



COURT OF APPEAL FOR ONTARIO

CITATION: Duffus v. Frempong-Manso, 2017 ONCA 360

DATE: 20170504

DOCKET:
C61516

Juriansz, Lauwers and Hourigan JJ.A.

BETWEEN

Lisa Duffus

Applicant

(Respondent in Appeal)

and

Eric Frempong-Manso

Respondent

(Appellant)

Maria N. Sirivar, for the appellant

Esther L. Lenkinski, for the respondent

Heard: March 30, 2017

On appeal from the order of
    Justice Dale F. Fitzpatrick of the Superior Court of Justice, dated November
    16, 2015, with reasons reported at 2015 ONSC 7051.

Hourigan J.A.:

A.

INTRODUCTION

[1]

Child support laws are designed to ensure fairness and consistency.
    However, the system only functions when litigants make full and fair financial
    disclosure. Where a litigant chooses not to make proper financial disclosure,
    the determination of support obligations becomes complex and unpredictable.

[2]

A persistent problem in the family law system is litigants who believe
    that the rules of financial disclosure do not apply to them. They hide assets
    and sources of income, thereby forcing the opposing party and the court to
    waste valuable time and resources to get to the truth of their financial
    situation.

[3]

The appellant is such a litigant. It is clear from the record that he
    does not feel bound by the rules of disclosure. He is quite prepared to lie and
    obfuscate to avoid paying support for his children. In a thorough judgment, the
    motion judge established a figure for the appellants income and the resulting
    child support obligation.

[4]

On appeal, the appellants counsel wisely does not challenge the motion
    judges factual findings about her clients conduct. Instead, she narrowly
    focuses on two alleged errors. First, she says the motion judge erred in
    calculating the corporate income that should be attributed to him. Second, she
    argues that the motion judge erred in changing a pre-existing order, which
    provided for payment of child support over ten months, to a new order that
    required child support to be paid over twelve months.

[5]

The respondent does not concede that the motion judge made the alleged
    errors. However, she argues that this appeal should be dismissed on the basis
    that this court should defer to the motion judge in the circumstances of this
    case. Her point is that, given the appellants conduct, the determination of
    his income is largely artificial. In other words, who can say with any
    certainty that there is not further income that is still being hidden?
    Accordingly, she submits that the motion judge did the best he could with the
    information before him and that this court should defer to his decision.

[6]

The respondents argument holds some attraction. There is an element of rough
    justice in having the appellant live with the results of the motions given his
    conduct. However, this courts primary function is to correct errors. Where a
    legal error has been made, or a palpable and overriding error of fact or mixed
    fact and law has occurred, this court is obliged make the necessary correction.

[7]

I see no error in the motion judges decision to order that child
    support be paid over twelve months. I would make an adjustment to the amount of
    corporate income attributed to the appellant on the basis of double counting,
    but would otherwise dismiss the appeal.

B.

FACTS

[8]

The parties were never married. They have one child who is now sixteen
    years of age.

[9]

In May and June of 2012, the parties conducted a lengthy trial before
    Wildman J., which resulted in a consent order (the Wildman Order). That order
    dealt with both access and child support.

[10]

The Wildman Order provided that child support would be payable for only
    ten months of the year because the child spent equal time with the appellant
    over the two summer months.

[11]

The appellant swore a financial statement that was before the court when
    it made the Wildman Order. In that statement, he swore that he was T4 employee,
    with no additional income. Contrary to his sworn statement, and unbeknownst to
    the respondent and Wildman J., the appellant was diverting income through
    1858910 Ontario Inc. (the Corporation). For 2011, his income was $61,740
    greater than the $285,652.55 that was disclosed in his financial statement.

