Court File and Parties

COURT FILE NO.: 1548/13 DATE: 2017/03/03 SUPERIOR COURT OF JUSTICE – ONTARIO FAMILY COURT

RE: Susan Krueger, Applicant AND: Darby Krueger, Respondent

BEFORE: George J.

COUNSEL: Matthew Villenueve for the Applicant W. Scott Gallagher for the Respondent

HEARD: February 21, 2017

Costs Endorsement

[1] This litigation commenced in October 2013, resolving on the eve of trial in February 2017. The parties have agreed that the applicant will provide to the respondent an 80,000.00 equalization payment. The issue of costs remains.

[2] The main trial issue was to be whether it would be unconscionable to equalize the NFP in accordance with the normal calculation. The applicant sought an unequal division.

[3] From before this application’s inception, many offers to settle have been exchanged. These include:

• August 15, 2011 – applicant proposes a draft separation agreement, with no equalization payment.
• August 31, 2011 – respondent seeks an equalization payment of $30,000.00.
• July 25, 2013 – applicant proposes a settlement, again with no equalization payment, with the respondent to pay her costs.
• August 21, 2013 – respondent offers to settle matter with the applicant paying him an equalization amount of $15,000.00.
• While not an offer to settle, the respondent’s NFP statement dated March 20, 2014 sets out an equalization figure of $107,311.40 based on the applicant’s net worth of $266,940.46 and the respondent’s net worth of $52,317.66.
• December 5, 2014 – applicant offers to settle case, again with no equalization payment, with the respondent paying her legal costs on a substantial indemnity basis.
• January 8, 2015 – respondent seeks an equalization payment of $75,000 if accepted before February 9, 2015, remaining open thereafter but with the applicant paying his costs.
• August 26, 2015 – applicant’s resolution proposal would have her pay the respondent $5000 as an equalization payment.
• While not an offer to settle, the applicant indicated during her examination for discovery on August 28, 2015 that upon sale of the home $30,000.00 of the proceeds would be held as security towards the equalization payment sought by the respondent.
• November 4, 2016 – applicant offers to pay the respondent $19,000.00 for equalization, but that he pay her costs.
• December 16, 2016 – applicant offers to make a $50,000.00 equalization payment to the respondent, but that he pay her costs on a full indemnity basis.
• December 16, 2016 – respondent proposes that the applicant pay to him $75,000.00 plus costs of $20,000.00 ($95,000.00 total).
• December 20, 2016 – the applicant offers to make a $55,000.00 equalization payment.
• January 6, 2017 – applicant offers to settle this case with a $65,000.00 equalization payment, reverting to $50,000.00 (with costs to her) after an expiry date.
• January 11, 2017 – applicant offers to make a $50,000.00 equalization payment.
• February 2, 2017 – applicant offers to make a $70,000.00 equalization payment.
• February 7, 20017 – respondent offers to settle with an $80,000.00 equalization payment, with costs to be argued. This was accepted.

[4] Each party seeks their costs, alleging the other has acted unreasonably. Each claims success, insofar as that can be determined with a consent order. The applicant points to the fact a ‘reduced’ payment was agreed on; reduced in the sense it is less than the straight calculation payment set out in the NFP statements. The respondent submits that the unconscionability claim was meritless, and based on accusations which were all unfounded.

[5] Respondent counsel’s bill of costs sets out $60,147.34 for fees and disbursements. Applicant counsel filed a bill of costs outlining his work, and rates, from September 2014 until now. He also filed accounts from Lerners detailing legal work done on the applicant’s behalf from 2011 until 2014. Total fees and disbursements from 2014 until now amount to $40,330.67. From 2011 to 2014, invoices for fees and disbursements total $18,738.87 (total $59,069.54).

[6] The applicant seeks a costs award of $30,000 inclusive of HST and disbursements, which represents approximately 50 percent of her legal fees.

[7] Upon review of the respective bills of costs, I see no problem with the nature of the work, or rates charged. Counsel’s materials properly reflect the actual work, and that which would be expected in a case like this, of this length.

[8] In assessing costs, I am governed by the Courts of Justice Act (CJA), and Family Law Rules (FLR). Section 131 of the CJA provides that:

Subject to the provisions of an Act or rules of court, the costs of and incidental to a proceeding or a step in a proceeding are in the discretion of the court, and the court may determine by whom and to what extent the costs shall be paid.

[9] Rules 24(1)(4)(5)(8) and (11) of the FLR provide that:

(1) There is a presumption that a successful party is entitled to the costs of a motion, enforcement, or appeal.

(4) Despite subrule (1), a successful party who has behaved unreasonably during a case may be deprived of all or part of the party’s own costs or ordered to pay all or part of the unsuccessful party’s costs.

(5) In deciding whether a party has behaved reasonably or unreasonably, the court shall examine,

(a) The party’s behaviour in relation to the issues from the time they arose, including whether the party made an offer to settle;

(b) The reasonableness of any offer the party made; and

(c) Any offer the party withdrew or failed to accept.

