Court File and Parties
Ontario Court of Justice
Date: February 20, 2018
Court File No.: Halton 96/10
Between:
Maria Borges Applicant, Garnishor
— AND —
Joseph G. Santos, Marlene Lavecchia Respondent, Garnishees
Trustees for estate of Maria Fatima Santos
Antonio Dos Santos Respondent, Payor
Before: Justice Victoria Starr
Cost submissions made in writing, no one appearing
Reasons for Decision on Costs released on February 20, 2018
Counsel
- Maria Borges — Self-represented
- Fabio Gazzola — Counsel for the garnishee respondents
- Antonio Dos Santos — Self-represented
Decision
VICTORIA STARR J.:
Introduction
[1] The garnishment proceedings were initiated by Maria Borges, a mother entitled to child support. The respondent father, Antonio Dos Santos, has never paid child support. He owed her over $37,000.00 in court ordered support arrears when these proceedings started. Antonio had only one apparent source of funds: money from his late mother's estate. His mother's will created a discretionary trust whose professed first consideration is his comfort and well-being ("the trust"). Maria Borges sought to garnish the trust to enforce the unpaid support order.
[2] The garnishees are the trustees of a trust. They are also Antonio Dos Santos' brother and sister. They resisted the garnishment claim. They argued that the form of the trust, commonly referred to as a "Henson" trust, makes it immune to garnishment by the mother. It was set up in a manner that keeps all decisions regarding the payment of the trust funds out of Antonio's hands. Instead it places those decisions entirely within its trustees' discretion. Antonio has no right to any funds from the trust unless the trustees decide to pay it.
[3] The garnishment proceeding took place before Justice M. Kurz on two days: April 3, 2017 and on July 20, 2017. The actual hearing was held on July 20th. Justice Kurz released his decision on September 25, 2017.
[4] Justice Kurz agreed with the garnishees and decided that the discretionary Henson trust cannot be garnished for unpaid child support. Maria Borges application was thus dismissed. He reserved on the issue of costs.
[5] The decision with respect to costs falls to me as Justice Kurz was appointed a Justice of the Superior Court of Justice. Submissions were directed to be made in writing and a date set for this court to give an oral decision. The February 16, 2018 court date was ultimately vacated as after reviewing the written submissions, I decided to release a written decision instead.
[6] What follows is my decision and reasons with respect to the issue of costs of the garnishment proceeding.
Positions
[7] The garnishees submit that the factors in subrules 24(1) and (11) favour an award of costs in their favour on a partial indemnity basis. They submit that they are presumptively entitled to costs because they are the successful party, and they had no choice but to litigate the issue to avoid the dangerous precedent that would be set if creditors are permitted to garnish a discretionary trust. They also submit that the applicant acted unreasonably, by naming the garnishees as parties both in their personal capacity and as trustees of the trust.
[8] They seek $19,223.33 as costs of the garnishment proceeding. They also seek costs of the cost submissions and the related hearing that was scheduled for February 16, 2018, but which did not occur on that date, fixed in the amount of $1,000.
[9] Maria Borges asks the court to dismiss the garnishees' request for costs. She claims a costs award would be financially devastating for her and by extension, the child for whose benefit the proceedings were started in the first place. She also relies on the fact that this was a novel issue and thus, one she had no way of predicting the outcome. She claims she acted reasonably in the circumstances by making an offer to settle and by trying to abandon her application early on when she realized her chances of success were questionable. She asserts that she only continued with the case because Justice Kurz encouraged her to do so.
The Legal Framework and Applicable Principles
[10] This court's authority to make orders with respect to costs is found in section 131 of the Courts of Justice Act, R.S.O. 1990, c. C.43. That section makes clear that cost decisions are discretionary. The exercise of that discretion is circumscribed by Rules 2, 18 and 24 of the Family Law Rules, O. Reg. 114/99 ("the Rules").
[11] The provisions of Rule 24, most relevant to 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.
[12] Rule 24(11) provides a further list of factors that a court must consider when setting the amount of costs:
(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.
[13] In the case of Serra v. Serra, 2009 ONCA 395, the Ontario Court of Appeal confirmed, at paragraph 8, that costs rules are designed to foster three important principles:
a) to partially indemnify successful litigants for the cost of litigation;
b) to encourage settlement; and
c) to discourage and sanction inappropriate behaviour by litigants.
