ONTARIO
SUPERIOR COURT OF JUSTICE
COURT FILE NO.: 12-FA-18111
DATE: 20131029
B E T W E E N:
H. S.
Plaintiff
- and -
P. S.
Defendant
Daniel Melamed and Lindsay Mills, for the Father
Herschel Fogelman and Oren Weinberg, for the Mother
HEARD: October 15 2013
On appeal from the decision of Justice Katarynych of the Ontario Court of Justice dated May 17, 2012
C. HORKINS J.
Introduction
[1] The parties are former spouses. They have three children who are now 18, 17 and 13 years of age. The parties separated on January 31, 2003 and were divorced on June 15, 2004.
[2] On January 18, 2005, the parties entered into a Separation Agreement (“Agreement”) providing that neither would pay Guideline child support to the other and that they would equally share the cost of the children's considerable special expenses. These expenses are primarily private school and camp fees.
[3] When the Agreement was signed, the father was in the process of establishing a new company and had minimal income. He paid his share of the special expense payments through recourse to his capital until 2008 when he defaulted on his obligation. He advised the mother that he was no longer able to meet his obligations under the Agreement.
[4] The mother sought enforcement of the Agreement through FRO. She was required to bring an application in the Ontario Court of Justice to quantify the father’s arrears because the Agreement referred to each parent’s 50% obligation and not a specific amount.
[5] The father brought a motion for a variation of his obligation under the Agreement due to a material change in circumstances. He described the material change as having “lost the ability to liquidate capital to support his children”. The father asked the court to terminate the child support owing under the Agreement as of November 1, 2008 and replace it with a child support order aligned with the Child Support Guidelines from November 1, 2008 forward.
[6] Both motions were heard during a three day trial before Justice Katarynych of the Ontario Court of Justice in April 2012. The trial judge quantified the father’s arrears and dismissed the father’s motion to vary his child support obligation under the Agreement. The father’s motion failed because he did not prove that there was a material change in circumstances.
[7] There are two appeals before this court. The father appeals the dismissal of his motion to vary the Agreement and the mother appeals the decision to award her no costs on the father’s motion.
The Grounds of Appeal
[8] At the outset of the appeal, counsel confirmed that the father’s grounds of appeal are limited to those set out below:
(1) The trial judge erred in failing to find a material change in circumstances despite a significant reduction in the father’s means and an increase in the mother’s means.
(2) The trial judge erred in making an order requiring the father to pay an amount he could not possibly pay, without imputing income to him.
(3) The trial judge erred by failing to take into account the limitations on the right of parties to contract out of child support under the Guidelines, and the related objectives of the Guidelines.
(4) The trial judge erred by failing to find that the father is owed retroactive child support.
(5) The trial judge erred by failing to find that the father should not be required to fund his child support obligations from his capital.
Standard of review
[9] The parties agree that the standard of review is as set out below.
[10] As stated in Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235 at para. 101 “the issues that confront a trial court fall generally into three categories: questions of law, questions of fact, and questions of mixed law and fact. Put briefly, questions of law are questions about what the correct legal test is; questions of fact are questions about what actually took place between the parties; and questions of mixed law and fact are questions about whether the facts satisfy the legal tests (Southam, supra, at para. 35).” Further at para. 102 the court stated that the “highest degree of deference is accorded to the trial judge’s findings of fact”. Once facts are established, the question of whether such facts satisfy the legal test is a mixed question of fact and law and is generally reviewable on a standard of correctness.
[11] The parties agree that this appeal does not involve an error of law. The trial judge correctly stated the law concerning the variation of a support order/agreement as set out in Willick v. Willick, 1994 28 (SCC), [1994] 3 S.C.R. 670 at para. 21:
In deciding whether the conditions for variation exist, it is common ground that the change must be a material change of circumstances. This means a change, such that, if known at the time, would likely have resulted in different terms. The corollary to this is that if the matter which is relied on as constituting a change was known at the relevant time it cannot be relied on as the basis for variation.
[12] It is also agreed that on an appeal concerning child support, Hickey v. Hickey, 1999 691 (SCC), [1999] S.C.J. No. 9 at para.12 directs that “significant deference” must be given to the trial judge as follows:
12 There are strong reasons for the significant deference that must be given to trial judges in relation to support orders. This standard of appellate review recognizes that the discretion involved in making a support order is best exercised by the judge who has heard the parties directly. It avoids giving parties an incentive to appeal judgments and incur added expenses in the hope that the appeal court will have a different appreciation of the relevant factors and evidence. This approach promotes finality in family law litigation and recognizes the importance of the appreciation of the facts by the trial judge. Though an appeal court must intervene when there is a material error, a serious misapprehension of the evidence, or an error in law, it is not entitled to overturn a support order simply because it would have made a different decision or balanced the factors differently.
