Hendrickson v. Hendrickson

Hendrickson v. Hendrickson Court Supreme Court Date 2005-10-13 Citation 2005 NSSC 272 Docket 1201-057159, SFHD-019504 Judge/Registrar/Adjudicator Williams, R. James (Honourable Justice) (SC) Document Type Decision Relations Library Sheet - Hendrickson v. Hendrickson - 2005 NSSC 272 - 2005-10-13 - Library Sheet Decision Content IN THE SUPREME COURT OF NOVA SCOTIA (FAMILY DIVISION) Citation: Hendrickson v. Hendrickson, 2005 NSSC 272 Date: 20051013 Docket: 1201-057159 SFHD-019504 Registry: Halifax Between: Peter Hendrickson Petitioner v. Kim Hendrickson Respondent Judge: The Honourable Justice R. James Williams Heard: January 31, 2005 April 15, 2005 July 13, 2005, in Halifax, Nova Scotia Decision: October 13, 2005 Counsel: Michael King, for the Petitioner Deborah Conrad/Gordon Kelly, for the Respondent By the Court: [1] This is an application to vary a child support order made pursuant to the Divorce Act, 1985. The application is brought by Peter Hendrickson. The application is to vary the Corollary Relief Judgment dated July 14, 2004 (affirmed on appeal April 15, 2005). [2] Peter Hendrickson (b. September 5, 1960) and Kim Hendrickson (b. September 9, 1958) were married October 5, 1997. They had cohabited since November 1996. Their son, Chad, was born July 15, 1999. He is six years old. The Hendricksons separated over a period of months (December 2001 to April 2002). [3] They have been involved in almost constant litigation since shortly after their separation. The litigation has focussed on child support and involved provisions of the Divorce Act, 1985 and the Federal Child Support Guidelines. THE LITIGATION PROCESS [4] Since separation the course of the parties’ litigation has included: 1. December 16, 2002 - An Interim Hearing was held before Justice Gass of this Court. 2. December 19, 2002 - Justice Gass made an Interim Order that required Mr. Hendrickson to pay child support monthly of $3,291.00 (table amount based on annual income of $450,000.00), plus $1,740.00 (87% of $2,000.00 per month in s. 7 expenses), for a total payment of $5,131.00 per month. 3. August 28, 2003 - Mr. Hendrickson applied to vary the Interim Order on July 15, 2003. The October trial dates were pending. Ms. Hendrickson’s counsel opposed the variation proceeding saying she had inadequate notice, and insufficient time to prepare. Justice Campbell granted an Order suspending enforcement of the Interim Order until trial. A garnishment (enforcing the Order of Justice Gass) was ordered “to be void as of this date”. The Interim Order was not varied. 4. October 20, 21, 22, 28, 28, 29 and 30, 2003 - The Divorce Trial took place before Justice Kelly. Justice Kelly reserved his decision and made an Order dealing with child support “until further order”. He ordered that Mr. Hendrickson pay child support of $3,400.00 per month. 5. December 15, 2003 - Justice Kelly received submissions from counsel. 6. April 16, 2006 - Justice Kelly delivered (orally) “Part I" of the Trial Decision. This portion of the Decision dealt with the determination of Mr. Hendrickson’s income. 7. May 14, 2004 - Counsel made additional submissions. 8. May 25, 2004 - Justice Kelly delivered (orally) “Part II” of the Trial Decision. Part II dealt with s. 7 Child Support Guideline issues and property issues. 9. July 14, 2004 - The Corollary Relief Judgement was issued. 10. July 23, 2004 - Justice Kelly’s Decision was appealed by Mr. Hendrickson. 11. July 30, 2004 - The written (transcribed) trial Decision was released. 12. August 9, 2004 - Mr. Hendrickson applied to the Nova Scotia Court of Appeal for a stay of execution of the provisions of the Corollary Relief Judgment as they relate to the enforcement of provisions concerning support, support arrears and costs. The Court granted a partial stay - “only to the extent that Mr. Hendrickson’s RRSP’s are exempt from execution” - and contemplated Mr. Hendrickson’s compliance with the Order by refinancing equity in his condominium, taking a shareholder’s loan, or other means. 13. August 25, 2004 - This Variation Application was commenced. 14. November 8 and December 13, 2004 and January 21, 2005 - Justice Gass held pre-trial conferences dealing primarily with disclosure issues. 15. January 31, 2005 - The Variation Hearing commenced. Evidence was heard from Anne Marie Stuart, Lori Laderoute, Craig Whynot, Peter Hendrickson, Trevor Churchill and Paul Francis Bradley. Mr. Churchill was called by Ms. Hendrickson. The matter was adjourned to February 21, 2005 for completion. 16. February 18, 2005 - Ms. Hendrickson’s counsel applied for an order pursuant to Civil Procedure Rule 44.06 declaring that she had ceased to be Ms. Hendrickson’s lawyer. The Order was granted at Ms. Hendrickson’s request. 17. February 21, 2005 - Ms. Hendrickson applied to adjourn the date of completion of the variation hearing so that she could retain alternative counsel. Mr. Hendrickson’s counsel opposed the adjournment request. The matter was adjourned to March 2, 2005. 18. February 23, 2005 - Ms. Hendrickson requested adjournment of the March 2nd date, indicating she had an appointment with a lawyer on March 1st. The trial date was adjourned to April 15, 2005. 19. April 13, 2005 - Ms. Hendrickson’s “new” counsel (Mr. Kelly), applied to adjourn the April 15th Variation Hearing date (until receipt of the Appeal Court decision). The request was denied. 20. April 15, 2005 - The Appeal Court Decision was released. The evidentiary portion of the Variation Hearing was completed. Evidence was heard from Carolyn Reynolds and Kim Hendrickson, and dates were set for the filing of post-trial briefs in May. 21. May 31, 2005 - An Application was brought by counsel for Mr. Hendrickson to introduce new evidence (the year end Financial Statement of Tour Tech East Limited for the Year Ending January 31, 2005 and a Statement summarizing total depreciation and capital payments). The Hearing for this Application was scheduled for July 13, 2005. 22. June 17, 2005 - The Trial Judge heard an Application to fix (tax) costs arising from the Divorce Trial. An oral Decision was made June 22, 2005. The Trial Decision provided that Mr. Hendrickson was to pay as a contribution to Ms. Hendrickson’s costs: a. $2,500.00 (relating to the costs of the two interim applications) b. 70% of the disbursements incurred by Ms. Hendrickson for the disbursement(s) related to Paul Bradley, an accountant and expert witness who testified at trial concerning property and child support issues. The Application to tax these “Bradley” costs arose from the direction of the Court of Appeal. Mr. Hendrickson was ordered to pay $36,304.63 as his 70% share of Mr. Bradley‘s account of $51,862.00. 23. July 13, 2005 - The Application before me to introduce new evidence (on the Variation Application) was heard and denied. This application sought to introduce Tour Tech’s financial statements which were not available at the hearing. Counsel for Ms. Hendrickson made it clear that should the statements be admitted, it would, in his view, trigger a right to examine/cross-examine more than one witness on these statements, and to a right of discovery, disclosure of related documentation and information. The Variation Hearing would, for all intents, be reopened. [5] It is evident that both Mr. and Ms. Hendrickson have spent tens of thousands of dollars in legal fees and disbursements in these on-going proceedings. THE CHILD SUPPORT GUIDELINES OBJECTIVES [6] The issues before the Court in this proceeding relate to the Federal Child Support Guidelines. [7] In Henry v. Henry, 2005 Carswell Alta. 17, Paperny, J. A. Of the Alberta Court of Appeal stated (at paragraph 19): The exercise of judicial discretion in awarding child support must be consistent with and shaped by the fundamental principles of child support and the stated goals and objectives of the Guidelines, and any such exercise should be measured against them. [8] I agree and have attempted to do so. [9] The objectives of the Federal Child Support Guidelines are stated at s. 1 (of the Guidelines): 1. The objectives of these Guidelines are (a) to establish a fair standard of support for children that ensures that they continue to benefit from the financial means of both spouses after separation; (b) to reduce conflict and tension between spouses by making the calculation of child support orders more objective; (c) to improve the efficiency of the legal process by giving courts and spouses guidance in setting the levels of child support orders and encouraging settlement; and (d) to ensure consistent treatment of spouses and children who are in similar circumstances. THE VARIATION APPLICATION [10] Mr. Hendrickson’s Variation Application, filed August 25, 2004, seeks “variation of the quantum of child support and the proportionate share of extraordinary expenses payable by Mr. Hendrickson pursuant to paragraphs 4, 6, and 7 of the Corollary Relief Judgment”. The Corollary Relief Judgement states, in part: AND UPON FINDING that the Petitioner, Kim C. Hendrickson, has an annual income of $43,000.00. AND UPON FINDING that the Respondent, Peter G. Hendrickson, has an annual imputed income of $400,000.00 for the purpose of calculating child support in accordance with the Federal Child Support Guidelines; ... 4. The Respondent, Peter Hendrickson, shall pay to the Petitioner, Kim Hendrickson, base child support for the one child, Chad Hendrickson, born July 15, 1999 in the amount of $2,931.00 per month payable in two equal monthly installments of $1,465.50 each, commencing on the 4th day of June, 2004 and continuing on the anniversary of every second week thereafter, being the Respondent’s payday, until further Agreement or Court Order. 5. The Respondent, Peter Hendrickson, shall further pay to the Petitioner, Kim Hendrickson, the arrears of child support in equal monthly installments over the next 18 months (the equalization payment of $8,479.40 shall reduce the arrears from $25,000.00 to $16,520.16). For further clarity, the Respondent shall pay the sum of $917.81 payable in two equal installments of $458.90 each, commencing on the 4th day of June 2004, and continuing on the anniversary of every second week thereafter until January 2006, at which time the arrears shall have been paid. 6. The Respondent, Peter Hendrickson, shall pay child care expenses on a pro-rated basis of 40% of those costs, which costs shall be the reasonable salary costs for nanny services similar to that now provided, reasonable transportation expenses incurred in transporting the child to and from school and activities and related costs appropriately incurred on the child’s behalf. For further clarity, the Respondent shall pay 40% of $1,753.65 which was the salary paid by the Respondent’s company, Tour Tech East, to the nanny, Jane Martin. The Respondent, Peter Hendrickson, shall, therefore, pay the sum of $701.46 to the Petitioner, Kim Hendrickson, payable in two equal monthly installments of $350.73 each, commencing the 4th day of June, 2004 and continuing on the anniversary of every second week therefore being the Respondent’s payday until further Agreement or Court Order. 7. The total of each payment shall be in the amount of $2,275.13 (half of the combined total monthly sum - $1,465.50 + $458.90 + $350.73) until January 2006, at which time the payment shall be reduced to $1,816.23 (the combined total less $458.90 being the arrears). [11] This variation application does not concern clause 5 of the Corollary Relief Judgment. [12] Clause 5 of the Corollary Relief Judgment deals with arrears of child support to, as I understand, May 25, 2004. [13] Clauses 4, 6 and 7 of the Corollary Relief Judgment deal with the support as ordered from June 4, 2004 forward (based on evidence that closed October 30, 2003). THE TRIAL DECISION [14] The last evidence heard in the divorce trial was October 30, 2003. In my view, it is the circumstances as of that date that were before the Trial Judge and determined in his Decision. [15] As the evidentiary portion of the Divorce Trial ended, the Trial Judge ordered that commencing November 7, 2003 Mr. Hendrickson pay, pending the Court’s Decision, child support of $3,400.00 per month. A table amount of child support for one child of $3,400.00 requires an income of approximately $465,000.00 per year. [16] The Trial Decision (given orally April 16 and May 24, 2004) ordered that commencing June 4, 2004 support (based on evidence that closed October 30, 2003) would be paid as follows: a. $2,931.00/month (Table amount for $400,000.00 income) b. $701.46/month (contribution to child care) c. $3,632.46/month total It is the support as of June 4, 2003 that is referenced in the variation application. [17] The initial question in this proceeding is whether there has been a “change in the condition, means, needs or other circumstances of either former spouse or of any child of the marriage...” as required by s. 17(4) of the Divorce Act, 1985. [18] The Trial Decision considered/included the following with respect to the determination of Mr. Hendrickson’s child support obligations. [19] At page 9: The most significant company for Mr. Hendrickson’s income assessment purposes is Tour Tech, in which he holds a 90% interest. This company and Holdings have been the principal sources of Mr. Hendrickson’s earnings and income for the past several years. Tour Tech provides services and equipment for the entertainment industry in North America, with a particular focus in Atlantic Canada and as well in Canada generally. This latter market of local and regional entertainers is its secondary focus, with its primary and most lucrative market the tours of nationally and internationally known entertainers. Its facilities include sound stages in Burnside park ... The company rents, sells and installs audio and lighting equipment... The evidence indicates that there are only a few companies in Atlantic Canada who market this service on a significant basis and that the market is extremely competitive. Mr. Hendrickson explains that in order to obtain the most lucrative and remunerative contracts, particularly for North American musical tours, it is important that the company invest in the most up-to-date technical equipment... [20] In addition, the Trial Court considered Mr. Hendrickson’s fifty percent interest in Hendrickson Holdings Ltd., a business that sold lottery tickets “offshore”. The business was described as a “cash cow” whose “life” was terminated when Atlantic Lottery terminated its license in July 2002. [21] At page 12, the Trial Judge indicated: ...The evidence disclosed that Holdings had, from time to time, loaned considerable funds to Tour Tech, apparently in excess of $800,000, thus assisting in the growth of that company, to Mr. Hendrickson’s benefit (as owner of half of Holdings and 90% owner of Tour Tech). Because the funds loaned to Tour Tech are unlikely to be repayed, and as this investment contributes to the income available to her husband, Ms. Hendrickson and Chad tends indirectly to benefit from these loans by the benefit that Tour Tech obtains from the unpaid debt. [22] At page 13: I conclude that the only prospective source of income now available to Mr. Hendrickson is from his employment with and his shareholdings in Tour Tech. [23] The Trial Judge concluded that Tour Tech (Tour Tech East Ltd. And Tour Tech LLC America) had pre-tax income as follows: January 31, 2000 $205,134.00 January 31, 2001 $371,778.00 January 31, 2002 $490,730.00 January 31, 2003 $764,765.00 [24] The evidence received in the trial ended October 30, 2003. Tour Tech had (until Holdings lost its lottery sales licence in July 2002) been able to rely on Holdings to assist it in its financing. After the demise of Holdings the “cash cow” was no more. [25] The Trial Court also concluded: at page 15: [31]...there is little basis to suggest that Mr. Hendrickson deliberately overspent on equipment in anticipation of or following the break-up at page 16: [33]... I am not persuaded that the significant equipment purchases in question were not a sound and appropriate business decision rather then a scheme to affect a child support assessment. at pages 19-20: [44] Imputing income from the net taxable income of a company such as Tour Tech is obviously a complex matter because of the rather unusual type of business it conducts. On the other hand, the obligation under the Guidelines to ensure the proper financial support for the child is important for his present and future development. [45] Tour Tech has been unusually successful in recent years but the unaudited and incomplete status of the September 2003 financial report raises at least the possibility of non-continuous increases in pre-tax income. Courts must be wary of ‘second guessing’ management decisions when not satisfied that management was deliberately diverting corporate income to avoid support obligations, as there may be a real risk of undermining the financial health of a company. The financial health of Tour Tech now appears to be the main future financial source to support Chad’s upbringing and education. [46] After reviewing the extensive evidence and argument in this matter, and applying Guidelines principles, I impute income of Mr. Hendrickson of $400,000. This finding will obviously affect other matters in issue which have been deferred to a later hearing to permit further submissions from the parties. [26] With respect to s. 7 expenses, the Trial Judge said: at page 21: [54] The second item in issue is that of extraordinary child care expenses under Section 7 of the Federal Child Support Guidelines. Applying the Nova Scotia Table of the Guidelines, a monthly award of an income imputed to be $400,000 for one child results in a figure of $2,931 per month. On a yearly basis, this translates to $35,172 (tax free). Added to Ms. Hendrickson’s income of $43,000, this appears to be a fairly stable income base for her and the two children. Ms. Hendrickson submits that this child support amount is entirely appropriate having regard to the condition, means and needs and other circumstances of the parties and Chad, who is entitled to support in accordance with the means and needs of each of his parents. [55] Further, Ms. Hendrickson submits that Mr. Hendrickson has the financial ability to contribute this level of support and seeks further levels of support, pursuant to Section 7 of the Guidelines. at page 22: [57] Thus, the awarding of extraordinary expenses is limited in nature and is discretionary. Ms. Hendrickson claims that under this section certain child care expenses and private school expenses should be paid. She initially argued that Chad who, at five years of age, starts school in the fall, was entitled to attend a private school, as the parties had enrolled her daughter from a previous marriage in private school during the course of their cohabitation and thus established their educational intentions. The cost is to be approximately $6,000 per year and it was submitted the cost should be approximately 90% to 10% in her favor in view of their respective incomes. Mr. Hendrickson has expressed his interest in private education for Chad but submitted that his financial situation did not allow it in view of his high child support obligation. [58] During final argument, Ms. Hendrickson changed her position somewhat and proposed that since they both wished private education for their son, she would be willing to share the cost equally under certain conditions. Mr. Hendrickson did not accept this proposal. Section 7(1)(d) requires a finding that such an expense be “extraordinary” and required to meet the child’s “particular needs”. I am advised that Chad is a normal child, balanced and intelligent and there is no evidence that he would not thrive in a public school environment. [59] I am not satisfied that the particular need for private education and for an “extraordinary expense” has been established by the evidence at the present time, nor that the evidentiary requirements of the sections have been satisfied. [60] In relation to the child care aspect of this issue, it is Mr. Hendrickson’s submission that Ms. Hendrickson could use a babysitter rather than a full time nanny. This may well eventually develop to be the case but the facts do not support this as a reasonable alternative under the present circumstances. Chad will be just past his fifth birthday and has never been exposed to the formal school environment and will be going through an adjustment period. In his initial year, he apparently will attend for only one half day and will only need supervision during either his mother or father’s working day, as Ms. Hendrickson operates her own business outside the home. Since it is not a nine to five business, requiring her attendance outside the home at other hours, she needs a reliable