CITATION: Bridge v. Laurence, 2017 ONSC 7417 COURT FILE NO.: FC-14-787 DATE: 2017/12/12
COURT OF ONTARIO
SUPERIOR COURT OF JUSTICE, FAMILY COURT
RE: Karen Bridge, Applicant AND: Richard Laurence, Respondent
BEFORE: Mr. Justice Calum MacLeod
COUNSEL: Andrea R. Camacho, for the Applicant Edward C. Conway, for the Respondent
HEARD: October 26th, 2017
ENDORSEMENT
[1] This is a motion for interim spousal support. It takes place against a most peculiar factual and procedural background.[^1] It is peculiar because the respondent wishes to pay the applicant significant amounts of money but only if she agrees to structure their separation in the way he insists. Rather than agree, the parties have turned to the court and rather than collaborating to ensure efficient and cost effective litigation, they have created litigation gridlock.
[2] Despite the efforts of the court to case manage this proceeding, the respondent seems determined to file material without limit and to make ongoing requests for more and more detailed disclosure about issues which ultimately may not matter. At the same time he has stubbornly resisted making full and complete disclosure himself.
[3] For her part, the respondent has refused payment of $1,000,000.00 and moves for temporary spousal support instead. Concerned that she not prejudice her position in the litigation, she has returned these funds and has incurred legal fees already exceeding $200,000.00. The parties seem determined to pay their lawyers to fight about almost every aspect of issues that should have been resolvable well before now.[^2]
[4] This motion is concerned solely with interim spousal support. For the reasons that follow I am ordering interim support but I propose to order it paid by lump sum. This is not the precise relief requested by either of the parties and for that reason I will entertain further submissions if requested.
Background
[5] The parties were married on August 1st, 1981 and separated on October 10th, 2011 although they continued to live under the same roof until January of 2012. They were married for 30 years and raised three children together. The children are now adults. The applicant is now 67 years of age and the respondent is 62.
[6] The applicant had qualified as a lawyer and had been called to the bar when the parties started a family. Thereafter she was out of the work force for several years and ultimately decided to retrain as a teacher. She qualified and obtained employment in that field. From 2004 until 2014 she worked as a full time teacher for the Ottawa Carleton District School Board and she is now retired.
[7] In the early years of the marriage, the respondent worked for Bell Canada but he left Bell to found Trillys Systems, Inc. in 1993. Trillys became a successful computer software company which amongst other things developed applications of use to law enforcement agencies. According to the affidavit evidence, it is also engaged in top secret work which requires a high degree of security clearance and a high degree of discretion. The corporation currently has over $3.5 million in retained earnings. While the parties were together, it generated significant family income which in the two years pre-separation approached $1,000,000.00 per year.
[8] At the time of separation, the parties divided bank accounts and investment accounts. Apparently each received close to $950,000.00. At that time the applicant held 18% of the shares of Trillys and the respondent held 82%. The respondent wished to divide the shares so that the applicant would own 49.9% of the shares and he would have 50.1% of the shares. By providing the applicant with approximately 50% of the corporation, he hoped to avoid the need for spousal support.
[9] The respondent takes the position that the parties actually concluded an agreement whereby the applicant would accept a division of the shares and would waive spousal support. There is no doubt the parties had discussed this possibility and were exploring it with the assistance of a mediator.[^3] On February 29th, 2012 the respondent emailed the mediator setting out this idea and 13 bullet points he wished included in the agreement. On March 1st, 2012 the applicant emailed the mediator confirming that "what Richard set out was what we generally agreed to". Ultimately, however, the applicant advised the mediator that upon reviewing issues raised by the mediator and consulting with a lawyer she was not prepared to proceed with this proposal. This has become the major issue in the litigation.
[10] The respondent argues there was an oral agreement evidenced in writing. He relies upon there having been offer and acceptance and upon the email exchanges which he will argue show agreement on the essential terms of the contract. In other words he will rely on ordinary principles of contract formation to argue that there was a binding agreement to take 49.9% of the corporation in lieu of spousal support.
