Walters v. Walters, 2016 ONSC 2554

minicounsel

COURT FILE NO.: D652-11 DATE: May 30, 2016

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

Annette Walters Applicant

Gloria Nardi-Bell, for the Applicant

and -

Derek Walters Respondent

Alisa Williams, for the Respondent

HEARD: By written submissions

THE HONOURABLE MADAM JUSTICE C. LAFRENIЀRE

Costs Ruling

1This is my ruling on costs.

2For ease of reference, I will identify the Applicant as Annette and the Respondent as Derek.

3Annette seeks full recovery costs of $75,058.98.

4Derek seeks full recovery costs in the amount of $45,000.00.

5Annette and Derek advised their matter was settled on the first day of trial, August 11, 2015. Minutes of Settlement (“MOS”) dated August 10, 2015 were filed before Justice Mazza, who made a Final Order in accordance with the MOS.

6The parties agreed the issue of costs of the action would be adjourned before me. I had previously reserved the issue of costs of a disclosure motion (argued before me in November 2014) to the trial judge or me in that judge’s discretion.

7The parties filed written submissions, Bills of Costs, the relevant offers of settlement and Books of Authority in support of their respective claims for costs. I have reviewed all of the material filed.

Costs in Family Law Matters

8Costs in family law matters are governed by Family Rule 24 of the Family Law Rules, O. Reg. 114/99. The discretion to award costs under s. 131 of the Courts of Justice Act (“CJA”), as circumscribed by the FLR continues to apply in family law matters. The factors listed in Rule 57.01 of the Rules of Civil Procedure (“RCP”) also continue to apply to family law proceedings pursuant to Rule 1(7) of the FLR.

9The successful party is presumptively entitled to costs as provided by Rule 24(1) of the FLR:

Rule 24 (1) SUCCESSFUL PARTY PRESUMED ENTITLED TO COSTS—There is a presumption that a successful party is entitled to the costs of a motion, enforcement, case or appeal.

10Rule 24(4) provides that a successful party who has behaved unreasonably may be deprived of some or all of his or her costs and could be ordered to pay all or part of the unsuccessful party’s costs.

11Rule 24(8) provides that if a party has acted in bad faith the court shall decide costs on a full recovery basis and order those costs to be paid immediately.

12Family Rule 18(14) deals with the costs consequences of failing to accept an offer:

Rule 18 (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:

a. If the offer relates to a motion, it is made at least one day before the motion date.

b. 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.

c. The offer does not expire and is not withdrawn before the hearing starts.

d. The offer is not accepted.

e. The party who made the offer obtains an order that is as favourable as or more favourable than the offer.

13Civil Procedure Rule 57.01 (1) sets out considerations in the exercise of discretion to award costs:

57.01 (1) Factors in discretion—In exercising its discretion under section 131 of the Courts of Justice Act to award costs, the court may consider, in addition to the result in the proceeding and any offer to settle or to contribute made in writing,

(0.a) the principle of indemnity, including, where applicable, the experience of the lawyer for the party entitled to the costs as well as the rates charged and the hours spent by that lawyer;

(0.b) the amount of costs that an unsuccessful party could reasonably expect to pay in relation to the step in the proceeding for which costs are being fixed;

(a) the amount claimed and the amount recovered in the proceeding;

(b) the apportionment of liability;

(d) the importance of the issues;

(e) the conduct of any party that tended to shorten or to lengthen unnecessarily the duration of the proceeding;

(f) whether any step in the proceeding was,

(i) improper, vexatious or unnecessary, or

(ii) taken through negligence, mistake or excessive caution;

(g) a party’s denial of or refusal to admit anything that should have been admitted;

(h) whether it is appropriate to award any costs or more than one set of costs where a party,

(i) commenced separate proceedings for claims that should have been made in one proceeding, or

(ii) in defending a proceeding separated unnecessarily from another party in the same interest or defended by a different lawyer; and

(i) Any other matter relevant to the question of costs.

14In Chin Pang v. Chin Pang, 2014 ONSC 585, Justice Price stated, at paragraphs [7] through [10]:

7An appropriate costs order balances two conflicting principles:

a) A blameless litigant who is successful in a proceeding should not be required to bear the costs of prosecuting or defending the proceeding.

b) Citizens should not be made to feel unduly hesitant to assert or defend their rights in court by the prospect that, if unsuccessful, they will be required to bear all the costs of their opponent.

8The Supreme Court of Canada has held that the ultimate objective in balancing these two principles is to ensure that the justice system works fairly and efficiently. See British Columbia (Minister of Forests) v. Okanagan Indian Band, 2003 SCC 71, [2003] 3 S.C.R. 371, at paras. 25-26.

9The entitlement to costs and the amount to be paid are “within the court’s discretion.” The court must exercise its discretion with due regard to the objectives of costs awards, and to rule 24(11) of the Family Law Rules, O. Reg. 114/99 (“FLR”), which sets out the factors that are relevant to how the objectives are best attained in the circumstances of a particular case.

10Historically, the court’s paramount consideration when awarding costs was indemnifying the successful party. More recently, the Supreme Court of Canada has stated that costs orders serve broader objectives in the administration of justice, including penalizing a party who has refused a reasonable settlement offer, and sanctioning unreasonable behaviour that increases the duration and expense of litigation, or is otherwise unreasonable or vexatious: “In short, it has become a routine matter for courts to employ the power to order costs as a tool in the furtherance of the efficient and orderly administration of justice.” See Okanagan, at para. 25.

15I agree with Justice Price’s succinct statements regarding costs orders and their purpose and objectives.

16To trigger full recovery costs a party must do as well or better than all the terms of any offer. See: Paranavitana v. Nanayakkara, 2010 ONSC 2257, [2010] O.J. No. 1566 (ONSC) and Rebiere v. Rebiere, 2015 ONSC 2129.

The Settlement

17To determine the level of success each party enjoyed in the result, the court must consider what each party claimed and the settlement to which they agreed.

