17 December 2014

Provincial Court Releases Important Decision: Party can be ordered to pay legal fees resulting from party's misconduct

Just in time for the holidays, the Provincial Court of British Columbia has released a decision that is sure to bring much good cheer to those frustrated by a party's failure to make proper financial disclose. In T.J.B. v B.A.F., the Honourable Judge Challenger was asked to consider the father's application to retroactively reduce the amount of child support he was required to pay and to reduce or cancel his arrears of child support, as well as the mother's application for an order that the father be penalized for failing to provide proper disclosure.

Background

To give some background to the decision, the parents separated in the spring of 2009 and signed a separation agreement in the summer. The agreement required the father to pay child support for their two children. The father must have run into trouble in fairly short order as in 2012 he applied to retroactively change the amount of child support he was required to pay and to reduce or cancel arrears of child support that had accumulated. That application was dismissed in 2013 as a result of the father's failure to provide "complete and accurate financial disclosure," and the father was additionally prohibited from making further applications without the court's permission. The father accordingly applied for permission to bring the current application in 2014, and was ordered to provide a Financial Statement by the judge. This is how Judge Challenger described the Financial Statement subsequently filed by the father:
"[11] ... [In his Financial Statement, the father] attests to having been unemployed since November of 2013. He refers on the cover page to the potential for [the Family Maintenance Enforcement Program] to garnish his Employment Insurance benefits. The annual income page is blank save for '0.00' as total income and total benefits. He sets out expenses of $30,424.00 annually. He estimated that his additional expenses related to his parenting time with the children are $500.00 per month however no details were provided as to the basis for this estimate. 
"[12] He did not attach his 2013 income tax return or any income information for that year or up to that date in 2014. His 2012 Notice of Assessment was attached which reflected a line 150 income of $415.00 which was the net of business income of $11,000.00. His 2011 Notice of Assessment showed a line 150 income of $27,474.00 which was comprised of $27,075.00 in employment income and $225.00 in other employment income. His 2010 Notice of Assessment showed a line 150 income of $55,098.00."
Yes, the father did produce some documentation concerning his income, but the documentation provided was inadequate — Notices of Assessment, for example, don't tell you nearly enough about the tax payor's sources of income to property determine the payor's income — and not nearly sufficient to satisfy his obligations under the Child Support Guidelines. Under s. 21(1) of the Guidelines, by the way, someone who is applying for a support order must produce the following documents when his or her income is relevant to the application:
(a) a copy of every personal income tax return filed by the spouse for each of the three most recent taxation years; 
(b) a copy of every notice of assessment and reassessment issued to the spouse for each of the three most recent taxation years; 
(c) where the spouse is an employee, the most recent statement of earnings indicating the total earnings paid in the year to date, including overtime or, where such a statement is not provided by the employer, a letter from the spouse's employer setting out that information including the spouse's rate of annual salary or remuneration; 
(d) where the spouse is self-employed, for the three most recent taxation years
(i) the financial statements of the spouse's business or professional practice, other than a partnership, and 
(ii) a statement showing a breakdown of all salaries, wages, management fees or other payments or benefits paid to, or on behalf of, persons or corporations with whom the spouse does not deal at arm's length;
  (e) where the spouse is a partner in a partnership, confirmation of the spouse’s income and draw from, and capital in, the partnership for its three most recent taxation years; 
(f) where the spouse controls a corporation, for its three most recent taxation years
(i) the financial statements of the corporation and its subsidiaries, and 
(ii) a statement showing a breakdown of all salaries, wages, management fees or other payments or benefits paid to, or on behalf of, persons or corporations with whom the corporation, and every related corporation, does not deal at arm’s length;
  (g) where the spouse is a beneficiary under a trust, a copy of the trust settlement agreement and copies of the trust’s three most recent financial statements; and 
(h) in addition to any income information that must be included under paragraphs (c) to (g), where the spouse receives income from employment insurance, social assistance, a pension, workers compensation, disability payments or any other source, the most recent statement of income indicating the total amount of income from the applicable source during the current year, or if such a statement is not provided, a letter from the appropriate authority stating the required information.
To drive the point home, at a Family Case Conference held prior to the hearing before Judge Challenger, the father was fined $500 for failing to disclose his financial documents in this Financial Statement and was ordered to produce "all relevant financial documents." The father filed a new Financial Statement pursuant to that order, however it too was found wanting by Judge Challenger:
"[26] The Financial Statement filed September 30th reflects a 2014 income to date of $13,662.75 comprised of approximately equal amounts of employment income and EI benefits. He also included a letter that shows that as of February of 2014 he was working ... in exchange for shares. The value of those shares at present and as of February was $9000.00 but his understanding is that they could be worth up to $30,000 to $45,000.00 or even as high as $75,000.00. He claims expenses of $32,188.88. ... 
"[28] He did not disclose any financial documentation or information with respect to the companies he has operated or any freelance work done in his personal capacity for 2011 and 2012 either in these proceedings or in the course of his earlier application. He uses a software accounting program for these purposes and did not disclose those records either. He did not disclose the statements for his savings account. He was unable to account for $50,000.00 of the payout monies from the family home, an amount over and above the down payment and renovations done to his home and the $72,000.00 in savings he said he has used for living expenses. ... 
"[32] [The father] did not provide any financial documentation other than his tax returns for the years 2011, 2012 or 2013."
Disclosure in Family Law Disputes

