Court File and Parties

Court File No.: 471/11 Date: 2012-04-20

Ontario Court of Justice

Re: Tracey Marie Young – Applicant

And: Wayne Robert Arthur - Respondent

Before: S. O'Connell

Counsel:

• Susan Berry, for the Applicant
• Douglas Quirt, for the Respondent

Costs Endorsement

Introduction

[1] On February 9, 2012, the parties settled all of the issues between them at a settlement conference except costs. Both parties made written submissions on costs, the applicant mother on February 24, 2012 and the respondent father on March 12, 2012.

[2] The applicant ("Ms Young") seeks costs of $5,000.00 in this matter. She submits that the respondent and his counsel were unreasonable in refusing mediation, failed to make timely financial disclosure and made unreasonable offers to settle prior to the first case conference. She submits that the respondent's refusal to provide financial disclosure and to take reasonable positions forced the applicant to incur the expense of commencing her application even though she sought to avoid litigation.

[3] The respondent ("Mr. Arthur") submits that both parties should be responsible for their own costs and that there should be no award for costs as he was substantially successful in this court action.

Background

[4] The parties were married on September 22, 1990 and separated on May 20, 2003 after thirteen years of marriage. At the time of the separation, Ms Young was 36 years old and Mr. Arthur was 39 years old. There are two children of the marriage, namely Erin Elizabeth Arthur, born January 22, 1994, and Abby Marie Arthur, born October 23, 1996.

[5] During the marriage, Ms Young left the waged workforce after the birth of their first daughter and became a full-time homemaker. Mr. Arthur is a self-employed electrician, and has managed and worked in his own company, Arthur Electric, throughout the marriage. Ms Young owned a 49% share in the company and she was paid a salary of approximately $60,000.00 to $70,000.00 per annum, although she did not work at Arthur Electric. She also drove a company car.

[6] The parties entered into a separation agreement on June 19, 2003, which provided for a shared parenting regime on a "week-about" parenting schedule. The agreement did not contain any specific provision for child support to be paid, although it did provide that the parties share the children's special and extraordinary expenses in proportion to their respective incomes. However, the parties' income is not set out in the separation agreement, so it is unclear how this is determined. Mr. Arthur also agreed to contribute $4,000.00 each year into the children's RESP. The agreement does not contain any provisions regarding annual financial disclosure.

[7] The spousal support provisions of the agreement provided that Mr. Arthur shall pay Ms Young for her support $1.00 each month until August 4, 2015, which is the date her employment contract with Arthur Electric terminates. Ms Young agreed that she would not seek any variation or increase in spousal support while her employment with the company continues in accordance with the terms of the agreement.

[8] The employment contract, which is set out in the separation agreement under the heading "Collateral Financial Arrangements", provides that Ms Young will be paid a salary from Arthur Electric in the amount of $41,000.00 until August 4, 2015. Additionally, she receives a car allowance of $550.00 per month and a $15,000.00 one-time bonus.

[9] The parties further agreed that Ms Young would transfer her shares in Arthur Electric for $10.00. She also received fifty percent plus $10,000.00 from the net proceeds of the matrimonial home. A condominium owned by Mr. Arthur was not equalized and there were no further equalization provisions in the agreement. Arthur Electric was never valued.

[10] The agreement also contained a mobility restriction such that neither party shall change their residence from Halton region without the written consent of the other.

[11] According to Ms Young, she accepted the terms of the separation agreement so that she could maintain a good relationship between the parties. She was aware that she was not pursuing her property entitlement "to the letter of the law". She further submitted that it was her understanding that the support provisions would equalize the parties' income so that they were able to provide equally for their children while in their care. Mr. Arthur stated that both parties made a number of compromises when negotiating the terms of the separation agreement and that the financial arrangements fairly compensated Ms Young.

[12] After the separation, Ms Young obtained employment as a medical secretary despite being out of the waged work force for a number of years. She earns approximately $35,000.00 per year in this position in addition to the $41,000.00 she receives from Arthur Electric pursuant to the terms of the separation agreement.

