NEWMARKET COURT FILE NO.: FC-11-38665-00
DATE: 20190704
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
M.B.
Applicant
– AND –
S.B.B.
Respondent
K. Whitley, Counsel for the Applicant
H. Hansen/S. Beddoe, Counsels for the Respondent
HEARD: In Writing
RULING ON COSTS
McGee J.
Decision
[1] I grant M.B. costs for the period of August 2011 to May 2018 in the requested partial recovery amount of $750,000, inclusive of legal and valuation fees, disbursements and HST, as set out in his Bill of Costs totalling $1,109,945.21. His Bill of Costs does not include the costs of two parenting assessments, or outside counsel fees related to S.B.B.’s extensive disclosure requests.
[2] M.B.’s Bill of Costs spans almost an entire volume of the Continuing Record, is meticulously prepared, annotated and then adjusted for those events amongst the 19 attendances prior to trial that did not attract costs, such as conferences, or motions for which costs have already been assessed. Professional fees for expert reports were separately categorized with their own adjustments.
[3] The amount of $750,000 is proportionate and reasonable in relation to what S.B.B. has incurred in legal and valuation fees: at least $1.2 million dollars. Given M.B.’s success and reasonable litigation conduct, and S.B.B.’s unreasonable litigation behaviour with respect to parenting issues, support and equalization; I decline her counsel’s proposal that no costs be paid.
[4] M.B. also asks that $650,000 of the $750,000 in costs be attributed as support, not for enforcement purposes, but to protect it from an assignment in bankruptcy. After some consideration, I find this request to be outside the scope of section 1(1) (g) of the Family Responsibility and Support Arrears Enforcement Act[^1] 1996.
M.B. was the Successful Party
[5] M.B. was the successful party on this lengthy trial. He conducted himself reasonably and he obtained a final Order with terms that given the passage of time, are overall as favourable as, or more favourable than his Offers to Settle. Although S.B.B. was successful on a few limited issues, such as the disposition costs, the preponderance of trial time was spent on matters on which M.B. was overwhelmingly successful, such as his income for support purposes. I am therefore satisfied that pursuant to Rule 24(1) and Rule 18(14) he is presumptively entitled to his costs.
Purposes and Factors in Determining Costs
[6] Modern costs rules are designed to foster four fundamental purposes: to partially indemnify successful litigants; to encourage settlement, and to discourage and sanction inappropriate behaviour by litigants and, to ensure that cases are dealt with justly.[^2] Rule 24(12) of the Family Law Rules states that the factors to be considered when fixing an amount of costs are:
Setting Costs Amounts
(12) In setting the amount of costs, the court shall consider,
(a) the reasonableness and proportionality of each of the following factors as it relates to the importance and complexity of the issues:
(i) each party’s behaviour,
(ii) the time spent by each party,
(iii) any written offers to settle, including offers that do not meet the requirements of rule 18,
(iv) any legal fees, including the number of lawyers and their rates,
(v) any expert witness fees, including the number of experts and their rates,
(vi) any other expenses properly paid or payable; and
(b) any other relevant matter.
[7] In determining the appropriate quantum of costs, a court must carefully review the Rule 24(12) considerations while not being drawn into a line-by-line analysis. A balance must be struck. A costs claim is neither an invitation for the winner to name his or her price, nor judicial Monday morning quarterbacking of what steps ought to have been taken, and at what cost.
[8] Striking the right balance takes on even greater importance when the claim for costs spans many years. Last year’s amendments to Rule 24(11) specifically permit the court to award costs for events at a later stage in the proceeding. As cautioned by Justice Charney in Saunders v. Vargas,[^3]
While the amendment to Rule 24(11) confirms that the court is not precluded from awarding costs at a later stage in the case, this should not be seen as an open invitation to counsel to ask a judge to review the conduct of the opposing party at previous conferences or hearings before a different judge. There is a risk that cases will no longer be about the issues that brought the parties to court in the first place, but turn into conflicts about what happened in previous court appearances and conferences. Trying to reconstruct the conduct of previous hearings and conferences that took place before a different judge is not an efficient use of judicial resources.
