ONTARIO

SUPERIOR COURT OF JUSTICE

COURT FILE NO.: FC-10-2105-1 (Ottawa)

DATE: 2014/07/03

BETWEEN:

Pamela Ruth FitzGerald
Applicant

– and –

Godfrey Daw-Yong Lee
Respondent

Steven A. Fried, counsel for the Applicant

E. Jane Murray, counsel for the Respondent

HEARD: June 24, 2014

REASONS FOR JUDGMENT

LALIBERTE, J.

INTRODUCTION

[1] The Respondent brings a motion seeking a retroactive reduction in the amount of spousal support set out in Justice McLean’s final order of September 8, 2011. The motion is premised on his retirement which occurred on July 20, 2012.

[2] In opposing this motion, the Applicant raises a number of issues. While she recognizes that retirement was identified as a circumstance which could impact on the Respondent’s obligation to provide her with financial support, her view is that the retirement was voluntary, premature and that the expectation was that support was payable up to at least June 2013.

[3] Furthermore, she argues that the motion should be dismissed on the basis that the Respondent has failed to disclose updated financial information as stipulated by the Family Law Rules and is in arrears in his spousal support payments. She opines that he is not coming to Court with “clean hands”.

[4] The parties have also raised a polemic in regards to the Respondent’s actual income for 2012 and 2013.

[5] Finally, the Court is asked to issue, on consent, a final divorce order.

[6] The issues for the Court are therefore as follows:

1. Should the Court dismiss the Respondent’s motion to vary on the basis that he has failed to disclose updated financial information and/or is in arrears in paying spousal support?

2. Is there a material change in circumstances warranting a review of the Respondent’s spousal support obligations?

3. If there is a material change in circumstances, what is the proper variation?

4. What is the Respondent’s 2012 and 2013 income for the purpose of quantifying spousal support?

DISCUSSION

Dismissal of the Respondent’s Motion on the Basis of Failure to Disclose

[7] The Court’s authority to dismiss a party’s case on the basis of a failure to provide timely disclosure is set out in Family Law Rule 13(17):

“13(7) If a party does not obey an order to serve and file a financial statement or net family property statement or to give information as this rule requires, the Court may:

(a) Dismiss the party’s case

[8] Rule 13(16) allows for a motion without notice to be brought against the party not serving and filing the said materials.

[9] The Court’s jurisdiction to dismiss a party’s case on such grounds is predicated on a failure to obey a Court order compelling disclosure and not on the failure to disclose. In the absence of any order to disclose, issued by the Court in the context of a motion, the Court has no authority to dismiss the Respondent’s motion to vary.

[10] It should be noted that counsel for the Applicant declined the Court’s offer to adjourn the motion to allow time for a review of the financial information not disclosed within the timeframe provided for in the Rules.

Arrears in Spousal Support

[11] The Applicant’s position is that the motion to vary should be dismissed on the basis that he is in breach of Justice McLean’s spousal support order. In her affidavit of June 13, 2014, she argues that the arrears are approximately $128,777.00 calculated as 23 months of non-payment at $5,599.00 per month from August 2012 to June 2014.

[12] While Family Law Rule (1)(8) provides that the Court may deal with a party’s wilful failure to obey an order by dismissing the faulty party’s claim, the Court rejects this argument for the following reasons:

− There is no motion before the Court seeking such a remedy;

− The Respondent’s obligation to pay spousal support is not absolute but subject to variation and/or termination; to dismiss the Respondent’s motion to vary on the basis of non-payment alone is tantamount to asking the Court to ignore the principles set out in a “material change in circumstances” analysis;

− The reality is that if the Court comes to the conclusion that there is a basis in law for the variation sought by the Respondent then the amount of the arrears, if any, will be adjusted accordingly; this cannot be decided summarily on the basis of failure to pay.

Material Change in Circumstances

[13] Section 17 of the Divorce Act provides the statutory framework for the variation, rescission and suspension of spousal support orders made pursuant to this statute.

“17(1) A court of competent jurisdiction may make an order varying, rescinding or suspending, prospectively or retroactively,

(a) a support order or any provision thereof on application by either or both former spouses...”