18The parties’ MOS provide:

a) Derek’s claim for an unequal division of the Net Family Property (“NFP”) would be withdrawn;

b) Derek’s Dofasco Fund 2 pension and his Supplementary Retirement Income Plan (“SRIP”) would be divided pursuant to the Pension Benefits Act (“PBA”) specifically $56,057.76 would be transferred by way of rollover to Annette’s LIRA;

c) Derek’s Dofasco Fund 1 and Plan would be deemed to have a before tax value of $66,803.38 and an after tax value of $53,569.63 using a tax rate of 19.61% and included on Derek’s side of the NFP calculation;

d) Derek would pay an equalization payment of $23,000.00 to Annette;

e) Derek would pay retroactive spousal and child support of $7,500.00 for the period from separation to December 31, 2013 and $8,384.00 for the period from January 1, 2014 to April 1, 2015;

f) There would be no adjustment support payable, paid or tax treatment for the period from May 1, 2015 to August 31, 2015;

g) For 2015, Derek would pay Annette $2,000.00 as her share of the after tax cost of Derek’s Variable Compensation Payment (“VCP”) through his employment;

h) The parties’ incomes for support purposes were $26,000.00 for Annette and for Derek his line 150 income minus the VCP;

i) Commencing September 1, 2015 Derek agreed to pay monthly child support to Annette of $654.00 for their son, Robert Gordon Walters, born May 19, 1996 (“Bobby”);

j) Commencing September 1, 2015 the parties agreed to share in proportion to income Bobby’s special or extraordinary expenses and his education expenses proportionately only after his own contribution is taken into account;

k) Commencing September 1, 2015 Derek agreed to pay spousal support to Annette in the amount of $943.00 per month based on his income of $71,690.00 and her income of $26,000.00;

l) Commencing in 2016 and annually thereafter, Derek’s VCP will be divided each year within ten days of his receipt of it by paying 25% of the gross amount to Annette;

m) Once child support is no longer payable, Derek will pay spousal support of $1,465.00 commencing the first day of the month following the end of child support;

n) If requested, and commencing May 15, 2016 and annually thereafter the parties will exchange their income tax returns, all schedules and attachments and the notice of assessment and reassessment within ten days of receipt so long as Derek is obliged to pay support;

o) Derek would maintain Bobby as beneficiary on his extended medical benefits plan as long as Bobby is entitled to support and maintain Bobby and Annette as sole beneficiaries of his life insurance policy available through employment so long as one or both of them is entitled to support; and,

p) Spousal support may be varied upon a material change of circumstances and, specifically, Derek’s retirement before the age of sixty will not constitute a material change of circumstances unless he is forced into retirement for reasons beyond his control. If Derek retires after age sixty, this event shall be a material change of circumstances given rise to review a variation of spousal support.

Pleadings

19Annette claimed:

a) Child support and a sharing of s. 7 expenses both prospectively and retroactively;

b) Spousal support in the high range of the Spousal Support Advisory Guidelines (“SSAG”) both prospectively and retroactively;

c) That Derek maintain life insurance to secure the child and spousal support obligations and maintain benefit coverage for Annette and the children through his employment;

d) An equalization of net family property;

e) An order requiring Derek to value his employment pension; and,

f) Annual financial disclosure from Derek.

20Derek claimed:

a) A dismissal of Annette’s claim for spousal support and her claim for retroactive child support;

b) An unequal division of the net family property; and,

c) An order requiring Annette to value her business.

Parties’ Positions on Costs

21Annette states at Paragraph 2 of her costs submissions:

The Walters case was simple: Annette, who had been in a long term marriage, sought support and equalization. Then, the case exploded into an expensive make work project where Derek accused her of fraud and other dishonest behaviour and claimed an unequal division. An inordinate amount of time was spent trying to answer Derek’s unreasonable disclosure demands. On the eve of trial, Derek withdrew his claim for unequal division. He should bear the costs consequences of his bad faith and unreasonable actions.

22At Paragraph 6, Annette states she seeks costs on a full recovery basis because among other things:

i. The parties have an obligation to prosecute their cases in a cost effective manner;

ii. Derek accused Annette of fraud and dishonesty which were untrue and unproven;

iii. Derek claimed an unequal division with no evidence to support his claim;

iv. Derek acted in bad faith;

v. Derek dragged out the proceedings;

vi. Derek’s behaviour dramatically increased costs;

vii. Derek should have accepted at least parts of Annette’s offers;

viii. Derek behaved unreasonably; and

ix. After 2 years of expensive litigation, Derek formally withdrew his claim from unequal division. Significantly, he did not withdraw the allegations of fraud and dishonesty which he and Andrea Neuenhagen made against Annette.

23At paragraph 15 and 16, Annette states:

The primary objective of the family law rules is to enable the court to deal with cases justly, which includes saving expense and time. Parties and their lawyers are required to help the court to promote the primary objective. Courts have an obligation to promote the primary objective.

Unfortunately, Derek’s behaviour from the beginning of the proceedings made it impossible for Annette, her lawyer, and the court to promote the primary objective. Derek should bear the costs consequences of failing to keep the case within the parameters of its complexity.

24Derek states in his submissions at Paragraph 15:

The contentious issues in this case were child support (including s. 7 expenses) and spousal support (retroactive and ongoing) and the equalization of net family property.

25Derek also states at Paragraph 17 the theory of his case was that there was some value to Annette’s business and that Annette was earning more than her stated income.

26At paragraphs 67 and 68, Derek states:

One of Derek’s theories in the case was that Annette was surreptitiously diverting matrimonial funds to the business. By not ascribing a value to the business not only would the value of Annette’s property decrease, but the amount of joint funds to be divided would have decreased as well. The theory would be one factor leading towards the argument that equalizing the net family properties would be unconscionable, having regard to personal debts or other liabilities claimed in reduction of a spouses’ net family property were incurred recklessly or in bad faith.

There have been many anomalies in Annette’s evidence causing suspicion about her financial circumstances. As a result, it is the Respondent’s submission that Derek’s request for disclosure was appropriate. Once all the information was received, Mr. Joslin was able to confirm his satisfaction with the disclosure and Derek was able to make some decisions about the case. These decisions should have been able to be made well in advance of when they were had Annette provided the disclosure years ago when requested to do so.

