COURT FILE NO.: FC-15-1538-1
DATE: 2021/01/05
SUPERIOR COURT OF JUSTICE – ONTARIO
RE: JULIE MARIE- JOSÉE LADEROUTE, Applicant
– and –
SCOTT EDWARD BIRRELL HEFFERNAN, Respondent
BEFORE: Madam Justice D.L. Summers
COUNSEL: Tanya C. Davies, for the Applicant
Frédéric P. Huard, for the Respondent
HEARD: In Writing
COSTS ENDORSEMENT
Overview
[1] This endorsement addresses the costs of an eighteen-day trial. Closing submissions were made in writing a month later. The applicant, Ms. Laderoute, sought to set aside two domestic contracts and obtain orders for the equalization of net family property, retroactive and ongoing child support and spousal support. I upheld both agreements and dismissed Ms. Laderoute’s application with costs payable to the respondent, Mr. Heffernan. My full reasons can be found at 2020 ONSC 1157.
[2] For the reasons that follow, I find it reasonable and proportionate that Ms. Laderoute pay costs of $53,750.
Background
[3] This litigation arose in the following factual context:
• The parties separated early in 2013 after a 23-year marriage. Mr. Heffernan was 50 years old. Ms. Laderoute was 44. The parties negotiated the terms of their agreement directly with one another.
• Mr. Heffernan hired a lawyer to prepare a formal comprehensive separation agreement. She also gave him independent legal advice. In May 2014, the parties signed their agreement before witnesses. Ms. Laderoute did not retain counsel and signed a waiver saying she was aware of her right to counsel, and that she understood the terms of the agreement. The agreement itself said the parties were satisfied with the financial disclosure provided.
• In September 2015, Mr. Heffernan sought an uncontested divorce. Ms. Laderoute retained counsel and filed an Answer seeking to set aside the separation agreement and to obtain orders for the equalization of net family property, child support and spousal support, both retroactive and ongoing. The key property issue was the value of Mr. Heffernan’s two pubs.
• On November 27, 2015, the parties signed an Amending Agreement. The agreement increased Ms. Laderoute’s annual income from $36,000 under the previous agreement to $52,000 for five years. Tips belonged to her. Each of Mr. Heffernan’s two pubs was to pay $26,000. If she wished, she had the option to continue working in the pubs thereafter. In the event either or both businesses failed, he agreed to continue payment personally. It was also agreed that Mr. Heffernan would be responsible for all costs for the children including s.7 expenses. Ms. Laderoute withdrew her Answer and the divorce order was granted. Both had independent legal advice.
• Ms. Laderoute left the workforce voluntarily in January 2016. Mr. Heffernan continued his payments.
• In May 2016, Ms. Laderoute brought this application to set aside both agreements. Her corollary claims were essentially the same as those she made in 2015.
• Both parties described their parenting arrangements after separation as “an open-door policy.” They wanted their children to be free to see either of them as they wished. By the time the case reached trial, the eldest child was 24 years old and completing her final year of teacher’s college. The two younger children were ages 20 and 17 years. Both were residing with Mr. Heffernan.
General Legal Principles
[4] The following legislation and legal principles apply to all cost awards under the Family Law Rules:[^1]
• Costs awards are discretionary. Section 131(1) of the Courts of Justice Act[^2] states that subject to the provisions of an act or rules of court, the costs of a proceeding or a step in a proceeding are in the discretion of the court and the court may determine by whom and to what extent the costs shall be paid.