supervisor with whom Chad will be comfortable and who is available at irregular times. [61] Mr. Hendrickson has an even more irregular schedule than Ms. Hendrickson because of his management role in Tour Tech, an entertainment enterprise that often requires his presence outside of Nova Scotia. The agreed access schedule will enable him to have Chad with him at least while he is in the province for several weeks during the year when he will in the same way require another person to supervise Chad. Fortunately both parties have demonstrated their concern for Chad’s best interests by prior agreement described in the proposed draft order. They indicate that they are willing to share the nanny at least during the nanny’s working days, regardless of which parent has charge of him. This arrangement is a benefit for Chad for purposes of consistency, and also an advantage for both parents. [62] I therefore conclude that in the present circumstances, considering the financial situations of both parties and the present employment of the nanny, the use of the nanny is reasonable. There has been considerable disagreement regarding the actual cost of the nanny and how that expense should be shared. The onus is on Ms. Hendrickson to establish the quantum of the expense under section 7, including the calculation required under section 7(3). [63] Mr. Hendrickson claims that Ms. Hendrickson has not discharged that onus. I disagree. There has been much evidence, although it is not totally precise, of the salary paid directly by Tour Tech in the past, as well as some direct evidence from Ms. Hendrickson estimating that the total cost was approximately $2,000 a month. This included payments of $9.00 per hour, increasing in December, 2003 to $10, plus other costs which, from my recollection, included a cell phone and medical and other expenses that related to the nanny’s services. I do not intend to fix the costs at this time, but I direct them to be phrased in the following way: The reasonable salary cost for a nanny’s service similar to that now provided, reasonable compensation, expenses, compensation for expenses incurred in transporting the child to and from school and other activities and related costs appropriately incurred on the child’s behalf. [64] In Hatfield v. Hatfield (2000), 186 N.S.R. (2d) 183, Justice Campbell commented on the application of Section 7(2) of the Guidelines: The guiding principle is to share in proportion to incomes but the court is given a discretion to direct the sharing of those types of costs in some other fashion having regard to the means of the spouses among other things. In the end, qualifying expenses will be shared by reference to the parties relative ability to pay recognizing historical family spending patterns. [para 8] [65] It is this principle that the court must “take into account”, a phrase that indicates the court might take other relevant matters into consideration as well. One of the unusual features of this expense is that it is personally beneficial to both parties, as the nanny will be available to Mr. Hendrickson during access periods. I also consider relevant the fact that some $35,000 is being paid to Ms. Hendrickson tax free for Chad’s child care costs. I further note that a significant portion of the child care expenses can be claimed by Ms. Hendrickson as a taxable expense. [66] I have discussed the parties’ relative ability to pay and the family spending patterns. After reviewing these and other factors required by the Guidelines section, I conclude that an equitable sharing of child care costs would be 60% paid by Ms. Hendrickson and 40% by Mr. Hendrickson. [27] The Corollary Relief Judgment provides that Mr. Hendrickson pay as his contribution to child care expenses “40% of $1,753.65/mo. ($21,043.80/yr), which was the salary paid by...(his company)...Tour Tech East, to the Nanny, Jane Martin.” His payment is stated to be $701.46 a month, $350.73 each second week. ($350.73 each second week is actually $759.33 per month using an average of 4.33 weeks in a month (52 ÷ 12 = 4.33). I have assumed that it is a total of $701.46 monthly that is to be paid. The child care contribution is for what seems to be a full-time nanny. THE NOVA SCOTIA COURT OF APPEAL [28] The Trial Decision was appealed. The Nova Scotia Court of Appeal, in its decision of April 15, 2005, stated (at p. 4): It was Mr. Hendrickson’s position that he could not draw substantially more from the company than his salary of $85,000.00. That position did not find favour with the Judge. The Judge was alive to the unique nature of Tour Tech’s operations; the need for the company to continually refurbish its operations through the purchase of state of the art equipment; and the risk that he not fix income at a level that would undermine the financial health of the company. The Judge did not detail the calculations which led him to the $400,000.00 figure. It is clear, however, that he based it on a three-year average of Tour Tech’s pre-tax income (see ss. 17 and 19 above...) This blunted the financial effect of Tour Tech’s most recent corporate earnings which represented an unusually successful year. It is further clear that the amount fixed by the Judge represented but a percentage of that company’s average pre-tax income, using the figures provided by Mr. Hendrickson. I am satisfied that the Guidelines income amount imputed by the Judge was a conservative estimate of that available to Mr. Hendrickson. [29] The Court of Appeal regarded the “most recent corporate earnings” considered by the Trial Judge to be those for the year ended January 31, 2003 (which were “unusually successful”). DISCLOSURE [30] Disclosure, and alleged lack of disclosure, has been an ongoing issue in this file. [31] Prior to the Variation Hearing now before the Court (and after the filing of the Variation Application), the following appearances, court interventions took place: a. November 8, 2004 - an organizational pre-trial took place before Justice Gass. The matter was adjourned to a one-hour pre-trial “to deal with disclosure issues” on November 22, 2004. b. November 18, 2005 - applications for an Order for Security for Costs and Order(s) of Production were filed by counsel for Ms. Hendrickson. Cross applications were also filed. c. November 22, 2004 - The matter was removed from the Court docket - at the request of counsel for Ms. Hendrickson, with agreement by counsel for Mr. Hendrickson. d. December 13, 2004 - A pre-hearing conference was held before Justice Gass. It dealt with disclosure issues and the application for security for costs. e. December 17, 2004 - Justice Gass issued an Order which provided, in part: IT IS ORDERED THAT, with regard to disclosure items in dispute which were addressed at the hearing of the matter: (A) Letter to MEP from Lori Laderoute: If the Applicant is relying in any way on a reduction of his workload resulting in a decrease in income since October, 2003, then any documentation relating to this health circumstances and ability to work shall be produced; Mr. Hendrickson chose not to rely on these alleged circumstances at trial, and did not file the letter. It was filed by Ms. Hendrickson, who subpoenaed a representative from MEP (Maintenance Enforcement Program). (B) Sworn Statement of Property: If there is any change in the Applicant’s Statement of Property (acquisitions or divestments) since October, 2003, those changes shall be disclosed; The Statement of Property and Affidavits were provided, filed. f. January 21, 2005 - Justice Gass held a telephone pre-hearing conference. The Court file indicates: Telephone pre-trial conference held this date resulting from correspondence of January 12, 17 and 19, 2005. Counsel continue to disagree on disclosure. Court indicated it was open to both counsel to argue that adverse inferences be drawn at the trial which will proceed before Justice Williams on January 31, 2005. [32] This Variation Hearing commenced on January 31, 2005. When asked “are there any preliminary matters?” neither counsel sought an adjournment as a result of “disclosure issues”. [33] Ms. Hendrickson’s counsel raised the issue of disclosure in her pre-trial brief, however, saying that there were issues related to Mr. Hendrickson’s disclosure in the following areas (at pp. 5-7): a. “Prior to separation Tour Tech East Ltd. Paid many household and personal expenses and they were not treated as loans...but now Mr. Hendrickson is claiming that these expenses are loans...” b. “There has been minimal disclosure in relation to RCA.” c. “...there is a discrepancy in amounts owing Hendrickson Holdings” d. “...there is little information on a company called New Line Holdings.” e. “...little or no information on a numbered company” f. “...little information on the transfer of a condo by Mr. Hendrickson to his mother.” [34] The matter proceeded on January 31st with evidence heard from a number of witnesses, including Mr. Hendrickson. The hearing was adjourned to February 21, 2005 for completion - Ms. Hendrickson being the principle remaining witness. Ms. Hendrickson released her counsel and after a series of adjournments, the evidence was completed April 15th, 2005 (after Ms. Hendrickson had retained new counsel). [35] In his post-trial brief of May 10, 2005, her (new) counsel argued that the first issue for the Court is: Has the Applicant (Mr. Hendrickson) met all of the disclosure requirements in order for this Honourable Court to consider his Application to Vary...? [36] He referred to subsections 21-25 (supra) of the Child Support Guidelines (attached as Appendix “A”) and Civil Procedure Rules 70.28 and 70.09 (attached as Appendix “B”). I have reviewed and considered these provisions. [37] As I indicated, disclosure has been an ongoing issue. I note the following: 1. Numerous pre-trial appearances dealt with disclosure for the Variation Hearing. Justice Gass dealt with these and had a clear expectation that the trial on the Variation Application would proceed. 2. Mr. Hendrickson’s counsel, in replying to the post-trial submissions of Ms. Hendrickson’s counsel, filed a series of letters between counsel (from October 2004 to the date of the Variation Hearing). These letters address many of the issues raised. For example, Mr. Hendrickson’s counsel wrote on December 8, 2004: The shareholders loan was transferred to the numbered company because the numbered company owed Hendrickson Holdings Ltd. Money which Hendrickson Holdings Ltd. Had borrowed for RCA. As you are aware, Peter Hendrickson personally guaranteed the financing for the RCA, therefore he had to pay the shortfall. This is part of the liability that we will be asking the Court of Appeal to divide between our clients. The RCA was unwound because Hendrickson Holdings Ltd. Went out of business... The mechanics of the setting up and unwinding of RCA were set out in detail at trial. If you want Mr. Bradley to speak directly to Mr. Blom he may do so... RCA was a company whose circumstances were considered by the Trial Judge. Mr. Hendrickson’s accountant with respect to RCA was Mr. Blom. Ironically Mr. Hendrickson wanted Ms. Hendrickson to share the asset (liability) - she declined - and the Court agreed. Mr. Hendrickson’s counsel stated that RCA was unwound, and, that like Hendrickson Holdings, it was inactive. 3. The Exhibit Book filed by Ms. Hendrickson’s counsel includes Mr. Hendrickson’s personal tax returns for 2000 through 2003, unaudited consolidated financial statements of Tour Tech East Ltd. For January 31, 2000, 2001, 2002, 2003 and 2004; internal Tour Tech statements for August 31, October 31, November 30 and December 31, 2004 - and some 30 other documents from Tour Tech and/or Mr. Hendrickson. 4. Mr. Hendrickson’s evidence was given, his case closed, January 31, 2005. His 2004 income tax return was not available. Nor was the January 31, 2005 year end financial statements for Tour Tech. [38] I conclude that Mr. Hendrickson made adequate, if imperfect, disclosure. I draw no adverse inference from any failure to disclose. [39] Mr. Hendrickson’s counsel made essentially the reciprocal arguments, complaints concerning disclosure by Ms. Hendrickson who operates her own company(ies). Like Mr. Hendrickson’s, her disclosure was imperfect. The last statements filed concerning her company, ESP Events Services and Production Inc., were Interim Statements (8 mo.) To August 31, 2004. She gave her evidence on April 15, 2005. The need for her disclosure is triggered by her s. 7 Special Expense claims. Like Mr. Hendrickson, I draw no adverse inference from any imperfections in her disclosure. [40] An enormous amount of time and money has been expended by these parties litigating the issues before the Court. I have concluded that both parties have made adequate disclosure, that I have sufficient information before me to decide the issues. I am cognizant of the responsibility, onus, to disclose that payors of child support and, in some circumstances, payees have. Both parties have had an opportunity to cross-examine the other. Both have done so. THE WITNESSES [41] I have reviewed the evidence of each witness called. 1. Anna Marie Stuart: [42] Ms. Stuart is a Certified Management Consultant and Certified Management Accountant with Grant Thornton LLP. Counsel for Mr. Hendrickson asked that she be qualified to give opinion evidence “...on an estimated salary range commensurate with the services provided by Peter Hendrickson as President and CEO to Tour Tech East Ltd.”. In giving her evidence, she stated: I want to be very clear. What I’ve said here is what the market range of salaries would be for someone who is a senior executive within a company. That’s different than the amount of money one might take out of their company. But this is what the market salary would be for someone with a comparable position...in Atlantic Canada. [emphasis added] [43] Counsel for Ms. Hendrickson stated: ...for the limited purpose of giving a market salary range for an employee, I don’t have a problem. [44] Based on this, and the evidence, I found Ms. Stuart qualified to give expert evidence, and admitted her report. I found her evidence relevant, specialized and its subject matter to be outside the experience of the Court. [45] Her evidence included: Q. And what in your opinion was the estimated salary range commensurate with the services provided by Peter Hendrickson as President and CEO of Tour Tech East Ltd.? A. Based on the secondary research we referenced a range of $100,000.00 to $170,000.00 Canadian. 2. Lori Laderoute [46] Ms. Laderoute is Mr. Hendrickson’s sister. She is employed by Tour Tech East Ltd. She has been employed there six to seven years. She indicated she now earns $50,000.00 a year from Tour Tech East. I conclude she is legitimately employed by, works for and provides services to Tour Tech. She indicated that she has lent her brother $16,175.00 - and Tour Tech owes her some $23,000.00. She indicated that Hendrickson Holdings and New Line Holdings are “no longer in business”. [47] Her Affidavit of November 30, 2004 states (at paragraphs 5, 6, 7, 8, 10): 5. That since these proceedings began in 2003 I have had to lend my brother Peter Hendrickson money personally in order to help him meet his expenses as well as Tour Tech East Limited’s in order for it to continue in operation. Attached hereto and marked as Exhibit “D” is a statement of a part of the personal loans made to my brother Peter Hendrickson totalling $16,175.21 for the period June to October 2003 inclusive. Recently I paid $060.00 on behalf of Peter Hendrickson to Cooper & McDonald for disbursements and $5,141.30 to Maintenance Enforcement to bring my brother Peter Hendrickson up to date in his payments. I paid the Maintenance Enforcement Program a further $621.00 in order to pay enforcement fees. These payments totalling$6,362.00 were made within the last three (3) weeks and I have not yet received back cancelled cheques. I did so as the Respondent had insisted that the Maintenance Enforcement Office suspend Peter Hendrickson’s driver’s licence and passport. Peter Hendrickson cannot operate Tour Tech East Limited properly without his driver’s licence and without the ability to travel internationally. 6. That on June 18th, 2004 I lent Tour Tech East Limited the sum of $24,000.00 in order that it continue its operations. Attached hereto and marked as Exhibit “E” is a copy of the cancelled cheque. There have been a number of other occasions during the past two (2) years when I have advanced money to Tour Tech East Limited to enable it to continue in business. 7. That the Applicant Peter Hendrickson was to pay our mother’s taxes in the amount of $36,382.92 which were incurred because of the cancellation of inter-corporate loans in Peter Hendrickson’s/Tour Tech East Limited’s favour. This was a part of Peter Hendrickson’s agreement with his mother Beverlee Hendrickson when these loans were cancelled. Beverlee Henddrickson suffered a substantial financial loss as a result of the cancellation of the loans. Peter Hendrickson was not able to make the payment and therefore I made the payment on this [sic] behalf. Attached hereto and marked as Exhibit “F” is a true copy of the cheque dated April 29th, 2004 payable to the Receiver General in that amount. 8. That there are no other members of Peter Hendrickson’s immediate family or their spouses or significant others on the payroll of Tour Tech East Limited. ... 10. That I am not prepared to lend any further funds to Peter Hendrickson or to Tour Tech East Limited until and unless he repays me what he currently owes. I cannot afford to lose the money that I have loaned him to date. I am worried about the precarious financial situation of the Company. 3. Craig Whynot [48] Mr. Whynot is the “accountant” for Tour Tech East Ltd. He is in his third year of a CGA (Certified General Accountant) Program. He has a B. Comm. He indicated: - the company had its line of credit reduced to $283,000.00; - equipment had been mortgaged to provide operating capital; - in October 2003 Mr. Hendrickson’s shareholder account was $106,247.47; $31,000.00 of this was “reclassified” as salary - it appears on his 2004 T-4, $77,500.00 was transferred to a numbered company. This appears to not have been a cash transaction, but rather a way for the company to deal with past expenses it paid on behalf of Mr. Hendrickson. [49] His Affidavit of November 30, 2004 asserted: 1. That I am the accountant/controller of Tour Tech East Limited and as such I have a personal knowledge of the matters hereinafter deposed to except where stated to be based upon information and belief in which case I verily believe them to be true. 2. That Tour Tech East Limited has been suffering from a serious cash flow problem for the past two (2) years which is being compounded because of the financial strain being put on the Company by Peter Hendrickson’s need for money to pay child support as well as legal and accounting fees arising out of his on-going matrimonial proceedings. [emphasis added] 3. That the Company has attempted to alleviate its cash flow problem but without success. In or about September of 2003 the Company increased its Line of Credit from $250,000.00 to $350,000.00. In or about February of 2004 the Bank reduced the Line of Credit to $300,000.00 because of its deteriorating financial situation. [emphasis added] 4. That further attempts have been made to improve the Company’s cash flow by way of refinancing the Company’s assets into longer term or long-term debt. Attached hereto and marked as Exhibit”A” to this my Affidavit is a summary of all of the outstanding loans and capital lease obligations of the Company as of October 31st, 2004. The Company did new refinancing of approximately $900,000.00 through BDC and BNS. These two (2) loans appear as the last two (2) loans on the attached Exhibit “A”. They have been paid down to those amounts from their original principal amounts. 5. That there have also been some equipment purchases which have been financed through various leasing institutions. A list of the Company’s capital lease obligations is also set out in the attached Exhibit “A”. 6. That a Company cannot write off the principal payments on its loan or the principal payments on its capital leases against the income of the Company. The Company has monthly capital payments on its loans of $36,129.81 and capital payments on its capital leases of $20,452.75. These monthly payments totalling $55,732.56 cannot be written off against the expenses of the Company but rather have to be paid for out of the profits of the Company and/or refinancing by way of borrowing and increasing the Company’s debt. The Company’s capital payments per year are now approximately 12 x $55,732.56, or $668,790.00. Though the Company can write off depreciation against income that will only total approximately $65,000.00 for this fiscal year. [emphasis added] 7. That the Company’s financial situation has become so strained that this past summer Peter Hendrickson’s sister, Lori Laderoute lent the Company the sum of $24,000.00 on a short term basis. That particular loan has been repaid. There have been other occasions in the past two (2) years when she lent money to the Company. 