COURT OF APPEAL FOR ONTARIO

CITATION: Gray v. Rizzi, 2016 ONCA 152

DATE: 20160225

DOCKET: C59047

Sharpe, Brown and Miller JJ.A.

BETWEEN

Nadine Ellen Gray

Applicant (Appellant/

Respondent by way of cross-appeal)

and

Mario Rizzi

Respondent (Respondent/

Appellant by way of cross-appeal)

Cheryl Goldhart and Maneesha Mehra, for the
    appellant/respondent by way of cross-appeal

Peter B. Cozzi, for the respondent/appellant by way of cross-appeal

Heard: December 18, 2015

On appeal from the order of Justice Lydia M. Olah of the Superior
    Court of Justice, dated June 10, 2014.

Brown J.A.:

I.

OVERVIEW

[1]

This appeal concerns the principles informing a retroactive variation order
    under s. 17 of the
Divorce Act
, R.S.C. 1985, c. 3 (2
nd
Supp.).  In this case, the variation granted by the trial judge resulted in the
    elimination of substantial child and spousal support arrears and imposed
    substantial repayments from recipient to payor.

[2]

Nadine Ellen Gray and Mario Rizzi started living together in June 1986,
    married in October 1989, and separated in August 2002. They have two children.
    Their son is now 25 years old; their daughter is 20 years old.  Both children suffer
    from mental health problems.  Following their parents separation, both
    children primarily resided with their mother. In recent years, however, the son
    has alternated his residence between his parents. Since December 2010, the son has
    received payments under the Ontario Disability Support Program.

[3]

Nadine commenced an application for divorce and corollary relief in
    December 2003. At a case conference on February 4, 2005, the parties reached
    agreement on an interim order for custody and access.  One term of the
    agreement required Mario to serve and file his Answer and financial statement
    within 30 days, failing which Nadine had leave to proceed by way of uncontested
    trial.  He failed to do so.

[4]

As a result, Loukidelis J. made a final order dated November 1, 2005
    (the Final Order) dealing with custody, access, child support, and spousal
    support.  The Final Order granted Nadine sole custody of both children and placed
    Marios access to the children in Nadines sole discretion. It imputed annual
    income to Mario in the amount of $133,000. Finally, it ordered Mario to pay
    monthly child support of $1,584.00, monthly spousal support of $2,874.00, as
    well as a proportional share of s. 7 expenses, all retroactive to the date of
    separation.

[5]

In 2009, Mario initiated two proceedings.  The first was a motion to set
    aside the Final Order.  Boswell J. dismissed that motion in May 2010, and this
    court dismissed Marios appeal in 2011.

[6]

The second was a motion to change the Final Order pursuant to s. 17 of
    the
Divorce Act
on the ground that Mario had experienced a material
    change in circumstances as a result of a significant reduction in his income. The
    motion ultimately was heard by the trial judge in November 2013, and disposed
    of by order dated June 10, 2014 (the Variation Order).

[7]

The trial judge held that Mario had demonstrated he experienced a
    material change in circumstances in the period prior to the making of the Final
    Order, which justified a reduction in his child and spousal support obligations
    retroactive to the date of the parties separation.

[8]

The trial judge terminated Nadines spousal support effective 2006.  She
    re-calculated Marios imputed income for the period 2002 through 2013 and,
    based on that re-calculation, fixed the total spousal and child support due
    from Mario to Nadine from the date of separation to the end of 2013 at $171,118.
    She then specified the deductions to be made from that amount, including all
    monies paid by Mario for child and spousal support.

[9]

That decision eliminated about $320,000 in support arrears owed by Mario.
    It also imposed on Nadine an obligation to reimburse Mario a significant amount
    for overpayment of support. The parties disagree on the precise amount of the
    repayment, but seem to agree that it would be in the neighbourhood of $113,000.

[10]

The
    trial judge also held that child support for the parties daughter in 2014
    would continue at the greater of Marios imputed income of $60,000 and his
    actual income from all sources that year.  The trial judge ordered the parties
    to exchange their income tax returns by July 1 of each year, commencing July 1,
    2014.

[11]

On
    appeal, Nadine asks that the Variation Order be set aside and Marios motion to
    change be dismissed.  Both parties appeal from the trial judges September 10,
    2014 cost award of $15,000 in favour of Mario.

[12]

For
    the reasons set out below, I would grant most of the relief sought by Nadine on
    the appeal.  In my view, the trial judge erred in principle by relying on
    changes in Marios circumstances that pre-dated the making of the Final Order to
    grant the Variation Order and, in effect, conducted a correctness review of the
    Final Order.  She also failed to apply the principles governing variations in
    child and spousal support set out by the Supreme Court of Canada in the cases
    of
D.B.S. v. S.R.G.,
2006 SCC 37, [2006] 2 S.C.R. 231,

and
L.M.P.
    v. L.S.
, 2011 SCC 64, [2011] 3 S.C.R. 775. Finally, she erred in failing
    to advert to the fact that the elimination of support arrears would require Nadine
    to repay Mario a substantial amount of the support previously paid.

[13]

In
    light of those errors of principle, I have considered Marios motion to change.
    I find that Mario experienced a material change in his financial circumstances
    after the Final Order.  Applying the principles governing the variation of
    child and spousal support orders under s. 17 of the
Divorce Act
, I
    would vary Marios child and spousal support obligations. However, while the
    variation will have some retroactive effect, Mario will remain obliged to pay
    significant support arrears and Nadine will not be required to make any
    repayment to Mario.

II.

ISSUES ON APPEAL

[14]

Three
    issues are raised on this appeal:

(i)

Did the trial judge err in finding that Mario had experienced a material
    change in circumstances prior to the making of the Final Order that justified a
    retroactive change in his child and spousal support obligations, which
    eliminated his support arrears and required Nadine to reimburse him for the
    overpayment of support?

(ii)

Did the trial judge err in her determination of the parties income for
    support purposes?

(iii)

Did the trial judge err in awarding Mario costs of $15,000?

III.

POSITIONS OF THE PARTIES

[15]

Nadine
    submits that the trial judge erred in finding that events which took place
    prior to the making of the Final Order could constitute a material change in
    Marios circumstances, and erred in making a support variation order extending
    back to 2002.  According to Nadine, in so doing the trial ignored the
    principles governing retroactive support orders set down by the Supreme Court
    of Canada in the cases of
D.B.S.
and
L.M.P.

[16]

Mario
    submits that the trial judge committed no error of law in retroactively varying
    his child and spousal support obligations.  He contends that her discretionary
    order is entitled to a high degree of deference, arguing that the trial judge
    correctly held that the principles in
D.B.S.
and
L.M.P.
provide little guidance for retroactive variations of support orders where the
    payors income has gone down.  Mario argues that the trial judge properly
    applied the principles concerning retroactive variations of support established
    by this court in
DiFrancesco v. Couto
(2001), 56 O.R. (3d) 363 (C.A.)
    and
Trembley v. Daley
, 2012 ONCA 780, 23 R.F.L. (7th) 91.

[17]

On
    the issue of costs, Nadine submits Mario was not entitled to any; Mario submits
    that he should have received costs on a full indemnity basis in light of the
    offer to settle he made a month before the trial.

IV.

STANDARD OF REVIEW

[18]

An
    appeal court should not overturn a support order unless the reasons disclose an
    error in principle, a significant misapprehension of the evidence, or unless
    the award is clearly wrong; it is not entitled to overturn a support order
    simply because it would have reached a different decision or balanced the
    factors differently:
Hickey v. Hickey
, [1999] 2 S.C.R. 518, at paras.
    11 and 12.