• Reasonableness and proportionality are the “touchstone considerations” that guide the court’s discretion in fixing the amount of costs.[^3]
• The court must have regard to what is a fair and reasonable amount to be paid by the unsuccessful party considering the circumstances in a particular proceeding, rather than any exact measure of the actual costs to the successful litigant. In deciding what is fair and reasonable, the expectation of the parties concerning the quantum of a costs award is a relevant factor. [^4]
• Modern costs rules are designed to foster four fundamental purposes: (1) to partially indemnify successful litigants; (2) to encourage settlement; (3) to discourage and sanction inappropriate behaviour by litigants; and (4) to ensure that cases are dealt with justly under subrule 2(2) of the Family Law Rules.[^5]
Positions of the Parties
[5] Ms. Laderoute submits she should pay costs of $32,000 and that the amount be set-off against the remaining payments owed to her under the 2015 Amending Agreement. She says this would be a fair and proportionate amount considering what she submits was Mr. Heffernan’s unreasonable behaviour in relation to the shortcomings in his financial disclosure. She also asks that the court deny recovery for the cost of his expert and consider her limited ability to pay costs.
[6] Mr. Heffernan seeks full recovery costs of $102,603.73 for fees, disbursements and HST. Before tax, this amount breaks down to $88,258.65 in fees, $675.08 in disbursements and expert fees of $13,670.00. In addition to his success at trial, he submits that his offers to settle all trigger the full recovery cost consequences of rule 18(14).[^6] He further asserts that Ms. Laderoute behaved unreasonably and in bad faith.
Success
[7] Determining success is the starting point in a costs’ analysis.[^7] Here, there can be no doubt about Mr. Heffernan’s success at trial. Ms. Laderoute’s application was dismissed. He is presumptively entitled to costs under rule 24(1) unless rebutted under subrules 24(4) and (8), as argued below.[^8]
[8] Offers to settle are also a measure of success and significant in considering liability for costs as well as the amount payable.[^9] As will be seen, Mr. Heffernan was successful on both fronts.
Offers to Settle
[9] I turn now to consideration of subrules 18(14) and (16)[^10] and the settlement offers made by each party. Subrule (14) provides that a party who makes an offer is entitled to costs to the date of the offer and full recovery costs after that date, unless the court orders otherwise, 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.
[10] If subrule (14) does not apply, the court still has discretion under subrule 18(16) to consider the terms of any offer made in writing.[^11]
[11] Ms. Laderoute made two comprehensive offers to settle. Neither was reasonable nor indicative of compromise. Moreover, neither bore her signature contrary to the requirements of rule 18(4)[^12] that all offers must be signed by the party making the offer and their counsel.
[12] Ms. Laderoute’s first offer was dated August 1, 2018 and expired nine days later. It proposed a total payment of $392,000 plus interest under the Courts of Justice Act to settle property claims. To settle child and spousal support, no amounts were proposed – an omission that, in my view, rendered the offer incapable of acceptance. The support terms were open-ended and rife with uncertainty and provided only that amounts would be recalculated based on “estimated income from the date of separation onwards, up until the end of 2017” in accordance with the Child Support Guidelines[^13] and the Spousal Support Advisory Guidelines (SSAG).[^14] In this instance, even the date of the recalculation was an unknown as Ms. Laderoute challenged the date of separation stated in both agreements. Moreover, her offer did not indicate at what point in the range spousal support would be calculated nor did it address any of the complexities of child support considering two of the three children were already over the age of majority. In my view, the vagueness in the offer lent itself to further conflict rather than ending it. In addition, had the offer been accepted, it would have been impossible to enforce.
[13] Ms. Laderoute’s second offer of November 15, 2018 demonstrated even less willingness to compromise. Although this offer proposed specific amounts to settle the primary support and property issues, the total payment sought was even higher at $787,653 plus $3,750 per month for spousal support and 70% of Ms. Laderoute’s costs incurred to date. The offer did not quantify that amount.