[9] That risk in these proceedings is very real. Seven years of litigation have left the parties battle scarred and worn. Each blames the other for its prolongation.
Reasonableness of Each Party’s Behaviour
[10] To assess the reasonableness of each party’s litigation conduct, I first compare their Offers to Settle. Rule 18(14) provides that:
COSTS CONSEQUENCES OF FAILURE TO ACCEPT OFFER
(14) 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:
If the offer relates to a motion, it is made at least one day before the motion date.
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.
The offer does not expire and is not withdrawn before the hearing starts.
The offer is not accepted.
The party who made the offer obtains an order that is as favourable as or more favourable than the offer. O. Reg. 114/99, r. 18 (14).
[11] A party must do as well or better than all the terms of any Offer (or a severable section of an Offer[^4]) to receive a full recovery of costs. The court is not required to examine each term of the Offer as compared to the terms of the Order and weigh with microscopic precision the equivalence of the terms. What is required is a general assessment of the overall comparability of the Offer as contrasted with the Order.[^5]
[12] M.B.’s counsel provided a helpful chart comparing the terms within his two global Offers to Settle of February 7, 2013 and May 3, 2018 to the trial outcome. Although not exact, I am satisfied that each of those Offers contained terms for child and spousal support and equalization that if accepted at the time, would have provided overall, and in consideration of subsequent legal and professional fees incurred, a far more favourable result to S.B.B. than those ordered at trial, including the parties’ respective claims for proportionate sharing of section 7 claims, but for the costs of the Bar Mitzvah.[^6]
[13] M.B.’s income for support purposes was the dominant issue at trial. It and the parenting terms were the focus of the proceeding up to trial. M.B. was clearly more successful on the support and equalization issues, and in this regard, he beat his Offers by a considerable margin.
[14] Neither of M.B.’s Offers available for acceptance up to the start of trial contained severable terms.[^7] If those terms had been severable, a full recovery would have been available on the support and equalization terms in his Offers, per Rule 18(14).
[15] S.B.B.’s counsel argues that she ought not be subject to costs on the support issues because M.B. did not engage his valuator to conduct a comprehensive income valuation until March 2018.
[16] I do not accept this submission because the dispute over M.B.’s income was never about the adjustments to his employment income that were calculated in the March 2018 report. If this had been the issue, there ought to have been a resolution prior to trial. The add-backs and gross-ups that were identified for the first time in the March 2018 assessment of M.B.’s income were subsequently incorporated into his May 3, 2018 Offer and his position at trial.
[17] Those adjustments were of little interest to S.B.B. because at trial, and within her February 16, 2018 Offer to Settle, she seeks support based on income calculated as a measure of the profitability of the whole of the extended B. family’s corporate holdings, (despite M.B. only holding a 9.3 % minority shareholder interest;) plus the grossed up value of post-separation loans.
[18] S.B.B.’s position on how M.B.’s income should be calculated proved untenable at trial and she was unsuccessful. That lack of success has two consequences within this costs decision. First, the extensive disclosure requests necessary to her methodology increased the costs for which M.B. seeks recovery. Second, it undercuts her counsel’s submission that she should enjoy a mitigation of costs because of the late arrival[^8] of an income analysis on a methodology that she rejected throughout the proceeding.
[19] S.B.B.’s Offer dated February 16, 2018 was served the week before the trial was most recently to have been called. It is the only Offer that she made in this proceeding. I find that it contains unreasonable terms. No terms within her Offer came even close to the result at trial. A number of the proposed terms were unattainable.
[20] The reasonableness of the terms of her Offer matter because Rule 24(5) specifically provides that in deciding whether a party behaved reasonably or unreasonably, the court shall examine whether the party made an Offer, the reasonableness of any Offer made, and any Offer the party failed to accept.
[21] There are a number of other examples of S.B.B.’s unreasonable litigation conduct.
[22] I start with S.B.B.’s position on parenting, which I find to have been unreasonable from the very beginning of this litigation. In fact, S.B.B.’s gatekeeping of parenting time was the genesis of this Application and precluded any possibility of avoiding litigation.