[14] Subrule 2(2) of the Rules adds a fourth fundamental purpose for costs: to ensure that the primary objective of the Rules is met – that cases are dealt with justly. This provision needs to be read in conjunction with Rule 24. Subrule 2(4) of the Rules states that parties have a positive obligation to help the court to promote the primary objective under the Rules. Clauses 2(3)(a) and (b) of the Rules set out that dealing with a case justly includes ensuring that the procedure is fair to all parties and saving time and expense. [See: Sambasivam v. Pulendrarajah, 2012 ONCJ 711].
[15] The Court of Appeal has held that neither subrule 24(1) nor 18(14), both of which set out presumptions about entitlement, require the court to make a cost award, despite a party's success on a motion or trial. In the case of Murray v. Murray, the Court of Appeal decided that the appropriate order both at trial and on appeal, was that each side should bear their own costs. That decision was based on a review of the result, and the financial means of both parties, particularly the complete lack of resources on the part of Mrs. Murray and the devastating effect a cost award would have on her - it would likely destroy whatever chance she may have to achieve financial and self-sufficiency. At paragraphs 9, 10 and 11, Catzman J.A., writing for the Court of Appeal, states:
9 Although Mr. Murray satisfies the provisions of rule 18(14) and rule 24(1), neither rule 18(14) nor rule 24(1) requires us to make a costs award. We are aware that the presumption contained in rule 24(1) marked a new approach to the awarding of costs in family law cases. "No costs" awards were thought to encourage unmeritorious and expensive litigation.
10 That said, this is a case in which a costs award would have a devastating effect on Mrs. Murray — it would likely destroy whatever chance she may have to achieve financial self-sufficiency.
11 Taking into account the financial situation of both parties and, in particular, the complete lack of financial resources of Mrs. Murray, and the result of this appeal, we believe that the appropriate order both at trial and on appeal is that each side should bear their own costs.
[16] In deciding the issue of costs in this case I have also found the comments of Rosenberg J.A., writing on behalf of the Ontario Court of Appeal, in that Court's decision in the case of C.A.M. v. D.M., helpful. The comments I am referring to are found at paragraphs 41–43 of the decision and are as follows:
41 While it is not necessary to decide the issue in this case, 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. See Ramsay v. Ramsay at para. 10.
42 I am also of the view that the financial situation of the parties can be taken into account in setting the amount of the 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". I agree with Aston J. in Sims-Howarth at para. 4, that the "Family Law Rules demand flexibility in examining the list of factors in subrule 24(11) without any assumptions about categories of costs". In my view, a consideration of particular relevance may be the financial position of the parties, especially of an unsuccessful custodial parent. See Biant at para. 17 and Brennan v. Brennan, [2002] O.J. No. 4743 (Ont. S.C.J.) at para. 11. 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. That, however, was not a consideration in this case. The mother is not the custodial parent.
43 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. See Church v. Church, [2003] O.J. No. 2811 (Ont. S.C.J.) at paras. 14–18. Finally, I am of the view that even when making an award of full recovery the trial judge must ensure that the costs sought by the successful party are reasonable.
Additional Background
[17] As noted earlier, when these proceedings started the respondent father owed about $37,000 in child support arrears. By the time Justice Kurz decided the application those arrears exceeded $40,000.
[18] The trust funds are for the benefit of the respondent father and his two siblings, the garnishees. On April 3, 2017, counsel for the garnishees told the Court that the respondent father's one-third share of the trust funds is estimated at roughly $160,000.
[19] When the garnishment hearing first came before Justice Kurz on April 3, 2017, he suggested mediation. The matter was then held down while the parties attended mediation.
[20] During mediation, the applicant offered to settle for a payment by the trustees of $30,000, made in three installments of $10,000 and payable directly to the child for whom support was owed. The garnishees failed to accept this offer to settle. They made no offer to settle of their own.
[21] When the matter returned before the court later in the day the attendance was effectively converted to a case conference. The transcript for that attendance has been provided and I have read it. The balance of the focus of that attendance was on four key things: Justice Kurz getting an understanding of the legal basis for each party's position; Justice Kurz trying to get the parties to reach a fair and child focused settlement; Justice Kurz dissuading the applicant from dropping her claim (something she expressly indicated she wanted and needed to do because she could not afford to go forward); and, developing a plan to move forward that would be expeditious and thus, responsive to the financial pressures on the applicant. That is, delineating next steps so as to conclude the matter in the most efficient and cost effective way possible.