[14] Mr. Heffernan made four formal offers to settle. Three of them were as favourable or more favourable to Ms. Laderoute than the outcome at trial. Mr. Heffernan’s efforts to resolve the case began early and continued into the trial itself. His offers increased in value, however, only one triggers the full recovery cost consequences of subrule 18(14).[^15]
[15] Mr. Heffernan’s first formal offer was dated November 13, 2018 and proposed the transfer of his Bank Street pub including equipment, fixtures and furniture. It stipulated that spousal support would end with the transfer, neither would pay child support to the other and Ms. Laderoute would take over responsibility for her own life insurance and health insurance premiums. This offer was open for acceptance for only a few days. The value of this offer was also unknown. Mr. Heffernan argued at trial, in the event the agreements were set aside, that the Bank Street pub had no value on the date of separation. Ms. Laderoute, on the other hand, believed the business had significant value. According to her expert, the Bank Street pub had a value of $314,000, however, his calculation was prepared as of December 31, 2015 – a date almost two years after separation. Mr. Heffernan has the burden of persuading me that this offer is as or more favourable to him than the outcome at trial.[^16] He has not persuaded me. I add two further considerations that bear on the reasonableness of the offer. Ms. Laderoute sought a monetary payment, not the transfer of a business that includes other responsibilities. I see this as a factor that detracts from what might otherwise be seen as an attractive offer. On the other hand, I consider that the offer also provided Ms. Laderoute with the option of self-employment – a situation that her position suggested might have appealed to her. She had years of work experience in the bar/restaurant business and said she was good at it.
[16] Mr. Heffernan’s second Rule 18 offer,[^17] dated November 26, 2018, proposed a lump sum payment of $40,000. The terms of the 2015 Amending Agreement would remain in effect, and each would bear their own costs. This offer was open for acceptance until one minute after the trial commenced and was not withdrawn. This is the only offer that triggers the full recovery cost consequences of rule 18(14), unless I order otherwise. It was made more than 7 days before trial, it was more advantageous to Ms. Laderoute than the outcome at trial, it was not accepted, and did not expire prior to the commencement of the hearing.
[17] Mr. Heffernan’s next offer was dated December 19, 2018. It included the same terms as the November 26th offer except he increased the lump sum payment from $40,000 to $80,000. This offer expired before trial.
[18] Mr. Heffernan’s last offer was made during the trial and dated January 23, 2019. There he proposed a payment of $150,000. All other terms were the same as in the previous offer except it did not include an expiry date. This offer remained open for acceptance throughout the trial and pending release of my decision.
[19] The last two offers do not trigger the costs consequences of Rule 18, however, they were markedly better for Ms. Laderoute than the outcome at trial and she should have accepted. I give them considerable weight in the exercise of my discretion under rule 18(16) and, in this regard, I also note Mr. Heffernan’s early proposal in a letter dated June 7, 2016. There, he offered to contribute $1,000 toward Ms. Laderoute’s legal fees if she withdrew her application. Even this proposal was more advantageous to her than the result at trial.
Bad Faith
[20] As part of the analysis, I must also consider to what extent, if any, the allegations of bad faith and unreasonable behaviour impact liability for costs.
[21] Rule 24(8)[^18] 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.
[22] Justice Pazaratz reviewed the law of bad faith in Scipione v. Del Sordo,[^19] as follows:
96 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. (I.J.), 2009 ONCJ 252, [2009] O.J. No. 2348 (OCJ); Biddle v. Biddle, 2005 CanLII 7660 (ON SC), 2005 CanLII 7660, [2005] O.J. No. 1056 (SCJ); Leonardo v. Meloche, 2003 CanLII 74500 (ON SC), [2003] O.J. No. 1969 (SCJ); Hendry v. Martins, [2001] O.J. No. 1098 (SCJ).
97 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, 2012 ONCJ 644 (OCJ); F.D.M. v. K.O.W., 2015 ONCJ 94 (OCJ).
98 To establish bad faith the court must find some element of malice or intent to harm. Harrison v. Harrison, 2015 ONSC 2002.
99 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 CanLII 5023 (ON SC), [2004] O.J. No. 796 (SCJ); Cozzi v. Smith, 2015 ONSC 3626 (SCJ).
[23] Mr. Heffernan accused Ms. Laderoute of bad faith behaviour for bringing her lawsuit in the first place. I do not agree. I found, as a fact, that both agreements were entered into without the benefit of disclosure regarding the value of Mr. Heffernan’s businesses, however, there were many other reasons that I did not exercise my discretion to set them aside. In the end, Ms. Laderoute’s decision to bring her application may have been ill-conceived and misguided but that, in my view, does not equate to bad faith.
