Court File and Parties

COURT FILE NO.: 06 FA 14313 FIS

DATE: 20121219

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: CAROL PUPURA

AND:

LARRY BATES

BEFORE: PENNY J.

COUNSEL: Faryal Rashid for the Applicant

Larry Bates on his own behalf

HEARD: December 12 and 13, 2012

REASONS FOR DECISION

Background

[1] The parties were married in 1986 and separated in 2001. There are three children of the marriage. The children are now all over 21 years of age.

[2] The parties executed a separation agreement in 2002. The applicant, Carol Purpura, commenced an action in 2006 seeking custody of the children and increased child and spousal support. Throughout that litigation, until it was resolved by the consent order of Horkins J. in November 2008, the applicant was represented by Cynthia Waite of Waite & Associates and the respondent, Larry Bates, was represented by Gerry Sadvari of McCarthy Tetrault.

[3] This trial arises from a motion commenced in June 2011. In the notice of motion, the applicant alleged various breaches of the November 2008 Order of Horkins J. and sought child support arrears of $443,133. By Partial Minutes of Settlement executed in September 2012, the parties settled all but one of the disputes raised by the June 2011 notice of motion.

Issues

[4] The remaining dispute, which was the focus of this two day trial, is over whether the respondent was entitled to deduct from his income, for child support purposes, what have been described as “excess” housing costs incurred while he was working for his employer, RBC Capital Markets, in the U.K. The deductions from income which are in issue are £16,150 in 2007, £84,000 in 2008 and £67,846 in 2009.

[5] There is also a subsidiary issue relating to legal fees incurred by the respondent in connection with his wrongful dismissal claim against the RBC and the deductibility of those fees from his income for support calculation purposes.

The “Excess” Housing Costs

[6] In the course of litigating the applicant’s 2006 motion, there were pleadings, affidavits, disclosure and questioning. There was an income report prepared for the applicant by Brent Valuations Inc. There were, as well, extensive discussions and negotiations leading up to the consent Order of Horkins J. made in November 2008.

[7] Toward the end of 2007, the respondent’s housing costs became an issue because, in August 2007, the respondent transferred within RBC Capital Markets from Toronto to London, England. His new position was global head of debt capital markets.

[8] As a result of this transfer, the respondent ceased to be a resident of Canada for income tax purposes on August 12, 2007. The respondent’s 2007 Canadian income therefore only included income earned from January 1, 2007 to August 12, 2007. Likewise, a portion of the respondent’s 2007 income after August 12, 2007 was earned in England and was subject to British income tax.

[9] RBC provided a number of reimbursements for added expenses occasioned by the respondent’s move, including a significant contribution to housing costs up to a defined limit. Any amounts over the RBC limit were recovered by RBC through deductions from the respondent’s income.

[10] The nature of the disclosure about the housing costs and the RBC housing subsidy, and the timing of that disclosure, are in dispute and were at the heart of this trial.

[11] In January 2008, respondent’s counsel sent Mr. Bates’ “detailed summary of income and mandatory deferrals in 2007 and previous years” to applicant’s counsel. That summary divides the respondent’s 2007 income into that paid in Canada and that paid in the UK, to reflect the fact that he began working in the UK in August 2007. The summary shows base salary of Cdn$76,705 and £46,522 between Canada and the U.K.

[12] The summary indicates with respect to the respondent’s 2007 bonus that 3/12ths was paid in December 2007 for work in the U.K. and 9/12ths was paid in January 2008 for work in Canada in the amounts of £183,422 and $1,080,886 respectively. The footnote to the bonus summary reads: “Bonus of 183,422GBP attributable to FY2007 sacrificed to housing costs of 16,150GBP and pension contribution of 167,272GBP”.

[13] The applicant retained Linda Brent of Brent Valuations Inc. to prepare calculations of the respondent’s Guideline income from 2003 to 2007 and child support arrears to June 30, 2008. In her report of July 17, 2008, Ms. Brent discusses the respondent’s move to London and the associated complications with respect to her calculation of his income. At the time of this report, Ms. Brent did not have detailed information concerning the respondent’s income post-August 12, 2007. As a result, she stipulated in her report that her calculations of income for 2007 “are shown as preliminary. Further information is required.”