[12]

Despite his success in obtaining an order based on an artificially low level
    of income, the appellant was not satisfied. He brought two motions to change. 
    The first was commenced in July 2013 and sought a reduction in his child
    support commensurate with his reported taxable income of $140,000 for 2012,
    effective July 1, 2013. The second was brought in July 2014. In that motion the
    appellant sought an order for child support based on a taxable income of
    $152,000 for 2013, effective August 1, 2014.

[13]

The respondent opposed the motions to change and brought a cross-motion for
    an order that the appellants income from all sources be considered for child
    support purposes. She also sought clarification regarding access provisions. The
    motion judges decisions on these motions and cross-motions are the subject of
    this appeal.

[14]

The motions and cross-motion were heard over the course a five-day
    hearing before the motion judge in January 2015. The motion judge found that
    the appellant was evasive and non-compliant with his disclosure obligations.
    In particular, he noted that the appellant did not disclose any interest in the
    Corporation until January 20, 2014. The motion judge rejected the appellants
    evidence that he held only a 50 percent interest in the Corporation.

[15]

The motion judge made a final order that required the appellant to pay
    monthly child support in the amount of $2,652 for 2012 based on an income of
    $337,667. He further ordered that the appellant pay monthly child support of
    $3,253 for 2013, based on an income of $418,869, and that those payments
    continue for 2014 pending further evidence and order of the court.

C.

ISSUES

[16]

The appellant submits that the trial judge made two errors:

1.

In the
    calculation of the income available to him from his IT consulting business;
    and

2.

Ignoring section
    6(a) of the Wildman Order that required him to pay child support for ten months
    rather than twelve months.

D.

ANALYSIS

Issue 1:  Calculation of Income

[17]

The appellant disputes several aspects of the motion judges approach to
    calculating income. He asserts errors in:


(i)

double-counting the non-arms-length loans made to him
  by the Corporation;

(ii)

attributing to income the difference between
    management fees expensed by the Corporation and those claimed on the
    appellants T4 income tax statement; and
(iii)

grossing up the amounts attributed to rent and amortization.
[18]

The motion judges decision is entitled to great deference. In the face
    of inadequate disclosure, judges face an almost impossible task of assessing
    the appropriate level of income on which to base awards of support. However,
    and as sated above, an appeal is an opportunity for a party to dispute an award
    where there has been an error in principle. In this case, I believe that there
    was such an error in relation to the loan amounts.
[19]

I start with first principles. The
Ontario
    Child Support Guidelines
, O. Reg. 391/97 (CSGs) are enacted
    under the
Family Law Act
, R.S.O. 1990, c.F.3 and
    provide a comprehensive approach to determining income for the purpose of
    paying child support.
[20]

The starting point for calculating annual income, as found
    in s. 16 of the CSGs, is a payors total income, also known as line 150
    income. Where, however, in the courts view, the line 150 income does not
    fairly reflect the money available for payment of child support, s. 18(1)
    permits the court to consider all or part of the pre-tax income of a
    corporation or an amount commensurate with services provided:
Shareholder, director or officer
18. (1) Where a parent or spouse is a
    shareholder, director or officer of a Corporation and the court is of the
    opinion that the amount of the parents or spouses annual income as determined
    under section 16 does not fairly reflect all the money available to the parent
    or spouse for the payment of child support, the court may consider the
    situations described in section 17 and determine the parents or spouses
    annual income to include,
(a) all or part of the
    pre-tax income of the Corporation, and of any Corporation that is related to
    that Corporation, for the most recent taxation year; or
(b) an amount
    commensurate with the services that the parent or spouse provides to the Corporation,
    provided that the amount does not exceed the Corporations pre-tax
    income.
[21]

Any amounts paid by a corporation as salaries,
    wages, management fees or other payments that are non-arms length are
    presumptively added into the corporate income pursuant to s. 18(2):
Adjustment to Corporations pre-tax income
(2) In determining the pre-tax income of a
    Corporation for the purposes of subsection (1), all amounts paid by the
    Corporation as salaries, wages or management fees, or other payments or
    benefits, to or on behalf of persons with whom the Corporation does not deal at
    arms length must be added to the pre-tax income, unless the parent or spouse
    establishes that the payments were reasonable in the circumstances.
[22]