[14] The basis for such a review is set out in paragraph 17(4.1):

“17(4.1) 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.”

[15] If the Court finds that there is a material change in circumstances, it may include any provision in the variation order that could have been included in the order being varied (paragraph 17(3)).

[16] Paragraph 17(7) provides the objectives to be sought by a variation order, namely:

“(a) recognize any economic advantages or disadvantages to the former spouses arising from the marriage or its breakdown;

(b) apportion between the former 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 former spouses arising from the breakdown of the marriage; and

(d) in so far as practicable, promote the economic self-sufficiency of each former spouse within a reasonable period of time.”

[17] The Supreme Court of Canada in Willick v. Willick 1994 28 (SCC), [1994] 3 S.C.R. 670 explains at paragraph 20:

“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.”

[18] At paragraph 21, the Court articulates the threshold of when the conditions for variation exist as follows:

“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.”

[19] The question whether there has been a material change of circumstances since the making of the order sought to be varied requires the court to consider the terms of the order and the circumstances of the parties at the time the order was made. (R.P. v. R.C., 2011 SCC 65, [2011] 3 S.C.R. 819 paragraph 25).

[20] As stated by the Supreme Court in R.P. v. R.C. op.cit. at paragraph 30:

“Under section 17(4.1) of the Divorce Act, the husband, as the Applicant, had the burden of establishing that there has been a material change in his circumstances since those existing at the time of the 1991 order.”

[21] If the basis for the application to vary the amount of spousal support is a decrease in income, the evidence must be sufficient to allow for a comparison between the ability to pay at the time of the impugned support order and the present ability.

[22] If the Court is satisfied that the payor has established on a balance of probabilities that there is a material change in circumstances, the Court must then decide what variation of the existing order ought to be made in light of this change. In doing so, the Court must be guided by the following principles:

− The Court must consider the material change and should limit itself to making only the variation justified by that change;

− A variation should not be seen as an appeal of the original order nor a de novo hearing;

− The Court must limit itself to making the appropriate variation and not weigh all the factors to make a fresh order unrelated to the existing one;

− The Court must consider the four objectives of spousal support enumerated in paragraph 17(7) of the Divorce Act;

− These objectives should be seen as operating in the context of a wide judicial discretion and providing for a more equitable distribution of the economic consequence of divorce between the spouses; none of these objectives has greater weight or importance than any other.

(L.M.P. v. L.S. 2011 SCC 64, [2011] 3 S.C.R. 775.)

[23] It is significant that the impugned order of Justice McLean resulted from Minutes of Settlement signed by the parties who were both represented by counsel. Paragraph 6 of the order states the following on the question of spousal support:

“6. The spousal support will be varied and/or terminated, in the event of a material change in circumstance which may include, but not be limited to, the following factors, namely:

a. The Respondent’s retirement;

b. The Applicant’s death;

c. The Respondent’s death provided he has the life insurance in place as required by the terms herein;

d. A material change of income of either party; or

e. A change in the cohabitation status of the Applicant.

[24] In addressing the issue of agreements resulting in Court orders, the Supreme Court of Canada provided the following principles in L.M.P. v. L.S. op. cit.:

“36…The threshold variation question is the same whether or not a spousal support order incorporates an agreement…

38. The agreement may address future circumstances and predetermine who will bear the risk of any changes that might occur. And it may well specifically provide that a contemplated future event will or will not amount to a material change.

39. Parties may either contemplate that a specific type of change will or will not give rise to variation. When a given change is specified in the agreement incorporated into the order as giving rise to, or not giving rise to, variation (either expressly or by necessary implication), the answer to the Willick question may well be found in the terms of the order itself. That is, the parties, through their agreement, which has already received prior judicial approval, have provided the answer to the Willick inquiry required to determine if a material change has occurred under s. 17(4.1). Even significant changes may not be material for the purpose of s. 17(4.1) if they were actually contemplated by the parties by the terms of the order at the time of the order. The degree of specificity with which the terms of the order provide for a particular change is evidence of whether the parties or court contemplated the situation raised on an application for variation, and whether the order was intended to capture the particular changed circumstances. Courts should give effect to these intentions, bearing in mind that the agreement was incorporated into a court order, and that the terms can therefore be presumed, as of that time, to have been in compliance with objectives of the Divorce Act when the order was made.”

[25] Briefly, the affidavit evidence discloses that the parties started to cohabite in September 1998. They married on March 6, 2004 and separated in January 2009. They both have children from prior marriages but there are no children of the marriage.

[26] The Applicant is 60 years of age. She is not expecting to return to work. She was recently diagnosed with colon cancer, has not held employment for a number of years and is caring for her adult son who remains dependent by reason of medical ailments.

[27] The Respondent is not disputing the Applicant’s entitlement to spousal support on a “need” or “non-compensatory” basis. However, she specifically released the Respondent from any claims for compensatory support. This waiver was incorporated in Justice McLean’s order.

[28] The Applicant has limited income. In 2012, she earned $10,323.30 in employment income and $10,757.00 in 2013. She expects to earn $17,644.00 in 2014. There is no question that, on balance, the evidence establishes that the Applicant is in need of support.

[29] The Respondent is 63 years old. He is an engineer who was employed by IBM up to July 20, 2012 when he retired. He was on assignment in China from June 2011 to June 2012. The evidence suggests that he has been financially successful earning $354,525.00 in 2009, $427,241.00 in 2010 and $391,692.00 in 2011.

[30] The Respondent’s income for 2012 and 2013 is in dispute and will be addressed later in these reasons. In his affidavit of March 27, 2014, he states being unable to predict his income for 2014 but explains that he has negotiated contracts which generated $27,500.00 thus far.

[31] The argument brought forth by the Applicant at the hearing of this motion is that she is entitled to support in the amount of $5,599.00 per month for the period of July 2012 (which is when the Respondent stopped paying) to July 2013 (which is when the assignment in China was set to terminate). Her position can be summarized as follows:

− It was held out to her and she expected when she signed the Minutes of Settlement that she would receive this support for the 2 year period covered by the assignment letter from IBM;

− There is no evidence to establish that IBM terminated the assignment in China after one year;

− The Respondent chose to retire from IBM when he returned to Canada after one year.

[32] The Respondent’s position is that he had started to discuss retirement with IBM in 2010. He was asked to take on a final assignment for a posting in China. The term was for up to two years with a review after one year. His evidence is that this was discussed with the Applicant. He states that the company terminated his assignment after one year for financial reasons. He then retired from IBM after his return to Canada. He argues that this was reflected in the Minutes of Settlement.

[33] Having considered all of the circumstances, the Court is of the view that the Respondent’s retirement from IBM amounts to a material change in circumstances which had been agreed on by the parties in the Minutes of Settlement and reflected in Justice McLean’s final order. This conclusion is based on the following considerations:

− The preamble to the Minutes provides that the Respondent has accepted a position in China, “…where he is expected to work in China for up to two (2) years…”, the use of the words “up to” is indicative of an “outer limit” or a “boundary in time”; it does not suggest a minimum period;

− The assignment letter provides that the duration is at IBM’s discretion; page 3 states the following “…The duration of your assignment is based on present business requirements and is subject to change at the discretion of IBM.”

− Exhibit “A” to the Respondent’s affidavit sworn on March 27, 2014, is a letter from IBM confirming the following “…While the terms of the assignment provided for an engagement of up to two years, the decision was made to end the assignment after one year”;

− The preamble of the Minutes refers to the Respondent’s retirement upon his return to Canada; it states “…he is expected to work in China for up to two (2) years after which time he intends to retire”;

− As already noted, the final order identifies the Respondent’s “retirement and “a material change of income of either party” as a material change in circumstances as factors for variation and/or termination of spousal support.

− The evidence before the Court is that there has been a significant reduction in the Respondent’s income.

[34] The next step in the analysis requires the Court to identify the appropriate variation in light of the Respondent’s retirement and consequent reduction in income.

[35] There is no question that the Applicant is entitled to spousal support based on need. In fact, the Respondent is not disputing entitlement based on “non-compensatory” considerations. The issue revolves around the Respondent’s means to pay.

