NAPANEE COURT FILE NO.: 83/17
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Barbara Christina Emma Brown, Applicant
AND
Stephen Leslie James Brown, Respondent
BEFORE: Mr. Justice Timothy Minnema
COUNSEL: Chloe van Wirdum, for the Applicant
Mark A.B. Frederick, for the Respondent
HEARD: October 30, 2020 by Zoom
ENDORSEMENT ON MOTION TO STAY (BY RESPONDENT)
MINNEMA, J.
1What is before me is a motion by the respondent to stay the enforcement of the Separation Agreement dated August 22, 2018, filed with the court on September 15, 2020, and to temporarily reduce his spousal support obligation.
Background Facts
2The parties were married in 1981 and separated in 2014 after 32 years. As noted, they entered into their Separation Agreement four years later, just over two years ago.
3In setting the amount of spousal support at $10,000 per month payable by the husband to the wife, the agreement did not fix the husband’s income but rather set out their individual positions of his range of earnings over the past several years, which were quite wide. The agreement expressly acknowledged that there was no agreement on the amount of income available to the husband to pay support. No SSAG was referred to. The agreement refers to the husband’s income as being his employment income together with the earnings after expenses of his solely owned and controlled company Limestone Technologies Inc.
4For the year prior to the agreement being signed, 2017, the husband’s salary from Limestone was $139,681 and the company’s pre-tax income after expenses for the fiscal year ending April 30, 2017 was $231,859, for a total of $371,540.
2018 Business Year End and Personal NOA
5For 2018 the husband’s salary from Limestone was $133,028 and the company’s earnings after expenses for the year ending April 30, 2018 was $477,347, for a total of $610,385 (or $608,256, which is the figure the parties use in their materials). The company’s gross sales were $2,197,071.
New Companies Created by the Husband
6In 2018 the husband transferred his personal cottage property into a real estate holding company. The husband indicates that the cottage property was primarily being used by Limestone for storage purposes.
7In January of 2019, about four months after the Separation Agreement, the husband hired Jason Stabback to take over the general management responsibilities of Limestone and to assume in a large measure its operational control. I will return to that event below.
8In 2019 the husband “hived off” (his own words) two of Limestone’s operations into two new corporations, thereby creating three operating companies: (1) Limestone itself, which is a company that produces lie detector testing equipment and software; (2) the new company Backster Academy Inc., which the husband describes as “a learning academy in order that personnel skilled in this sort of [lie detector] testing would be produced out of the Limestone facility to encourage trained polygraph testers to utilize our software rather than a competitor’s”; and (3) the new company PlantChoir Inc. While he says these the new companies were previously parts of Limestone’s operations, PlantChoir is distinct from the other two. In keeping with its name, it is described as a company that uses biofeedback technology to create a product that allows music to be played from different organic plants simultaneously, creating a choir effect. The website excerpt indicates “[w]ith various team members who have an interest in both plants and music, we decided to explore ways to combine our knowledge of biofeedback with our hobbies” and “[w]hat started out as a fun project for our team, turned into a real business idea.”
9The husband states that the earnings of Limestone and its related companies after the creation of the new companies and after the year end April 30, 2018, have been a disaster. He indicates that depressed sales started prior to COVID-19. His lawyer in a letter between counsel in July of this year said that the COVID pandemic further restricted the sales of Limestone, as it depends on international travel “to make sales in South America and beyond.”
2019 Business Year Ends (Operating Companies) and Personal NOA
10For 2019, the husband’s salary from Limestone was again $133,028. The 2020 Financial Statement of the three businesses (year end April 30, 2020) are before me, providing comparative numbers for 2019.
11In 2019 Limestone had a net loss of $113,745. The gross sales were $1,624,417.
12In 2019 Backster had a net loss of $50,392. The gross sales were $46,105.
13In 2019 PlantChoir had a net loss of $77,701. The gross sales were $0.00.
2020 Business Year Ends (Operating Companies), the Husband’s Employment Income and “Partial Retirement”
14At some point, and no later than January of 2020, the husband’s salary from Limestone increased to $13,290 per month or $160,000 per year.
15Getting back to the hiring of a new general manager, the husband’s counsel wrote to the wife’s counsel on July 24, 2020, indicating that as of August 1, 2020 the husband’s salary was going to be halved to $80,000. He explained that with the hiring of Mr. Stabback (one and a half years earlier) the husband’s estimated value to the company was reduced by 40 to 50 percent, and that new salary was set to reflect that. He called this a “partial retirement”.
16In 2020 Limestone had a net profit of $77,003. The gross sales were $1,423,444.
17In 2020 Backster had a net loss of $57,947. The gross sales were $156,011.
18In 2020 PlantChoir had a net loss of $266,542. The gross sales were $9,878.
Positions
19As noted, the husband is seeking a stay of enforcement and to partially suspend or reduce his obligation to pay spousal support before his Motion to Change (“MTC”) is heard. He seeks to limit his obligation to $3,000 per month based on the new employment income of $80,000. His view is that this is not a complicated case, and one needs only look at the financial disclosure provided to see that the relief requested is obvious. The argument is that as the three operating companies together show an aggregate negative income, only the husband’s salary at $80,000 should be the basis for the spousal support calculation.
