Court of Appeal for Ontario
Date: 2023-01-11 Docket: C69303
Miller, Zarnett and Coroza JJ.A.
Between:
Miriam Assayag-Shneer Appellant (Applicant)
and
David Shneer Respondent (Respondent)
Counsel: Harvey T. Strosberg, K.C. and Erin Betts, for the appellant Julie K. Hannaford, for the respondent
Heard: October 20, 2022
On appeal from the order of Justice Kenneth G. Hood of the Superior Court of Justice, dated June 23, 2021, with reasons reported at 2021 ONSC 2075 and in a supplementary unreported endorsement on costs and interest.
Zarnett J.A.:
Overview
[1] The parties were divorced by a judgment dated September 13, 1999. The divorce judgment required that the respondent pay support to the appellant, and included a provision that if the respondent defaulted in making the required support payments, the amounts payable by him for support increased. The divorce judgment was granted on consent; both parties were represented by counsel.
[2] The respondent did not pay all the support payments the divorce judgment required. Eventually, in response to enforcement steps, he brought a motion to change under s. 17 of the Divorce Act, R.S.C. 1985, c. 3 (2nd Supp.).
[3] The motion judge, who was not the judge who granted the divorce judgment, found that the respondent had not established that a change in the condition, means, needs, or other circumstances sufficient to vary the divorce judgment (a “material change”) had occurred. But he considered that he still had the authority to declare that the provision of the divorce judgment calling for increased support payments upon default was an unenforceable penalty and to vary the divorce judgment by deleting that provision. He also reduced the amount of interest owing on the arrears. The formal order recites that he did so under the Divorce Act and the Courts of Justice Act (“CJA”), R.S.O. 1990, c. C.43.
[4] The principal issue on this appeal turns on the answer to the following question. On a motion brought under s. 17 of the Divorce Act seeking to change support provisions in a divorce judgment, where the judge finds that no material change in circumstances has occurred since the judgment was granted, may the judge still vary or delete a provision the judge considers to be an unenforceable penalty?
[5] For the reasons set out below, the answer to the question is no.
[6] The threshold question on a motion to change under s. 17 of the Divorce Act is whether, since the making of the order sought to be varied, a material change in circumstances has occurred. Absent a material change, there is no power to vary under s. 17. Accordingly, the Divorce Act did not provide any authority for the motion judge’s order.
[7] There is no other authority for the motion judge’s order deleting a provision for payment of support from the divorce judgment. There is a common law rule that the court will not enforce a penalty clause in a contract, but where a party fails to contest the enforceability of a contractual term on the basis that it is a penalty, and instead consents to the term being incorporated into a judgment that the court grants, different considerations apply. The term becomes a court order: it is enforceable unless there is a successful appeal or motion to vary under the prescribed circumstances of fraud, mistake, or lack of notice under r. 25(19) of the Family Law Rules, O. Reg. 114/99. The power in s. 98 of the CJA to relieve against penalties and forfeitures does not permit one Superior Court judge to vary the support terms of a final divorce order of another judge of the same court.
[8] I would therefore allow the appeal from the motion judge’s order deleting a support provision from the divorce judgment. I would not interfere with his order revising the interest rate, for the reasons explained below.
Background
[9] As I have noted above, the divorce judgment of September 13, 1999 was granted after the parties had settled their disputes. Represented by counsel, they participated in a judicial mediation. They entered into Minutes of Settlement. They requested that the court make an order that contained the terms of the Minutes. The divorce judgment recited that it was made on consent and upon reading the Minutes.
[10] Two of the terms originally contained in the Minutes, and that were incorporated into the divorce judgment as paras. 2 and 3, are at the heart of this appeal.
[11] Paragraph 2 of the divorce judgment provides for the payment of spousal support by the respondent to the appellant. It orders that the respondent pay the appellant a total of $388,000 as spousal support according to the following schedule: $50,000 by September 16, 1999, $50,000 by October 1, 1999, and $4,000 per month starting November 1, 1999 and continuing for 72 months (to November 2005).
[12] Paragraph 3 of the divorce judgment increases the amount payable as support if there is default in the spousal support payments. It provides:
THIS COURT ORDERS AND ADJUDGES that in the event of default by the [respondent] for a period of two weeks after receipt by him of notice in writing from the [appellant] of such default, there shall be immediately due and payable, twice the full amount then outstanding of the lump sum set out in paragraph 2 hereof together with the sum of $50,000.00 as further support to the [appellant].