[36] The question of how much the Respondent earned in 2012 is somewhat confusing. In a report prepared by Ernst & Young, Chartered Accountants, who were responsible for preparing the Respondent’s income tax return while in China, a distinction is made between “actual” and “definitive hypothetical” income for 2012. The determination is further complicated by the fact that the Minutes of Settlement provide that “allowances received by the Husband from his posting to China are to be excluded as these are to cover extra expenses he will incur as a result of the posting”. It also excluded “all investment income”.

[37] Ernst & Young’s report explains the “Definitive Hypothetical” as follows:

“The “Definitive Hypothetical” column below is based on the tax information you provided for the preparation of your tax returns. All assignment related items are removed for purposes of this calculation in order to determine your 2012 tax obligations.”

[38] What the Court is left with is the evidence of the Respondent as confirmed by the said accountants’ report that his income for 2012 is $264,781.00.

[39] In regards to the Respondent’s income for 2013, the information provided by IBM in Exhibit “E” of his affidavit sworn on June 19, 2014, establishes that the amount of $269,275.99 set out in one of two T-4’s is not reflective of actual income for 2013. The explanation provided by IBM is as follows:

“The income is related to an accrued tax benefit as a result of your previous assignment….accrued by virtue of taxes that were paid on your behalf by IBM that are considered a “taxable benefit” to you… Note that although it is a taxable benefit to you, it is by no means your responsibility to pay the tax on this item.”

[40] The other T-4 confirms that the Respondent’s income for 2013 is $31,475.75.

[41] Based on the parties respective income in 2012 and 2013, the Spousal Support Advisory Guidelines would suggest the following spousal support payment by the Respondent:

2012

Applicant: $10, 323.30

Respondent: $264,781.00

Range: $3,180.72 to $4,240.96 per month

2013

Applicant: $10,757.00

Respondent: $31,475.75

Range: $258.98 to $345.31 per month

[42] Having regard to all the circumstances, the Court finds that the Respondent should have paid monthly support of $4,240.96 for 2012. The evidence indicates that he paid six months at $5,599.00 for a total of $33,594.00. The total amount he should have paid is $50,891.52 (12 X $4,240.96). The difference owing in arrears for 2012 is $17,297.52.

[43] The Respondent has paid no spousal support in 2013. The Court finds that he should have paid $345.31 per month for a total of $4,143.72 owing in arrears for 2013.

[44] Based on the parties’ 2013 income, the Court orders that spousal support for 2014 be set at $350.00 per month starting January 1, 2014. Since the Respondent has paid no spousal support, the arrears are set at $2,450.00.

[45] The Court therefore finds that the Respondent’s arrears in spousal support for 2012, 2013 and 2014 are $23,891.24.

CONCLUSION

[46] The Court makes the following final order:

1. The Respondent shall pay the Applicant the sum of $23,891.24 as arrears in spousal support for the years 2012, 2013 and 2014;

2. This amount shall bear a yearly 3% rate of interest and shall be paid on or before September 30th, 2014;

3. Starting August 1, 2014, the Respondent shall pay the Applicant monthly spousal support in the amount of $350.00;

4. On or before each and every year starting June 30th, 2015, each party shall disclose to the other a copy of their respective personal income tax return and notice of assessment and re-assessment;

5. A divorce order is granted;

6. Unless the order is withdrawn from the Director of the Family Responsibility Office, it shall be enforced by the Director and the amounts owing under the order shall be paid to the Director who shall pay them to the person to whom they are owed. The Court makes a support deduction order;

7. The parties are asked to attempt to resolve the issue of costs. If unable to agree, the parties may provide the Court with brief submissions coupled with a bill of costs on or before July 15th, 2014.

Justice Ronald M. Laliberte Jr.

Released: July 3, 2014

COURT FILE NO.: FC-10-2105-1 (Ottawa)

DATE: 2014/07/03

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

Pamela Ruth FitzGerald

Applicant

– and –

Godfrey Daw-Yong Lee

Respondent

REASONS FOR JUDGMENT

Justice Ronald M. Laliberte Jr.

Released: July 3, 2014