BARRIE COURT FILE NO.: FC-10-717-00

DATE: 20120118

ONTARIO
SUPERIOR COURT OF JUSTICE

BETWEEN:

ANTONIO SAVOIA Applicant – and – ROSA SAVOIA Respondent

E. Rayson, for the Applicant
J. Craig, for the Respondent

HEARD: January 5, 2012

RULING

EBERHARD J.

Pleadings Motion

[ 1 ] Although the substantive motion, commenced for hearing July 13, 2011 and amended for hearing October 21, 2011, addressed support related issues, the hearing before me began with the Respondent Wife’s renewal of a motion for an “Order striking Respondent’s pleadings for his failure to comply with numerous court Orders” first brought for hearing December 15, 2011. This renewal was at the invitation of McDougall J. in his ruling of the motion heard that date:

Should the Applicant fail to comply with all of the terms of this Order today, the Respondent’s counsel may seek an Order striking the Applicant’s pleadings for failing to comply and for further costs on January 5, 2012 prior to the commencement of the main Motion.

[ 2 ] The affidavit in support of that renewed motion was served Jan 3, 2012 as it recorded failures to comply with times set out by McDougall J. which had to expire before the grounds for the motion could be established.

[ 3 ] Rather than adjourn to allow the Applicant Husband to file responding material I required both counsel to support their assertions of late breaking evidence by creating an affidavit today but permitted each to make submissions based on the material they would be filing. At the end of the day, having earlier reserved my ruling on the motion to strike, I permitted Applicant Husband’s counsel until 4pm January 6, 2012 to have a faxed copy of these affidavits delivered to my attention.

[ 4 ] Some of the payments McDougall J. ordered were paid on time.

[ 5 ] One $650 cheque for December 15 costs, due January 4, 2012, was passed across in the courtroom in my presence. The January 1 st child support payment of $1,825 specifically mentioned by McDougall J. to be paid by January 1, 2012 was conveyed by uncertified cheque to the Respondent Wife on time.

[ 6 ] Due to a series of previous dishonoured cheques, the Respondent Wife’s bank holds the Applicant Husband’s cheques for several days. There was dispute whether there was agreement that payments be made by cash or certified cheque but be that as it may, the Respondent Wife does not yet have the funds in her possession as the bank is holding back pending clearance.

[ 7 ] When the hearing finished, I endorsed the file with counsel present. In the context of my intention to immediately begin crafting my rulings, I could not know whether the cheques in issue would clear. I therefore granted permission that “If either outstanding cheque fails to clear, Mr. Craig may advise me forthwith by letter or affidavit delivered to my judicial secretary, copy to Ms. Rayson.” Should such an indication be received before the release of my ruling, I will address those fresh circumstances. As I draft this paragraph moments after the completion of the hearing, I am recording my present intention. If no indication is received that the cheque(s) did not clear, then this ruling is based on the assumption that they did and non-compliance with the McDougall order in regards to these payments is not a matter giving rise to an order to strike pleadings.

[ 8 ] The McDougall order also referenced previous orders relating to disclosure:

The disclosure ordered to be provided by the Applicant in the Consent dated October 21, 2011 as set out in paragraph 12(a) and in paragraph 4 and the “account profile and a list of all products with the institutions” (as described in the Notice of Motion dated October 21, 2011) in paragraphs 11 and 12 are to be completed by December 23, 2011 by 4:30 p.m.

[ 9 ] Those referenced consents called for:

4. (para 3 in the issued order) “ The Applicant’s counsel will write to institutions directing them to provide information sought in the Notice of Motion dated October 21, 2011 in the Applicant’s name and in the name of his business and will provide copies to the Respondent’s solicitor forthwith. For any banks or financial institutions listed, he will also provide an account profile and a list of all products he holds with the institution.

12 (para 10 in the issued order) The Applicant shall provide to the Respondent the following:

(a) Copies of credit applications made the Applicant or his business as per paragraph 12(1) of the August 19, 2010 Order, including any applications he’s made between the date of that Order and today;

(b) Particulars and proof of the expenses for his recent trip to Cuba;

(c) Particulars of the $2,287.58 expense on August 1, September 1 and October 1 showing m his business bank account statements;

(d) Proof of the source of the $10,000.00 deposit made on the purchase of his Mustang vehicle.

(para 9 in the issued order) The Applicant shall provide to the Respondent copies of the Daily Cash Register Money Reading Statements for his business for the months of December 2010 to and including today and on a continuing basis as per paragraph 12(n) of the Order of August 19,2010.

