McGouran v. Connelly [Indexed as: McGouran v. Connelly]

79 O.R. (3d) 434

[2006] O.J. No. 993

Docket: C43313

Court of Appeal for Ontario,

Goudge, Feldman and MacFarland JJ.A.

March 15, 2006

Family law -- Support -- Child support -- Federal Child Support Guidelines -- Section 20 of Guidelines not permitting court to take payor party's higher cost of living into account when converting his foreign income to Canadian dollars -- Federal Child Support Guidelines, S.O.R./97-175, s. 20.

The parties were divorced in 1998. The mother was granted custody of the three children and child support in accordance with the Federal Child Support Guidelines (the "Guidelines"). Both parties were required to make annual disclosure of the income to each other and to adjust the child support in accordance with the Guidelines. The father, who remarried, began a new high-paying position in England in August 2000. He brought a variation application in 2001 which resulted in an order based on minutes of settlement which amended the divorce judgment by increasing the child support payable by the father. The order incorporated a provision from the minutes of settlement that the parties' agreement was conditional on the accuracy of the disclosure of the father's total employment income and benefits, and required significant financial disclosure by the father. The father failed to make the financial disclosure required by that order and by the divorce judgment, and failed to comply with a court order for disclosure obtained by the mother. The mother brought an application in 2004 for increased child support and retroactive child support. The application judge awarded ongoing child support under the Guidelines by simply using the exchange rate to convert the father's U.K. income into the Canadian dollar equivalent and applying the Guidelines amount. She rejected the father's argument that the higher cost of living in the U.K. should be taken into account in converting his U.K. income into Canadian income under s. 20 of the Guidelines. The father appealed. The application [page435] judge awarded retroactive child support, recalculated in accordance with the father's income, but only from January 1, 2003, and not from August 2000. The mother cross-appealed.

Held, the appeal should be dismissed; the decision on the cross-appeal should be reserved.

The application judge did not err in her application of s. 20 of the Guidelines by failing to impute a lower income to the father when converting his U.K. income to Canadian dollars in light of the higher cost of living in the U.K. As a matter of statutory interpretation, since the Guidelines do deal with imputing income in described circumstances, their silence on other circumstances such as adjusting for the high cost of living in another jurisdiction suggests that it was not intended that any such adjustment be made. Furthermore, because the table amounts do not take intraprovincial or interprovincial discrepancies in the cost of living into account when a payor spouse lives in another city within a province or in another province, it makes sense that s. 20, which deals with payor spouses who live outside Canada, be interpreted in a consistent manner.

The application judge was entitled to conclude that based on the record in this case, any higher cost of living in the U.K. did not make the table amount inappropriate under s. 4(b) of the Guidelines; nor would there be any undue hardship for the father to pay the Guidelines amount in all the circumstances.

The issue raised on the cross-appeal regarding the proper test for ordering the payment of retroactive child support was currently under consideration by the Supreme Court of Canada in four Alberta cases. It was appropriate and in the interests of justice to reserve the decision on the cross-appeal until the Supreme Court had released its decisions in those cases.

APPEAL and CROSS-APPEAL from the order of Lack J. of the Superior Court of Justice, dated February 25, 2005, for child support.

