COURT FILE NO.: FC-11-039511-00
DATE: 20121115
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: DOMENICO STRAVATO, Applicant
AND:
JOSEPHINE STRAVATO, Respondent
BEFORE: THE HON. MADAM JUSTICE S.E. HEALEY
COUNSEL:
P. Rodriguez-McNeill, for the Applicant
B. Rossi, for the Respondent
HEARD: October 31, 2012
ENDORSEMENT ON COSTS
[ 1 ] This endorsement on costs follows my ruling on a motion brought by the Respondent wife and determined on September 14, 2012. Counsel provided oral cost submissions to the court.
[ 2 ] Reference to the term “motion” within this endorsement refers to the single motion that was initially determined without notice on August 17, 2012 and ultimately determined on September 14, 2012, although in amended form. The motion was argued over two days – September 13 and 14. Before that, the parties had been before the court on two prior occasions. Costs had been reserved to the judge hearing the motion, as outlined below. In the result, I am also assessing costs for the appearance before Kaufman, J. on August 17, 2012, at which time the motion was partially determined and made returnable on August 28, 2012 before Mulligan J..
[ 3 ] This proceeding was progressing along the standard track in a fairly routine matter, a case conference having been heard earlier in the year, when an unanticipated revelation by the Applicant husband quickly altered the normal course of events and accelerated the pace of the litigation. On August 13, 2012 a letter from the Applicant’s counsel disclosed for the first time that the Applicant was undergoing experimental treatment in the United States for stage four cancer. No interim orders were in place, and both the Applicant’s income and the amount of his net family property are strongly contested issues. Both could be sizeable depending on the court’s determination of his corporate interests and income base. The prognosis for the Applicant not being optimistic, the Respondent’s counsel very quickly took steps to accomplish certain goals to protect her client’s interests. It was necessary to seek orders that would preserve the Respondent’s equalization claim by preventing it from being defeated through the laws regulating estate administration, to claw back assets that had been placed out of the reach of the Respondent wife through transfers made by the husband and changes in beneficiary designation, and to obtain support orders that would have priority over other unsecured creditors. In the case of spousal support, it was necessary as a matter of law to obtain an order prior to the Applicant’s death, while the parties remained spouses.
[ 4 ] In the result, the Respondent’s counsel Ms. Rossi undertook a large amount of work between August 14 and 17, when she brought an ex parte motion on an urgent basis, seeking relief necessary to accomplish the above goals. Her Bill of Costs outlines that she alone spent 38 hours working on the file over those four days. She consulted with and sought the opinions of lawyers in the corporate and real estate departments at Blaney, McMurtry LLP in regard to the Applicant’s unanimous shareholder’s agreement, which provides that his brother is permitted to purchase his corporate shares for a nominal sum on his death, and to obtain guidance regarding vesting and non-dissipation orders relating to the matrimonial home. Extensive research was required to provide her client with advice regarding security and priorities in the event of her husband’s death, non-dissipation/freezing orders, vesting orders, assets passing outside of estates, agreements vs. subsequent court orders, retroactive support orders following death, and other matters relevant to the situation at hand. The dockets disclose that some of the time spent by other lawyers during those days has not been included in the Bill of Costs. A great deal of time was spent reviewing volumes of financial disclosure in order to provide the court with a reasonable estimate of the Applicant’s income. The Applicant’s position, based upon his previously-filed financial statement at Volume 1 tab 2, was that his income was $67,600.00 per annum. The Respondent’s affidavit was extensive and thorough; no argument was made at the hearing before me that the Respondent had failed to disclose any material facts at this first return. There were 23 exhibits attached to the Respondent’s affidavit in an attempt to provide the court with as much information as possible. Ms. Rossi attended at the courthouse herself to file the material and to remain in the courthouse until the motion could be considered and an endorsement provided to her.
[ 5 ] The extensive ex-parte motion was considered by Kaufman J. in chambers, and he either granted the relief sought or adjourned it to the return date. The order speaks for itself. Kaufman, J. must have been satisfied on the evidence that the Respondent was entitled to the relief sought, and that the interests or ends of justice required that the orders should be made so that, in the event of the Applicant’s death, the claims of the Respondent would not be defeated. These claims include child support for the three children of the marriage, who have been in her care since the parties’ separation on June 18, 2011.
[ 6 ] The Respondent seeks the costs related to the August 17 th attendance on a full recovery basis in the amount of $17,998.62, or alternatively, on a partial recovery basis in the amount of $13,500.02. These amounts differ slightly from what is shown in the Bill of Costs due to an arithmetic error, but counsel agreed during submissions that the above amounts are the correct calculations. However the Applicant’s counsel has argued that this is not a case for costs to be awarded on the higher scale, as none of the Applicant’s conduct throughout the proceeding meets the threshold level of being egregious and reprehensible, so as to attract full recovery.