V.

FIRST ISSUE: DID THE TRIAL JUDGE ERR IN RELYING ON EVENTS THAT PRE-DATED
    THE FINAL ORDER TO GRANT A VARIATION?

A.

Analysis

[19]

Mario
    brought his motion to change under ss. 17(4) and (4.1) of the
Divorce Act
,
    which read as follows:

(4) Before the court makes a variation order in respect of a
    child support order, the court shall satisfy itself that a change of
    circumstances as provided for in the applicable guidelines has occurred since
    the making of the child support order or the last variation order made in
    respect of that order.
[1]

(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.

[20]

The
    trial judge held that Mario had met the statutory requirements for two reasons:
    (i) Mario demonstrated that he had experienced a change in circumstances prior
    to the making of the Final Order; and (ii) the Final Order that Mario sought to
    vary contemplated that since he had not yet made the requisite financial
    disclosure, he could move to vary the support orders after making such disclosure:
    see para. 41. These two reasons disclose errors in principle.  The trial judge improperly
    relied on events that pre-dated the Final Order to conclude that Mario had met
    the threshold for a variation of support.  She also improperly reviewed the
    correctness of the Final Order. Let me consider each in turn.

First Reason: Section 17 of the
Divorce Act

[21]

The
    parties separated in 2002.  The trial judge found that Mario had experienced a
    material change in circumstances both in the period between 1999  2002 and
    between the period of 2003  2005: para. 33.  Mario was (and remains) a
    self-employed computer programmer.  On the motion to change, Mario deposed that
    his self-employment income was reduced to near zero because the two
    self-employment contracts from which I derived my income between 1987 and 2003
    were terminated in July 2003 and September of 2003.  He also gave evidence
    that in 2003 the software languages in which he had worked became obsolete,
    necessitating that he undertake a two-year retraining program.

[22]

Mario
    argued that, because the Final Order required payment of child and spousal
    support retroactive to August 2002, namely when the parties separated,
    establishing a material change after August 2002 entitled him to a variation of
    the Final Order.  The trial judge effectively accepted that argument, holding
    that Mario had experienced a significant decrease in income during the period
    2003  2005 that constituted a material change in Marios circumstances: at
    paras. 33 and 37.

[23]

However,
    the Final Order was not made until November 1, 2005.  Before varying the Final
    Order, sections 17(4) and (4.1) of the
Divorce Act
required the trial
    judge to satisfy herself that a change in Marios circumstances had occurred
    since the making of the Final Order  not since the date of separation:
L.M.P.
,
    at para. 31, citing
Willick v. Willick
, [1994] 3 S.C.R. 670, at p. 688.
    She failed to do so. Instead, the trial judge incorrectly relied on
    circumstances that pre-dated the Final Order to hold that Mario had met the
    threshold requirements for a variation of the support order.  In so doing, the
    trial judge committed an error in principle.

Second Reason: Other orders
    contemplated re-viewing the Final Order

[24]

The
    trial judge also formed the view that, when the Final Order was made, neither
    the Respondent Fathers income nor the Applicant Mothers income were fully
    assessed for the determination of appropriate child and spousal support
    payable.  In large part, these unfortunate circumstances were created by the
    Respondent Father [H]e failed to organize his financial data to file his [Income
    Tax Reports (ITRs)]: para. 8.  The trial judge went on to state, at paras.
    8, 18, 25 and 41 of her reasons:

Justice Loukidelis endorsement anticipated a change to his
    order.  The endorsements purposes were: firstly, to motivate the Respondent to
    provide full financial disclosure to the Applicant; and, secondly, to establish
    the appropriate child and spousal support according to the Respondents income,
    as ultimately disclosed.

[D]espite the Respondent Fathers inaction, at no time was his
    income and the Applicants needs properly assessed.

Had Justice Loukidelis been aware of the change in
    circumstances experienced by the Respondent from 1999-2005, the terms of the
    default order would have been radically different.

Given that the
Divorce Act
, s. 17 does not eliminate a
    judges broad discretion on a motion to change, it would be a travesty in
    this case not to address the variation from the date of the Loukidelis J. order
    and [its] retroactive applicability, given that I have found that a material
    change of circumstances existed sufficient to ground a variation of both child
    and spousal support and given that both Justice Loukidelis and Justice Boswell
    contemplated a variation based on proper disclosure.

[25]

Nadine
    submits that instead of deciding Marios motion to change by applying the
    relevant legal principles, the trial judge reviewed the correctness of the
    Final Order and impermissibly substituted her view about what final order
    should have been made at first instance.  I accept this submission.  In my
    view, the passages reproduced above disclose two material errors.

A Motion to Vary is not an Appeal

[26]

First,
    with respect, the trial judges approach to the Final Order ignored the Supreme
    Court of Canadas clear direction in
Willick v. Willick
, [1994] 3
    S.C.R. 670, that an application for a variation order is not an appeal of the
    original order: p. 687.  As Sopinka J. stated at pp. 687-688:

[I]n a variation proceeding, it must be assumed that, at the
    time it was made, the original child support order or the previous variation
    order accurately assessed the needs of the children having regard to the means
    of the parents.  As such, the correctness of the previous order must not be
    reviewed during the variation proceeding.  The previous order will not be
    departed from lightly and will only be varied if the requirements under s.
    17(4) of the
Divorce Act
are properly satisfied.

See also:
L.M.P.
, at para. 33.

[27]

In
    2009, Mario moved to set aside the Final Order and the order of Nelson J.  His
    motion was dismissed by Boswell J.  In its June 7, 2011 endorsement dismissing
    Marios appeal, this court stated that Marios arguments about the Final Order
    go to the correctness of the order  arguments which can only be made on
    appellate review: at para. 5. However, Mario never appealed the Final Order.

[28]

Consequently,
    it was not open to the trial judge to re-consider the correctness of the Final
    Order.  Her task was to ascertain whether Mario had demonstrated a material
    change in circumstances since the making of the Final Order.

Non-Disclosure should not be
    Rewarded

[29]

The
    handwritten endorsement made by Loukidelis J. was quite brief.  He wrote:

Matter ongoing for 2 years.

[Mario] has failed to provide required financial statements.  Any
    further delays will not improve the situation.  I will sign the default
    judgment as requested.  The ball will then be in [Marios] court to prove his
    income and apply for a variation of the support.

[30]

Relying
    on this endorsement, the trial judge proceeded on the erroneous premise that if
    a support payor has failed to make proper financial disclosure
prior
to the making of a final support order, the payor may remedy his failure on a
    subsequent motion to change under s. 17 of the
Divorce Act
. That is, a
    payor may achieve a support variation by arguing that his new disclosure of
    income earned prior to the final order constitutes a change in circumstances
    since the making of the final order. With respect, such an approach is not
    open to a court on a s. 17 motion to change.

[31]

[T]he
    disclosure rules and the sanctions for non-compliance are the centrepiece of
    the Family Law Rules:
Shamli v. Shamli
, 2004 CanLII 45956 (Ont.
    S.C.J.) at para. 8.  As this court emphasized in
Roberts v. Roberts
,
    2015 ONCA 450, at paras. 11-13:

The most basic obligation in family law is the duty to disclose
    financial information. This requirement is immediate and ongoing.