8. That attached hereto and marked as Exhibit “B” to this my Affidavit is a financial statement for Tour Tech East Limited to and including October 31st, 2004. Though there is, at this point, a pre-tax profit of $510,365.00 it does not take into account the principal payments on its loans and capital leases of $668,790.00. As well it does not take into account that the Company must pay corporate tax on its profits. More importantly the figure of $510,365.00 does not take into account the fact that the Company’s income begins to drop dramatically from this point on until its year end on January 31st, 2005. Indeed the months of December and January generally produce substantial losses. The Company’s expense structure is fairly inflexible and remains relatively the same each month. The Company is now in the process of laying off employees in an attempt to save the Company. At the end of October 2003 the Company had pre-tax profits of approximately $282,000.00. However the Company ended up with a year end loss of ($74,309.00). This year it is expected that the Company will have a pre-tax profit of $250,000.00 to $300,000.00 before it pays income tax and before it pays the principal payments and capital lease payments on its loans and capital leases of $668,790.00. [emphasis added] 9. That from a cash flow point of view the Company will have to borrow approximately $400,000.00 just to continue in operation and apart from the payment of income tax. [50] Mr. Whynot’s affidavit of January 26, 2005 asserts: 3. That attached hereto and marked as Exhibit “A” to this my Supplementary Affidavit is a true copy of a statement setting out the motor vehicle benefits received by Peter Hendrickson and paid for by Tour Tech East Limited. The motor vehicle in question is used for both business and personal use by Peter Hendrickson though the Company pays the entire expense for the vehicle. Tour Tech East Limited did not pay any other personal or household expenses for Peter Hendrickson other than four (4) payments of $135.00 each for four (4) of six (6) stress management sessions that Peter Hendrickson underwent during the months of August and September, 2004. Attached hereto and marked as Exhibit “B” to this my Supplementary Affidavit is a true copy of receipts. 4. That attached hereto and marked as Exhibit “C” to this my Supplementary Affidavit is a true copy of the latest month-end Consolidated Statement of Earnings for Tour Tech East Limited being for the period February 1st, 2004 to December 31st, 2004 showing earnings before income taxes of $351,055.00. Depending on how many days after the month end Statement is printed there may be a slight difference in the figures because in the two (2) weeks subsequent to month end some adjustments are usually made. It is expected that during the month of January 2005 (Company’s year end is January 31st) there will be a further drop of approximately $100-$125,000.00 in earnings before income tax bringing the total to approximately $225,055.00 to $251,055.00. Corporate tax (at the rate of 28%) will be between $63,015.00 and $70,295.00. 5. That attached hereto and marked as Exhibit “D” to this my Supplementary Affidavit is a true copy of a statement of Tour Tech East Limited’s total depreciation and capital payments on loans and capital leases for the Company’s fiscal years ending January 31st, 2004, January 31st, 2004 and an estimate for the period ending January 31st, 2005. Capital payments on loans and capital leases are not factored into the expenses of the Company on its Statement of Earnings as they are not deductible for tax purposes but must be paid by the Company each year. Because the Company borrowed approximately $900,000.00 this past year its capital payments on its loans and capital leases have increased from $418,084.00 to $595,100.00. This affects cash flow by a further $145,805.00. After payment of Corporate tax and the excess of capital payments over depreciation the “net earnings” in reality are about $35,000.00 ($250,055.00 - $70,295.00 - $145,805.00). 4. Peter Hendrickson [51] Mr. Hendrickson indicated that: - he anticipated that Tour Tech East would have a pre-tax profit of between $200,000.00 and $250,000.00 for the year ending January 31, 2005; - the company spent $1,471,000.00 on equipment for the year end January 31, 2003 and $614,000.00 for the next year. He indicated that less equipment expenditure makes the company less competitive. - Tour Tech America LLC is wholly owned by Tour Tech East. That portion of his business has been hurt by the rising Canadian dollar - business done in the U. S. does not profit the company as much and it is less attractive for U. S. film producers to come to Canada. - he is a 90% shareholder of Tour Tech East Ltd. The business provides light and sound equipment for the entertainment business as well as film studio rentals. - the company’s busiest time is “May to September”, and that it typically loses money between November to January because “we have a 65,000 square foot facility to heat...and jobs are less during that time”. - he was a month behind on his condo and mortgage for 1 Prince Street, Dartmouth. [52] Mr. Hendrickson filed a series of affidavits. They assert, in part, as follows: [53] His August 20, 2004 Affidavit: 8. THAT the Learned Trial Judge found that my primary source of income was from Tour Tech East Limited, which is a Nova Scotia company of which I am a 90% shareholder. The other 10% of the shares of the Company are owned by Allan Barrett, who is not in any way related to me. 9. THAT at trial the then most recent financial statement tendered into evidence was a statement for the period February 1st, 2003 to October 27th, 2003. The Company’s year end is January 31st of each year.... 11. THAT attached hereto and marked as Exhibit “D” is a true copy of the financial statement for Tour Tech East Limited for the year ending January 31st, 2004. In fact, the Company had a pre-tax loss of $74,309.00. This loss occurred over the period of February 1st, 2003 to January 31st, 2004. The loss was the result of a dramatic drop in the Company’s gross revenue over the previous year ($1,559,945.00 or 30%). The unusual and non-recurring item of $827,250.00 shown on the financial statement consisted of the cancellation of a Promissory Note or Promissory Notes due to an associated company no longer operating. It is not represent cash to Tour Tech East Limited buy rather the cancellation of previous borrowings. ... 13. THAT because of the substantial delay in this matter between the time the trial ended on October 29th, 2003 and the granting of the Final Corollary Relief Judgment on July 14th, 2004, my right to apply to the Court in a timely manner to vary the provisions of the Final Corollary Relief Judgment with respect to the level of child support has been seriously prejudiced. With the exception of a six (6) week period between the beginning of June and July 14th, 2004 which I argued over the terms of the Final Corollary Relief Judgment the delays were totally beyond my control. Indeed even this 6 week period of delay was in part caused by waiting for the Learned Trial Judge’s decision on costs. 14. THAT it is not possible for me to financially respond to the terms of the Final Corollary Relief Judgment in that, given the radically changed financial circumstances of Tour Tech East Limited, it is not possible for me to draw income of $400,000.00 from that Company even if the Court accepts the finding of the Learned Trial Judge that I was able to do so when the Company was projected to earn pre-tax profits of $376,144.83. I currently draw an annual gross salary of $94,700.00 from Tour Tech East Limited and that is my only source of income. It is not possible to pay the sum of $4,550.27 per month in after-tax dollars, as called for in the Final Corollary Relief Judgment herein, when I am only earning a gross annual income of $94,700.00. On an annual basis this represents after-tax payments of $54,603.24. On a pre-tax basis this represents virtually all of my gross annual income. Attached hereto and marked as Exhibit “F” to this my affidavit is a true copy of my personal income tax return for the taxation year 2003. 17. THAT I am currently being garnished for the full amount of my net income from Tour Tech East Limited and therefore I am unable to meet my own personal financial obligations as they come due. 18. ... My financial circumstances are not improving and I do not expect that Tour Tech East Limited will have a pre-tax profit for the fiscal year ending January 31st, 2005. That will make two (2) years of losses. (Mr. Hendrickson adjusted this forecast at trial as indicated.) [54] His Affidavit of October 8, 2004: 9. THAT at trial the then most recent financial statement tendered into evidence was a statement for the period February 1st, 2003 to October 27th, 2003. The Company’s year end is January 31st of each year. Attached hereto and marked as Exhibit “B” to this my Affidavit is a true copy of the said statement, which was entered into evidence at trial. 10. THAT on the basis of Exhibit “B” the Company’s pre-tax profit for the period ending January 31st, 2004 was projected to be $376,144.83. In my oral evidence I estimated the Company’s pre-tax profits for that year to be approximately $375,000.00. As it turned out I seriously miscalculated the projection. ... 17. THAT at the present time one hundred percent (100%) of my net income is being garnisheed by the Maintenance Enforcement Office. The Respondent is currently receiving in excess of Two Thousand Dollars ($2,000.00) per month from this garnishee. The Respondent also has received the sum of Ten Thousand Dollars ($10,000.00) which was garnisheed from me by the Maintenance Enforcement Office. ... 19. THAT I have been advised by the Respondent and by the Maintenance Enforcement Office that the Maintenance Enforcement Office is in the process of suspending my Nova Scotia Driver’s License and my Passport. This is being done at the continued insistence of the Respondent whom I believe doing it purely in an attempt to gain an advantage in bargaining and to harass me as much as possible. [55] His Affidavit of December 10, 2004 (concerning disclosure issues): 3. a) The Respondent’s solicitor was provided with a copy of the most recent financial statement for Tour Tech LL.C. (America) being for the fiscal year ending December 31st, 2003. We do not and never have generated monthly interim financial statements for this Company. We also provided the Respondent’s solicitor with copies of the Tour Tech LL.C. (America) bank statements and cancelled cheques for the period October 1st, 2003 to October 31st, 2004. Each month the bulk of the net revenues of this Company are transferred to the bank account of Tour Tech East Limited and are accurately reflected in the interim monthly statement of Tour Tech Limited. The bank statements and cancelled cheques of Tour Tech LL.C. (America) which has been provided to the Respondent’s solicitor clearly show this to be true. Though the interim monthly statement for Tour Tech East Limited is not consolidated in the strictest sense of the word, as used by an accountant, the interim monthly statements are in fact consolidated and accurately reflect the total revenue from both Companies; b) With respect to Paragraph 10 a portion of my shareholder’s loan was transferred to the numbered company (which was merely a vehicle used in the RCA structure as is well known to the Respondent) because the numbered company owed Hendrickson Holdings Limited money which Hendrickson Holdings Limited in turn had borrowed for the original funding of the RCA. I personally guaranteed the financing for the RCA and therefore I had to pay the shortfall. This was a part of the liability which I will be asking the Court of Appeal to divide between the Respondent and myself in my appeal. The RCA was unwound because Hendrickson Holdings Limited went out of business (as was found by Justice Kelly). The mechanics of the setting up and unwinding of the RCA were set out in great detail at the trial. Insofar as disclosure of the shareholder’s loan was concerned I provided the Respondent with all of the financial statements of the relevant Companies including Tour Tech East Limited. My solicitor Michael I. King, Q. C. Advised David Blom, C. A., the Company’s accountant, in writing to cooperate fully with Paul Bradley, C. A . Who was acting for the Respondent. He was instructed to provide Mr. Bradley with whatever information was requested. A copy of that letter went to the Respondent’s solicitor and a copy was attached to the Brief on costs filed on my behalf. The RCA did have a net value at the time of separation but Justice Kelly accepted the fact that because of the financial demise of Hendrickson Holdings Limited the RCA had to be dissolved. When the RCA was initially set up Hendrickson Holdings Limited borrowed the sum of $250,000.00 from the Bank of Nova Scotia. It used $250,000.00 of its own money. Hendrickson Holdings Limited then lent $500,000.00 to the RCA trust which was comprised of the $250,000.00 Bank of Nova Scotia loan and $250,000.00 from Hendrickson Holdings Limited’s operations. Of the $250,000.00 loan to the RCA trust$250,000.00 was then remitted to Canada Customs and Revenue Agency by Hendrickson Holdings Limited as required by law and the other $250,000.00 was deposited in the RCA trust. The RCA trust then used the $250,000.00 deposited into its to purchase a life insurance/retirement fund from ManuLife. ManuLife then lent the numbered company $450,000.00 using the insurance policy and Receiver General credit as collateral. The numbered company then lent the RCA trust $450,000.00. The RCA trust then paid back Hendrickson Holdings Limited $450,000.00 of which $250,000.00 was repaid to the Bank of Nova Scotia and $200,000.00 was used in operations. This was explained in great detail at the trial by David Blom, C. A. And is no mystery. The financial statements of Hendrickson Holdings Limited for the period ending August 31st, 2003 clearly show that the Company is defunct. AT the present time it has less than $5,000.00. The Respondent’s solicitor has been provided with copies of the bank statements and cancelled cheques for Hendrickson Holdings Limited for the period September 30th, 2003 to October 29th, 2004. The decision of Justice Kelly deals with a great deal of this evidence. The Respondent is merely attempting to “muddy the waters” in an attempt to give the Court the impression that there is far more money than is the case available for child support at the level currently ordered; c) That with respect to paragraph #11 the Respondent again wrongly indicates that the interim monthly financial statements of Tour Tech Est Limited do not reflect the income of Tour Tech LL.C. (America). Further though the earnings of Tour Tech East Limited in 2003 for the firs nine (9) months which were before Justice Kelley totalled $304,959.00 in fact the Company ended up with a pre-tax loss of $74,309.00). Income to October 31st, 2004 of $510,365.00 does not include the bulk of the income from Tour Tech LL.C. (America). The pre-tax profit figure at this point in the Company’s fiscal year in no way represents what the pre-tax profits will be for the Company’s year-end on January 31st, 2004. I expect a major drop in the pre-tax income for that period. I would point out that Justice Kelly’s decision is under appeal for a whole variety of reasons that are irrelevant to this application. d) That with respect to paragraph #12 Justice Gass was working off of Tour Tech East Limited’s financial statement for the period ending December 31st, 2001. As well the $450,000.00 included substantial salary and bonuses from Hendrickson Holdings Limited which ceased operations; e) That with respect to paragraph #13 the bottom line fact is that for the fiscal year ending January 31st, 2004 Tour Tech East Limited had a net pre-tax loss of ($74,309.00); f) That with respect to paragraph #14 the fact is that Hendrickson Holdings Limited loaned money to Tour Tech East Limited over the years and those loans were documented and legally treated as such. There is absolutely no evidence to suggest that my mother received the equivalent from the Company and therefore one balanced off against the other. The Respondent should be happy that the loan was forgiven as to some extent it helps to enhance Tour Tech East Limited’s balance sheet. g) With respect to the Respondent’s paragraph #16 I have provided the Respondent’s solicitor with complete details of monies withdrawn by me from Tour Tech East Limited. Apart from some monies received by repayment of my shareholder’s loan the rest of the monies were borrowed from Tour Tech East Limited. Tour Tech East Limited in turn had to borrow approximately $900,000.00 in the past year to refinance its equipment and operations. Included in the sums drawn from the Company were substantial sums for child support payments legal fees and accounting fees related to the divorce and settlement of a lawsuit by ManuLife Bank on the personal guarantee which I had signed with respect to the setting up of the RCA. The Respondent has copies of all of the cancelled cheques relating to money taken out of the Company. The result is that I now owe the Company several hundred thousand dollars which will become taxable income in my hands within the next year if I do not repay it to the Company. This money was not taken out as “income”. All I have succeeded doing in trying to stay above water financially on a personal basis, keep my Company going but at great cost in terms of debt and future tax liability. I cannot continue to borrow to meet child support payments which are net of tax. There are no fees paid to Terry Degan. Terry Degan represented New Line Holdings Limited which Company is owned by my sister Lori Laderoute. I understand that she paid Mr. Degan’s fees which were incurred as a result of one (1) of many allegations levelled during the trial by the Respondent which were rejected by the learned trial judge; h) That with respect to paragraph #17 the Respondent received the former matrimonial home by agreement and at an agreed upon market value. The issue was not contested. The Respondent was able to mortgage an asset in order to pay her legal fees and accounting fees. I had to borrow from Tour Tech East Limited because I did not have similar personal assets to borrow against. Further I am not in arrears in my child support payments nor am I in arrears with respect to the payment of arrears on child support. It has put Tour Tech East Limited in serious financial jeopardy to be and continue to be in that position. Though the Respondent admits to purchasing a further property and taking out a further mortgage of $435,000.00 she fails to mention that she put approximately $150,000.00 of her own money into the purchase of the property which I understand was purchased for approximately $580,000.00. My solicitor has asked the Respondent’s solicitor to provide the financial details with respect to the property but the Respondent has refused to do so. I did not say in Paragraph #21 of my affidavit that the Respondent put a collateral mortgage on the former matrimonial home in the amount of $600,000.00. I said that the collateral mortgage was in the “amount of up to $600,000.00". That as the Respondent cannot deduct the principal payment on her mortgage she is in fact making a profit that will be subject to tax. It is comparable to Tour Tech East Limited. It may have a pre-tax profit on paper but when principal payments on loans and capital leases are deducted there is a negative cashflow. Never before in the history of Tour Tech East Limited have I ever had to draw more than my line 150 income plus approximately $35,000.00 in household expenses which never in fact exceeded a grossed up income of $90,000.00 per year. i) That with respect to paragraph #18 the bulk of the money drawn was borrowed from Tour Tech East Limited and must be repaid. The Company was able to withstand the borrowing in the short term because it in turn borrowed almost $900,000.00 to fund equipment purchases and its operations. It should be noted that from October 3rd, 2003 to December 4th, 2004 I have paid $71,456.82 in tax-free child support payments to the Respondent. This is in after-tax dollars to me. It was impossible to make those payments on my regular salary that I have