[13] In March of 2011, both children began living with Ms Young due to a conflict with Mr. Arthur. In May of 2011, the parties' youngest daughter resumed her 'week about' schedule with both parents. The oldest daughter continued to live with Ms Young. In July of 2011, Mr. Arthur relocated outside of the Halton Region to Rockwood, Ontario with his current partner. It appears that the children were not happy with Mr. Arthur's move to Rockwood. It is Mr. Arthur's position that he obtained the verbal consent of Ms Young and the children prior to the move. Ms Young denies this. By November of 2011, both children were residing full-time with Ms Young in Milton.

[14] In July of 2011, Ms Young retained counsel who wrote to Mr. Arthur's counsel on July 6, 2011 proposing a review of the access arrangements and child support provisions of the separation agreement. In her letter dated July 6, 2011, counsel for Ms Young wrote that "in order to minimize cost and conflict, we propose to agree to a schedule for the exchange of supporting documentation and Offers to Settle, followed by mediation and arbitration."

[15] On July 19, 2011, counsel for Mr. Arthur replied asking for Ms Young's proposal for settlement. On August 3, 2011 counsel for Ms Young responded with a detailed proposal, including the following: "a review of the child support arrangements in line with the new residential arrangements for the girls shall be done. Your client will need to make full and frank disclosure of his income (both personal and business income) in order that an appropriate amount of child support can be determined."

[16] On August 16, 2011, counsel for Mr. Arthur responded and took the position that there is no material change in circumstances that requires a review of the separation agreement. He did not provide financial disclosure, but instead proposed that he would pay for the full costs of the youngest daughter's horse riding camp and pay an additional $100.00 per week for the extra costs associated with the current living arrangements for the oldest daughter.

[17] On September 2, 2011, counsel for Mr. Arthur further reiterated this proposal that he will commence additional weekly payments of one hundred dollars ($100.00) "to help defray costs" associated with the change in the children's residential arrangements. He again requested a further comprehensive proposal regarding access and support for his consideration. He did not provide financial disclosure or agree to provide financial disclosure.

[18] On September 6, 2011, counsel for Ms Young responded and advised that "there is no basis for me to either make a further proposal for settlement or advise if your proposal for settlement is adequate, as you have not provided or even agreed to provide any income disclosure from Mr. Arthur."

[19] On September 15, 2011, counsel for Ms Young wrote to Mr. Arthur and once again proposed the following in order to avoid litigation in this matter:

a) Both parties agree to exchange full financial disclosure by September 30, 2011;

b) Both parties and the children meet with a social worker who can then report on their interests and needs in reference to the residential arrangements as soon as can be arranged;

c) The parties shall attend lawyer assisted mediation/arbitration to resolve the issues of the children's residential arrangements, child support and proportionate sharing and extraordinary expenses.

[20] In the same letter, counsel for Ms Young advised that she was meeting with her client at 3:00 p.m. that day to finalize her application, and requested that counsel for Mr. Arthur advise her immediately should he decide to accept the above process for resolving the matter. Counsel for Mr. Arthur was out of town until September 23, 2011, so counsel for Ms Young delayed bringing the application until after his return so that he could review the above proposal with his client.

[21] No response was forthcoming, so Ms Young commenced her application on October 4, 2011. In her application, she sought the following, among other relief:

a) An order for the appointment of the Office of the Children's Lawyer;

b) An order that the children reside primarily with her, in accordance with their wishes;

c) An order that Mr. Arthur provide full financial disclosure to determine his income for child support purposes, including financial statements of Arthur Electric and income tax returns;

d) An order that Mr. Arthur pay child support in accordance with his income and the Child Support Guidelines, retroactive to March 31, 2011.

[22] In his Answer, Mr. Arthur submitted that there is no material change in circumstances, and that the application should be struck, as the court action was improperly brought by way of application, rather than a motion to change the terms of the parties' separation agreement pursuant to Rule 15 of the Family Law Rules. Nevertheless, for the first time, Mr. Arthur did provide a financial statement and some financial disclosure with his Answer, which indicates that from Arthur Electric, as set out in his individual tax returns (line 150) was as follows:

a) 2010: $288,041.00

b) 2009: $430,865.00

c) 2008: $187,964.00

[23] The matter proceeded to a case conference scheduled for January 13, 2012. Both parties filed case conference briefs and further financial disclosure. In his brief filed, Mr. Arthur submitted that the $41,000.00 annual salary plus car allowance paid to Ms Young under the separation agreement was actually child support. According to his calculations, he had therefore overpaid child support to Ms Young, given the shared parenting arrangement the parties had until March of 2011 and his determination of the parties' income at the time of the separation.