20The wife wants the motion for a stay dismissed and argues that the husband has not met the test for either a stay of enforcement or a suspension of the existing obligation. Within the test or tests she questions his business decisions, suggesting that they are designed to defeat an appropriate level of spousal support. She also argues imputation of income.
21The husband suggests that given his financial position the wife should draw on her assets to partially support herself. The wife is 62 years old and currently relies almost entirely on the spousal support payment to meet her expenses.
Law
22As the Separation Agreement has been filed with the court pursuant to section 35 of the Family Law Act, R.S.O 1990, c. F.3, it may be varied or enforced as if it were an order of the court. I will therefore refer to it at times as the “order”. The main proceeding is a MTC under section 37 of that Act, and as noted the husband seeks an interim order staying enforcement and reducing his obligation to pay spousal support.
23Section 6 of the Family Responsibility & Support Arrears Enforcement Act, 1996, S.O. 1996 c. 31, makes it clear that to stay enforcement by Family Responsibility Office, it is not enough just to obtain an order staying enforcement. The support order itself must also be stayed. Suspending or staying a final order is indistinguishable in effect from an interim variation of that order. For a time, this meant the court was dealing with two different legal tests, one for the stay of enforcement (for example see Yip v. Yip, 1988 CanLII 4472 (ON SC), [1988] O.J. No. 2784 (Ont. H.C.)) and one for an interim variation of a final support order (for example see Dancsecs v. Dancsecs, 1994 CanLII 7434 (ON SC), [1994] O.J. No. 1070 (Gen.Div.)).
24The two tests were melded in the often cited and relied on decision by Justice Quinlan of Garneau v. Ontario (Director, Family Responsibility Office), 2010 ONSC 2804, at paragraph 37. The test she set out was that the payor needed to demonstrate “a prima facie case on the merits of the variation application” and come to court with “clean hands”.
25Shortly afterward Hayes v. Hayes, 2010 ONSC 3650 reviewed the different heads of relief and applicable tests as well starting at para. 27. Justice Spies also concluded (at paragraph 39) that it would preferable to have one test for both the stay of enforcement and the request to suspend or vary the existing order on a temporary basis. She adopted the test set out in Garneau, adding that the previous caselaw had also indicated that the moving party must establish a case of hardship. As set out in paragraph 40 of that decision, she summarized that relief can be granted if the moving party (1) has established “a prima facie case that there has been a material change”, (2) has established hardship, and (3) and has come to the court with clean hands.
26The following year the tests for an interim stay of enforcement and an interim variation of a support order were looked at again by Justice Mitrow in Clark v. Vanderhoeven, 2011 ONSC 2286. He also found that there should only be one test, the first part being that the moving party must demonstrate “a prima facie case on the merits of the variation application”. Drawing from previous cases, in his restatement of the test (at paragraph 67) he found that the “hardship” must be a clear case or there must be a finding that the continuation of the order is incongruous and absurd, which meant inappropriate, unreasonable or ridiculous. He also reemphasized the need for the variation be urgent.
27Justice Kurz recently also took a comprehensive look at the law in Berta v. Berta, 2019 ONSC 505. Although that was a Divorce Act case, he found that the same principles and treatment applied in both legislative schemes. In large measure he adopted the Hayes and Clark decisions (at para. 36), although in looking at the history of the test and the need for a “clear case” for relief, he was of the view the moving party’s prima facie case must be a strong one. His version of the test is set out at para. 40, and was adopted recently in Raaflaub v. Gonosch, 2020 ONSC 1578 at para. 7 and Surdyka v. Surdyka, 2020 ONSC 3366 at para. 12. I apply it here:
40… the applicable test for an interim variation of a final support order (and by extension a stay of the previous one) requires the moving party to prove:
A strong prima facie case;
A clear case of hardship;
Urgency;
That the moving party has come to court with “clean hands”.
28Regarding the first part of the test, the question is not just whether there has been a material change in circumstances, but whether there is a strong prima facie case on the merits of the variation application as a whole. That means being mindful of the original support order and varying it only to the extent required by the change in circumstances: Haworth v. Haworth, 2018 ONCA 1055 at para. 21.
Analysis
Prima Facie Case
29Has the husband made out a strong prima facie case on the merits of the variation application?
30There is no suggestion nor evidence that the MTC is being sought based on a change in wife’s circumstances or a change in either parties’ means. Rather, the core argument of the husband is founded on the alleged change in his income available to pay spousal support which, per his own submissions and per the order/agreement, is to be assessed looking at both his employment income from Limestone and Limestone’s earnings after expenses.
31Regarding the former, his employment income, the husband reduced it from $160,000 per annum to $80,000 as of August 1, 2020. He hired Mr. Stabback to do much of his job and partially retired at the age of 63. These were voluntary decisions. The halving of his income came into effect only two years after the Separation Agreement. As it stands, the wife has a strong imputation argument.