Discussion
[22] At the outset it is important to note three things. First, the applicant took no issue with the garnishees' bill of costs. I have reviewed the bill of costs, and have no issue with it. In reaching this conclusion I considered the fact that the applicant herself claims she paid $10,000 in fees up to July 20th alone. I have also considered that the garnishees' counsel has over 20 years of experience, and his hourly rate on the partial indemnity scale is up to $350 per hour (he used $300 an hour in calculating fees). The amount of time spent is not unreasonable, nor was the counsel fee charged for the July 20th hearing. The disbursements incurred are reasonable. So too is the amount sought in costs of the cost submissions. When one adds all of the amounts sought together, the total "all in" amount the garnishees seek is $20,223.33.
[23] Second, the garnishees are presumptively entitled to costs in their favour. They were wholly successful in defeating the application.
[24] Third, the applicant should never have named the trustees as parties in their personal capacities.
[25] Despite the clear presumption in their favour and the reasonableness of the amount claimed, I decline to exercise my discretion in favour of the garnishees and to award them costs. There are many factors in this case that together persuade me that the presumption is rebutted and that a fair and just result of the garnishees' cost claim is to dismiss it and order that each party shall bear his or her own costs of these garnishment proceedings. I turn to discuss those factors.
[26] First, the legal issue in this case was a novel one. There was no decision directly on point and none presented to the court where a support recipient had even attempted to garnish a "Henson trust", let alone been successful or unsuccessful in such regard. Given the respondent father's failure to pay a dime in child support the mother's best chance was to seek to garnish the trust. When the garnishees refused to pay out trust funds to pay off the father's arrears, the mother had no choice but to turn to the court for guidance. Given the importance of the issue and the lack of precedent, it was reasonable of her to seek access to justice through litigation.
[27] Justice Perell of the Ontario Superior Court of Justice, decided in the case of P. (P.) v. D. (D.), 2016 ONSC 814, not to award costs to the successful party. The primary reason was, as it is here, because the issues were novel and important and neither party was wrong in seeking access to justice [see paragraphs 7, 8 and 9].
[28] Justice McDermott of the Ontario Superior Court of Justice reached the same result for the same reason in the case of Henderson v. Henderson, 2015 ONSC 4884. There the Court points out at paragraphs 21 and 22 that the novelty of an issue is something the court can consider when deciding costs. Justice McDermott also explains why – because the lack of guidance or precedents in such a case leaves a party unable to determine whether or not to make or defend the claim in question.
21 The novelty of a legal issue before the courts has resulted in a reduction or dismissal of a costs claim on a number of occasions: see Elliott v. Canadian Broadcasting Corp., Madore-Ogilvie (Litigation Guardian of) v. Ogilvie Estate, 2008 ONCA 39 and Burgess (Litigation Guardian of) v. Canadian National Railway, supra. This is because the lack of guidance or precedents in such a case leaves a party unable to determine whether or not to make or defend the claim in question.
22 In my view, the issue of whether a matter is novel can be considered in awarding costs in family law matters under Rule 24(1)(f) ("any other relevant matter").
[29] Second, the mother was not pursuing this relief for her own benefit and there was no other source to which she could look for payment of the support arrears. The father had never, and was not likely to ever, pay a dime in child support. The applicant's efforts were for the benefit of her and the respondent father's child. That son is also the garnishees' nephew. He continues to reside with the applicant. He is in university completing his first degree.
[30] It also appears that paying a portion of the father's share of the trust funds to pay off the arrears would have benefited him and advanced his wellbeing and comfort. Paying off the arrears is consistent with and would have fulfilled the testator's wishes which were that the trustees use the funds to advance Antonio's well-being and comfort. As Justice Kurz notes at paragraph 71 of his decision:
But there is still a gap between the dictates of the law and what may seem to be just in ensuring that family members are properly supported. Here Mrs. Santos asked the trustees to make Antonio's comfort and well-being their first consideration. By requesting the trustees to honour his support obligations, Antonio has signaled that he feels that such a payment would enhance his well-being. It would also advance his comfort if it prevents the Family Responsibility Office from engaging in enforcement proceedings that could lead to the loss of his driver's license and passport, and perhaps his imprisonment.