[ 7 ] The issue of costs was adjourned by Kaufman J. to August 28, 2012.
[ 8 ] The endorsement of Mulligan J. from August 28, 2012 notes that the Applicant objected to the length and breadth of the ex parte order, in particular certain aspects of the freezing order. The court was presented with the terms of a proposed order that provided for modifications to Kaufman J.’s order so that the Applicant would have access to a personal bank account and credit card, and which permitted the business accounts for the three businesses in question to operate on a day-to-day basis. The Respondent gave her consent to these changes. Other terms were included that can be described as remedial, as they had the effect of allowing Kaufman J.’s order to be put into effect by non-party institutions and provided further relief related to the Applicant’s life insurance policies for greater clarification and certainty. These terms were also consented to by the Applicant. Overall, the order reached that day was of some benefit to the Applicant, but provided even greater protection for the Respondent. In addition to placing obligations on the Applicant to continue to pay the premiums on his life insurance policies and, in the event of his default, to permit the Respondent to be credited for any payments that she is required to make to keep the policies in good standing, the order permits her to have access to all information regarding the policies. Also, the Applicant was ordered at paragraph 7 to co-operate and do whatever necessary, either personally or through a Power of Attorney if in effect, to give effect to the order. Costs of the appearance before Mulligan J. were reserved.
[ 9 ] In the days leading up to this return, Ms. Rossi docketed over 21.4 hours, which is the amount claimed in the Bill of Costs, together with the time of her associates. During this time Ms. Rodriguez-McNeill had delivered a responding affidavit, factum and book of authorities. Ms. Rossi drafted a reply affidavit and was preparing to address the motion, which according to the endorsement of Kaufman J. was to be spoken to on August 28 th , at which time the parties were to schedule a long motion date. The Respondent seeks costs on a full recovery basis in the amount of $8,030.06, or alternatively on a partial recovery basis in the amount of $6,091.83.
[ 10 ] Again, Ms. Rodriguez-McNeill argues that the Applicant’s conduct does not merit an award of costs on the higher scale, and further, that the order of Mulligan J. was reached through the consent of the parties and therefore no costs should be awarded.
[ 11 ] As scheduled by the trial co-ordinator, the long motion came before me on September 13, 2012. Mulligan J.’s order indicates that it was to be scheduled for a ½ day or longer if necessary; it was in fact necessary for the court to continue to hear argument during the morning of September 14. Because no support orders had been made by either of the preceding motions judges, the bulk of the time was spent hearing submissions related to income determination for the Applicant. In the time leading up to September 13, Ms. Rossi had received and further reviewed and analyzed all of the Applicant’s personal accounts and the corporate bank accounts and generated several scenarios for appropriate spousal and child support. Again, the amount of information that she was required to synthesize and organize for the court was extensive; by the time the matter was heard by me there were 8 volumes of the continuing record, at least 5 of which had been generated from and including the August 17 th motion. An amended Notice of Motion was drafted for the hearing on September 13 to address the fact that the Respondent had learned in the intervening period that the Applicant had transferred certain funds from accounts that had been previously been the children’s accounts. The amendments also lowered the amount of child support being sought for prospective lump sum child and spousal support, quantified the amount of periodic child support being requested, and sought lump sum retroactive spousal support, all with vesting and charging orders to secure such payments.
[ 12 ] The order that was made on September 14, 2012 provides the Respondent with the entirety of the relief that she was seeking, either as a primary request or her alternative request. The order in its entirety was made for the purpose of accomplishing exactly what the Respondent set out to achieve immediately after receiving the Applicant’s counsel’s letter of August 13 th , which was to ensure that her support and equalization claims were not defeated in the event of the Applicant’s death. By the time that the parties came before the court on September 13, the Applicant had suffered an incapacitating stroke. The court has been informed that the necessary physician’s opinion to give effect to the Power of Attorney was provided on September 14. The Applicant’s brother, with whom he operates the corporations in question, exercises the powers granted by that Power of Attorney. These orders were not only required because of the Applicant’s serious illness, but because, as stated in my endorsement, the evidence led me to the conclusion that the Applicant had undertaken a course of action over the past several months that had been designed to delay and/or defeat the equalization and support claims made by the Respondent in this proceeding. [1] While the Applicant’s disclosure of his illness was certainly the impetus behind the motions moving ahead so urgently, the necessity of the orders was well supported by the evidence showing that the Applicant had taken many steps to ensure that the Respondent’s claims would be frustrated, and that he was attempting to underestimate his income for support purposes in the face of a prima facie need for his daughters and wife to receive financial support.