The motion judge rejected the calculations in the appellants experts
    report on the basis that those calculations were informed by unsupported
    information provided by the appellant.  For example, the expert report accepted
    the appellants claim that he was only a 50 percent shareholder in the
    Corporation. Having rejected the expert evidence, the motion judge proceeded to
    calculate the appellants income on the basis of ss. 18(1) and (2) of the CSGs.
[23]

In calculating the appellants income, the motion judge took the
    approach under ss.18(1) and (2) of adding to the Corporations pre-tax income
all amounts paid by the Corporation as salaries, wages or management
    fees, or other payments or benefits that are non-arms length:


Adjustment

2012

2013



Employment Income

$90,000

$90,000



Dividends

$50,000

$62,000



Difference between Taxable and Actual CDN Dividends

($10,000)

($12,500)



Personal Expenses Paid by 1858910 Ontario Inc. ($7,500
          automotive + $3,643 professional fees for 2012; $7,500 automotive + $10,727
          travel + $17,109 furniture for 2013) grossed-up based on 49.3% notional tax
          rate

$21,978

$69,696



Difference between management fees expensed by 1858910
          Ontario Inc. and the amount claimed in Mr. Frempong-Mansos income tax return

$52,307

$42,356



100% of Pre-Tax Corporate Income

$55,308

$71,068



Loans from 1858910 Ontario Inc.

$78,074

$95,749



Total

$337,667

$418,869


[24]

While this overall approach was appropriate, in my view, there was a
    clear error in its execution in relation to the loan amounts. The motion judge
    attributed corporate loans to the appellant as income in the appellants hands
    under s. 18(1). However, at para. 94 of his reasons the motion judge found that
    the appellant had repaid the loans. Loans that were repaid should not have been
    attributed to the appellant as income.
[25]

This error resulted in the adjusted income attributed by the motion
    judge to the appellant in 2012 and 2013 exceeding the total revenue of the
    Corporation. The total revenue for the Corporation for 2012 and 2013 was
    $260,222 and $355,430, respectively.
[26]

The amount the motion judge arrived at for 2012 almost exactly exceeded
    the Corporations total revenue by the amount of the loan: $337,667 - $78,074 =
    $259,593 (only $629 short of the Corporations total revenue for that year).
[27]

For 2013, simply subtracting the amount added in relation to the loan
    yields an amount that falls short of the Corporations total revenue by
    $32,310:  $418,869 - 95,749 = $323,120. This is because of additional expenses
    in 2013 for rent ($10,600), advertising and promotion ($10,174), insurance
    ($2,805), office-related ($2,327) and telephone ($5,625) expenses, which the
    motion judge considered legitimate and therefore appropriately did not add back
    in to the adjusted amount.
[28]

Other than the loan error, the motion judge made no other clear errors. 
    The appellant submits a number of additional errors.  These include attributing
    to the appellant the difference between management fees expensed and claimed,
    grossing up amounts attributed to rent and amortization, and failing to take
    into account that the company and appellants tax year did not line up.  On the
    basis these errors, the appellant requests a rehearing of the issue of income.
[29]

The motion judge attributed to the appellant the difference between the
    management fees expensed by the Corporation and the fees that he declared as
    income on his T4 income tax statement. There was, in my view, no clear error in
    doing so. There was no suggestion that anyone other than the appellant received
    the management fees paid by the Corporation.
[30]

I also see no clear basis for the additional submission raised in oral
    argument that the motion judge erred in grossing-up amounts attributed to rent
    and amortization. The motion judge found that for 2012 the Corporation had no
    legitimate rent expenses. Accordingly, it was appropriate for him to add back
    what he found to be an illegitimate deduction. This amount was not grossed-up
    but simply denied as a deduction and added back to the corporate income amount.
    For 2013, when there was evidence that the Corporation had a legitimate rent
    expense to an arms length landlord, the rent amount was not added back.
[31]

