00 per month to his former wife, Patricia Innes (“the Respondent”), retroactive to February 1, 2002, and to obtain life insurance to secure the amount. Subsequently, she ordered him to pay costs of $25,000.00 plus applicable GST.

2The central issue in this appeal is whether the trial judge erred in interpreting the parties’ separation agreement, which allows a party to seek a variation of spousal support if there is a “material change of circumstances”.

Factual Background

3The parties were married for 26 years and have four children. At the time of their separation in September, 1999, the eldest, Alana, was no longer a child of the marriage, although she continues to live with her partner in the Respondent’s home when not attending teachers’ college in the United States. The three other children are Brent, born August 1, 1980, and Mark and Julia, born November 14, 1983. During the marriage, the Respondent, a teacher, did not work for several years while the children were young. She then returned to work part-time from the fall of 1990 to June, 1997, and she commenced full-time work again as a teacher in the fall of 1997.

4The parties negotiated a separation agreement with the assistance of legal counsel. The Respondent signed it on November 17, 2000, and the Appellant signed on February 7, 2001. The children were to reside with the Respondent, and the Appellant was to pay child support for three children in the total monthly amount of $1,647.00 until the occurrence of a number of specified events, including

(b) the child becomes 18 years of age and ceases to be in full-time attendance (except for school vacations) at an educational institution;

(c) the child attains his or her first undergraduate degree or becomes 23 years of age; …

5Articles 9.1 and 9.2 provided that the husband and wife would each pay $1.00 monthly to the other as spousal support. In Article 9.3, the parties agreed to the sufficiency of this amount in the following terms:

The parties hereby agree that the sufficiency of payment by each is specifically acknowledged considering the quantum of support provided for, and that such quantum shall be subject to review and/or variation by either party in the event of a material change in circumstances.

There was no statement in the agreement that child support was given priority over spousal support, and no security was provided for the payment of support.

6The following articles are found under the heading “Material Change in Circumstances”:

11.1 The amount of support in paragraphs 6 and 9 may be varied by a written and witnessed agreement or by application to the Court if there is a material change in the circumstances of the parties or the Children.

11.2 The material change need not relate to circumstances or events which are consequences of the parties’ cohabitation. The following may, without limitation, constitute material changes of circumstances:

(a) changes in the spouses’ incomes;

(b) the birth of a child to either party;

(c) the remarriage or cohabitation of either spouse;

(e) changes in the cost of medical/dental insurance;

(f) changes in the income tax treatment of support payments, whether because of changes in legislation or because a party moved to another jurisdiction, or died.

7The agreement provided for an equalization payment and released a claim to share in the estate of the other upon the other dying intestate (although there was no release of a claim to a payment as a dependent from the estate of the other under the Succession Law Reform Act).

8In Article 49.1, the parties acknowledged that in arriving at the terms of the settlement and, in particular spousal support, certain factors had been considered: the husband’s waiver of interest on the equalization payment to be made to him; the wife’s pension; the fact that a guaranteed investment certificate owned by the wife and her mother was not included in the wife’s net family property; the increase in value in the matrimonial home since valuation date; and the husband’s failure to claim occupation rent, despite an entitlement to it.

9Article 36 of the agreement states,

The Husband and Wife each wishes to be able to rely upon the agreement as the final and binding one in which support and property provisions are inextricably combined to constitute a final financial settlement. It is a once and for all settlement of all their differences and affairs to avoid ever engaging in further litigation with each other, whether about matters or causes of actions existing now or later.

10The parties appended Financial Statements to the separation agreement, which showed that the Appellant’s annual income was $101,914.00 and the Respondent’s annual income was $56,835.00. The Appellant’s net worth was $337,315.29 and the Respondent’s was $349,023.17.

