Court File and Parties
Court File No.: 18594/04 Date: 2012-02-24 Superior Court of Justice - Ontario
Re: Irene Lo, Applicant And: Paul Lo, Respondent
Before: McDermot J.
Counsel: E. Freedman, for the Applicant A. Feldstein, for the Respondent
Heard: by written submissions
Endorsement
[1] On December 22, 2011, I issued my reasons for judgment arising from a six day trial heard by me during the May sittings. I allowed the parties an opportunity to file written submissions as to costs, which have now been received by me. This is my costs endorsement in this matter.
[2] This was a complex and hotly contested trial on almost every issue between these parties. This can be attributed to an extremely difficult break up between the parties, resulting in the estrangement of the children from the Applicant, Irene Lo, as well as financial difficulties suffered by both of the parties. The separation was of long standing, resulting in large retroactive claims by both parties; as well the husband’s business practices made income determination and valuation problematic. It was also apparent that the Applicant was extremely bitter about the separation; I presume that this inflated her expectations, and made settlement difficult.
[3] My decision in this matter was that the Respondent, Paul Lo, pay $157,637.90 being the net total of the retroactive claims for child and spousal support by each party, as well as the equalization payment owing by the Respondent of $173,530.60. I ordered that this amount be satisfied from Mr. Lo’s funds held in respect of the matrimonial home; of the funds held in trust, I was told that there was some $133,209.16 held for Mr. Lo from the sale of the home.[^1] Mr. Lo was to pay ongoing spousal support of $1,200 per month to increase to $1,800 per month after July 1, 2012.
[4] Both parties have made costs submissions, and both parties are claiming costs well in excess of $100,000, which is reasonable considering that the trial of this matter took about 6 days to complete. Offers to settle were exchanged; they are each in marked contrast to the result in this matter. The severability of the terms of the Respondent’s offer gives rise to an argument that the apparent success of the Applicant at trial is not necessarily determinative of costs. An award of costs against the Applicant might largely result in a pyrrhic victory as the costs claim of the Respondent is almost as much as the net payment ordered in this matter.
[5] For the reasons set out below, I have determined that the Respondent is liable to pay the Applicant partial indemnity costs fixed in the amount of $63,750.
ANALYSIS
[6] Under Rule 24(1) of the Family Law Rules,[^2] costs follow the event, and a successful party is presumed to be entitled to costs. I may take into account unreasonable conduct of either party (Rule 24(4)) and if success is divided, I may apportion costs as appropriate (Rule 24(6)). Under Rule 24(11), in fixing the amount of costs, I may take into account the “importance, complexity or difficulty of the issues” as well as “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”.
[7] I can also take into account the conduct of the parties to this proceeding: see Rule 24(8) of the Family Law Rules. Under that rule, I am required to order full indemnity costs payable forthwith if a party has acted in “bad faith.” Moreover, I may generally take into account under Rule 24(11) “the reasonableness or unreasonableness of a client’s behaviour” in assessing the amount of costs.
[8] In the event that a party is more successful than his or her offer, I am bound to order costs on a full indemnity basis: see Rule 18(14). Under Rule 18(16), when I am ordering costs, I may further take into account any offers to settle, even if they do not comply with Rule 18(1) as noted above.
[9] As noted above, this was a hard fought trial. Other than a few valuation and debt issues, the parties were unable to agree on much of anything at all. The major issues litigated included retroactive child support payable by the Applicant including university costs of the children, retroactive spousal support, imputation of income by both parties, business valuation issues including the valuation of several businesses operated at the date of separation, ongoing spousal support and an unequal division of net family property.
[10] The major issue in determining costs concerns the Applicant’s apparent success at trial as opposed to the respective offers to settle made by the parties. Connected as this as well are issues as to conduct of the parties which may also affect entitlement to costs. Finally, once entitlement is determined, the quantum of costs must be determined based upon the factors set out in Rule 24(11). I will examine each of these issues in turn.
(a) Success at Trial / Offers to Settle
[11] Based upon the submissions made at trial, and the positions of the parties at trial, the Applicant was largely successful on most issues. She succeeded on the issues concerning spousal support, income imputation, ownership of assets, unequal division of net family property as well as well as retroactive spousal support.
[12] However, the offers to settle change the complexion of the final result. The offers made by the Respondent indicate more extensive attempts to settle matters and appear to be more favorable on some issues than the Applicant’s result at trial. The major costs issue accordingly concerns the conflict between the Applicant’s apparent success at trial in contrast to her rather half hearted attempts at settlement leading up to trial.