[14] Ms. Brent’s footnote to her calculation of the respondent’s preliminary U.K. income reads:

Mr. Bates relocated to London, England in August 2007 and was paid a base salary of £120,000 per annum. From Aug to Dec/07 £46,522 was paid (or Cdn$95,058 converted at 2.0433, the average exchange rate during this period). Mr. Bates’ 2007 bonus was £183,422 in Dec/07 (or Cdn$371,283 converted at 2.0240, the average exchange rate for Dec/07) and Cdn$1,080,886 in Jan/08. Exchange rates per Bank of Canada. The £183,422 bonus appears to have been allocated/received as £16,150 housing costs and £167,272 pension contribution according to the RBC capital markets schedule. Not included in Canadian income for tax purposes. Assumed would be included in UK income for tax purposes.

[15] There was no evidence at trial of further communications regarding housing costs until September/October 2008.

[16] On October 1, 2008, respondent’s counsel wrote to applicant’s counsel on a number of issues concerning a possible settlement of the pending motion. It is clear that this was not the first communication about settlement but no other correspondence was put in evidence at the trial. On the housing allowance issue, counsel’s letter says:

RBC does not give Mr. Bates an allowance, RBC pays for some of his rent for his home directly, and also deducts some amounts from Mr. Bates’ pay for this purpose. Pursuant to Schedule III of the Guidelines, these costs are in the nature of sales or travel expenses that are only necessary because RBC wants him to work in London. If he could have stayed here, none of these expenses would need to be incurred.

RBC only pays for rent, they do not pay for any unnecessary or luxury expenses. A cap on this amount is not appropriate as it is not certain what the rent costs each year; moreover, none of this money is ever part of Mr. Bates’ disposable income.

To describe this accurately, this sentence should say that “Income will not include the amounts that Mr. Bates’ employer pays or deducts from his pay for his housing while working in London, England.”

With these changes I believe we can finalize this settlement.

[17] The same day, the respondent forwarded to the applicant a draft of minutes of settlement. The respondent’s e-mail to the applicant says:

The proposed language in the attached re rent reflects the fact that RBC pays my UK rent. These funds do not pass through my hands. My annual bonus is reduced to reflect my contribution to this cost. I do not want this included in my income because I do not receive it.

There is no trick here. It is in my interest to minimize this bonus reduction going forward simply because it would result in an increased bonus to me. Likewise this is in your interest because you get 29% of any comp actually paid to me. Our interests in this regard are aligned.

[18] In further e-mail exchanges directly between the parties the following day, the respondent said:

We have discussed the UK rent issue. I need the deal to reflect that the amounts that RBC pays or deducts from pay for housing are not included in income. The latest draft does not quite say that. Does that mean you disagree or is this a drafting issue?

[19] The applicant responded:

Moving to the UK rent issue; as Cynthia [applicant’s counsel] said to Ann Velez [respondent’s counsel] yesterday, we cannot have the rent amount issue being a blank check. Your e-mail provided greater clarity, and yes I agree it would be advantageous for the rent amount to go down and I agree that it needs to be addressed and propose that you provide some suggested wording that reflects both our interests.

[20] In reply to this e-mail, the respondent said:

Re rent you have to understand that our interests are the same here.

If it were in my interest to maximize this amount I would understand your need to regulate it but I receive ZERO percent of this rent money so I am strongly motivated to minimize it.

The lower this amount, the more money I get paid and split 71/29 with you.

It is as simple as that so the language should be simple:

the amount that RBC pays or deducts from pay for providing UK rental housing is not included in income.

[21] Final minutes of settlement appear to have been concluded later in October 2008. There was no evidence of contemporaneous complaints that disclosure was inadequate or lacking. Paragraph 4 of those minutes provides that: “Income will not include amounts the Respondent’s employer pays or deducts from his pay for his housing while he is working in the United Kingdom.” The evidence was not clear about whether they were ever signed.

