Court File and Parties
COURT FILE NO.: FC-18-FS000430-0000 DATE: February 16, 2022
ONTARIO
SUPERIOR COURT OF JUSTICE, FAMILY COURT
BETWEEN:
Linda “Susan” White, Applicant Vayia Ellsworth, for the Applicant
- and -
William Gerald White, Respondent G. Edward Lloyd, for the Respondent
Before: Nicole Tellier J.
RULING ON COSTS
Overview and Parties’ Positions
[1] This costs ruling arises from two related motions. In the main motion, the applicant wife (“Susan”) sought and was granted an order for the partition and sale of three jointly held properties and one in her sole name. She sought this relief under the Partition Act, in the context of a family law proceeding under the Divorce Act and the Family Law Act. The motion extended over three days followed by supplementary written submissions. Susan seeks costs on a full recovery basis in the sum of $84,006.46, inclusive of HST and disbursements for the main motion.
[2] Initially the respondent husband (“William”) resisted the sale of all four properties but by the end of the first day of the motion, he consented to the sale of two of them. The terms of those sales, other than the distribution of net sale proceeds including whether any hold back should be ordered, were ultimately resolved on consent as reflected in the endorsement and companion order dated April 16, 2021.
[3] The third motion date was scheduled for the adjudication of the sale of the two remaining properties, namely the farm and the woodlot. So, the main motion, initially scheduled for a half day extended over three days, albeit not all full days. After receiving further written submissions, the court reserved its decision. Costs submissions were deferred after the release of the ruling as a settlement conference was scheduled for October 2021.
[4] On November 5, 2021, the court heard Susan’s urgent motion to enforce the sale of the property the parties refer to as the farm. By then the woodlot had sold. A third party offer to purchase was open for acceptance amidst considerable other interest in the property. The prospective purchaser had extended his offer’s expiry more than once at the request of the parties, and then at William’s lawyers’ request during the argument of the enforcement motion. For this enforcement motion, Susan seeks costs, on a full recovery basis, in the sum of $11,475.00. plus HST.
[5] On the main motion, William submits that Susan was not totally successful, that she did not do better than her offer and that her conduct was unreasonable. He argues that the sum sought is excessive, based on a comparison of his own lawyer’s time in his Bill of Costs for his work during relevant time, and the principle of proportionality. He disputes the inclusion of fees and disbursements for the questioning.
[6] On the enforcement motion, William disputes the inclusion of costs for the time spent on negotiations for a potential buy out by William of Susan’s equitable share of the property about to be sold.
[7] Since the analytical framework for costs is the same for both related motions and the underlying facts, positions and conduct overlap both motions, the analysis under each shall be applied to both the main motion and the enforcement motion rather than rendering separate rulings for each event.
Analysis
General Principles
[8] As set out by the Ontario Court of Appeal in Mattina v Mattina, 2018 ONCA 867 at para. 10, modern family costs rules are aimed at fostering four fundamental purposes, namely: to partially indemnify successful litigants; to encourage settlement; to discourage and sanction inappropriate behaviour by litigants; and to ensure cases are dealt with justly.
Rule 24(1): Success
[9] The cost analysis begins with a consideration of the outcome on the motions. Pursuant to rule 24(1) of the Family Law Rules, the successful party is entitled to costs of a motion, enforcement, case, or appeal.
Main Motion
[10] Although all four properties were sold as requested by Susan, William argues that Susan was not entirely successful because her position on the motion was that she owned the woodlot solely and the ruling acknowledges that she was not the sole owner. That is incorrect.
[11] As noted in paragraph 3 of the ruling on the main motion, Susan acknowledged that she is the sole titled owner of the woodlot, but her position was that the property was beneficially owned by both parties. For that reason, she sought the court’s permission to sell it. Had she acted as if she were the sole owner, she was at liberty to sell it without her spouse’s or the court’s permission, as there was no preservation order prohibiting her from doing so. It is William who maintains that the woodlot was 100% beneficially his and that its value should be excluded entirely from the calculation of his net family property; that remains a triable issue for equalization purposes.