27It is not clear to me the basis upon which Derek seeks costs except that he states that success is divided between the parties because they settled the matter and that Annette acted unreasonably by not producing the financial disclosure he requested.

28It would appear that Derek is seeking full indemnity costs, upon review of the accounts produced by Ms. Williams totaling $36,503.27 plus reductions of $3,975.86 which she states should not apply to Annette and disbursements of approximately $2,900.00. Derek seeks $40,000.00 for the action and $5,000.00 for preparation of the costs submission.

Offers of Settlement

29A determination of the level of success enjoyed by a party requires a consideration of the efforts that party made to resolve the matter by way of offers of settlement.

Annette’s Offers of Settlement

30Annette served two offers dated April 15, 2015 and July 31, 2015. Both offers were severable.

31Annette submits that the parties’ final settlement was quite close to her offers. She acknowledged she settled for less than her offer of April 15, 2015. However, it was only marginally less. She submits the parties would have saved a lot of money in costs from April to August of 2015 had Derek accepted her offer. The minor reductions in the amounts which Derek paid Annette do not justify continuing the litigation for another four months and during this time Annette had to prepare for trial.

April 15, 2015

32Each provision in Annette’s offer was severable. Her offer provided:

a) Derek’s claim for an unequal division would be dismissed or subject to a motion for summary judgment at Derek’s option;

b) Derek’s Fund 2 and SRIP would be valued at $56,057.76 plus interest and divided pursuant to the PBA;

c) Derek’s Fund & Plan would be valued at $56,782.87, and, included as an asset for equalization purposes;

d) Derek would pay an equalization payment of $25,000.00;

e) Derek would pay retroactive spousal and child support in the amount of $10,000.00 without interest for the period from separation to December 31, 2013 and in the amount of $8,384.00 for the period from January 1, 2014 to April 1, 2015;

f) Annette’s income would be imputed to be $25,000.00 annually;

g) Derek’s income for support purposes would be his Line 150 income annually;

h) Derek’s VCP would be included in his Line 150 income;

i) Derek would pay child support for Bobby in the amount of $847.00 monthly;

j) Bobby’s s. 7 expenses would be shared in proportion to income after a contribution from Bobby was taken into account;

k) Derek would pay spousal support in the amount of $1,696.00 monthly;

l) Derek would maintain Bobby on his extended health plan through employment;

m) Derek would maintain life insurance for Bobby and Annette as security for the on-going support; and,

n) The retroactive support and equalization payment would be secured against Derek’s home.

33By July 31, 2015, the parties had settled a number of issues:

(a) Derek’s claim for unequal division was withdrawn on July 27, 2015;

(b) The parties had agreed Derek’s Fund 1 and Plan would be included on his NFP statement;

(c) Retroactive child and spousal support for the period of January 1, 2014 to April 1, 2015 was settled in the amount of $8,384.00;

(d) The parties had agreed Annette’s income would be imputed to be $26,000.00;

(e) Child support for Bobby and sharing of s. 7 expenses was settled in the monthly amount of $654.00;

(f) Spousal support was settled at $943.00 and increasing to $1,4585.00 when child support ends; and

(g) Extended medical for Bobby and life insurance for Bobby and Annette was settled.

34Of the remaining issues, Annette offered, on July 31, 2015:

(a) Derek would pay $24,000.00 to equalize the NFP;

(b) Derek’s Fund 2 and SR1P would be valued at $56,057.76 plus interest and divided per PBA;

(d) Retroactive child and spousal support for the period from separation to December 31, 2013 would be $7,500.00 without interest;

(e) Derek would not include his VCP in Line 150 income, but would give 25% of it to Annette annually; and

(f) Support period from May to August 2015 would not be varied and would be non-taxable.

35On the outstanding issues in Annette’s Offer dated July 31, 2015 the parties settled as follows:

(a) The equalization will be $23,000.00;

(b) Derek’s Fund 2 and SRIP will be valued at $56,057.76 plus interest and divided per PBA;

(d) Retroactive child and spousal support for the period from separation to December 31, 2013 would be $7,500.00 without interest;

(e) Derek will not include his VCP in Line 150 income and will provide 25% of it to Annette; and,

(f) Support paid from May to August 2015 would not be varied and would be non-taxable.

Derek’s Offers of Settlement

36Derek made four offers of settlement dated January 30, 2015; February 23, 2015; June 24, 2015 and a counter offer made by making amendments in writing to the offer provided by Annette. The counter offer is dated July 27, 2015.

January 30, 2015

37The offer dated January 30, 2015 provides:

a) Derek will pay spousal support to Annette of $1,500.00 per month as of February 1, 2015;

b) Derek retiring from full time employment will be considered a material change in circumstances;

c) There would be no ongoing child support paid by Derek to Annette;

d) There would be no retroactive support including s. 7 expenses payable by either party to the other;

e) Neither party would apply to the Canada Revenue Agency (“CRA”) to apply for tax relief for credits retroactively regarding support payments that had been made until January 31, 2015;

f) Derek’s pension through Dofasco would be divided to provide one-half of the Family Law value of his pension accumulated during the marriage;

g) There would be no other division of matrimonial property; and,

h) Each party would be responsible for their own costs.

February 23, 2015

38The offer dated February 23, 2015 is in the same terms as the January 30, 2015 offer except that the offer has two additional paragraphs:

a) Each party shall withdraw their application in court; and,

b) Each party shall be responsible for his or her own costs provided the offer is accepted within five days except that after that period of time, if the terms in this offer are accepted within sixty days the applicant shall pay to the respondent $15,000.00 and after sixty days the issue of costs will be determined by the court.