[22] These minutes were, however, incorporated into the consent order of Horkins J. dated November 17, 2012. Para. 4 of the Order simply repeats the language of the agreement: “Income will not include amounts the Respondent’s employer pays or deducts from his pay for his housing while he is working in the United Kingdom.”

[23] There is no evidence that, prior to the conclusion of the settlement and the 2008 Order, the applicant or her counsel ever requested specific information about the cost of the respondent’s U.K. residence, the specific amount of the RBC housing subsidy or the specific amount that the respondent was contributing to his housing cost by way of deduction from his income, other than what was disclosed in the 2007 income summary, as described above.

[24] The applicant testified that she assumed, in October 2008, that only £16,150 was to be deducted from the respondent’s income on account of housing costs for the remainder of his tenure in the U.K.

[25] The respondent testified that he never provided specific information about the cost of his U.K. residence, the amount of the RBC subsidy or the amount that he had to contribute to his housing cost by way of deduction from his annual bonus because neither he, nor his counsel, were ever asked for this information. The respondent admitted, however, that from August 2007 through to November 2008, this information was, in fact, known to him.

[26] It was in the course of trying to implement the 2008 Order, a task delegated to Ms. Brent under the terms of that Order, that the full year cost of the respondent’s London housing became apparent.

[27] It was disclosed, during the process leading to Ms. Brent’s final report of December 7, 2010 that RBC policy for executives at the respondent’s level was to pay for housing in London up to a limit of £150,000 per year. Any costs incurred in excess of this amount were deducted from the executive’s year-end bonus.

[28] In this case, RBC entered into a two-year (August 2007 to end of July 2009) lease on the respondent’s behalf, the cost of which exceeded the RBC limit by:

(a) in 2007, £16,150;

(b) in 2008, £84,000; and

(c) in 2009, £67,846.

These amounts (representing an average cost of about £1,615 per week) were deducted from the amount paid to the respondent by way of year-end bonus for each of those years.

[29] As of August 2009, the respondent rented new residential premises in London, the annual cost of which did not exceed the RBC housing limit of £150,000. As such, there were no further deductions from his income for “excess” housing costs after July 2009.

[30] Ms. Brent, in light of an emerging dispute between the parties over the housing cost deduction and two other issues (relocation costs and school costs), prepared her follow-up report regarding child support payable for 2009 (based on 2008 income) on the basis of six scenarios; they are described as Base and scenarios 1A, 1B, 2, 2A and 2B. These scenarios represent child support payable depending on the combinations of inclusion or exclusion of the three variables, housing, relocation costs and school costs, in the respondent’s income for that year.

[31] The treatment of relocation and school costs was settled by partial minutes of settlement in September 2012. Accordingly, the two scenarios in dispute involve only whether the housing costs of, for example, £84,000 in 2008, are to be included or not included in the respondent’s income; these were scenarios 1B and 2B in the December 7, 2010 Brent Report, shown in schedule 5.

[32] The impact of including or not including housing costs has a $44,000 impact on total child support payable by the respondent to the applicant in 2009.

[33] If the housing cost of £84,000 is included in income, the respondent ought to have paid about $284,000 for child support in 2009; if the housing cost is excluded from income, the respondent ought to have paid about $240,000 in 2009.[^1]

[34] Because of the dispute, Ms. Brent has not yet done calculations for 2010 child support (based on 2009 income). It is expected that the amounts in issue for 2010 child support will be similar but slightly less than 2009 because the 2009 housing cost in issue, £67,846, represents less than a full year under the lease.

[35] The parties plan to instruct Ms. Brent to complete her calculations for 2010 in accordance with the manner in which the housing cost issue for 2009 support is resolved in this trial.