[23] Plainly stated: at no time was it in the children’s best interests to have limited contact with their father. Two positive assessments later, and only on the eve of trial did S.B.B. finally agree to an Order for joint parenting. I accept M.B.’s counsel’s submission that right up to the first day of trial, he did not know whether he would need to call the assessor to testify.
[24] I find that S.B.B.’s litigation conduct on the parenting issues was not child centred, but instead, sought to cement her role as a primary care parent, while keeping M.B. and his family on the defensive. The children were exposed to a great number of unnecessary interventions and a remarkable amount of legal and professional fees were unnecessarily incurred.
[25] S.B.B.’s requests for disclosure in the year prior to trial proved to be overreaching, expensive and time-consuming.[^9] They were predicated on a view of M.B.’s income for support purposes that was in excess of anything that he had ever previously earned.
[26] When M.B.’s counsel asked for financial disclosure from S.B.B. to understand how she was able to fund her expenses, his requests were ignored. Some requests, such as for bank and credit card statements were never provided. The failure to provide this basic disclosure, while seeking extensive disclosure from M.B. is puzzling. Other documents were provided, but only just before trial. Those documents included the new information that S.B.B. had CRA arrears.
[27] Equally puzzling was S.B.B.’s position on the payment of equalization - which was manifestly unreasonable. Both of M.B.’s Offers proposed waiving the equalization, which was determined at trial to be $109,276.62. Rather than meet those terms, or compromise on other terms in consideration of the waiver, she pursued an Order that there was no equalization payment because a series of joint loans from her father reduced her net family property to zero. Considerable trial resources were deployed by S.B.B. to characterize historic, undocumented advances from her father as loans, without first checking with her father. He testified that he had no expectation of repayment.
[28] S.B.B. refused to acknowledge minor obligations, such as a promised reimbursement of the costs necessary to prepare the matrimonial home for sale. She hid from M.B. and his legal team the fact that her father had purchased a 2.3 million dollar home for her use, placing it into his girlfriend's name pursuant to a Nominee Agreement drafted by her step-father. Right up until the last day of trial she vacillated on the emotionally painful question of whether she would return M.B.’s deceased mother’s wedding ring.
[29] The pre-trial costs of this proceeding were significantly increased due to S.B.B.’s series of retainers with senior counsels, punctuated in 2017 and 2018 by periods of self-representation when she would miss deadlines and fail to complete necessary filings, such as a Net Family Property Statement. From 2013 to 2017 she did not provide updated disclosure. She successfully avoided the November 2017 and February 2018 trial sittings, increasing M.B.’s costs in having to prepare multiple times for trial. She did not appear at the February 3, 2017 Trial Scheduling Conference. Until just before the May 2018 trial, M.B. did not know what claims S.B.B. was making for section 7 expenses and post-separation adjustments.
[30] Throughout, M.B.’s voluntary support payments were generous. I found that he had overpaid table child support, section 7 expenses and net spousal support in the total amount of $61,095 while facing crippling CRA garnishments on account of an earlier, unrelated investment. He paid large amounts on behalf of the children that proved unrecoverable. He even agreed to pay support in cash when S.B.B. informed him that CRA had frozen her account (because she had not been paying the tax on her spousal support,) until she refused to acknowledge the payments.
Proportionality and Reasonableness of Fees and Work Performed by Each Party
[31] Even when a party has bested an Offer to Settle under Rule 18(14), the amount of costs assessed must meet the tests of proportionality and reasonableness in light of the importance and complexity of the issues at stake in the litigation.[^10] As emphasized by Justice Nordheimer in Beaver v. Hill[^11] “proportionality and reasonableness are the touchstone considerations to be applied in fixing the amount of costs.”
[32] I am satisfied that M.B.’s legal team generally performed their work at the lowest available rate within the firm: $275 to $625 per hour, with the bulk of the work completed at $450 per hour. Senior counsel’s time focussed on final document preparation and court attendances. I observe a solid correlation between the legal fees incurred and the importance or monetary value of the issues at stake in this proceeding.