June 24, 2015

39The offer dated June 24, 2015 provides:

a) Derek will pay child support for Bobby, in the amount of $654.00 monthly commencing July 1, 2015 based upon Derek’s projected income for 2015 of $71,698.00 and Annette’s imputed income for 2015 of $28,000.00;

b) Derek will provide spousal support in the amount of $870.00 monthly commencing July 1, 2015;

c) Annette will provide evidence that Bobby is enrolled in post-secondary education full time including a transcript illustrating his grades so that Derek has evidence that the child attends and participates in his classes;

d) The amount of spousal support paid to Annette will change once Bobby is no longer entitled to child support. At that point, Derek will pay $1,306.00 per month commencing the first month after Bobby is no longer entitled to child support;

e) Derek’s retirement from full time employment will be considered a material change in circumstances;

f) Derek will pay Annette the sum of $200.00 per month commencing the first month after Bobby or any other dependent child of the marriage is no longer entitled to child support. This payment is for any arrears owing to Annette by Derek for retroactive child support, including s. 7 expenses and spousal support since the date of separation to June 28, 2015. This amount shall be considered to be spousal support and shall cease sixteen months after Derek starts paying the $200.00 per month;

g) The parties will share ongoing s. 7 expenses for Bobby on the basis that Derek shall pay 40%; Annette shall pay 30%; and Bobby shall pay 30%;

h) Any amounts requested of Derek to pay towards s. 7 expenses shall be incurred after June 24, 2015 and shall be forwarded to Derek within ten days of incurring the expenses. All expenses shall be verified in writing. Derek shall be entitled to pay for all expenses directly to the institution or individual to whom it is owed so that he may obtain a tax deduction for these expenses;

i) Annette shall disclose to Derek, Bobby’s income from employment, loans, scholarships and bursaries;

j) Annette will provide Bobby’s job search efforts. Should Bobby not be employed in the future during the summer months and not apply for eligible loans, scholarships and bursaries, Derek may have his percentage of contribution to s. 7 expenses reviewed;

k) Neither party would apply to CRA for tax relief or credits retroactively regarding support payments made up to August 31, 2015;

l) Derek’s pension (Fund 2 and SRIP) would be divided as in the other offers;

m) This offer includes a new provision dealing with the Fund 1 pension which would be payable to Annette when Derek receives his share of the money. Derek will direct the pension administrator to release Annette’s portion of these monies directly to her, when he is receipt of his pension;

n) There will be no other division of matrimonial property;

o) Derek will designate Annette as irrevocable beneficiary of life insurance through his employment until he no longer is responsible to pay support for her;

p) Each party shall withdraw their applications for all claims in court; and,

q) If the offer is accepted within five days there will be no order as to costs. If the offer is accepted within sixty days, Annette will pay Derek $15,000.00 in costs and if Annette accepts the offer after 60 days costs will be determined by the court.

July 27, 2015 Counter Offer to Annette’s April 15, 2015 Offer

40On July 27, 2015 Derek made a further offer by making hand-written amendments on the April 15, 2015 offer made by Annette.

41To put the counter offer in context it is necessary to repeat the terms of Annette’s offer.

42Annette’s offer provided that Derek’s pension of Fund 2 and SRIP would be divided pursuant to the PBA so that the sum of $56,056.76 before tax plus accrued interest from the date of separation to the date of transfer would be transferred into a LIRA for Annette. Derek’s pension Fund 1 and Plan will be deemed to have an after tax value of $56,782.87 according to Annette’s offer. Derek adjusted this value to $53,569.63 in his counter offer.

43Annette’s offer provided that Derek would pay an equalization payment to her of $25,000.00 without interest. He amended the equalization payment to be $14,500.00 without interest. He deleted the clause in Annette’s offer that the equalization payment would be secured by a charge against his home.

44Annette’s offer provided that Derek would pay retroactive child and spousal support in the sum of $10,000.00. Derek changed the number in his counter offer to $5,000.00 for the period from the date of separation to December 31, 2013.

45Derek did not change the clause that provided he would pay retroactive child and spousal support for the period from January 1, 2014 to April 1, 2015 fixed in the sum of $8,384.00 except that he added “within twelve months of the acceptance of this counter offer unless the time is extended by written agreement of the parties”. Again, Derek deleted the clause providing that the retroactive support payment will be secured by a charge against his home.

46Annette’s offer provided that her income would be imputed at $25,000.00. Derek changed this to $26,000.00. Annette had Line 150 income for Derek. He changed his income to be Line 150 less the VCP and wrote in: “the parties shall divide the husband’s VCP payment each year within ten days of the husband receiving it”.

47Annette offered that child support would begin on May 1, 2015 in the monthly amount of $847.00 for Bobby. This was changed by Derek to be commencing September 1, 2015 in the amount of $654.00.

48Derek also changed the commencement of sharing s. 7 expenses to September 1 rather than May 1. Annette’s offer was that the parties would share Bobby’s educational expenses proportionately only after Bobby’s own contribution to his own education. Derek changed Annette’s offer to provide: any invoice Derek is requested to pay shall be provided within ten days of the expense being incurred otherwise he does not have to contribute to it; Derek shall pay the service provider directly so he may receive the tax deduction; and no s. 7 expenses or child support shall be payable unless Annette substantiates that Bobby is enrolled and attending full time post-secondary education.

49Annette offered that spousal support would begin on May 1, 2015 in the amount of $1,696.00 per month. Derek changed this provision to be as of September 1, 2015 in the amount of $943.00 per month. Derek did not change the provision that he would maintain Bobby as beneficiary on his employment extended medical plans for so long as Bobby is entitled to the support. He did change the provision that he would maintain Bobby and Annette as sole beneficiaries of his life insurance for so long as one of them or both is entitled to support by adding “those policies available through employment.” Derek deleted the clause where Annette said he would pay costs to her of $35,000.00 and wrote in “each party would be responsible for their own costs and, in the alternative, costs shall be ruled on by Justice Lafrenière.”

50Derek deleted a clause in Annette’s offer that two thirds of the costs awarded to her would be enforced through the Family Responsibility Office (FRO);

51Derek added a clause providing that once child support is no longer payable, the husband shall pay the wife $1,485.00 per month commencing on the first day of the month following the end of child support. This support is described as taxable and is reviewable upon a material change of circumstances and Derek’s retirement shall be considered to be a material change of circumstances.

52Annette’s offer provided the payment of the costs would be secured by a charge against Derek’s home. Derek deleted this provision.

Conclusion with Respect to the Offers of Settlement

53None of Derek’s offers trigger any costs consequences. His offers were not severable so did not assist in resolving some of the issues, in the event, his offer was not acceptable in its entirety.

54In the settlement, Annette received more in retroactive spousal and child support than Derek ever offered. As well, she received more in equalization than Derek ever offered.