drawn from Tour Tech East Limited each year for the past five (5) or more years; j) With respect to paragraph #21 the written decision of Justice Kelly was provided on July 30th, 2004. I have been advised by my solicitor Michael I. King, Q. C. And do verily believe that given the complexity of the issues involved it was impossible to identify grounds of appeal with respect to the various parts of Justice Kelly’s decision being appealed from. It was also difficult to frame the pleadings for an application to vary without the written decision of Justice Kelly. When Justice Kelly gave an oral decision and notes on that oral decision Justice Kelly made it very clear that the notes were subject to change and should not be released or used in any purpose. k) With respect to paragraph #22 Justice Kelly did not in anyway anticipate that the Company would have a pre-tax loss of ($74,309.00). Indeed I testified that I expected on the basis of extrapolating the Company’s profits for the first nine (9) months that it would have pre-tax profits of approximately $375,000.00. That was the figure given to Justice Kelly which did represent a decrease from the previous year but not as suggested by the Respondent; ... m) With respect to paragraph #24 of the Respondent’s affidavit I have already explained previously in this affidavit that the bulk of Tour Tech LL.C. (America)’s income Is included in the pre-tax income of Tour Tech East Limited. We have given complete disclosure with respect to Tour Tech LL.C (America) as indicated earlier in this affidavit. We have provided the Respondent’s solicitor with bank statements and cancelled cheques for the past year along with the last complete financial statement for the Company. The Respondent’s statements are totally untrue and misleading. The explanation for the transfer of the shareholder’s loan is contained earlier on in this my affidavit; ... p) The with respect to paragraph #34 I refer this Honourable Court to Page 30 and 31 of Justice Kelly’s decision in order to note his comments about the Respondent’s living accommodations, nanny and private school education. The Respondent states that the lunch and after school program cost $219.00 per week. This amounts to $876.00 per month. At the present time I am paying $701.46 per month. I should be paying 40% of that amount. It was anticipated that the costs for after school care and the lunch program would be much higher. The Respondent has not advised me that I have been overpaying since September 2004. The Respondent comments that she is “solely responsible for buying his clothes and any other needs that he may have”. The fact is that that is what my child support payment of $2,931.00 per month net of tax is for. I ask this Honourable Court to direct the Respondent to provide receipts for childcare services since September 1st, 2004 to date. I note the Respondent’s comments about the weekend of November 12th, 2004. The Respondent chooses to work on weekends; ... r) With respect to paragraph #37 the Respondent’s solicitor has been supplied with details of every dollar drawn from the Company by me or on my behalf along with cancelled cheques. It should be noted that most of the money drawn from the Company was by way of a loan which must be repaid. If it is not repaid I incur a substantial tax liability. I had nowhere else to go in order to borrow to finance the $71,000.00 plus after tax dollars that I have paid in child support payments to the Respondent over the past thirteen (13) plus months. Further am I expected to appear unrepresented before the Court when the Respondent is permitted to spend $51,000.00 on an expert witness and a further $100,000.00 in legal fees? Am I to forego my appeal because I cannot afford legal counsel let alone afford the preparation of numerous volumes of evidence, etc. that goes into the preparation of an appeal. The Company in turn had to borrow money which has put it in jeopardy; s) With respect to paragraph #38 of the Respondent’s affidavit it should be noted that the Company’s year end statements are not normally completed until April or May of each year because the Company’s year end is January 31st, 2005. Previously the Respondent’s counsel was supplied with a letter from the Company’s accountant indicating the dates for the previous three (3) years that the Company’s statements were ready. The Respondent and her counsel both know well from that letter that it is several months after the Company’s year end before even draft statements are ready; t) That with respect to paragraph #40 we have supplied financial statements for all of the Companies in question with the exception of the numbered company. My counsel is attempting to locate the financial statements if in fact they even exist for this Company. It is not an active Company but was merely a vehicle used for the RCA. ... y) That with respect to paragraph #48 the Respondent was provided with a great deal of financial disclosure. Among the mass of information provided was a response to the Respondent’s solicitor’s question about fees that Tour Tech East Limited earns from trade shows. It was pointed out to the Respondent’s solicitor that Tour Tech East Limited only collects fees from one (1) show which it holds each January. It collects approximately $8,000.00 or $9,000.00 in fees from suppliers who want to sell their goods and assist Tour Tech in selling their goods. All of these fees are used to hold a party and a dinner at the Press Gang restaurant for the participants. Tour Tech East Limited does not make any profit on the one (1) trade show that the Company presents but it does get substantial free publicity and goodwill at no cost to the Company. The Respondent is well aware of this fact not just from the disclosure but by reason of the fact that she has attended a number of these parties and dinners over the years. Her statement is intentionally misleading as are many statements in her affidavit. cc) That with respect to paragraph #52 I have not defaulted on our joint line of credit. I did work part-time for a period due to stress and received professional treatment. I have not spent lavishly nor have I paid my mother or sister (other than her salary and repayment of loans to the Company). I have paid my lawyer part of my fees in order to continue with the application to vary and the appeal but still owe legal fees for the trial; [56] His Affidavit of January 27, 2005: 8. ...The Respondent is attempting to give this Honourable Court the misleading and erroneous impression that I did not pay her any maintenance because the payments which I made were deposited into a joint account which she used to pay the mortgage and other bills. All of the cheques were made out to the Respondent personally. ... 11. THAT when the Respondent and I were living together we paid approximately $8.00 to $8.50 per hour for a nanny for a forty (40) hour week. As well we paid approximately $180.00 a month for medical benefits for her. This of course was when the Respondent and I were together and not only did we have to two (2) incomes as a couple but I also had income from Hendrickson Holdings Limited which ceased to operate on August 31st, 2002. 12. THAT I did cease paying for the nanny in or about November 2002 because the Respondent fired her claiming a lack of personal loyalty to the Respondent. Chad is in the after school program for three (3) days per week leaving two (2) days to be covered by the nanny. Chad get out of school at 2:30 in the afternoon and I assume that the Respondent returns home by at least 5:00 p.m. That totals approximately five (5) hours per week. I note that Monday, January 3rd was a holiday and the Respondent would have been home in any event. The Respondent has gone out of town or out of province on a number of occasions this past year but has never asked me to look after Chad. I would be more than willing to do so. The only time she really asks me to look after Chad is when she cannot find any other babysitter. The Respondent has a 17-year old daughter who is fully capable of babysitting on occasion. The Respondent sometimes leaves hre overnight alone in the house when she is out of town. The Respondent has never asked me to assist in finding a babysitter or child care provider as she did not feel that my choice of individual would live up to her expectations or personal loyalty to the Respondent. I note the comments of Justice Kelly indicating that the Respondent does not need a five (5) bedroom home in the south end of Halifax or a nanny in the foreseeable future. 13. THAT Paragraph 11 of the Respondent’s Affidavit makes reference to the fact that I gave her notice at 1:00 p.m. to let her know that I was not going to pick up Chad. She has given the impression that I gave her three and a half (3 ½) hours notice when in fact it was twenty-seven and a half (27 ½) hours notice. This shorter notice of 27 ½ hours occurred because of an emergency which arose and which was explained to the Respondent. I refer the Court to Tab 24 of the Respondent’s Book of Exhibits. 14. THAT with respect to Paragraph 12 I did provide a winter schedule to the Respondent for her convenience. There are a number of business commitments that I have that just cannot be moved or cancelled. I asked the Respondent to accommodate me and allow me to see Chad on other occasions to make up for the time lost when I would be away on business but she has refused. 15. THAT with respect to Paragraphs 13 and 14 of the Respondent’s Affidavit the Respondent has a 17 year old daughter who is perfectly capable of assisting with babysitting. I do not default on scheduled access. There have been occasions when I have had to shift access because of business commitments that I cannot avoid if I am to keep Tour Tech East Limited solvent. The Respondent is totally unaccommodating in that respect. ... 17. THAT I did work a shorter schedule during August and September of 2004. During that period I attended a number of stress therapy sessions to assist me to deal with the incredible financial stress that I have been under in attempting to meet the terms of Justice Kelley’s order under the very different financial circumstances that have existed since February 1st, 2002 which was the commencement of the fiscal year of the Company where the Company’s pre-tax earnings were a negative $74,000.00. I am not claiming a reduction in child support because of that period of lesser work. It did not affect my income. Justice Gass’ order with respect to disclosure was very clear about production of that letter. [57] Mr. Hendrickson’s principle source of income is Tour Tech East Ltd. (Tour Tech). Tour Tech’s financial statements consolidate with its own, the revenue of Tour Tech LL.C. (America). [58] Tour Tech continues to be operated in a fashion consistent with the findings of the Trial Judge. It owns and rents property and equipment to its customers (who are, for the most part, in the entertainment industry). It must invest in equipment to stay current with evolving technology. 5. Trevor Churchill [59] Mr. Churchill was called by Ms. Hendrickson’s counsel. He works at the Business Development Bank of Canada. He indicated that BDC had agreed to postpone payment of loans by Tour Tech for January to March, 2005. Exhibit R-12 is the loan amendment. It states: This 3-month postponement of principal payments will alleviate cash flow constraints due to the seasonal nature of the business, during the period December through March, which is historically a slow period. Due to the purchase and refinancing of capital assets during the past year, monthly principal loan payments and capital lease payments have increased by $30,147/month. As the company is heading into their slow portion of the year, postponement of principal payments for 3 months will relieve financial stress on the day-to-day operations until business recovers later in the year. After February 2005, the long term capital lease obligation of the company will decrease by $16,971/month due to maturing loans and leases, which will also alleviate financial strain. Further financial stress was caused by the divorce of the principal & spouse, which resulted in the shareholders loan account going from a payable to a receivable. 6. Paul Bradley [60] Mr. Bradley is an accountant. He was qualified at trial to give expert opinion as to “calculating income” for child support purposes. He indicated: - that while retained earnings appeared to have increased significantly from January 31, 2003, a very significant portion of this arose from Mr. Hendrickson having forgiven a loan of $827,000.00 from Hendrickson Holdings to Tour Tech - monies “lent” pre-October 30, 2003. - Mr. Hendrickson is 90% owner of Tour Tech. Like Mr. Bradley, I conclude that it is unlikely that Mr. Hendrickson would seek or vote himself more than 90% of any monies available from the pre-tax profit of the company; hence my references to Mr. Hendrickson’s “90% share” in what follows; - he calculated Mr. Hendrickson’s income (for 2000-2004) as follows: (a) $33,000.00 personal expenses paid by Tour Tech. Counsel for Ms. Hendrickson “directed him” to include this. It should not have been included for 2004. (b) 100% of Mr. Hendrickson’s share (90%) of the pre-tax income of Tour Tech - i.e. leaving nil in the company. It is unclear how, if this were done, the company would be expected to pay the $118,000.00 tax liability arising from the forgiveness of the Hendrickson Holdings loan. (c) reduced portions of Mr. Hendrickson’s share of the pre-tax income “as directed by counsel”. [61] With respect to the “forgiveness” of the Hendrickson Holdings loans, Mr. Bradley said: If I was looking at the earnings for 2004, I would say that 827,000 isn’t something we can count on happening every year, so it should be considered an unusual item. But in looking at the shareholder’s equity, the value of the company, you include it because, you know, it’s a fact that the loan was forgiven, and the liability position...of the company has changed, and it is financially stronger, or its net asset position is greater by that amount. So in terms of earnings, I would set it aside, not consider it. But in terms of considering the financial strength of Tour Tech and its ability to finance its operations, if the company worth more, than yes, you would consider it. In other words, you would include the unusual item as part of the increase in the equity. [62] He assumed the corporation was paying $16,500.00 (one-half the amount paid by the company when the Hendricksons were together) in personal expenses, grossed it up to $33,000.00 and added it to Mr. Hendrickson’s personal income. The major part of the $33,000.00 was for a nanny. This has not been expensed through the company for some years. Mr. Bradley said he was directed by counsel on this. [63] Mr. Bradley acknowledged that items of a personal nature (e.g. the nanny in 2002) expensed to the company would eventually have to be shown as attributed to someone. (It appears that this is the explanation for the salary adjustment of 31,000.00 and transfer of $77,000.00 to a numbered company, referred to in Mr. Whynot’s evidence). [64] In determining pre-tax income of the corporation, he added depreciation on real estate back into the pre-tax income of the corporation, saying this was being done pursuant to s. 11 of Schedule III of the Federal Child Support Guidelines. This section does not appear to apply to the calculation of pre-tax corporate profit (see s. 16 of the Guidelines), but rather applies to depreciation claimed personally. This was an error. [65] Significant parts of Mr. Bradley’s report seemed to have been prepared “at the direction of counsel”. It did not appear that very much professional opinion or discretion was used. [66] The above witnesses testified January 31, 2005. [67] After Ms. Hendrickson had released her counsel and retained new counsel, the Variation Application resumed. On April 15, 2005, evidence was heard from: 7. Carolyn Reynolds [68] Ms. Reynolds works for Maintenance Enforcement. Exhibit R-34 was a fax from Peter Hendrickson to Maintenance Enforcement dated July 16, 2004. The letter states Mr. Hendrickson is going to reduce his workload and salary by 50%. It was written, I conclude, out of frustration - resulting from his feeling that he was paying an excessive amount of child support and being garnished for 100% of his salary. He did not act upon the letter. He did not argue that his workload and salary should be treated as reduced, as suggested. 8. Kim Hendrickson [69] Ms. Hendrickson indicated: - Their son, Chad, attends Halifax Grammar School. He is in school from 8:45 a.m. to 2:45 p.m. each day, except Friday. He “gets out” at noon on Fridays. - Child care expenses are $15,590.00; - She sought a s. 7 contribution to private school tuition; - Her salary is $43,000.00 per year; - She chose to assert that Mr. Hendrickson paid her no money from February 2003 to October 2003 - though she acknowledged (albeit very reluctantly) that he paid monies to a joint account, the account that the mortgage for the matrimonial home (which she and Chad were living in) was paid from. - Chad eats lunch at school; - A nanny is paid for three hours a day, three days per week for after school care. She is paid $15.00 per hour. The nanny cannot work Fridays. Ms. Hendrickson looks after Chad on Friday afternoons. - On May 31, 2004, Ms. Hendrickson purchased a property on Inglis Street for $580,000.00. A mortgage of $435,000.00 was obtained. Her shortfall to purchase, including expenses, was $154,914.95. Her mortgage payment on this property is $2,264.00 monthly, including taxes. She receives $3,000.00 per month in rent from this property. - On May 31, 2004 she also placed a mortgage on the former matrimonial home of $335,000.00 (Belmont on the Arm). This renewed the old mortgage of $215,000.00 and added $115,000.00. On July 21, 2004 this fixed rate mortgage was replaced by a collateral mortgage for $335,000.00. The monthly mortgage payment on the home is $1,588.62. - The mortgage application appears to list Ms. Hendrickson’s income as some $43,000.00 (salary), $36,000.00 (rent), $42,000 (unidentified - but appears to be her child support). She has secured some $750,000.00 to $800,000.00 in financing since May 1, 2004. - Ms. Hendrickson also filed a series of affidavits. They assert in part: [70] her Affidavit of December 7, 2004: 6. THAT with respect to paragraph 6, the Honourable Justice William Kelly granted an Interim Order on October 30, 2003 requiring the Applicant to pay $3,800.00 monthly in two equal monthly instalments of $1,900.00 each commencing on the 7th day of November, 2003 and the 14th day of November, 2003 and continuing on the 5th day of December, 2003 on the anniversary of every second week thereafter being the Applicant’s payday. The Applicant was also ordered to pay $400.00 per month commencing November 21, 2003 and the 21st of the month thereafter to go towards the outstanding arrears... 7. THAT from October 2003 onward the Applicant did pay in accordance with the Interim Order. We then appeared before the Honourable Justice Kelly on April 16, 2004, and at that time, the Honourable Justice Kelly granted an Order imputing income to the Applicant in the amount of $400,000.00. The Interim Order remained in effect, however, until we returned to Court on May 25, 2004, and at that time, the Honourable Justice Kelly granted an oral decision on all remaining outstanding issues. We returned to Court on or about June, 2004, and at that time, the Applicant and I reached an agreement with respect to tidying up technicalities with respect to access and notice periods....The child support payment ordered was a total monthly sum of $2,931.00. The payment on the arrears required two equal monthly instalments of $458.90. The arrears took into consideration the equalization payment and the arrears were fixed at that time at $16,520.16. In addition, the Applicant was ordered to pay 40% of the costs of child care in two equal monthly instalments of $350.73. The Honourable Justice Kelly further ordered that all necessary documentation was to be signed to effect an equal division of assets. The Applicant was ordered to keep me indemnified with respect to the joint line of credit and to make every effort to have my name removed from that line of credit. ... 8. THAT the regular child support payments ceased after the Honourable Justice Kelly granted his oral decision on May 25, 2004 such that I had to return to Maintenance Enforcement for their assistance in enforcing an order which was granted after many days of trial and significant expense. ... 