[31] Third, to award the trustees costs would add insult to injury and have a negative effect on the applicant and by extension, the child. As I have said, he resides with his mother. Her only source of income is that which she receives on account of ODSP. She is the one who has supported the child throughout his life without contribution from the father. She has done so for the last 11 years while living below the poverty line. Her annual income for the past 11 years has been about $29,000. A cost award against her would devastate her financially and by extension negatively affect the innocent son and nephew.
[32] Fourth, the mother acted reasonably in making an offer to settle. She offered to settle the case for $30,000 during the mediation process. This was reasonable behaviour on her part.
[33] Fifth, and another factor which mitigates against a cost award in favour of the garnishees is that they made no offer or counter offer to settle. The garnishees profess that the issue had to be litigated as it was very important to avoid a negative decision. They submit that a negative precedent would mean that all creditors of the father could look to secure repayment by way of garnishment of the trust.
[34] While I agree with the garnishees that this was an important legal ruling, it was completely within their control to settle the issue while at the same time avoiding a negative ruling. For example, they could have accepted the mother's offer and had her agree to withdraw the application and keep the settlement confidential. In failing to make any offer to settle and in failing to accept the mother's offers to settle, the garnishees acted very unreasonably.
[35] A sixth consideration that mitigates against an award of costs is that, except with respect to offers to settle and the applicant's blunder in naming the garnishees as parties in their personal capacity, all parties appear to have acted reasonably and in ways to reduce time and expense. For example, at the April 3, 2017, court date, all agreed, and then did, submit an agreed statement of facts. This saved time and expense as it made it unnecessary for anyone to give evidence at the hearing. They also agreed to provide written submissions (facta) and case law in advance of the hearing. They all effectively agreed to a very streamlined process that would save time and expense. Indeed, from Justice Kurz's comments at the case conference, it is clear that the goal was to set this matter up so that it would be heard on the very next court date. This is exactly what happened. In other words, the whole case was decided in with only two in court attendances. Such behaviour on the part of litigants is to be encouraged.
[36] A seventh factor, to which I have given weight is this: it does appear to me based on my review of the transcript of the April 3, 2017, court date that the court encouraged the applicant to continue with the litigation, and that, but for that encouragement, the mother would most likely have abandoned her application there and then and gone back to letting the Family Responsibility Office pursue the payment of support arrears.
[37] The following are some examples of the statements Justice Kurz made to the applicant and her counsel that lead me to this conclusion. They are all comments made on the heels of the mother or her counsel's statements that she cannot afford to go forward with the litigation financially and with a lawyer representing her:
[38] At pages 28 and 29 Justice Kurz remarks:
But it's like she's almost there….
I've got to tell you [Ms. Borges] again, just as I've tried to talk these folks [the garnishees] into trying to settle, I think you're smart to stick with your lawyer because I think your case will more likely be presented by counsel who is on top -- I don't know your finances and -----
[39] At pages 29 and 30, Justice Kurz makes these remarks:
So, Ms. Borges, again, what you need to understand is, I mean, I'm dealing with it as it is; that is I think your counsel has set it up as best it can be set up. There's a $37,000 garnishment here. The only question is a legal question. Is it an effective garnishment in light of the way that your former mother-in-law --…
Sorry, so that Mr. Santos' mother set it up. So the question is whether she set it up in a way that effectively defeats your attempt to garnish him, which seems to be the best way to get the money. And it may well be right. And it may well be that if she's correct, she'll get her $7000 back as well. And, frankly, it may be from you and not from the estate, that's the risk that you're all going to undergo. You need to consider, again, whether the fight is worth the candle, I think that's the expression.
But what I'm saying to you is we're almost there, and you've got a lawyer who is on top of the case. And if you go back to FRO, you may not be as well served. That's your decision.
And you have a claim for costs. If you make an offer to settle and you beat your offer to settle, you may well get costs, so that's a risk that the garnishees have to take. But you're here.