Unreasonable Behaviour
[24] Each party alleges the other behaved unreasonably and seeks to engage rule 24(4) that allows the court to deny all or part of the successful party’s costs if that party behaved unreasonably or order that party to pay all or part of the unsuccessful party’s costs. To determine reasonableness, rule 24(5) directs the court to examine the following factors:
a. the party’s behaviour in relation to the issues from the time they arose, including whether the party made an offer to settle;
b. the reasonableness of any offer the party made; and
c. any offer the party withdrew or failed to accept.
[25] As discussed above, Mr. Heffernan tried several times to settle. His offers were reasonable, they increased in value, and Ms. Laderoute should have accepted one of them. On this issue, I regard Ms. Laderoute’s behaviour as less than reasonable. On the face of the offers exchanged, Ms. Laderoute’s position appears to have become more entrenched as the value of Mr. Heffernan’s proposals increased. Neither of her settlement offers were reasonable. In addition to at least one offer being incapable of acceptance, neither indicated compromise, or any genuine assessment of the weaknesses and risk in her case.
[26] Mr. Heffernan asserts that he always behaved reasonably and points to his compliance with the terms of both agreements, however, the conduct in question under the rule is that within the proceeding itself and not that of the litigant prior to the time the issues arose.[^20] In this regard, I consider Mr. Heffernan’s failure to make full and frank financial disclosure in this litigation in relation to his business interests to have been unreasonable.[^21] I found that Ms. Laderoute’s expert made numerous requests for information from Mr. Heffernan and his accountant over a period of some two and a half months. Some of it was provided, but not all, and Ms. Laderoute’s expert released his report without benefit of the documentation requested. I found that neither Mr. Heffernan nor his accountant had been as cooperative as they should have been. Among other considerations, this finding was made against the background of Mr. Heffernan’s agreement, as confirmed in Justice Parfett’s endorsement at the settlement conference on June 7, 2017, that Ms. Laderoute’s business valuator could contact his accountant directly for information.
[27] Mr. Heffernan’s failure to provide full disclosure with respect to his businesses is not saved by his argument that it was open to Ms. Laderoute to bring a disclosure motion if she was not satisfied. He says her failure to do so was unreasonable. Not only was she given leave to do so at the case conference in July 2016, Justice Parfett’s endorsement also allowed for the return of the matter to her, if Ms. Laderoute’s business valuator encountered difficulty obtaining the information needed. Ms. Laderoute submits she did take steps to obtain an order for disclosure because she regarded compliance by Mr. Heffernan as unlikely. This is mere speculation by Ms. Laderoute, and I give it no weight. I also consider that it was unreasonable for Ms. Laderoute to have proceeded to trial without proper date of separation evidence of value regarding the key assets in dispute.
[28] Our Court of Appeal has repeatedly emphasized the importance of disclosure in family law and, in my view, never more clearly than Justice Benotto, in Roberts v. Roberts [^22] where she said:
11 The most basic obligation in family law is the duty to disclose financial information. This requirement is immediate and ongoing.
12 Failure to abide by this fundamental principle impedes the progress of the action, causes delay and generally acts to the disadvantage of the opposite party. It also impacts the administration of justice. Unnecessary judicial time is spent, and final adjudication is stalled.
13 Financial disclosure is automatic. It should not require court orders …. to obtain production.
[29] I conclude that Mr. Heffernan’s failure to meet his disclosure obligations in relation to his businesses was unreasonable and requires censure. I reduce my cost award accordingly.
The Amount to be Paid
[30] When determining the amount of costs to be paid, rule 24(12) of the Family Law Rules,[^23] requires the court to 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.
i. Each Party’s Behaviour
[31] I am satisfied that the issues in the case were important to the parties and the issues in the proceeding carried a degree of complexity. It was not a bifurcated trial, therefore, the parties had to present all evidence in one proceeding. Ms. Laderoute’s claim to set aside two domestic contracts required an in-depth look at the circumstances of each agreement. At the same time, without knowing whether the agreements would be set aside or not, each party had to present their cases on the support and property claims including business valuation evidence. On that issue, Ms. Laderoute challenged the qualifications of Mr. Heffernan’s witness to give opinion evidence in the area of business valuations. A voir dire was held, and I ruled that the witness was not qualified to testify.
