ONTARIO SUPERIOR COURT OF JUSTICE
COURT FILE NO.: FS-06-58306-02 DATE: 2022 04 01
B E T W E E N:
Hang Soon Kim, Applicant Yunjae Kim, for the Applicant
- and -
Du-Won Kim, Respondent Self-Represented
HEARD: March 21, 2022
REASONS FOR JUDGMENT McGEE J.
Overview
[1] This is the trial decision of the only remaining issues within Mr. Kim’s October 5, 2018 Motion to Change child support for the parties’ adult daughter. All other issues arising from the end of the parties’ twenty-year marriage in 2005 were previously determined at a Trial concluded eight years earlier, in June of 2010, with reasons released on September 3, 2010.
[2] The final Order of September 3, 2010 provides for table child support, arrears of child and spousal support, and section 7 arrears to be enforced by the Family Responsibility Office (“FRO”). It further provides in separate paragraphs for certain financial provisions, a lump sum of spousal support and an equalization payment in amounts totalling $791,495 that pursuant to paragraph 15 of the final Order, are to be enforced through five court garnishments.
[3] The enforcement of the total sum of $791,495 owing to Ms. Kim is the subject matter of today’s Trial. At issue is the past and future allocation of monies received through the garnishments, and whether the monies must be first applied to one particular sum within the total to be enforced: the lump sum of spousal support.
[4] In the reasons set out below, I differentiate the statutory provision for the priority of spousal (and child) support within the Creditors’ Relief Act, 2010, S.O. 2010, c. 16, Sched. 4, and the common law principle of apportionment amongst multiple debts owed by one debtor to the same creditor. I conclude that Ms. Kim has the discretion to apply the garnished monies as she sees fit, and in a manner that maximizes her recovery.
[5] As a result, I apply the monies collected through garnishment to the property provisions of the final Order and make a separate Support Deduction Order (“SDO”) for the collection of the lump sum of spousal support nunc pro tunc. Section 1(1) of The Family Responsibility and Support Arrears Enforcement Act, 1996, S.O. 1996, C. 31, gives the FRO the power to enforce a payment, whether it is to be paid periodically or in a lump sum.
Relevant Context
[6] This matter has a complex litigation history which culminated in a lengthy Trial before Snowie J. in June of 2010. Reasons for decision were released on September 3, 2010 and the final Order granted Ms. Kim:
a. Ongoing table child support of $719 per month;
b. Spousal Support arrears of $89,881 and child support arrears of $24,160, for a total of $114,041;
c. Section 7 expenses of $35,002.64 for the parties’ daughter;
d. The amount of $791,495 which was comprised of:
i. $51,500 as Ms. Kim’s 50% interest in Mr. Kim’s RRSPs;
ii. $192,000 as Ms. Kim’s interest in a company that the parties had jointly operated during the marriage;
iii. $50,000 as Ms. Kim’s remaining interest in the matrimonial home;
iv. $480,000 as lump sum spousal support;
v. $7,000 to repay monies taken from their daughter’s insurance policy, and
vi. $10,500 for Ms. Kim’s share of the cash surrender value in three insurance policies.
[7] The final Order provided for a SDO to issue on the ongoing child support, the arrears of child and spousal support, and the section 7 expenses. An SDO assigns amounts to the FRO for enforcement. The FRO enforces both the principal amount of support and interest thereon.
[8] In paragraph 15 of the final Order, the amount of $791,495 is enforced through the garnishment of five entities who receive commission or other fees earned by Mr. Kim.
[9] This Motion to Change was issued by Mr. Kim on October 5, 2017, the year in which their adult daughter turned 27 years of age. He asks for a variation of the final Order to end the ongoing payment of child support.
[10] Ms. Kim served a Response to the Motion to Change on September 5, 2018. She agrees with a termination of child support on a different date than that proposed by Mr. Kim, and she asks for fresh Orders for retroactive, proportionate sharing of their daughter’s post secondary education expenses. She seeks enforcement of those monies and spousal support through the FRO.
[11] Over a course of well-managed conferences and two motions, the date upon which the table child support should have ended was determined, as was the amount of ongoing section 7 expenses. Section 7 expenses of $35,002.64 incurred up to the date of the final Order was included in the final Order and placed with the FRO for enforcement at the time the final Order was issued.