[13] The motion judge found that the respondent paid the two initial $50,000 payments, and 15 monthly payments from November 1, 1999 to January 1, 2001 totalling $60,000, but that he defaulted in making the February 2001 payment and made none of the monthly payments thereafter. At that point, there were still 57 payments of $4,000 each outstanding, for a total of $228,000. The motion judge observed that, because of para. 3 of the divorce judgment, the respondent owed twice this amount plus $50,000, for a total of $506,000.
[14] In 2018, in response to steps taken by the Family Responsibility Office to suspend his driver’s licence for unpaid spousal support, the respondent commenced a motion to change the divorce judgment.
[15] After a number of procedural steps that are not germane to the appeal, the motion to change came before the motion judge. He described the requests of the respondent as follows:
Before me and in his factum, [the respondent] asked for four things: that the default provision be declared a penalty and unenforceable, that spousal support be terminated effective December 1, 2006, that the arrears of spousal support be set at $50,000 or perhaps $70,000 (both numbers were used), and that the arrears not attract interest. The Divorce Judgment provided for interest at 6% from default.
The Motion Judge’s Decision
[16] The motion judge identified the question of whether there had been a material change in circumstances since the divorce judgment as the threshold question. He stated:
The threshold question on a motion to change a spousal support order is set out in s. 17(4.1) of the Divorce Act … which provides that before the court makes a variation order the court must satisfy itself that a change in the conditions, means, needs or other circumstances of either spouse has occurred since the making of the order, and in making the variation order, the court shall take that change into consideration.
[17] The motion judge carefully reviewed the evidence and the jurisprudence, and concluded that the respondent had not established the necessary material change in his own circumstances or in those of the appellant. He found that the respondent “has not demonstrated a material change in circumstance to seek a variation of the spousal support award”. The respondent has not appealed that determination.
[18] The motion judge went on to consider para. 3 of the divorce judgment in a section of his reasons entitled “Penalty”. He found the provision to be a penalty and unenforceable because “[t]he doubling of the outstanding support plus an additional $50,000 bears no relationship to any loss or damage that [the appellant] could suffer through a default in payment. It is simply a lump sum payable regardless of the loss or damage.”
[19] The motion judge stated that “[t]he fact that [para. 3 of the divorce judgment] is contained in a court judgment does not save it.” He also stated that “[t]he fact that I have not found there to be a material change in circumstances should not disentitle [the respondent] from the declaration that paragraph 3 is a penalty clause and is not capable of enforcement. If unenforceable it does not require a variation based upon a material change.” The motion judge did not cite any authority for these propositions.
[20] The motion judge also varied the post-judgment interest payable on the arrears of spousal support, reducing it from the 6% rate specified in the divorce judgment to 3.5%. Relying on this court’s decision in Crosbie v. Crosbie, 2012 ONCA 516, 20 R.F.L. (7th) 269, he found there had been a dramatic decline in interest rates and an extensive passage of time since the arrears started accumulating. He set aside the 6% interest rate and replaced it with a rate that was the average rate of post-judgment interest between February 2001 and the date of his decision, which he calculated to be 3.5%.
Analysis
(1) The Motion Judge Erred in Deleting a Support Provision from the Divorce Judgment in the Absence of a Showing of a Material Change in Circumstances
[21] The motion judge amended the divorce judgment by deleting para. 3 from it. Although his reasons do not articulate the precise source of the authority to do so, the formal order stated he did so “pursuant to the Divorce Act and the Courts of Justice Act”. The respondent relies on these statutes and the common law rule against the enforcement of penalties in contracts. In my view, neither statute, nor the common law rule, provided authority for this aspect of his order.
(a) Variation under the Divorce Act
[22] Section 17(1)(a) of the Divorce Act provides that a court may make an order varying a provision of a spousal support order. There is no issue that the support provisions of the divorce judgment constituted a spousal support order within the meaning of s. 17(1)(a). But s. 17(4.1) of the Divorce Act provides that:
Before the court makes a variation order in respect of a spousal support order, the court shall satisfy itself that a change in the condition, means, needs or other circumstances of either former spouse has occurred since the making of the spousal support order or the last variation order made in respect of that order, and, in making the variation order, the court shall take that change into consideration.