[13] Hickey, like the matter before this court, was an appeal from a decision refusing to vary a child support order. While this case involves the refusal to vary an Agreement on child support rather than an order, there is no difference for the purpose of this appeal.
Overview of Trial Decision
[14] As noted the trial judge correctly stated that the father had to prove that there was a material change in circumstances, to justify the variation he sought to the Agreement. The key issue on this appeal is whether the trial judge erred in the application of the facts to the law. To be specific, did the facts as found support the trial judge’s finding that there was no material change in circumstances.
[15] After a three day trial, the judge released a lengthy decision setting out the facts that she found and the reasons why there was no material change in circumstances. The following is a review of the relevant facts found at trial and how the trial judge applied the facts to the law.
Before Separation
[16] The parties met, married and had their children while living in Europe. The mother was from Canada. While living in Europe, the father worked as a consultant in international business. In 1997 the family moved to Canada. Both parents returned to Canada with a solid history of productive employment and an expectation that they would continue to prosper.
[17] The father’s income after the family moved to Canada and before he signed the Agreement was as follows:
1998 - $206,000
1999 - $160,000
2000 - $254,000
2001 - $126,666
2002 - $ 75,000
2003 - $ 50,298
2004 - $ 9,260
[18] The trial judge found that the father had no solid business connections when he moved to Canada and no guarantee of employment. The judge found that he made an impressive adjustment to life in Canada. In the early years, he earned income by keeping his business “hub” alive in Europe. He regularly traveled between Canada, Europe and the United States. By the year 2000, he was able to shift 75% of his income to North American clients in the IT sector. Together with the mother’s income, they enjoyed a lifestyle that included a nanny, private schools for the children, a Toronto home and a cottage.
[19] The father’s income started to drop in 2001 when the IT sector collapsed and the father lost his North American client base. His tried to reconnect with his client base in Europe but he was unable to revive these old connections. The father then focused on Canada to generate income. He formed a company in Toronto with three shareholders. He expected that the company would be “sufficiently successful” to generate income sometime in 2004.
[20] The growth of the new company that he had started was “quite dismal”. The father’s 2003 and 2004 income was in reality nil because “he was using his own capital by way of shareholder loans to fund the expenses of his fledgling company”. In this situation, the “choice of action ought to have sounded an even more pressing alarm that he needed to put his little company into ‘hobby’ status and reserve the bulk of his energy and time to the task of finding other ways to generate income sufficient to meet his obligations”.
Separation and the Agreement
[21] In January 2003, the mother announced that she wanted a divorce. This was a blow to the father. The mother requested sole custody of the children, which the father viewed as an attempt to cast him to the periphery of the children’s lives. As a result, the father focused his attention on establishing a parenting plan that would avoid this outcome. Initially, he had the children every 6 out of 14 nights in a two week period.
[22] The parties resolved all of the issues arising from their separation in two agreements. For the purposes of trial and this appeal, the January 18, 2005 Separation Agreement is the operative document.
[23] The Agreement was jointly prepared. Both parties had independent legal advice from senior members of the family law bar.
[24] The Agreement provided as follows:
a. The parties have joint custody of the children;
b. A comprehensive Parenting Plan called a Memorandum of Understanding, was incorporated into the Agreement;
c. There was a full release of spousal support. It was not conditional on any other term. The opening language of the release simply states "Neither Peter nor Helen shall pay spousal support to the other any and all claims to same shall be forever dismissed.";
d. The issue of equalization was to be arbitrated by Mr. Bastedo;
e. The parties specifically stated that they had independent legal advice, understood the terms of the Agreement, made disclosure or satisfied themselves of disclosure issues; and
f. The solicitors signed the Agreement confirming that they had explained the Agreement to their respective client's and that their client's acknowledged their respective understanding of the Agreement.