[36] The question of what the respondent may “owe” or have “overpaid” for 2009 child support is not precisely determined by the $44,000 swing on the housing cost issue because it appears, based on the amounts discussed in para. 33 above, that the respondent “overpaid” child support in 2009 by something more than zero and less than $44,000. This is because the respondent paid a total of $264,000 in child support in 2009, i.e., somewhere in between the two amounts generated by inclusion and exclusion of the housing costs. The precise amount of the “over” or “under”-payment resulting from resolution of the housing cost issue may have to be confirmed by Ms. Brent following release of these Reasons.

[37] The applicant advances two arguments for why the “excess” housing cost should be included in the respondent’s income for purposes of determining 2008 to 2010 child support. She argues:

(1) the respondent mislead the applicant about the nature and amount of this cost and failed to disclose the true amount of his housing cost prior to the minutes of settlement and 2008 consent Order of Horkins J.; and

(2) the 2008 Order is contradictory or ambiguous in that it provides, in para. 7, that the payments to be made by the respondent to the applicant on account of support “will be calculated using the methodology and in accordance with the report of Brent Valuations Inc. dated July 17, 2008.” The 2008 Brent Report does not exclude the respondent’s 2007 housing contribution of £16,150 from his 2007 income. Accordingly, the applicant argues, the methodology of the 2008 Brent Report includes “excess” housing costs in income and to exclude them now would not be “in accordance with” the 2008 Report.

Concealment or Misrepresentation

[38] The applicant relies upon pronouncements of the Supreme Court of Canada and other courts for the proposition that the respondent had a positive obligation to provide all relevant information about his housing costs while in the U.K. prior to the negotiation of any settlement of the support issues relating to his move. His failure to do so, she says, is sufficient to set aside the deduction from income for what she refers to as the “excess” housing costs over and above the RBC housing allowance of £150,000.

[39] In Rick v. Brandsema 2009 SCC 10, [2009] 1 S.C.R. 295 the Court, when speaking of parties’ ability to contract for themselves concerning their obligations to one another on breakup of their relationship, said (at para. 46 and 47):

This contractual autonomy, however, depends on the integrity of the bargaining process. Decisions about what constitutes an acceptable bargain can only authoritatively been made if both parties come to the negotiating table with the information needed to consider what concessions to accept or offer. Informational asymmetry compromises a spouse’s ability to do so…

In my view, it flows from the observations and principles set out in Miglin that a duty to make full and honest disclosure of all relevant financial information is required to protect the integrity of the result of negotiations undertaken in these uniquely vulnerable circumstances. The deliberate failure to make such disclosure may render the agreement vulnerable to judicial intervention where the result is a negotiated settlement that is substantially at variance from the objectives of the governing legislation.

[40] In Baxter v. Baxter 2003 CanLII 1992 (ON SC), Olah J. provided a helpful list of factors bearing on the issue of nondisclosure in the context of a settlement:

Recent court decisions make it clear that a spouse has an obligation to make ongoing disclosure during settlement negotiations and that failure to do so may result in a court setting aside all or part of the resulting agreement. Factors that emerge from these cases as relevant to the court’s discretion in setting aside an order or agreement where the duty to provide financial disclosure has not been met include:

1. whether the funds existed at the time of the signing of the agreement (Francis);

2. whether the party seeking to set aside on this basis knew the facts were different than originally stated but decided not to inquire further about details, or neglected to pursue full legal disclosure (Demchuk);

3. whether there was concealment or misrepresentation (Demchuk);

4. whether there was duress, or unconscionable circumstances (Demchuk);

5. whether the nondisclosure was material; how important would the non-disclosed information have been to the negotiations (Dochuk);

6. whether the agreed-upon terms are reasonable and fair; would they have been different had all the facts been known;

7. whether the request to set aside is made expeditiously (Demchuk).

[41] The applicant argues that the financial information concerning the housing costs was known by the respondent at the time 2008 consent Order was negotiated. She says that she did not fail to inquire further but was, indeed, misled by the respondent’s concealment or misrepresentations. The unconscionable circumstance in this case, she argues, was the alleged concealment or misrepresentation. The nondisclosure was material. The applicant testified that she would have never have agreed to a deduction from income for housing costs at these extraordinary levels had she known the facts. Finally, the applicant argues, and it is not in dispute, that she took action on the issue as soon as the implications of the true housing costs became known.