(8) If a party has acted in bad faith, the court shall decide costs on a full recovery basis and shall order the party to pay them immediately.

(11) A person setting the amount of costs shall consider,

(a) The importance, complexity or difficulty of the issues;

(b) The reasonableness or unreasonableness of each party’s behaviour in the case;

(c) The lawyer’s rates;

(d) The time properly spent on the case, including conversations between the lawyer and the party or witnesses, drafting documents and correspondence, attempts to settle, preparation, hearing, argument, and preparation and signature of the order;

(e) Expenses properly paid or payable; and

(f) Any other relevant matter.

[10] My authority derives from the CJA, while my task is guided by the framework set out in the FLR.

[11] The starting point is, a ‘successful’ party is presumed entitled to their costs. This curtails the court’s discretion in family law cases, as it essentially mandates a costs award absent some compelling reason not to.

[12] In this case, is there a successful party? This is distinct from whether either, or both, achieved some success. Determining a winner is difficult, if not impossible, when a matter resolves. Litigation often takes on a life of its own, and matters resolve for various reasons. Unlike a trial, which necessarily generates a decision favouring one party or the other, the terms have been agreed upon. This means, instead of identifying a reason not to award costs, which I am to do when there is a successful party, I must identify a compelling reason to make an award.

[13] Do the circumstances of this case favour a costs award, and if so to whom?

[14] In this case, the parties exchanged offers to settle throughout. On any fair reading of the various offers, none of the applicants were close to the ultimate result. In many cases they were not even in the ball park.

[15] The applicant argues this is because of the respondent’s pattern of delayed disclosure. She points out that while she requested his financial statement in November 2011, she did not receive one until April 2012, which contained no supporting documentation. She references the receipt of his NFP statement in February 2015 which contained no bank or credit card statements, which she says was relevant given his position respecting date of separation (DOS) debts.

[16] She highlights the respondent’s financial statement of November 19, 2014 which shows his DOS debts to be $93,000.00, while a later financial statement (January 2017) shows his DOS debts to be $121,644.82. She notes that the respondent did not provide proof of an inheritance exclusion until January 2017, which was only then added to his NFP for trial purposes.

[17] While its true disclosure was not always as timely as it could have been, I conclude that the applicant had sufficient, if not complete, information as of February 2015, which would have enabled her to make, or consider, informed resolution proposals. Her offers of August 26, 2015, November 4, 2016 and December 16, 2016 are nothing of the sort.

[18] The applicant’s strongest argument rests in the fact the matter did resolve with a reduced equalization payment. The NFP statements, on a straight calculation, would have had her provide the respondent a $109,000.00 equalization payment. This is arguably a measure of success.

[19] She argued that an unequal division should ensue as the respondent failed to disclose his premarital debts; that he incurred debts recklessly in order to reduce his NFP; that she disproportionately incurred debt in order to support the family unit while it was intact; and that she made a greater contribution to the family home before separation.

[20] She argues that, in the fullness of time, her position was shown to be the correct one, not just in the reduced payment amount, but in the reasons for it. In other words, as she had always suggested, it became clear that throughout the marriage she was solely responsible for what she called the hard costs, including the mortgage, property taxes, and insurance. She distinguishes these from what she calls soft costs (i.e. dinner, groceries, liquor), to which the respondent did contribute.

[21] Applicant counsel submits that, notwithstanding the unequal division, which is what she claimed from the outset, a s. 5(6) unconscionability claim is difficult to make out. The threshold is high; she met it; which necessarily means she is entitled to her costs.

[22] The respondent argues that, even though he agreed to the $80,000.00 figure - when he realistically may have been awarded more after a trial – this doesn’t mean he agreed to a finding of unconscionability. He continues to maintain that this part of her claim lacked merit. He suggests there is no meaningful distinction between ‘hard’ and ‘soft’ expenses, noting that he contributed significantly towards the family’s household costs.

[23] He takes issue with the applicant’s characterization of late-coming disclosure. He submits it was not his responsibility to prove unconscionability, and that, in the circumstances, when he is being asked to account for every penny spent over a six year period, that the time it took for him to do that was reasonable.

[24] I find it difficult to retrospectively weigh in on the various actions taken, and decisions made, in this litigation, with a view to determining who was reasonable and who was not at each turn. These circumstances require that I take a 10,000 foot-view of the case, broadly assessing the merit to the unconscionability argument, and reasonableness of the various offers to settle.

[25] In a sense I agree with the respondent. If you extract the unconscionability part of this piece, it appears to be a typical marital property case. Setting aside the disclosure issue, and assuming for a moment it was timely, the figures and issues are not all that complicated.

[26] Is it open for me to make any assessment of the unconscionability argument? I do not believe it is. That is not to say there was anything particularly compelling about it. I am just unable to conclude with any confidence that this is what predominantly lengthened this litigation, or that it unduly complicated matters.