[25] With regard to child support the specific terms of the Agreement are:
a. Neither party will pay periodic monthly child support to the other;
b. Each party will be responsible for providing for the children's needs, without contribution from the other while the children are residing with him or her from time to time;
c. Neither party is obligated to make annual financial disclosure to the other pursuant to section 21 of the Child Support Guidelines or otherwise, and each party releases the other from all claims in this respect;
d. In lieu of any child support the parties will share equally all of the major expenditures, including but not limited to, private school tuition, activity fees books camp, post-secondary educational expenses. If they cannot agree on an expense, they will have the issue arbitrated.
[26] The trial judge found that the parties “loaded a very particular ‘special arrangement’ for the ongoing financial support of their three young children”. Further it was “obvious” when they made the Agreement that all three children were “very young, and that financial support was a need for many years ahead”. She found that the parties gave “careful thought to this special arrangement”. They knew that there were other options for child support but made a particular choice.
[27] The trial judge made some additional important findings of fact relating to the Agreement. At pages 12-13 of the judgment these findings are set out:
On a close and careful read of the domestic contract, it was not the intention of these parents that his proportion of the child support responsibility be paid solely through liquidation of his capital.
That he was in an income earning slump at the time of contracting was plain. Absent a reach to capital at the time, it was obvious that his child support obligation could not be funded through his earnings alone. Both parents proceeded with their contracting, eyes wide open to that circumstance.
Both parents were also well acquainted with the nature of the major expenditures [that they would equally share].
[28] The trial judge found that “[o]n the whole of the trial evidence, it was also not a situation in which these parents went blindly forth into an arrangement that had no reasonable hope of fulfillment.” There were four reasons for this finding:
As the trial judge stated (at p. 13), “In light of the father’s history of income production, it was reasonable to believe it likely that he would rise from the slump, using his income earning skills to their full advantage”.
When the Agreement was signed the father had funds to “carry his 50% share of the child support” (at p. 14). The mother paid the father close to $1million dollars in equalization.
It was important to the father that he be viewed as a “responsible and involved father. As a “matter of common sense … parenting includes responsible attention to the financial needs of the children”.
The father was in the best position to identify what he needed to do “to keep his income within the yield to which the family had become accustomed over the years, to develop a sensible plan and to act on it.”
[29] The judge found that during their negotiations the slide in the father’s income ought to have “sounded an alarm to him that he needed to link his income earnings efforts to ventures that had a reasonable prospect of providing him over a reasonable time frame with a gradual rise to his former five and six figure income status. The problem was in plain sight”. [Emphasis in original.]
After Separation
[30] The trial judge reviewed the “slide” in the father’s income. After his low earnings in 2004, there were some very modest increases in the father’s income as follow:
2005 - $28,736
2006 - $21,456
2007 - no reported income
2008 - $21,457
2009 - $38,577
2010 - $47,000
2011 - $20,000
[31] In 2007 when no income was reported, the father cashed in his RRSPs to “make do”. The trial judge found that post separation until the default in 2008, the father was “using his capital, and most notably the equalization funds as his primary source of funds for himself, for his child support obligation and for increasingly hard-to-prop- up ventures that he hoped would be income-generating vehicles for him.” The father depleted his assets including the $1 million equalization payment and then incurred about $340,000 in debt.
[32] The trial judge found that he was the “author and the finisher of the plight that he now advances as a material change in his circumstances”.
[33] Child care responsibility for three young children restricted the father’s availability and his concentration on the task of generating income. He wanted to grow his new company from Toronto and he was limited in his ability to extend his efforts into a wider marketplace. As the trial judge stated, his child care “restricted his availability for pursuit of opportunities that would require international travel.”
[34] Over the next few years, it “became increasingly apparent” that the father’s business model was not producing enough income to meet his financial needs.
[35] The father made some effort to generate income in other ways but the evidence at trial was too vague to determine if “his resolve was sufficient for the task.” The judge found that the father did not “alter in any meaningful way his approach to his responsibility to maximize his earning capacity.” [Emphasis in original.]
[36] In 2008, the father’s search for a job resulted in an offer of employment, but as his references were being checked the company halted all hiring due to the economy. Another chance of employment arose in 2011, but it also fell apart because of the prospective employer’s financial problems. The judge found that if the company turned around there was an “employment opportunity for him there”.
[37] The trial judge was very critical of the father’s efforts to earn income. She found that his efforts “were not sufficient for the task”. He offered “himself to the marketplace ‘as is’”. There was no evidence that he tried to “re-tool his skill set to make himself attractive to a wider marketplace”. More recently in 2012, the father met with the “Investors Group” to consider an opportunity that would involve a “complete career change”. Evidence about this opportunity was vague. The judge found that the father was not “particularly enthused” about this opportunity. There is no evidence about what happened to this opportunity.