17. THAT with respect to paragraph 21, I state that on or about May 31, 2004, I did put a mortgage in the amount of $335,000.00 on the former matrimonial home as this home was awarded to me as part of the equal division of the matrimonial assets before the Honourable Justice Kelly. This increase in the mortgage was necessary as I incurred significant expense for the many days of Trial. In addition...I had accumulated bills which had to be paid as the Applicant has yet to pay the arrears of child support originating out of the December 2002 Court Order. I did purchase a Bed and Breakfast as an income producing asset, and as such, took out a further mortgage of $435,000.00 on this property in favour of the Royal Bank. The Royal Bank extended this mortgage primarily as a result of the rental income from the property. The Rental income more than covers the mortgage. Although I will not make a profit this year due to expenses, insurance, etc., I hope to eventually make a minimal income from this source in the short term and in the long term I hope to have an asset available to me for retirement as I have been unable to date to contribute to an RRSP. The Applicant states that I have a collateral mortgage on the former matrimonial home of $600,000.00. This is not true. I am doing what I can to insure a future and financial stability for myself and my children. ... 22. THAT with respect to paragraphs 8, 9 and 10, I state that the Honourable Justice Kelly did take into consideration a decrease in income in Tour Tech East for the year ending January 31, 2004. ... 24. THAT with respect to paragraphs 12 and 13 of the Applicant’s Affidavit, the recent disclosure shows that Tour Tech East’s pre-tax income to August 2004 was $442,391.00, and as of October 2004, Tour Tech East’s pre-tax income was $510,365.00. Neither of these include income from the American company There is no recent disclosure from the American company, nor is there any disclosure from the numbered company, which received the $77,500.00 on January 31, 2004. ... 33. THAT with respect to paragraph 21, I state, once again, that I have not taken out a collateral mortgage on the matrimonial home in the amount of $600,000.00. I did increase the line of credit on the matrimonial home to $335,000.00... 34. THAT both the Applicant and I wanted Chad to attend Grammar School. I have put out already this year to the Grammar School approximately $10,000.00. Another payment is due in February of 2005 in the amount of $2,609.00. I have had child care costs, which in the summer, amount to $575.00 per week and during the school year, amount to $219.00 per week for the lunch and after school program and two days child care. I am also solely responsible for Chad’s activities, which include gymnastics, tennis, swimming, etc. I am also the parent who buys birthday gifts for his friends for birthday parties. I am solely responsible for buying his clothes and any other needs that he may have. In addition to providing 90% of Chad’s care, I am also responsible to look after Chad when the Applicant advises me at the last minute that he cannot take Chad for the weekend. This has happened as recently as November 12, 2004 when the Applicant emailed me at work. I had a full weekend of work ahead of me. I read the email from the Applicant which arrived on the day he was to pick Chad up, leaving me with no time or notice to arrange substitute child care, and therefore, I lost the work. ... 48. THAT from the Credit Card statements we have received, we do know that the Applicant continues to spend lavishly on trips and entertainment. For example, in January 2004, just after the trial the Applicant spent over $7,000.00 at a restaurant, the Press Gang here in Nova Scotia. [71] her Affidavit of January 6, 2005: 9. THAT I have had an opportunity to read the Applicant’s most recent Affidavit dated December 10, 2004. The Applicant states that he has been over paying with respect to child care costs. This is not true. The annual child care cost I incur has been over $18,000.00 per year for the years that the Applicant and I were together. The Applicant ran the Nanny cost through Tour Tech East Limited, which included medical benefits as a Tour Tech Eat Limited employee for the Nanny. The Applicant was in total agreement that our young son should have home care, a Nanny and the best that we could provide. 10. THAT the Applicant ceased paying for the Nanny absolutely in or about November of 2002. Since then I have carried the burden of the full cost of child care. Currently I pay after school program three days $179.00 per month, a Nanny three days on average at a cost of $15.00 per hour and summer care at a cost of $575.00 per week. Chad is out of school for 12 weeks which will mean that I will have to pay $575.00 per week for 12 weeks. I pay for the multitude of school in-service days or I am forced to take the days off my work. I had to pay extra for early dismissal of the Grammar School for Christmas break 2004. That school starts on Tuesday January 4, 2005 and required that I stay home on Monday, January 3 instead of going to work, or I would have had to pay for child care. That over-night child care will become required this year in order for me to complete out of province contracts. Previously, I had been able to save on this expense by the childcare my own mother provided, in order for me to go to work and complete work out of the province. She is no longer capable of long periods of time with a young child as her health and age no longer permit it. I agree that the summer child care is high except that I have gone the route of hiring Scotia Personnel Specialty Nanny placement service for $690.00 for Finders’ fees for each Nanny, and that the charge for a Nanny Child Care worker with a car is $12.00 per hour plus medical benefits (Monica Coulter was the last Nanny employed through Scotia Personnel). I pay the particular Nanny I have currently $15.00 per hour for many reasons: (i) she has her own car and does not require the use of mine, as I only have one vehicle. The other Nannies used it and I was left to take taxis, the cost averaged to be the same, and a great inconvenience for me for two years; (ii) that Jessica Rose my current Nanny uses her own car, gas and cell phone without charge to me. (iii) Jessica Rose does not require medical benefits. Although I agree that the cost is high, I have asked the Applicant on numerous occasions to assist in finding a less expensive and yet high quality childcare provided for our son. He has not pursued this at all. While my son is so young, I will continue to use Jessica Rose. He has grown to love her. She is responsible and dependent. I am open to other personnel of equal qualifications, should the Applicant take the interest and the time to do this search. 11. THAT the Applicant has continuously not exercised the Court ordered access nor provided me with the required notice, such that I can arrange alternate child care. In the Book of Exhibits, I attach an email from the Applicant, as an example of his lat notice and failure to exercise the court ordered access. This document is attached as Tab 24 of my Book of Exhibits. The Applicant was to pick up Chad on that particular day at 4:30 p.m. He gave me notice at 1:00 p.m. This leaves me in a very difficult position as I have to take time off work to scramble to find someone to care for Chad, or I have to leave work behind. 12. THAT the Applicant has submitted his winter (2005) schedule to me, which diminishes his access substantially in February, March and April 2005. This reduced schedule will result in additional childcare costs in order for me to work, have Chad picked up from school and have any semblance of a personal life. The Applicant will have less than five days access in February, one week March Break in March only, and reduced scheduling and unconfirmed scheduling for April 26 to Mary 1, 2005 to provide care for our son as per Justice Kelly’s Order to enable me to complete a major contract. The Applicant will no doubt continue this schedule for the rest of the year as per past practice with little concern for his access or notice to me. The Applicant’s schedule is and will be the cause of additional childcare expenses. 13. THAT during the marriage and subsequent to the separation I have been Chad’s primary care giver. I cannot travel extensively as the Applicant continues to do. I cannot work long and sporadic hours as the Applicant does. My career must come second to our son. The November weekend was the first weekend I had scheduled to get caught up and had the staff organized to work that weekend. I am forced to cancel the weekend of work which resulted in lost contacts for my company. 14. THAT the Applicant has repeatedly defaulted on his scheduled access in September, October and November of 2004. He spent one weekend each month and sporadic Wednesday evenings with our son. This is a pattern that Chad and I have had to live with both during the marriage and subsequent to the separation. 15. THAT I have also had the opportunity to read paragraph (Z)(bb) at page 9 of his December 10 Affidavit, wherein the Applicant states: “The real issue in this case has always been the Respondent’s lifestyle and not our son’s support”. I state that during our seven year relationship, the Applicant and I both enjoyed a very lavish lifestyle and although the Applicant initially denied this fact before this Honourable Court, he subsequently admitted to it during the trial in front of the Honourable Justice Kelly. I have had to dramatically change that lifestyle in order to fit my means. I have however been pro-active in protecting a decent lifestyle for our son. We continue to live in the home Chad has lived in all of his life. He has friends in the neighbourhood. I have cut out a house cleaner which had been originally paid for through Tour Tech East Limited. I have not had a vacation since the separation, other than to take my children to Boston on points to visit their godmother, where we stayed for free. I do not work evenings or weekends any longer. My career is secondary to the welfare and nurturing of our son. I have given up all of the luxuries I once experienced and remain at the mercy of the Applicant to exercise his access or not, pay his child support or not, abide by the Court Order with respect to the division of property and debt or not. I am currently responding to two court proceedings after 14 Court appearances and emotional and financial expense. THE LEGISLATION AND GUIDELINES ADDRESS VARIATION [72] The Application before the Court is to vary the child support order contained in a Corollary Relief Judgment. [73] The relevant provisions of the Divorce Act are: s. 17(1) A court of competent jurisdiction may make an order varying, rescinding or suspending, prospectively or retroactively... (b) a support order or any provision thereof... s. 17(3) Terms and conditions. - The court may include in a variation order any provision that under this Act could have been included in the order in respect of which the variation order is sought. s. 17(4) Factors for support order. - Before the court makes a variation order in respect of a support order, the court shall satisfy itself that there has been a change in the condition, means, needs or other circumstances of either former spouse or of any child of the marriage for whom support is or was sought occurring since the making of the support order or the last variation order made in respect of that order, as the case may be, and in making the variation order, the court shall take into consideration that change. s. 17(6.1) Guidelines apply . - A court making a variation order in respect of a child support order shall do so in accordance with the applicable guidelines. [74] The Federal Child Support Guidelines provide: 14. For the purposes of subsection 17(4) of the Act, any one of the following constitutes a change of circumstances that gives rise to the making of a variation order in respect of a child support order: (a) in the case where the amount of child support includes a determination made in accordance with the applicable table, any change in circumstances that would result in a different child support order or any provision thereof; (b) in the case where the amount of child support does not include a determination made in accordance with a table, any change in the condition, means, needs or other circumstances of either spouse or of any child who is entitled to support... [75] In D.B.S. v. S.R.G., 2005 A.B.C.A. 2 the Alberta Court of Appeal stated with respect to s. 14 of the Guidelines: The Guidelines specifically contemplate recalculation or variation of support obligations when a payor’s income increases or decreases since this expressly constitutes a change in circumstances under s. 14. CHANGE IN CIRCUMSTANCES? [76] The burden of proof lies with the Applicant in variation proceedings. Here it is on Mr. Hendrickson. Mr. Hendrickson has asserted that a change in circumstances has occurred: 1. In relation to his income, and the determination of his income; 2. In relation to childcare expenses. [77] Ms. Hendrickson asserts that once s. 7 expenses are pleaded in a variation proceeding that, they are all subject to review. I agree. She seeks to have the cost of private school (and some other items) treated as s. 7 expenses. I will consider her requests. CHANGE IN CIRCUMSTANCES? MR. HENDRICKSON’S INCOME [78] The Trial Judge had regard to Tour Tech’s pre-tax corporate profit (s. 18(1)(a) of the Child Support Guidelines) in determining Mr. Hendrickson’s income, for Child Support Guidelines purposes to be $400,000.00. [79] The pre-tax corporate profit of Tour Tech, as found and referred to by the Trial Judge was: January 31, 2001 $371,778.00 January 31, 2002 $490,730.00 January 31, 2003 $764,765.00 [80] Mr. Hendrickson’s personal line 150 Income over the same time period was: 2001 $92,970.00 2002 $85,200.00 2003 $94,662.00 [81] The Trial Judge “imputed income to Mr. Hendrickson of $400,000.00" (para. 46) and observed that he was “imputing income from the net taxable income of the company” (para. 44). The Court of Appeal stated that: The Judge did not detail the calculations which led him to the $400,000.00 figure. It is clear, however, that he based it on a three year average of Tour Tech’s pre-tax income. [82] The trial evidence ended October 30, 2003. The average pre-tax profit for Tour Tech for the previous three years at this time was: January 31, 2001 $371,778.00 January 31, 2002 $490,730.00 January 31, 2003 $764,765.00 $1,627,273.00 ÷ 3 = $542,424.33 (3-yr. average) [83] Mr. Hendrickson owns 90% of Tour Tech - 90% of $542,424.33 = $488,181.89 - this is his (average) share of the corporate pre-tax profit over these three years. [84] Mr. Hendrickson, to “draw” $400,000.00 from Tour Tech would, then, need $400,000.00 - 94,700.00 (salary) $305,300.00 [85] He would need to “take” 62.5% ($305,300.00 ÷ $488,181.00 = 62.5%) of his (90%) share of the company’s pre-tax profit as personal income to have $400,000.00 in income - assuming Tour Tech’s pre-tax profit remained consistent. [86] The January 31, 2004 pre-tax profit (loss) of the company was -$74,309.00. This is significantly different from the average of $542,424.33 for the three previous years that the Trial Decision dealt with. (I have concluded, like Mr. Bradley, that the forgiveness of the Hendrickson Holdings loan “should be considered an unusual item” and that “in terms of earnings, I would set it aside, not consider it”.) [87] Mr. Hendrickson’s evidence was that he estimated the January 31, 2005 pre-tax profit to be $200,000.00 to $250,000.00 (the financial statements were not available when he closed his evidence). I have not had regard to financial statements filed by him subsequent to his evidence closing January 31, 2005. I conclude they are not admissible unless consented to by Ms. Hendrickson. They were not. [88] Given his evidence concerning the company’s pattern of “doing worse” through December and January of each year, (and the fact that the financial statements that are available support this pattern, as does the evidence of Mr. Whynot and Mr. Churchill), I conclude that the pre-tax profit of Tour Tech for January 31, 2005 should, for the purposes of this proceeding, be treated as $250,000.00. (The December 31, 2004 internal statement indicated pre-tax income of approximately $330,000.00 - January’s expenses would, it appears, diminish this and not be offset by significant income.) [89] Ms. Hendrickson asserts that there is no change in circumstances. Her, and to a limited degree Mr. Bradley’s references to the company’s pre-tax profit as of fall dates - not taking into account the pattern of loss for the winter months is, in a word, distorting. [90] Mr. Hendrickson asserts his salary “draw” remains $94,700.00 (affidavit of October 8, 2004, para. 24). His T-4 for 2004 is for $73,328.00. His income was being garnished for much of 2004. He was not in arrears at the time of the Variation Hearing. [91] Tour Tech’s January 31, 2004 year end pre-tax loss was $74,309.00; Mr. Hendrickson’s “share” is 90% of the loss, or $66,878.00. [92] If January 31, 2003 is taken in isolation as the year relied upon by the Trial Judge, this is a significant change in corporate pre-tax profit from $688,288.50 (90% of $765,765.00) to a loss of $66,878.00. [93] If averaging is used, (as the Nova Scotia Court of Appeal suggested) the average pre-tax profits are: January 31, 2001 $371,778.00 January 31, 2002 $490,730.00 January 31, 2003 $764,765.00 $1,627,273.00 ÷ 3 = $542,424.33 January 31, 2002 $490,730.00 January 31, 2003 $764,765.00 January 31, 2004 ($-74,309.00) $1,181,186.00 ÷ 3 = $393,728.66 January 31, 2003 $764,765.00 January 31, 2004 ($-74,309.00) January 31, 2005 $250,000.00 $940,456.00 ÷ 3 = $313,485.33 [94] Mr. Hendrickson’s “90%” of each of these is: 2001-2003 (Trial) = $488,181.89 2002-2004 = $354,355.79 2003-2005 = $282,136.79 [95] Even if Tour Tech’s January 31, 2006 pre-tax income doubles from the past year to $500,000.00 (there is no evidence indicating this will occur), the three-year average would become: January 31, 2004 $-74,309.00 January 31, 2005 $250,000.00 January 31, 2006 $500,000.00 (projected) $675,691.00 ÷ 3 = $225,230.33 x .9 (his 90%) = $202,707.29 [96] The average of Mr. Hendrickson’s interest in the pre-tax profit of the company then would become: 2001-2003 (Trial) $488,181.89 2002-2004 $354,355.79 2003-2005 $282,136.79 2004-2006 $202,707.29 [97] The change in circumstances is obvious. The Trial decision was substantially based on Tour Tech’s pre-tax profit. It was $764,765.00 for January 31, 2003. For January 31, 2004 it was a loss of $74,309.00. Whether one “averages” or looks year to year a dramatic change has occurred. [98] Other changes in circumstance with respect to Mr. Hendrickson and Tour Tech include: 1. The last complete year of pre-tax corporate profit for “the previous year” (per s. 18 of the Federal Child Support Guidelines) considered by the Trial Judge (as of October 30, 2003) was for the year end January 31, 2003 (and the two years previous to that, assuming the averaging referred to by the Court of Appeal). For all of these years Tour Tech benefited from the significant cash infusion Mr. Hendrickson provided to it through Hendrickson Holdings. Hendrickson Holdings, however, ceased operation (its lottery licence not being renewed) in July 2002. The year ending January 31, 2004, then, was the first year Tour Tech had to operate without the benefit of this independent financing - and had to principally rely on commercial lenders. 2. Hendrickson Holdings had lent Tour Tech more than $800,000.00 during the three years ending January 31, 2003. Tour Tech was (is) unable to repay this and the loan was forgiven in the year ending January 31, 2004. This triggers a tax liability in Tour Tech of some $118,000.00. 3. The Canadian dollar has risen against the U.S. dollar, making Tour Tech less attractive to American clients. 4. While at trial, there was evidence that the Hendricksons benefited from Tour Tech having paid significant personal expenses, including the nanny; the evidence indicates that the personal expenses paid by Tour Tech for Mr. Hendrickson now amount principally to a car - some $4,800.00 per year. [99] Having concluded that a change in circumstances has occurred, what should Mr. Hendrickson’s income be for child support purposes? DETERMINING MR. HENDRICKSON’S INCOME [100] The Federal Child Support Guidelines, sections 15-20 outline the process for determination of income under the Guidelines. 1. Section 15(1) of the Federal Child Support Guidelines states: 15. (1) ...a spouse's annual income is determined by the court in accordance with sections 16 to 20. 