55Derek’s offers dated January 30, 2015 and February 23, 2015 provided no retroactive support at all.

56The offer dated June 24, 2015, provided a payment for retroactive child (including s.7 expenses) and spousal support limited to a total of $3,800.00 payable at the rate of $200.00 and not payable until Derek is no longer obliged to pay child support.

57In Derek’s counter offer dated July 27, 2015, he offered to pay $5,000.00 in retroactive support for the period from separation to December 31, 2013 and did not change Annette’s offer which provided he would pay $8,384.00 for the period from January 1, 2014 to April 15, 2015.

58The parties settled on $7,500.00 in retroactive support for the period from separation to December 31, 2013 and $8,384.00 for the period from January 1, 2014 to April 15, 2015.

59Derek’s offers dated January 30, 2015, February 23, 2015 and June 24, 2015 provided there would be no equalization payment. Derek’s counter offer provided an equalization payment of $14,500.00.

60The parties’ settlement provides Derek will pay an equalization payment of $23,000.00.

61Annette’s offers are very close to the final settlement, although it cannot be said that the consequences of Rule 18 are triggered because Annette did not do better than any one of her offers, but, I agree with Annette’s submission she is the successful party when the offers and the settlement are considered.

62A consideration of the offers exchanged leads me to conclude that Derek is not entitled to any costs as a result of his offers and that Annette is entitled to her costs as a result of her offers, but, she is not entitled to full indemnity costs.

Annette’s Allegation of Derek’s Bad Faith

63Annette seeks full recovery costs because Derek acted in bad faith by:

a) Making allegations of fraud and dishonesty against her, never proving them and never withdrawing them; and,

b) Pursuing irrelevant disclosure relentlessly even to the point of bringing a largely unsuccessful disclosure motion.

64Annette submits that the litigation process was unnecessarily prolonged and expensive because of Derek’s pursuit of financial disclosure in an effort to substantiate his meritless claims. The matter could not be set for trial because Derek would not agree that disclosure was complete.

65Annette submits that Derek’s bad faith is evident in his pleadings where he made a,

. . . completely unfounded claim for unequal division and he accused Annette of fraud and dishonesty by claiming that:

a. Annette . . . would divert matrimonial funds to her own gain/use during the marriage, thereby decreasing the value of the matrimonial assets at the date of separation and

b. He needed a valuation of Annette’s business “. . . so that he may share in the great success of her business. . . which was closed after separation in a surreptitious and secretive manner. See paragraph 38 of Annette’s submissions, emphasis in the original.

66These allegations were never proven by Derek. He withdrew his claim for an unequal division, but, he did not withdraw his allegations of fraud. Derek caused several affidavits to be filed which have injured Annette’s reputation.

67Annette submits that Derek never provided much detail of his allegations of fraud until July 29, 2014, when he filed a 51 page affidavit with 50 exhibits. He claimed Annette transferred $3,918.57 from the parties’ joint account into her business account. He also claimed in 2007 Annette had transferred some money from their joint account to pay charges on the business RBC visa. Derek’s claim for fraud was based on the transfer of about $4,000.00 from the parties’ joint account. Derek alleged Annette mismanaged the family’s funds as well in this affidavit. Annette submits the affidavit was inflammatory. It was also irrelevant because the parties’ credit cards, mortgage and bank account were all joint. Derek could have stopped the alleged mismanagement at any point during the marriage.

68Derek filed affidavits from his mother, Annette’s former friend, and his romantic partner, Andrea Neuenhagen (“Andrea”). Annette submits these affidavits added nothing to the proceedings because they contained double and triple hearsay and only inflamed the situation. These affidavits were very hurtful to Annette.

69The most egregious affidavit was Andrea’s affidavit, sworn July 22, 2014. Andrea accused Annette of business fraud stating that she had spoken with Kathy Feudo, Annette’s former business bookkeeper. Andrea claimed Ms. Feudo had altered the company accounting statements in order to mislead TICO, the governing body for travel businesses.

70Ms. Feudo filed an affidavit stating she had never spoken to Andrea and the statements attributed to her were false and ludicrous.

71Derek filed a further affidavit to support Andrea’s affidavit. He confirmed that he never spoke directly or indirectly with Kathy Feudo after he and Annette separated but he was relying on Andrea’s statements that she had spoken with Ms. Feudo. He attached as an exhibit his phone records in an effort to prove that Andrea had spoken with Ms. Feudo. Ms. Feudo had already indicated that Andrea had spoken with her husband, Anthony Feudo. The phone records prove nothing, perhaps Andrea spoke with Mr. Feudo again by phone

72Annette submits that the evidence from Andrea was not helpful but made the case more costly as she had to have her lawyer interview Ms. Feudo, prepare an affidavit and arrange the affidavit to be filed at court.

73Annette had already filed an affidavit by her former business partner, Victoria Lovett, refuting all claims of dishonest business practices. Instead of accepting Ms. Lovett’s admissible first hand evidence, Derek caused other affidavits to be filed by Andrea on December 19, 2014 and on February 13, 2015 in an effort to prop up her wrong and inadmissible evidence of July 2014.

74Derek retained Larry Joslin, an accountant who assisted him in prosecuting his claims against Annette. Mr. Joslin never spoke with Annette or Victoria Lovett or Kathy Feudo or the travel agency’s accountants or TICO. Mr. Joslin wrote a letter raising concerns about financial aspects of Annette’s travel business. Annette submits Mr. Joslin’s letter is replete with errors. As a result, Annette was put to a further effort and expense to trace the transactions which Mr. Joslin questioned and responded to him. Annette proved that Derek was well aware of all the transactions which he questioned. He had been present when Annette’s business cards were used for the family’s benefit. Derek was also aware that Annette then paid back the business from the parties’ joint account.

75Annette submits that in the end, all the allegations of fraud amounted to about $4,000.00 in spending which occurred with Derek’s knowledge and participation. He had been present when company cards were used for the benefit of him and the family and it made sense for Annette to pay back the business from the parties’ joint account.

76During the litigation, Derek transferred title of his home to Andrea for $23,558.00. He continues to live at that address.