[24] Mr. Arthur further submitted that according to his SSAG calculations, spousal support should only have been paid at a range from zero to $750.00 for six to twelve years. He calculated his total spousal support obligation to be $69,000.00 at its highest and he was therefore no longer obligated to pay spousal support.

[25] However, in arriving at both support calculations above, Mr. Arthur included Ms Young's salary of $69,700.00 with Arthur Electric at the time of separation and calculated his salary to be $99,000.00. (The company's total retained earnings at the time of the separation were approximately $169,000.00).

[26] Therefore, it was Mr. Arthur's initial position that he would agree to pay the table amount of child support for both children going forward based on his annual income so long as Ms Young agreed to the immediate termination of the $41,000.00 salary that she receive under the separation agreement. On December 22, 2011, shortly before the first case conference, Mr. Arthur served an Offer to Settle setting out this position.

[27] It was Ms Young's position at the first case conference that the salary plus car allowance payable to her in the separation agreement was the parties' arrangement regarding spousal support. Ms Young had foregone a valuation and equalization of Arthur Electric and had transferred her shares in the company to Mr. Arthur for $10.00. She further agreed that no child support was payable to her given the shared parenting arrangements and her understanding that the parties' income had been equalized as a result of the continued salary and car allowance that she received from Arthur Electric under the terms of the agreement.

[28] According to Ms Young, there was no basis for eliminating the spousal support arrangements that were set out in the separation agreement and that Mr. Arthur should pay the table amount of child support in accordance with his income, retroactive to March 2011, when the children started to primarily reside with her.

[29] After the first case conference, based on recommendations from the court, Mr. Arthur significantly revised his earlier position and offer to settle. Both parties then served similar offers to settle and resolved the issues of ongoing child support and spousal support substantially as follows:

a) Mr. Arthur shall pay child support to Ms Young for both children in the amount of $3,593.00 per month, in accordance with his income for 2010 and the Child Support Guidelines;

b) Child support may be reviewed annually at the request of either party in June of each year for so long as Mr. Arthur has a child support obligation. The parties shall exchange income tax returns, notices of assessment, and Mr. Arthur shall provide his Financial Statements for Arthur Electric and for any business in which he has an interest. The parties shall then determine any adjustment to child support. In the event that they cannot agree, Mr. Arthur shall continue to pay the child support above pending mediation, arbitration or litigation.

c) Mr. Arthur shall continue to pay each child's RESP $2,000.00 each year before January 21st of each year until each child reaches the age of 18 years;

d) Mr. Arthur shall pay 78% of the children's special and extraordinary expenses and Ms Young shall pay 22%.

e) The parties shall maintain Ms Young's employment with Arthur Electric in accordance with paragraph 8.03 and 8.05 of the Separation Agreement dated May 30, 2003.

[30] The only remaining issue that separated the parties was the issue of retroactive child support or child support arrears. Ms Young sought retroactive child support in the amount of $26,673.00. Mr. Arthur offered retroactive child support of $11,736.00. At the next case conference, the parties resolved all issues by commencing the ongoing child support effective January 1, 2012, and settling the issue of retroactive child support or arrears at $8,379.00. The parties reached a final settlement on all issues except costs on February 9, 2012.

The Law

[31] Rule 24 of the Family Law Rules, O. Reg. 114/99, governs the determination of costs in family law proceedings and the sections relevant to the circumstances of this case are as follows:

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

(6) If success in a step in a case is divided, the court may apportion costs as appropriate.

(7) If a party does not appear at a step in the case, or appears but is not properly prepared to deal with the issues at that step, the court shall award costs against the party unless the court orders otherwise in the interests of justice.

(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.

(10) Promptly after each step in the case, the judge or other person who dealt with that step shall decide in a summary manner who, if anyone, is entitled to costs, and set the amount of costs.