[38] At the time of trial, the father testified about a recent business venture that was in the early stage of development. It was unknown if this venture would generate any income of the father.
[39] The trial judge found that the father’s mind set about earning income “had the effect of reducing the amount of income available to him...and that he has not found the level of motivation needed to alter his way of thinking”. [Emphasis in original.] He knew that unless he did something different to generate income that he would “deplete his capital altogether”. He has been “clinging to income earning vehicles…that may have held promise in their infancy, but then waned”. His focus on business ventures that have no market value exhibited a “big dream approach” to earning income.
[40] The trial judge found that instead of “reaching within himself” and drawing on his own efforts to earn income, the father looked to others to do what was needed. The mother had to borrow money to “fill the gap that his default created for the children”. He tried to have the children “re-positioned to accommodate his need”.
[41] The father “ignored the obvious reality that [the equalization payment] was never an inexhaustible trough of funds for either him or his child support responsibility”.
[42] At trial, the father argued that he did not have a significant earning capacity at this point in his life. The trial judge rejected this position and found that it was “premature to leap to that conclusion” when “he has not made a meaningful exploration of what he himself can do to increase his marketability”. The father had fallen into a “lassitude” about his obligation to maximize his income earning capacity. With a change in his approach, the judge found that he “possesses the ability to rise”.
No Material Change in Circumstances
[43] Finally, at page 25, the trial judge concluded that the evidence did not show that there had been a “material change in circumstances”:
Choices made by a parent that are likely to undercut the integrity of a child support obligation are not the sorts of ‘material change in circumstances’ upon which a court leaps to a downward variation of the child support.
[44] The trial judge made several findings of fact to support her decision. Repeatedly, the judge found that the father’s problem was in “plain sight” when the Agreement was signed. It was an “obvious reality” that the father’s assets did not provide an “inexhaustible trough of funds for either him or his child support responsibility”. The “task at hand” when he signed the Agreement was “plainly visible”: he had to earn income to pay his share of the child support. He knew that if he did not earn sufficient income, he would be faced with the problem that has now developed.
[45] The trial judge carefully reviewed the evidence and made her findings of fact. I give her findings of fact the highest degree of deference. The trial judge applied these facts to the law and correctly concluded that a material change in circumstances had not occurred since the signing of the Agreement. The problem that the father faced when he signed the Agreement was “plainly visible” to him. As directed in Willick, this problem cannot be relied on as the basis for a variation.
[46] As a result, I dismiss the father’s first ground of appeal. The remaining grounds of appeal are also dismissed. They would only be relevant if the father had succeeded on the first ground of appeal. This is consistent with para. 20 of Willick as follows: “The approach which a court should take is 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.”
The Mother’s Appeal
[47] The mother argues that the trial judge made an error in law by failing to award her costs of the trial. She states as follows:
(i) The trial judge found that the mother's success at trial gave her the benefit of the presumption under rule 24(1) such that she was presumed to be entitled to her costs.
(ii) The trial judge also found that the mother had the benefit of Rule 18, such that she was entitled to her costs on the basis that she obtained a better result at trial than that contained in her offer.
(iii) The trial judge also found that the father's conduct at trial, while having not amounted to bad faith, was aggravating and "seed[ed] increasing bewilderment".
[48] Based on the above findings, the mother states that the trial judge should have ordered costs in her favour after a consideration of the factors set out in rule 24(11). It is argued that having failed to do so was an error in law.
[49] While there were many factors to support an award of costs in favour of the mother, the trial judge correctly stated that ultimately the issue of whether to grant a successful party costs is a discretionary matter for the judge. It was open to the judge to refuse costs and she articulated her reasons for doing so. Accordingly there was no error in law and the mother’s appeal is dismissed.
conclusion
[50] The appeals are dismissed. If the parties cannot agree on the costs of the appeals, they will agree on a timetable for exchange of brief written submissions and deliver them to the court by November 29, 2013.
C. Horkins J.
Released: October 29, 2013
COURT FILE NO.: 12-FA-18111
DATE: 20131029
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
H. S.
Plaintiff
- and -
P. S.
Defendant
REASONS FOR JUDGMENT
C. Horkins J.
Released: October 29, 2013