[ 13 ] The Respondent seeks costs of the motion heard on September 13/14 in the amount of $22,522.94 on a full recovery basis and $16,969.13 on a partial recovery basis.
[ 14 ] In determining the cost of the motion, the jurisdiction of the court is set out in section 131(1) of the Courts of Justice Act , R.S.O. 1990, c. C.43 as follows:
131 (1) Costs - Subject to the provisions of an Act or rules of court, the cost of and incidental to a proceeding or a step in the proceeding are in the discretion of the court, and the court may determine by whom and to what extent the cost shall be paid.
[ 15 ] The Rule applicable to costs in the Family Court is Rule 24, and the factors that the court must consider are set out in Rule 24(11). However, wide discretion in fixing costs remains with the court, bearing in mind the principles enunciated in the leading Ontario cases such as Anderson v. St. Jude Medical Inc . (2006), 2006 85158 (ON SCDC) , 264 D.L.R. (4th) 557 (Ont. Div. Ct.), Boucher v. Public Accountants Council for the Province of Ontario (2004), 2004 14579 (ON CA) , 71 O.R. (3d) 291 (C.A.), and Clarington (Municipality) v. Blue Circle Canada Inc ., 2009 ONCA 722 , 100 O.R. (3d) 66.
[ 16 ] I find that the Respondent is presumptively entitled to costs under rule 24(1) based on the results obtained. The main issue for determination is whether the costs should be granted on a full or partial recovery basis, as a result of both Rule 24(8) and 24(11)(b) of the Family Law Rules . Before deciding that issue, reference to the other factors set out in Rule 24 (11) is necessary.
[ 17 ] In terms of the importance, complexity and difficulty of the issues, this was a motion of utmost importance to the Respondent given the Applicant’s precarious health situation. Had orders not been obtained, many of the claims made by the Respondent would have been eliminated or subject to lengthy delay by estate administration, such as her claim for ongoing child support. Because of the myriad of issues raised with no prior warning, and the need to have them resolved expediently, this matter was very complex and made more so because of the Applicant’s delay in passing on the highly relevant information regarding his health. No reasonable explanation for the delay was provided in the Applicant’s affidavit.
[ 18 ] There is nothing to be criticized in the rates used by the Respondent’s lawyers in the Bill of Costs presented. Ms. Rossi is a lawyer of 5 years’ experience whose hourly rate is $300. The partial indemnity rate of $225 used in the Bill of Costs is the maximum rate stated by the Practice Direction established by the Costs Subcommittee of the Civil Rules Committee. However, the partial indemnity rates used by the other lawyers whose names appear in the Bill of Costs is less than the maximum recommended rate given their years of practice experience.
[ 19 ] As previously indicated, there were many hours devoted to the preparation for this motion at its various stages. Given the complexity and seriousness of the matters at hand, I do not find any of the steps taken to have been unnecessary, nor the hours billed excessive.
[ 20 ] In terms of expenses paid or payable, none of the disbursements are out of line with what would be expected for a motion of this nature and its three appearances.
[ 21 ] The Applicant’s counsel urged that under subrule 24(11)(f) I should consider the income tax deductibility of legal fees paid to obtain support orders as being a factor under “any other relevant matter”. She relies on Pollitt v. Pollitt 2011 ONSC 3162 , 2011 CarswellOnt 5873 (Ont.S.C.J.) at paras. 65 and 66 , where Czutrin J. accepted that, in that specific case, he should make some allowance for the fact that the wife’s past ability to obtain value through a tax deduction of her legal fees was likely to occur again. However, no specific amount is set out for this allowance, as Czutrin J. had not been provided with the necessary calculations and he noted that costs are not intended to be a precise mathematical calculation. Ms. Rodriguez-McNeill provided her own calculations using a “payroll deductions online calculator” for estimates of the deductibility of fees in the amounts of $10,000 and $20,000. In my view, the benefit provided by the deductibility of legal costs to obtain support orders is appropriately considered under rule 24(11)(f) in the right circumstance. However, I believe that better evidence is needed for the court to make a reasonably accurate allowance for this entitlement, such as the support recipients T1 General return and notice of assessment to show the actual amount of the benefit received. In this case I am simply not satisfied with the reliability of the tool used to present the various scenarios put forth by the Applicant’s counsel.