[33] At the same time, there are some dockets which I back out of the costs calculation, such as a mock cross-examination, multi-counsel meetings with the client, duplicative communication between senior and junior counsel, or counsel and expert, and undifferentiated travel time. I also discount a great deal of the student time, not to discourage the employment of students, but to recognize the duplicative nature of preparatory work for which there is subsequent review and revision; and the general principle that costs are not recoverable for two counsel at trial.[^12]
[34] An important measure of whether costs claimed are fair, reasonable and proportional is to consider the amount of time and fees that the other party has incurred in the matter.[^13] Rule 24(12) clearly indicates that the time and fees spent by all parties is relevant to the analysis, and in my view, is particularly relevant when the fees expended by each party is in excess of what a reasonable person would expend on his or her own account. In a word, it provides context. One cannot complain of a million dollar claim for costs, when one has spent a million dollars in costs.
[35] S.B.B. did not prepare a Bill of Costs as invited by the court, but instead, prepared a two page document of the same title that identified only Ms. Hansen’s flat fee retainer of $450,000, inclusive of HST and disbursements of $20,020.64. Although the period of her retainer is not listed, I surmise from the court record that Ms. Hansen has been retained by S.B.B. since October 2017.
[36] The description of services is limited to: “[i]ncludes all work in relation to trial preparation, attendance at trial and written closing submissions.” The hourly rates of involved counsels are shown as ranging from $275 to $475 per hour. The claimed disbursements of $20,020.64 provide eight lines of information differentiating the fees for a process server, courier, court reporting, witness fees, flash drives and Uber rides.
[37] S.B.B. leaves the court to guess at what fees and disbursements she incurred from 2011 to 2018; and what time was spent on her matter after October 2017. Was there an undisclosed running account that was less than $450,000, capped at $450,000 or was the $450,000 a block fee for all-you-can-eat litigation?
[38] Ms. Hansen proposes that a fee breakdown within a Bill of Costs is only required if one is seeking costs. I disagree.
[39] Courts must deal with costs in a fair and reasonable manner. A party resisting an award of costs on the basis that it is not proportional or reasonable is obligated to assist the court in its analysis by providing submissions on his or her own expenditures. A resisting party’s failure to provide such details is a factor that the court may take into consideration when assessing the reasonable expectations of the losing party, and it may entitle the court to draw an adverse inference.[^14]
[40] Thanks to Ms. Whitely’s excellent detective work, I need not make an adverse inference within these reasons. She prepared a summary, supported by a brief of the tax deductible legal fees that S.B.B. reported to CRA in each of the taxation years of 2011 to 2017. Those fees, the known valuation fees, and the block fee of $470,020.64[^15] total $1,191,740.26 for the period of 2011 to 2018. Ms. Whitely’s calculations were not challenged by S.B.B. during oral arguments for costs.
[41] I cannot know whether S.B.B. incurred additional non-deductible legal and/or valuation fees prior to the flat fee retainer, or whether she consumed more, or less than $450,000 in fees during the period of the flat fee retainer. Regardless, it is reasonable to find that S.B.B. should expect to pay costs in the range of a million dollars because she has spent at least that amount on her own behalf.
$750,000 Award of Costs Granted
[42] After a detailed consideration of the Rule 24(12) factors, reasonableness and proportionality, I can find no basis to reduce M.B.’s claim for costs by more than the $359,945[^16] already proposed.
[43] Order to go that S.B.B. shall forthwith pay costs of $750,000 to M.B.
Modest Means
[44] S.B.B. argues that she is a “housewife” with no ability to pay an award of costs. She points to her May 9, 2019 Financial Statement showing no income but for a child tax credit[^17] and child support of $4,961 per month. Her stated annual expenses exclusive of housing total $95,136.84, and she has a current negative net worth of $362,650.16. Included in her expenses are CRA arrears, landscaping fees, accountant and appraisal fees, utilities and $1,800 to an Insolvency Trustee. Her stated debts do not include any amount for legal fees.