The motion judge found that the necessary change in circumstances had not occurred, and the correctness of that conclusion is not in issue on this appeal.
[23] As the motion judge noted, the question posed by s. 17(4.1) is a threshold question. However, he did not give effect to the threshold not having been met. This was an error. As the Supreme Court explained in L.M.P. v. L.S., 2011 SCC 64, [2011] 3 S.C.R. 775, the threshold had to be met before the motion judge could vary the spousal support order under s. 17.
[24] L.M.P. involved a motion under s. 17 of the Divorce Act to vary an order that incorporated the support terms of the parties’ separation agreement. The majority held that the threshold question is the same whether or not a spousal support order incorporates an agreement: at para. 36. And it made it clear that the failure to meet the threshold, and establish that a material change in circumstances has occurred, means that there is no basis to vary a spousal support order.
[25] As the majority stated at paras. 29 and 31, under the heading “The Threshold for Variation”:
In determining whether the conditions for variation exist, the threshold that must be met before a court may vary a prior spousal support order is articulated in s. 17(4.1). A court must consider whether there has been a change in the conditions, means, needs or other circumstances of either former spouse since the making of the spousal support order.
[Willick v. Willick, [1994] 3 S.C.R. 670] described the proper analysis as requiring a court to “determine first, whether the conditions for variation exist and if they do exist what variation of the existing order ought to be made in light of the change in circumstances” (p. 688). In determining whether the conditions for variation exist, the court must be satisfied that there has been a change of circumstance since the making of the prior order or variation. The onus is on the party seeking a variation to establish such a change. [Emphasis added.]
[26] The court in L.M.P. held that since the trial judge did not find a material change in circumstances, she erred in varying the support order. Since there had been no material change, “this ought to have been dispositive of the husband’s application to vary”: at para. 55. It was an error to conduct what was in essence a de novo assessment of the propriety of the support provisions: at para. 56. The husband’s application could not succeed because “he has failed to meet the threshold required by s. 17(4.1)”: at para. 60.
[27] The same analysis applies in this case. As the motion judge was not satisfied that a material change in circumstances had occurred, the motion to change could not succeed; the failure to meet the threshold in s. 17(4.1) was dispositive of the motion to change the support provisions.
[28] The motion judge in essence made the same error as the lower courts in L.M.P. He conducted a de novo assessment of a provision of the divorce judgment, determining it to be an unenforceable penalty. But as the majority explained in L.M.P., on a motion to vary a support order, “a court ought not to consider the correctness of that order … [i]t is presumed that the judge who granted the initial order knew and applied the law, and that, accordingly, the prior support order met the objectives set out in s. 15.2(6) of the Divorce Act”: at para. 33. [^1]
[29] In making an order for spousal support, the court is to take into consideration, among other factors, “any order, agreement or arrangement relating to support of either spouse”: Divorce Act, s. 15.2(4)(c). When the divorce judgment incorporated the support provisions the parties had agreed to in the Minutes, the court was giving effect to this provision. The divorce judgment support provisions were to be taken as correctly granted. This does not mean they could not be varied upon demonstration of a material change in circumstances, but the correctness of the divorce judgment’s provisions for spousal support was not open to question on a motion to vary without any material change in circumstances.
[30] The motion judge cited this court’s decision in Crosbie only as authority for varying the rate of post-judgment interest, but the respondent relies on Crosbie for a broader proposition, namely to suggest that, even if there was no material change in circumstances, the motion judge had “an independent jurisdiction under s. 17(1) of the Divorce Act to submit certain provisions of [the divorce judgment] to analysis, and to vary, rescind, or suspend those provisions if the result of the analysis required a change”. To the extent that it is suggested that Crosbie authorizes varying support provisions in the absence of a material change, I do not accept this submission. The respondent reads Crosbie well beyond what it discussed and actually decided.
[31] In Crosbie, a father brought an application to retroactively change child support obligations, while the mother applied to compel payment of child support arrears and for other relief. The application judge dismissed the father’s application because he “had not established that a change in support was warranted”. The application judge granted the relief requested by the mother, and, among other things, ordered payment of the arrears from 1995 with interest at the rate of 10% per year.