77Annette submits that Derek completed the transfer knowing he would owe her substantial funds for retroactive support, perspective support and equalization. She submits that his transfer of title to his home is an act of bad faith. If the court awards costs, there is now no asset against which to enforce the costs order other than Derek’s pension when it comes into pay.

78At paragraph 51 of her submissions, Annette states, there can be no doubt that Derek’s actions were malicious and aimed at upsetting Annette and destroying her reputation. He maligned her in public documents and has never retracted any of the untruthful statements in the affidavits filed to support his outrageous claims. There can be no good reason for Derek’s dreadful behaviour. From the beginning, he could not prove fraud or the basis for an unequal division of the NFP.

79At paragraph 52 Annette submits the harm done to her can never be measured. The allegations against her filed in a public record will always be there for anyone to read, including TICO, Annette’s clients and the parties’ children. Annette had no money to bring a motion to strike out these affidavits. Derek must take ownership of the vicious attack on Annette’s reputation.

80At paragraph 53 Annette submits Derek has known Annette most of his life and all their accounts and debts were joint. He had an obligation to check his facts by retrieving jointly available records before making such outlandish claims against Annette. Derek’s actions must be sanctioned. It is appropriate for the court to find that he acted in bad faith and that he should pay Annette’s costs on a full recovery basis.

81Annette submits she behaved reasonably from the beginning. Her claims were appropriate and she was successful on virtually all of them. She served two offers, both of which were severable.

82Derek, Annette submits, behaved unreasonably and began this unreasonable behaviour by claiming an unequal division which had no hope of success. Instead of establishing his claim, Derek embarked on the disclosure quest to find some wrongdoing in Annette’s business accounting and proof that her income should be higher than $26,000.00 that she earned during the marriage.

83On July 30, 2014 Annette put Derek on notice that he was behaving unreasonably and claiming fraud would open the door to her claim for substantial indemnity costs.

84Derek was unreasonable in November 2014 when he responded to Annette’s motion to have the matter listed for trial by bringing a motion for further disclosure. In his cross motion, Derek claimed thirty nine heads of relief, a vast increase from the fourteen items he wanted only two months earlier. Annette submits that many of the disclosure requests were silly. For example, Derek wanted to account for all the baby bonuses she received during the marriage and he doggedly pursued page 2 of her car loan application which turned out to contain “irrelevant boiler plate”. When Derek brought his motion, Annette had already provided disclosure for thirty two of the thirty nine heads so claimed.

85In December 2014, Annette again asked Derek to be specific about the disclosure he thought was missing and put him on notice that his allegations of fraud would result in a claim of full indemnity costs against him. Derek did not respond and he pursued his motion.

86At the conclusion of the argument of January 30, 2015, Derek agreed there were only six heads of relief he was seeking. He could have made this submission in September 2014, long before the costs of the motions were incurred. Annette submits that my order granted Derek minimal disclosure and dismissed the vast majority of his motion.

87Annette’s motion, on the other hand, was completely successful without even being argued. On February 27, I set the matter down for trial and I made a finding that Annette had used reasonable efforts to locate some of the disclosure ordered on February 20 and, on consent, ordered Annette to provide the balance of disclosure from the bank.

88Annette served a severable offer to settle the motion on January 7, 2015. Derek would withdraw Andrea’s affidavits, disclosure would be deemed to be complete, Derek would choose one of two means to determine his claim for unequal division: a motion for summary judgment or trial; and, the case would be scheduled for trial.

89Annette submits her offer complies with the rules and her proposed settlement is similar to the outcome of the motion while Derek did receive some disclosure it was minimal and proved nothing. Annette was completely successful in scheduling a trial. Derek should have accepted her offer and should not have argued the motions.

90As late as June 11, 2015, Derek continued to seek disclosure which had already been provided. Annette responded that no further disclosure would be provided except as ordered. It had been costly to answer Derek’s latest round of disclosure requests and Annette would pursue her costs.

91On June 24, 2015, Derek continued to pursue his disclosure requests asking for disclosure he had already received or which was within his knowledge. For example, he wanted proof that Mr. Spirglaz, a lawyer, had, in fact, sent the bank draft to Fanshawe College in September 2011. The court can take judicial notice of the fact that Amanda would not have been able to graduate from college if money was owing to Fanshawe. Also, Derek agreed to the disposition of the matrimonial home proceeds in 2010, which included the money directed to Fanshawe.

92In addition to the exchange of letters between the lawyers in 2011, Derek was provided with a copy of the bank draft to Fanshawe. There was no need six weeks before the trial to be seeking this duplication of disclosure. Sadly, by doing so, Derek cast dispersions on Mr. Spirglaz, Annette submits.

93Annette submits that Derek’s behaviour in this case could not have been more unreasonable or more designed to drive up costs. He should be penalized for his behaviour. Annette also submits Derek’s unreasonable behaviour is further evidenced by his offers. He served three non-severable offers and a counter offer written on Annette’s offer of April 15, 2015, none of which carry positive costs consequences for him. She further submits he offered what the court could not order, the withdrawal of pleadings and signing of the separation agreement. Annette submits Derek’s offers are irrelevant to the costs submissions.

94Annette seeks to have any costs award enforced through the Family Responsibility Office.

Derek’s Response to Annette’s Claim of Bad Faith

95Derek states at paragraph 69:

Because Annette wound up a company that could have provided her with sufficient income to sustain herself, she may have been under-employing herself while making a claim for spousal support.

96At paragraph 31 Derek states:

The issue of fraud, using Annette’s language since Derek has never used this term, has never been adjudicated by the court.

97And then at paragraph 78, Derek states:

. . . Andrea Neuenhaben swore an affidavit on July 22, 2014 that the bookkeeper for Annette’s business, Kathy Feudo, admitted to altering the company accounting statements in order to mislead the governing body for travel agencies.

98At paragraph 80:

Annette would withhold information from Derek about the finances of the household. At times when Derek would request information from Annette about their financial affairs there would be periods of silence that could go on for several weeks at a time and/or Annette would withhold emotional and/or physical affection. When Derek attempted to take over the finances, Annette would have a temper tantrum or indicate she would get assistance and support in learning how to pay the bills.

