Karkulowski v. Karkulowski, 2015 ONSC 3171
COURT FILE NO.: FD897/13
DATE: 2015-05-19
SUPERIOR COURT OF JUSTICE – ONTARIO
FAMILY COURT
RE: Bozena Karkulowski, Applicant
AND:
Andrzej Karkulowski, Respondent
BEFORE: Heeney R.S.J.
COUNSEL: Dagmara Wozniak, for the Applicant
The Respondent, self-represented
HEARD: January 12, 13 & 14, 2015 at London
ENDORSEMENT
[1] I have received and reviewed the submissions on costs filed by Ms. Wozniak, for the Applicant, and by the Respondent personally.
[2] This litigation arose out of a marriage that lasted only two years. The issues were child support (which depended upon whether the two boys were “children of the marriage”), equalization of net family property, and spousal support. On the child support issue, I found that the Respondent did stand in the place of a parent to the two children, and awarded table support up to and including June 1, 2013 (40 months) amounting to $29,720. No child support was ordered beyond that date.
[3] The Applicant was awarded an equalization payment of $25,009, which was primarily generated by the equity in the matrimonial home. Although the Respondent owned that residence at the date of the marriage, he did not receive a credit for his equity because it was the matrimonial home.
[4] As to spousal support, the Applicant was awarded a lump sum of $5,000. Her total recovery, therefore, was $59,729. This sum was ordered to be paid out of the monies held in trust by the Respondent’s former counsel, Cynthia Mackenzie, arising from the sale of the matrimonial home, which had been owned by the Respondent. Those monies originally stood at just over $95,000, but costs of $13,000 were already ordered to be paid out of those funds to the Applicant by Mitrow J. on May 23, 2014, arising from a jurisdictional motion on which the Applicant was successful. The citation for that decision is 2014 ONSC 3139, and more will be said about it later. After payment of both amounts, the net amount remaining in trust is $23,171.
[5] The Applicant was successful on all issues and is presumptively entitled to her costs of this action.
[6] In determining the Applicant’s entitlement to costs, an important consideration is the reasonableness of each party’s conduct of the case, and any offers to settle made.
[7] The parties separated in February, 2010. In the latter part of 2012 they retained counsel and attempted to negotiate a separation agreement. In March, 2013, the Respondent abruptly moved to Poland, shortly after the matrimonial home was sold. On May 6, 2013, he terminated his retainer with Ms. Mackenzie and withdrew all offers to settle. At that point in time, the Applicant was prepared to accept $24,000 all-inclusive to settle the matter, as reflected in her settlement proposal of May 3, 2013. However, the Respondent was not prepared to pay more than $22,000. It is tragic for all concerned that this narrow gap was not bridged and a settlement arrived at, because the result of not settling has been a catastrophic expenditure in legal fees. Given the result at trial, the Respondent made a grievous error in not paying the additional $2,000 that it would have taken to settle the matter.
[8] The Respondent, in his submissions, states that he offered the Applicant $20,000 to settle the case, and then borrowed the sum of $2,000 which he paid to her as an advance, with the balance to be paid once the house was sold. He says that the Applicant took that money to Ms. Wozniak “to close that case”. However, no settlement was concluded because, he states, Ms. Wozniak told the Applicant she could get “way more than that”.
[9] While no binding settlement was arrived at flowing from the Respondent’s offer, it is significant to note that $2,000 was apparently paid by the Respondent. No reply submissions were filed to challenge this assertion, so I will proceed on the basis that the Respondent is entitled to a credit in that amount toward any costs order that is made against him.
[10] The Applicant served a formal offer to settle on June 24, 2014, proposing to accept $65,000 if the offer is accepted by July 21, 2014; $66,000 plus 30% of costs as assessed if accepted after that date but more than 30 days before trial; and $68,000 plus costs as assessed on a partial indemnity basis if accepted less than 30 days before trial.