2. Section 16 provides: 16. Subject to sections 17 to 20, a spouse's annual income is determined using the sources of income set out under the heading "Total income" in the T1 General form issued by the Canada Customs and Revenue Agency and is adjusted in accordance with Schedule III. Does s. 16 of the Guidelines and the T1 General Tax Form provide for a fair determination of Mr. Hendrickson’s income? I conclude “no”. Mr. Hendrickson’s “salary” is (perhaps unavoidably) complex - he has drawn money to pay child support, but not the gross amounts that trigger the Table amount payable. His personal income has been adjusted to include as income personal expenses paid for by Tour Tech in previous years. He has suggested, through counsel, that his income be treated as $130,000 - inviting the Court to use s. 18(2) of the Guidelines to do so. 3. Section 17 provides: 17. (1) If the court is of the opinion that the determination of a spouse's annual income under section 16 would not be the fairest determination of that income, the court may have regard to the spouse's income over the last three years and determine an amount that is fair and reasonable in light of any pattern of income, fluctuation in income or receipt of a non-recurring amount during those years. Should s. 17(1) be used to “average” the pre-tax corporate income from Tour Tech? There have been dramatic swings in Tour Tech’s pre-tax income. The Trial Decision considered (what turned out to be) Tour Tech’s “spike year” - the year ending January 31, 2003. The Trial Decision was made long after January 31, 2003. The company had long since made its decisions concerning its financial, accounting affairs for the year ending January 31, 2003. The two years following January 31, 2003 have had dramatically different pre-tax income figures. Tour Tech’s history indicates that there is, at this point, considerable year to year variance in its pre-tax profit. Some of this is unavoidable - Mr. Hendrickson testified for instance that the year ending January 31, 2005 looked worse in August 2004 than it would turn out - in part due to a contract involving President George Bush’s visit to Halifax in the fall of 2004, in part due to another unexpected contract that was secured. In my view, income should not be averaged where there is no pattern of income (here from $764,765.00 to -$74,309.00 to a projected $250,000.00). To do so would enmesh these parties and Chad in ongoing reviews and inevitably litigation. There would be little or no predictability to child support - and great expense in determining it. (I would note that this is different than the “pattern” of ever increasing pre-tax profit that was before the Trial Judge). As things have evolved, the existing order is ballooned by Tour Tech’s extraordinary success in the year ending January 31, 2003. It may re-occur, but it has not. In my view the swings in Tour Tech’s pre-tax profit are far too significant to make the use of s. 17 averaging fair to anyone. Averaging would, as I indicated, entrench conflict. It would not, I conclude, be consistent with the stated objectives of the Guidelines (see s. 1(a) - (d)). It would not (to reference the language of s. 17) be a “fair determination” of the payor’s income. 4. Section 18 of the Guidelines provides: 18. (1) Where a spouse is a shareholder, director or officer of a corporation and the court is of the opinion that the amount of the spouse's annual income as determined under section 16 does not fairly reflect all the money available to the spouse for the payment of child support, the court may consider the situations described in section 17 and determine the spouse's 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 spouse provides to the corporation, provided that the amount does not exceed the corporation's pre‑tax income. 18. (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 arm's length must be added to the pre‑tax income, unless the spouse establishes that the payments were reasonable in the circumstances. It is worth noting that s. 18(1) refers to the Court determining whether it is of the opinion that a spouse’s annual income as determined by s. 16 of the Guidelines does not “fairly reflect all the money available to the spouse”. The question is “What money is available to the spouse from corporate pre-tax profit?”, not merely “What is the corporate pre-tax profit?” In considering s. 18 of the Guidelines I have considered the views of other Courts: i) As I see s. 18 of the Federal Child Support Guidelines is designed to address the unfairness which would result if a spouse was to artificially manipulate his income through a corporate structure for the purpose of avoiding child support obligations. The use of the word ‘may’ makes it clear that this is a discretionary tool. The use of the word ‘fairly’ denotes recognition that corporations and businesses must operate in the real world and that there might be valid and legitimate reasons for maintaining retained earnings in a corporation and not making them available to shareholder owners... Koester v. Koester, 2003 Carswell Ont. 5372 (at paragraph 35). I do not conclude that evidence of “manipulation” was necessary to use s. 18. I do not conclude that Mr. Hendrickson has manipulated the companies’ finances to diminish his child support obligation. ii) (Re: s. 18) It seems to me regard should also be had to the nature of the company’s business and any evidence of legitimate calls on its corporate income for the purpose of that business. Justice Drake cautioned about not killing the goose who lays the golden eggs. Monies needed to maintain the value of the business as a viable going concern will not be available for support purposes. In my view they should not be included in determining annual income... Kowalewich v. Kowalewich (2001) 92 B. C. L. R. (3d) 38, 2001 BCCA 450 (BCCA) at paragraph 58). See also Grossi v. Grossi, 2005 Carswell BC 146 (BCCA) at paragraph 28. Tour Tech is Mr. Hendrickson’s principle source of income. One of the objectives of the Child Support Guidelines is that children “continue to benefit from the financial means of both spouses . . .”. The word “continue” is significant - it is in Chad’s best interests that his father be in a position to support him on an ongoing basis. A child support order must be fair. It is not a simple exercise of maximizing a payor’s obligation in the present. If an order compromises future ability to pay, future income it is not an order consistent with providing “continuing benefit”. iii) ...a trial judge must have regard to legitimate business needs in determining what portion of pre-tax corporate profit to include in annual income for Guideline purposes.” Kowalewich, supra (at paragraph 59). iv) Section 18 presents unique problems if there is pre-tax corporate loss. ...nothing contained within these provisions of the Guidelines indicates that s. 18 cannot be used to reduce the Line 150 amount... Bartkowski v. Bartkowski (203) 37 R.F.L. (5th) 242 (BCSC) at paragraph 39). v) Valid corporate interests may differ from valid child support objectives. The purpose of s. 18 is to allow the court to ‘lift the corporate veil’ to ensure that money received as income by the paying parent fairly reflects all of the money available for the payment of child support. This is particularly important in the case of a sole shareholder as that shareholder has the ability to control the income of the company. Baum v. Baum (1999) 182 (D.L.R. (4th) 715 (BCSC) at paragraph 128. vi) ...it seems that pre-tax corporate income is likely to be attributed to the payor, if it can be taken from the company without seriously undermining the finances of the corporation and if it is available to the payor or could be made available... Kendry v. Cathcart (2001) O. J. No. 277 (Ont. S. C.). vii) In Gossen v. Gossen (2003) 213 NSR (2d) 217 (NSSC, FD), Smith, A. C. J. Stated with respect to s. 18 of the Guidelines: ...The question that the Court has to consider is whether it is reasonable for a corporation to retain part of its earnings rather than pay them out... (Para . 77) Intentional under‑drawing of income, however, is not the only matter for the Court to consider. An individual may have no intention whatsoever of reducing his/her income for child support purposes but, nevertheless, may be unreasonably leaving income in a company which should be available for child support purposes. In order to determine this, the Court must consider the pre‑tax income of the corporation, the services that the individual provides to the corporation (is this an individual who works full‑time for the company but without reasonable justification draws out a non‑commensurate income?) as well as the needs of the business itself in order to function properly. The goal is not to strip the company of capital reasonably required in order to function. Nor is the goal to deny the company the ability to grow and to become more competitive and to be able to fund capital needs as they arise. The goal is to balance reasonable child support objectives with reasonable company objectives. (Para. 79) In a situation where the Court is satisfied that a corporation should and can pay out additional income to a spouse without undermining the financial health of the company, the Court may include in the spouse's annual income all or part of the pre‑tax income of that corporation (see for example: Jess v. Strong (1998), 169 N.S.R. (2d) 271 (S.C.); 508 A.P.R. 271 (S. C.)). (Para. 80) I recognize that the Petitioner's two companies contain significant equity. The equity that exists is not readily accessible to the Petitioner without requiring the companies to borrow funds or sell the properties in question. Rarely does the Court require a spouse to borrow money or sell assets in order to pay child support, particularly in a situation such as this where the paying spouse has a full‑time job and will be paying reasonable child support in any event. (Para. 88) 5. Should s. 18(1)(a) be used to include all or a portion of Tour Tech’s pre-tax income in Mr. Hendrickson’s income? deSousa, J., in Brophy v. Brophy (2002) O. J. No. 3658 (Ont. S. C. J.), outlined five questions for a court exercising its discretion (to include corporate pre-tax income in “personal income”) to consider. Applied to these circumstances, they are: (a) Because of the separate legal entity of the corporation, should there be a general reluctance to automatically attribute corporate income to the shareholder? In my view, there should be great caution exercised in doing so. If it is done, the reasons and rationale for doing so should, ideally, be clearly stated. The Court should consider what must be paid from pre-tax profit, and where the money to increase personal income should come from. Pre-tax profit is not cash. The Court when it uses this subsection is essentially saying “we will tell this corporation how to financially manage itself based on last year’s or the average of the last three year’s pre-tax profit(s)”. Arguably corporate management should be focussed on current circumstances. This caution is in my view substantially heightened where there is considerable volatility to the company’s performance year to year - as with Tour Tech. In Kowalewich v. Kowalewich (2001) B.C.J. 1406 (B.C.C.A.) the Court noted that (in)stability of income may be a factor in a Court choosing not to apply s. 18(1)(a) of the Guidelines. (b) Is there a business reason for retaining earnings in the company? There is no question that the answer with respect to Tour Tech is “yes”. As stated, or referred to by the Trial Judge: ...it is important that the company invest in the most up-to-date technical equipment... ...I am not persuaded that the significant equipment purchases...were not a sound and appropriate business decision... My findings and conclusions are consistent with these statements. The business of this company is to rent to its customers technical sound and light equipment and facilities. The retained earnings of this company are principally made up of the equipment and property it rents. (c) Is there one principal shareholder? Mr. Hendrickson owns 90% of Tour Tech. An arm’s length third party owns the other 10%. Mr. Hendrickson is not at liberty to simply do what he wants with the company. (d) What is the historical practice of the corporation? Historically the corporation has made significant investments in equipment and its land. There is little to indicate Mr. Hendrickson, even while he and Ms. Hendrickson were together, received benefits in excess of $125,000.00 -$150,000.00 from Tour Tech (including his salary) and personal expenses that were paid for by the company. The personal expenses paid for by the company were more significant when the parties were together, or shortly after separation. It appears that some of these have since attributed back to Mr. Hendrickson through the adjustment to his salary and assignment to a numbered company referred to earlier. These transfers did not involve cash. The financial statements indicate the company has no cash. It appears to have operated on a line of credit for some time. Mr. Hendrickson has not drawn significant sums from the company. It appears that since the Trial Decision he has struggled to take enough to pay his actual support obligation. He has not by any measure taken a gross amount of income that would lead to him having income of $400,000.00, the basis of that support obligation. (e) What degree of control does the spouse exercise over the corporation? Mr. Hendrickson owns 90% of its shares. He controls the company, he does not have unfettered control of the company. The pre-tax loss for the company for the year end January 31, 2004 was $74,309.00; for January 31, 2005 I have projected its pre-tax profit to be $250,000.00. These pre-tax profits (losses) do not include cash expenditures of: 1. Corporate income tax: (a) spiked by $118,000.00 as a result of the forgiveness or cancellation of the Hendrickson Holdings loans of over $800,000.00. It is worth noting that this $800,000.00 benefited the company in the years previous to January 31, 2003.) (b) of 28% on the total of $250,000.00 or $70,000.00. 2. Principal payments on its loan or principal payments on capital leases - which totalled $55,732.56 a month (clause 6 of the November 30, 2004 affidavit of Craig Whynot) in November 2004. This totals $668,784.00 per year. The pre-tax profit of a company is not cash on hand. It is the income and expenses accrued. These are cash expenditures that must be made by the company that are not considered in arriving at net income. They have been identified. I have considered the evidence that some of the lease expenditures were to be completed this year. The cash flow is negative. The company could only pay more salary by borrowing. It has limited ability to borrow. The company has no cash and little by way of liquid assets. Its balance sheet for January 31, 2003 and that for January 31, 2004 shows: 2003 2004 Receivables $248,691.00 $180,907.00 Operating Line of (314,862.00) (336,562.00) Credit (indebtedness) The company’s assets as of January 31, 2004 are principally property and equipment - its assets were stated as follows: Assets: Accounts receivable $180,907.00 Investment tax credits 36, 201.00 Inventory 102,687.00 Prepaids and deposits 38,305.00 $ 358,100.00 Deferred Lease Deposits 7,475.00 Property and equipment 6,166,400.00 $6,531,975.00 The note to the financial statement values the property and equipment as follows (for 2004) - net book value - Land $288,750.00 Building 933,613.00 Technical Equipment 4,872,501.00 Office Equipment 6,645.00 Vehicles 22,051.00 Computer Equipment 42,839.00 Clearly the bulk of this company’s assets are tied up in property and equipment. Its business is renting equipment and property to its customers. It is very difficult to identify where Mr. Hendrickson could draw more monies from Tour Tech. Extend the line of credit? Sell equipment? The property? I do not conclude that it would be reasonable or fair to expect this. The company has refinanced leases, it has delayed loan payments. Finally, the use of s. 18(1)(a) of the Federal Child Support Guidelines and consideration of corporate pre-tax income creates potential difficulties with disclosure and analysis of child support obligations - and the determination of income: (a) Personal taxation years and corporate taxation years seldom coincide. Further corporate financial statements are routinely not available for months after the company’s year end. Here, for example, the original trial was held in October 2003. The Court reserved decision and corporate statements for January 2004 (showing a pre-tax loss of $74,309.00) became available before the decision was rendered. Mr. Hendrickson has argued that the delay occasioned by the Trial Judge reserving his decision (and as a result this delayed the issuance of the Corollary Relief Judgment) compromised and delayed his (Mr. Hendrickson’s) ability to file an application to vary. Effectively Mr. Hendrickson is saying “I knew my circumstances had changed but had to wait for the completion of the Trial Decision and Order before I could make the application to vary”. On this variation application, Mr. Hendrickson’s evidence was completed in January - more current statements and tax information is “out there” but not before the Court. I denied the motion to introduce some of this material. I believe it is reasonable, even predictable, that a Trial Judge will reserve his/her decision where s. 18(1)(a) of the Guidelines is “in play”. I do not mean to be critical of this (I have done it here too) but there is a cost to the litigants in doing so. Everyone is then constantly trying to “catch up”. This is exacerbated where there is considerable volatility in a company’s pre-tax profits year to year. (b) S. 18(1)(a) refers to the “previous year”. Corporate statements, and the disclosed pre-tax income is considered in most cases months after the corporate year end. The corporation’s year is over, its statements completed, its ability to make accounting choices for that year substantially limited. The pre-tax corporate income is subject to tax of 28%. Considering pre-tax corporate income in this way assumes some consistency in the company’s business - something that has not been present with Tour Tech. Considering these and the other factors outlined, I do not conclude that the attribution or imputing of pre-tax corporate income is in this instance an appropriate way to establish Mr. Hendrickson’s income. It does not appear that there is much, if any, consistency in Tour Tech’s performance year to year. Tour Tech has limited liquidity. It has no cash. Its pre-tax profit to January 31, 2004 was, in fact, a loss. Finally, the use of s. 18(1)(a) in these circumstances would result in litigation that would be on going - gaining new life with each change in the corporate performance of Tour Tech (and Ms. Hendrickson’s companies). The expenditures on such litigation, monetary and emotional, would be great. The benefit to Chad, or his family, limited. 6. Section 18(1)(b) of the Federal Child Support Guidelines allows the Court to determine the spouse’s annual income to include: (b) an amount commensurate with the services that the spouse provides to the corporation, provided that the amount does not exceed the corporation’s pre-tax income. Here expert evidence indicates Mr. Hendrickson’s total remuneration from Tour Tech should be between $100,000.00 and $170,000.00 per year. Mr. Hendrickson submits the Court should adopt a figure of $130,000.00. The pre-tax loss for Tour Tech for the year ending January 31, 2004 was $74,309.00. The phrase “provided that the amount does not exceed the corporation’s pre-tax income” suggests that this amount might well have been restricted to nil under this subsection for the year ending January 31, 2004. 7. Section 18(2) of the Guidelines deals with non-arms’ length benefits paid on behalf of the corporation. It reads as follows: 18. (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 arm's length must be added to the pre‑tax income, unless the spouse establishes that the payments were reasonable in the circumstances. I conclude that payments made to Lori Ladourette were reasonable as contemplated by the Guideline provision. I have considered payments made to or on behalf of Mr. Hendrickson referred to in Mr. Whynot’s evidence and that of Mr. Hendrickson in my determination of his income. 