99At paragraph 83, Derek states:

Annette swears on December 11, 2014 that sometimes personal spending was done on the business credit cards. Then these monies were always paid back to the company from our personal joint account. According to Annette, many times it would take months to pay the money back. This type of scenario makes this file much more complicated than usual, and requires full disclosure of the statements.

Analysis and Discussion Regarding Annette’s Allegation of Derek’s Bad Faith and Derek’s Allegation that Annette Behaved Unreasonably

100In Serra v. Serra, 2009 ONCA 395, [2009] O.J. No. 1905 at paragraph 8, the Ontario Court of Appeal confirmed that costs rules are designed to foster three important principles:

b. to partially indemnify successful litigants for the cost of litigation;

c. to encourage settlement; and

d. to discourage and sanction inappropriate behavior by litigants.

101Justice Perkins stated in Biant v. Sagoo, [2001] O.J. No. 3693 (S.C.J.) that:

The preferable approach in family law cases is to have cost recovery generally approach full recovery, so long as the successful arty has behaved reasonably and the costs claimed are proportional to the issues and the result.

102I agree with Justice Perkins.

103Subsection (b) of Family Law Rule 24(11) relates to the reasonableness of each party’s behavior in a case.

104In considering if a party acted reasonably, FLR 24 (5) directs the court to consider if a party served made an offer to settle and the reasonableness of any offer to settle.

105Rule 24 (5) provides that:

e. In deciding whether a party has behaved reasonably or unreasonably, the court shall examine,

f. the party’s behaviour in relation to the issues from the time they arose, including whether the party made an offer to settle;

g. the reasonableness of any offer the party made; and

h. any offer the party withdrew or failed to accept.

106 Rule 24 (8) is also relevant as Annette has alleged bad faith Derek. Rule 24 (8) provides that:

If a party has acted in bad faith, the court shall decide costs on a full recovery basis and shall order the party to pay them immediately.

107“Bad faith” in not defined in subrule 24(8).

108In Scipione v. Scipione, 2015 ONSC 5982, Justice Pazaratz considered “bad faith” pursuant to Rule 24(8). He began his analysis with reference to the case of S.(C) v. S.(C), [2007] O.J. No. 2164 (S.C.J.) where Justice Perkins defined “bad faith” as follows:

In order to come within the meaning of bad faith in subrule 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. At some point, a party could be found to be acting in bad faith when their litigation conduct has run the costs up so high that they must be taken to know their behaviour is causing the other party major financial harm without justification.

109Justice Pazaratz continued at paragraphs 95 through 102:

Bad faith is not synonymous with bad judgment or negligence; rather, it implies the conscious doing of a wrong because of dishonest purpose or moral obliquity. Bad faith involves intentional duplicity, obstruction or obfuscation: Children’s Aid Society of the Region of Peel v. F.(K.J.), 2009 ONCJ 252, [2009] O.J. No. 2348 (OCJ); Biddle v. Biddle, 2005); Leonardo v. Meloche, [2003] O.J. No. 1969 (SCJ); Hendry v. Martins, [2001] O.J. No. 1098 (SCJ).

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. The court can determine that there shall be full indemnity for only the piece of the litigation where bad faith was demonstrated. Stewart v. McKeown, 2012 ONCJ 644 (OCJ); F.D.M. v. K.O.W., 2015 ONCJ 94 (OCJ).

To establish bad faith the court must find some element of malice or intent to harm. Harrison v. Harrison, 2015 ONSC 2002.

Rule 24(8) requires a fairly high threshold of egregious behaviour, and as such a finding of bad faith is rarely made. S.(C.) v. S.(C.) (supra); Piskor v. Piskor, [2004] O.J. No. 796 (SCJ); Cozzi v. Smith, 2015 ONSC 3626 (SCJ).

Bad faith can be established by the intentional failure to fulfill an agreement in order to achieve an ulterior motive or, an intentional breach of court order with a view to achieving another purpose: Piskor v. Piskor, (supra); Erikson v. Erikson, [2000] O.J. No. 5789, 2000 CarswellOnt 5809 (SCJ); Hunt v. Hunt, [2001] O.J. No. 5111 (SCJ).

In Fard v. Fard, 30 R.F.L.(5th) 316 (SCJ) Campbell J. held that bad faith “trumped” a somewhat “divided success” since, without bad faith, the parties would have avoided the huge emotional and financial costs of the litigation and could have both “succeeded” by saving tens of thousands of dollars that they could have used for their own and their children’s benefits.

Even in the absence of bad faith, costs may be ordered on a full recovery basis and payable forthwith. Sims-Howarth v. Bilcliffe (2000), 6 R.F.L. (5th) 430

110I adopt Justice Pazaratz’s statement of law.

111Derek submits Annette “did not commence litigation until June 19, 2013, almost 4 years after the parties separated and certainly after a long time when date of marriage and date of separation assets and debts would no longer be easily accessible.” This statement is somewhat nonsensical.

112There is a clear attempt to suggest Annette waited to seek an equalization of the NFP until Derek would have difficulty establishing the value of her assets (the only asset being the business). Nothing was preventing Derek from commencing litigation.

113In fact, he was the moving party in the divorce application which resulted in the divorce order of August 2, 2011. It is more likely that Derek was not anxious to bring a claim for equalization because he knew he would be the payor. The parties sold their home and divided the proceeds before the litigation. The only remaining assets of any significance were Derek’s employment pension and Annette’s business (which she ran with a partner, Victoria Leavitt) that closed in a deficit position about 16 months after the parties separated.

114The significant point in the submissions is that Derek is talking about establishing if there was any value to Annette’s business. Derek submits that Annette had a positive obligation to provide a business valuation establishing the date of separation value of her business. I do not agree. Not every business must be valued. Parties often exchange disclosure and agree it is not worth spending the money on a business valuation.

115I refer again to the statements made by Derek in his costs submissions, at paragraphs 67 and 68:

116I do not agree with the conclusion that because Annette did not ascribe a value to her business “the amount of joint funds to be divided would have decreased as well”. The consequence to Annette’s position that her business had no value at date of separation is that she has less in net family property than Derek would have liked. It is obvious Annette’s business was never equal in value to Derek’s pension assets. The value (or lack thereof) of Annette’s business was going to factor into the amount Derek would pay to equalize the NFP.