Failure to abide by this fundamental principle impedes the
    progress of the action, causes delay and generally acts to the disadvantage of
    the opposite party.  It also impacts the administration of justice.  Unnecessary
    judicial time is spent and the final adjudication is stalled.

Financial disclosure is automatic.  It should not require court
    orders  let alone three  to obtain production.

[32]

The
Divorce Act
, the
Federal Child Support Guidelines,
and the
Family
    Law Rules
clearly and comprehensively identify the financial disclosure a
    person must make in response to a claim for child or spousal support. The
    disclosure obligations are neither complicated nor onerous.  For a respondent,
    like Mario, who operates a small business, the disclosure obligation in large
    part consists of producing income tax returns and business records that any such
    business generates in the ordinary course. Such disclosure must be made
    quickly, within 30 days after a respondent is served with an application:
Family
    Law Rules,
rules 10(1) and 13(1)(b).

[33]

At
    the time the parties separated in 2002, Mario had run his own software
    development business for many years. Nadine commenced her application in
    December 2003.  By the time the parties appeared before Loukidelis J. almost
    two years later, Mario had made no financial disclosure whatsoever.  Indeed, as
    the trial judge observed, Mario had not filed income tax returns since 1999.  While
    that may go some way to explaining why Mario did not make financial disclosure,
    it certainly does not excuse his failure.  Where a respondent, like Mario,
    ignores his financial disclosure obligations, that party assumes the risk that
    a judge ultimately may refuse to tolerate any further delay and proceed to
    grant a final support order based on imputed, rather than declared, income.

[34]

To
    allow a party who ignores his or her financial disclosure obligations to later
    satisfy the requirement and argue that the late disclosure constitutes a
    material change in circumstances would eviscerate the financial disclosure
    regime.  The practical dangers of such an approach were well-described by
    Pazaratz J. in
Trang v. Trang
, 2013 ONSC 1980, 29 R.F.L. (7th) 364, at
    paras. 53, 54 and 59, discussing motions to change where the final order
    imputed income to the payor:

If declared income automatically prevailed on a motion to
    change support, it would defeat the purpose of imputing income in the first
    place.  It might even be a disincentive for payors to participate in the
    initial court process.  They could simply ignore support Applications  as they
    often do.   They could wait to see if the court imputes income, and how much.  If
    dissatisfied with the amount, the payor could later return to court waving
    their tax returns, to suggest that the original judge got it wrong.

Support claimants should not be forced to go through this
    two-step process.  Our family court system certainly cant afford it.

[35]

In
    this case, the trial judge relied on ss. 37(2) and 37(2.1) of the
Family
    Law Act
, R.S.O. 1990, c. F.3, which authorize the variation of spousal and
    child support orders not only where there is a material change in
    circumstances, but also on the ground that evidence not available on the
    previous hearing has become available In her view, [t]here seems to be no
    good reason why there should be different tests for varying support under the
FLA
as opposed to the
Divorce Act
: para. 23.

[36]

Whether
    that should be so or not, the fact remains that the statutes do contain
    different tests.  Section 17 of the
Divorce Act
does not recognize, as
    a ground for a variation, that evidence not available prior to the making of a
    final order later becomes available.  Furthermore, while it is not necessary on
    this appeal to interpret ss. 37(2) and 37(2.1) of the
Family Law Act
,
    I have great difficulty in conceiving that evidence not available on the
    previous hearing could include financial information that was not available
    because of a partys deliberate failure to meet his disclosure obligations.

[37]

The
    trial judge therefore erred in accepting that a motion to change is available
    to a payor on the basis of financial information that is new to the court
    because the payor had failed to meet his prior disclosure obligations.

B.

Reconsideration of Whether Mario Experienced a Material Change in Circumstances

[38]

Since
    the trial judge erred in principle both in finding that events pre-dating the Final
    Order constituted material changes in circumstances for the purposes of s. 17
    and in conducting a review of the correctness of the Final Order, her decision
    is not entitled to deference.  Neither party asked this court to remit the
    matter for re-consideration on proper principles. Given the lengthy delay below
    in disposing of the motion to change, it is appropriate for this court to deal
    with the issues raised by Marios motion to change:
Courts of Justice Act
,
    R.S.O. 1990, c. C.43, s. 134(1)(a).

[39]

Turning
    to those issues, to ascertain whether a change in circumstances has occurred, a
    court must consider whether the change advanced was material  meaning a
    change that, if known at the time, would likely have resulted in different
    terms  and a change with some degree of continuity, and not merely a
    temporary set of circumstances:
L.M.P.
, at paras. 32 and 35. A
    material change in the financial means or circumstances of a payor can
    constitute a change in circumstances for the purposes of a motion to change
    child or spousal support:
Federal Child Support Guidelines
, s. 14(a);
Divorce
    Act
, s. 17(4.1).

[40]

In
    making the Final Order in November 2005, Loukidelis J. imputed a gross annual
    income to Mario of $133,000 for 2005. After considering the evidence on the
    motion to change, the trial judge found as fact that Marios income for support
    purposes was as follows: in the range of $60,000 to $68,000 for the years 2006
    through 2011; $12,000 in 2012; and $60,000 in 2013.

[41]

Nadine
    submits that the trial judge made errors in calculating the incomes of the
    parties during that period and should have imputed a greater level of income to
    Mario.  I disagree. In calculating his income, the trial judge did not solely
    rely on Marios tax returns for that period; rather, she took into account all
    the evidence and, for most of the years, also imputed income to Mario.  I see
    no reason to interfere with the trial judges calculation of Marios income for
    the period 2006  2012.

[42]

It
    is clear from these findings that Mario experienced a significant and sustained
    reduction in his annual income compared with the income imputed to him in the
    Final Order.  That reduction in income constituted a material change in Marios
    means and circumstances, meeting the threshold for a variation of the Final
    Order under ss. 17(4) and (4.1) of the
Divorce Act
.

VI.

SECOND ISSUE: DID THE TRIAL JUDGE ERR IN MAKING RETROACTIVE ADJUSTMENTS
    TO MARIOS CHILD SUPPORT OBLIGATIONS?

[43]

Having
    met the threshold for a variation of child support, the next question is how to
    approach the retroactive variation requested by Mario.

A.

The General Principles

[44]

As
    I noted at the outset, the parties disagree about the applicability of
D.B.S.
to Marios motion to change. Nadine submits that the trial judge ignored the
    principles governing retroactive support orders set down in
D.B.S.
,
    while Mario argues that those principles do not apply to cases like this, in
    which the payors income has decreased substantially.

[45]

In
D.B.S.
, the Supreme Court of Canada extensively canvassed the
    principles applicable to a request to vary child support payments. The court identified
    four factors that a court should consider before making a retroactive child
    support order: (i) the reason why a variation in support was not sought
    earlier; (ii) the conduct of the payor parent; (iii) the circumstances of the
    child; and (iv) any hardship occasioned by a retroactive award: paras. 94 to
    116.  The court also held that, as a general rule, the date of effective notice
    should serve as the date to which the award should be retroactive: para. 118.
    Finally, it usually will be inappropriate to make a support award retroactive
    to a date more than three years before formal notice was given: para. 123.

[46]

The
    four cases decided in
D.B.S.
all involved circumstances in which
    recipient parents sought increases in child support payments with retroactive
    effect.  The trial judge distinguished
D.B.S.
on the basis that in the
    present case it was the payor, not the recipient, who was seeking the
    variation, and that it was a reduction in child support, not an increase, that
    was sought.