[12] Because Mr. Kim continued to pay table child support to Ms. Kim after their adult daughter had ceased full time education, it was found that there was an overpayment to the FRO. That overpayment was applied to Mr. Kim’s agreed proportionate share of their daughter’s post secondary education expenses not captured in the final Order. After adjustments for costs awards, it was determined that Mr. Kim owed a further amount of $8,853 to Ms. Kim.
[13] It was agreed that the amount of $8,853 would not be immediately enforced by the FRO but instead, effective December 1, 2021, any funds garnished were to be first credited towards the $8,853 and thereafter, the garnished funds would be allocated towards all the debts, or as the trial judge was to determine.
[14] It became apparent at this point in the proceeding that there was a fundamental dispute over what had been collected through the garnishments outside of the FRO, and to which debts the collected funds should be allocated. Subsequent investigation resulted in an agreement that a total of $277,609 had been garnished and remitted to the Applicant.
Issues to be Determined at Trial
[15] Mr. and Ms. Kim are now in their 70s. The evidence at Trial consisted of each party’s Affidavit, upon which they were cross examined. The Trial Scheduling Order sets out the issues to be determined at trial:
a. Of the $277,609 in garnished funds received by Ms. Kim, what amount should be credited towards Mr. Kim’s obligation for lump sum spousal support and what amount should be credited towards the balance, which are property-related debts.
b. How are ongoing funds received by Ms. Kim to be credited?
c. How much remains outstanding after the calculation of interest?
[16] Ms. Kim’s counsel identifies the common law principle of apportionment: that a creditor has the discretion as to how to apportion undifferentiated payments from a single debtor towards multiple debts held by the creditor. Counsel therefore asks for an Order that all payments garnished by the court up to November 30, 2021 be allocated to the property related debts and not to the lump sum of spousal support. Spousal support survives bankruptcy and counsel asks the court to allow Ms. Kim to apportion her debt in a manner that will maximize her recovery.
[17] Mr. Kim asks in his pleadings that all payments garnished to date by the court be first applied to the amount of $480,000, being the lump sum of spousal support that is to be enforced within the property terms of the final Order, because spousal support is a priority debt.
Analysis
[18] In his oral arguments at Trial, Mr. Kim, now self represented, focused on the differences in the accounting of the agreed amount of $277,609 in documents reviewed prior to the parties’ agreement, and whether future calculations could be relied upon, given the manner of accounting. At the same time, he did not tender any evidence of additional payments and he confirmed that $277,609 was the payment to be credited against any outstanding debts.
[19] As a result, I am only asked to decide whether this is a determination of the allocation of undifferentiated monies to debts owed to the same creditor, or an assessment of the priority of debts owed to a single creditor.
[20] The former invokes the common law principle of apportionment: when a debtor does not specify the account to which monies are to be applied at or before the time of making a payment, the creditor is free to allocate the payment as he or she chooses at any time thereafter.
[21] The latter is governed by s. 2(3) of the Creditors’ Relief Act, 2010, S.O. 2010, c. 16, Sched. 4:
2(3) A support or maintenance Order has the following priority over other judgment debts, other than debts owing to the Crown in right of Canada, regardless of when an enforcement process is issued or served:
If the maintenance or support order requires periodic payments, the order has priority to the extent of all arrears owing under the order at the time of seizure or attachment.
If the support or maintenance order requires the payment of a lump sum, the order has priority to the extent of any portion of the lump sum that has not been paid.
[22] “Priority” as referred to in the Creditors’ Relief Act, 2010, S.O. 2010, c. 16, Sched. 4 refers to priority as amongst multiple creditors, not priority in allocation of debts to a single creditor. Throughout the Creditors’ Relief Act, 2010, S.O. 2010, c. 16, Sched. 4, priority is used in reference to “priority as against other creditors”. For example, s. 2 establishes equal priority “among creditors” and s. 2(2) of refers to priority of a creditor by garnishment.