[ 22 ] The Court of Appeal has observed that costs awards should reflect “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 cost to the successful litigant": Boucher v. Public Accountants Council (Ontario) (2004), 2004 14579 (ON CA) , 71 O.R. (3d) 291 (Ont.C.A.) at para. 24 . Also, in Serra v. Serra 2009 ONCA 395 , 2009 CarswellOnt 2475 (Ont.C.A.) at para. 8 the court set out the three fundamental purposes of modern cost rules, which are: (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.
[ 23 ] In Boucher , the court also stated that in deciding what is fair and reasonable, the expectation of the parties concerning the quantum of a cost award is a relevant factor. It is therefore helpful to the court, as Ms. Rodriguez-McNeill has done, to provide the Applicant's own Bill of Costs. The total fees and disbursements on a full recovery basis for all three attendances is $24,486.90. The applicant, although very ill, has been aware of what has been happening in this proceeding up until the time of experiencing the stroke immediately preceding the final hearing. He would have been aware that he retained his own lawyers at a rate of $475 per hour for senior counsel and $275 per hour for Ms. Rodriguez-McNeill. I find that he was, therefore, well aware of the likely costs of the legal services being incurred by the Respondent throughout. While I accept that it may have been difficult for his counsel to remain in touch with him fully throughout the period in question because of his travel, treatment and ill health, that does not detract from the fact that he could not have helped but have developed an appreciation for the flurry of legal activity that his late-coming news created. To avoid such costs, he could have provided instructions for orderly resolution at any time. This leads to a consideration of the offers exchanged by the parties.
[ 24 ] The court was provided with an offer to settle delivered by the Applicant on August 23, 2012. The crux of that offer is that the Respondent was to consent to an order vacating the order of Kaufman J.. It also offered that the Respondent would be free to register a designation of the matrimonial home. Beyond that, the offer made no provision for child or spousal support, or any other concession that would assist the Respondent in dealing with the labyrinth of legal problems that the Applicant’s ill health, coupled with his deliberate actions, had led her into.
[ 25 ] Prior to that, on August 7, 2012, Ms. Rossi had delivered correspondence seeking disclosure and asking for the Applicant's position with respect to various issues including retroactive and ongoing child and spousal support, life insurance, and business valuation and income analysis. Her client’s requests for support are set out in detail in that letter. At its conclusion, the letter provides:
While my client does not wish to bring an emergency motion for, inter alia , support, interim disbursements, and security for support, she may be required to bring a motion for same depending on your client's position with respect to the foregoing and upon the disclosure to be produced by your client. Please provide me with your client's position with respect to the foregoing by the close of this business week so that my client can decide upon the appropriate course of action. Thank you.
[ 26 ] This correspondence was not answered. Instead, the Applicant departed for his treatment.
[ 27 ] It is not necessary for there to be a finding of bad faith for the court to decide costs on a full recovery basis: Piskor v.Piskor , 2004 5023 (ON SC) , 2004 CarswellOnt 5313 (S.C.J.); Sims-Howarth v. Bilcliffe , 2000 22584 (ON SC) , [2000] O.J. No. 330 (S.C.J.). Nonetheless, in this case I do find that the Applicant's behaviour is accurately captured by the definition of bad faith articulated by Perkins J. in S.(C.) v. S.(M.) , 2007 20279 (ON SC) , 2007 CarswellOnt 3485 (S.C.J.) at para. 17 :
In order to come within the meaning of bad faith in rule 24(8), behaviour must be shown to be carried out with intent to inflict financial or emotional harm on the other party or other persons affected by the behaviour, to conceal information relevant to the issues or to deceive the other party or the court. A misguided but genuine intent to achieve the ostensible goal of the activity, without proof of intent to inflict harm, to conceal relevant information or to deceive, saves the activity from being found to be in bad faith. The requisite intent to harm, conceal or deceive does not have to be the person's sole or primary intent, but rather only a significant part of the person's intent.
[ 28 ] Without repeating the copious evidence on this point, prior to his hospitalization the Applicant took almost every possible step to place his assets outside of the reach of his wife in the event of his death. There is no evidence that he ever made an offer of support or answered her request made on August 7 to provide her with information regarding his position. And although his counsel suggested that it was the Respondent's delayed disclosure that prevented this litigation from proceeding in a more orderly fashion, there is no real basis for that suggestion. I find that it was entirely the Applicant's decision to hide his medical condition from the Respondent, until he had taken the steps he felt necessary to accomplish his goals, which precipitated this motion and the costs involved. It is easy to reach the conclusion in this case that the Applicant intended to conceal relevant information for the purpose of deceiving the Respondent and causing her harm. And his settlement offer of August 23 reveals the unreasonable position being adopted by him in the aftermath. Accordingly, pursuant to both rule 24(11)(b) and rule 24(8) I find that this court has the authority to, and in fact must, decide costs on a full recovery basis.
