Christie v. Wilson, 2010 BCSC 1823

IN THE SUPREME COURT OF BRITISH COLUMBIA Citation: Christie v. Wilson, 2010 BCSC 1823 Date: 20101217 Docket: 10-3355 Registry: Victoria Between: Jason Christie Appellant And Laurie Anne Wilson Respondent Before: The Honourable Mr. Justice Harris Reasons for Judgment Counsel for the Appellant: Rebecca F. Alleyne Counsel for the Respondent: Michael Jakeman Place and Date of Hearing: Victoria, B.C. December 10, 2010 Place and Date of Judgment: Victoria, B.C. December 17, 2010 Introduction [ 1 ] Mr. Christie appeals an Order of the Provincial Court pronounced July 5, 2010.

After a two day trial dealing with a variation of child support the learned judge determined that Mr. Christie had a guideline income of $177,157.00 for the purposes of child support payments. There is one child from Mr. Christie’s relationship with Ms. Wilson, Kimberly, who is now 17 years old. [ 2 ] The Court ordered Mr. Christie to pay child support to Ms. Wilson for Kimberly in the amount of $1,554.00 per month while Kimberly remained a “child” as defined by the Family Relations Act , RSBC 1996, C. 28. Mr. Christie was also ordered to pay a lump sum of $13,210.00 in child support arrears. [ 3 ] Mr.

Christie submits that three errors underlie the Court’s order. [ 4 ] First, the Court improperly drew an adverse inference against Mr. Christie based on his alleged failures to disclose financial information. [ 5 ] Second, the Court misapplied the law under s. 18 of the Child Support Guidelines governing the imputation of income where a payor has income available from business interests. [ 6 ] Third, the Court erred in applying the British Columbia Child Support Tables. The applicable table is the Alberta table where Mr. Christie lives. [ 7 ] It is common ground that Mr.

Christie, as the appellant, has the onus of demonstrating that the learned judge made an error of legal principle, a material error or committed a palpable and overriding error in making findings of fact or drawing factual inferences. Finding facts is the province of the trial judge and should be given considerable deference unless it is demonstrated that the trial judge fundamentally mischaracterized or failed to appreciate the evidence. [ 8 ] In this case, the trial judge heard evidence over two days and made findings of credibility that were adverse to Mr. Christie.

It is not for me to reassess the trial judge’s assessment of the evidence, the weight to be given to Mr. Christie’s evidence or to re-evaluate Mr. Christie’s credibility. This is not a hearing de novo . The First and Third Grounds of Appeal [ 9 ] At the outset, I find no merit in the first ground of appeal. The learned trial judge did not draw an adverse inference against

Mr. Christie. He merely assessed Mr. Christie’s credibility and found it wanting. It is true that the Court criticized Mr. Christie for failing to provide certain information in his financial disclosure that he, arguably, had no obligation to disclose, but this was only one part of the basis on which the Court found Mr. Christie’s financial disclosure inadequate. The Court had to reach conclusions of fact on the evidence before it. The trial judge took into account his views of Mr. Christie’s credibility in finding the facts.

He was entitled to do so and, in my view, did not commit any reversible error of principle. [ 10 ] The trial judge did err, however, in applying the British Columbia Table. The Guidelines are quite clear. The applicable table is the one for the province in which the payor spouse resides, not the child. As Mr. Christie lives in Alberta the table for that province is applicable. The Imputation of Business Income Background [ 11 ] The gravamen of the appeal is whether the trial judge erred in principle in imputing income to Mr. Christie because he had income available to him from his business interests.

There is also a subsidiary calculation issue I will deal with at the conclusion of these Reasons. [ 12 ] The following facts are material to the disposition of this appeal. Mr. Christie is the majority shareholder of a company referred to as AlbertaCo. His wife is its other shareholder. [ 13 ] AlbertaCo. is the sole shareholder of Vaughan Investigations Inc. (“Vaughan”). Vaughan is a security company operated by Mr. Christie. It earns revenue. [ 14 ] In 2008, Vaughan was involved in a transaction in which it purchased from 555050 Alberta Inc (“555050”) certain assets related to a business contract.