[11] The applicant argues that there was never a concluded agreement. At best she says there was an "agreement to agree" if all other terms of a separation agreement were concluded. She argues that the negotiation referred to in the e-mails formed part of a mediation in which the parties were exploring options and there were many aspects of a separation agreement that were never finalized. It is her position that if they had reached an agreement it would have taken the form of a properly documented and comprehensive written separation agreement. She relies upon s. 55 (1) of the Family Law Act which imposes formal requirements on enforceable domestic contracts in Ontario.
[12] Acting on his view that the parties had reached a binding agreement from which the applicant was wrongfully attempting to resile, the respondent unilaterally caused the share register of the corporation to be amended to show the applicant as owning 49.9% of the shares. The respondent then caused the corporation to declare a $2 million dividend and he sent the applicant a cheque for $1,000,000.00.
[13] The applicant refused to cash this cheque because she believes she is only the owner of 18% of the shares and did not want to be taken as agreeing she had surrendered her claims for spousal support nor to prejudice her right to make other property claims. Under this theory, the corporation could declare a dividend, but she would only be entitled to $360,000.00 of the $2 million dividend. The upshot of this was she returned the cheque and since that time the corporation has continued to hold the $2 million in its retained earnings. The respondent has refused to pay her only $360,000.00 of the declared dividend and has not cashed his own dividend cheque for $1,000,000.00.
[14] The nature of this stalemate is apparent. If the trial judge finds that there was an agreement and holds that the agreement is enforceable the applicant will be entitled to $1,000,000.00 of the dividend that was declared and to 49.9% of any future dividends. She will not be entitled to spousal support but she will still have an equalization claim based on the value on the date of separation and she will be entitled to 49.9% of the value of the corporation if and when it is sold or wound up.
[15] On the other hand if the applicant is successful at trial, such that there was no enforceable agreement, she would be entitled to only $360,000.00 of the declared dividend and to 18% of any future dividends. She would still have an equalization claim and be left with part ownership of the corporation. She would be entitled to 18% of the value of the corporation when it is sold or wound up. Under these circumstances she will be able to assert her claim for spousal support at least for so long as long as the respondent has greater earning capacity than she does.
[16] This case cries out for resolution through careful negotiation and tax planning. There is no reason the parties cannot agree to provide income to the applicant through the medium of a commercial vehicle such as a corporation if it is mutually advantageous to do so.[^4] This does not mean that the respondent can force this solution on the applicant. It simply underscores the benefits of a negotiated resolution to the dispute. The parties can achieve a far more nuanced and flexible solution through negotiation than it may be possible for a court to impose. They could certainly do so more efficiently. They have been litigating for almost 4 years at this point and this motion was originally launched 2 years ago.
The Motion for Interim Support
[17] The original motion consisted of this motion, a motion for financial disclosure in relation to the valuation of Trillys, several motions to strike affidavits or otherwise reduce the volume of material and related relief. The court ordered that the motions be broken up into manageable pieces and attempted to reduce the volume of material to be considered on each motion.[^5]
[18] The motion before me is simply the motion for interim spousal support. Originally this was to have been heard by Justice Mackinnon who is the case management judge but for various reasons it could not proceed. I was assigned to hear the motion in her place. I had some earlier involvement with the proceeding when I was a master.
[19] An interim spousal support order is resisted by the respondent for four primary reasons. Firstly, for the reasons outlined above, the respondent argues that entitlement to spousal support cannot be established. Secondly, the respondent argues that the applicant cannot establish need since she can adequately support herself on her own income and is not going into debt. Thirdly, he argues that to the extent there is demonstrable need, it is driven by legal fees and so the motion is a disguised attempt to force the respondent to fund the applicant's litigation. Finally, the respondent contends that his income has dropped at least temporarily and it would be unjust to require him to liquidate assets of the corporation to generate more income for support purposes. These arguments are misguided insofar as none of them are a complete bar to an interim support order.
Entitlement to Spousal Support
[20] With respect to the alleged agreement, it is not the case that an agreement to waive spousal support is a bar to making such a claim. The Divorce Act includes the existence of an agreement as only one of the factors to be taken into account by the court. [^6] The issue of whether there was or was not a binding agreement is not to be conclusively determined on this motion but it is necessary to examine the arguments in context to determine if the wife has at least a prima facie entitlement.
[21] In the Miglin decision, the Supreme Court has enunciated a two part test. Considerable weight should be afforded to "unimpeachably negotiated agreements that represent the intentions and expectations of the parties and that substantially comply with the objectives of the Divorce Act." The question of whether to give weight to an agreement will not primarily be determined by contractual principles applicable to commercial agreements but by examining the circumstances in which it was negotiated and the substantive content of the agreement against the objectives of the Divorce Act. While it is true that two of those objectives are finality and negotiated resolution, the threshold for discounting the agreement is much lower than "unconscionablity" necessary to vitiate a commercial contract.
[22] In assessing the context, the court will put considerable weight on factors such as "oppression, pressure or other vulnerabilities" and the conditions under which it was negotiated including "duration and whether there was professional assistance". Assuming there was an agreement and it is one that should be recognized as having weight at the point of formation, the court must then go on to consider whether it should continue to have such weight at the point of adjudication. [^7]
[23] The point is simply this. Even if the respondent is correct that the applicant did actually agree to accept shares in the company for a waiver of spousal support, it is far from clear that such a partial and hasty agreement (particularly one that does not meet the requirements for a domestic contract) would be given weight under the Miglin analysis. The focus on whether or not there was an agreement may therefore be misplaced. Assuming without deciding that a discussion at a restaurant and an e-mail to the mediator confirming she was agreeing to the proposal, was intended as binding offer and acceptance, and in my view, I do not believe this agreement would reach the Miglin threshold.
[24] At paragraphs 16 – 20 of the preliminary decision leading up to this motion, Justice Mackinnon reviewed the jurisprudence in relation to interim spousal support. She defined the threshold question as whether the applicant has a prima facie claim for spousal support. That included the question of whether the applicant appeared able to show that there either was no waiver or the waiver of support would not be enforced. She placed restrictions on the extent to which the respondent could file evidence on this point because this motion is not the venue for "a detailed examination of the merits of the case". In making this ruling she was alert, as am I, to the possibility that if interim support is ordered, it may turn out after the trial that the applicant was not entitled to such support.[^8] This goes to the prejudice inherent in such an order and I will return to that point below.
[25] It is the applicant's evidence that she did not intend to be bound until a complete agreement was negotiated and she had obtained legal advice. She deposes that the proposals they were discussing were in the context of a mediation in which she understood various options might be explored. This establishes a reasonable likelihood that there is no agreement or no agreement that should be given weight under the Divorce Act.
[26] But for his argument that there is an enforceable agreement (and the implication that no support is needed if the applicant is a half owner of the company) there can be no doubt there is a prima facie claim for spousal support on both a compensatory and needs based analysis. This was a 30 year marriage which produced two children. The applicant left the workforce for a period of time before training for a second career. While she enjoyed a reasonable income of her own as a teacher, the husband's income through Trillys was the primary family income. His earning capacity is many times hers.
The Question of Need
[27] The respondent's counsel went to great lengths to try to demonstrate that the applicant was hiding or moving her assets and income and purposely trying to make her financial situation look worse than it is. He alleged she had "given money away". The latter referred to a time when the applicant inherited $400,000.00 and gave $150,000.00 to each of the two children. The attempt at a forensic audit is also misplaced. The applicant is not suggesting she is living in poverty.
[28] Need is relative. Interim spousal support is intended to preserve the accustomed lifestyle of the support recipient pending the trial.[^9] Both parties live frugally despite their wealth. As a consequence, the evidence does not show that the applicant has accumulated significant debt since separation. Nor has she been required to significantly liquidate her assets. On the other hand, during the same period, the respondent has continued to accumulate wealth.
[29] The applicant's counsel argues that while the lifestyle of the parties was a simple one, the pre-separation lifestyle involved significant saving and investing. She argues that it is unfair to permit the respondent to keep all of the income from the business and to expect the applicant to live only on her pension and her investment income. The objective of the Divorce Act is to share as equitably as possible the economic advantages and disadvantages of the marriage.[^10]
[30] The applicant has an annual income of approximately $111,000.00 but it is not necessary for her to be living in poverty to demonstrate "need" when measured against the pre-separation state of affairs. The fact that she can cover her basic needs and is not enduring objective hardship without support is not a bar to a support order.[^11]
Legal Fees
[31] The respondent argues that legal expenses are not a proper part of a needs based analysis. He argues that the applicant should not be able to claim spousal support by putting forth a budget with monthly legal fees. Interim payment of legal fees, he argues, should only be ordered under Rule 24 (12).
[32] Most of the cases cited by the respondent for the proposition that legal fees cannot be considered as part of a budget in a "needs" analysis do not stand for that proposition or they are taken out of context. In Mignella v. Frederico, the reference was to another case in which the court had refused to allow a husband to deduct a contingent liability for future legal fees in a personal injury action from his net family property.[^12] In Orsini v. Orsini the issue was whether the wife could claim spousal support for legal fees incurred because she had used self help to remove cash from the jointly owned company which resulted in her being fired and being sued by the company.[^13] In R. v. R., the comment by the court relating to inclusion of legal fees in the wife's budget was simply to note that it was a "non recurring expense".[^14] In Burmi v. Dhiman, entitlement to support could not be established and the legal fees included in the budget included fees for an immigration matter.[^15]
[33] In Ludmer v. Ludmer[^16] Mesbur J. declined to make an order for interim costs pursuant to Rule 24 (12) of the family law rules. In that case there had been two previous motions which had been unsuccessful. There were two significant considerations in dismissing the third request. The first was the fact that the wife's legal position was open to very significant doubt and the second was that the evidence was insufficient to show that the husband had the ability to pay. In general access to Rule 24 (12) is available where the requested interim disbursements are necessary to pursue the claim, where the claim appears to have merit, where the moving party is unable to fund the costs while the responding party is and it is necessary to provide fairness by "levelling the playing field".[^17]
[34] Rule 24 (12) is a specific rule dealing with interim disbursements. It does not follow that the necessity of incurring legal fees can only be addressed under that rule. For example, an interim order for an advance payment on equalization may be justified in part by the need to balance the resources of the parties during the litigation.[^18] By contrast an award of interim spousal support may avoid the need to bring a motion under Rule 24 (12).[^19]
[35] It is unfair for the parties to engage in what now appears to be "scorched earth" litigation without in some measure levelling the playing field. The respondent may or may not be running his legal fees through the corporation but he has complete control over the corporation and access to its considerable resources. The applicant on the other hand is required to liquidate assets to pay her legal fees.
[36] I do not agree that in the circumstances of this case, the applicant's needs do not include the cost of the litigation. As legal fees are being regularly incurred, they form a legitimate portion of her budget.
Reduced Income
[37] The parties hired experts to calculate the income of the respondent. Both parties are relying only upon the ordinary business income of the corporation and its ability to pay a salary to the respondent in calculating his income. They are not considering the admitted ability of the corporation to pay out income to its shareholders and officers by liquidating its retained earnings. The applicant has not included investment income of the corporation because she expects to realize the value of the investments through equalization or the value of her shares. She did not want to be accused of double dipping.
[38] The experts disagree on the available income but to make matters worse, the respondent asserts that his 2017 income will be below the income calculated by his own expert for previous years. It is the respondent's evidence that his ability to pay support is curtailed because his income has temporarily been reduced. He has apparently had hip surgery and has taken time off work. He attests that he has to renew his security clearance. He has increased the level of responsibility and salary paid to another employee who is filling in for him during this calendar year. As a consequence, his salary has been reduced. He contends that for 2017 his income will be less than the income of the applicant.
[39] There are several responses to this. He controls the income of the corporation by how much work it takes on. He controls his own income. The court could be highly sceptical of the coincidental downturn in his income and could impute income consistent with previous years. Secondly the court could use an average in calculating income. There is another answer. The corporation has declared a $2 million dividend which is unpaid. On his own evidence, he is entitled to $1,000,000.00 in dividend income. If the applicant's position that she is only the owner of 18% of the shares is correct then his share of the dividend will be over $1.6 million.
[40] There is no reason why the corporation cannot release the $360,000.00 undisputed dividend to the applicant and the $1,000,000.00 undisputed dividend to the respondent and retain the $640,000.00 disputed dividend in escrow pending the resolution of this matter. If that is done then the applicant's needs are reduced and the respondent has more than sufficient income this year to pay either periodic or lump sum interim support.
Lump Sum Support
[41] The court has wide discretion to order lump sum support on an interim or final basis.[^20] One of the considerations for such an order would be a situation such as this where on the respondent's evidence he has the ability to pay lump sum support but is currently restricted in his ability to pay periodic support. Another reason to order support paid in this manner is the history of the litigation in which even procedural steps have been bitterly fought.
[42] There is a further benefit to a lump sum award. It is easily corrected. If it ultimately turns out at trial that support was not justified, the applicant will have been entitled to the dividend income she did not receive. She may also be entitled to equalization. A payment for lump sum spousal support to which she is ultimately not entitled may be readily converted by the trial judge to a credit against equalization or other funds (such as the $640,000.00 dividend to which she will have been entitled in the no support scenario). Finally, there is no reason to impute income or average income for the current fiscal year in this scenario and it is unnecessary to consider the applicant's demand to order security for the support.
[43] The applicant is seeking $12,544.00 per month in interim spousal support based on imputed income or on her expert's calculation of income and applying the SSAG. She seeks a total of $350,891.00 in retroactive support calculated at different rates for each year since May 1, 2014 when the motion was launched. I would not necessarily have ordered the full amount requested on an interim basis but of course any award that was made would have been without prejudice to the determination of liability or quantum at the eventual trial.
[44] Retroactive periodic support and ongoing periodic support would be taxable and deductible. A lump sum award is neither. Retroactive periodic spousal support requires the parties to recalculate their income tax for each of the applicable years.
[45] In my view, a lump sum award of $300,000.00 is at least as beneficial to the applicant as a periodic award and satisfies the concern of the respondent that he not be charged with a significant monthly cost for spousal support in a year when his income is reduced.
[46] I propose to order the respondent to distribute the $2,000,000.00 dividend in the manner proposed above. In addition I propose to order the respondent to pay interim lump sum spousal support in the amount of $300,000.00.
Jurisdiction and Procedure
[47] I am confident I have the jurisdiction to make this order and I am confident that in the circumstances it is the correct disposition. Moreover, neither party is prejudiced by it because under one theory or another the applicant will be entitled to additional funds which will exceed the amount of the lump sum award.
[48] On the other hand, neither party requested this precise order. The court ought not on its own motion grant relief different from what was asked without permitting the parties an opportunity to make submissions.[^21] Accordingly I will delay making the proposed order for a further month. This will permit the parties to make further submissions or to negotiate the form of a consent order should they wish to do so.
Conclusion
[49] In conclusion, for the reasons set out above the parties shall have until January 26th, 2018 to advise if either party wishes to make further submissions in respect of relief not specifically contemplated in the notice of motion.
[50] In the absence of a request for further submissions, an order will be made effective January 29th, 2018 as follows:
a. The respondent is to cause the corporation to issue a $360,000.00 dividend to the applicant out of the dividend which the corporation has declared as this is the minimum amount to which she is entitled.
b. The respondent may cause the corporation to issue a $1,000,000.00 dividend to the respondent out of the dividend which the corporation has declared as this is the minimum amount to which he is entitled.
c. The respondent shall cause the corporation to hold the remaining $640,000.00 declared dividend in escrow until entitlement is determined at trial or by agreement.
d. The respondent shall pay the applicant the sum of $300,000.00 as lump sum interim spousal support within 90 days.
[51] I will entertain written submissions of no more than 3 pages each plus a costs outline in respect of costs of this motion. The applicant's submissions shall be due within 15 days of the order coming into effect and the respondent's submissions shall be due 15 days thereafter.
[52] Counsel are to consider how they may best streamline the rest of the litigation and how issues for resolution or trial can be focused.
[53] I referred at the beginning of these reasons to the duties of the court, the parties and counsel under the Family Law Rules. I would just add that in complex commercial cases, the parties are expected to practice the "three Cs" of "co-operation, communication and common sense" (see para. 5, Commercial List Practice Direction). No less should be required of parties and counsel in Family Law Cases.
Mr. Justice Calum MacLeod
Released: December 12, 2017
CITATION: Bridge v. Laurence, 2017 ONSC 7417 COURT FILE NO.: FC-14-787 DATE: 2017/12/12
ONTARIO
SUPERIOR COURT OF JUSTICE
RE: Karen Bridge, Applicant AND: Richard Laurence, Respondent
BEFORE: Mr. Justice Calum MacLeod
COUNSEL: Andrea R. Camacho, for the Applicant Edward C. Conway, for the Respondent
endorsement
Mr. Justice Calum MacLeod
Released: December 12, 2017
[^1]: See 2016 ONSC 5075 and 2016 ONSC 7324 [^2]: Adjudication may well be necessary when parties cannot reach agreement on the merits but they and their counsel have a duty to collaborate by focusing the issues and collaborating to streamline procedures. See Rule 2 (4) of the Family Law Rules. [^3]: It should be noted that a ruling by Mackinnon, J. permits the parties to refer to certain of the documents exchanged in mediation for the limited purpose of proving whether or not any agreement was reached. [^4]: See Miglin v. Miglin, 2003 SCC 24 @ para. 96 [^5]: See inter alia the previous decisions referred to at note 1 [^6]: See Moge v. Moge 1992 25 (SCC), [1992] 3 SCR 813 [^7]: Miglin v. Miglin, supra @ 3, see headnote and paras 80 - 91 [^8]: 2016 ONSC 5075 [^9]: Damaschin-Zamfirescu v. Damaschin-Zamfirescu, 2012 ONSC 6689 [^10]: Moge v. Moge, supra [^11]: See Knowles v. Lindstrom, 2015 ONSC 1408 [^12]: 2012 ONSC 5696 (SCJ) [^13]: 2016 ONSC 3332 (SCJ) [^14]: (2000) 2000 22425 (ON SC), 10 RFL (5th) 88 (Ontario SCJ) [^15]: (2001) 2001 28206 (ON SC), 18 RFL (5th) 9 (Ontario SCJ) [^16]: 2012 ONSC 4478 [^17]: Stuart v. Stuart, (2001) 2001 28261 (ON SC), 24 RFL (5th) 188 (Ontario SCJ) @ paras. 9 – 14, McCain v. Melanson, 2017 ONSC 916 (SCJ) [^18]: Thyagarajah v. Paramsothy, 2011 ONSC 7368 (SCJ) @ para. 123 [^19]: See Lakhani v. Lakhani, (2003) 2003 2161 (ON SC), 43 RFL (5th) 125 (Ontario SCJ) [^20]: See s. 15.2 of the Divorce Act and see Davis v. Crawford, 2011 ONCA 294 [^21]: See Zahran v. El-Ebadi, 2010 ONCA 267