11On May 16, 2002, the Respondent commenced a motion to vary spousal support, seeking to increase it to $2,850.00 per month. In the alternative, she sought an order that the Appellant continue to pay child support. No child support had been paid to the Respondent since February, 2002. At the time of the motion, Brent had just completed third year university at Queen’s, and the Appellant was paying support of $450.00 per month directly to him. The two younger children had finished high school. One was about to commence an apprenticeship program, and the other was working at Lake Louise. However, according to the evidence at trial, the children are still in and out of the Respondent’s home, as well as their father’s home.

12During the proceedings, the claim for child support was abandoned on consent, and the matter proceeded to trial only on the issue of spousal support. The major issue for the trial judge to determine was whether there had been a material change in circumstances, given the termination of child support and the increase in the Appellant’s income since the agreement.

13In her reasons, the trial judge stated that s. 38.1 of the Family Law Act, R.S.O. 1990, c. F.3 and s. 15.3 of the Divorce Act, R.S.C. 1985 (2nd Supp.), c. 3 were a “persuasive guide” with respect to the priority of child support and the effect of its termination, regardless of whether the legislation applied (at para. 27). Those sections deal with court orders for child support and are worded in slightly different ways. Essentially, the sections require that a court considering applications for both child and spousal support shall give priority to child support. If, as a result, the court is unable to make a spousal support order or makes an order in an amount less than it would otherwise make, the court shall give reasons for doing so. As a consequence, any later reduction or termination of child support is a change of circumstances for the purpose of bringing a motion to vary spousal support.

14The essence of the trial judge’s reasons is found in the following paragraphs:

28The requirement in the F.L.A. that a Court express its reasons for giving priority to child support raises the question whether that priority should have been expressed in the Separation Agreement. I find that, although it would be better to specifically express priority of child support and the reasons therefore in the Agreement, such priority can also be fairly implied from the Agreement itself, and the surrounding circumstances, and I make the implication in this case.

29The structure of the Separation Agreement in preserving and deferring spousal support, the support needs of four children, and the length of this 26 year essentially traditional marriage, are some of the factors I take into account in concluding that child support took priority in the separation agreement over spousal support, even though the Separation Agreement does not specifically say so.

30In addition, at the time of the separation in 1999, the husband was earning about $102,000.00 and the wife was earning about $56,900.00. After child support payments, the husband’s net disposable income was $3,777.22 per month and the wife’s was $5,391.00 with the wife being the primary custodial parent. It is not unreasonable to conclude that there was not significant room left for payment of spousal support in addition to a payment of child support.

31In the end, I specifically find that in the circumstances of this case, termination of child support constitutes a material change in circumstances, as set out in the separation agreement.

32Further, the decline in the wife’s standard of living from the time of the marriage and in particular from the time of cessation of child support, as well as maintenance or improvement in the husband’s standard of living and in his income, also constitutes material change.

60The better approach, in my view, is to accept that the Separation Agreement simply deferred spousal support until a change of circumstances and that given a change of circumstance, the usual considerations in calculating spousal support apply.

15Having considered a number of factors, the trial judge ordered the payment of spousal support in the amount of $2,000.00 per month, based on the Appellant’s base income of $128,000 and without taking into account his annual bonuses of up to 8% of his salary or the two large payments received from his employer in two prior years. This award resulted in less than a 50/50 equalization of incomes. The support order was made retroactive to February 1, 2002, with payments to be secured by life insurance.

16The issue in this appeal is whether the trial judge erred in interpreting the Separation Agreement and concluding that there had been a material change of circumstances which warranted an order for increased spousal support. On an appeal of a decision ordering spousal support, the appellate court should not overturn the order unless the reasons disclose an error in principle, a significant misapprehension of the evidence, or unless the order was clearly wrong (Hickey v. Hickey, 1999 691 (SCC), [1999] 2 S.C.R. 518 at para. 11).

17The Appellant argued that the trial judge erred in looking only for a change of circumstances, rather than a material change. While the trial judge did refer to a “change in circumstances” in paragraph 60 of her reasons, it is clear from her earlier discussion in paragraphs 28 through 32 that she concluded that there had been a material change in circumstances within the meaning of the Separation Agreement before she made the variation order.