[47]

The
    trial judge also pointed to this courts decision in
Trembley v. Daley
,
    where a payor successfully sought to reduce child support payments because of a
    material change in circumstances.  In
Trembley
, this court observed
    that the
D.B.S.
decision was of limited assistance because the
    [Supreme Court of Canada] explicitly stated, at para. 98, that these factors
    are not meant to apply to circumstances where arrears have accumulated: para.
    15. The trial judge concluded that the reasoning in
D.B.S.
similarly was
    inapplicable in the case before her: para. 27.

[48]

In
    my view, the trial judge erred in principle in reaching that conclusion.  The
    comments made in
D.B.S.
and
Trembley
must be read in their
    proper context.

The
D.B.S.
principles and
    support arrears

[49]

Turning
    first to the
D.B.S.
decision, the passage in para. 98 of the reasons
    of Bastarache J., quoted by this court in
Trembley
and relied upon by
    the trial judge, is part of a discussion about the role played by
    predictability in considering whether to retroactively vary support. Bastarache
    J. observed that retroactive awards disturb the certainty and predictability a
    payor parent has come to expect: para. 63. If, however, a payors income
    increases, the court must balance the childs entitlement to receive the full
    amount of support due against a payors need for predictability in managing his
    financial affairs. In determining whether to exercise its discretion to order a
    retroactive child support award, a court must remain alive to the delicate
    balance between certainty and flexibility in this area of the law; courts must
    avoid gratuitously disrupting settled obligations: para. 96.

[50]

It
    is at this point in his analysis that Bastarache J. writes, at para. 98:

Before canvassing the myriad of factors that a court should
    consider before ordering a retroactive child support award, I also want to
    mention that these factors are not meant to apply to circumstances where
    arrears have accumulated.
In such situations, the payor parent cannot
    argue that the amounts claimed disrupt his/her interest in certainty and
    predictability; to the contrary, in the case of arrears, certainty and
    predictability militate in the opposite direction.
There is no analogy
    that can be made to the present cases. [Emphasis added.]

[51]

Read
    in context, these comments do not render the
D.B.S.
factors
    inapplicable in all cases of arrears.  Rather, the passage suggests that a
    payor who has let arrears accumulate has no claim to resist an increase in
    support on grounds of certainty and predictability. A delinquent payor cannot
    use the principle of predictability as a shield against paying the full amount
    of support to which his child is entitled. Since the payor did not comply with
    the existing support order, he cannot claim reliance on that order in managing
    his financial affairs. In contrast, where a payor seeks a retroactive decrease
    in support, the
D.B.S.
factors  such as taking into account the circumstances
    of the child, the conduct of the payor parent, the hardship of a retroactive
    award, and the reason for delaying in seeking a variation in support  remain
    relevant.

[52]

The respondent relies on the decision of the New Brunswick Court of
    Appeal in
Brown v. Brown
, 2010 NBCA 5, in
    support of his submission that so long as a payor is in arrears, the factors
    outlined in
D.B.S.
for motions to vary do not
    apply.  The
Brown
case involved a motion to
    change by a payor on the basis that he had suffered a significant reduction in
    his income since the making of the final order.  The New Brunswick Court of
    Appeal held that, on such a variation motion, a court should ask two questions:
    (i) did the payor experience a material change in circumstances during the period
    of retroactivity? and (ii) having regard to all other relevant circumstances
    during this period, would the payor have been granted a reduction in his
    support obligation but for his untimely application? (para. 49). The other
    relevant circumstances, according to the New Brunswick Court of Appeal, would
    not include the factors outlined in
D.B.S.
:
    para. 22.  Notwithstanding that broad proposition, the New Brunswick Court of
    Appeal limited the balance of its legal analysis to confirming that the failure
    of the recipient to pursue timely enforcement measures was not a sufficient
    basis for cancelling support arrears: para. 50.  Since the New Brunswick Court
    of Appeal remitted the matter to the motion judge, the decision provides little
    practical guidance about the other relevant considerations a court should
    take into account on a motion to change.

[53]

I
    can conceive of a scenario where the existence of arrears might operate to
    support a payors request for a reduction.  Such unusual circumstances were
    found in
Trembley v. Daley
.
[2]
In that case, the payor had suffered a catastrophic injury to his hand some
    years after the making of the final support order, as a result of which he
    could no longer perform the manual work which had been the sole source of his
    income.  Overwhelming hardship to the payor caused by that injury emerged as
    the prevailing consideration in that case.   In those circumstances, it would
    be understandable that the court would take into account the ability of a payor
    to satisfy existing support arrears given the payors permanently diminished
    earning capacity stemming from the catastrophic injury.

[54]

Such
    exceptional circumstances aside, the factors the Supreme Court of Canada identified
    in
D.B.S.
provide useful guidance to a court faced with a request to reduce
    child support based upon a payors material decline in income.  Although those
    factors require some minor alteration to suit circumstances where the payors
    income has gone down, not up, the fundamentals still apply.  Accordingly, the
    trial judge erred in principle in concluding that she need not consider the
    factors identified in
D.B.S.

Modifying the
D.B.S.
principles to a motion to change
    based on a payors reduced income

[55]

In
Corcios v. Burgos
, 2011 ONSC 3326, Chappel J. adapted the
D.B.S.
principles to a motion to change a child support order where the payor requested
    a retroactive decrease in support or rescission of arrears. I find it hard to
    improve on the analysis set out at para. 55 of her reasons.  I adopt her
    analysis and summarize the key principles below.

[56]

First,
    when applying the adapted
D.B.S.
principles on a motion to retroactively
    vary child support, one must always keep in mind the ultimate issue: namely, the
    best interests of the child:
DiFrancesco
, at para. 24.  As Chappel J.
    stated, Ultimately, the goal in addressing child support issues is to ensure
    that children benefit from the support they are owed when they are owed it, and
    any incentives for payor parents to be deficient in meeting their child support
    obligations should be eliminated.

[57]

Next,
    a court should distinguish cases where a payor seeks relief from payment of
    arrears based on current inability to pay from those where arrears accumulated
    due to a change in the payors circumstances that affected the payors ability
    to make the child support payments when they came due.

[58]

A
    payors request for relief from payment of arrears based on a current inability
    to pay generally will not result in the rescission or reduction of arrears
    unless the payor has established, on a balance of probabilities, that he cannot
    and will not ever be able to pay the arrears. Evidence that the recipient
    agreed to non-payment of the support is irrelevant, as child support is the
    right of the child and cannot be bargained away by the recipient parent.

[59]

Where,
    however, the payor demonstrates that a change in circumstances took place during
    the time that arrears were accumulating which rendered the payor unable to make
    child support payments for a substantial period of time, the court may provide
    relief by varying the child support order or rescinding arrears. As Chappel J.
    stated: [the court] may determine that it is appropriate to retroactively
    suspend enforcement of the support order during the time when the payor was
    unable to pay, or decrease the amount of child support owed during that time
    and reduce or rescind the arrears owing accordingly.

[60]

The
    present case falls into this second category. While there is no fixed formula a
    court must follow when exercising its discretion in this circumstance, Chappel
    J. identified the following factors to guide a court in determining whether to
    grant retroactive relief, the date of retroactivity, and the quantum of relief:

1.

The nature of the obligation to support, whether contractual, statutory
    or judicial;

2.

The ongoing needs of the support recipient and the child;

3.

Whether there is a reasonable excuse for the payors delay in applying
    for relief;

4.

The ongoing financial capacity of the payor and, in particular, his ability
    to make payments towards the outstanding arrears;

5.