[42] It is beyond question that disclosure in matrimonial litigation is crucial at every stage of the proceeding. As Fraser J. said in Cunha v. Cunha (1994), 1994 CanLII 3195 (BC SC), 99 B.C.L.R. (2d) 93 (S.C.) at para. 9, “non-disclosure of assets is the cancer of matrimonial property litigation.”

[43] However, as is clear from the factors listed in Baxter, supra, not every missed fact gives rise to unconscionability or the setting aside of the settlement or agreement. The applicant was not, unlike the spouse in Rick, supra, uniquely vulnerable. She was represented by able and experienced counsel. She did not, “weary and drained” from prolonged litigation, “walk away” from assets she did not know about, unlike the circumstances contemplated by Fraser J. in Cunha, supra. Rather, in this case the applicant had received literally millions of dollars in child and spousal support from the respondent since their separation in 2001. She was aware, at least in principle, of how the U.K. housing was being structured and had 2007 income data showing specifically what was deducted from the respondent’s 2007 income on account of his housing obligations.

[44] I agree with the applicant that the respondent’s disclosure, during his October 2007 questioning, of his London housing arrangements with RBC was less than complete. However, the issue was revisited in some detail during the preparation of the 2008 Brent Report and the negotiation of the settlement a year later. In the course of those negotiations, the respondent gave a more detailed, and more accurate, description of what the arrangements were.

[45] The respondent’s summary of income for 2007, disclosed in early to mid-2008, shows that he received a bonus in connection with his post-August 2007 work in the U.K. of £183,422, of which £16,150 was “sacrificed to housing costs.”

[46] The information provided by the respondent and his counsel was, in my view, accurate. RBC did not pay for “luxury” accommodation. RBC paid some of the rent for his home directly, and also deducted additional amounts for any housing costs over the RBC allowance from the respondent’s pay. The respondent’s annual bonus was reduced to reflect his contribution to this overall cost. This fact is disclosed in the respondent’s income summary and discussed, in detail, in the 2008 Brent Report. Ms. Brent specifically flagged in that report that “further information is required.” There was follow up.

[47] The applicant said repeatedly in her evidence that she thought the £16,150 was fixed for the duration of the respondent’s 2007 lease. What she meant by this is somewhat unclear because, in cross-examination, the applicant insisted that she did not expect this or any other deduction to be repeated in 2008 or 2009. The applicant was, however, unable to offer any evidence as to the basis for her impression or assumption that the £16,150 deduction from income in 2007 was “fixed” and/or not to be repeated. There was no evidence of any communication from the respondent or his counsel which could reasonably be said to lead to that inference.

[48] In my view, item #2 in Olah J.’s list of factors governs this case - “whether the party seeking to set aside on this basis knew the facts were different than originally stated but decided not to inquire further about details, or neglected to pursue full legal disclosure.”

[49] Here, the applicant and her counsel knew that some of the respondent’s rent was paid directly by RBC and that some was deducted from his pay. They also knew that, in respect of the short period in 2007 when the respondent started living in the U.K., the respondent’s U.K. bonus of £183,422 was reduced by £16,150 on account of his housing costs. The applicant’s valuator flagged this issue for follow-up and follow-up was pursued. In addition, the respondent at one point during the negotiations sought a cap on the amount of any allowable deduction. The respondent was unwilling to agree to one, however, a position that was ultimately accepted by the applicant.

[50] In the end, the applicant signed off on the language of the 2008 consent Order (which also, by its terms, specifically contemplates deductions from the respondent’s income of amounts the respondent’s employer pays or deducts from his pay for his housing while working in the U.K.). She did so without knowing precisely how much this deduction was going to be in 2008 or 2009 (although arguably it could be deduced from the 2007 income summary). This was not, in my opinion, the result of concealment or misrepresentation by the respondent. A few simple questions would have resulted in disclosure of the necessary information: ‘what is the amount of the lease, how much is RBC paying, how much are you paying?’ There were many issues in dispute between the parties in the fall of 2008. What happened appears to reflect the fact that more important issues than this one occupied the parties’ attention at the time.