[32] This court found no error in the dismissal of the request to change child support, but decided that the application judge had failed to exercise his discretion to relieve the father of the obligation to pay the “statutory post-judgment interest rate” of 10%. The court noted that the statutory post-judgment interest rate should apply unless there are compelling and exceptional reasons to change it, citing Robert McAlpine Ltd. v. Byrne Glass Enterprises Ltd., [2001] O.J. No. 3208 (C.A.), a case decided under the post-judgment interest provisions of the CJA. In the Crosbie court’s view, although the statutory rate was 10% in 1995, it had declined dramatically since then, and these were compelling and exceptional reasons to impose a rate other than the statutory one: at paras. 9-13.
[33] In exercising a power to change the statutory rate of post-judgment interest, the court was not exercising a power under s. 17 of the Divorce Act. Post-judgment interest on arrears was payable because, under s. 129 of the CJA, money owing under a court order bears interest at the post-judgment rate in effect in the quarter preceding the date of the order. In other words, the CJA made post-judgment interest payable and set the rate. The rate applies unless a judge exercises a discretion under s. 130 of the CJA to change the rate of interest. The court in Crosbie decided that the power to change the statutory rate of post-judgment interest under s. 130 of the CJA should have been exercised by the application judge because of declining interest rates following the date of the order for child support. Although it does not appear that the point was specifically addressed in Crosbie, and the matter has not been free of controversy, there is authority for the proposition that the power to reduce post-judgment interest under s. 130 may be exercised by a judge other than the judge who made the order requiring the payments in the first place: see Eastwalsh Homes Ltd. v. Anatal Development Corporation et al. (1995), 26 O.R. (3d) 528 (Gen. Div.).
[34] In my view, Crosbie deals only with the power of the court to vary the statutory rate of interest under s. 130 of the CJA applicable to arrears under an order, a power that subsists whether or not the court finds a material change in circumstances that would justify a variation of support provisions. There is no discussion in Crosbie of s. 17 of the Divorce Act, of the effect of failing to establish the threshold set out in s. 17(4.1), or of the Supreme Court’s decision in L.M.P. All of this would be expected if this court had intended in Crosbie to lay down a broad proposition, seemingly inconsistent with L.M.P., that support provisions of an order may be varied, under s. 17(1) of the Divorce Act, even when the threshold in s. 17(4.1) has not been met.
[35] Crosbie does not assist the respondent or support the motion judge’s deletion of para. 3 of the divorce judgment.
(b) There Was No Other Authority for the Deletion of a Support Provision from the Divorce Judgment
[36] Absent authority under s. 17 of the Divorce Act, neither the common law doctrine on the non-enforceability of contractual penalties nor s. 98 of the CJA, which confirms the Superior Court’s power to relieve against penalties and forfeitures on such terms as are just, justifies the motion judge’s order. It is therefore unnecessary to consider the appellant’s alternative argument that the motion judge improperly exercised his discretion, in deleting para. 3 from the divorce judgment, by not taking the respondent’s conduct into account.
[37] The common law doctrine is one that applies to contracts, not to court orders. In Peachtree II Associates - Dallas L.P. v. 857486 Ontario Ltd. (2005), 76 O.R. (3d) 362 (C.A.), at para. 24, leave to appeal to S.C.C. refused, [2005] S.C.C.A. No. 420, this court summarized the common law doctrine as follows:
The common law penalty rule involves an assessment of the stipulated remedy clause only at the time the contract is formed. If the stipulated remedy represents a genuine attempt to estimate the damages the innocent party would suffer in the event of a breach, it will be enforced. On the other hand, again to quote Lord Dunedin from [Dunlop Pneumatic Tyre Co. Ltd. v. New Garage & Motor Co. Ltd., [1915] A.C. 79 (H.L.), at pp. 86-87], "[i]t will be held to be a penalty if the sum stipulated for is extravagant and unconscionable in amount in comparison with the greatest loss that could conceivably be proved to have followed from the breach”. [Emphasis added.]
[38] It is clear from this description that the doctrine is about the court’s enforcement of a stipulated remedy clause in a contract.