The conduct of the payor, including whether the payor has made any
    voluntary payments on account of arrears, whether he has cooperated with the
    support enforcement authorities, and whether he has complied with obligations
    and requests for financial disclosure from the support recipient.  As stated by
    Chappel J.: Behaviour that indicates wilful non-compliance with the terms of
    the order or failure to work cooperatively to address the child support issue
    is a factor that militates against even partial rescission or reduction of
    arrears;

6.

Delay on the part of the support recipient, even a long delay, in
    enforcing the child support obligation does not, in and of itself, constitute a
    waiver of the right to claim arrears;

7.

Any hardship that may be occasioned by a retroactive order reducing
    arrears or rescinding arrears, or by an order requiring the payment of
    substantial arrears. As put by Chappel J.:

[I]f a retroactive order reducing child support would result in
    the child support recipient having to repay money to the child support payor,
    this may militate against making the order, particularly if the payor has not
    given the recipient notice of the change in their circumstances, has not
    provided appropriate disclosure to support their claim for an adjustment to the
    child support, or has delayed initiating court proceedings to change the order.

[61]

If
    a retroactive reduction of child support is appropriate in light of these
    factors and any other relevant considerations, the court must determine the
    date from which the reduction should take place and the extent of the
    reduction. Following
D.B.S.
, a retroactive order normally should
    commence as of the date of effective notice that a request is being made for a
    child support adjustment. It is generally inappropriate for a retroactive order
    to extend back more than three years before formal notice is given.

[62]

Where
    a payor seeks a retroactive reduction in child support or rescission of
    arrears, effective notice

requires the payor to provide reasonable
    proof to support the claim for a change to the [order], so that the recipient
    can independently assess the situation in a meaningful way and respond
    appropriately. As put by Chappel J.:

A child support recipient is entitled to expect that the
    existing order will be complied with, and to arrange their financial affairs
    respecting their children accordingly, unless they are in receipt of reasonable
    proof that a relevant change in the payors circumstances has occurred.

[63]

This
    obligation to disclose and negotiate with the recipient parent is ongoing, so
    that the recipient can assess and react to changes in the payors financial
    situation. A payors failure to comply with his continuing notice and financial
    disclosure obligations most likely will impact the remedy which the court
    crafts.

[64]

Finally,
    with respect to the quantum of any retroactive child support order, the
Child
    Support Guidelines
apply, provided that the date of retroactivity is not
    prior to the date when the
Guidelines
came into force, and subject to
    the principles set out in the statutory scheme under which the Court is
    operating.

B.

Application of the Principles to the Present Case

The effect of Marios change in circumstances on his ability
    to pay child support

[65]

I
    have already concluded that Mario met the threshold for a variation of the
    Final Order under ss. 17(4) and (4.1) of the
Divorce Act
. It is the
    details of the variation that must be determined at this stage of the analysis,
    including whether Marios change in circumstances rendered him unable to make
    child support payments, and whether the variation should be given retroactive
    effect.

[66]

I
    have accepted the trial judges findings about Marios income for the period
    2006  2013.  At an average annual income of $60,000 (save for 2012, when his
    income was lower), Mario would not be able to service the child and spousal
    support payments contained in the Final Order, which were calculated using an
    imputed income of $133,000.

[67]

The
    Final Order required support payments to begin in 2002.  Between 2002 and 2013,
    Mario did make some support payments, albeit often involuntarily as a result of
    the Family Responsibility Office (FRO) seizing his assets to satisfy
    outstanding arrears. According to Marios evidence, from 2003 through 2012 the
    amount of support he voluntarily paid totaled $129,854. To that amount must be
    added the $104,847 in Marios RRSPs paid to the appellant through RRSP seizures
    by the FRO, resulting in total support contributions by Mario of $234,701. During
    that same period of time, Marios support obligations under the Final Order
    totaled $534,960, consisting of child support due of $190,080 and spousal
    support of $344,880. In sum, from 2003 until 2012, Mario satisfied
    approximately 44% of his support obligations under the Final Order, and for
    much of that time Mario was experiencing a significant reduction in his income.

[68]

Against
    that must be weighed two facts.  First, the trial judge made an uncontested
    finding that in the years following the Final Order, Mario, as the sole
    beneficiary of his mothers estate, occupied his mothers residence.  Although
    Marios mother died in June 2005, he did not probate her will or transfer title
    in the house to himself until shortly before the trial, no doubt, as the trial
    judge stated, in a futile attempt to avoid seizure by FRO for the outstanding
    child and spousal support arrears: para. 13. Mario could have used the equity
    in the home to avoid the accumulation of support arrears, but chose not to.

[69]

Second,
    the trial judge made no finding that Mario suffered from any kind of impairment
    to his future earning capacity, a key fact distinguishing this case from
Trembley
    v. Daley
. On the contrary, the trial judges decision to fix 2014 child
    support for Victoria at the greater of Marios imputed income of $60,000 and
    his actual taxable income from all sources strongly indicated that Mario could
    earn more than the imputed level.

[70]

Although
    the evidence supports the conclusion that Marios change in circumstances
    contributed, to an extent, to his inability to make all ordered support
    payments, the evidence does not support a finding that Mario will not be able
    to pay the arrears in the future.  As a result, in my view, this is a very
    close case for any retroactive variation.  However, sufficient evidence exists
    which could lead a court to exercise its discretion to grant some retroactive
    relief.  Although the trial judges decision to grant retroactive relief was
    based on the application of incorrect legal principles, some retroactive relief
    is nevertheless appropriate. To establish the appropriate retroactive order in
    the circumstances of this case, I return to the modified
D.B.S.
factors
    set out in paras. 55 to 64 above.

Date of effective notice of request to vary child support

[71]

Mario
    filed his motion to change in July 2009.  There is no other evidence in the
    record to support any earlier effective date of notice of change given by
    Mario. However, a number of factors weigh heavily against using a date as early
    as July 2009 as the one from which any change in support obligations should be
    retroactive.

The needs of the children

[72]

The
    first factor concerns the needs of the two children.  The parties do not
    contest the trial judges conclusion that child support payments for the
    daughter should continue in 2014. The parties agree that the son began to
    receive payments under the Ontario Disability Support Program in December 2010.
    As a result, the continuing needs of the children during much of the time
    period under consideration at the trial weigh strongly against making any
    retroactive child support variation order for any period before 2011, when the
    son started to receive ODSP payments.

The delay in pursuing the motion to change and the lack of
    full financial disclosure

[73]

Second,
    although the trial judge appeared to accept that Mario had offered something of
    an explanation for his delay in bringing his motion to change when she stated
    that it was only in the summer of 2008 that he was able to muster enough funds
    to have his ITRs prepared from 2002 - 2008, she failed to give appropriate
    weight to Marios delay in pursuing his motion once initiated.

[74]

As
    mentioned, after filing his motion to change in 2009, Mario changed tack and
    brought a motion to set aside the Final Order.  Boswell J. dismissed the latter
    motion, and Marios appeal was dismissed by this court in June 2011.  Only then
    did Mario move forward with his motion to change.

[75]

Numerous
    case conference attendances ensued, not only regarding Marios motion to change,
    but also in proceedings taken by FRO to enforce Marios support obligations.  With
    the motion to change still unheard as of October 2012, Nadine served a motion
    to stay the change motion.  In her case conference endorsement dated October
    12, 2012, McGee J. noted that Marios support arrears had reached approximately
    $288,220. She continued:

To date, the respondent fathers Motion to Change has been
    largely conducted as a series of adjournments and promises to provide
    disclosure.
Whether deliberate or inadvertent, the fathers lack of
    diligence in advancing his Motion to Change has forestalled the enforcement
    process
. [Emphasis added.]