[32] Rule 24(11) provides a further list of factors that a court should consider in dealing with costs:

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. O. Reg. 114/99, r. 24(11).

[33] Rule 18(14) and 18(16) of the Family Law Rules, which address the cost consequences of offers to settle, provide the following:

18(14) A party who makes an offer is, unless the court orders otherwise, entitled to costs to the date the offer was served and full recovery of costs from that date, if the following conditions are met:

1. If the offer relates to a motion, it is made at least one day before the motion date.

2. If the offer relates to a trial or the hearing of a step other than a motion, it is made at least seven days before the trial or hearing date.

3. The offer does not expire and is not withdrawn before the hearing starts.

4. The offer is not accepted.

5. The party who made the offer obtains an order that is as favourable as or more favourable than the offer. O. Reg. 114/99, r. 18(14).

18(16) When the court exercises its discretion over costs, it may take into account any written offer to settle, the date it was made and its terms, even if subrule (14) does not apply. O. Reg. 114/99, r. 18(16).

[34] In considering the issue of costs in the context of a case that has settled, the most important factor in determining both entitlement and quantum of costs is the reasonableness and timeliness of the parties' respective offers to settle. It is not appropriate to go behind the freely negotiated terms of settlement and engage in an exercise of determining which party's position on each issue would have been accepted by the trial judge if the matter had proceeded to trial and that the reasonableness of the conduct of the parties in a consideration but not the most important one. See O'Brien v. O'Brien, [2009] O.J. No. 5019, 2009 CarswellOnt 7194 (Ont. S.C.J.), and Gzechowski v. Percy, [2011] O.J. No. 5507, 2011 ONCJ 644.

[35] In Serra v. Serra, 2009 ONCA 395, 66 R.F.L. (6th) 40, [2009] O.J. No. 1905, 2009 CarswellOnt 2475, at paragraph 8, the Ontario Court of Appeal confirmed that the costs rules are designed to foster three important principles:

(1) to partially indemnify successful litigants for the cost of litigation;

(2) to encourage settlement; and

(3) to discourage and sanction inappropriate behaviour by litigants.

[36] Rule 24 created a new framework for determining costs in family law proceedings. The presumptive nature of Rule 24 has significantly curtailed the court's discretion regarding costs in family law proceedings and absent compelling circumstances or the exceptions set out in the rule itself, costs are generally awarded to the successful party. The Ontario Court of Appeal in C.A.M. v. D.M., 67 O.R. (3d) 181 held that while the Rules have not completely removed a judge's discretion, the Rules nonetheless circumscribed the broad discretion previously granted to the courts in determining costs. Courts must not only decide liability for costs, but also the amount of those costs.

[37] The court's role in assessing costs is not necessarily to reimburse a litigant for every dollar spent on legal fees. As was pointed out in Boucher et al. v. Public Accountants Council for the Province of Ontario, 71 O.R. (3d) 291, 188 O.A.C. 201, 48 C.P.C. (5th) 56, [2004] O.J. No. 2634, 2004 CarswellOnt 2521 (Ont. C.A.), the award of costs must be fixed in an amount that is fair and reasonable for the unsuccessful party to pay in the particular proceedings rather than an exact measure of actual costs to the successful litigant.

Analysis

[38] In my view, Ms Young was the successful party in this case. Ms Young was successful in reaching a settlement which provided that Mr. Arthur make full financial disclosure, pay child support in accordance with the Child Support Guidelines for both children, maintain the spousal support arrangements set out in the separation agreement, continue to make RESP payments and pay his proportionate share of the children's special and extraordinary expenses. She also received child support arrears, although not the amount that she initially sought, given the concession that she made on this issue.

[39] I do not agree that Mr. Arthur was the successful party simply because on the outstanding issue of retroactive support, the amount agreed to by the parties at the final case conference was more favorable to his position.

[40] It is certainly true that Mr. Arthur substantially revised his position after the first case conference. To his credit, he made a reasonable and responsible offer to settle the issues between the parties after that case conference. However, it is abundantly clear from the correspondence and settlement proposals filed by both parties in their costs submissions that Ms Young was forced to incur the expense of this litigation because Mr. Arthur took a very unreasonable position until these proceedings were commenced.