[13] At the trial of this matter the major issue which was hotly contested was spousal support, both retroactive and ongoing. Connected to this issue were income imputation issues as well as the amount of s. 7 expenses that Mr. Lo stated that he was paying.
[14] Regarding the retroactive claim, Mr. Lo was wholly unsuccessful in the result. Notwithstanding his protestations that there should not be any retroactive claim, it was found that the claim for spousal support made by the Applicant in her pleadings, along with the Respondent’s failure to acknowledge a reasonable amount of income, allowed her to claim support from the date of physical separation. Mr. Lo was found to have income throughout notwithstanding the fact that he stated that he had almost none. Although he was found to have had some s. 7 expenses of the children, which would have reduced the spousal support claim, these expenses were substantially reduced from his original position, as he failed to prove his costs for Sarah Lo’s undergraduate degree, and his claim for her postgraduate expenses was found to be unreasonably high. Ms. Lo acknowledged at trial that she was obligated to pay child support to be set off from spousal support; she also acknowledged her obligation to pay a portion of both children’s university costs; Mr. Lo failed in having income imputed to her as requested at trial.
[15] Regarding ongoing support, on measure again, Ms. Lo was more successful than her husband. Mr. Lo failed in having support eliminated during the completion of Sarah’s post graduate education. He failed in having a time limit imposed on his support obligation and failed to lead medical evidence allowing his health issues to be taken into account in setting support. Mr. Lo did succeed, however, in eliminating his pension income received in 2009 from his income for support purposes as well as his ongoing employment expenses; however, unlike his final offer, a portion of his pension income was included for support purposes on an ongoing basis.
[16] Regarding equalization issues, however, the success was more divided between the parties. Ms. Lo had claimed not only that Beacon Consulting Group was her husband’s property; she also claimed it was worth a substantial amount of money, which was not my finding. Ms. Lo, without good reason, failed to acknowledge several debts for equalization purposes. However, Mr. Lo failed to establish that there were grounds for an unequal division of net family property based upon the decline in the value of the Hong Kong dollar between separation and payment of the pension. Ms. Lo succeeded in establishing a value for Mr. Lo’s unused capital losses.
[17] However, as noted above, these results measured against the respective offers to settle as opposed to the parties’ positions at trial paint a different picture.
[18] Regarding the Applicant, she submitted one offer to settle in November, 2010; that offer was never withdrawn and complies with Rule 18(1) of the Family Law Rules. It was not, however, severable. It provided for a payment of $300,000 by Mr. Lo to the Applicant; from that, the sum of $161,000 presently held in trust would be credited against that amount, leaving Mr. Lo responsible to pay a further $159,000 beyond the funds held in trust. My order provided that Mr. Lo was liable to pay Ms. Lo $157,637.90 less $133,209.16 held in trust for a total net liability of $24,428.74.[^3] The offer also provided for spousal support to be payable for 15 years from the date of the offer in the amount of $1,500 per month. Although the amount of spousal support payable is less than that ordered, the offer provides that spousal support would have been payable until November, 2025. Although Mr. Freedman submits that this may very well be less than the indefinite award that I made, Mr. Lo would have been well into his 70s when support came to an end, and I do not find that to be reasonable under the circumstances, especially considering that the normal date for retirement in Canada, at least for the time being, is presently 65.
[19] Accordingly, Ms. Lo clearly did not better her Offer to Settle at trial.
[20] Mr. Lo made a number of offers. He made three initial offers to settle dated February 13, 2007, June 9, 2010 and September 2, 2010. None of those offers were severable according to their terms; all of them provided that no ongoing spousal support would be payable by Mr. Lo. The first offer and the third offer each stated that Ms. Lo would receive all of the amounts held in trust in respect of the matrimonial home but nothing more; the middle offer stated that she would receive the net proceeds less an equalization payment payable to Mr. Lo of $52,616.45. Based upon the result at trial, those three offers were as unreasonable as was Ms. Lo’s November, 2010 Offer to Settle.