[23] In 2187459 Ontario Ltd. v. Duns, 2020 ONSC 895, 38 R.F.L. (8th) 409, at para. 32, the court stated:
The Creditors’ Relief Act s.2(3) gives support orders a special status, namely, priority over other creditors, regardless of when the enforcement proceeding is issued or served.
[24] In Hillock v. Hillock Estate (2001), 21 R.F.L. (5th) 295 (Ont. S.C.), at para. 20, the court held that by reason of s. 4(1) of the Creditors’ Relief Act, 2010, S.O. 2010, c. 16, Sched. 4 [now s. 2(3) of the Creditors’ Relief Act], any support order has priority over all other judgment debts and will “outrank ordinary creditors”.
[25] Therefore, it is clear that “priority” in s. 2(3) of the Creditors’ Relief Act, 2010, S.O. 2010, c. 16, Sched. 4 refers to “priority as against other creditors” and does not apply to funds received from a single debtor for multiple debts owed to the same creditor when specific payments are not earmarked for specific debts. It follows that a creditor has the discretion to apportion an undifferentiated payment towards multiple debts as he or she sees fit to maximize recovery.
[26] Mr. Kim has never voluntarily paid any monies towards the $791,495 and therefore has never directed payments towards specific debts. It is not disputed that the $277,609 was exclusively received through the court garnishments.
[27] When monies are garnished, a debtor loses the ability to allocate payments to specified debts. In Crescent Petroleum Ltd. v. Portserv Ltd. (1997), 37 B.L.R. (2d) 118 (Sup. Crt.), a creditor was able to seize monies owing by way of enforcement on a corporation and the court found that when a creditor seizes money from third parties, the debtor does not have the right to choose how the money will be appropriated or allocated. Specifically, at paras. 25-29, Maczko J. explains:
The monies in this case were not the defendant’s own, nor were they under its absolute control. They were funds obtained in attachment proceedings from a third party. The defendant could not exercise its right to allocate the funds under these circumstances because it did not pay those funds out itself, and they were not within its control.
At the time the monies were seized, the debtor could not make an appropriation to any account. I was not shown any cases which required a creditor to give the debtor an opportunity to appropriate monies to a particular account where those monies had been obtained from a third party. I see no policy reason for allowing the debtor to choose how the monies will be appropriated.
The creditor having seized the monies from a third party, in my view, should be able to appropriate the monies to the debts as he chooses so that he can maximize his recovery, particularly, as here, where the defendant is in default and will probably not be able to pay all the debts. If the plaintiff were required to appropriate the entire amount to the Smyrna account, the other accounts would probably go unpaid, and the plaintiff would not be able to realize the full amount of the guarantee.
From a policy point of view the equities appear to be in favour of the creditor and I conclude that the creditor has a right to choose how the monies will be appropriated where they are seized from third parties.
[28] The principle that a creditor should be able to allocate monies received to maximize recovery was further expanded in Nova Scotia Business Development Corp. v. Wandlyn Inn Ltd. (1999), 182 N.S.R. (2d) 249 (S.C.). In that case, a dispute arose between the Minister of Revenue and a receiver regarding the allocation of garnished funds from a bankrupt on account of statutory employee deductions for income tax, CPP contribution, EI premiums, penalties, and interests.
[29] The Minister allocated the funds to a deemed trust and secured claim, and the receiver claimed that the Minister inappropriately allocated garnished payment to the detriment of the secured creditors. The receiver claimed that the money collected must be first applied to pay down the deemed trust claim because that claim is recognized in both the Bankruptcy and Insolvency Act, R.S.C., 1985, c. B-3, and the Income Tax Act, R.S.C., 1985, c. 1 (5th Supp.), as being superior. It was held that the Minister could allocate the funds in the manner he saw fit, because of the social importance of tax legislation and its objects, despite such allocation being unfair to other creditors.
[30] The common law principle of apportionment has also been followed in family law cases. In the case of Byrne v. Clarke, 431 A.P.R. 349 (Nfld Unif. Fam. Crt), there were similar factual circumstances to those before me in this Trial. The husband owed the wife debts for both child support and property division. He made some payments and then declared bankruptcy. The husband took the position that the entire amount paid should be allocated to child support. The wife asked the court to allocate the payments first to property because the child support arrears would survive bankruptcy. The court applied the common law principle of apportionment and held the following, at para. 16:
The wife as creditor, was free in the absence of a specification by the husband, “to allocate the payment as she chooses at any time thereafter.”