[45] The financial means of a party is a relevant factor when assessing costs, but they cannot be used as a shield against liability. Instead, financial means can be taken into account when considering the amount of costs,[^18] especially when it may affect a parent’s ability to provide for dependent children. But the impact of a costs Order on a parent’s ability to provide for a child cuts both ways. Inadequate reimbursement for costs already incurred may similarly impoverish a child residing in a successful parties’ [sic] household.[^19]
[46] M.B. and S.B.B. are now responsible for the care of their children in equal measure. In addition, and as set out in greater detail in my decision, their three children’s material needs will continue to be well met by their maternal and paternal grandfathers. The children reside in a 2.3 million dollar home a short drive from their private school. Annual vacations and post-secondary studies are a given. I have no concern that an award of costs will impact the children’s future financial well-being.
[47] I decline to further reduce the award of costs on the basis of S.B.B.’s financial means.
Should the Costs be Attributed as Support?
[48] M.B. asks that $650,000 of the $750,000 in costs be attributed as child and spousal support. M.B. seeks this Order because costs characterized as support will survive bankruptcy pursuant to section 178(1) (c) of the Bankruptcy Act.[^20]
[49] M.B does not ask that the $650,000 be enforced as support by the Family Responsibility Office. Neither does he ask that costs be set off against his monthly payment of child support, which will be his only financial obligation to S.B.B. until the mid-2020s[^21] because I have ordered that S.B.B. not receive any spousal support until the spousal support overpayment, equalization payment and the post-separation adjustments are paid, or set-off in full.[^22]
[50] Judges have a broad discretion to apportion costs related to the payment of support and to order enforcement of those costs by the Family Responsibility Office. The relevant sections of the Family Responsibility and Support Arrears Enforcement Act[^23] 1996 provide as follows:
"support order" means a provision in an order made in or outside of Ontario and enforceable in Ontario for the payment of money as support or maintenance, and includes a provision for,
(g) interest or the payment of legal fees or other expenses arising in relation to support or maintenance.
[51] The purpose of section 1(1) (g) is to support the efforts of dependant spouses, or parents who seek child support by creating a mechanism that recovers some or all of the costs necessary to obtain an Order. The court has discretion to allocate what portion of the costs are attributable to support, particularly when there are multiple issues being litigated.[^24]
[52] In Clark v. Clark,[^25] Justice Cronk of the Court of Appeal wrote that it was open to the court to designate a costs Order to be enforceable as "support" in accordance with section 1(1) (g) of the FRSAEA in any proceeding in which child and spousal support were central issues, provided that a claim for support had been made. In Clark, the trial judge had ordered that costs be enforced as spousal support to prevent the costs from being “anything more than illusory.” But because the costs recipient had never claimed spousal support, the Court of Appeal remedied the final Order to provide that costs were to be enforced as child support, even though it was a claim that the trial judge dismissed.
[53] Does the ratio in Clark survive when applied to a support payor? In 2014 Justice Chappel considered whether costs payable to a support payor could be enforced as support in Durso v. Mascherin,[^26]
Section 1(1) of the Act provides that a “support order” includes “interest or the payment of legal fees or other expenses arising in relation to support or maintenance…” The Respondent argues that an order for costs in favour of a support payor falls within this definition. I do not agree. In reaching this decision, I have considered the purpose of the Act, which is to address issues relating to the enforcement of orders for spousal and child support in favour of support recipients. The enforcement of costs orders in favour of payor spouses does not fall within the scope of this purpose. I have also considered the first part of the definition of “support order,” which refers to a provision in an order “for the payment of money as support.” The items listed in subparagraphs (a) to (f) of the definition of “support order” are all examples of provisions relating to support for recipients. A review of the definition in its entirety supports a conclusion that the reference to legal fees and other expenses referred to in subparagraph (g) was intended to relate to legal fees and expenses associated with obtaining an order for the payment of support.