[12] Susan was 100% successful on the question of the sale of the four properties. As noted in the ruling, at the outset of the motion, William had not conceded that he had no defence to the sale of the matrimonial home or the farmhouse property. William disputes this finding in his costs submissions and asks the court to review paragraph 24 of his Factum for the main motion. It is disingenuous to submit that here William conceded the sale of the two properties. In this part of his factum he only agrees to the sale of the rented farmhouse in exchange for receiving the wood lot, in specie, for his sole benefit. His position on the sale of the matrimonial home in that same paragraph is that it must be delayed until he builds himself a new residence on the wood lot.
[13] In sum, in addition to resisting the sale of the farm, William’s position at paragraph 24 of his factum and at the outset of the motion was that he wished to continue to tie up 2 of their 3 other jointly owned properties: one permanently - the woodlot- where he would eventually live once his newly built dwelling was complete; and one indefinitely- the matrimonial home- so he could continue to live there, as he has since their separation, until he was ready to move into the new dwelling on the woodlot.
[14] Months earlier, in an endorsement dated January 7, 2022 arising form a settlement conference, Justice Malcolm memorialized William’s agreement to sell the farmhouse property and the woodlot, provided the latter was treated as joint property. Susan’s counsel prepared an order for the sale of these properties arising from that agreement reached before Malcom J. but William’s counsel refused to approve it, conveying that his client had retracted his consent to sell the woodlot. Hence Susan was forced to proceed with a partition motion. William’s position coming into the motion was even less favourable to Susan than the parties’ agreement Malcolm J. memorialized in her endorsement.
[15] After much travail, the court was able to calculate an appropriate hold back amount in favour of Susan. It is well established law that presumptively the parties are entitled to receive their equal shares of the sale proceeds. But this distribution is subject to each party's Divorce Act and Family Law Act claims, none of which had been resolved or adjudicated at the time of the motion, four years on from separation. Therefore, in the absence of agreement about how the proceeds should be distributed, the court is tasked with ensuring both parties’ trial positions are not prejudiced.
[16] In these types of cases, it is incumbent upon each party to make submissions regarding whether any hold back is needed to protect their respective unresolved claims and, if so, for how much and from whose one-half share. The hold back amount need not be precise; it is without prejudice to any final adjudication on the merits of all claims. But the court does require evidence to arrive at a fair amount to be preserved pending trial.
[17] Susan was hampered in her ability to work up the numbers to propose a reasonable hold back to be placed in trust because the factual information and documents she needed to generate such calculations were not all produced. She lacked back- up documentation for some of William’s net family property numbers and current income information, including information and proof about income William generated from his sole use of their lands.
[18] The distribution and possible hold back piece of the motion could only be argued after William was directed by the court to produce further documents that would allow Susan to calculate her occupation rent claims, a retroactive spousal support claim and any claim for or reconciliation of post-separation adjustments in relation to the maintenance of joint property, income generated from joint property and the service of joint debt.
[19] Susan was entitled to this disclosure earlier in any event, in relation to the remaining triable issues. This aspect of the motion was made more arduous for both Susan and the court since it is an obvious analysis and calculation that needs to be addressed as an integral part of the remedy on a motion for partition and sale, in the context of other family law claims. Many of these calculations and positions ought to have been further refined by both parties by this stage in their proceedings.
[20] The court scheduled a continuation of the motion to address the hold back issue. The court should have received documents and submissions on this issue from the outset so it could readily arrive at a fair estimate that protects the parties’ trial positions in a cost-efficient and timely manner. This motion was scheduled several months in advance of the hearing date and, notably, in an application that by then had been in the family justice system for three years, with not even disclosure issues fully resolved. Some of the calculations that informed the ordered hold back were partially agreed as we were able to work through some calculations together on the second day of the motion. But William maintained his position that none of the sale proceeds should be preserved pending trial. By this time, the court needed to schedule a third motion date to hear further argument on whether two of the parties’ properties were farms, within the meaning of the Family Law Act and, if so, whether that in turn defeated Susan’s pre-trial partition request. Both parties sought to file further evidence and written submissions.