[76]

McGee
    J. ordered Mario to pay unpaid costs of $16,583 within 20 days and provide
    certain disclosure. He failed to do so. On January 2, 2013, McGee J. stayed
    Marios motion to change until he had paid outstanding costs.

[77]

In
    October 2012, a FRO default hearing was conducted by McGee J. who made a
    further order requiring Mario to pay support, failing which he would be
    incarcerated for five days. In the course of her reasons (2012 ONSC 6335),
    McGee J. wrote:

4.    The payor is the beneficial owner of a property held in
    the estate of his deceased parents of which he is the sole executor and
    beneficiary.  He has taken no steps to transfer the property for a period in
    excess of three years.

33.   In this case, there is no question that the payor father
    has failed to make full, frank disclosure to the Court. And that failure cannot
    be simply attributed to a decision not to file timely Income Tax Returns for
    the past decade. Neither has he filed sworn Financial Statements in either the
    Motion to Change or the enforcement proceedings until quite recently
.

[78]

Mario
    finally mortgaged the house he inherited from his mother to pay the outstanding
    costs, and the hearing of motion to change proceeded in November 2013.  Nadines
    evidence at trial was that as of October 15, 2013, Mario owed $321,754.26 in
    child and spousal support arrears.

[79]

Marios
    delay in moving his motion to change forward to a hearing with due dispatch,
    when coupled with his failure to make full and frank disclosure of financial
    information until the eve of trial when he filed an October 16, 2013 Financial
    Statement, weigh heavily against making any retroactive variation of the child
    support order.

The conduct of the child support payor

[80]

Third,
    the record discloses that Mario did not co-operate with enforcement agencies in
    addressing the issue of child support.  His lack of co-operation resulted in
    the suspension of his drivers licence, default enforcement hearings, and the
    seizure of his RRSPs by FRO.

Hardship to the recipient

[81]

In
    her reasons, the trial judge did not explain what, if any, consideration she
    gave to the hardship that her retroactive variation order would work on the
    recipient, Nadine.  In failing to do so, the trial judge erred in principle by
    ignoring a material consideration in any variation analysis.  Although the
    parties were unable to provide us with a consensus view on the precise amount
    of the support payments Nadine would be required to repay Mario under the trial
    judges order, there did not appear to be any serious disagreement that the
    repayment would be a significant one of approximately $113,000.

[82]

Given
    Marios desultory pursuit of his motion to change, failure to provide timely
    financial disclosure, and failure to co-operate with the support enforcement
    agencies, absolutely no hardship should result to Nadine from any retroactive
    variation order.

Conclusion

[83]

Although
    in
D.B.S.
the Supreme Court of Canada stated that, as a general rule, the
    effective date of notice should act as the date to which an award should be
    made retroactive, every general rule has its exceptions.  In my view, Mario has
    brought himself within an exception.  Not only did he engage in unacceptable
    delay in pursuing his motion to change, he learned nothing from his failure to
    provide financial disclosure in 2005 before the Final Order was made.  Mario repeated
    the same misconduct in his motion to change, to the prejudice of his children
    and to Nadine.

[84]

In
    my view, Mario is not entitled to any retroactive variation of his child
    support obligations for his daughter because he only saw fit to fulfill his
    financial disclosure obligations on the eve of trial, over four years after he
    had initiated his application. Consequently, I would not rescind any arrears of
    child support owed by Mario for his daughter.

[85]

I
    would not interfere with the trial judges variation of Marios 2014 child
    support obligations for his daughter so that they are calculated using the
    greater of an imputed income of $60,000 or his actual taxable income from all
    sources.

[86]

As
    to child support for their son, the parties acknowledge that he began to
    receive ODSP payments in December 2010.  Consequently, child support
    obligations for their son should terminate as of December 31, 2010.  Mario is
    not entitled to any variation in child support for his son before that date,
    nor is he entitled to any rescission of such child support arrears.

VII.

THIRD ISSUE: DID THE TRIAL JUDGE ERR IN MAKING RETROACTIVE ADJUSTMENTS
    TO MARIOS SPOUSAL SUPPORT OBLIGATIONS?

A.

Positions of the Parties

[87]

The
    Final Order required Mario to pay to Nadine monthly spousal support of $2,874,
    retroactive to the date of separation. No time limit was placed on his spousal
    support obligations.

[88]

In
    his motion to change, Mario sought to change his spousal support obligations so
    that they terminated as of July 1, 2009, and he sought to rescind all spousal
    support arrears existing as of that date.

[89]

The
    trial judge terminated Marios spousal support obligation as at January 1, 2006.

[90]

Nadine
    submits that the trial judge erred in terminating spousal support.  In her
    submission, spousal support should be reinstated and continue indefinitely.  Mario
    submits that the trial judge made no error of law in retroactively varying his
    spousal support obligations, and her discretionary order is entitled to
    deference.

B.

The General Principles

[91]

In
L.M.P.
, at para. 50, the Supreme Court of Canada enunciated the
    approach courts should take to motions to vary spousal support under the
Divorce
    Act
:

[O]nce a material change in circumstances has been established,
    the variation order should properly reflec[t] the objectives set out in s.
    17(7), . . . [take] account of the material changes in circumstances, [and]
    conside[r] the existence  of the separation agreement and its terms as a
    relevant factor (
Hickey
, at para. 27).  A court should limit itself
    to making the variation which is appropriate in light of the change. The task
    should not be approached as if it were an initial application for support under
    s. 15.2 of the
Divorce Act
.

[92]

Section
    17(7) of the
Divorce Act
provides:

(7) A variation order varying a spousal support
    order should

(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.

[93]

In
Kerr v. Baranow
, 2011 S.C.C. 10, the Supreme Court of Canada
    confirmed, at para. 207, that similar considerations to those set out in
D.B.S.
in the context of child support are also relevant in deciding the suitability
    of a retroactive award of spousal support, although the factors must be
    considered and weighed in light of the different legal principles and
    objectives that underpin spousal as compared with child support.

[94]

The
    trial judge held that the principles in
L.M.P.
did not apply in the
    present case because, unlike in
L.M.P.
, no separation agreement had
    been entered into between Mario and Nadine: para. 26. With respect, the trial
    judge erred in principle in so holding.  As the Supreme Court of Canada stated
    in para. 46 of
L.M.P.
: The examination of the change in circumstances
    is exactly the same for an order that does not incorporate a prior spousal
    support agreement as for one that does.

[95]

The
    trial judge terminated spousal support as at January 1, 2006.  However, she
    gave no reasons explaining why she did so, thereby preventing any meaningful
    appellate review of that part of her decision.  Nor in her reasons did the
    trial judge engage in any analysis of the factors identified in s. 17(7) of the
Divorce Act
.  Accordingly, this court need not defer to her decision
    on spousal support.

C.

Application of the General Principles

[96]

I
    begin the variation analysis with a consideration of the relative economic
    positions of Mario and Nadine at the time the Final Order was made and then
    thereafter.

[97]

As
    described by Nadine in her evidence, following the birth of Michael she stopped
    working outside of the house and cared for their children.  She assisted with the
    book-keeping for Marios software development business. Nadine re-commenced
    outside work on a part-time basis in 2001 with a publishing company, and began
    working there on a full-time basis in 2003.  In the fall of 2004, Nadine
    commenced studies to become a law clerk.  That is where matters stood at the
    time of the Final Order.