Financial disclosure is a cornerstone of family law, whether a problem is being resolved through adversarial or non-adversarial means. Without adequate disclosure, which goes far beyond the minimum standard set by s. 21 of the Child Support Guidelines, it can be impossible to determine a fair amount of child support and spousal support, a fair sharing of children's special expenses or a fair distribution of family property and family debt. In fact, in a famous 1994 case from the Supreme Court of British Columbia, Cunha v da Cunha, Mr. Justice Fraser wrote that:
"Non-disclosure of assets is the cancer of matrimonial property litigation. It discourages settlement or promotes settlements which are inadequate. It increases the time and expense of litigation. The prolonged stress of unnecessary battle may lead weary and drained women simply to give up and walk away with only a share of the assets they know about, taking with them the bitter aftertaste of a reasonably‑based suspicion that justice was not done. Non‑disclosure also has a tendency to deprive children of proper support."
The new Family Law Act was drafted with this problem in mind. Section 5 imposes a duty to make "full and true disclosure" on the parties to a family law dispute, whether the parties are in court or not, s. 212 allows the court to make orders for disclosure "at any stage of a proceeding," and s. 213 provides a toothy means for enforcing inadequate disclosure. 

Section 213 has been well used by the court, as you'll see in my summary of the case law on that section. When a party has failed to comply with an order for disclosure or a disclosure requirement of the rules of court, or has made disclosure that is incomplete, false or misleading, under s-s. (2) the court may:
(a) make [a further order for disclosure]; 
(b) draw an inference that is adverse to the person, including attributing income to that person in an amount that the court considers appropriate, and make an order based on the inference; 
(c) require a party to give security in any form that the court directs; 
(d) make an order requiring the person described in subsection (1) to pay
(i) a party for all or part of the expenses reasonably and necessarily incurred as a result of the non-disclosure of information or the incomplete, false or misleading disclosure, including fees and expenses related to family dispute resolution, 
(ii) an amount not exceeding $5,000 to or for the benefit of a party, or a spouse or child whose interests were affected by the non-disclosure of information or the incomplete, false or misleading disclosure, or 
(iii) a fine not exceeding $5,000;
  (e) make any other order the court considers appropriate.
From my point of view, the enforcement provisions of the Family Law Act are among its more significant innovations. Too often the Provincial Court was unable to impose meaningful consequences for a party's disobedience of a court order, or failure to comply with a disclosure obligation, as a result of its limited powers to punish for contempt of court and the limited remedies provided by the old Family Relations Act. The courts have since leapt on s. 213 and the act's other enforcement measures, as well they should. The cases on s. 213 to date have focussed on fines under s-s. (2)(d)(ii) and (iii), however, and few have looked at the court's power to make orders for the payment of a party's expenses under s-s. (2)(d)(i). Not so in T.J.B.

Decision

Citing the principle established by the Honourable Judge Merrick in J.C.P. v J.P., a recent Provincial Court case from 2013, 
"[54] If a party is required to apply to the court for an order for financial disclosure, then the party making the application should be compensated. The greater the effort, the greater the compensation",
Judge Challenger ultimately decided to require the father to pay the mother's legal fees incurred as a result of his non-disclosure, holding as follows (important bits in bold, as always):
"[67] [The father] has continually provided the Court with incomplete and misleading disclosure. The disclosure required was not onerous or complex. 
"[68] None of his Financial Statements have been complete or accurate. The figures he reports in the Financial Statement filed in late September in respect to the value of his property, his debts and a strata levy are irreconcilable with those in the Financial Statement filed in March and materially inconsistent with his evidence at the hearing. His earlier Financial Statements also do not accord with his evidence. ... 
"[70] I find that the financial materials he filed in support of his motion to be permitted to file a further application were incomplete, inaccurate and mislead the Court. This is a highly aggravating factor. ... 
"[71] He substantially failed to comply with the order for disclosure made by [the Family Case Conference judge] by not providing all his bank records and by again failing to file a complete Financial Statement. 
"[72] He has never made complete disclosure of the financial or banking documents related to his self-employment. 
"[73] I find [the father's] conduct has satisfied all of the grounds set out in s 213(1) of the FLA — failure to make timely disclosure when required to do so by a court order or as required by the Family Law Rules and the disclosure of incomplete, false, and misleading information.