[21] Susan was 100% successful on all elements of the motion. All four properties were ordered sold on terms and under court supervision. She received 100% of her equal share of the proceeds of each sale, when sold. Her offer proposed that $200,000.00 be distributed to each party but only after the fourth property sold, with the remaining proceeds being held in trust. In the result, only funds from William’s one- half share in the sum of $186,000.00 were ordered to be placed in trust, to secure Susan’s unresolved property and retroactive spousal support claims. Contrary to William’s submission, Susan was more successful than her offer.
Enforcement Motion
[22] Susan brought an urgent motion seeking an order to dispense with William’s consent to conclude a third-party purchase of their jointly owned farm property. The offer was for $605,000.00, a purchase price which proved Susan’s point on the main motion that an open sale would generate a significantly higher value than appraised value. It was unconditional and due to close in February 2022. It expired at 5:00PM on the day the motion was argued. William was defending the motion on the basis that he ought to be able to purchase the wife's interest based on the terms of his offer.
[23] The ruling on the main motion acknowledges William’s right to bid along with third-party purchasers so as not to deprive Susan of the best price, while preserving the possibility that he could keep the property. William and Susan received an offer for $605,000.00. William entered negotiations to try to purchase the property from his spouse over the course of next several days.
[24] William’s proposal was not equally or more favorable than the hard offer on the table from the third-party purchaser, largely because of its complexity and uncertainty. The reason for that is that William was working with a different purchase price and various assumptions or projections about capital gains tax liabilities for which neither party had a firm professional opinion or related calculations. He was essentially complicating the offer to purchase the land by incorporating unresolved equalization issues, while exposing the parties to a potential breach of contract claim from their real estate agent and requiring the parties to continue to be financially enmeshed for years to come.
[25] First, William did not want to purchase Susan’s equity based on the value of the $605,000.00 but rather on her net equity after deducting her potential capital gains tax liability, as calculated by him. Yet the amount of the capital gains liability was not agreed upon. In the correspondence exchange, William presented Susan with three different capital gains tax calculations.
[26] This term of his offer required Susan to execute an election under section 74.5(3)(b) of the Income Tax Act available to separating spouses in these circumstances to rollover her capital gains tax liability to him as part of the property transfer. By assuming Susan’s tax liability and deferring payment through a rollover, William would owe her much less to conclude the purchase.
[27] These rollovers are commonly done by agreement but here there was no consensus about the numbers or their effect. If William was to assume Susan’s capital gains liability, did this alter the equalization calculation? The materials before the court suggested the capital gains tax payable by each of them on the sale of this property might not be the same. Since the rollover delays triggering the tax on the gain, should this contingent liability be discounted because it is deferred? Did Susan want to trigger her gain now because she had losses, and this was a better, cleaner outcome for her? None of this had been worked out. Most importantly, Susan submitted there was the very likely possibility that William would not be liable for any capital gains at all on the final disposition of this property because of its status as a farm.
[28] In consideration for some potential CRA review or other claims down the road, William was offering a second mortgage in favour of Susan, to be postponed later in favor of a first mortgage to be capped at $250,000.
[29] During submissions counsel conveyed to the court that Susan’s clear instructions were to refuse any offer which entailed capital gains calculations, or a capital gains rollover made contemporaneously with the transfer of the property. This was based on advice from her accountant because the parties had yet to agree on what these numbers were or how they affected each of their positions on the remaining issues.
[30] The court had no evidence from any accountant or other financial professional providing a reliable calculation of the capital gains for each party, nor any agreement from the parties on how this affected their equalization, if at all. William submitted his lawyer’s calculations apparently based on various tax rates as found on the CRA website.