[41] Until Ms Young commenced these proceedings, Mr. Arthur ignored her repeated requests for financial disclosure and refused to provide even the most basic financial disclosure. He maintained that the change in the children's residential arrangements was not a material change in circumstances, nor was his move to Rockwood, even though he had not obtained the written consent of Ms Young prior to the move, in accordance with the terms of the parties' agreement. Before Ms Young commenced these proceedings, Mr. Arthur was only prepared to provide Ms Young with the sum of $100.00 per week and expected Ms Young to accept this proposal without the benefit of any financial disclosure.

[42] Mr. Arthur's position that Ms Young make a comprehensive offer to settle without the benefit of any financial disclosure was unreasonable. Once Ms Young commenced these proceedings, Mr. Arthur provided financial disclosure. It is clear from the disclosure provided that Mr. Arthur's income and assets have increased substantially over the years, as high as $430,000.00 in 2009, while Ms Young's income remained at $77,000.00 (which includes the salary that she receives from Arthur Electric under the separation agreement). According to the financial statements produced, Arthur Electric had retained earnings of $600,000.00 in 2010 and Mr. Arthur's assets are estimated at approximately $1.2 million in his sworn Financial Statement, while Ms Young's assets are approximately $135,000.00.

[43] It is also clear from reviewing the correspondence between counsel prior to the commencement of proceedings that Ms Young sought to avoid litigation altogether and repeatedly asked Mr. Arthur to consider mediation and/or arbitration to address the issues between them. Given the obvious economic disparity between the parties, it was unfair to force Ms Young to incur the cost of litigation to achieve child support in accordance with the Child Support Guidelines for Ontario.

[44] I must also consider whether Ms Young behaved reasonably in determining the issue of costs. In my view, Ms Young has acted very reasonably in this case. It is worth noting that Ms Young agreed to a settlement based on Mr. Arthur's line 150 income. She could have sought an income valuation, at great expense to Mr. Arthur, to determine what percentage, if any, of the approximately $600,000.00 in retained earnings held in Arthur Electric should have been considered income for Mr. Arthur, or a forensic review of Mr. Arthur's income and assets. She also agreed to a considerable reduction of the child support arrears owed to her to achieve a final settlement.

[45] In his costs submissions, Mr. Arthur states that Ms Young has negatively influenced the children and has alienated the children from him. He submits that he has not been able to continue any form of counseling with his daughters as a result of Ms Young's behavior.

[46] Mr. Arthur chose to move to Rockwood, Ontario. The early correspondence from Ms Young proposed on a number of occasions that a social worker be engaged to assist Mr. Arthur in repairing his relationship with his older daughter in particular and ensuring that he maintains a relationship with his younger daughter. He ignored this proposal. To his credit, Mr. Arthur did attempt to seek counseling himself with the children and according to the report he filed, the counselor noted that "there have been significant changes within the extended family system that were having an impact on the father-daughter relationships". A number of factors were listed by the counselor, including the impact of Mr. Arthur's new relationship and the difficulties of adolescence. There was no suggestion of parental alienation and indeed, it was not raised at all in this proceeding until receiving the costs submissions from Mr. Arthur's counsel.

[47] In summary, I conclude that Ms Young is entitled to her costs in this proceeding. She was required to commence the application because of the position of Mr. Arthur and the final settlement indicates that she was justified. Ms Young made early, consistent and reasonable offers to settle the issues in dispute prior to the commencement of proceedings. Mr. Arthur did not. The relief sought in her application is ultimately what she achieved in the final result.

[48] Ms Berry, Ms Young's counsel, has filed a Bill of Costs which is detailed and organized. Ms Berry is a family lawyer who was called to the bar in 2008. Her hourly rate is $300.00, which is not unreasonable. The time spent on the case, including correspondence, meetings, drafting of documents and attendance at court, was reasonable. On a full indemnity basis, Ms Young's legal costs, including disbursements and taxes, total $7,481.30.

Order

[49] Taking into account all of the factors set out above, Mr. Arthur shall be required to pay Ms Young's costs fixed at $5,000.00 inclusive of fees, disbursements, and taxes. These costs are payable forthwith.

Justice Sheilagh O'Connell

Date: April 20, 2012