Cases referred to Anderson v. Anderson, [2005] M.J. No. 243, 2005 MBQB 133 (Q.B.); D.B.S. v. S.R.G., [2005] A.J. No. 2, 2005 ABCA 2, 249 D.L.R. (4th) 72, [2005] 5 W.W.R. 229, 38 Alta. L.R. (4th) 199, 361 A.R. 60, 7 R.F.L. (6th) 373, 136 A.C.W.S. (3d) 514 (C.A.); Francis v. Baker, 1999 659 (SCC), [1999] 3 S.C.R. 250, [1999] S.C.J. No. 52, 44 O.R. (3d) 736n, 177 D.L.R. (4th) 1, 246 N.R. 45, 50 R.F.L. (4th) 228; Garrison v. Garrison, 1998 14877 (ON SC), [1998] O.J. No. 2029, 63 O.T.C. 144, 38 R.F.L. (4th) 435, 79 A.C.W.S. (3d) 781 (Gen. Div.); Henry v. Henry, [2005] A.J. No. 4, 2005 ABCA 5, 249 D.L.R. (4th) 141, 38 Alta. L.R. (4th) 1, 357 A.R. 388, 7 R.F.L. (6th) 275, 136 A.C.W.S. (3d) 513 (C.A.); Hiemstra v. Hiemstra, [2005] A.J. No. 27, 2005 ABCA 16, 363 A.R. 281, 13 R.F.L. (6th) 166, 136 A.C.W.S. (3d) 510 (C.A.); J.G.T. v. T.N., [2003] A.J. No. 786, 2003 ABCA 195, 330 A.R. 187, 42 R.F.L. (5th) 208, 123 A.C.W.S. (3d) 1090 (C.A.), varg [2001] A.J. No. 1426, 2001 ABQB 949, 301 A.R. 98, 25 R.F.L. (5th) 208, 109 A.C.W.S. (3d) 924 (Q.B.); K.V. v. T.E., [2004] B.C.J. No. 792, 2004 BCSC 537, 26 B.C.L.R. (4th) 380, 19 R.F.L. (6th) 442, 130 A.C.W.S. (3d) 339 (S.C.); L.J.W. v. T.A.R., [2005] A.J. No. 3, 2005 ABCA 3, 249 D.L.R. (4th) 136, 9 R.F.L. (6th) 232, 136 A.C.W.S. (3d) 507 (C.A.); L.S.P. v. J.R.P., [2002] S.J. No. 35, 2002 SKQB 27, 215 Sask. R. 265, 25 R.F.L. (5th) 150, 112 A.C.W.S. (3d) 108 (Q.B.); Marinangeli v. Marinangeli (2003), 2003 27673 (ON CA), 66 O.R. (3d) 40, [2003] O.J. No. 2819, 228 D.L.R. (4th) 376, 174 O.A.C. 76, 38 R.F.L. (5th) 307, 123 A.C.W.S. (3d) 902 (C.A.); Mascarenhas v. Mascarenhas (2000), 2000 21303 (ON SCDC), 18 R.F.L. (5th) 148 (Div. Ct.), affg 1999 14642 (ON SC), [1999] O.J. No. 37, 44 R.F.L. (4th) 131, 84 A.C.W.S. (3d) 1152 (Gen. Div.); S. (L.) v. P. (E.), 1999 BCCA 393, [1999] B.C.J. No. 1451, 67 B.C.L.R. (3d) 254, 175 D.L.R. (4th) 423, 50 R.F.L. (4th) 302 (C.A.) [Leave to appeal to S.C.C. refused [1999] S.C.C.A. No. 444]; Schmid v. Smith, 1999 35014 (ON SC), [1999] O.J. No. 3062, 100 O.T.C. 380, 1 R.F.L. (5th) 447, 90 A.C.W.S. (3d) 261 (S.C.J.); Walsh v. Walsh (2004), 2004 36110 (ON CA), 69 O.R. (3d) 577, [2004] O.J. No. 254, 46 R.F.L. (5th) 455 (C.A.), supp. reasons 2004 24259 (ON CA), [2004] O.J. No. 1443, 6 R.F.L. (6th) 432 (C.A.); [page436] Ward v. Ward, [2001] B.C.J. No. 1206, 2001 BCSC 847, 19 R.F.L. (5th) 232, 105 A.C.W.S. (3d) 908 (S.C.)

Rules and regulations referred to Federal Child Support Guidelines, S.O.R./97-175, ss. 4, 10, 19 [as am.], 20

Authorities referred to Mercer Human Resources Consulting"Cost of Living Report" (Oxford, March 2004)

Robert Snell, for respondent. Joel Skapinker, for appellant.

The judgment of the court was delivered by

[1] FELDMAN J.A.: -- Following the parties' divorce, the father obtained a high-paying job in the United Kingdom where he now lives with his new wife and two children. The mother lives in Ontario with the three children of the marriage. The two issues on the appeal concern the calculation of child support payable by the father to the mother.