[31] Lastly, William’s offer to purchase included a real estate commission payable on the purchase price of Susan’s one-half share. It effectively reduced the real estate agent’s 4% commission payable on $605,000.00 in the sum of $24,200.00 to 4% of $429,000.00 or $9960.00, a reduction in her fee of $14,240.00 in her already reduced percentage fee. During submissions the court asked whether the agent’s agreement had been sought. The court was informed counsel for William suggested to counsel for Susan that Susan approach the agent about this deal and accepting this reduced fee, rather than him doing so, because of his client’s less than satisfactory relationship with the agent. The agent would need to be asked to let the solid offer from the third-party purchaser, from whom she had sought extensions, expire, and accept a significantly reduced fee.
[32] William’s other suggestion was that the parties let the offer for $605,000.00 expire, then either cancel or let the listing agreement expire and then let 90 days lapse before they conclude this deal between themselves, with no commission payable. This was intended to reduce or eliminate their exposure to a potential claim from the real estate agent who knew full well Susan was eager to accept the offer of $605,000.00. It would also delay the closing, but William was willing to pay some interest on the tied-up equity to compensate Susan.
[33] The court tried to assist the parties in negotiating a final binding inter-spousal transfer of the property. The court provided some suggestions and directed each party to undertake certain tasks while the matter was stood down. It was made clear that Susan would not entertain any offer which entailed capital gains calculations or assumptions. The court stated numerous times it was not in a position to embark on a discussion about tax issues or calculations in the absence of an agreement or proper evidence. Indeed, there was no time as the offer was due to expire at 5:00PM and the court had other matters. Nonetheless William kept pressing Susan to agree to a deal based on assumptions about capital gains liabilities and rollovers and pressing the court to compel her to do so. The court has no power to compel such a rollover. See Buttar v Buttar, 2013 ONCA 517.
[34] This exercise was reminiscent of the court’s effort during the main motion to get William to articulate his “alternative reasonable proposal” to selling the farm, as this was an important element of his section 11 argument. William came to the motion with no evidence more recent than 2017 about the farm operation and its profitability, no evidence regarding the value of the properties he sought to keep and no evidence about his capacity to purchase Susan’s interest. In both instances William waited too long to put together his proposals.
[35] In the face of a firm offer from a third-party purchaser, with a simple clean closing requiring little further paperwork by any of the parties, it was unreasonable of William him to come to court at the 11th hour hoping the court could bridge the gap between the parties and then fashion some binding inter-spousal transfer, all based on inadequate information and with unknown consequences in relation to their immediate listing agreement obligations or CRA obligations.
[36] During the motion, William ‘s counsel contacted the real estate agent, not to ask about possibly accepting a reduced commission as discussed, but to ask her to try to secure another extension from the prospective purchaser. He did this without advising Susan or the court that he was doing so. The purchaser agreed to another short extension and, as a result, the court made a scheduling order which afforded William more time to clarify and improve any offer to purchase Susan’s interest. The court delayed the effective date of the enforcement order to allow this to happen. In the end, the parties were unable to agree on terms for an inter-spousal transfer. Susan was completely successful on the enforcement motion.
Rule 24(4) and (5): The Conduct of the Successful Party
[37] Rule 24(4) operates to disentitle a successful party to costs if that party behaved unreasonably during the case. Not only might the successful party be deprived of some or all his or her costs but may also be required to pay all or part of the unsuccessful party’s costs.
[38] Rule 24(5) directs the court in assessing reasonableness to review the successful party’s offers, their reasonableness, and any offer they withdrew or failed to accept.
Main Motion and Enforcement Motion
[39] William contends that Susan’s conduct was unreasonable throughout these proceedings and her entitlement to costs should be reduced accordingly. He submits that: “She has, from the beginning, set out to conceal the true details of her financial position.” Both parties accuse the other of being in breach of Robertson J.’s disclosure order. On the limited evidence before me, it seems both parties have outstanding disclosure. On the main motion, the court has already made a finding that William’s disclosure was delayed. This impacted the court’s ability to adjudicate the issues before it, as elaborated above.
[40] The positions Susan advanced on the main motion were supported by the facts and the law. William insisted on seeking remedies that have been repeatedly rejected by the Court of Appeal. His request to shield two properties from immediate sale by relying on section 11 of the Family Law Act could not succeed on the facts before me, which included the farm’s chronic lack of profitability coupled with his failure to present a reasonable alternative proposal, that fit within the remedial powers under section 9 of the FLA.