"[74] In order to determine the severity of this penalty, the circumstances of the present case, the degree of non-disclosure, and any reasons for late disclosure must be considered as well as any reasons provided for late or non-disclosure which have an evidentiary basis. 

"[75] In the circumstances of the present case there has been an ongoing lack of complete disclosure. Some of the information that has been disclosed has been shown to be materially misleading. The incomplete and misleading disclosure provided by [the father] was particularly aggravating in that it resulted in the court falling into error in granting his motion to file this application. 
"[76] As much of the information required for the proper hearing of this application was never disclosed and no attempts were made to disclose it, the Court cannot consider the issue of late disclosure or of any reasons provided for late disclosure. 

"[77] With respect to reasons for non-disclosure, no legitimate reasons were ever provided by [the father] for his insufficient disclosure beyond his claim that he did not have the ability to fill out financial statements properly. I do not accept his evidence in this regard for the reasons stated above.

"[78] I find that [the father] must be penalized for his abuse of the court process and wasting of court time and [the mother]'s resources. The penalty imposed should also communicate to other litigants the consequences of impeding the court process or wasting valuable court resources by disclosing incomplete, false, and misleading information. The conduct of [the father] is something that needs to be denounced in order to prevent similar conduct on the part of other litigants and, as a result, facilitate access by those litigants who need court time for legitimate purposes. A 'robust application' of s. 213(2) is required to facilitate this goal.

"[79] Finally the Court must look to compensate [the mother] in these circumstances. Due to a proceeding wrongfully brought and improperly prosecuted by [the father] she has been required to engage a lawyer to represent her, for the second time, at great financial cost. For this proceeding alone she has incurred legal bills that amount to $13,617.00. ... 
"[80] I find that in order to sufficiently penalize [the father], discourage other litigants from providing incomplete, false, and misleading disclosure; and properly compensate [the mother] for legal bills incurred as a direct result of [the father]'s incomplete disclosure, an order pursuant to FLA, s. 213(2)(d)(i) requiring [the father] to pay the legal fees incurred by [the mother] is an appropriate penalty in the circumstances."
This is an amazing result, particularly as it emanates from a court that had been hamstrung for so long by the inadequacies of the Family Relations Act. The decision is a logical extension of the caselaw accumulating to date under s. 213(2)(d)(ii) and (iii), and is a worthy successor to Cunha as a caution to litigants thinking of making anything other than full and complete disclosure.

A number of principles can be drawn from Judge Challenger's analysis.

1. The court will not consider the reasons for a party's non-disclosure if disclosure is not ultimately made and the party has not even attempted to make disclosure.

2. Aggravating factors in the court's consideration of an appropriate penalty for non-disclosure include providing disclosure that is incomplete and misleading and: 
a. is used for the purposes of a leave application; 
b. is used for the purposes the purpose of one's own substantive application; 
c. leads the court into error; and, 
d. amounts to an abuse of process.
3. Denunciation, the punishment of one person to discourage others from similar behaviour and normally a consideration in sentencing in criminal justice matters, may be a factor in the court's consideration of an appropriate penalty for non-disclosure.

4. Where, considering these factors, a party's behaviour is found to be sufficiently deserving of sanction, the court may order that the party pay for the legal costs of the other party, as an expense "reasonably and necessarily incurred as a result of the non-disclosure of information or ... incomplete, false or misleading disclosure" under s. 213(2)(d)(i).

Lest the gravity of this potential consequence be lost to those contemplating partial- or non-disclosure,  I should point out that in the Supreme Court an order that one party pay "costs" to another is not an order that the party pay for the other side's legal bill, but pay a sum calculated using fixed amounts that usually totals one-third to one-half of his or her legal bill.

The father's application to vary his child support obligation and to reduce or cancel his arrears of support was dismissed. The fine for the mother's legal fees was made payable immediately, and enforceable by the Family Maintenance Enforcement Program.

My thanks to my friend and colleague, Agnes Huang, for bringing this important case to my attention.

1 comment:

  1. I think this is great! I am going through the same thing and it has cost me almost 8k and we still dont have complete disclosure from the other party. I might need to make an application for these fees as my lawyers bills are adding up. I wonder if this is a one off, or if other judges will make orders like this.

    ReplyDelete