117I do not understand the statement with respect to the theory leading towards the argument that equalizing the NFP would be unconscionable. This statement is a gross over simplification of the provision in the FLA. Further, the thrust of Derek’s argument was that Annette was diverting family money to the business not that she was incurring debts recklessly or in bad faith.

118Derek submits he has never used the term “fraud” and the issue has never been adjudicated by the court. Derek does use words like “surreptitiously” in reference to how the business closed. The word “surreptitiously” is defined as “by stealth; secret or unauthorized; or clandestine”. The word’s origin is from Middle English in the sense that something is obtained by “suppression of the truth”.

119Accusing Annette of diverting monies from the family to her business for her own gain is accusing her of fraudulent behaviour. Accusing Annette of falsifying documentation for TICO or instructing her bookkeeper to do so, is accusing her of fraudulent behaviour.

120The fraudulent nature of Annette’s alleged activities is what would allow a consideration of whether or not an equalization of the NFP would be unconscionable in the circumstances.

121Derek states the theory of his case was that there was some value to Annette’s business and she was earning more than her stated income.

122Whether or not there was a value to the business would impact the equalization calculation but does not justify a claim for an unequal division of the NFP.

123In Derek’s submissions, he glosses over the issue of his claim for an unequal division of the net family property. He has to be responsible for the costs incurred regarding a claim he eventually withdrew.

124Common sense tells me that, when people live together for twenty years raising three children and all of their bank accounts and debts are joint, they each have a fairly good understanding of the financial resources of the other. People in such circumstances would have a pretty good sense of their partner’s income, assets and debts and have a basis to believe whether or not their partner was stashing money away or recklessly depleting assets aimed at defeating or reducing the other’s equalization claim.

125Derek had access to the disclosure he needed to prove his claim Annette was diverting money from the family funds to her business. All of the banking records were joint. He could have secured them at any time he chose.

126I do not accept Derek’s assertion that Annette managed to secure a Diner’s Club Card in Derek’s name and accept the evidence of Annette that this card belonged to her business and was replaced by an American Express card in 1998, some 11 years before the parties separated.

127Derek sought to impute income to Annette in an amount greater than she ever earned during their relationship.

128Derek’s attempts to present his romantic partner as someone who should have credibility with the court serves to illustrate his misguided approach to this litigation. Under no circumstances, can Derek’s girlfriend be considered an independent witness. Furthermore, none of her purported evidence is reliable given that it is based on hearsay rather than firsthand information.

129Derek suggests in his evidence that Annette’s disclosure raised many “red flags”. Litigants may have suspicions, but, a prudent litigant will investigate those suspicions before taking an extreme position like claiming an unequal division of net family property.

130Derek made the claim before he did any investigation, I find. Derek should have looked at the joint account records to determine whether any money was being diverted from the family to her business. He could have reviewed the joint debt records for the same purpose.

131Derek must accept the consequences of the choices he has made in this litigation. Derek did not have to make a claim and then endeavour to prove it. He should have done his investigation in advance before he made the claim for an unequal division of the NFP. He should have made an assessment as to his chances of success with this extreme claim. He cannot expect to be able to withdraw such a claim shortly before trial without any costs consequences.

132Derek was put on notice that he was opening himself up to a claim for full indemnity costs because Annette believed his actions constituted bad faith. He should have considered the reasonableness of his stance in the litigation at that point.

133I reject Derek’s submission that he did not have sufficient disclosure to make this decision until July 2015. If Annette was diverting significant funds from the joint account, Derek should have been able to find evidence of it.

134Derek’s suggestion that the issue of fraud was not adjudicated is another example of his misguided approach to this litigation. He withdrew the claim; he cannot also rely on the fact that it did not proceed to trial, to defend himself against Annette’s claim for costs.

135I agree with Annette’s submission that this case was a simple straightforward case that became much more involved and costly than it needed to be.

136I find Derek’s actions were designed to embarrass and intimidate Annette and to wear her down, likely in the hope that litigation fatigue would lead her to agree to his proposals for settlement which initially meant Annette would receive no on-going or retroactive child and spousal support and no equalization payment.

137I find that Annette was not unreasonable in her positions on disclosure and that Derek is not entitled to costs as a result of Annette’s alleged failure to disclosure her financial circumstances. Similarly, I find that Annette has not behaved unreasonable such that her costs award should be impacted by this behaviour.

138In Scipione v. Del Sordo (Scipione), 2015 ONSC 5982, Justice Pazaratz stated, at paragraph [91]:

Where unfounded allegations significantly complicate a case or lengthen the trial process, this constitutes unreasonable behaviour relevant to the costs determination. Family law litigants are responsible and accountable for the positions they take during litigation. See Hackett v. Leung (2005), 22 R.F.L. (6th) 314 (ONSC); Katarzynski v. Katarzynski, 2012 ONCJ 393 (ONSC); and Toscano v. Toscano, 2015 ONSC 5499 (ONSC).

139I agree with Justice Pazaratz’s statement.

140I find Derek’s allegations against Annette were unfounded and complicated this case significantly. I find Derek’s behaviour constitutes bad faith and as a consequence Derek must pay Annette’s costs.

141Based on Annette’s success, her offers of settlement and Derek’s bad faith, Annette is entitled to her costs on a full recovery basis, I find.

142I have reviewed Annette’s Bill of Costs and am satisfied that it is reasonable and appropriate in all of the circumstances.

143My order is that Derek will pay Annette’s costs fixed in the sum of $75,058.98 plus applicable HST. These costs include the costs related to the motion determined by me. These costs are payable immediately.

144I find 50% of these costs relate to the spousal and child support claims and on that basis will be subject to a Support Deduction Order and enforceable through the Family Responsibility Office. I do not agree with Annette’s suggestion that 80% of the costs relate to support claims because the costs were significantly greater than they needed to be, I have already found, as a result of Annette having to defend Derek’s claim for an unequal division of the NFP.

Justice C. Lafrenière

Released: May 30, 2016