[98]

After
    a period of unemployment in 2005, Nadine started to work as a law clerk with a
    law firm in 2006, subsequently switching to another law firm where she
    continues to work full-time.

[99]

Just
    as I accept the trial judges findings regarding Marios annual income in the
    years after the Final Order, I see no basis upon which to interfere with her
    findings about Nadines income for that period of time. The trial judge found
    that for the years 2006 through 2009, Nadines annual employment income usually
    was about $10,000 less than Marios of $60,000.  Only in 2011 did Nadines
    income begin to approximate Marios, and that situation continued in 2013.  That
    comparative income history strongly indicates that by 2011 Nadine had overcome
    the economic disadvantages she suffered from the break-down of the marriage and
    had achieved a level of economic self-sufficiency. Consequently, I do not
    accept Nadines submission that her spousal support should continue
    indefinitely.

[100]

At the same
    time, I see no basis for retroactively varying Marios spousal support
    obligations before January 1, 2012, notwithstanding his initiation of the
    motion to vary in July, 2009.  His delay in pursuing the variation application and
    instead pursuing his motion to strike into 2011, his failure to make timely
    financial disclosure, and his failure to co-operate with the support
    enforcement agencies, as described above, all work against any earlier retroactive
    variation date.

[101]

Varying the
    Final Order to terminate spousal support as of January 1, 2012 will not work an
    undue hardship on Nadine.  She has re-established her economic self-sufficiency
    and, on the financial information before us in the record, there is no risk
    that such a variation would require Nadine to repay any amount to Mario.

[102]

Nor would the
    variation impose undue financial hardship on Mario. The record discloses that
    the financial impact of the child and spousal support variations I would make to
    the Final Order likely would result in some reduction of Marios support
    arrears.

[103]

Mario owns a
    home in the west end of Toronto.  At trial, he did not file a current property
    valuation. On his October 16, 2013 Financial Statement, Mario valued the house
    at $289,000; on a credit application to a bank he placed a value of $300,000.  The
    house is subject to a $50,000 mortgage. Accordingly, the evidence discloses
    that between the equity in his house and his future earning capacity, Mario has
    the financial ability to pay off his outstanding arrears.

VIII.

FOURTH
    ISSUE: COSTS (APPEAL AND CROSS-APPEAL)

[104]

The trial judge
    ordered Nadine to pay Mario costs of $15,000 for his motion to change. Nadine
    submits the trial judge should not have awarded Mario any costs, and she seeks
    her costs of the motion to change or, alternatively, a reduction in the $15,000
    awarded to Mario.

[105]

Mario
    cross-appeals the trial judges award of costs, submitting that he should
    receive full indemnity costs for his motion to change from October 16, 2103,
    the date of his offer to settle.

[106]

In respect of
    the appeal, Nadine seeks partial indemnity costs of $25,000; Mario seeks costs
    of $15,000.

[107]

Although there
    has been mixed success by the parties on the issues on this appeal, in the
    result Nadine has been relieved of the obligation under the Variation Order to
    reimburse Mario for support previously paid, and Mario remains under an
    obligation to pay substantial, but reduced, support arrears. Given that result,
    in my view Nadine is entitled to some costs of the motion to change and the appeal.
    I would award her costs of $10,000 for the motion to change and $7,500 for the
    appeal.

IX.

DISPOSITION

[108]

By way of
    summary, on the issues of child and spousal support, I would set aside paras.
    1, 2 and the first sentence of para. 4 of the Variation Order.  In their place,
    I would grant an order varying the Final Order as follows:

(i)

terminating Marios child support obligation for Michael as of December
    31, 2010;

(ii)

terminating spousal support for Nadine as of January 1, 2012.

[109]

Child support
    for Victoria will be calculated as set out in para. 3 of the Variation Order.

[110]

If the parties
    cannot agree on the precise amounts of child and spousal support arrears that
    result from this decision, they shall submit to the court, within 30 days, a
    brief joint submission which sets out their respective calculations and the
    reasons therefor.

[111]

I would award
    Nadine costs of $10,000 for the application and $7,500 for the appeal.

Released: February 25, 2016 (RJS)

David
    Brown J.A.

I
    agree Robert J. Sharpe J.A.

I
    agree B.W. Miller J.A.

[1]

The
Federal Child
    Support Guidelines
, SOR/97-175,
provide
    that a change of circumstances that gives rise to the making of a variation
    order in respect of child support includes, where the determination was made in
    accordance with the applicable table, any change in circumstances that would
    result in a different child support order or any provision thereof: s. 14(a).

[2]

Trembley v. Daley
involved a motion
    to vary under s. 37 of the
Family Law Act
,
    not s. 17 of the
Divorce Act
.


COURT OF APPEAL FOR ONTARIO

CITATION: Henderson v. Wright, 2016 ONCA 89

DATE: 20160201

DOCKET: M45958 (C60624)

Strathy C.J.O. (In Chambers)

BETWEEN

John Roy Henderson

Plaintiff (Appellant/

Responding Party)

and

Muriel Evelyn Wright

Defendant (Respondent/

Moving Party)

Robert Hammond, for the respondent/moving party

Clinton Culic, for the appellant/responding party

Heard: January 22, 2016

On motion for security of costs under r. 61.06 of the
Rules
    of Civil Procedure,
R.R.O. 1990, Reg. 194
.

ENDORSEMENT

[1]

The moving party, respondent on appeal, seeks an order for security for
    costs of the appeal under r. 61.06 of the
Rules of Civil Procedure
,
    R.R.O. 1990, Reg. 194.  She submits that there is good reason to believe the
    appeal is frivolous and vexatious and that the appellant has insufficient
    assets in Ontario to pay the costs of the appeal. She also submits that there
    are other good reasons to order security for costs.

[2]

For the reasons that follow, I agree and order the appellant to post
    security for costs.

Background

[3]

The appellant is the respondents former son-in-law. He claimed that he
    had an interest in a home that the respondent purchased in her name and in which
    he and his wife (the respondents daughter) lived, paying rent, for over 20
    years.

[4]

He claimed there was an agreement under which the respondent made the
    down payment  $55,000, of which the appellant contributed $5,000  and he and
    his wife would then pay rent, which was to cover the mortgage, taxes and
    insurance. When the mortgage was paid off, he said, the house was to be
    transferred to him and his wife.

[5]

The respondents version of events differed. She said her intention was
    to make a real estate investment that provided her daughter and son-in-law with
    a nice place to live at a favourable rent. The appellants contribution merely
    lowered the rent payable. She said she never intended to gift the amount of the
    down payment she paid, or promised to transfer ownership of the property to the
    appellant and her daughter once the mortgage was paid.

[6]

The respondent also made several large annual lump sum mortgage
    payments, in addition to the regular monthly payments, to pay down the
    mortgage. These totalled $38,000. The mortgage was paid off seven years after
    the purchase of the property. The appellant claimed that he was not aware of
    this.

[7]

Following the appellants separation from the respondents daughter, the
    appellant remained in the house, but did not pay rent. The respondent applied
    to the Landlord and Tenant Board to evict him, at which time the appellant
    claimed he had an ownership interest in the property based on the alleged agreement
    described above.

[8]

The matter went to the Superior Court to determine whether the appellant
    had an ownership interest. Alternatively, the appellant relied on the equitable
    principle of promissory estoppel.