[2] The first issue involves the interpretation and application of s. 20 of the Federal Child Support Guidelines, S.O.R./97-175 (the "Guidelines"). The application judge awarded ongoing support under the Guidelines by simply using the exchange rate to convert the father's U.K. income into the Canadian dollar equivalent and applying the Guidelines amount. The father says that the cost of living in the U.K. is appreciably higher than in Canada and it should therefore be taken into account in converting his U.K. income into Canadian income under s. 20.

[3] The second issue is entitlement to retroactive child support. Before the application judge, the mother asked that retroactive child support be awarded back to August 1, 2000. Instead, as a compromise, the application judge awarded retroactive child support, recalculated in accordance with the father's income, from January 1, 2003. The mother now asks this court, by way of cross-appeal, to award full retroactive child support back to and including August 2000.

Facts

[4] The parties were married in 1987 and divorced in 1998. In the divorce judgment, the mother was granted custody of the three children, who were then eight, six and four years old, child [page437] support in accordance with the Guidelines, some "add-ons" including a portion of the children's day-care expenses and two-thirds of the children's health expenses not covered by the father's plan. The judgment also required the father to maintain a life insurance policy with the children named as beneficiaries.

[5] Paragraph 10 of the divorce judgment required the parties to make annual disclosure of their income to each other and to adjust the child support as required in accordance with the Guidelines.

[6] In 2001, the father applied to vary the support and access provisions of the divorce judgment. That application resulted in an order, dated July 13, 2001, based on minutes of settlement which amended the divorce judgment by increasing the child support payable by the father as of August 1, 2000, in accordance with the father's income from the new position he began in England in August 2000, as well as by adjusting the add-ons and some other provisions. The order also incorporated a provision from the minutes of settlement that the parties' agreement was conditional on the accuracy of the disclosure of the father's total employment income and benefits. The order required significant financial disclosure by the father of the financial details of his new employment through production to the mother's counsel of documentation, including his contract of employment, tax returns and details of benefits.

[7] The father failed to make the financial disclosure required by the divorce judgment and by the order of July 13, 2001. The mother wrote to the father on May 17, 2002 and August 7, 2002 requesting compliance and was ultimately obliged to bring a motion for contempt, resulting in a court order of April 29, 2004 requiring the father to provide the disclosure by May 30, 2004. The father did not comply with that court order, and on June 3, 2004, he was found in contempt of court. The application under appeal was heard in November 2004, after the father purged his contempt by making the required disclosure.

[8] On the issue of the level of child support, the application judge ordered the father to pay child support in accordance with the table amount under the Guidelines for the Canadian dollar equivalent of his U.K. income, which she found to be over $150,000. When converting the appellant's U.K. income into Canadian funds under s. 20 of the Guidelines, she declined to reduce the amount payable by taking into account the higher cost of living in the U.K. than in Canada. She also declined to exercise her discretion under s. 4(b) of the Guidelines to find that the higher cost of living made the table amount inappropriate or that it would constitute an "undue hardship" under s. 10 of the Guidelines. [page438]

[9] On the issue of whether the new amount ordered should be made retroactive, the application judge applied and weighed the criteria set out in the following case law on retroactive awards: Walsh v. Walsh (2004), 2004 36110 (ON CA), 69 O.R. (3d) 577, [2004] O.J. No. 254 (C.A.); Marinangeli v. Marinangeli (2003), 2003 27673 (ON CA), 66 O.R. (3d) 40, [2003] O.J. No. 2819 (C.A.); S. (L.) v. P.(E.), 1999 BCCA 393, [1999] B.C.J. No. 1451, 175 D.L.R. (4th) 423 (C.A.)). These criteria include:

(i) the needs of the children and the payor's ability to pay;

(ii) blameworthy conduct by the payor;

(iii) necessity for the custodial parent to encroach on capital or incur debt to meet the expenses of the children;

(iv) the excuse for any delay in bringing the application and the significance of that delay;

(v) notice to the payor spouse;

(vi) any unreasonable burden on the payor spouse that would interfere with the payor's ability to pay ongoing support; and

(vii) whether the only purpose of the retroactive award is to redistribute capital or effectively award spousal support.