[ 29 ] The total amount of costs sought by the Respondent on a full recovery basis is $48,551.62. There are two point made by Ms. Rodriguez-McNeill which I find are compelling in terms of the reasonableness of this award, and which lead me to fix an amount somewhat less than this amount. The first is that it appears that most of the research that was done was carried out by Ms. Rossi. The dockets provided set out the dates on which research was undertaken, but there is no breakdown of the time spent on research as opposed to other file tasks completed on any given day. Estimating, as Ms. Rodriguez-McNeill does, that 100 hours were spent on preparation, it is reasonable given the amount of research undertaken that approximately 1/4 of that time was spent on research. I agree that it would be reasonable to expect that research could be delegated to an associate of lesser experience. Noting that the billing rate of Blaney McMurtry for an associate having two years’ experience is $245 per hour, I have roughly made a reduction of $55 x 25 hours, which including HST comes to $1553.75. Additionally, I agree that it is reasonable to provide some credit for the fact that a consent order was reached on August 28. It must still be borne in mind that, but for the Applicant's conduct, this motion may never have reached the courtroom and the attendance avoided completely. Nonetheless, in keeping with the objective of promoting settlement, in order to be reasonable the cost order should reflect that concessions were made by the Applicant that day that were of substantial benefit to the Respondent. Accordingly, I find it reasonable to reduce the full recovery costs sought for that day by one third, or $2,676.69. These two sums will reduce the full recovery costs sought by $4,230.44, or $44,321.18. Recognizing, however, that costs are not just to be a mathematical exercise, and that they must not be so exorbitant as to provide an absolute disincentive to all further litigation, I find it fair and reasonable in all of the circumstances to fix costs in the total amount of $40,000.
[ 30 ] Accordingly this court orders that the Applicant shall pay costs of the motion to the Respondent fixed in the amount of $40,000 inclusive, payable immediately.
[ 31 ] At the conclusion of the cost argument, counsel drew my attention to correspondence from the lawyers for Royal Bank of Canada (“RBC”), and the concerns expressed therein on the part of RBC regarding implementation of the order of September 14, 2012.
[ 32 ] The first concern arises from subparagraph 1(ii) of that order, and the stipulation in the Income Tax Act that allows a spousal rollover of a RRSP if based upon a property transfer, but not to satisfy a support obligation. The order as currently drafted presents a problem for RBC, it is suggested, because the order indicates that the Applicant's RRSP account is to be transferred and vested in the Respondent as support and/or an advance on her equalization payment. The intent of that term of the order is to provide security for either one of those claims, but it must not be allowed to stand if it contravenes the Income Tax Act . Accordingly, for the purpose of effecting the rollover, the following order is made:
This court orders that the RBC RRSP referred to in subparagraph 1(ii) of the order of September 14, 2012 shall be transferred to and vested absolutely in the Respondent as her sole property as security for, or an advance on, any equalization of net family property ordered to be paid to her in this proceeding. The Applicant's signature on a consent or direction related to the transfer is hereby dispensed with. Any overpayment caused by this order is a triable issue.
[ 33 ] RBC also takes issue with paragraph 3 of the order of September 14, 2012, stating that it is inconsistent with paragraph 1(ii). Accordingly, for further clarity the following order is made:
This court orders that in the event that the transfer of the RBC RRSP results in an overpayment to the Respondent of the equalization claim made by her in this proceeding, such overpayment shall not be available for payment of the periodic support referred to in paragraph 3 of the order of September 14, 2012, unless consented to by the Respondent. All other provisions of paragraph 3 of the order of September 14, 2012 remain in full force.
[ 34 ] Finally, RBC is unable to comply with subparagraph 1(iv) of the order, because it is only able to open a trust account for a formal trust, and the current wording of that subparagraph is insufficient for such purpose. Accordingly, the following order is made:
This court orders that subparagraph 1(iv) of the order of September 14, 2012 shall be varied by deleting that subparagraph in its entirety and in its stead providing that RBC accounts #08282-5011978, #08282-5004809, #08282-5006853 shall be closed and the proceeds made payable to Josephine Stravato in trust for Alesandra Stravato, Olivia Stravato, and Sarah Stravato. Following payment of the monies in such accounts to Josephine Stravato, the Royal Bank of Canada shall be discharged in respect of such accounts.
HEALEY J.
Date: November 15, 2012
[1] It is to be noted that the endorsement refers to the claims made in the proceeding by the “A” in error, and was meant to read “…I am led to the conclusion that the A has undertaken a course of action over the past several months which has been designed to delay and/or defeat the equalization and support claims in this proceeding made by the R”.