[9]

The trial judge noted that the determination of the issues would require
    him to make findings of fact based on conflicting testimony. He instructed
    himself on the burden of proof.

[10]

The
    trial judge accepted the respondents version of the events and rejected the
    appellants, which he found was not credible. He concluded that the respondent
    had not promised to transfer the property to the couple when the mortgage was
    paid off.  He gave detailed reasons for his conclusion. He also rejected the
    claim based on promissory estoppel, finding that none of the requisite elements
    had been made out.

[11]

The
    appellant appealed.

Discussion

[12]

Rule
    61.06 governs security for costs on appeal:

61.06 (1) In an appeal where it appears that,

(a) there is good reason to believe that the appeal is
    frivolous and vexatious and that the appellant has insufficient assets in
    Ontario to pay the costs of the appeal;

(b) an order for security for costs could be made against the
    appellant under rule 56.01; or

I for other good reason, security for costs should be ordered,

a judge of the appellate court, on motion by the respondent,
    may make such order for security for costs of the proceeding and of the appeal
    as is just.

(2) If an appellant fails to comply with an order under subrule
    (1), a judge of the appellate court on motion may dismiss the appeal.

[13]

The
    respondent argues an order to post security for costs is justified under r.
    61.06(1)(a) or r.61.06(1)(c).

(1)

Rule 61.06(1)(a)  Frivolous and vexatious claim with insufficient
    assets

[14]

Under
    this rule, the appellate judge must (a) have good reason to believe the appeal
    is frivolous and vexatious, and (b) have good reason to believe the appellant
    has insufficient assets in Ontario to cover the costs of the appeal.

(i)

Good reason to believe the appeal is frivolous and vexatious

[15]

There
    is good reason to believe the appeal is frivolous and vexatious.

[16]

This
    appeal does not raise any arguable error in law, and challenges findings of
    fact and credibility for which the trial judge set out detailed, facially sound
    reasons. This court has held that such appeals appear to have no merit:
Schmidt
    v. Toronto Dominion Bank
(1995), 24 O.R. (3d) 1.

[17]

The
    appellants alleged error in law  his submission that the trial judges
    observations in paras. 40 and 41 of his reasons violates the rule in
Browne
    v. Dunn
is, in my view, misconceived. That rule applies to counsel or a
    party who seeks to discredit a witness without having given the witness a fair
    opportunity to respond to the allegation. I do not believe it prevents a trial
    judge from asking himself a rhetorical question and then finding a witnesss
    evidence to be illogical or incredible based on the judges assessment of his
    or her behaviour in the circumstances. Counsel for the moving party could
    identify no authority for this proposition and I am aware of none.

[18]

I
    also do not agree with counsels characterization of the judges findings as
    circular reasoning, or premised on his acceptance of the respondents evidence.
    The judge simply found that the appellants evidence did not make sense.

[19]

The
    other grounds of appeal essentially challenge the trial judges findings of
    fact or inferences he drew from the facts. At trial, the parties gave
    conflicting versions of events, and the case was decided on the basis of the
    trial judges assessment of the credibility and reliability of the witnesses
    evidence. As I said, the trial judge gave detailed and apparently sound reasons
    for his findings. In such cases, there is almost no possibility of successfully
    overturning the result.

[20]

Combined
    with the appellants less than diligent pursuit of his litigation  waiting
    until he was served with an eviction application to start his claim, appealing
    the post-trial Landlord and Tenant Board eviction order on the last day,
    abandoning that appeal, refusing to pay costs after that appeal until ordered
    to do so, and appealing the trial decision on the second last day  I am convinced
    that this appeal appears to be frivolous and vexatious.

(ii)

Good reason to believe appellant has insufficient assets in Ontario

[21]

I
    turn to the second branch of the test, which asks whether the appellant has
    sufficient assets in Ontario to pay the costs of the appeal.

[22]

The
    appellants only asset of any significance (apart from a 9-year old car and a
    12-year old motorcycle) is a one-quarter interest in a cottage property, which
    he owns with other family members. That interest is allegedly worth $50,000.

[23]

I
    have doubt about the marketability of a part-interest in a family cottage,
    which could probably only be realized  if at all  after litigation. Even
    assuming one could execute against the part interest, one would be acquiring a
    lawsuit and potentially a liability.  Moreover, this leaves nothing for the
    outstanding judgment and costs.

[24]

Requiring
    the respondent to rely on such an illiquid and unmarketable asset is contrary
    to the purpose of r. 61: namely, that a respondent is entitled to a measure of
    protection for costs incurred and to be incurred in the proceeding, which is
    now on appeal:
Combined Air Mechanical Services Inc. v. Flesch,
2010
    ONCA 633, 268 O.A.C. 172 (In Chambers).

[25]

I
    therefore find the appellant has insufficient assets in Ontario to pay the
    costs of the appeal. The respondent has satisfied r. 61.06(1)(a).

(2)

Rule 61.06(1)(c)  Other good reason to order security for costs

[26]

Had
    I found that the appeal had a low prospect of success, but did not appear to be
    frivolous and vexatious, I would have ordered the appellant to post security
    for costs nonetheless under r. 61.06(1)(c).

[27]

Appellate
    courts in Ontario have ordered security for costs when an appeal has a low prospect of success coupled with an appellant who has the ability to pay costs but from whom it would be nearly impossible to collect costs: see Perron v. Perron, 2011 ONCA 776, 345 D.L.R. (4th) 513; Baker v. Rego, 2013 ONSC 3309, 31 R.F.L. (7th) 323 (Div. Ct.); and Children's Aid Society of York Region v. G.S., 2010 ONSC 3804, 98 R.F.L. (6th) 179.

[28]

This
    good reason balances the need to ensure an appellant is not denied access to
    the courts, with the respondents right to be protected from the risk the
    appellant will not satisfy the costs of the appeal: see
Perron
, at
    paras. 22-23.

[29]

In
    my view, this good reason applies in this case.

[30]

As
    I noted above, the appellants assets do not protect the respondent from the
    risk he will not satisfy the costs of the appeal. On the other hand, the assets
    may provide the appellant with the means to post security for costs.

[31]

In
    addition, the appellant, who works as a bartender, acknowledged that he is paid
    in cash. The trial judge found as fact that there was little or no proof of the
    appellants income. Indeed, the appellant relied on this consideration to
    explain why the house purchase transaction took place the way that it did in
    his version of events. At trial, the appellant gave evidence that he earned at
    least $500 a week, the amount of cash he gave weekly to his former wife for
    rent and other expenses. That income, while providing him a basis to pay costs,
    would be nearly impossible for the respondent to garnish to satisfy costs.

[32]

I
    am satisfied that the appellants assets and employment income provide him a
    basis to pay costs  thus ensuring he is not denied access to justice  but
    that the nature of those assets and income present an undue risk that the
    respondent would be unable to collect costs.

[33]

Considering
    the low merit of the appeal, remedying the imbalance between the appellants
    relative invulnerability to costs awards and the respondents corresponding
    exposure provides a good reason to order the appellant to post security for
    costs in this case.

Disposition

[34]

For
    these reasons, I order that the appellant post security for costs in the amount
    of $15,000.00 within 60 days of the date of this order, failing which a judge
    of this court may dismiss the appeal on motion.

[35]

If
    counsel are unable to resolve costs of this motion, they may make written
    submissions, limited to five pages, excluding the costs outline, within 30
    days.

G.R. Strathy C.J.O.