[27] Do the offers to settle provide any benchmark that would assist me in determining ultimate success? They are somewhat helpful but not dispositive. Upon a review of the offers, it is clear that the ultimate result far exceeded any offer ever made by the applicant. In many cases hers were nowhere near the mark, only becoming reasonable on the eve of trial. Also, excepting the respondent’s final offer, the ultimate result exceeded all previous ones. It was open to the applicant, at various points, to accept offers of $15,000.00, $30,000.00 and $75,000.00. She chose not to, deciding not to continue rolling the dice only at the last minute. The final result included an equalization payment that exceeded any offer the respondent had theretofore made.

[28] The above would seem to weigh in favour of a costs award against the applicant. However, this is not automatic. What it does do, in these circumstances, is disentitle her to costs. It simply cannot be said the respondent acted unreasonably.

[29] Notwithstanding the fact the ultimate result exceeded what the respondent was prepared to accept at earlier points, this does not necessarily mean he was the successful party and entitled to costs. I find instructive Leach J.’s comments in Witherspoon v. Witherspoon, 2015 ONSC 6378, where he writes this, beginning at para. 42:

….in my view, whether one is focused on pretrial steps in the litigation or the other residual costs of the litigation, the attempt to argue cost entitlement and quantification through application of the normally applicable cost recovery rules, after the parties have reached a formal settlement of the substantive issues between them, without trial, is fundamentally misconceived and inappropriate…

As noted above, the cost regime created for family law litigation in this province, through enactment of Rule 24 of the Family Law Rules, focuses in large measure on the criteria of “success”, (which creates a presumption of entitlement), and “reasonable” or “unreasonable” behaviour….

However, in my view, these criteria, and the degree of relative “success” in particular, presuppose the existence of objective benchmarks from which the court in turn can draw appropriate and reliable conclusions; e.g. by comparison of party positions and with objectively determined outcomes that reveal the true relative merits of each party’s position.

….it seems to me that permitting post-settlement claims for costs, in which negotiated settlements are used after the fact as supposed benchmarks by which the objective reasonableness of pre-settlement positions should be measured, runs counter public policy……moreover, attempts to address such costs issues in a post-settlement context are unlikely to promote judicial economy.

[30] The bottom line is this. Courts should be wary to award costs when the parties reach a settlement. Templeton J., in Talbot v. Talbot, 2016 ONSC 1351, writes this beginning at para. 44:

This is not the first case in which parties have sought an order for costs after they have reached a final settlement with respect to all outstanding issues.

Indeed the question, “under what circumstances should a court award costs where the parties have settled all areas in dispute before trial but have been unable to decide the question of costs?” was the first statement in the decision Dhillon v. Dhillon Estate, [2009] O.J. No. 4459.

In Dhillon, McKenzie J. noted that s. 131 of the Courts of Justice Act and the factors in Rule 57.01(1) of the Rules of Civil Procedure that form the parameters for the exercise of discretion concerning costs under s. 131 require factual findings relating to the reasonableness or lack of reasonableness in the conduct of each of the litigants.

I am of the view that the factors enunciated in Rule 24 of the Family Law Rules also require factual findings relating to the reasonableness or lack of reasonableness in the conduct of each of the litigants.

I agree with McKenzie J. in Dhillon that:

In the absence of such findings, it is problematic in the extreme for the court to exercise its discretion on a rational basis in making any costs award….In the present situation, the provisions of the minutes of settlement respecting the claims and defences of the claims of each of the parties are, on their face, insufficient to enable the court to be in a position to determine what was the motivation in the settlement of each of the litigants in either being successful in asserting a claim or resiling from a claim. An example of this difficulty can be found in the assertion of facts which have never been the subject of any judicial finding on issues of reasonableness or unreasonableness or even misconduct.

[31] I have already determined that the respondent has not acted unreasonably. While I have offered some commentary on the merit to the applicant’s unconscionability argument, I am in no position to make any hard findings on this. And, of course, as the applicant points out, the agreed upon resolution was in fact a reduction of what the respondent would have been owed on a straight calculation. All of which is to highlight the difficulty in assessing costs, in what is essentially a summary manner, upon a final resolution.

[32] I can realistically only view this matter from the broadest possible perspective, which precludes me, absent something that is so obvious and compelling, from any sound findings of fact.

[33] Each party can reasonably argue success. The applicant in the reduced equalization payment; the respondent in achieving a result better than his previous offers to settle. Which casts into doubt any idea that one party “capitulated” to the other, which if that were clearly the case, might amount to that rare and compelling circumstance where costs would follow final and complete minutes of settlement. This is not such a case.

[34] I find instructive Templeton J.’s comments at para. 58 in Talbot:

Any settlement must surely be presumed to have been the end result of negotiation and involve some element of compromise in the absence of any reference to the contrary or “clear capitulation”. As noted by Grace J., “cases are resolved in whole or in part for many reasons. Legal, economic, social, political, emotional, physical or other factors may be wholly or partly at play”. I have reviewed all of the material filed by the parties and can find no evidence that would allow me to find on a balance of probabilities that either party ‘capitulated’ to the other to the extent that there is a “successful party” in this litigation.

[35] In these circumstances, each party must bear their own costs. I therefore decline to make any award.

Justice J. C. George Date: March 3, 2017