18The Appellant argued further that the trial judge erred in finding a material change of circumstances, because she failed to apply the appropriate test from Willick v. Willick, 1994 28 (SCC), [1994] 3 S.C.R. 670. In that case, Sopinka J. stated (at para.21):

In deciding whether the conditions for variation exist, it is common ground that the change must be a material change of circumstances. This means a change, such that, if known at the time, would likely have resulted in different terms. The corollary to this is that if the matter which is relied on as constituting a change was known at the relevant time it cannot be relied on as the basis for variation.

The Court then upheld the decision of a trial judge who had increased the level of child support from that agreed upon in a separation agreement after an increase in the father’s income.

19More recently, the Supreme Court of Canada has discussed the material change of circumstances test in Miglin v. Miglin, 2003 SCC 24, [2003] 1 S.C.R. 303, in the context of determining whether spousal support should be awarded, given a release of spousal support in a separation agreement. At paragraph 88, the Court stated:

The parties’ intentions, as reflected by the agreement, are the backdrop against which the court must consider whether the situation of the parties at the time of the application makes it no longer appropriate to accord the agreement conclusive weight. We note that it is unlikely that the court will be persuaded to disregard the agreement in its entirety but for a significant change in the parties’ circumstances from what could reasonably be anticipated at the time of negotiation. Although the change need not be “radically unforeseen”, and the applicant need not demonstrate a causal connection to the marriage, the applicant must nevertheless clearly show that, in light of the new circumstances, the terms of the agreement no longer reflect the parties’ intentions at the time of execution and the objectives of the Act. Accordingly, it will be necessary to show that these new circumstances were not reasonably anticipated by the parties, and have led to a situation that cannot be condoned.

20At paragraph 90, the Court went on to say:

The test here is not strict foreseeability; a thorough review of case law leaves virtually no change entirely unforeseeable. The question, rather, is the extent to which the unimpeachably negotiated agreement can be said to have contemplated the situation before the court at the time of the application.

21In this case, the trial judge was not asked to depart from the terms of the parties’ separation agreement, as in Miglin, but rather to determine the meaning of “material change of circumstances” within that agreement. Moreover, there is no question here of the Respondent’s entitlement to spousal support, as in that case, given the parties’ agreement to pay each other $1.00 monthly for spousal support.

22The Appellant argued that there has been no material change of circumstances within the Willick test, because it was fully foreseeable, at the time the separation agreement was negotiated, that child support would end one day. Indeed, no support was paid for the eldest child. Moreover, the parties acknowledged the sufficiency of the quantum of spousal support at that time. Therefore, the Appellant argued, absent some express language in the agreement stating that spousal support had been suppressed in order to permit the payment of child support, there is no basis to conclude that there was a material change of circumstances due to the cessation of child support. As well, the Appellant submitted that the increase in his income was not a sufficient material change of circumstances, given that the agreement refers to a change in the incomes of both parties, and given that the Respondent’s modest standard of living had not really changed since the separation. In addition, her income had increased.

23The Alberta Court of Appeal has stated that the cessation of child support would ordinarily be a sufficient change in circumstances to warrant a variation of spousal support (Wooldridge v. Wooldridge, 1999 ABCA 124, [1999] A.J. No. 433 (C.A.) at para. 28), while the Saskatchewan Court of Appeal has observed that cessation of child support was a relevant factor in determining a motion to vary spousal support (Comrie v. Roy, 2001 SKCA 33, [2001] S.J. No. 136 (C.A.) at para. 47). This approach has been adopted by Eberhard J. in Smith v. Smith, 1998 29652 (ON SC), [1998] O.J. No. 617 (Gen. Div.) at paras. 18-19, although Cavarzan J. held in Svarckopf v. Svarckopf, [2002] O.J. No. 1347 (S.C.J.) that cessation of child support was not a material change of circumstances (at para. 24).