[ 10 ] The Respondent Wife submits the December 15, 2011 order required these were to be completed by December 23, 2011 so as to be available for the motion before me.

[ 11 ] The Applicant Husband submits the disclosure is redundant and evidence of the Respondent Wife’s obsessive conduct in the litigation.

[ 12 ] The Applicant Husband’s view of the Respondent Wife’s obsessions are of no consequence as the disclosure was court ordered, not just by McDougall J. but previously on consent.

[ 13 ] Further, I find, the nature of the disclosure is relevant to the issue of support as it relates to the Applicant Husband’s income which the Respondent Wife asserts is higher than conceded based on: cash business not put through the business records; tips; personal expenses paid through the business; lifestyle; and unexplained expenses which do not appear in either personal or business accounts which are somehow being paid.

[ 14 ] I focus for a moment on the relevance of the Daily Cash Register Money Reading Statements (register statements). They are said to demonstrate the total cash received by the business contrasted with the amount put through the cash register. Whether or not that is true, 2010 register tapes were conspicuously sought and used by BDO in their income analysis expert report. For that reason alone subsequent register statements are obviously relevant.

[ 15 ] I asked in court why they were not disclosed since the excuse for other non-disclosure was that the Applicant Husband could not control the timing of third party record holders. Astonishingly, he replied through counsel to the effect that he had stopped creating these register tapes. He suggested that since his wife was no longer doing his bookkeeping, he could adequately instruct his accountant without them.

[ 16 ] Words to characterize this conduct might approach hyperbole, so suffice it to say that this obvious step to block an important avenue of analysis of his income invites an adverse inference.

[ 17 ] I note that the conduct appears to predate the McDougall ruling, however his failure to disclose this fact about what he had been ordered to disclose is itself an instance of non-compliance.

[ 18 ] The McDougall order cannot be seen as anything except a last chance to demonstrate an alteration in the Applicant Husband’s response to court orders. Failure to complete disclosure is unfortunately not uncommon in domestic litigation where it is crucial to a fair result and, ironically, much more difficult to mask since very often the party opposite was, before the separation giving rise to litigation, intimate with the now opponent’s financial practices.

[ 19 ] I am aware of the case law [1] cited by the Applicant Husband, which counsel abbreviates to the principle that a court will not strike pleadings for failure to disclose unless it is egregious and prejudicial.

[ 20 ] Further, a court is loathe to strike pleadings for interim non-compliance with orders to pay since the issue of ability to pay is not yet finally determined. No court wants to block access to justice by reason of real financial inability as yet undetermined.

[ 21 ] Further, those aspiring to justice are unsatisfied with an adjudication based on only one side of the story.

[ 22 ] For justice reasons therefore, rather than any sympathy for the position put forward by this Applicant Husband, I would rather not strike his pleadings.

[ 23 ] So I reserved and will not strike pleadings pending any information that the cheque(s) he says he has paid are not honoured. That would constitute a flat out lie to the court in the face of the McDougall warning and I would tolerate no more from him.

Substantive Motion

[ 24 ] I move therefore to the substantive issue before me.

[ 25 ] In that respect I look to the evidence that is before me and note that by failure to provide disclosure the Applicant Father has effectively prevented himself from disputing the assertions contained in the evidence provided by the Respondent Wife.

[ 26 ] On August 19, 2010 when the first support order was made the Applicant Husband conceded income of $68,000, resulting in a without prejudice order for $1,323 under the Child Support Guidelines. He was ordered to pay certain expenses of the matrimonial home where the Respondent Wife and children have remained in lieu of child support. He claims this represents an overpayment of spousal support for which he should be credited.

[ 27 ] The Applicant Husband in argument before me concedes an income for 2011 of $87,322 which is higher than reported income but includes a modest recognition that some of the Respondent Wife’s assertions about income for family law purposes may not appear in reported income for tax purposes. Child Support Guidelines table support would be $1,626 for three children.

[ 28 ] In a report dated July 6, 2011 BDO put forward an expert opinion that the income of the Applicant Husband was in 2008: $109,000; 2009: $114,000; and 2010: $131,000.

[ 29 ] In these years the respective line 150 income reported for tax purposes was in 2008: $36,451; 2009: $34,722; and 2010: $58,689.

[ 30 ] In these same years, the Respondent Wife’s income was enhanced by payments to her from the Applicant Husband’s business, partly for bookkeeper work but also for income splitting purposes such that her income was in 2008 - $69,804.00 including $35,150 from the business; 2009-$63,451.00 including $25,256 from the business and 2010-$35,347.53 including $17,802.00 paid from the business.