[39] Contractual remedies, and common law doctrines that restrict them, may be applicable to a family law agreement when the parties’ agreement has not been incorporated into a court order: Herskovits v. Herskovits (2001), 17 R.F.L. (5th) 339 (Ont. S.C.), at paras. 1, 30-32. But the divorce judgment is not a contract; it is a court order.
[40] Here, the parties entered into Minutes of Settlement but then went on to consent to and obtain a court order – the divorce judgment – that enforced the terms of the Minutes by ordering them to be performed. Paragraph 3 of the divorce judgment ordered the respondent to pay the amounts it stipulated in the event of a default. Contractual remedies, and restrictions on contractual remedies, that may have been applicable if the parties had only expressed their rights and obligations in a contract cannot simply be transposed onto court-ordered obligations.
[41] There can be many reasons why a clause in a contract that is arguably a penalty ends up being enforced by a court order. A party may choose not to argue that the clause is a penalty, or the court might rule that the clause is not a penalty and should be enforced. It does not matter which occurs. The question of whether a clause in a family law agreement is valid and enforceable is a question that must be raised before the clause is enforced by including its provisions in a court order that directs its performance. Once that occurs, the question of contractual enforceability has been determined, by a judge presumed to know the law and in an order that is presumed correct. The order is then enforceable as a judgment of the court.
[42] If the respondent wished to avoid enforcement of a provision of the Minutes he considered to be a penalty, the time to do so was before the term was reflected in the divorce judgment. He could have opposed the inclusion of what became para. 3 of the divorce judgment on the basis of his penalty arguments. If he did not like the outcome, he could have appealed. Having not raised any concerns about the provision being an unenforceable penalty at the time it was converted into a judgment, he cannot now do so.
[43] Similarly, s. 98 of the CJA gives the court authority to relieve against penalties or forfeitures provided for in a contract: Herskovits, at para. 32. Nothing in s. 98 suggests that once a judge has ordered a contract to be performed, and the order has not been appealed, another judge of the same court may review that order and rule on its correctness, that is, rule provisions of the order unenforceable as penalties. [^2]
(2) No Error in the Variation of the Post-Judgment Interest Rate
[44] In the appellant’s original Notice of Appeal, the only provision of the motion judge’s order that is challenged is para. 1, which deleted para. 3 of the divorce judgment. The appellant’s Supplementary Notice of Appeal also asks this court to set aside the motion judge’s decision to vary the post-judgment interest rate on the arrears owed by the respondent. The only ground of appeal articulated to support this request was that there was no evidence to support the motion judge’s interest rate variation.
[45] However, no argument was made in the appellant’s factum to support this, and the point was not pursued by the appellant’s counsel in oral argument. The appellant did not argue that the motion judge was wrong to follow Crosbie, or that his calculation of the average of published post-judgment interest rates was incorrect. Accordingly, I would not give effect to this ground of appeal.
Conclusion
[46] I would allow the appeal to the extent of setting aside para. 1 of the motion judge’s order and reinstating para. 3 of the divorce judgment.
[47] In accordance with the parties’ agreement, the appellant is entitled to costs of the appeal fixed in the sum of $15,000, inclusive of disbursements and applicable taxes. If the appellant seeks costs of the proceedings below, she may make written submissions not exceeding three pages, with such submissions to be delivered within 15 days of the release of these reasons. Any response by the respondent, also limited to three pages, shall be delivered within 10 days thereafter.
Released: January 11, 2023 “B.W.M.”
“B. Zarnett J.A.”
“I agree. B.W. Miller J.A.”
“I agree. Coroza J.A.”
[^1]: Section 15.2(6) provides that a spousal support order should: (a) recognize any economic advantages or disadvantages to the spouses arising from the marriage or its breakdown; (b) apportion between the spouses any financial consequences arising from the care of any child of the marriage over and above any obligation for the support of any child of the marriage; (c) relieve any economic hardship of the spouses arising from the breakdown of the marriage; and (d) in so far as practicable, promote the economic self-sufficiency of each spouse within a reasonable period of time.
[^2]: Rule 59.06 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, like r. 25(19)(a) of the Family Law Rules, permits a judge of the Superior Court to change an order that contains an error arising from an accidental slip or omission, requires an amendment on a matter that the court did not adjudicate upon, or was procured by fraud. It is not suggested that these rules are applicable in this case.