[51] In these circumstances, given the language of the 2008 consent Order, the risk that deductions from income for U.K. housing costs might turn out to be more than the applicant assumed, reasonably and appropriately falls on the applicant.

[52] I decline, therefore, to set aside or vary the language of para. 4 of the 2008 consent Order of Horkins J. on the basis of concealment or misrepresentation.

Is the 2008 Order Internally Inconsistent?

[53] The applicant says that para. 7 of the 2008 Order requires the use of the “methodology” in the 2008 Brent Report. The 2008 Brent Report does not deduct from the respondent’s 2007 income the £16,150 taken off his bonus for housing in 2007. The applicant argues, therefore, that the Order is internally contradictory or ambiguous and that the requirements of para. 7 should prevail over the requirements of para. 4, which provides that the respondent’s income will not include amounts the employer “pays or deducts from the respondent’s pay” for his housing while in the U.K.

[54] It is a basic tenant of contractual interpretation that documents are to be read as a harmonious whole. The court should strive, without doing violence to the language agreed upon by the parties, to give effect to all the terms the parties have agreed upon and to avoid contradictions or absurdities.

[55] In this case, the interpretation of para. 7 advanced by the applicant (that there can be no deduction from income of any housing costs) would completely gut the words “or deducts from his pay” in para. 4 of the 2008 Order of all meaning.

[56] In my view, the interpretive conundrum raised by the applicant can be easily resolved by the interpretive principle that the ‘specific excludes the general.’

[57] Paras. 4 and 7 can, and should, be read harmoniously to mean that in general, the methodology of the 2008 Brent Report shall be followed except to the extent the 2008 Order specifically provides otherwise.

[58] In the alternative, I find that the deductibility of housing costs per se, is not part of the “methodology” of the 2008 Brent Report but merely an input into that methodology.

[59] Finally, the applicant conceded in argument that the basis upon which she argues that para. 7 of the 2008 Order should prevail over para. 4 is, in effect, the alleged concealment and misrepresentation by the respondent. As I have found that the respondent is not guilty of concealment or misrepresentation, there is no basis to prefer para. 7 over para. 4 of the 2008 Order.

Deductibility of Wrongful Dismissal Litigation Costs

[60] The respondent’s employment with RBC was terminated in 2010/11. He instituted a wrongful dismissal action which is still outstanding. Apparently some interim payments have been made and some amount of the respondent’s legal fees have, for tax purposes at least, been deducted from that income.

[61] The issue of support obligations for 2011, 2012 and beyond is not before the court on this motion. The wrongful dismissal action is still in process. The amount and nature of any payments from RBC is unknown. The amount and nature of the respondent’s legal fees in connection with that law suit is also unknown.

[62] While I appreciate the desire to eliminate uncertainty and sources of future conflict wherever possible, I do not think a ruling now, “in the air” so to speak, with no evidence and an uncertain future and outcome, would be fair or appropriate.

[63] For this reason, I decline to make any pronouncement on the suitability or appropriateness of, or methodology for, the deduction of the respondent’s legal fees associated with his wrongful dismissal claim if and when he receives payment by way of judgment or settlement. That is an issue that should only be decided with full knowledge of the facts, including the nature and amount of any payments and the nature and amount of any legal fees incurred to obtain those payments.

Costs

[64] In the event that the parties are not able to agree on costs, brief written submissions, not to exceed two typed double-spaced pages, may be filed together with a Bill of Costs and any supporting material. Any party seeking costs shall do so by filing their submission within two weeks of the release of these Reasons. Any party responding to a request for costs shall do so within a further two weeks

Penny J.

Date: December 19, 2012

[^1]: Figures vary slightly in the report due to rounding.