[31] Similarly, in Bronson v. Bronson (1997), 47 C.B.R. (3d) 142 (Ont. C.J. Gen. Div.), the wife had a judgment for equalization payment and lump sum compensatory support, and other property related reliefs. The husband voluntarily made partial payments, and other payments were garnished from his employer. He later made an assignment in bankruptcy. The court found that the monies paid voluntarily and the garnished funds were to be allocated to the judgment for equalization, leaving the outstanding support arrears to survive bankruptcy.
[32] I am satisfied in this proceeding that the monies garnished by the court may be allocated in Ms. Kim’s discretion and that it is reasonable to give effect to her claim that the $277,609 be first applied to the property awards within the global sum of $791,495. She has the discretion to make such a decision, and it maximizes her recovery should Mr. Kim make a future assignment or should Mr. Kim or his estate have other creditors.
[33] It was learned at Trial that one of the many standard form writs of garnishment prepared by a court clerk during the enforcement process stated that the monies were being collected for support. I do not find that this changes the characterization of the monies garnished because the description of “spousal support” was not directed by either the debtor or the creditor.
Outstanding Interest on the Amounts Owed
[34] The parties agree that interest on the outstanding monies is to be calculated on a simple basis, compounded annual at the September 2010 Courts of Justice Act, R.S.O. 1990, c. C.43, rate of 2% per annum.
Summary
[35] Mr. Kim has not made any voluntary payments towards the judgment debt of $791,495. All payments received by Ms. Kim have been collected through the five court garnishments set out in paragraph 15 of the final Order. Mr. Kim is not able to specify the debt to which garnishment monies are allocated because the monies were received from third party sources.
[36] Ms. Kim has the right to allocate the garnished funds as she sees fit to maximize her recovery. She chooses to first apply monies to the property claims, and only thereafter to the lump sum of spousal support. I therefore give effect to the relief that she seeks in this Motion to Change, including the request to have the $480,000 lump sum spousal support award enforced by the FRO.
[37] The amount of $791,495 is thereby reduced by $480,000 which shall now be enforced by the FRO, and the amount of $277,609 which has been collected to date, for a remainder of $33,886.
[38] I have not been provided with a running annual interest calculation on the property portions of the final Order, exclusive of lump sum spousal support. I therefore approximate interest at the agreed rate from the date of the final Order to the present in the amount of $20,000.
[39] The rounded amount of $20,000 may not fully compensate Ms. Kim for simple interest of 2% compounded annually, but I am satisfied that it approximates an equitable recovery. I will ensure that she receives the correct amount of running interest on the $480,000 assigned to the FRO for enforcement by making this Order nunc pro tunc.
[40] As for the $8,853 agreed as remaining to be paid for post secondary education expenses, I find that the most efficient approach is to also assign this amount to the FRO for enforcement.
Orders to Issue
[41] This Court orders that:
A Support Deduction Order shall issue for $8,853 plus post-judgment interest as of the date of the final consent Order: November 22, 2021.
A Support Deduction Order for lump sum spousal support of $480,000 shall issue as of September 3, 2010, nunc pro tunc. The Family Responsibility Office shall calculate and enforce post judgment interest at 2% per annum, compounded annually.
The balance of monies payable by Mr. Kim pursuant to paragraph 15 of the September 3, 2020 final Order is fixed as of April 1, 2022 in the amount of $53,886 (remainder of $33,886 plus approximated interest of $20,000) and shall continue to be collected through the garnishments set out in that paragraph. Interest shall accrue on the amount of $53,886 pursuant to today’s rate prescribed by the Courts of Justice Act.
Costs
If the parties cannot agree on an amount of costs, the applicant’s submissions are to be served and filed on or before April 11, 2022. Responding submissions by the respondent are due on April 25, 2022. Submissions are limited to three pages, exclusive of a Bill of Costs and Offers to Settle. Caselaw is to be hyperlinked within the body of the submission. No reply is permitted.
McGee J.
Released: April 01, 2022