[32] I find the approach taken by both parties to the business valuation issue was wanting and unreasonable. Mr. Heffernan should have known that his witness was not qualified just as he should have known it was unreasonable not to provide the financial documentation requested. Similarly, Ms. Laderoute should have known that a report valuing Mr. Heffernan’s businesses two years after the valuation date would be of no assistance to the court and should have known that a valuation date report would be required. While I do not condone Mr. Heffernan’s failure to provide the disclosure nor do I condone Ms. Laderoute’s decision to proceed with litigation in the absence of key evidence, I am of the view that both parties contributed to unnecessary trial time that could easily have been avoided.
[33] I add my observation with respect to Mr. Heffernan’s testimony and the difficulty he often had answering questions without also offering a long and frequently irrelevant story. For Ms. Laderoute’s part, counsel’s cross-examination of Mr. Heffernan was unfocused and prolonged.
ii. The Time Spent by Each Party, Including Legal Fees & the Number of Lawyers
[34] Ms. Laderoute submits that the time spent by Mr. Heffernan was excessive. I disagree. The Bill of Costs submitted covered the period from the spring of 2016 when the file began to April 22, 2020. It reflects fees for all steps in the proceeding including multiple conferences, a three-and-a-half-week trial, closing arguments in writing, and costs submissions. Mr. Heffernan had one senior lawyer working on his file along with one articling student who continued to be involved as an associate lawyer. The different hourly rate for each professional working on the file was reasonable and commensurate with their years of experience. In addition, the tasks performed by each were in line with their skills and rates. My review of Mr. Heffernan’s Bill of Costs indicates nothing excessive about it and note Ms. Laderoute’s failure to submit a Bill of Costs. Without evidence of her legal costs, it is impossible to assess what she might reasonably expect to pay in costs as the losing party.[^24]
iii. Written Offers to Settle Including Those That Do Not Meet the Requirements of Rule 18
[35] As stated, Mr. Heffernan’s offers, both formal and informal, were all reasonable and at least four of them were more favourable to Ms. Laderoute than the outcome at trial. All are worthy of considerable weight in the assessment of costs. By comparison, Ms. Laderoute’s offers were not reasonable or worthy of any weight.
iv. Expert Witness Fees
[36] Mr. Heffernan seeks $13,670 for the costs incurred with Mr. Kostaras to value his businesses. I do not allow recovery for this amount. The report was of no value and the witness was not qualified. It falls to Mr. Heffernan to bear this cost.
[37] In a related vein, Ms. Laderoute asserts that her liability for costs should be reduced to take into account the work required of her counsel to prepare for the voir dire. The absence of a Bill of Costs from her makes it impossible to even consider this request.
v. Other Expenses Properly Paid
[38] The other expenses sought by Mr. Heffernan are in the nature of routine disbursements totalling $675.08 including HST. These expenses were not challenged and are allowed.
[39] Finally, I consider Ms. Laderoute’s submission that she does not have the ability to pay a costs award. She says she was recently diagnosed with retinal degenerative disease. She does not provide independent evidence of the diagnosis or specify the particular form that the disease takes with her. She says her employment prospects are non-existent but does not offer any evidence that she has been looking for work.
[40] It is settled law that the court can consider the financial situation of the parties in setting the amount of costs to be paid in a family law case, but limited means are unlikely to protect against liability for costs.[^25] Based on the financial statements provided by Ms. Laderoute in this litigation, she has equity in her house and savings of approximately $100,000. She was out of the workforce prior to trial but by choice. I am not satisfied that she is unable to work now and find she has the ability to pay costs.