24In Marinangeli v. Marinangeli (2003), 2003 27673 (ON CA), 66 O.R. (3d) 40, the Ontario Court of Appeal upheld the trial judge’s finding that there had been a material change in circumstances, where the husband’s income increased and where the husband cashed in stock options, known to be in existence at the time of the parties’ settlement, shortly after the settlement. The parties’ Minutes of Settlement included a provision for variation if there was a material change in circumstances, including a change in income. The Court of Appeal observed that this was not a case where Miglin, supra applied, as the parties had expressly contemplated a variation if there was a material change in circumstances, in the sense that a party’s income increased or decreased. The Court concluded (at para. 46),

Read in context and as a whole, the provision in the separation agreement relating to a material change in circumstances did not exclude foreseeable events such as an increase or decrease in income, but the opposite.

The Court also rejected the argument that as a result of the wife’s knowledge of the existence of the options at the time of signing the Minutes of Settlement, the exercise of the options was not a material change of circumstances. The Court applied the test from Willick, asking whether the support provision would likely have been different, had the exercise of the options been known, and it concluded that the provision would likely have been different.

25The test for a material change of circumstances set out in the decisions of the Supreme Court of Canada in Willick and Miglin is not the objective foreseeability of a change in circumstances. The issue for a court to determine is whether the parties, in negotiating their agreement, have anticipated the situation before the court, so that the court can conclude that the terms of their agreement contemplated the situation before it. To answer this question, the court must consider the terms of the agreement, as well as the circumstances of the parties at the time that the agreement was made, and ask whether the terms of the agreement would likely have been different had the changed circumstances been in existence at the time of the agreement (Marinangeli, supra at para. 47).

26Thus, while the cessation of child support was foreseeable here, that fact alone is not determinative in this case. The court must still look at the parties’ agreement to determine whether this event was contemplated by its terms with respect to the obligation to pay spousal support.

27Here, the parties acknowledged an entitlement to spousal support. However, in their agreement, they did not finally determine the issue of quantum. In this case, as in Marinangeli, the parties contemplated that a material change in circumstances could occur despite the foreseeability of certain events, such as a change in the parties’ income. Therefore, a pure foreseeability test for a material change of circumstances is not appropriate.

28While the Respondent acknowledged the sufficiency of the $1.00 monthly spousal support at the time that she signed the agreement, she did so when she was receiving child support for three children, leaving her with 58.1% of the Net Disposable Income of the parties. The trial judge inferred that child support had been given priority over spousal support in the agreement. This is a reasonable conclusion, given the financial situation of the payor at the time of the agreement, the quantum of the payment for child support for three children, the acknowledgement of the entitlement to spousal support in the agreement, the indication in the agreement that spousal support could be varied, and the fact that the parties had had a 26 year traditional marriage. In my view, given the factual circumstances and the terms of the agreement, the parties’ agreement would likely have been different, had there been no obligation to pay child support at the time that the agreement was made.

29Prior to signing the separation agreement, each party had legal advice as to their rights, duties and obligations. Each party to the agreement knew the age and living arrangements of each child, and each party knew what would happen to child support payments when a child reached a certain age or decided to do or to cease doing certain things.

30The separation agreement was the result of tough bargaining and declares itself to be “the final financial settlement” (Article 36). However, the parties also anticipated that a “material change of circumstances” could bring about a review and/or variation (Article 9.3). If the parties, acting with legal advice, had intended that their comprehensive agreement would exclude the basis of this review application, it would not have been difficult to accomplish that result by clearly stating their mutual intention. They did not do so.

31In my view, the trial judge made no error when she concluded on the evidence before her that there had been a material change of circumstances, given the cessation of child support, the consequent decrease in the Respondent’s standard of living, the increase in the Appellant’s standard of living as a result of the cessation of child support payments, and the increase in his income. In coming to her conclusion, the trial judge made a number of findings of fact, and they were supported by the evidence. Having valued the concessions mentioned in Article 49.1 at between $10,000 and $20,000, she concluded that the concessions could not, in the circumstances, permanently take the place of spousal support (at para. 20).