[11] Another offer to settle was served by the Applicant on July 9, 2014, which proposed settlement on the same basis as the previous offer, except that the three settlement figures were reduced to $60,000, $61,500 and $63,000 respectively. This offer is very close to the amount awarded after trial, although it cannot be said that the offer is more favourable than the result. Clearly, the Applicant was taking a reasonable approach toward settlement.
[12] No counter-offer was served by the Respondent, other than an email dated December 30, 2014, which reiterated his willingness to settle for $20,000, “otherwise we will see what court is going to say”. He has now heard what the court has had to say, and it is roughly three times more than what he was prepared to pay. Clearly, he was not taking a reasonable approach toward settlement.
[13] It is also clear that the Respondent behaved unreasonably in his conduct of the case. It was unreasonable to abruptly fire his lawyer and withdraw all settlement proposals, while relocating to Poland, which only complicated matters from that point forward. As I found in my reasons for judgment, he immediately began to take steps to defeat the Applicant’s claims and alienate his property. That included retaining a lawyer in Poland to commence divorce proceedings, which included a claim for division of property. This necessitated a motion before Mitrow J. which concluded that it was this court that had jurisdiction to determine these matters. The Polish court ultimately agreed, and those proceedings were stayed.
[14] All of the above would justify an award of costs approaching full recovery. However, that presupposes that such costs are reasonable and proportionate. For the reasons that follow, I conclude that they are not.
[15] In the Applicant’s Costs Outline, costs are claimed as follows:
On a partial indemnity (65%) basis: fees of $34,564.72 plus HST and disbursements, for a total amount of $42,517.35;
On a substantial indemnity (90%) basis: fees of $47,858.85 plus HST and disbursements for a total amount of $57,539.70;
On a full indemnity (100%) basis: fees of $53,176.50, plus HST and disbursements for a total amount of $63,548.65.
[16] The trial lasted three days. The Applicant’s legal team spent 113 hours in trial preparation. To put that in perspective, that amounts to one person spending three full working weeks devoted entirely to this case. There is no doubt that counsel for the Applicant did an excellent job in representing her client. An expenditure of such a great amount of time would have been justified had the parties been fighting over many hundreds of thousands of dollars. However, this was only a two-year marriage, and the amount in dispute was relatively modest. Furthermore, the equalization issue was decided almost entirely based on the figures given by the Respondent in his own Financial Statement, so that little time needed to be expended in that regard. I have difficulty understanding how so much preparation time could have been spent on a case of this nature.
[17] Mitrow J. encountered a similar situation when he dealt with the issue of costs relating to the motions before him. At para. 7 of his reasons, he outlined the Applicant’s claims relating to her jurisdiction motion only, which did not include costs expended on the Applicant’s other motion to sever the divorce:
The applicant seeks $28,000 in fees. This includes $2,000 for the costs submissions; presumably HST and disbursements are in addition. The applicant provided a detailed costs outline. On a full indemnity basis, the fees total just under $35,000; including HST and disbursements the applicant’s full indemnity costs total $41,162.82 on the motions and this does not include costs to prepare the costs submissions.
[18] After considering factors such as the importance of the issues and the hourly rates charged, he continued as follows:
This leaves r.24(11)(c): the time properly spent on the case.
The Court of Appeal for Ontario has made clear on a number of occasions that in awarding costs, the overriding principle is reasonableness; it is not just a mathematical exercise; the court should award what the court views as a reasonable amount to be paid by the unsuccessful party rather than a measure of the actual costs incurred by the successful party: Davies v. Clarington (Municipality), 2009 ONCA 722, 2009 CarswellOnt. 6185 (C.A.) at paragraph 52.
The parties in this case, are of relatively modest means. The main asset appears to be a sum of a little over $95,000 representing the net proceeds from the sale of the matrimonial home owned by the respondent in London, Ontario. These funds remain in Ms. MacKenzie’s trust account.