The purchase was paid for by 420,000 voting shares of Vaughan. At the same time, AlbertaCo. entered into what is described as an Asset Purchase Loan with 555050. Under this agreement, 555050 sold its shares in Vaughan to AlbertaCo. for $420,000. AlbertaCo. agreed to pay the purchase price of the shares to 555050 in monthly payments of $8,750. These payments have been made. [ 15 ] The Asset Purchase Loan also involved a promissory note in the amount of $420,000 to secure AlbertaCo.’s obligations to 555050. It is immediately due and payable at the option of 555050 in the event of a default.

The promissory note itself was not in evidence before the trial judge, but the Court accepted the obligation existed. [ 16 ] In addition, 555050 and Vaughan entered a Working Capital Loan Agreement under which 555050 loaned Vaughan up to $100,000 for a term of August 1, 2008 to May 1, 2008, secured by a promissory note. In the event of default, the indebtedness is immediately due and payable at the option of 555050. No payments have yet been made on this obligation. [ 17 ] The evidence that was accepted by the trial judge is that Vaughan had a net income of $114,023 and retained earnings of $105,000 from 2008.

Vaughan has made dividend payments to AlbertaCo. through to the end of 2009 in the amount of $202,000. This money was used to fund the monthly payments it owed 555050. In addition a shareholder loan in the amount of $40,000 was made by Vaughan it appears ultimately to the benefit of Mr. Christie’s wife. [ 18 ] The transactions between AlbertaCo. and Vaughan are not arms-length. 555050 appears to be a company controlled by a Mr. Montgomery for whom, indirectly, Mr. Christie worked for a number of years. In substance, Mr.

Christie has bought Vaughan from 555050 through a holding company, AlbertaCo., he owns and controls and 555050 has assisted in financing the purchase. As a result, AlbertaCo. has debt obligations to honour. The Point on Appeal [ 19 ] Mr. Christie accepts the findings of fact made by the trial judge about the intercompany transactions and the financial obligations they entail. He says, nevertheless, that the trial judge misapplied the law set out in Kowalewich v. Kowalewich , 2001 BCCA 450 .

He puts his appeal this way: This case stands for the fact that under the corporate income method of determining income, the court can include reasonable payment for personal services, reasonable return on investment, income of related companies and non-arm’s length payments. Under this method, the Guidelines allow but do not require inclusion of all pre-tax income of a corporation for the most recent tax year.

At paragraphs 58 and 59 of Kowalewich it states the following: [58] 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 purposes 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. In Hollenbach v.

Hollenbach, 2000 BCCA 620 , the trial judge recognized the need for a reserve for depreciation as an appropriate factor to be considered in a real estate business. Justice Dorgan recognized Mr. Kowalewich’s business expansion plan as a valid business purpose in a retail business. [59] I do not recite these factors to suggest this Court should tinker with a trial judge’s exercise of discretion, nor that a trial judge should second guess business decisions.

I do say that a trial judge must have regard to the evidence of legitimate business needs in determining what portion of pre-tax corporate income to include in annual income for Guideline purposes.

The court must consider evidence of legitimate business needs and monies needed to maintain the business as a going concern, which should not be added to income for support purposes. The appellant submitted at trial that the funds that the Honourable Judge Neal included in his Guidelines Income are not available to him because the company is under a contractual obligation to repay the promissory notes to the Alberta Company. Vaughan was entirely debt-financed. The company cannot continue to operate unless it services the debt in accordance with its contractual obligations.

My friend correctly points out in his outline that once a legitimate business expense has been established that the company income should not be viewed as income for the payor without this expense being considered and that the onus rests on the spouse who exercises control over the corporation to satisfy the court that he has a legitimate business need. My friend states in his outline that Mr. Christie does not put into evidence any legitimate business expense and does not provide essential evidence such as the promissory note. It is here where there is a major disagreement. Mr.

Christie provided as evidence the purchase contracts which created the debts and outlined the terms of repayment, he provided the company financial statements which show the transfers of funds between the companies and a letter from his accountant providing an explanation of the repayment of such obligations. Further, while the promissory notes themselves are not in evidence, for the purposes of the appeal we need only look to paragraph 20 where the Honourable Judge Neal accepts the existence of the promissory notes and the obligations themselves.