[41] William submits that Susan did not do better than her offer to settle. Susan’s March 31, 2021 offer to settle provides for the sale of all 4 properties with a named agent and certain listing terms. She succeeded in achieving an order for their sale and the terms of listing were ultimately agreed to, including her named agent. The offer also provided that, upon completion of the sale of the fourth property, each party would receive an advance of $200,000.00 with the remaining funds placed in an interest being trust account. In the overall result, Susan did better than her offer since all of her share of the sale proceeds for all four properties were immediately payable to her upon sale and the hold back of $184,000.00 came immediately from William’s one-half share only.
[42] William’s offer dated April 16, 2021 only provided for the sale of the farmhouse, with a mutual right of first refusal. The net proceeds would be distributed to Susan to the credit of the action, but the remaining 3 properties would not be sold until trial. After several years in the family justice system, with no end in sight, it was reasonable for Susan to reject an offer that guaranteed a trial and continued to deny her access to her share of 3 of 4 jointly owned properties indefinitely and to pursue the remedies she did on the main motion.
[43] Susan continued to try to work with William to sell the farm property to him in the context of its sale on the open market. The capital gains tax, if any, in relation to the farm property ought to have been discussed and calculated long before William entered the bidding game, and he ought to have done so with a formal signed offer of purchase, with clear sale terms. While the actual capital gains tax liability would fluctuate based on the sale price, the adjusted cost base, the principles regarding the rollover and its effect on the equalization, could have been negotiated and agreed, subject to actual price once it was tested on the open market. Since it was William who sought to purchase Susan’s interest in this property, he bore the responsibility to figure this all out and ought to have done so much sooner.
[44] I conclude that Susan’s conduct in relation to the main motion was reasonable throughout and does not adversely impact her entitlement to costs or their quantum.
Section 24 (12) Factors
[45] Section 24(12) provides the framework for setting quantum. It directs a consideration of several factors, including each party’s behaviour and written offers to settle, which are addressed above, a part of the reasonableness analysis.
Main Motion
[46] The balance of the inquiry here is focused on the time spent, the number of lawyers and their rates. William’s counsel has produced a Bill of Costs, which he relies on to support his claim that Susan’s fees are excessive. His Bill of Costs, which includes work performed by a lawyer outside his office, is for $26,465.45 inclusive of HST and disbursements, which amounts to about 30% of Susan’s costs.
[47] The difficulty the court faces is that both parties’ Bills of Costs lack much detail in relation to the work performed or the dates such work was performed, although they do differentiate between work done before and after serving their respective offers. Susan’s lawyer’s Bill of Costs is notably lacking in detail. It has one long entry for all tasks prior to Susan’s offer to settle of March 31, 2021. for 80.8 hours of work and another long entry for 140.6 hours of work after that offer. In this digital age, more precise detail regarding dates and the time taken to perform a fully described task, is readily available and ought to be submitted to assist the court in assessing whether the total time spent is justified. This is particularly necessary when significant sums are being sought, as in the case here.
[48] In Beaver v Hill, 2018 ONCA 840 at para. 12, the Court of Appeal for Ontario held that proportionality and reasonableness are the touchtone considerations to be applied in fixing the amount of costs. The OCA goes on to reject the notion that full recovery or a close to full recovery approach is appropriate in most cases. Rule 18(4) is engaged here; Susan is entitled to full recovery from the date of her offer as all the conditions under that subrule have been met.
[49] The court must consider the relative complexity and importance of the issues at hand. Motions for partition in the family law context are essentially partial summary judgment motions resulting in a final order that significantly impacts the balance of the litigation. In order to determine whether a spouse’s presumptive right to partition ought to be granted, perhaps with terms, or deferred until trial, the court must assess, in a preliminary way, the strength of each party’s claims under the Divorce Act and the Family Law Act, based on the available evidence. This entails a close review of sworn financial statements, net family property statements, Divorcemate calculations, income tax returns, land appraisals, or other valuation documents and, of course, affidavits. Both parties filed hundreds of pages, excluding their lengthy facta and the law. This motion had the added complexity of William’s claimed section 11 remedy. The preparation and argument of this motion necessarily entailed considerable time and effort.