The applicant’s request for costs lacks proportionality. I have reviewed the applicant’s costs outline. I have no doubt that the work as summarized was done. However, the totality of the effort expended on the applicant’s behalf was substantially disproportionate to what the respondent can reasonably be expected to pay on the facts of this case.
[19] Mitrow J. awarded costs fixed at $11,000 all inclusive. On the severance motion, he awarded an additional sum of $2,000.
[20] The comments of Mitrow J. are equally applicable here. While the issues are clearly important, and the hourly rates are reasonable, the time expended is grossly disproportionate. The parties are of modest means. The Applicant’s 2014 income was only $22,835. She lives in rented premises and owns very few assets. Her only means of paying her legal bill will be from the monies she recovers from the Respondent.
[21] The Respondent is not working and, having relocated to Poland, has rendered himself essentially judgment-proof. The only source of funds from which costs will be paid is the money held in trust. As already noted, those funds stood at about $82,000 after payment of the costs awarded by Mitrow J., and now stand at only $23,171. Ms. Mackenzie has had her own accounts assessed at $39,618, and claims a solicitor’s lien over those remaining monies. She asks for the opportunity to make submissions in this regard before any order is made as to how the Applicant’s costs are to be paid.
[22] If the Applicant is billed the equivalent of her full indemnity costs of $63,548.65, the net result will be that most, if not all, of the award she recovered from the Respondent will go toward payment of her legal fees. Presumably she owes additional legal fees relating to the jurisdictional motion, since those costs were not included in the Costs Outline, and she only recovered roughly 25% of the amount actually incurred from the Respondent. No matter what costs award I now make, the Respondent will receive nothing from the proceeds of sale held in trust, but will instead be left in a deficit position, either in the amount he owes to the Applicant, or the amount he owes to Ms. Mackenzie, or both. This means that, of the $95,000 fund that represented the only major asset owned by the parties, the Respondent will get nothing, and the Applicant will get nothing or next to nothing. All or most of it will go to the lawyers.
[23] This result is clearly wrong. It is not in the best interests of the litigants, and it does not reflect well on the legal profession.
[24] That is not to say that counsel for the Applicant acted in an unprofessional manner. As already noted, she was extremely well prepared, and represented the Applicant very well at trial. The reality, though, is that she was too well prepared. A retainer is not a blank cheque. An assessment of the means of the parties, and the funds available to pay for the litigation, must be undergone before fees are incurred, and on an ongoing basis thereafter. There is no benefit to a litigant in racking up extensive costs in pursuing litigation, if the end result is that the fruits of that litigation are entirely consumed by legal fees.
[25] The Supreme Court of Canada has recognized, in Hyrniak v. Mauldin, 2014 SCC 7, [2014] S.C.J. No. 7, that timeliness, affordability and proportionality are essential components of any legal system that seeks to provide true access to justice. Affordability and proportionality require that lawyers budget their time. The expenditure of a disproportionate amount of docketed time will not be sanctioned by the court. It seems to me that Mitrow J. made that point clear in his ruling of May 23, 2014, where costs of only $11,000 were awarded as against costs incurred of $41,162.82. Nevertheless, time continued to be expended on the file thereafter without any apparent regard to the amount in dispute and the ultimate availability of funds to pay for this litigation at the end of the day.
[26] Having considered the factors set out in Rule 24(11), I am satisfied that a reasonable amount for the unsuccessful party to pay, after a three-day trial that resulted in an award of $59,729, is an all-inclusive figure of $25,000. As against that, the Respondent will be credited with the sum of $2,000 already paid to the Applicant, for a net award of $23,000.
[27] As requested by Ms. Mackenzie, I decline at this time to order that this sum be paid from the monies held in trust, in order to give her an opportunity to make submissions on that issue. I will be sitting in Family Court during the week of June 22, and counsel are at liberty to make arrangements for the matter to be spoken to at 9:30 a.m. on any day that week, except June 26. Hopefully, counsel can agree on a resolution in the meantime.
“Heeney R.S.J.”
Regional Senior Justice T. A. Heeney
Date: May 19, 2015