[54] In Fielding v. Fielding[^27] Justice Monahan came to the same conclusion. He first reviewed the purposes of the FRSAEA and then the interpretation of “support Order” per section 1(1) (g). At paragraph 90 he writes: (my emphasis added)
I am unclear as to whether it is open to me to designate a costs order in favour of Craig as spousal support for purposes of the FRSAEA. Only where legal fees "aris[e] in relation to support or maintenance" is it open to the court to designate such fees as support. But because there is no support order in favour of Craig, the legal fees payable by Victoria to Craig do not relate to, or flow from, any underlying order for support or maintenance. Since Craig is a payor and not a recipient of support, it is difficult to see how a costs order in his favour can be characterized as relating or ancillary to support or maintenance. This interpretation of "support order" seems consistent with the overall purpose of the FRSAEA, which is to provide a scheme for the enforcement of support obligations of payors, as well as the support entitlements of recipients. Designating the costs order in favour of Craig as "support" could mean that the Director of FRO would be required to reduce the child or spousal support otherwise payable to Victoria, which seems at odds with this overall statutory purpose.
[55] I agree with Justices Chappel and Monahan that it is outside the scope of section 1(1) (g) of the FRSAEA to characterize as support, a costs award owing to a support payer.
[56] I have not been given submissions that there is any other basis on which I could characterize a costs award as support in a manner that would survive section 178(1) (c) of the Bankruptcy Act.
[57] I therefore decline to attribute as support any portion of the $750,000 award of costs.
Justice H. McGee
Date: July 4, 2019
[^1]: S.O. 1996, c.31 [^2]: Mattina v. Mattina, 2018 ONCA 867 [^3]: 2018 ONSJ 4531 [^4]: Scipione v. Scipione, 2015 ONSC 5982 [^5]: Wilson v. Kovalev, 2016 ONSC 163 [^6]: The terms for section 7 expenses in the Offers are more challenging to compare because at the earlier stages, private school funding was disputed between the parents, and then at trial, M.B.’s father stated that he would continue to pay the fees as a gift. Nonetheless, I find that overall, M.B. was more successful on the section 7 claims. [^7]: Although the latter was for the remaining financial issues only, with parenting terms having been addressed in the Offers of March 9, 2018 and April 11, 2018. [^8]: There is more complexity to the March 2018 valuation, in that the time line for receipt (and its response) was tied to the adjournment of the trial to the May 2018 sittings. I relate here only what supports my decision on costs. [^9]: M.B.B.’s counsel advises that at least five outside counsels had to be retained to fulfill corporate and third party disclosure undertakings. [^10]: Fielding v. Fielding 2019 ONSJ 833 at para 9 [^11]: 2018 ONCA 840 at para 12 [^12]: Sepiashvili v. Sepiashhviili, 2001 CanLII 25708 (ON SC), 2001 CarswellOnt 3459. The applicant’s legal team had two trial counsel and a student. The respondent’s legal team had two counsels. [^13]: Smith Estate v. Rotstein 2011 ONCA 491, Durbin v. Medina 2012 ONSC 640 and Scipione v. Del Sordo 2015 ONSC 5982 [^14]: Smith Estate; Scipione; 206637 Ontario Inc (c.o.b. Balkan Construction v. Catan Canada Inc.,) 2013 ONSC 5448 as cited in Thompson v. Drummond 2018 ONSC 4762 [^15]: $450,000 +$20,020.64 [^16]: $1,109,945 - $750,000 [^17]: Spousal Support being set off against equalization, child support overpayment and section 7 expenses per my final Order. [^18]: Luke v. Luke 2014 ONSC 422 [^19]: Emmerson v. Emmerson 2015 ONSC 2949 [^20]: R.S.C. 1985, c.B-3 [^21]: The final Order of November 21, 2018 grants at paragraph 365 that, “no spousal support is to be paid to S.B.B. until her obligations to M.B. for the spousal support overpayment, equalization payment and the post-separation adjustments under this final Order are discharged.” As set out in paragraph 363, there are some variables in the calculation of the exact number of months this will take. The example I set out would create a set-off period until June 30, 2027. [^22]: In the event that there is ambiguity as to whether the equalization payment can be assigned in bankruptcy, my use of the term “discharged” in the final Order means that the spousal support overpayment, equalization payment and the post-separation adjustments have been paid in full to M.B. either directly or by way of a set off against spousal support. [^23]: S.O. 1996, c.31 [^24]: Sordi v. Sordi 2011 ONCA 665 [^25]: 2014 ONCA 175 [^26]: 2014 ONSC 678 [^27]: 2019 ONSC 833