[41] In the particular circumstances of this case, including Mr. Heffernan’s success, his various offers to settle, most importantly that of November 26, 2018 that triggers the cost consequences of rule 18(14), his failure to provide full financial disclosure, Ms. Laderoute’s failure to make reasonable offers, the less than reasonable behaviour demonstrated by both parties, Ms. Laderoute’s failure to submit her own Bill of Costs, and the primary purposes of a costs award, I find it reasonable and proportionate that Ms. Laderoute pay costs of $53,750.00. I arrive at this amount by allowing partial indemnity costs for the period prior to Mr. Heffernan’s November 26, 2018 offer, substantial indemnity thereafter including disbursements and HST, and then applied a reduction for the shortcomings in his financial disclosure. No amount was allowed for his expert witness.
[42] I decline to exercise my discretion under s. 111 of the Courts of Justice Act to order that costs be set off against the spousal support to be paid by Mr. Heffernan under the November 2015 Amending Agreement. Ms. Laderoute’s calculation of $32,000 is based on the gross amount without consideration to the income tax payable by her on this amount, the income tax deduction available to Mr. Heffernan or the difference in their respective tax rates. In these circumstances, I do not regard the proposed set-off as fair and reasonable.
[43] Ms. Laderoute shall have 45 days to make arrangements to pay this costs award in full.
Madam Justice D.L. Summers
Date: January 5, 2021
COURT FILE NO.: FC-15-1538-1
DATE: 2021/01/05
ONTARIO
SUPERIOR COURT OF JUSTICE
RE: JULIE MARIE-JOSÉE LADEROUTE, Applicant
- and –
SCOTT EDWARD BIRRELL
HEFFERNAN, Respondent
COSTS ENDORSEMENT
D.L. Summers J.
Released: January 5, 2021
[^1]: O. Reg. 114/99. [^2]: R.S.O. 1990, c. C.43. [^3]: Beaver v. Hill, 2018 ONCA 840, at para. 12. [^4]: Boucher v. Public Accountants Council (Ontario), (2004), 2004 CanLII 14579 (ON CA), 71 O.R. (3d) 291 (Ont. C.A.), at paras. 24, 37, 38. [^5]: Mattina v. Mattina, 2018 ONCA 86 at para. 10. [^6]: Supra, note 1. [^7]: Supra, note 5, at para. 13, citing Sims-Howarth v. Bilcliffe (2000), 2000 CanLII 22584 (ON SC), 6 R.F.L.(5th) 430 (Ont. S.C.J.) at para. 1. [^8]: Supra, note 1. [^9]: Osmar v. Osmar (2000), 2000 CanLII 20380 (ON SC), 8 R.F.L. (5th) 387, (Ont. S.C.J.). [^10]: Supra, note 1. [^11]: Supra, note 1. [^12]: Ibid. [^13]: S.O.R./97-175, as amended (“Guidelines”). [^14]: Spousal Support Advisory Guidelines (Ottawa: Dept. of Justice, 2008). [^15]: Supra, note 1. [^16]: Rule 18(15) supra, note 1. [^17]: Supra, note 1. [^18]: Ibid. [^19]: 2015 ONSC 5982, 68 R.F.L. (7th) 66. [^20]: Caldwell v. Caldwell, (2007), 2007 CanLII 8918 (ON SC), 51 R.F.L. (6th) 417 (Ont. S.C. J.). [^21]: Bautista v. Bautista, 2002 CanLII 46582 (Ont. S.C.J.). [^22]: 2015 ONCA 450, at paras. 11-13. [^23]: [^24]: Boucher, at note 4, cited with approval in Serra v. Serra, 2009 ONCA 395, 66 R.F.L. (6th) 40. [^25]: C.A.M. v. D.M. (2003), 2003 CanLII 18880 (ON CA), 67 O.R. (3d) 181 (Ont. C.A.) at para. 42; Murray v. Murray (2005), 2005 CanLII 46626 (ON CA), 79 O.R. (3d) 147 (Ont. C.A.) at para. 10.