[21] The final Offer to Settle made by the Respondent was dated November 12, 2010 (and was later amended by a further offer made May 17, 2011). That offer was severable and provided for a somewhat complicated formula for acceptance. Effectively, if Ms. Lo either accepted that there was no retroactive spousal support or child support claims outstanding, or alternatively agreed to Mr. Lo’s figures for retroactive child support, spousal support and section 7 expenses, Ms. Lo would receive all of the funds from the home plus a further $30,000 from Mr. Lo. Regarding ongoing spousal support and section 7 expenses, the offer, as amended, provided that the Applicant would pay the Respondent $1,067 per month towards Sarah’s law school expenses, $1,323 per month towards the Master’s degree and living expenses and the Respondent would pay ongoing spousal support in the amount of $516 per month. Alternatively, spousal support would not be payable while Sarah was attending at law school or for her Master’s degree; Ms. Lo would be entitled to a review of spousal support once Sarah finished her Master’s degree but all of Mr. Lo’s pension income would be excluded from his income for support purposes.
[22] Mr. Feldstein states that the result at trial was less beneficial to Ms. Lo than the result would have been had Ms. Lo accepted the Respondent’s Offer to Settle. He argues that, taking into account the interest that has accrued on the funds held in trust, the payment that was proposed under the offer is greater than the lump sum payment ordered by myself.[^4] He notes that the offer that was made was severable, and had the Applicant accepted the payout portion of the offer, the trial would have been shortened considerably as there would have been no need to deal with the retroactive support issues and there would have been no need to litigate the equalization issues; the only matter that would have been left to deal with would have been ongoing support. As such, Mr. Feldstein argues that his client is entitled to full indemnity costs after the offer was made under Rule 18(14).
[23] Implicit in these submissions is the fact that the second portion of the Respondent’s Offer to Settle as amended, which dealt with ongoing section 7 expenses for Sarah and ongoing spousal support, is clearly not as generous as the order that I made. That portion of the Offer as amended provided either that Ms. Lo would not have to pay anything towards Sarah’s expenses, but that no support would be payable by Mr. Lo subject to Ms. Lo’s right to a review once Sarah finished university, or alternatively, that Ms. Lo would pay a 35% share of actual Sarah’s post graduate expenses and that Mr. Lo would pay ongoing spousal support in the amount of $516 per month. In fact, Sarah’s post graduate expenses were reduced substantially in the end, and Ms. Lo’s proportionate share of those expenses was accounted for in the lump sum judgment noted above; as well, Mr. Lo was ordered to pay $1,200 per month until Sarah finished her post graduate studies, after which he was ordered to pay $1,800 per month.
[24] The fact that the Offer to Settle served by Mr. Lo was severable is significant: see Sepiashvili v. Sepiashvili, 2001 CanLII 25708 (ON SC), 2001 CarswellOnt 3459 (S.C.J.). However, had Ms. Lo accepted the first portion of the offer, it would not have taken into account her liability for Sarah’s post graduate expenses, which I quantified at being $12,960: see para. 199 of my judgment. Acceptance of the first part of the offer would have left an outstanding liability which, had it been accounted for, would have reduced the lump sum judgment ordered by me. Had the $12,960 been excluded from my money judgment, this would have increased it by that amount; this means that the first part of the offer was actually not as generous as what was actually ordered.[^5] Accordingly, even if Ms. Lo had accepted the first part of the offer, she would not have received what she received under my judgment, as her liability for Sarah’s post graduate expenses remained outstanding.
[25] Accordingly, I find that, severable or not, the Respondent’s Offer to Settle, although closer to the mark regarding the lump sum payment amount, is not better than the result at trial for Mr. Lo and as such, does not entitle Mr. Lo to full indemnity costs. Even if the Applicant had accepted the first part of the Offer and thereby shortened the trial, Ms. Lo would still have to deal with the issues arising out of Sarah’s post secondary expenses and would have had a slightly lesser result than achieved at trial.
[26] Moreover, even though it was not severable, the Applicant’s Offer to Settle was closer to the result regarding spousal support than was the Respondent’s.
[27] Based upon my findings, neither offer attracts cost consequences under Rule 18(14). The Applicant’s offer was closer to my award respecting spousal support; the Applicant’s was closer in respect of the retroactive claims and equalization. Entitlement to costs must therefore be based upon the result at trial; I find that the Applicant enjoyed success in the result at trial and as such, she is prima facie entitled to her costs of this proceeding.
(b) Conduct Issues
[28] Neither party’s conduct was particularly impressive in this matter.