But the basis of the appeal, on this point, is that the law was not applied appropriately. The Lower court: accepted that Mr. Christie is in the process of purchasing Vaughn Investigations through the holding company. Accepted that the purchase is important because if provides Mr. Christie with significant income and prospects for a valuable long-term asset Accepted that the vendor requires payment of sums to the vendor over time at the rate of $8,750 per month. Accepted that the purchase incurred a debt to the holding company of $420,000 by way of promissory note payable to the Alberta vendor.

Accepted that there is a further $100,000 revolving line of credit from the vendor and that no payments have been made on that note. Mr. Christie submits that the error made by the lower court is that regardless of these findings, The Honourable Judge Neal finds that all of the retained earnings of the holding company for 2009 should be included in the appellant’s income for the purpose of calculating his child support obligation.

The Honourable Judge Neal acknowledges that the retained earnings are dedicated to paying off the acquisition of the shares in Vaughan; however, he then finds that those funds are income for the purposes of calculating child support. He states that the child support obligations existed before the company was purchased and must be accorded appropriate priority in the scheduling of corporate expenses. He goes on to say that the court is not satisfied that imputing this income to Mr. Christie would vitiate the company as a going concern or materially affect his business plan established to complete the purchase.

The lower court notes that the holding company was able to make a $40,000 loan to Mr. Christie’s spouse without any apparent difficulty and infers therefore that the companies have more flexibility in planning finances. The lower court infers that the companies have more flexibility in planning finances because this loan was made. When determining child support, it is not for the court to consider whether the company can structure its finances in a way to allow the company’s controlling shareholder to meet a high child support obligation.

It is necessary to determine the income available to the controlling shareholder by reviewing the company financial statements and then order child support based on that income. Whether it seems that a company can shift money around to meet a high child support obligation is irrelevant. [ 20 ] Ms. Wilson responds to the appeal by arguing that Mr. Christie is simply re-arguing the facts. Mr. Christie failed to discharge his burden to satisfy the trial judge that the companies had reasonable expenses that needed to be met by the retained earnings.

The trial judge found the facts on the evidence before him, based in part on his assessment of Mr. Christie’s credibility. There is no principled basis on which to disturb the trial judgment. The Trial Judgment [ 21 ] The trial judge found Mr. Christie to be “evasive as to his income, equivocal in terms of his current financial situation, and generally reticent to provide much in the way of information concerning the details of his finances”. He is criticised for being misleading and for obfuscating the true story of his income and assets.

His evidence is rejected as lacking credibility, honesty and trustworthiness. [ 22 ] After referring to the Kowalewich case, the trial judge made findings of fact and drew legal conclusions from them. He said at paragraphs 19-22: I have considered that Mr. Christie is in the process of purchasing Vaughan Investigations through his holding company. Obviously, the

purchase is important because it provides Mr. Christie with a significant income and prospects for a valuable, long-term asset. The purchase agreement with the vendor requires payment of sums to the vendor over time at the rate of $8,750 a month. Although the court does not have full disclosure of those details, it can be inferred that the purchase incurred a debt to the holding company of $420,000 by way of a promissory note payable to the Alberta vendor. As well, I find that there was a further $100,000 revolving line of credit from the vendor and that no payments have yet been made on that second note.

I therefore consider that all of the retained earnings of the holding company for 2009, being $105,077, should be included in Mr. Christie’s income for the purposes of calculating child support obligations. I appreciate that Mr. Christie has dedicated those funds to paying off the acquisition of the shares in Vaughan Investigations; however, those funds are income for the purposes of calculating child support and the share of purchase obligation expenses. Child support obligations existed before the company purchase took place and must be accorded priority in the scheduling of corporate expenses by Mr. Christie.

I am not satisfied that imputing this income to Mr. Christie would vitiate the company as a going concern or materially affect the business plan established to complete the purchase as disclosed to the court, and in that regard, I note that the company was able to make a $40,000 loan to Mr. Christie’s spouse from the holding company in 2009 without any apparent difficulty. Clearly, there is more flexibility in planning finances than Mr. Christie would have us believe.

Analysis [ 23 ] Under s. 18 of the Guidelines the income of a payor may include all or part of the pre-tax income a corporation and related corporations. The court is required to assess a payor parent’s allocation of pre-tax corporate income between personal and business purposes to determine the income fairly available to the payor for the payment of child support. Courts must consider evidence of legitimate business needs to determine to determine the appropriate amount of pre-tax income to be included in Guideline income.