32Regarding the latter, the company’s net earnings, the husband argued that Limestone’s sales were already down pre-COVID. The decrease in actual sales is substantiated by the Financial Statements filed. To summarize the above, the gross sales for Limestone for the fiscal years ending on April 30 were $2,197,071 in 2018, and $1,624,417 in 2019, a significant reduction. They were lower yet again at $1,423,444 in 2020, although in that year Backster had been created and it also had $156,011 in sales. Going forward, as noted, the husband argued that COVID-19 has further decreased sales, although that downturn must be proven and cannot simply be assumed. Many companies have found ways around pandemic obstacles.
33The husband argues that the court should assess the combined performance of all his companies. However, I note that the new companies are not Limestone, and only Limestone is referred to in the agreement/order. When looking at the most recent figures for Limestone, it had a profit of $77,003 for the April 30, 2020 year end.
34If the husband’s employment earnings are imputed at $160,000, and if only the earnings after expenses of Limestone are considered, then the husband’s total income available to pay spousal support would be $237,003. This is within the ranges of income that he estimated for himself in their Separation Agreement (a low of $202,500 to a high of $311,200) and is also within the ranges that the wife estimated (a low of $157,000 to a high of $682,000). Taking the husband’s SSAG calculation but inserting that figure ($237,003) would result is a monthly support payment of $9,678 on a 50/50 NDI split (see Schedule A). That is almost identical to the existing order. Using a 50/50 NDI split makes sense given the length of the marriage, the parties’ ages, and the assertion of the wife that her support is compensatory, and further the husband’s position seemed to be based on it. The Separation Agreement was silent on the compensatory aspect, although it was not disputed.
35If it is accepted that Limestone and Backster are really one in the same – the original core operations hived off – the two together had a combined profit for the year ending April 30, 2020 of $19,056, given that Backster lost money. That amount added to the husband’s imputed earnings of $160,000 would be $179,056 which, while less than the range of income relied on by him in their Separation Agreement, is still within the wife’s range, raising the question of whether it would be found to be a material change. With all the other variables remaining the same, a SSAG calculation using that number would result in a spousal support obligation of $7,290 (see Schedule B). The wife argued that the agreement/order was referencing incomes ranges over several years and looking only at that number ignores the husband’s very high income from 2018.
36It is not obvious to me at this point that PlantChoir’s losses should reduce the earnings of Limestone in the calculation of the income available to the husband for spousal support purposes. It is a very different start-up entrepreneurial venture. It is not a company related to the core lie detector business. It has substantial expenses and has shown almost no income and very significant losses. A question for the MTC will be whether the husband can require the wife to suffer a huge drop in spousal support because he has decided to undertake a speculative and thus far losing venture. In a sense, he posits that it is more important for him to support the fledgling company than to support the wife. The wife called PlantChoir the husband’s “hobby”, and while the sheer amounts of money being expended might suggest otherwise, the company’s website uses that language.
37In summary, this is not the MTC. I am only assessing the husband’s motion and stay/suspension request. I am not determining what the proper amount of the reduction, if any, should be. Both imputation and how to treat the husband’s companies remain live issues for the final hearing. The husband’s claim is that he should only have to pay spousal support of $3,000 per month until the hearing based on his employment income of $80,000 per year. While he may have a case for a change in circumstances, in my view there no strong prima facie case on the affidavit evidence before me for that result, or for an adjustment that would be close to that amount.
The Remaining Tests
38The above finding ends the matter. Indeed, it would be difficult to make out hardship and urgency without first establishing a strong prima facie case for a variation. The husband has in large measure has created the situation he finds himself in with his partial retirement and resulting reduced employment income, and his PlantChoir venture. Whether those were good decisions in view of the impact they will have on his spousal support obligation is a live issue for the hearing of the MTC. I would note, however, that had he made out the other tests, there is no question that he has come before the court with clean hands. Looking at the traditional criteria, the husband’s support payments are up to date, he gave the wife notice of his intent to seek variation, and he has been forthcoming with his disclosure.
Decision
39An interim variation of a final order pending the hearing of an MTC is treated in the cases as a drastic intervention and an exceptional remedy. In my view the husband has not satisfied the main head of the test, namely that he has a strong prima facie case for the relief he is seeking. Nor am I satisfied on the hardship and urgency requirements. This motion is dismissed.
40As the parties indicated that they wished to address me on costs I will accept written submissions as follows:
a. From the wife served and filed within ten days from the release date of this decision of no more than three pages, double spaced, in addition to any relevant offers and draft bills of costs.
b. From the husband served and filed within ten days after he is served with the wife’s submissions of no more than four pages, double spaced, in addition to any relevant offers and draft bills of costs.
c. If required, a reply from the wife of no more than one page double spaced served and filed within five days after she is served with the husband’s submissions.
d. If no submissions are received within the contemplated timeframe, the parties shall be deemed to have settled the issue of costs between themselves.
41Counsel might, in the alternative, want to consider an order on consent that the wife shall have her costs in any event of the cause to be determined at the final hearing. That would include the previous appearance. I have a sense that the factums will be similar, and such a deferral might assist in moving the matter towards a quick resolution.
Mr. Justice Timothy Minnema
Date: November 19, 2020