[29] Mr. Lo took, in my view, an unreasonable position respecting support. He filed financial statements which were inconsistent with the story that he told in court and with each other, and failed to provide evidence as to his true financial circumstances. Mr. Freedman is correct that Mr. Lo’s initial position on the valuation of Altech was unreasonable and Mr. Lo also initially failed to disclose his pension. His business practices were questionable, making resolution difficult. Although the Respondent filed numerous Offers to Settle, the first three offers were as unreasonable as was the Applicant’s sole Offer to Settle.
[30] Ms. Lo’s conduct was not much better. She failed to admit matters at trial which should have been admitted, including a number of debts or payments toward those debts that were obviously matters subject to equalization. These unreasonable positions appeared to be emotional responses to the separation rather than based upon legal realities. She filed only one offer to settle which was largely unreasonable and not severable. Mr. Feldstein notes that Ms. Lo failed to acknowledge that Beacon had no value which he stated would have shortened the trial (although the value of Beacon was only one issue; the ownership of Beacon was crucial and never admitted by Mr. Lo and this went not only to equalization but also support issues).
[31] Neither party has proven conduct that would disentitle the other party to costs. Both parties are guilty of some misconduct, but no party was better than the other.
[32] As such, I am left with the success of the Applicant in the result to determine entitlement to costs. The Applicant is entitled to her costs of this proceeding.
(c) Quantum of Costs
[33] The Applicant submits a Bill of Costs indicating total costs of $138,000. Based upon the Bill of Costs, and based upon the Respondent’s costs submissions, this would appear to be a reasonable amount of costs on a substantial indemnity basis. The Applicant requests partial indemnity costs in the amount of $85,000.
[34] Notwithstanding the fact that the Offers to Settle and the conduct issues were not such as to determine entitlement to costs, I am free to apply those issues to the quantum of costs. I can take into account both offers to settle and unreasonable conduct in the quantification of costs under Rule 24(11).
[35] I do agree with Mr. Feldstein that the trial would have been shortened had Ms. Lo been more reasonable in the position taken by her prior to trial. I note that although I have found that Ms. Lo would have been worse off by accepting the first part of the Respondent’s Offer to Settle, the difference in amounts was minor in amount. I do not agree that the trial would have been shorted to 1.5 days as suggested by Mr. Feldstein; I do agree that the trial might have been shortened by several days had Ms. Lo admitted to certain facts; certainly, there were few valuation issues on equalization which were worth litigating. However, much of the trial was taken up by the fact that Ms. Lo required an interpreter, which I found to be reasonable and necessary.
[36] As such, I am going to reduce the costs as requested by the Applicant by 25% to reflect the amount of trial time that might have been reduced had Ms. Lo been more reasonable in her position. I am therefore awarding Ms. Lo costs in the amount of $63,750 inclusive of disbursements and HST, which is 75% of the amount of costs which were claimed by her.
McDERMOT J.
Date: February 24, 2012
[^1]: On February 16, 2012, Mr. Hung, Mr. Feldstein and I participated in a conference call regarding the funds now held in trust by Mr. Hung’s office; there was today some $68,000 remaining in trust. There is also an amount of interest that has accrued on the funds held in trust, which was not quantified at trial. It was acknowledged that the costs issue made a difference as to what might be paid out to the Applicant and Mr. Hung agreed that he would continue to hold those funds in trust pending my determination of costs. I advised that I expected to have my determination of costs completed by March 8, 2012.
[^2]: O. Reg 144/99
[^3]: See footnote 4 below. Taking into account interest, I am advised that Mr. Lo would actually have to pay $20,700 after his share of the funds held in trust are taken into account.
[^4]: During the conference call on February 16, 2012, Mr. Feldstein acknowledged that, after payment of his share of the funds from the matrimonial home toward the judgment, Mr. Lo owed a further $20,700, more or less. This means that the amount that was held in trust to the account of Mr. Lo was $136,937.90 ($157,637.90 – $20,700).
[^5]: The amount offered under part 1 of the Offer to Settle would have meant that Mr. Lo would have paid $136,937.90 plus $30,000 for a total of $166,937.90: see footnote 4 above. If the deduction of $12,960 is removed from my lump sum judgment, the amount of the judgment would then increase to $170,597.90 ($157,637.90 + $12,960). As such, the amount offered is less than the lump sum payout if the award in respect of Ms. Lo’s proportionate share of Sarah’s post graduate studies is taken out of that amount, which is the way the two parts of the offer are structured.