Similarly, the motion judge found, at para. 81 of his reasons, that the
    amortization deductions should be disallowed as expense deductions in the
    calculation of the Corporations pre-tax income because he found that there
    were no actual payments made in relation to these expenses. Again, these
    amounts were not grossed-up but simply eliminated as deductions from the
    Corporations pre-tax income.
[32]

The amounts that the motion judge did gross-up were personal expenses
    paid by the Corporation, such as those for car expenses, so-called professional
    fees, travel and furniture. These were appropriately grossed-up because had the
    Corporation not paid for them, they would otherwise have been paid for out of
    the appellants after-tax income.
[33]

It is possible that there is something to the argument that the
    corporation and appellants tax year did not line up.  If accepted, this might
    result in some small adjustment although it is not clear that over multiple
    years it would necessarily be in the appellants favour.  Furthermore, if there
    is any error here it does not in my view rise to the level of palpable and
    overriding error warranting appellate intervention. This is part of the risk
    the appellant incurred in providing inadequate disclosure to the court as well
    as inaccurate information to his expert.
[34]

Correcting only for the palpable and overriding error in counting the
    loans as income, I would accordingly attribute income to the appellant for 2012
    and 2013 in the amounts of $259,593 and $323,120.
[35]

Although these amounts are above $150,000, I would not interfere with
    the motion judges determination that there was no evidence that awarding the
    presumptive amounts under the CSGs would be inappropriate.
[36]

Based on this income, the CSGs indicate a monthly amount of $2,073 for
    2012 and $2,544 for 2013.The motion judge did not have income information for
    2014 and so continued the same monthly amount from 2013. I would, therefore,
    order that he pay $2,544 for 2014 pending further evidence and order of the court.
Issue 2:  Ten months vs. twelve months of support
[37]

The appellant submits that the motion judge erred in not continuing the
    provision in the Wildman Order that child support be paid for ten months each
    year. I disagree.
[38]

When the appellant brought his motions to change, the court was obliged
    to consider any variation in accordance with the CSGs:
Doyle v. Doyle
,
    2006 BCCA 128, 223 B.C.L.R. (4th) 271, at para. 11 and s. 17 (6.1) of the
Divorce
    Act
, R.S.C. 1985 c. 3.
[39]

Pursuant to s. 9 of the CSGs, for a parent to meet the 40 percent
    threshold warranting a set-off of child support, the parent must exercise a
    right of access for not less than 40 percent of the time over the course of
    year. The appellants submission is inconsistent with s. 9.  If accepted it would
    permit a set-off based on equal time with both parents over the two summer
    months that does not meet the annual 40% threshold required by s.9.
[40]

It is not open to the appellant to pick and choose the portions of the
    CSGs he wants to apply to his case. The motion judge made an order consistent
    with s.9 of the CSGs. There is no basis for appellate interference.
E.

DISPOSITION
[41]

I would allow the appeal to the extent that paragraph 1 of the motion
    judges order is amended to reflect an income of $259,593 and a monthly child
    support figure of $2,073. Paragraph 2 of the motion judges order is amended to
    reflect an income of $323,120 and a monthly child support figure of $2,544. The
    appeal is otherwise dismissed.
[42]

There has been divided success on the appeal. Normally that would result
    in an order that the parties bear their own costs. However, given the
    appellants conduct, I would order that he pay the respondent her costs of this
    appeal, which I would fix at $10,000, on a partial indemnity basis, inclusive
    of fees, disbursements and H.S.T.  This costs order may be enforced in the same
    manner as child support.
Released: RGJ MAY 04 2017
C.W. Hourigan J.A.
I agree. R.G.
    Juriansz J.A.
I agree. P Lauwers
    J.A.