32Having come to the conclusion that there had been a material change of circumstances which justified a variation of spousal support, the trial judge then looked at all the circumstances and determined the appropriate level of spousal support. While the Appellant argued that she should only have looked at the changes since the agreement was signed, in my view, the trial judge properly considered all the usual considerations in determining spousal support, given her conclusion that the separation agreement had deferred spousal support.

33The trial judge’s determination of an appropriate amount of spousal support is to be accorded deference, absent some error in principle or misapprehension of the facts, or if the quantum is clearly wrong. The trial judge took into account that the Appellant’s base salary had increased by 26% to $128,000, while the Respondent’s had increased by 9% to $63,423.38. She concluded that his standard of living was substantially higher than the Respondent’s. While the Respondent was described as having an “extremely modest” budget, the Appellant included in his budget such items as $850.00 per month for vacation and $200.00 per month for golf. At paragraph 44, the trial judge stated,

In the end, although a difference in the incomes of the spouses does not necessarily give rise to an order for spousal support, the significant disparity in the standard of living between these two spouses simply should not exist after 26 years of marriage, and in particular, should not exist a mere three years after separation.

34In addition, the trial judge considered the impact of the Respondent’s years at home with the children on her career, educational achievements and pension. The trial judge then found as a fact that the Respondent had not been able to achieve a degree of economic self-sufficiency that was close to the standard of living which she enjoyed during the 26 year traditional marriage, or close to that which the Appellant now enjoys (at para. 51). As well, the trial judge took into consideration that both parents were still making payments for their children, as the need arises. Ultimately, she set spousal support at $2,000, taking into account the importance of encouraging self-sufficiency and the existence of the Appellant’s new family commitments. No error has been demonstrated with respect to her appreciation of the facts, nor has there been any error in principle.

35The trial judge also ordered that the Appellant provide security for spousal support in the form of life insurance. Her reason for making the order was said to be the Appellant’s history of terminating child support and resistance to spousal support. As well, the trial judge expressed concern that the Respondent’s pension had been compromised, and the Court should do what it could to ensure that she would receive support after retirement.

36The evidence does not support the conclusion that the Appellant had a history of failing to observe his child support obligations, nor that he improperly resisted paying spousal support. Indeed, the Appellant voluntarily increased the amount of child support payments from $1,647.00 to $1,946.00 per month, when his income went up. Until the Court’s order, he had no obligation to pay spousal support beyond the $1.00 monthly. Moreover, the parties’ agreement did not require security for support obligations. Therefore, the need for security for support has not been demonstrated, and the order of the trial judge is varied to delete the requirement for life insurance.

37Finally, the Appellant also suggested that the trial judge was in a conflict of interest position or a perceived conflict of interest position, because the Appellant had previously been the foreman of a civil jury during a trial in which she had presided. There is no merit to this ground of appeal. This issue was raised at the outset of trial, apparently because the Appellant was concerned that the Respondent would perceive a possible conflict. No objection was taken by either party to the continuation of the trial.

Conclusion

38For these reasons, the appeal is allowed in part, and the requirement for security in the form of life insurance is set aside. The remainder of the appeal is dismissed. If the parties are unable to agree with respect to costs, they may make brief written submissions within 21 days of the release of this decision.

Swinton J.

O’Driscoll J.

MATLOW J. (dissenting):

39With respect, I do not concur with the entirety of the disposition of this appeal by the majority. In addition to the variation of the judgment below set out in paragraph 38 of the reasons of Swinton J. for the majority, I would also vary the judgment by decreasing the amount of the spousal support ordered to be paid by that part attributable to the cessation of child support by the appellant. If the parties are unable to agree on the proper amount of the resulting decrease, I would invite both counsel to make written submissions, in triplicate, to be exchanged by them and then delivered to the president of the panel at Osgoode Hall within 30 days of the release of our judgment.