8. Section 19 of the Federal Child Support Guidelines provides, in part: 19. (1) The court may impute such amount of income to a spouse as it considers appropriate in the circumstances, which circumstances include the following: (a) the spouse is intentionally under-employed or unemployed, other than where the under-employment or unemployment is required by the needs of a child of the marriage or any child under the age of majority or by the reasonable educational or health needs of the spouse; . . . (d) it appears that income has been diverted which would affect the level of child support to be determined under these Guidelines; (e) the spouse's property is not reasonably utilized to generate income; (f) the spouse has failed to provide income information when under a legal obligation to do so; (g) the spouse unreasonably deducts expenses from income; . . . (i) the spouse is a beneficiary under a trust and is or will be in receipt of income or other benefits from the trust. I do not conclude that Mr. Hendrickson is underemployed. I do not conclude that he has diverted income which would affect the level of child support to be determined under the Guidelines. The suggestion that the forgiveness of the $800,000.00 loan by Hendrickson Holdings diverts money owed to Mr. Hendrickson by Tour Tech ignores that this money was transferred to Tour Tech pre-January 31, 2003 and was considered by both the Trial Judge (and the Judge making the Interim Order) in imputing or attributing income to Mr. Hendrickson at that time. Further, Tour Tech is unable to repay the loan. I do not conclude that Mr. Hendrickson is “not reasonably” utilizing his property to generate income. I have concluded that Mr. Hendrickson’s disclosure while imperfect is adequate. I would draw no adverse inferences from his or Ms. Hendrickson’s disclosure or lack thereof. I do not conclude that Mr. Hendrickson has unreasonably deducted expenses from income. I do not conclude that Mr. Hendrickson is the beneficiary of a trust or that he will be in receipt of income or other benefits from a trust such that it would be appropriate to impute income to him. Mr. Hendrickson has not appeared to be focussed on shirking his child support responsibilities: (a) His evidence before the Trial Judge in October 2003 was that his January 31, 2004 year end pre-tax income for Tour Tech would be over $300,000.00. He was wrong - it was $-74,309.00. He over-estimated his income. (b) Mr. Hendrickson has not sought to vary this order back to January 31, 2004. For the period of time November 2003 to May 2004 he paid support based on numbers that (were it the Table amount of support) require an income of $465,000.00 per year. He has left this part of the order alone in circumstances where he might not have. (c) In circumstances where he might well argue that his income during the year following Tour Tech’s year end pre-tax loss of $74,309.00 he has chosen to suggest his income be treated as $130,000.00. These are not the actions of someone trying to unreasonably minimize his obligations. I did not find his evidence evasive. I cannot identify any misrepresentation of his circumstances. I do not find any inconsistencies between his lifestyle and reported income. He has been frustrated. His view is that the current child support order is and has been far beyond the means of himself (and his company), and that this has been the case since literally before the Trial Decision. On the whole I find his evidence credible. MR. HENDRICKSON’S INCOME [101] I have considered ss. 15 - 19 of the Child Support Guidelines and the factors and evidence I have outlined. I conclude that Mr. Hendrickson’s income, for child support purposes, should be $140,000.00. This is a figure above the median of the range suggested by Anne Marie Stuart. The Table amount for one child is $1059.00/month. In coming to this amount I have relied principally on s. 18(1)(b) of the Guidelines and the evidence of Anna Marie Stuart. I have considered the personal expenses (car, stress workshops) that Tour Tech has paid all of, or part of, for Mr. Hendrickson. [102] In using this number, I am assuming that Mr. Hendrickson has the knowledge and skill to ensure that Tour Tech continues to be successful. MS. HENDRICKSON’S INCOME [103] Ms. Hendrickson states her income is $43,000.00, her salary from her company. Her 2003 Income Tax Return shows Line 150 income of $46,340.00 (it includes a net of $3,092.40 from self-employed business income, whose gross amount is $124,785.00). This business was “The Fixx Nail Studio”. Ms. Hendrickson sold her interest in this business on April 26, 2004 with effect as of “31 December 2005" - for $5,000.00. [104] Her company, ESP - Events Services and Production Incorporated, employs her. Its August 31, 2004 statement (8 months) shows revenue of $803,659.00. Its 8-month expenses include: automobile $5,237.00 entertainment/meals $6,869.00 salaries $139,199.00 telephone/internet $16,020.00 travel (non-meals) $10,156.00 [105] I have limited information concerning this company and its operation. I don’t know who the other employees are, who benefits from telephone/internet payments, who has done the travel. Ms. Hendrickson benefits from the car expense. [106] Ms. Hendrickson has also purchased a property on Inglis Street - which she hopes will be an income property. She receives rent of $3,000.00 per month for it. The mortgage and taxes are some $2,250.00 a month. She asserts there are numerous expenses - and effectively no income. [107] She has, then, two properties whose worth may approach $1,200,000.00. Their mortgages and monthly mortgage payments are $435.000.00 ($2,062.82) and $335.000.00 ($1,588.62). Her monthly mortgage payments on the two properties is $3,651.44 ($43,817.28 per year). [108] She has stated her rent received on her “income property” is $3,000.00 per month but this all goes to its mortgage, taxes, insurance and upkeep. [109] The energy of both parties in this proceeding focussed on Mr. Hendrickson’s income. I would treat Ms. Hendrickson’s income as the $43,000.00 she asserts for the purposes of this proceeding. I believe this to be a conservative treatment of her income. CHANGE IN CIRCUMSTANCES? SECTION 7 EXPENSES [110] Ms. Hendrickson has claimed s. 7 Child Support Guideline expenses as follows: 1. Child care costs $15,590.00/yr. 2. Halifax Grammar School (including refundable 12,327.00/yr. “bursary”/deposit, uniforms, etc.) 3. Pizza day, milk program, sub sandwich day 500.00/yr. 4. Gymnastics 600.00/yr. 5. Waegwaltic Club (swimming, tennis lessons) 400.00/yr. [111] Ms. Hendrickson is claiming some $27,917.00 in after-tax dollars for two items - child care and private school for Chad. It is not a modest claim. [112] Section 7(1) of the Federal Child Support Guidelines provides: 7. (1) In a child support order the court may, on either spouse's request, provide for an amount to cover all or any portion of the following expenses, which expenses may be estimated, taking into account the necessity of the expense in relation to the child's best interests and the reasonableness of the expense in relation to the means of the spouses and those of the child and to the family's spending pattern prior to the separation: (a) child care expenses incurred as a result of the custodial parent's employment, illness, disability or education or training for employment; (d) extraordinary expenses for primary or secondary school education or for any other educational programs that meet the child's particular needs; (f) extraordinary expenses for extracurricular activities. (2) The guiding principle in determining the amount of an expense referred to in subsection (1) is that the expense is shared by the spouses in proportion to their respective incomes after deducting from the expense, the contribution, if any, from the child. CHILD CARE [113] The trial decision, as it related to child care, considered the use of a nanny (at $10.00 per hour, plus some other costs) reasonable (this was before Chad started school). The Order provided for a sharing of the “reasonable compensation” - more than $20,000.00 per year for what appears to be effectively a full-time nanny. [114] Child care changes as children move through stages. Chad is now in school and I am satisfied that it is appropriate to re-examine the issue. His need for child care has changed. A change in circumstances has occurred. [115] Chad is in school Monday to Friday. He finishes school at noon on Fridays, and Ms. Hendrickson indicates she then picks him up. Mondays to Thursdays he is in school from 8:30 a.m. to 2:45 p.m. Her child care “claim” is for these four days per week and school holidays. She asserts Chad needs child care as follows: (a) after-school program - provides after-school care $1,790.00 three days per week ($179.00/mo. x 10 mths.) (b) nanny - 10 mths. @ 3 days x 3 hrs./day x $15.00/hr. x 4 wks./mth. 5,400.00 (c) 12 weeks of summer - $525.00/wk. x 12 wks. 6,900.00 (d) Miscellaneous in-service days, snow days, travel, meeting days - 100 hrs./yr x $15.00/hr. 1,500.00 $15,590.00 [116] There seem to be some inconsistencies with Ms. Hendrickson’s claim. Ten months of after-school care and twelve weeks of summer care exceeds twelve months. The claim seems to assume that neither Ms. Hendrickson nor Mr. Hendrickson have Chad in their personal care for any holiday periods (summer or through the school year). Four days of after-school care are needed, six are being claimed/paid for. On top of this, one hundred hours of child care at $15.00 per hour is claimed. The claim in this form is not reasonable. [117] She has indicated that Chad is out of school 12 weeks (more than the summer break enjoyed by children in public school). I will use her figure of 10 months of after school care as opposed to 12 weeks of summer. The placement of Chad in private school was, in the face of the Trial decision, made solely by Ms. Hendrickson. Mr. Hendrickson should not be required to share more “full time summer” child care because of her decision. I have treated Chad as having 10 months of school, and 9 weeks of summer. I have adjusted the weeks in a month from “her 4” to 4.33 (365 ÷ 7 ÷ 12) - increasing this multiplier to reflect the fact that there is, on average, more than four weeks in a month. [118] The child’s best interests and reasonableness of the expenses are factors to consider. The pattern of spending prior to separation is of limited relevance as that was prior to Chad’s attendance at school. [119] I consider reasonable child care expenses for Chad to include: 1. After school program - (3 days/week) $179.00/mo. x 10 mths. $1,790.00 2. Nanny or other child care: a. 1 day/wk.(3 hrs./day) x $15.00/hr x 4.33 wks/mth. x 9 mths. $1,753.65 This means four after-school days are covered. I have chosen nine months as long weekends, the Christmas holiday period, March/Easter breaks will approximate one month. b. 20 x 9 hr. days at $15.00/hr. 2,700.00 (storm days, sick days, in-service days, etc. - a total of 4 weeks extra child care) 3. Summer child care - 6 weeks x $525.00./wk. 3,150.00 Five weeks of child care in the summer - I am assuming that between them Mr. And Ms. Hendrickson will holiday with Chad for four weeks. Mr. Hendrickson has two weeks of block access - plus one extra week TOTAL: $7,603.65/year This assumes that Chad’s 17-year old sister (Ms. Hendrickson’s child by another relationship) is not able to provide any of this child care. It provides 45 hours a week of child care in the summer. It provides 20 “extra” 9-hour days of child care during the school year, one extra week in the summer. [120] Ms. Hendrickson is entitled to claim child care expenses as an expense item on her income tax. She has suggested that she cannot use this as a deduction as she “uses up” her needed deduction with legal fees. The purpose of the child care deduction from net income is to benefit families. In my view, the Court should treat her child care expenses as deductible first. The Trial Judge also assumed this deduction would be made (paragraph 65 of the Trial Decision). I would, in the absence of evidence or calculations from counsel, treat the child care expenses as being reduced as follows: - For children born in 1999 (as Chad was) or earlier, the deduction for 2005 is $7,000.00. For children born earlier, it is $4,000.00. - The marginal tax rate (Nova Scotia 2004) for income over $35,000.00 is 36.95%. - Ms. Hendrickson’s income of $43,000.00 minus the deductible child care expenses of $7,000.00 = $36,000.00. - The child care expenses will result in a 36.95% saving (in 2004, 2005): .3695 x $7,000.00 = $2,586.50 - In 2006 the deduction will be $4,000.00, the saving: .3695 x $4,000.00 = $1,495.00 - The cost of child care is: 2004/2005 $7,603.65 - $2,586.50 = $5,017.15/yr. 2006 $7,603.65 - $1,495.00 - $6,108.65/yr. [121] The variation in child care is triggered by Chad’s starting school in September 2004. The child care provisions will be varied effective that date, as outlined above. HALIFAX GRAMMAR SCHOOL [122] Ms. Hendrickson claims $12,327.00 per year as expenses for Chad’s attendance at Halifax Grammar School - a private school. [123] This issue (Chad’s attendance at private school) was before the Trial Judge. He concluded: I am not satisfied that...the need for private education and for an ‘extraordinary expense’ has been established at the present time... (para. 59) ...there is no evidence that he would not thrive in a public school. [124] I conclude from the evidence before me that Chad has no identified particular needs that are sought to be met by his attendance at the Halifax Grammar School. The expenses are not a necessity considering or having regard to Chad’s best interests. The expense is not reasonable having regard to the means and other obligations of the spouses. PIZZA, MILK, SUBS, GYMNASTICS... [125] Ms. Hendrickson has also claimed as extraordinary expenses: Pizza Day, Milk Program, Sub Sandwich Day $500.00/yr. Gymnastics $600.00/yr. Waegwaltic (swimming lessons, tennis) $400.00/yr. [126] Section 7(1)(f) refers to “extraordinary expenses for extracurricular activities”. The Nova Scotia Court of Appeal has stated (in Raftus v. Raftus (1998) Can. LII 6139 (N. S. C. A.)) that: ..The words ‘extraordinary expenses for extracurricular activities’, given their plain meaning, in the context of the Guidelines as a whole, can only refer to expenses which are ‘not usual’, ‘additional to what is usual’ or ‘exceptional’. In my opinion, that must be determined, not in light of parental income, but in considering the nature of the activities and the nature of the expenses. (at p. 17) ...Because, as I have indicated, the applicable table amounts (s. 3(1)(a)) are based on an average of what parents at various income levels spend on their children, the assumption of counsel (that ‘ordinary’ or ‘usual’ expenses for extracurricular activities and events are not included in the applicable table amounts), is not a valid one. (at p. 19) [127] The “Pizza Day, Milk Program, Sub Sandwich Day” claim are not extracurricular activities - they are lunch items. [128] Basic gymnastic, swim, tennis lessons are not extraordinary, whether viewed considering the nature of the activities (per the majority in Raftus supra) or considering, as Bateman, J. A . did in Raftus (supra), in light of the income of each parent. SECTION 7 EXPENSES [129] I conclude that there are section 7 child care expenses of $5,017.15/yr. for 2005, $6,108.65/yr. for 2006. Mr. Hendrickson’s income has been treated as $140,000.00, Ms. Hendrickson’s income as $43,000.00. Their total income is $183,000.00. His income is 76.5% of the total. His share, then, is: (a) for 2005: .765 x $5,017.15 = $3,838.11 $3,838.11 ÷ 12 mths. = $319.85/mth. (b) for 2006: .765 x $6,108.65 = $4,67312 $4,673.12 ÷ 12 mths. = $389.42/mth. VARIATION - EFFECTIVE WHEN? [130] Mr. Hendrickson’s variation application seeks a retroactive variation to June 2004. [131] The Trial Decision was based on evidence completed October 30, 2003. It appears to have used ss.17 and 18(a) of the Child Support Guidelines to determine Mr. Hendrickson’s income, for child support purposes, to be $400,000.00 per year. [132] The January 1, 2004 corporate statement (with its loss) was not before the Trial Judge. [133] The trial decision was based on circumstances and evidence as of October 30, 2003. It, as the Child Support Guidelines contemplate, considered the pre-tax corporate income for the previous year - i.e. the January 31, 2003 statement (and using s. 17 of the Guidelines the two years before that). The January 31, 2004 statement became available after the trial. [134] The trial decision was delivered as follows: April 16, 2004 Oral reasons concerning the determination of Mr. Hendrickson’s income - $400,000.00. May 25, 2004 Oral reasons concerning s. 7 expenses and some other matters. July 30, 2004 Written release of oral decision. [135] The Trial Judge was made aware of the availability of the January 31, 2004 statements on May 19, 2004. He had given part of his decision (April 16, 2004) - fixing Mr. Hendrickson’s income at $400,000.00. On May 19, 2004 Mr. Hendrickson’s counsel had the following exchange with the Trial Judge: COUNSEL: I’m in a difficult position because as Your Lordship is aware, Mr. Hendrickson’s company Tour Tech East has a January 31 year end and his circumstances have changed so radically that my instructions are that regardless of what happens today we have to immediately go for an application to vary so that’s really thrown a fly in the ointment. I don’t know whether Your Lordship is functus at this point. I - so I can’t say any more than that. I mean I can’t - well in the sense of you’ve made a decision on maintenance, you can’t - I can’t now introduce evidence on what’s current so... THE COURT: No, I agree. [136] It has been suggested (in submissions made on behalf of Ms. Hendrickson), that Mr. Hendrickson should have made an application to introduce new evidence. Mr. Hendrickson’s counsel concluded, not unreasonably, from the above exchange that there was little point in doing so. Ironically on the Variation Application before me, Mr. Hendrickson did apply to introduce new evidence after the completion of the evidence but before my decision. Ms. Hendrickson (successfully) opposed this. [137] I have concluded that Mr. Hendrickson has proven that there has been a change in circumstances - when should the change and new child support figure(s) be given effect by the Court? [138] To summarize, relevant dates include: (a) October 30, 2003 - the date evidence closed on the Trial Decision; (b) January 31, 2004 - the year end for Tour Tech; (c) April 16, 2004 - oral reasons fixing Mr. Hendrickson’s income; (d) May 19, 2004 - exchange with Trial Judge referring to “change in circumstances”; (e) May 25, 2004 - completion of oral decision - re s. 7 expenses; (f) July 14, 2004 - Corollary Relief Judgment issues; (g) July 30, 2004 - written release of Trial reasons; (h) August 25, 2004 - Application to Vary filed. [139] Retroactive child support orders have been the subject of considerable judicial comment in recent years. The legislation and Guidelines provide: - S. 17 Divorce Act, 1985: - allows the court to make a retroactive order (s. 17(1)); - before making a variation order the Court shall satisfy itself that there has been a change ...circumstances since the making of the support order...