[ 31 ] This income splitting is informative both to add back income generated by the husband as BDO did, but also to demonstrate the Respondent Wife’s pattern of earning on the issue of her potential for self sufficiency.

[ 32 ] BDO analyzed cash business not put through the business records. Here the register statements are relevant as they compare actual cash received with cash going into the till.

[ 33 ] The Respondent Wife prepared a calculation, based entirely on the recorded numbers, which supports an average unreported cash intake of $3,000/month.

[ 34 ] BDO analyzed tips: By asking other barbers they reported a modest tip estimate. The Applicant Husband’s business price for a hair cut is higher than those barbers questioned.

[ 35 ] The Applicant Husband files a critique of the BDO report from Kalex Valuations Inc., dated November 28, 2011 which responds that these unreported revenues should not be included in the Applicant Husband’s income as he states that 100% of this cash is paid over to employees as is common in the industry; and that tips are not as high as BDO estimated.

[ 36 ] BDO notes the risk of tax audit and presumes that the business owner would be unlikely to entirely absorb the risk of unreported cash sales without some commensurate benefit to himself which is modestly presumed at 25 percent.

[ 37 ] No grateful employee provides the Applicant Husband with an affidavit to support his assertion of 100% largess. He makes continued analysis of register statements impossible by stopping their creation. He has given this court no reason to accept his statement which Kalex accepted.

[ 38 ] BDO analyzed personal expenses paid through the business: This process is so elementary in family law cases where income is from self employment that the Applicant Husband’s denial to Kalex that any personal benefits or expenses is subject to scrutiny. BDO identified home office, cell phone, and vehicle expenses. This struck me as a very modest list.

[ 39 ] BDO applied accounting theory which is not disputed in the critique and opined on income as noted above. The gross up mathematics was challenged but argument from counsel table does not persuade me that the accountants can’t do math.

[ 40 ] In support of the argument that income is consistent with the BDO opinion is evidence of the Applicant Husband’s lifestyle: he has travelled and purchased vehicles, absorbing significant losses on trade-in.

[ 41 ] The Respondent Wife points to unexplained expenses which do not appear in either personal or business accounts which are somehow being paid. In an effort to explore this mystery disclosure of the source of a $10,000 down payment was ordered as well as documentation associated with credit.

[ 42 ] Here the Applicant Husband’s failure to disclose, though not resulting in his pleadings being struck, does support the adverse inference that the information if disclosed would not be helpful to his position that his income remains at the conceded $87,322.

[ 43 ] As to the argument that income ought to be imputed to the Respondent Wife, I look to her pattern of contract employment through the Board of Education, her historical income splitting and role during the marriage, and the two years since separation – the first being part way through a board contract. She is educated but has had a pattern of employment on a different trajectory.

[ 44 ] Case law [2] cited by the Applicant Husband is illustrative of the known principal and legislated factor relating to the duty of a spouse to take steps to support themselves.

[ 45 ] In 2010 the Respondent Wife had to complete the contract obligation she had in place. The next year she sought and got another contract. It will be an ongoing question whether she has pursued opportunities reasonably available such that disclosure of opportunities and attempts to seize them will be relevant. However, the principle does not require a separated spouse to pull a rabbit out of a hat. The reasonableness of her situation and potentials must be considered.

[ 46 ] Here, the Respondent Wife is working. There is no developed evidence of opportunities available but not taken in the education field, in her location where she continues to provide continuity for the children’s interests, or not requiring the time and expense of retraining while regular support is in dispute.

[ 47 ] Taking all these observations into account, at this interim stage and without the benefit of full information from the Applicant Husband, I find the Respondent Wife’s arguments are supported that her income is as reported and the Applicant Husband’s income is in line with the BDO opinion.

[ 48 ] Caution alone causes me to moderate the BDO estimate slightly.

[ 49 ] I fix the 2010 income of the Applicant Husband at $125,000 and the Respondent Wife at $17,362. It is the only information currently available even though 2011 is already gone.

[ 50 ] Both counsel did DivorceMate calculations but neither with the income findings I have made. It is difficult for me to reproduce the calculations received without the precise details of input. The calculation submitted by the Respondent Wife is close enough to guide me.

[ 51 ] At income of $125,000, table child support for three children is $2,209.

[ 52 ] Spousal support of $1,900 is in line with the spousal support guidelines, without precise calculation, generally in the upper end of the range.

[ 53 ] The Respondent Wife has demonstrated section 7 post secondary education expenses for Corina, a child living at home but attending university. My order contemplates that the Applicant Husband will continue to pay table Child Support Guidelines support for these children so her expenses solely attributable to post secondary education are asserted at a comparatively modest $17,197. The Respondent Wife has deducted bursary and grant portion of the OSAP contributions but not the loan portion. A reasonable contribution from Corina of $2,000 leaves approximately $8,000. I fix the attributable expenses at $16,000 rather than $17,197 leaving approximately $7,000 yet to share. The Applicant Husband will be credited the payment already made towards this post secondary education contribution.

[ 54 ] Driving lessons for Corina of $989 is section 7 extra expense to be shared.

[ 55 ] I fix the ratio at 75% by Applicant Husband and 25% by Respondent Wife.

[ 56 ] The Applicant Husband reinstated but did not reliably demonstrate reinstatement of medical benefits required by the August 19, 2010 consent order such that the Respondent Wife had no choice but to obtain her own benefits to ensure coverage. Such unnecessary duplication was entirely the result of the Applicant Husband’s conduct. I order $2,600 in reimbursement for out of pocket expenses and premiums as an apt response to underscore the importance of meaningful compliance in a timely fashion and in a manner that the other can rely on. Only in that way can the trust necessary for resolution of the various issues between them can be achieved. That is my retort to the Applicant Husband’s accusation of obsession. The Respondent Wife would not need to be obsessed if she could rely on timely, straightforward compliance.

[ 57 ] The next question is when my order should commence. Both counsel submitted that the August 19, 2010 consent order was without prejudice. Paragraph 4 of the consent called for child support commencing September 15, 2010 based on income of $68,000 which I have found significantly lower than the Applicant Husband’s actual income in 2010. Paragraph 6 called for payments for matrimonial home mortgage and tax expenses in lieu of spousal support but the Applicant Husband argues he has overpaid. The Respondent Wife argues he has underpaid. It is common ground that spousal support should now replace the payments made towards house expenses but in light of their positions as to the quantum of spousal, they tended to argue that if they get the order they want on spousal support quantum then the effect should be retroactive and a credit in their favour. The Respondent Wife wants a spousal support order back to the date of separation. The Applicant Husband argues that retroactivity is better addressed in a final order.

[ 58 ] The Applicant Husband argues that he derives no benefit from the payments towards housing since title is in the Respondent Wife’s name and under the Family Law Act Net Family Property, not an individual asset, is equalized. It is argued that therefore he has no interest in the equity and Serra v Serra confirms the relevant value is on date of separation and that the equalization is not going to take into account the loss of value in the property unless there is a constructive trust claim which he has not made. He submits he will be owed a sizable repayment.

[ 59 ] The Respondent Wife argues that the payments protected the equity in the matrimonial home that will be factored into Net Family Property Statement matrimonial home to the benefit of both. Having credited for mortgage payments and a gross up to recognize that advantage to the payor if the payment is made in the nature of spousal support, and crediting one half to the respondent husband, the applicant wife provides a written calculation of arrears.

[ 60 ] The safest route on an interim motion is to readjust the Child Support Guidelines table support from the date of the original consent order. Despite dire predictions from the Applicant Father that ordering support base on $131,000 will result in a huge repayment when the incomes are finally determined, I will readjust the August 19, 2010 order in conformity with the expectation of the without prejudice consent. Child support for three children at income as found of $125,000 is ordered at $2,109 commencing September 15, 2010.

[ 61 ] I decline to consider retroactivity for the spousal support on this interim motion. Rather, I order spousal support of 1,900 commencing January 15, 2012. The Applicant Husband will no longer be responsible for paying the mortgage or taxes as of Feb 1, 2012.

[ 62 ] There remains an issue of costs. The Respondent Wife, having succeeded in the substance of her motion, may submit a written cost memorandum of no more than two pages together with a bill of costs and any offers by Feb 1, 2012. The Applicant Husband shall have until February 10, 2012 to respond in like manner and the Applicant Wife may reply by February 15, 2012. The submissions are to be delivered to the judicial secretary in Barrie.

EBERHARD J.

Released: January 18, 2012

[1] Chernyakhovsky v. Chernyakhovsky [2003] O.J. No. 9444

[2] Thomas v. Thomas 2003 64346 (ON SC) , [2003] O.J. No. 5401 J.W. Quinn J. 74 Taggar v. Taggar [2009] O.J. No. 1855 P J. Flynn J. Younger v. Younger [2007] O.J.. No. 4659 D.IM. Brown J. 46 Savonarola v. Savonarota [2011] O.J. No. 3785 C. Gilmore J. 105