40The following are the reasons for my preferred disposition.

41I adopt and incorporate into these reasons paragraphs 12, 13, 14, 15 and 16 of the appellant’s factum which read as follows:

12. The parties negotiated their Agreement with the assistance of counsel and it contained specific provisions about the sufficiency of support and the factors that underlay the quantum of support. The Agreement was silent as to the s. 15.3 priority to child support. This Agreement constituted a complete code relating to support and its variation. There was no need for the learned judge to imply extrinsic considerations such as those under s. 15.3 of the Divorce Act and in the face of this Agreement. Just as both parties were free to, and did, make revisions and deletions to the Agreement, the parties could have expressed that priority was being given to child support over spousal support, and they did not. It is not appropriate for a court to rewrite the parties’ Agreement unless the threshold tests for doing so have been met (as set forth in Miglin).

13. Material change means “a change, such that, if known at the time, would likely have resulted in different terms. The corollary to this is that if the matter which is relied on as constituting a change was known at the relevant time it cannot be relied on as a basis for variation.” The parties both knew (or must have known) that child support would eventually cease. And they did not advert to cessation of child support as being an occasion for revisiting spousal support (which they clearly could have done). While both parties experienced change in their income, in their net worth, and in their budgets, those changes were positive, not negative, for both parties. The wife’s pension status and her lifestyle expenditures (which the judge found to be compromised) were all in existence and unchanged from the time the Agreement was signed. The absence of life insurance or estate security, also regarded by the judge as prejudicing the wife, existed at the time of the Agreement, and indeed the removal of the right to claim against each other’s estate was required by the wife, not the husband. These are not “material changes” – they are conditions existing and negotiated at the time of the Agreement.

14. The lifestyle differences experienced by the wife were not differences or changes since separation or changes occurring after child support terminated – they existed at the time of the Agreement and were reflected in the wife’s own financial statement appended to the Agreement. The wife’s budget expenditures at the time of the Agreement were virtually the same as those contained in her budget at the time of trial. The wife’s discretionary spending at the time the Agreement was signed was reflective of the modest lifestyle pursued by the parties during marriage. The travel enjoyed by the parties during marriage was almost entirely the consequence of the husband’s job – which benefits were terminated along with the loss of the husband’s job that provided such benefits before separation. Benefits from the wife’s mother flowed to both parties during the marriage; and those benefits ceased for the husband and continued for the wife after separation. In the face of these facts, established by the evidence at trial, there was no material change as such is defined in the law.

15. Where a court is considering an application for a child support order and an application for a spousal support order, the court must give priority to child support in determining the applications. If the court is unable to make a spousal support order or the order is less than it otherwise would have been, as a result of giving priority to child support, the court shall record its reasons for having done so. These legislative provisions (to record reasons for a nominal support order if it arises because of priority to child support) apply equally to agreements. As the parties gave reasons for the support order in paragraph 14A, and as the parties specifically said the $1.00 support amount was sufficient, there cannot be an implication that cessation of child support constitutes a material change.

16. Where, as here, it was known at the time the agreement was made that child support would terminate then that termination cannot be relied upon as the basis to vary the provisions relating to spousal support contained in an agreement.

42I am persuaded that the trial judge was clearly wrong in concluding, as she did in paragraph 29 of her reasons for judgment (set out in paragraph 14 of the reasons of Swinton J.) that “child support took priority in the separation agreement over spousal support, even though the Separation Agreement does not specifically say so.” This conclusion is in direct conflict with the express language of the separation agreement relating to spousal support. It is inconceivable that, if the parties had intended that child support take priority, they would not have expressly provided that the cessation of child support, an inevitable event that was destined to occur likely within only a few years, would be included in the list of events listed in paragraph 11.2 of the separation agreement setting out examples of what would “constitute material change of circumstances”. It was this error which led her directly into further clear error with respect to how she determined the amount of child support required to be paid.

Matlow J.