[10] The application judge concluded that as a result of the father's failure to pay the higher Guidelines amount of child support in accordance with his income and his failure to disclose that income, it did not appear that the children's reasonable financial needs were being met and that the father's conduct was blameworthy. Furthermore, the application judge noted that the mother had been required to increase her line of credit to meet the children's expenses, although she had also been reducing her long-term mortgage debt. The application judge was concerned about the mother's delay in bringing the application, but was satisfied that she had been trying to pursue the issue with the father out of court.

[11] The application judge concluded, based on the record before her, that "the obligation to pay arrears may impact on [the father's] ability to meet the ongoing obligation", but felt that she could not condone the father's conduct in breaching court orders (emphasis added). Weighing the factors together, the application judge awarded retroactive child support from January 1, 2003, but not from August 2000. [page439]

Issues

(1) Issue on the appeal: conversion of foreign income under s. 20

-- Did the application judge err in her application of s. 20 of the Guidelines by failing to impute a lower income to the appellant when converting his U.K. income to Canadian dollars, in light of his higher cost of living in the U.K.?

(2) Issue on the cross-appeal: Retroactive child support

-- Did the application judge err by failing to award full retroactive child support from 2001?

Issue on the appeal: Conversion of foreign income under s. 20

[12] Section 20 of the Guidelines prescribes the treatment of income of a non-resident spouse. Section 20 provides:

20. Where a spouse is a non-resident of Canada, the spouse's annual income is determined as though the spouse were a resident of Canada.

[13] The appellant's submission, both in this court and in the court below, is that the proper application of s. 20 requires the court not to perform a straight conversion of the non-resident spouse's income in the foreign currency into Canadian dollars, but to factor in the comparative cost of living in the country where the non-resident spouse resides and therefore the effective buying power of the spouse's income there as compared with Canada. The appellant's position is that because of the high cost of living in the U.K., the court should have imputed to him a reduced income by applying a factor of 0.56 to the Canadian dollar equivalent of his U.K. income in order to properly carry out the conversion function required by s. 20.

[14] The application judge rejected this submission on the basis that there is no provision in the Guidelines that permits the court to effectively reduce the income of a non-resident spouse in order to take into account that spouse's higher cost of living. That factor could be considered, however, under s. 10 of the Guidelines, the "undue hardship" section, which provides in part:

10(1) On either spouse's application, a court may award an amount of child support that is different from the amount determined under any of sections 3 to 5, 8 or 9 if the court finds that the spouse making the request, or a child in respect of whom the request is made, would otherwise suffer undue hardship.

[15] The appellant also sought to achieve the same result under s. 4(b) of the Guidelines. Section 4 provides as follows: [page440]

4. Where the income of the spouse against whom a child support order is sought is over $150,000, the amount of a child support order is

(a) the amount determined under section 3 [i.e., the table amount]; or

(b) if the court considers that amount to be inappropriate,

(i) in respect of the first $150,000 of the spouse's income, the amount set out in the applicable table for the number of children under the age of majority to whom the order relates;

(ii) in respect of the balance of the spouse's income, the amount that the court considers appropriate, having regard to the condition, means, needs and other circumstances of the children who are entitled to support and the financial ability of each spouse to contribute to the support of the children; and

(iii) the amount, if any, determined under section 7 [special or extraordinary expenses].

[16] The appellant's position was that to the extent that his income exceeds $150,000, it would be inappropriate to order the table amount for child support because of the higher living expenses he faces in the U.K. He tendered as evidence to support his position, a report prepared by Mercer Human Resources Consulting entitled "Cost of Living Report -- Oxford -- March 2004". The report was not prepared for this litigation. It is a generic report that contains the following disclaimer: "The report is provided for information purposes only and is not intended or implied to be a substitute for professional advice." The application judge noted in her reasons that it was not apparent that the appellant had even obtained permission from the authors of the report to reproduce and file it in the proceeding.

[17] The application judge concluded that the report was of no assistance to her in this proceeding because it would have required expert evidence to interpret the meaning of the report and its implications "for someone in the respondent's circumstances".

[18] Although the appellant objects to the application judge's ruling on this evidentiary issue, there is no basis to interfere with her exercise of discretion in rejecting this evidence and giving it no weight.

[19] The application judge did, however, refer to the affidavit evidence of the appellant regarding the details of the cost of his lifestyle in the U.K., as well as to his financial statements. Although the appellant's financial statement showed a monthly deficit, the application judge noted that his current income was considerably higher than the income on his financial statement and that that income more than overcame the deficit. The application judge also referred to the fact that the appellant's wife had left her job to look after their two children. The appellant's evidence [page441] was that the cost of daycare would have offset, to a large extent, any income his wife would have earned had she continued to work.

[20] Based on this evidence, the application judge concluded that the father had not met his onus to show that the table amount was inappropriate. She noted that if the child support were raised to the table amount based on the father's 2004 income, he would then have a small deficit of income over expenses. However, the application judge also considered the fact that the appellant's wife did not work, while the respondent mother did work part-time and looked after the three children of the marriage. Taking everything into account, the application judge concluded that the table amount was not inappropriate.

[21] The appellant did not seek a reduction in his child support payment based specifically on undue hardship. Nevertheless, because that was the only other basis upon which a reduction could be available, the application judge considered the issue of the higher cost of living in the U.K. in the context of s. 10 of the Guidelines. She considered the same evidence already referred to and came to the conclusion that the father would not suffer undue hardship if his child support obligation were not reduced. The application judge noted that although the father may be subject to higher living costs in the U.K., it is equally probable that there are "offsetting financial aspects of life in the U.K.", including owning and carrying a costly home, maintaining two vehicles and budgeting over $5,000 a year for vacations. The application judge stated that a payor earning over $300,000 "bears a heavy onus in persuading a court that he will suffer undue hardship", and found that the appellant had not met that onus.

[22] In my view, the application judge was correct in her interpretation of s. 20 of the Guidelines. First, trial courts across the country have interpreted the section in the same way: Garrison v. Garrison, 1998 14877 (ON SC), [1998] O.J. No. 2029, 63 O.T.C. 144 (Gen. Div.); Mascarenhas v. Mascarenhas, 1999 14642 (ON SC), [1999] O.J. No. 37, 44 R.F.L. (4th) 131 (Gen. Div.), affd (2000), 2000 21303 (ON SCDC), 18 R.F.L. (5th) 148 (Div. Ct.); Schmid v. Smith, 1999 35014 (ON SC), [1999] O.J. No. 3062, 1 R.F.L. (5th) 447 (S.C.J.); J.G.T. v. T.N., 2001 ABQB 949, [2001] A.J. No. 1426, 25 R.F.L. (5th) 208 (Q.B.), varied as to spousal support 2003 ABCA 195, [2003] A.J. No. 786, 42 R.F.L. (5th) 208 (C.A.); L.S.P. v. J.R.P., 2002 SKQB 27, [2002] S.J. No. 35, 25 R.F.L. (5th) 150 (Q.B.); Ward v. Ward, 2001 BCSC 847, [2001] B.C.J. No. 1206, 19 R.F.L. (5th) 232 (S.C.); K.V. v. T.E., 2004 BCSC 537, [2004] B.C.J. No. 792, 19 R.F.L. (6th) 442 (S.C.); Anderson v. Anderson, [2005] M.J. No. 243, 2005 MBQB 133 (Q.B.), at para. 54.

[23] Second, in s. 19, the Guidelines do allow a court to adjust a spouse's income in certain circumstances but only by imputing [page442] more income to the spouse. They do not allow a court to impute a reduced income in the same way. For example, s. 19(1)(c) is the only subsection that pertains specifically to non-resident spouses. It provides:

19(1) The court may impute such amount of income to a spouse as it considers appropriate in the circumstances, which circumstances include the following:

(c) the spouse lives in a country that has effective rates of income tax that are significantly lower than those in Canada . . . .

There is no comparable section that deals with a situation where a spouse lives in a country where the income tax rates are significantly higher than those in Canada.

[24] Third, the Guidelines do not refer specifically to the cost of living as a factor to consider.

[25] Consequently, as a matter of statutory interpretation, since the Guidelines do deal with imputing income in described circumstances, their silence on other circumstances such as adjusting for the high cost of living in another jurisdiction suggests that it was not intended that any such adjustment be made.

[26] As Lack J., the application judge, stated in another case, Schmid, supra, at para. 8:

[c]lause 19(1)(c) specifically provides for adjustments imputing income to a non-resident where he or she lives in a country that has effective rates of income tax that are significantly lower than those in Canada. The section would not be required if such adjustments could be made under section 20. On the other hand, if a non-resident parent faces higher taxes or higher costs those factors may be taken into account under the undue hardship provisions of section 10 of the Guidelines.

[27] By leaving the issue of discrepancies in the cost of living to be dealt with only in exceptional cases in the context of undue hardship after the normal table amount has been calculated, the court maintains the philosophy of the Guidelines, which is to make child support awards consistent, fair and predictable: Francis v. Baker, 1999 659 (SCC), [1999] 3 S.C.R. 250, [1999] S.C.J. No. 52, at para. 39.

[28] Furthermore, because the table amounts do not take intra-provincial or inter-provincial discrepancies in the cost of living into account when a payor spouse lives in another city within a province or in another province, it makes sense that s. 20, which deals with payor spouses who live outside Canada, be interpreted in a consistent manner.

[29] Finally, if one were to begin to recognize and adjust for discrepancies in the cost of living just to calculate income, such [page443] discrepancies would not be limited to countries, but could extend to cities or even smaller areas, and would require extensive evidence in each case. The inquiry would become cumbersome, expensive and potentially unworkable.

[30] I would also not interfere with the application judge's determination that based on the record in this case, any higher cost of living in the U.K. did not make the table amount inappropriate under s. 4(b), nor would there be undue hardship for the appellant to pay the Guidelines amount in all the circumstances. In light of the evidence presented by the parties, she was entitled to come to these conclusions.

[31] I would therefore dismiss the appeal.

Issue on the cross-appeal: Retroactive child support

[32] The application judge declined to award full retroactive child support even though the appellant failed to disclose the annual increases in his income as he was obliged to do under the divorce judgment and the subsequent court orders, and in the face of her conclusion that the children's reasonable financial needs were not being met. The application judge considered the most significant factor to be the financial burden on the father if he were required to pay the accumulated arrears. In that regard, she found that "the obligation to pay arrears may impact on his ability to meet the ongoing obligation" (emphasis added). Ultimately, she ordered the payment of some retroactive support in order not to be seen as condoning the father's blameworthy conduct.

[33] Although weighing and applying the factors that impact on an award of retroactive child support involves a discretionary determination, it also involves the application of the correct legal test for such an award.

[34] The issue raised on this cross-appeal regarding the proper test for ordering the payment of retroactive child support, including the effect of the payor spouse's failure to disclose income increases, the failure of the payee spouse to apply to court in a timely manner and the onus of proof of the effect of a retroactive order, is currently under consideration by the Supreme Court of Canada in the Alberta cases of D.B.S. v. S.R.G., 2005 ABCA 2, [2005] A.J. No. 2, 249 D.L.R. (4th) 72 (C.A.); L.J.W. v. T.A.R., 2005 ABCA 3, [2005] A.J. No. 3, 249 D.L.R. (4th) 136 (C.A.); Henry v. Henry, 2005 ABCA 5, [2005] A.J. No. 4, 249 D.L.R. (4th) 141 (C.A.), 2006; and Hiemstra v. Hiemstra, 2005 ABCA 16, [2005] A.J. No. 27, 13 R.F.L. (6th) 166 (C.A.); appeals heard and reserved on February 13, 2006. In these circumstances, I am of the view that it is appropriate and in the interests of justice to reserve the decision on the cross-appeal until the Supreme Court has released its decisions on the proper test to be applied. [page444]

Result

[35] I would dismiss the appeal with costs of the appeal fixed at $7,500.

[36] I would continue to reserve this court's decision on the cross-appeal.

Appeal dismissed; decision on cross-appeal reserved.