Money needed to maintain the value of a business as a viable going concern is not available for support purposes: see, Kowalewich . [ 24 ] Here the trial judge accepted that the companies had obligations to repay debt. The trial judge must be taken to have accepted that those obligations were legitimate business expenses and that honouring them is necessary to maintain the business as a viable going concern.

He also accepted that the retained income of Vaughan was dedicated to honouring those obligations. [ 25 ] In my opinion, the trial judge drew precisely the opposite conclusion from the facts he found in paragraph 19 of his Reasons than he should have done. Applying the reasoning in Kowalewich , the retained earnings dedicated to pay business expenses are prima facie not income for child support purposes.

Having found as a fact that the expenses existed, that there was an obligation to meet them and that the retained earnings were dedicated to that end, it was not open to the trial judge to conclude that “therefore” the retained earnings were income. [ 26 ] It is implicit in the facts found by the trial judge that the expenses were legitimate, the obligation to meet them real and owed to an arms-length third party and that it was reasonable to rely on retained earnings to meet the companies’ obligations.

In those circumstances, it cannot follow as a matter of principle that all of the retained earnings are to be imputed as income. It was also an error in principle to base his analysis on the proposition that child support obligations have priority over the scheduling of legitimate corporate expenses. [ 27 ] In my respectful opinion, the trial judge properly determined that the business expenses were legitimate and by implication reasonable. He also appears to have accepted that it was reasonable for Mr. Christie to use the retained earnings to meet those expenses.

On this question the burden of satisfying the court lay on Mr. Christie. It is clear that notwithstanding his reservations about Mr. Christie’s credibility, the trial judge was able to and did find the necessary facts. [ 28 ] To the extent the expenses are legitimate and reasonable and that it is reasonable to use retained earnings to meet them, the retained earnings are not available as income for child support purposes. It was of course open to the trial judge to examine to what extent the companies had surplus resources available that should be imputed as income to Mr. Christie.

The trial judge did observe that a shareholder’s loan of $40,000 had been made to Mr. Christie’s spouse without apparent difficulty. This observation supported his view that imputing all of the retained earnings as income would not vitiate the company as a going concern. The trial judge considered that the companies likely had more flexibility in scheduling their financial obligations than Mr.

Christie was willing to acknowledge. [ 29 ] In my opinion, the trial judge did not properly ask and answer the question he had to decide, namely, given that the companies had legitimate expenses and the retained income was reasonably required to meet them, and therefore the retained income was not prima facie income, to what extent are there surplus resources available that can be treated as income.

Those resources may be found in various places including retained earnings beyond those dedicated and reasonably necessary to meeting corporate expenses. [ 30 ] The trial judge operated on the faulty premise that all of the retained earnings were income. Although the shareholder loan supports an inference that the companies may have resources that can be imputed as income, it does not answer the question of how much income to impute.

In my opinion, if the trial judge drew the conclusion that all of the retained earnings are to be imputed as income from evidence that establishes only that there is some income to impute, he committed an overriding and palpable error. [ 31 ] While the companies may indeed have more flexibility than Mr. Christie allowed to manage their obligations, there is no evidence that they had any other source of funds to repay debt obligations to a third party than the retained earnings. At least some portion of the retained earnings, if not all, is needed to repay those obligations.

Not all of the retained earnings could, therefore, properly be regarded as income. The conclusion I have reached is that the trial judge fundamentally failed to appreciate the implications of the evidence that he accepted. Conclusion [ 32 ] I am of the view, then, that the appeal must be allowed. In my opinion, there is indeed a legitimate question whether there may be income to be imputed to Mr. Christie taking into account the companies’ capacity to meet their legitimate expenses. It is not possible to make that determination on the record before me.

The order of July 5, 2010 is set aside and a new trial ordered.

[ 33 ] Finally, I accept Mr. Christie’s submission that the trial judge erred in his treatment of the car allowance as income by double counting it for Guideline purposes. Since I have ordered a new trial, it is unnecessary for me to go further into that particular issue. Mr. Christie is entitled to his costs of the appeal. “Harris J.”