Court File and Parties

Court File No.: Toronto D46596/08 Date: 2012-05-22 Ontario Court of Justice

Between:

Laura Moreira, Applicant

— AND —

Eduardo Garcia Dominguez, Respondent

Before the Honourable Mr. Justice M. Zuker

Heard on: December 12, 2011; January 17, 19 and 20, 2012

Reasons for Judgment released: March 12, 2012

Reasons for Costs released: May 22, 2012

Counsel:

• Adela Crossley, for the Applicant
• Christopher Bird, for the Respondent

ZUKER J.:

Introduction

[1] I released my reasons relating to custody, access and child support on March 12, 2012, and invited submissions as to costs. Both parties made written submissions on costs.

[2] Prior to trial, both parties exchanged offers to settle. The Applicant submits that the trial was unnecessary. She seeks recovery of her costs on a "full recovery" basis. She argues she was the successful party at trial and that success must be measured not only against each party's offers to settle, but also against the claims made by each party.

[3] The Applicant submits that the issues were not complex and should have been settled before trial. The Applicant submits that the Respondent refused any reasonable offer to settle.

Trial Outcome

[4] At trial, the Applicant was awarded sole custody of their son, David Garcia, and she is the ultimate decision-maker over the day-to-day needs of their child.

[5] The Respondent was ordered to assist the Applicant in the care of their son David if David was ill or could not attend school or daycare.

[6] The Applicant further submits that the Respondent's everyday access, previously in place, was "eliminated" in the trial decision.

[7] The Applicant submits that the Respondent refused to share Section 7 expenses prior to the trial, and he repeatedly refused to pay medical, dental, and daycare expenses for the child. He was ordered, it is submitted, to pay all Section 7 expenses forthwith based on the proportion of the parties' incomes.

[8] The Applicant states that as a result of the court's decision, each party is allowed to travel with David during their time with him. The Applicant was allowed to apply for David's passport with the consent of the Respondent and to retain David's passport. The Respondent was ordered to complete payment of child support arrears.

Applicant's Position on Costs

[9] Counsel submits that the Applicant is indigent. The Applicant relies on food banks for meals for her and her son. She was forced to borrow money from a friend to finance the trial. She notes in her offer to settle, dated November 9, 2011, that the Respondent would not consent to custody to the Applicant.

[10] The Respondent served the Applicant with an offer to settle. This offer the Applicant submits does not comply with Rule 18(14)(2). In this offer, the Respondent sought joint custody, joint decision-making and final authority in all decisions relating to David's education.

[11] The Applicant submits that her offer to settle dated November 11, 2011 offered an outcome to the Respondent that is very similar to the one achieved at trial.

[12] The Applicant submits that whatever costs are awarded should be paid by lump sum, by certified cheque, within three months of the date of the order and issued to the Applicant in her name, and provided to the Applicant's counsel through the Respondent's lawyer. She submits that the Respondent has the means to pay the costs.

Respondent's Position on Costs

[13] Counsel for the Respondent responded in part as to costs by "comparing," by means of a "chart," the decision at trial with the Applicant's and Respondent's respective Offers to Settle.

[14] Counsel for the Respondent submits that at the Trial Management Conference preceding the trial, the court repeatedly intimated that joint custody was possible with a parallel parenting plan to minimize conflict between the parties, and this was the position of the Respondent. It was therefore not an unreasonable position to take at trial.

[15] The Respondent submits that, from a costs perspective, the award of sole custody to the Applicant is not a traditional sole custody order where the non-custodial parent bears no official role in decision-making. There are Parenting Guidelines at schedule "A" of the decision, in which the court makes clear (at para. 20) that the parties are expected to co-parent David.

[16] The Respondent agrees that the Applicant won the right of final decision-making where the parties cannot agree, but this is not the "unlimited" sole custody that the Applicant sought. It does not allow her to parent David "with more autonomy."

[17] The issue of custody, the Respondent submits, should be considered a mixed decision with no party being considered successful on this issue. The Applicant did not get the unrestricted sole custody and full autonomy that she desired and the Respondent did not get the joint custody with parallel parenting that he sought.

[18] It is further submitted by the Respondent that the Applicant's Costs Submission included an Offer to Settle, dated November 9, 2011. The Applicant in fact revised this Offer two days later with the Offer of November 11, 2011.

[19] The Applicant abandoned her claim for relocation at a Case Conference on January 11, 2011. Given that she launched her Application on December 30, 2008, relocation was, according to the Respondent, a live issue (and indeed the primary issue) for over two years during the proceeding, approximately two-thirds of the total time spent on the case.

[20] Counsel submits that the Respondent's Offers to Settle were not insulting and were made in good faith. They were reasonable.

[21] It is submitted that all of the Respondent's Offers to Settle were highly severable and all Offers remained open until trial.

[22] The Respondent's position with respect to Section 7 expenses is that this should not be considered a full success for the Applicant. Such success should not count towards her costs since the Applicant did not adequately pursue Section 7 expenses prior to trial.

[23] The Applicant's first Offer to Settle did not mention Section 7 expenses, and her second Offer (made two days before trial) only demands that the Respondent pay all retroactive expenses without providing a total, much less an itemized list.

[24] It is submitted by the Respondent that he financed the trial almost entirely through bank lines of credit. He is not seeking costs. His Bill of Costs demonstrates that he did not spend an unreasonable amount at trial and, in fact, spent less than the Applicant. The Applicant's claim that the Respondent can afford a single lump sum payment lacks reasonableness.

THE LAW

Statutory Framework

[25] Section 131(1) of the Courts of Justice Act, R.S.O. 1990, c. C.43 provides:

"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 what extent the costs should be paid."

Presumptive Entitlement to Costs

[26] Under Rule 24 of the Family Law Rules, O. Reg. 114/99, the successful party is presumptively entitled to costs. See Biant v. Sagoo, 20 R.F.L. (5th) 284 (Ont. S.C.), at paras. 15-16. While Rule 24 has circumscribed the court's discretion to award costs, there also remains a discretion to make no-costs awards: see Murray v. Murray (2005), 79 O.R. (3d) 147 (C.A.).

[27] Consideration of success is the starting point in determining costs. See Sims-Howarth v. Bilcliffe (No. 2), 6 R.F.L. (5th) 430.

[28] To determine whether a party has been successful, the court should take into account how the order compares to any settlement offers that were made. See Lawson v. Lawson, 167 A.C.W.S. (3d) 723. The position each party took at trial should also be examined.

Rule 18(14) - Costs Consequences of Failure to Accept Offer

[29] Subrule 18(14) reads as follows:

(14) Costs consequences of failure to accept offer. — 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.

Matrimonial Cases and Costs

[30] In Young v. Young (1989), 19 R.F.L. (3d) 227, a decision of the Ontario Supreme Court, Bolan J., held (at page 239):

The petitioner was successful [in regard to properties and equalization]…. However, I feel that success in matrimonial cases is not as important as in ordinary civil litigation.

[31] The Rules now apply to the Ontario Court of Justice as well as to all branches of the Superior Court of Justice. The two primary rules are Rule 18 and Rule 24, which set out the framework within which courts are to decide costs issues. These Rules create a framework within which the courts are to decide not only liability for costs, but also the amount of those costs.

[32] The Ontario Court of Appeal in C.A.M. v. D.M. (2003), 67 O.R. (3d) 181 held (at paragraph 40) that while the Rules have not "completely removed the trial judge's discretion," the Rules have nonetheless "circumscribed the broad discretion granted by s. 131(1)."

[33] In other words, if the conditions set out in subrule 18(14) are met, there is a presumption not only that costs will be awarded but, as well, that those costs will be on a full-recovery basis, from the date of the offer forward.

[34] In Tauber v. Tauber, [2000] O.J. No. 3355, 51 O.R. (3d) 81, the Ontario Court of Appeal appeared reluctant to wade into the costs debate when it held:

With respect to an apparent inconsistency between the statement "ordinarily the paying spouse wishing to challenge the presumptive assessment should be required to pay for the exercise," and the presumption set out in rule 24(1) of the Family Law Rules, O. Reg. 114/99 (F.L.R.) should be left to another day.

[35] In 1973, Jessup, J.A. speaking for the Ontario Court of Appeal in Talsky v. Talsky, [1973] O.J. No. 2099, 11 R.F.L. 226 said at page 232:

"In any event, however, since the paramount consideration in a custody matter is that of the children, the participation of the adversaries is not that in ordinary litigation so that, except in very exceptional cases, costs should not follow the event."

Discretionary Approach to Costs

[36] The discretion of the court to award or not to award costs must now take a principled approach, by taking into consideration and applying each of the criteria set out in Rule 24 to the facts of each specific case.

[37] Rule 24 gives the judge deciding the issue of costs many tools to determine the appropriate amount of costs to be paid, by whom and against whom. While not constituting grounds for exercising total discretion, there are sufficient tools within Rule 24 to exercise discretion on a principled basis.

[38] Subrule 24(8) of Family Law Rules requires the court to decide costs on a full-recovery basis against a party who has acted in bad faith. If the Applicant is successful on a majority of issues, the Applicant presumptively is entitled to costs under subrule 24(1). Court must also examine factors in subrule 24(11) that impact "bad faith" conduct.

[39] Subrule 24(10) provides:

"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."

[40] If the cost issue of any "step" in the case has not been decided after the completion of such step, a successful party may be barred from claiming such costs at a later time, such as after trial. See Dymond v. Graham, [2010] O.J. 3944, per Zisman J. at paragraph 18 (released Nov. 5, 2010). This follows her earlier decision in Jepson v. Cresnjovec, 2007 ONCJ 516, [2007] O.J. No. 4342, 45 R.F.L. (6th) 211 (Zisman J.), where she applied the Ontario Court of Appeal decision in Islam v. Rahman, 2007 ONCA 622, [2007] O.J. 3416, 41 R.F.L. (6th) 10 that, at paragraph 2 held:

"Rule 24(10) of the Family Law Rules provides that the judge who deals with a step in a case shall decide who, if anyone, is entitled to costs. If a party who has served an offer to settle the case as a whole wishes that fact taken into consideration in relation to a particular step, it is incumbent on that party to raise that issue with the judge who deals with that step. In this case, various steps were taken (e.g., motions, conferences) in relation to which either there was an endorsement that there be no order as to costs or the issue of costs was not addressed. In the absence of a specific order for costs in favour of the respondent, the trial judge should have disallowed costs claimed by the respondent in relation to such steps."

[41] However, as indicated, Rule 24(1) does not necessarily require a cost award. The Ontario Court of Appeal held in Murray v. Murray, [2005] O.J. No. 3563, 76 O.R. (3d) 546, 79 O.R. (3d) 147, a case in which the husband satisfied the provisions of both subrules 18(14) and 24(1), that the financial situation of both parties and, in particular, the complete lack of financial resources of the wife and the result of the appeal merited an order both at trial and on appeal that each side should bear its own costs.

[42] In Taber v. Taber, [2010] O.J. No. 4159, a case where the husband was totally successful after trial, the court was persuaded to reduce the amount of costs to be paid by the wife to the husband based on the inequity suffered by the wife as a result of the ruling against "double dipping," after the division of husband's pension and after the wife's resulting difficult financial situation.

Financial Circumstances as a Factor

[43] The ability to pay is something our courts have considered in awarding costs. See MacDonald v. Magel, (2003), 67 O.R. (3d) 181. See, also, Chouinard.

[44] A parent is not absolved from a costs disposition simply because he or she is the custodial parent, particularly where the court is not persuaded that the child's best interests would be negatively affected. In this case, the fact that the husband was a custodial parent was a relevant factor. However, the impact of a costs disposition on the children would be at most minimal in light of their circumstances. See Cassidy v. McNeil, 2010 ONCA 218.

[45] A party's limited financial circumstances may not be used as a shield against any liability for costs but may be taken into account regarding the quantum of costs. See Parsons (2002), 31 RFL 5th 373. In Takis v. Takis, [2003] O.J. No. 4059 (S.C.J.), the court found that the Respondent's lack of income and assets, though a relevant consideration, could not be used as a shield in unnecessary litigation.

[46] What about the impact of a costs order on the payer's child support obligations? See Brusch v. Brusch [2007] O.J. No. 3349, 2007 ONCA 612, and Van Rassel v. Van Rassel, [2008] O.J. No. 4410, 61 R.F.L. (6th) 364 (S.C.J.) at para. 9, where Mossip J. concluded that the court should also consider the financial means of the unsuccessful party, including the issue of the impact on the child of the paying party of a large costs order.

[47] Not every failure by a party to disclose information in a timely fashion constitutes bad faith within the meaning of subrule 24(8). The non-disclosure must relate to a fact material to the litigation with the intention of deceiving a party or the court on this material issue. See Montrichard v. Mangoni, 2010 ONCJ 408.

Rule 24 Framework

[48] 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., (2003) 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 (paragraph 40). Courts must not only decide liability for costs, but also the amount of those costs.

[49] The court's role in assessing costs is not necessarily to reimburse a litigant for every dollar spent on legal fees. I have had due regard to the amount of costs that would be considered fair and reasonable, having regard to the result produced. See Boucher v. Public Accountants Council for the Province of Ontario, (2006), 71 O.R. (3d) 291 (C.A.) at para. 24. I have also considered Davies v. Clarington (Municipality), 2009 ONCA 722, 2009 ONCA 722, where Justice Epstein expressed at paras. 52 and 53 as follows:

In Andersen v. St. Jude Medical Inc. (2006), 264 D.L.R. (4th) 557, the Divisional Court set out several principles that must be considered when awarding costs:

1. The discretion of the court must be exercised in light of the specific facts and circumstances of the case in relation to the factors set out in rule 57.01(1): Boucher, Moon, and Coldmatic Refrigeration of Canada Ltd. v. Leveltek Processing LLC (2005), (2005), 75 O.R. (3d) 638 (C.A.).

2. A consideration of experience, rates charged and hours spent is appropriate, but is subject to the overriding principle of reasonableness as applied to the factual matrix of the particular case: Boucher. The quantum should reflect an amount the court considers to be fair and reasonable rather than any exact measure of the actual costs to the successful litigant: Zesta Engineering Ltd. v. Cloutier (2002), 119 A.C.W.S. (3d) 341 (Ont. C.A.), at para. 4.

3. The reasonable expectation of the unsuccessful party is one of the factors to be considered in determining an amount that is fair and reasonable: rule 57.01(1)(0.b).

4. The court should seek to avoid inconsistency with comparable awards in other cases. "Like cases, [if they can be found], should conclude with like substantive results": Murano v. Bank of Montreal (1998), (1998), 41 O.R. (3d) 222 (C.A.), at p. 249.

5. The court should seek to balance the indemnity principle with the fundamental objective of access to justice: Boucher.

As can be seen, the overriding principle is reasonableness. If the judge fails to consider the reasonableness of the costs award, then the result can be contrary to the fundamental objective of access to justice. Rather than engage in a purely mathematical exercise, the judge awarding costs should reflect on what the court views as a reasonable amount that should be paid by the unsuccessful party rather than any exact measure of the actual costs of the successful litigant.

[50] In Osmar v. Osmar (2000), 8 R.F.L. (5th) 387 (Ont. S.C.J.), Justice Aston observed, having regard to Rule 18, at paragraph 2:

The new Family Law Rules provide a marked departure in some respects from the Rules of Civil Procedure and from prior case-law in family law proceedings. However, the new rules are consistent with the Court of Appeal's decision in Fong v. Chan (1999), 46 O.R. (3d) 330 (Ont. C.A.) at para. 22. Modern costs rules are designed to foster three fundamental purposes: (1) to indemnify successful litigants for the cost of litigation, (2) to encourage settlement, and (3) to discourage and sanction inappropriate behaviour by litigants.

[51] In R.(C.) v. A.(I.), 2001 CarswellOnt 1692 (Ont. S.C.J.), Justice Blishen followed Justice Aston's reasoning, as did Justice Polowin in Brazeau v. Lefebvre, 2003 CarswellOnt 1006 (Ont. S.C.J.). In each of these cases, decided after Osmar, the Court considered the impact of both subrule 18(14) as well as subrule 18(16). In each case, the Court noted the presumptive entitlement to costs as provided for in subrule 24(1).

[52] In Brazeau, Justice Polowin cited with approval the remarks of Justice Mackinnon in Neill v. Egan, 2000 CarswellOnt 1516 (Ont. S.C.J.), when the latter stated (at paragraph 11 in Brazeau):

Both parties should make an offer covering in detail all aspects of the case. Even where the case appears intractable, an offer can serve to settle some issues or narrow the issues, with a saving to time and effort for all concerned.

[53] In Scott v. Scott (2002), 113 A.C.W.S. (3d) 849, [2002] O.J. 1418, 2002 CarswellOnt 1078 (Ont. Fam. Ct.), Mr. Justice Joseph Quinn stated (at paragraph 53):

A matrimonial litigant who does not serve an offer to settle either does not know the case or is engaged in hardball tactics; the former is inexcusable and the latter is expensive, where the tactics fail.

[54] In Heuss v. Surkos, 2004 ONCJ 141 (Ont. C.J.), offers to settle (as well as the lack thereof) played an important role in quantifying costs. The mother, who achieved a substantial level of success at trial had served an offer to settle, whereas the father withdrew his three pre-trial offers to settle, in effect signalling that he preferred to play "hardball." In that case, following Justice Quinn's above-noted comments, the court concluded (at paragraph 12):

On whose shoulders should that "expensive" outcome fall? In my view, it must fall primarily on the litigant who has chosen such a misguided course of action.

[55] In Church v. Church (2003), 42 R.F.L. (5th) 35 (Ont. S.C.J.), Mr. Justice Perkins was faced with a case where the father, who had served an offer to settle, was substantially successful on the important issues. Furthermore, Justice Perkins found that subrule 18(14) was "engaged" as a result of the father's offer to settle, which was served well in advance of the hearing of the issues. After reviewing the case law and noting that subrule 24(11)(f) requires a court to consider "any other relevant matter" in its determination of costs, Justice Perkins stated (at paragraph 16):

In this case, I am faced with a mother who is presumed by the rules, for good public policy reasons, to be under an obligation to pay a large amount of costs, in the order of $10,000 to $15,000 out of a total of about $17,000. However, her own earned income is quite small, in the $10,000 range… She is receiving child support in the order of $1,700 a month… By contrast, the father's income is at least $200,000…. The exact amounts of each party's income are not so important as the order of magnitude of the difference.

[56] In arriving at his decision to reduce the costs award against the mother to $10,000, one of the cases Justice Perkins considered was Tauber v. Tauber (2000), 6 R.F.L. (5th) 442 (Ont. C.A.), clarified at 8 R.F.L. (5th) 441. In Tauber, the Court of Appeal awarded costs to the mother, not based on her success in the litigation, or the parties' offers to settle but, rather, because the father earned so much money that the Court felt he was better able to fund the litigation. In its reasons, set out initially at 6 R.F.L., the Court of Appeal noted (beginning at paragraph 51):

…it is my view that absent unusual conduct, the payer spouse in such cases being in the best position to fund the litigation should be required to pay the costs attributable to child support issues…the rules with respect to costs in family matters have tended to be somewhat different than in other civil litigation. This court has held that discretionary factors, including the ability to pay, can play a more significant role …. Where, as in this case, there is a huge disparity in the ability of the parties to pay the costs of the litigation, it is a reasonable to consider that factor to be of paramount importance.

[57] Again, in C.A.M. v. D.M., (2003) 67 O.R. (3d) 181, decided by the Court of Appeal in 2003, Mr. Justice Rosenberg's comments on behalf of that Court addressed the interplay between a strict application of the presumptive aspects of the Rules and those aspects of the Rules which provide for a residual discretion. Beginning at paragraph 41, Justice Rosenberg stated:

…I think it is arguable that a successful party may not obtain a costs award in his or her favour even in circumstances not falling within subrule 24(4). There may be circumstances aside from the unreasonableness of the successful party's conduct that rebut the presumption….I am also of the view that the financial situation of the parties can be taken into account in setting the amount of costs award either under Rule 24 or Rule 18. Thus, while subrule 24(11) enumerates a number of factors that must be taken into account, the person setting the amount of the costs is directed to take into account "any other relevant matter" …. In my view, a consideration of particular relevance may be the financial position of the parties, especially of an unsuccessful custodial parent…. In fixing costs, the courts cannot ignore the best interests of the child and thus cannot ignore the impact of a costs award against a custodial parent that would seriously affect the interests of the child …. I am also of the view that the court has a discretion not to make an award of full recovery even where the party has met the conditions in Rule 18(14). The rule makes that clear since it provides that "unless the court orders otherwise" the party is entitled to full recovery. Again, a relevant consideration would be the financial condition of the parties, especially an unsuccessful custodial parent.

[58] In addition to Justice Rosenberg's reference to the discretion set out in subrule 18(14), the clear intent to confer discretion upon the courts is reinforced by the wording of subrule 18(16): "When the court exercises its discretion over costs… ."

[59] Even if a party fully complies with subrule (4), the court still has discretion not to allow full recovery of costs. (See C.A.M. v. D.M., [2003] (Ont. C.A.).) An offer to settle, as required by the Rules as part of the settlement conference brief, does not constitute a Rule 18 offer to settle, because the settlement conference briefs are returned to the parties and are therefore not part of the record.

[60] In Greenberg v. Greenberg, [2010] O.J. No. 523, 2010 ONSC 792, Justice J. Mackinnon awarded $93,750 in costs to a mother who claimed $195,750 for full recovery costs in a case where, though mother succeeded in obtaining sole custody of the child but was limited in extracurricular enrolment and father was granted scheduled access and father's income was found to be $50,000 per year, mother sought that it be imputed at $60,000 per year. Although the court made a finding of bad faith against the father, it concluded that the length of the 16-day trial was based on a challenge to the custody assessment and not to the father's bad faith. Therefore, the amount of costs was reduced.