[40] And at page 31, Justice Kurz states to Ms. Borges:
….But for you I would suggest that it's very much in your interest that you've gotten here, this is best shot at getting the money, to continue with counsel, because I'm trying to set up a streamlined way to decide this issue; and, frankly, a very interesting issue. For a lawyer or a judge, it's very interesting. Everything that's interesting it means that you can just see the dollars flying out of your wallet. Every time you hear "interesting", that means costly. And I'm sure Mr. Gazzola it is worth every nickel and that he's extremely frugal with your money, but,…
[41] An eighth factor upon which I have placed significant weight relates to indemnification. While the garnishees might have been entitled to indemnification in their personal capacity because it was completely inappropriate of the mother to name them personally, I cannot separate the cost to them personally versus the cost to them as trustees. I cannot quantify those costs. This is because the cost of the litigation to each of them personally cannot be separated from those they incurred in their capacity as trustees. They had the same counsel and the work performed was exactly the same. Only one bill of costs was submitted and it clearly denotes that the fees and disbursements reflected on it are for the work done for them in both capacities.
[42] Further, even if I could parse out the personal cost vs. costs incurred by the trustees, neither of the garnishees will suffer a personal loss as a result of having been named personally. A consequence of the inextricably intertwined position of the garnishees is that the trustees are entitled to be compensated for any loss incurred in carrying out their duties, by the trust. They also have the power to use the trust funds as they see fit as it is an absolute discretionary trust. Thus, even if there is some cost to them personally they have the power to wholly compensate themselves for such losses.
[43] Quite frankly, the costs of these proceedings ought to be borne by the respondent father. None of the other parties would have been forced into this litigation and none of them would have incurred any of these costs if the respondent father had honoured his court ordered child support obligation. The trustees have absolute discretion over how the funds earmarked for the father's benefit get used. It is wholly within their power to use a portion of his share to compensate them, both personally and as trustees, for the cost to them of this litigation. This is not a luxury available to the mother. She must bear her $10,000 plus in costs, on her own, just as she has had to shoulder the entire burden of supporting the child. The only person left here without a deeper pocket to look to is the one person who should not be, the mother. If there is an injustice here when it comes to costs and indemnification, it is one suffered by the mother and no other party.
[44] Ninth and finally, I have considered Justice Kurz point of view both with respect to costs and the result. With respect to costs I find that he was not inclined to make any order as to costs. I arrive at this conclusion based on what he writes in his reasons for judgment dated September 25, 2017, at paragraph 66:
- At first blush, this novel case does not seem to be one that would attract a cost award. However, if the parties cannot agree on the costs of this proceeding, they may make an appointment before me to make brief submission on costs.
[45] With respect to the outcome, it is clear that Justice Kurz saw it as unjust and contrary to the general thrust of the law of child support – ensuring that children are supported financially.
[1] There is a maxim, going all the way back to Roman law, which holds that for every wrong, the law provides a remedy. Sadly, when applied to the non-payment of child support, this adage often falls short. It may be more accurate to say that the law cannot solve all of life's challenges. This case illustrates that truism.
[70] Here, I have found that the trust fund set up to benefit Antonio is not available to honour his support obligations to his son unless the trustees chose to make the payments. In making that finding, I recognize that the trust's funds came from Mrs. Santos. She was entitled to bestow the discretion on her two favoured children that she granted. That is the state of the law.
[71] But there is still a gap between the dictates of the law and what may seem to be just in ensuring that family members are properly supported….
[72] While I cannot oblige them to do so, I can, like Mrs. Santos, make a request that the trustees exercise their discretion in a manner that will clearly promote Antonio's comfort and well-being. My request is that they do so by supporting his son, Christopher: their nephew and Mrs. Santos' grandson. Whatever motivated Mrs. Santos to arrange her affairs as she did, it certainly was not Christopher's fault.
[46] Stepping back and looking at the totality of the circumstances in this case, I find that the fair and just result is to refuse to compound an already unjust set of circumstances for the applicant and the child. To do this, I decline to make a cost order against the applicant and in favour of the garnishees, despite their presumed entitlement, and, to instead order that each party shall bear his or her own costs of these proceedings.
Order
[47] For all these reasons I order as follows:
The garnishees' claim for costs is dismissed;
Each party shall bear his or her own costs of these proceedings.
Released: February 20, 2018
Signed: Justice Victoria Starr