[50] That said, I find the overall number of hours spent on behalf of Susan could have been more economical. Therefore, I shall discount the principal lawyer’s hours by 25 percent. This effectively reduces her claimed hours before the offer from 80.8 to 60 rounded. When added to the work during that time frame performed by others, this amounts to $21,249.00. On this leg of the work, prior to the offer, using a recovery scale of 65 percent, costs are assessed at $14,000.00 rounded.
[51] The same percentage time reduction for work done following the offer, results in 105 hours of work. Additionally, William argues the time spent on the questioning and the related disbursement should be excluded. The questioning was not limited to cross-examinations on the affidavit material; in that sense it was a discovery in the action, which included such cross-examinations. Susan chose not to cross-examine William. Since the preparation for the questioning and the attendance on the questioning is all lumped together, I shall simply reduce this number by a further 10 hours and disallow the related disbursement. With a better breakdown or explanation, the court could have reduced these costs, while apportioning some of this cross-examination to the main motion, more accurately, if appropriate. For these remaining 95 hours, Susan is entitled to full recovery under rule 18(4), which equates to $30,910.00 plus time spent by others and a disbursement for title searches for a total of $32,000.00 rounded. Therefore, William shall pay Susan costs in the sum of $46,000.00 plus HST on the main motion.
Enforcement Motion
[52] The costs claimed in relation to the enforcement motion include time spent during the parties’ negotiations regarding William’s potential purchase of the arm. Had they been successful in overcoming the commission issue, and taken the time to determine the capital gains tax liability issue sooner, the proposed deal was intended to be a so called win/win, with both parties getting more cash out of the last remaining property. While the negotiations were no doubt frustrating and each party argues the other negotiated in bad faith, I find that Susan was genuinely trying to find a way to let William keep this last property, if fair terms could be agreed, and William was genuinely trying to find a creative solution that resulted in more money to both of them, while allowing him to keep the farm property.
[53] Susan’s lawyer’s Bill of Cost for this motion is much more detailed. The time spent negotiating a possible inter-spousal transfer occurred between October 5, 2021 and October 28, 2021. I accept William’s submission that the time spent, and fees incurred during this period fall outside the scope of the cost payable. This amounts to about $2400.00 of the total claimed.
[54] Susan’s counsel sought instructions to bring an urgent enforcement motion on October 28, 2021. The claimed costs from this period of work are about $9,000.00 but include further negotiations for a sale to William that could conceivably have benefitted Susan too. The problem is that William efforts to strike such a deal were too little, too late. And once it was made clear to him that his capital gains and rollover provisions were not acceptable, he should have proceeded with the third-party sale.
[55] The motion took much longer to hear because of William’s insistence that the court essentially fix and enforce his offer to purchase from Susan. Based on the work required for such a motion and the fact that it occupied the parties all day, I find that full recovery on time which excludes the negotiations amounts to approximately $7000.00. I assess Susan’s recovery on this motion at 80 percent for a total of $5600.00 plus HST.
Conclusion
[56] Based on the foregoing, Susan is entitled to costs for the main motion in the sum of $46,000.00. She is entitled to costs on the enforcement motion in the sum of $5600.00. These are both inclusive of disbursements. Therefore, the total costs payable by William to Susan are $51,600.00 plus HST for a total sum of $58,308.00. This sum shall be paid from the net proceeds of sale of the farm property or within 30 days, whichever occurs first.
Justice N. Tellier Date: February 16, 2022
COURT FILE NO.: FC-18-FS000430-0000 DATE: February 16, 2022 ONTARIO SUPERIOR COURT OF JUSTICE BETWEEN: Linda “Susan” White - and - William Gerald White RULING ON COSTS Nicole Tellier J. Released: February 16, 2022