[61] In Butty v. Butty, [2009] O.J. No. 1887, 70 R.F.L. (6th) 181, Pazaratz J. of the Family Court of the Superior Court of Justice, held that though mother's Rule 18 offer was substantially consistent with the court's decision, it did not trigger full recovery of $110,628. She was awarded $85,000 in partial recovery costs applying rules 18 and 24.

[62] In Buchanan v. Buchanan, [2009] O.J. No. 674, 67 R.F.L. (6th) 177, Cavarzan J. ruled that costs awarded to successful party (mother) in a motion for summary judgment was reduced from the $18,000-to-$21,000 range to $12,500, since any larger amount would impair the father's ability to pay child support, which would not be in the children's best interests.

[63] Costs must be proportionate to the amount at stake. See, e.g., Gentle, 2007 CarswellOnt 4362 (S.C.).

[64] The court must step back and exercise a judgment, having regard to all the circumstances, as to what fair and reasonable amount should be paid by the unsuccessful party rather than what any exact measure of the actual costs to the successful litigant is. The objective of court's assessment of costs is therefore not necessarily to reimburse litigant for every dollar spent on case.

[65] One consideration in an assessment of costs is to fix costs in an amount that is "fair and reasonable" for the unsuccessful party to pay in a particular proceeding. See, e.g., Farjad-Tehrani v. Karimpour, 2009 CarswellOnt 2186 (S.C.J.) at para. 32, aff'd 2010 ONCA 326 at para. 4.

[66] Modern cost rules reflect a variety of purposes:

• Indemnity,
• Controlling behaviour by discouraging frivolous suits or unmeritorious defences,
• Promoting and encouraging settlements.

See Fong v. Chan, [1999] O.J. No. 4600 (Ont. C.A.).

[67] If a case raises novel issues of law, that is a relevant fact that invites some modification of costs order that might otherwise be made.

[68] In Serra v. Serra, 2009 ONCA 395, 2009 ONCA 395, 66 R.F.L. (6th) 40, [2009] O.J. No. 1905, at paragraph 8, the Ontario Court of Appeal confirmed that 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.

[69] In Skramrud v. Skramrud, the court held that the fixing of costs does not begin or end with the calculation of hours multiplied by rates. The overall objective is to fix an amount that is fair and reasonable for the unsuccessful party to pay in the particular circumstances of the case. The expectation of the parties concerning the amount of costs is also a relevant consideration.

[70] To determine whether a party has been "successful," the Court must take into account how what was ordered compares to any settlement offers that were made. I have considered the case law in this context. See, inter alia, Lawson v. Lawson, Salvador v. Salvador, 2010 ONCJ 462, and Gobin v. Gobin, 2009 ONCJ 278.

[71] Consideration of success is the starting point in determining costs. See Sims-Howarth v. Bilcliffe, [2001] O.J. No. 330.

Rule 24(11) - Factors in Costs

[72] The factors in dealing with costs are found at rule 24(11) of the Family Law Rules, which states:

(11) FACTORS IN 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.

[73] Are the costs being sought excessive? Justice Henderson in Hawkins v. Ontario (Attorney General), [2010] O.J. No. 1193, para. 6:

"… [E]ven if this motion had had been the most important and most complex motion imaginable, a request of this magnitude is completely out of line for a motion that took two days of court time to argue."

[74] Rule 24(10) of the Family Law Rules states:

"Promptly after each step in the case, the judge or 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."

[75] The overriding theme in Boucher v. Public Accountants, the Ontario Court of Appeal decision dealing with, in part, the determination of costs is that, while applying all the factors set out in rule 57, reasonableness is the dominant factor as indicated in the following paragraphs:

The appellants submit that the motions judge accepted the bills of costs that were presented to her without any deductions. The bills were prepared in accordance with the calculation of hours times dollar rates provided by the costs grid. While it is appropriate to do the costs grid calculation, it is also necessary to step back and consider the result produced and question whether, in all the circumstances, the result is fair and reasonable. This approach was sanctioned by this court in Zesta Engineering Ltd. v. Cloutier (2002), 21 C.C.E.L. (3d) 161 (Ont. C.A.) at para. 4 where it said:

In our view, the costs award should reflect more what the court views as a fair and reasonable amount that should be paid by the unsuccessful parties rather than any exact measure of the actual costs to the successful litigant.

[76] See further Stellarbridge Management Inc. v. Magna International (Canada) Inc., [2004] O.J. No. 2102 (C.A.) para. 97.

[77] The Court of Appeal in Davies v. Clarington (Municipality), 2009 ONCA 722, [2009] O.J. No. 4236, at para. 51 stated factors that must be considered in the awarding of costs:

51 In Andersen v. St. Jude Medical Inc. (2006), 264 D.L.R. (4th) 557, the Divisional Court set out several principles that must be considered when awarding costs:

The discretion of the court must be exercised in light of the specific facts and circumstances of the case in relation to the factors set out in rule 57.01(1): Boucher, Moon, and Coldmatic Refrigeration of Canada Ltd. v. Leveltek Processing LLC (2005), 75 O.R. (3d) 638 (C.A.).

[78] A consideration of experience, rates charged and hours spent is appropriate, but is subject to the overriding principle of reasonableness as applied to the factual matrix of the particular case: Boucher, supra. The quantum should reflect an amount the court considers to be fair and reasonable rather than any exact measure of the actual costs to the successful litigant: Zesta Engineering Ltd. v. Cloutier (2002), 119 A.C.W.S. (3d) 341 (Ont. C.A.), at para. 4.

[79] The reasonable expectation of the unsuccessful party is one of the factors to be considered in determining an amount that is fair and reasonable.

[80] The court should seek to avoid inconsistency with comparable awards in other cases. "Like cases, [if they can be found], should conclude with like substantive results"; Murano v. Bank of Montreal (1998), 41 O.R. (3d) 222 (C.A.), at p. 249.

[81] There is a difference between bad faith and unreasonable behaviour. The essence of bad faith is when a person suggests their actions are aimed for one purpose when they are aimed for another purpose. It is done knowingly and intentionally. See S.(C.) v. S.(M.), 38 RFL (6th) 315 (Ont. SC). Where a party adopts a catch-me-if-you-can approach to financial disclosure, thereby demonstrating bad faith, that fact overshadows everything else such that full-recovery costs should follow. Not every failure by a party to disclose information in a timely fashion constitutes bad faith within the meaning of subrule 24(8). The non-disclosure must relate to a fact material to the litigation with the intention of deceiving a party or the court on this material issue. See Montrichard v. Mangoni, 2010 ONCJ 408.

[82] A judge setting costs is not an assessment officer. He or she must look at all the relevant factors and the Rules. There must be a balance between full recovery and fairness. Was the Applicant successful in custody, access and child support disputes? Did the Applicant act reasonably? Was the Respondent intransigent on several issues? Did the Respondent persist in pressing unreasonable demands on custody issues?

The Impact of Tax Deductibility on Costs Awards

[83] Every province and territory in Canada has provisions for costs. Some are determined under general Rules of Civil Procedure and some under specific Family Law Rules.

[84] As Justice Jollimore points out in Peraud v. Peraud, 2011 CarswellNS 136 (N.S.S.C.), the amount of fees billed to a party by their lawyer, accountant, or even the mediator/arbitrator are not necessarily the same as the amount the party pays when the expenses are incurred in matters relating to support. This is because the Income Tax Act, R.S.C. 1985 (5th Supp), c. 1, s.18, allows that legal and accounting fees may be deducted from total income to determine taxable income.

[85] In particular, Canada Revenue Agency's Income Tax Technical News Release Number 24, dated October 10, 2002, changed the terms of the Agency's Interpretation Bulletin IT-99R5: Legal and Accounting Fees, making it possible for a party to deduct expenses incurred to obtain spousal support under The Divorce Act and under provincial statutes.

[86] If a party is able to deduct legal expenses from their total income, the resulting reduction in total income serves to diminish the party's tax bill. Accordingly, failing to take into account the income tax position of the party when determining costs leads to the possibility that the party receiving costs will get a windfall.

[87] In Serra v. Serra, 2009 ONCA 395, the Ontario Court of Appeal affirmed its decision in Fong v. Chan, 1999 CarswellOnt 3955 (Ont. C.A.) and stated:

Modern cost rules are designed to foster three fundamental purposes:

(1) To partially indemnify successful litigants for the costs of litigation; (2) To encourage settlement; and (3) To discourage and sanction inappropriate behaviour by litigants.

Legal Aid

[88] Section 46 of the Legal Aid Services Act provides as follows:

Costs orders by court unaffected by legal aid services

46. (1) The costs awarded in any order made in favour of an individual who has received legal aid services are recoverable in the same manner and to the same extent as though awarded to an individual who has not received legal aid services.

[89] There is case law interpreting this section for the proposition that costs are to be assessed without regard to the fact that a successful litigant receives legal aid and that the party paying such costs pays the same amount he or she would have if the successful party had not received legal aid: see Smith v. Smith, [2008] O.J. No. 1674; Ramcharitar v. Ramcharitar, (2002) 62 O.R. (3d) 107 (S.C.J.); and Alverez v. Smith, [2008] O.J. No. 941 (S.C.J.).

[90] Section 46 (1) of the Legal Services Act, supra, and the case law thereunder does not cap costs based on the Legal Aid Ontario rate.

[91] The "Information for the Profession," which is part of Rule 57 of the Rules of Civil Procedure, sets out guidelines for partial indemnity rates in general civil proceedings. They are helpful here in determining a reasonable hourly rate on a full-recovery basis. Partial indemnity rates are generally about two-thirds to three-quarters of substantial indemnity rates (which are not full recovery). See, e.g., Bardouniotis v. Trypis, 2010 ONSC 6586.

[92] Substantial Indemnity is reserved for exceptional circumstances such as blameworthy conduct, fraud, intentional delay or obstruction, or attempt to deceive the court. See Penesar, 2007 MBCA 133. To determine whether a party has been "successful," the Court must take into account how what was ordered compares to any settlement offers that were made. See Lawson, [2008] O.J. No. 1978 (OSC).

[93] Consideration of success is the starting point in determining costs (Sims-Howarth v. Bilcliffe, [2001] O.J. No. 330), and the Rules apply equally to custody cases (Kappler v. Beaudoin, [2000] O.J. No. 4121).

[94] Success may be divided, but this does not mean that parties are equally successful. I have considered the factors set out in subrule 24(11) of the Family Law Rules. See further, Dingle v. Dingle (No. 2), 2010 ONCJ 734, [2010] ONCJ 731, [2010] O.J. No. 6034, a costs sequel to Dingle v. Dingle, 2010 ONCJ 731, [2010] O.J. No. 6029, per Justice Sherr.

[95] The Court of Appeal, as stated, has held that one main factor that prevails in all cases is that of reasonableness.

[96] The Applicant is asking for costs in the amount of $31,443.24, all inclusive. I find this amount excessive.

[97] In Delellis v. Delellis and Delellis, [2005] O.J. No. 4345, 143 A.C.W.S. (3d) 235 at paragraph 9, Justice David R. Aston states the following at paragraph 9:

"… recent cases under the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, as amended, have begun to de-emphasize the traditional reliance upon "hours spent times hourly rates" when fixing costs...Costs must be proportional to the amount in issue and the outcome. The overall objective is to fix an amount that is fair and reasonable for the unsuccessful party to pay in the particular circumstances of the case, rather than an amount fixed by the actual costs incurred by the successful litigant..."

[98] Subrule 24(10) sets out that costs are to be determined in a summary manner after each step in the case by the presiding judge. A "step" in the case is one of the discrete stages recognized by the Rules such as a case conference, settlement conference and the like. See Husein v. Chatoor (No. 2), 2005 ONCJ 487, 24 R.F.L. (6th) 274, [2005] O.J. No. 5715.

[99] The trial judge should not deal with requests for costs that were addressed or should have been addressed at these prior steps in the case. See Islam v. Rahman, 2007 ONCA 622, 228 O.A.C. 371, 41 R.F.L. (6th) 10, [2007] O.J. No. 3416.

Analysis and Decision

[100] The Respondent has not been able to rebut the presumption of entitlement to costs of the Applicant.

[101] I am unable to conclude that either party has acted unreasonably in the proceedings on the whole; however, I must consider the reasonableness of each parties' offer to settle in light of the ultimate judgment. On this basis, I award the Applicant costs of $9,000, all inclusive, payable by the Respondent in 24 equal monthly installments. Each installment of $375.00 shall be payable on the first day of the month, commencing the first day of the month following the date of issuance of this order.

[102] $2,250.00 is to be enforced and payable as child support and therefore enforceable through the Family Responsibility Office.

[103] Arguably, litigants are responsible for and accountable for the positions they take in the litigation. See Heuss v. Surkos, 2004 ONCJ 141, 132 A.C.W.S. (3d) 1112, [2004] O.J. No. 3351.

[104] The issues in this case were important to the parties. There were elements of complexity to consider. This analysis was difficult.

[105] A review of dockets reveals that some time was spent on non-litigious aspects of the case, such as strategizing, discussions, and reviews with client. See Marsh v. Gibson (No. 2), 2011 ONCJ 276, [2011] O.J. No. 2569, R.J. Spence J., the costs sequel to Marsh v. Gibson, 2011 ONCJ 275, [2011] O.J. No. 2452, R.J. Spence J.

Released: May 22, 2012

Signed: "Justice Zuker"