(s.17(4)). - Federal Child Support Guidelines: - a “change in circumstances” as described in s. 17(4) of the Divorce Act, 1985 includes “any change...that would result in a different child support order.” [140] The recent Court of Appeal cases (including those in this province - Rafuse v. Conrad (2002), N. S. J. 208 (N. S. C. A.); Lu v. Sun (2005) N. S. C. A. 112) have almost exclusively focussed on retroactive support where the effect of the retroactive order is to increase the payor’s obligation to pay support. [141] In this context the principles considered have, arguably, developed two streams - (1) a presumptive approach saying people should pay what the Guidelines say they should pay: - this view focuses on the child’s entitlement to support; - blameworthy conduct on the part of the payor is not relevant; - notice to seek child support or a variation is not required; - the date of the increased Guideline income is the presumptive date for commencement of a retroactive reward. (See, for example, the “Alberta trilogy” - S. v. G. (2005) Alta. C. A. 2; Henry v. Henry (2005) Alta. C. A. 5, W. v. R. (2005) Alta. C. A. 5). (2) a discretion-based approach that considers the need fo the child, ability to pay (of the payor), presence of blameworthy conduct, etc. (See, for example, S. v. P. (1999) Carswell 1402 (B. C. C. A.); Rafuse v. Conrad (2002) N. S. J. 209 (N. S. C. A.), Lu v. Sun (2005) N. S. C. A. 112.) [142] The two streams may well be flowing in the same direction - there is, in all of the cases concerning retroactive support, an increased willingness to examine and make retroactive orders. Both “streams” appear consistent in considering the following principles/issues. [143] The issue of whether a retroactive order should be made or not will inevitably arise in a series of different contexts. Some include: - where there is no previous order or agreement; - where there is an existing agreement; - where there is an existing order; - where there is only a Table Amount in issue; - where there are “discretionary” issues involved (s. 7 expenses, incomes over $150,000.00, s. 17, 18, 19 of the Guidelines); - where the retroactive order involves an increase in the payor’s income; - where the retroactive order involves a decrease in the payor’s income; - where the child’s circumstances change; - where there is Provincial and/or Divorce legislation involved the legislation may, in fact, be different. The Divorce Act, 1985 contemplates retroactive orders explicitly in s. 17(1) dealing with variation proceedings. [144] It would be impossible, in my view, to make an exhaustive list. [145] Efforts to develop principles to apply to child support cases involving retroactive claims for support will vary with the context of the case before the Court. As those policies develop it would be prudent to ask both how would this work if the quantum of support is going up? How would this work if it was decreasing? [146] The principles referred to in S. v. P. (B. C . C. A.) are not, in my view, inconsistent with the Alberta Court of Appeals presumptive approach - it is not unreasonable to say that in a given case the child support obligation should be rigidly consistent with the Child Support Guidelines Table Amount. However rigid the Guidelines may appear at times, however, judicial discretion is part of many aspects of their application - including consideration of objectives such as fairness, and issues such as income determination, s. 7, s. 9, s. 17, s. 18, s. 19, etc. [147] In my view, it is appropriate to consider in the application of that discretion the policy concerns enunciated in S. v. P. (B. C. C. A.) and Conrad v. Rafuse (N. S. C. A.). They include: (a) a presumption that a previous court Order is correct unless reversed on appeal or varied; (b) a presumption that a statute is not to be given retroactive effect unless such a construction appears very clearly in the legislation. The Divorce Act, 1985 could not be clearer in s. 17(1) in contemplating retroactive variation. (c) child support is the right of a child - subject under the Guidelines and Divorce Act to “reasonable arrangements for their support”; (d) parents are jointly responsible for support of children - in accordance with the provisions and objectives of the Child Support Guidelines; (e) the Court should attempt to encourage negotiated settlement, or at least not encourage litigation. [148] These principles are general and not, in my view, contentious. They are appropriately considered when retroactivity of a child support order is in issue. [149] These cases also refer to “factors which have been regarded as significant in determining whether to order or not order retroactive child maintenance” (para. 66 S. v. P.). [150] Factors mitigating in favour of a retroactive order included: - need of child, ability to pay; - blameworthy conduct by the non-custodial parent; - incomplete/misleading disclosure; - the custodial parent having had to encroach on capital or incur debt; - an excuse for delay (e.g. illness, on-going negotiation). [151] Factors mitigating against retroactive awards have included: - creating an unreasonable burden on the non-custodial parent; - redistributing capital or awarding disguised spousal support; - significant unexplained delay. [152] None of these factors are required for a retroactive order to be made, they are factors other courts in specific contexts have considered. Where applicable, I have considered them here. [153] In Conrad v. Rafuse the Nova Scotia Court of Appeal confirmed the Court’s jurisdiction to make an order for a period pre-dating the commencement of a proceeding. [154] It is also clear from Conrad v. Rafuse that an order for support is presumed to be correct at the time it was made. The Nova Scotia Court of Appeal stated at paragraphs 24 and 215: [24] However, one of the policy considerations as noted in L.S. v. E.P. is that an order for support is presumed to be correct at the time it was made. At ¶ 48, Justice Rowles pointed out: A previous court judgment is assumed to be correct and should be respected unless it is reversed on appeal or varied. In Willick v. Willick, 1994 CanLII 28 (S.C.C.), [1994] 3 S.C.R. 670 at 687-88 Sopinka J. Said the following with respect to variation of a maintenance order made under the Divorce Act: Therefore, in 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. [25] A rational corollary of that policy would be that in the absence of any fraud or deception or other reason to set it aside, the order continues to be appropriate for at least some period of time beyond the date it became effective. [155] Here Mr. Hendrickson has asserted that the temporal gaps between the Trial Judge’s oral Decision (April 19, 2003) fixing his income at $400,000.00, based on evidence as of October 30, 2003, the receipt of the Corollary Relief Judgment (July 14, 2004) and written reasons (July 30, 2004) had the effect of delaying or stalling his ability to “apply to vary” the April 19 decision. He advised the Court and Ms. Hendrickson that the application would be made (May 19) and filed the application to vary within one month of the availability of the Trial Judge’s written reasons. He acknowledges that he had some responsibility for the delay in the issuance of the Corollary Relief Judgment. [156] In essence, Mr. Hendrickson asserts that the change in circumstance was apparent in May 2004, but he could not apply to vary until he had the Order and reasons for judgment (based on evidence as of October 30, 2003). The Application to Vary was filed in the month following receipt of both. [157] I do not find this position unreasonable. [158] Courts are also less concerned with the suggestion that retroactive child support orders “redistribute capital”. Paperny, J. A. Stated in S. v. G. (supra) at paragraph 112: Thus, the decision does not stand for the proposition that large retroactive support awards should not be ordered merely because they are large or of necessity involve some transfer of wealth. That is precisely what a retroactive award is intended to do - transfer money from the parent owing it to the parent to whom it is owed. All payments of debt involve a transfer of money or wealth from the debtor to the creditor. It could not be otherwise. [159] I have concluded that the change in Mr. Hendrickson’s income occurred on receipt of the January 31, 2004 Financial Statements of Tour Tech. In May 2004 when Mr. Hendrickson’s counsel advised the Court and Ms. Hendrickson that he would be making an Application to Vary “as soon as he could” - after the Trial Decision was completed. The variation of the Table Amount of support will be as of June 1, 2004. [160] The variation is significant: - from a Table Amount of support of $2,931.00 per month based on $400,000.00 income, to $1,059.00 per month based on $140,000.00 income; and - from s. 7 expenses of $701.46 per month (40%) of child care) to $319.85 per month (76.5% of child care). [161] I have considered the factors referred to and conclude that the change in circumstances occurred prior to June 1, 2004 - the change was from and after the circumstances as they existed on October 30, 2003 - the end of the evidentiary portion of the Trial. The trial decision was “as if it were made then”. [162] I have considered the objectives of the Guidelines: - the objectives of a fair standard, and consistency for like-situated parents and children must be anchored in principle. It would not be fair in any context to conclude that Mr. Hendrickson’s income had varied by $260,000.00 and not give effect to it in determining his obligations. [163] I conclude that: 1. Mr. Hendrickson’s income for the purpose of the Child Support Guidelines is $140,000.00 effective June 1, 2004. The table amount of support for this is $1,059.00 per month. It shall be payable by him commencing the 15th day of June, 2004 and continuing the 15th day of each month thereafter until further order of the Court. Further, on or before June 15th of each year, commencing June 2006: - Mr. Hendrickson will provide Ms. Hendrickson with copies of his personal income tax return for the previous year and Tour Tech year end statements for the most recent year end; - Ms. Hendrickson shall provide Mr. Hendrickson with copies of her income tax return for the previous year and year end financial statements for her ESP-Events Services and Production Inc. For the most recent year end. 2. My order regarding child care expenses will be as follows: (a) effective September 15, 2004 (the month Chad started school), Mr. Hendrickson’s contribution to child care costs will be varied to 76.5% of $5, 017.15 = $3,838.11 per year ÷ 12 = $319.85 per month, payable on the 15th day of each month, commencing September 15, 2004, and continuing each month thereafter until January 15, 2006 at which time his contribution will be 76.5% of $6,108.65 = $4,673.12/yr. ÷ 12 = $389.42/mth. until further order of the Court. Commencing March 31, 2006, Ms. Hendrickson will provide Mr. Hendrickson with copies of receipts for child care expenses incurred for the previous six months - and will do so each six months thereafter. (b) the over-payment of $701.46 - $319.85 = $381.61 per month for the months of September 2004 to/including September 2005 is: 13 months x $381.61 = $4,960.93. (c) The Trial Judge reduced Mr. Hendrickson’s share of child care expenses because the child support that was payable for income of $400,000.00 was significant. My conclusion that Mr. Hendrickson’s income is $140,000.00 reduces the Table Amount and confounds the rationale for the Trial Judge’s Order with respect to child care. For the months of June, July and August 2004, Mr. Hendrickson will pay 76.5% of the cost of child care - which was determined by the Trial Judge to be $1,753.65 per month. 76.5% of $1,753.65 is $1,341.54 per month. I do not have evidence that would indicate child care “changed” before Chad started school in September 2004. 3. The support will be paid by Mr. Hendrickson through the Director of Maintenance Enforcement for the Province of Nova Scotia. [164] I do not have a record of support payments paid since April 15, 2005. For the purposes of these calculations, I have assumed them to be paid. The calculations may be adjusted by counsel if there are outstanding “arrears”. [165] Mr. Hendrickson’s over-payment of child support is significant: $2,931.00 Table Amount from Trial Decision -1,059.00 Table Amount ordered here $1,872.00 [166] The table amount of over-payment is $1,872.00 per month x 16 months (June 2004 to and including September 2005) = $29,952.00. [167] Added to this would be $1,465.50 (payable on October 4, 2005 per the Corollary Relief Judgment) minus $1,059.00(his October Table Amount) = $406.00 (the October 2005 over-payment). [168] Finally there is a child care over-payment of $4,960.93. [169] The total over-payment, then, is: $29,952.00 406.00 4,960.93 $35,318.93 [170] Mr. Hendrickson has under paid his contribution to child care for the months of June, July and August of 2004 as follows: $1,341.54/month - $701.00/month = $640.54 per month x 3 months = $1,921.62 [171] The set-off of these amounts leaves Ms. Hendrickson owing Mr. Hendrickson: $35,318.93 - $1,921.62 = $33,397.31 [172] Ms. Hendrickson has chosen to stay in the former matrimonial home where her mortgage expense alone is $19,063.44 per year (44% of her stated $43,000.00 income). She has, unilaterally placed Chad in private school at a cost of over $12,000.00 per year. These choices exaggerate both her financial needs and her dependency on the original child support orders. Neither decision, however, is a rationale for Mr. Hendrickson to pay amounts beyond his obligations under the Child Support Guidelines. [173] I have considered repayment methods. If Mr. Hendrickson was credited with having prepaid periodic child support (even just the Table Amount), it would reduce Ms. Hendrickson’s cash flow from child support. The reduction in child support I am ordering will cause significant adjustments in her budget. I see no advantage in aggravating the impact of this by further reducing the amount paid on a month to month basis over a period of years. A monthly reduction in child support would also trigger concerns and issues related to interest on this money if payment was going to be significantly delayed. Both, in my view, are reasons not to have the repayment made over a period of years. [174] Ms. Hendrickson has two homes - each of which she valued at $600,000.00 (in Exhibit 30), or a total of $1,200,000.00. She has mortgages approximating $770,000.00 ($435,000.00 + $335,000.00). She has, then, some $430,000.00 in equity. [175] Ms. Hendrickson purchased the Inglis Street property on May 31, 2004 - after Mr. Hendrickson’s counsel had asserted that circumstances had “radically” changed and an application to vary would be brought “when it could be”. There appears to be equity in this property (using Ms. Hendrickson’s figures) of over $150,000.00. [176] Ms. Hendrickson has the financial means at her disposal to repay the “over-payment” of child support by refinancing equity in the former matrimonial home or the Inglis Street property. [177] Ms. Hendrickson should be provided with some time to plan for and make her payment to Mr. Hendrickson. [178] The mortgages on the former matrimonial home and Inglis Street properties have terms that are due May 31 and June 1, 2006 respectively. [179] I will give Ms. Hendrickson a choice. The Order will state either: (a) $33,397.31 will be paid by her to Mr. Hendrickson on or before January 15, 2006, three months from now; or (b) the $33,397.31 will be paid by the reduction of Mr. Hendrickson’s table amount of support by $500.00 per month, commencing the 15th day of November, 2005, through and including the 15th day of May, 2006. This is seven months: 7 x $500.00 = $3,500.00 $33,397.31 - $3,500.00 = $29,897.31 The balance of $29,897.31 would be payable by Ms. Hendrickson to Mr. Hendrickson on or before June 1, 2006. [180] Ms. Hendrickson will advise the Court and Mr. Hendrickson’s counsel within one week as to which provision she wishes to have in the Order, and Mr. Hendrickson’s counsel shall prepare the Order. [181] Should Ms. Hendrickson not advise the Court and counsel for Mr. Hendrickson of her “choice” by 4:30 p.m. on Thursday, October 20, 2005, the Order will provide that she will pay Mr. Hendrickson $33,397.31 on or before January 15, 2006. [182] In any event, the Order will contain a clause providing that should either or both of Ms. Hendrickson’s properties be refinanced or sold before the payment date chosen, the payment of the total amount then owing prior to the payment date incorporated in the Order, to Mr. Hendrickson will be accelerated to the date of such sale or refinancing. COSTS [183] I will deal with the issue of costs on the request of either counsel. Halifax, NS APPENDIX “A” 21. (1) A spouse who is applying for a child support order and whose income information is necessary to determine the amount of the order must include the following with 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. (2) A spouse who is served with an application for a child support order and whose income information is necessary to determine the amount of the order, must, within 30 days after the application is served if the spouse resides in Canada or the United States or within 60 days if the spouse resides elsewhere, or such other time limit as the court specifies, provide the court, as well as the other spouse or the order assignee, as the case may be, with the documents referred to in subsection (1). 22. (1) Where a spouse fails to comply with section 21, the other spouse may apply (a) to have the application for a child support order set down for a hearing, or move for judgment; or (b) for an order requiring the spouse who failed to comply to provide the court, as well as the other spouse or order assignee, as the case may be, with the required documents. (2) Where a court makes an order under paragraph (1)(a) or (b), the court may award costs in favour of the other spouse up to an amount that fully compensates the other spouse for all costs incurred in the proceedings. 23. Where the court proceeds to a hearing on the basis of an application under paragraph 22(1)(a), the court may draw an adverse inference against the spouse who failed to comply and impute income to that spouse in such amount as it considers appropriate. 25. (1) Every spouse against whom a child support order has been made must, on the written request of the other spouse or the order assignee, not more than once a year after the making of the order and as long as the child is a child within the meaning of these Guidelines, provide that other spouse or the order assignee with (a) the documents referred to in subsection 21(1) for any of the three most recent taxation years for which the spouse has not previously provided the documents; (b) as applicable, any current information, in writing, about the status of any expenses included in the order pursuant to subsection 7(1); and (c) as applicable, any current information, in writing, about the circumstances relied on by the court in a determination of undue hardship. (3) Where the income information of the spouse in favour of whom a child support order is made is used to determine the amount of the order, the spouse must, not more than once a year after the making of the order and as long as the child is a child within the meaning of these Guidelines, on the written request of the other spouse, provide the other spouse with the documents and information referred to in subsection (1). (4) Where a spouse or an order assignee requests information from the other spouse under any of subsections (1) to (3) and the income information of the requesting spouse is used to determine the amount of the child support order, the requesting spouse or order assignee must include the documents and information referred to in subsection (1) with the request. (5) A spouse who receives a request made under any of subsections (1) to (3) must provide the required documents within 30 days after the request's receipt if the spouse resides in Canada or the United States and within 60 days after the request's receipt if the spouse resides elsewhere. (6) A request made under any of subsections (1) to (3) is deemed to have been received 10 days after it is sent. (7) A court may, on application by either spouse or an order assignee, where the other spouse has failed to comply with any of subsections (1) to (3) (a) consider the other spouse to be in contempt of court and award costs in favour of the applicant up to an amount that fully compensates the applicant for all costs incurred in the proceedings; or (b) make an order requiring the other spouse to provide the required documents to the court, as well as to the spouse or order assignee, as the case may be. (8) A provision in a judgment, order or agreement purporting to limit a spouse's obligation to provide documents under this section is unenforceable. APPENDIX “B” Nova Scotia Civil Procedure Rules Variations of final orders 70.28. (1) An application to vary, rescind or suspend an order for corollary relief under the Divorce Act or an order respecting custody, access or maintenance under the Maintenance and Custody Act shall comply with the procedures and filing requirements of rules 70.04 to 70.16, with any necessary modifications. . . . (4) A party may not proceed to a variation hearing before a judge until all the applicable information has been filed with the court and a court officer has determined that a variation hearing is necessary to resolve the issues. (5) The applicant for a variation shall file and serve a variation application in Form 70.28A, setting out the relief sought, along with a completed intake form, a supporting affidavit and other necessary documentation, including a pre‑hearing brief, upon the other parties not later than ten (10) clear days before the hearing, unless otherwise directed by a court officer. . . . Disclosure: financial statements 70.09. (1) Where the only financial claim by a party is for child support in the table amount under the Guidelines, that party is not required to file or serve a financial statement, but the other party is required to file and serve a statement of Guidelines income in Form 70.09A within the periods set out in sub‑rule (4). . . . (4) Where a party claims child support in an amount other than the table amount or special or extraordinary expenses under the Guidelines, both parties shall file and serve a statement of income in Form 70.09A and a statement of expenses in Form 70.09C within the following periods after service of a notice to disclose, or such shorter or longer periods as may be directed by the court officer: