Court File and Parties
COURT FILE NO.: FC-19-044-01
DATE: 20221117 CORRECTED DATE: 20221123
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Robert Clarke Lailey, Applicant
AND:
Shannon Kathleen Lailey, Respondent
BEFORE: J.P.L. McDermot J.
COUNSEL: Stephen J. Codas and Rachel Hill for the Applicant
Hilary Goodman, for the Respondent
HEARD: By written submissions
Corrected Endorsement: The text of the original Endorsement was corrected on November 23, 2022. A description of the correction is appended.
ENDORSEMENT on costs
[1] This endorsement considers the Respondent’s request for costs arising from a settlement of issues between these parties arrived at on July 5, 2022. That settlement arose in turn from a previous settlement of all of the parties’ issues dated April 16, 2021. The Applicant had also sought to set aside some of the provisions on spousal support in the original settlement because it had failed to address his inability to deduct the spousal support payments for tax purposes in the United States where he resides and pays taxes; those issues were also settled on July 5, 2022.
[2] By way of background, these parties had two older children attending high school and university. They separated on August 7, 2018. Although the parties had lived in Simcoe County up until separation, the Applicant largely worked in the United States. By January, 2020, the Applicant was no longer a resident of Canada for tax purposes. The Respondent remained in Canada.
[3] Mr. and Ms. Lailey settled their matrimonial litigation by way of Minutes of Settlement signed on April 16, 2021. These Minutes were reflected in the final consent order of Justice Boswell dated November 30, 2021. At the date of the signing, there remained significant disclosure issues and the support provisions in the Minutes were based upon the Applicant’s income being $468,000 per annum plus a $24,000 gross-up for rental paid by the Applicant’s employer. Because of the outstanding disclosure issues, the Minutes provided for an “out” in paragraphs 19 and 97 of the Final Order. Paragraph 19(a) of the final order states:
In the event the Applicant's 2019 Income Tax Returns support an income beyond $468,000, the child support section of this Agreement shall be reviewed within 14 days of receipt. In the event the Applicant does not increase his child support retroactive to July 2020 based on his income over $468,000, the Respondent may bring a motion on 7 days' notice to the Applicant or revisit this matter at the adjourned conference.
[4] When the Minutes were signed a settlement conference was scheduled for September 17, 2021. Paragraph 97 of the order (signed after September 17) addressed that date and the lack of disclosure:
All terms of this order are final, with the except of the child support terms. The child support terms shall be adjusted upon production of disclosure and upon a review of the 2020 incomes. The parties shall adjourn the Settlement Conference currently scheduled for March 26, 2021, to September 17, 2021. The conference judge will have the ability to enforce compliance with any outstanding terms outlined herein and make an order for retroactive and ongoing child support in accordance with the terms outlined herein. In the event all terms outlined herein have been completed and neither party files a case conference brief for the September 17, 2021 conference, then this order is final on all issues.
[5] The Respondent says that the Applicant failed to provide disclosure of his 2020 income, and she set it down for a conference on September 17, 2022 pursuant to the Minutes.[^1] The parties agreed to disclosure. The matter was adjourned to March 14, 2022. After that, there was evidence from the Respondent’s expert showing that the Applicant’s annual income was actually $693,509. The Respondent says that the Applicant never provided the disclosure that was ordered on September 17.
[6] The trial coordinator saw that the matter was settled and vacated the March 14 date and Applicant was told that it was vacated. He found out the matter was proceeding at the last minute and attended without counsel and without documentation other than a conference brief. It was adjourned to April 13, 2022 for a motion / conference.
[7] On April 13, 2022, the Applicant appeared with counsel, Mr. Codas. Mr. Codas provided the disclosure and brought a motion to set aside the final order on the basis of mistake insofar as Mr. Lailey was never told that his spousal support was not tax deductible in the U.S. I did address costs of the March 14 date brought due to the Applicant’s failure to disclose:
The Respondent shall have [her] costs of the appearance on March 14, 2022 as well as the costs related to the Applicant's default in providing disclosure and in failing to pay support, to be assessed and payable in the cause.
[8] I also noted that it was impossible to segregate the costs of the Applicant’s motion from the Respondent’s reasonable costs that day. Ms. Goodman was claiming $19,000 in costs that day.
[9] The parties settled their affairs on the return date of the matter on July 5, 2022 other than costs. Ms. Goodman filed written submissions requesting costs of $28,764.15 on a full recovery basis based upon her offer to settle, my order of April 13, 2022 and her client’s “success” on the motion.
[10] Mr. Codas provides costs submissions stating that his client’s costs were $34,157.05 inclusive of HST and disbursements but he suggests that no costs should be payable as success was divided.
Analysis
[11] Generally, costs are measured by a claimant’s success in the matter: see r. 24(1) of the Family Law Rules.[^2] That is, as well, the case with the endorsement from the appearance on April 13, 2022, where I ordered costs would be “in the cause.”
[12] It is difficult to measure success where the matter was settled. Mr. Codas submits that success was divided. He notes that although the income of Mr. Lailey was adjusted upward giving rise to an increase in child support, the spousal support was reduced due to an adjustment based upon the spousal support not being tax deductible to his client in the United States, something not taken into account in the original settlement. Therefore, he suggested that no costs be payable.
[13] Ms. Goodman on behalf of the Respondent says that her client was successful. She relies upon her offer to settle which was served on June 30, 2022. However, the Applicant also served an offer on June 28, 2022.
[14] Neither offer is wholly better than the settlement arrived at and therefore neither offer attracts the costs consequences set out in r. 18: see Paranavitana v. Nanayakkara, 2010 ONSC 2257, [2010] O.J. No. 1566 (S.C.J.); Rebiere v. Rebiere , 2015 ONSC 2129 and Scipione v Scipione , 2015 ONSC 5982. Both offers were genuine attempts to compromise on the issues which is important in assessing costs: see Beaver v. Hill, 2018 ONCA 840. However, only the Applicant’s offer was severable, something again important in the assessment of costs as the Applicant’s offer permitted acceptance of portions of the offers while the Respondent’s offer was “all or nothing”: see Paranavitana v. Nanayakkara, supra.
[15] The Respondent’s solicitor says that her client’s offer was closer to the negotiated result, thereby confirming her client’s success. Her costs submissions contained a chart comparing the offers of both of the parties with the result. That charge shows that several parts of both offers were not reflected in the eventual order that was made; however, the Respondent’s offer was equal to the result in the Applicant’s income amount to be used for support purposes[^3] and in the ongoing spousal support.[^4] The Respondent was also closer to the result in the amount of the overpayment of support[^5] and in disclosure.
[16] That chart indicates that both offers were extremely close to the result but I agree that the Respondent’s offer was closer to the settlement result. However, that is not the only factor as this was a settlement and not the result of an argued motion or hearing. Settlements do not attract costs consequences in the same manner as argued matters; in the case of an agreed-upon result, the concept of success is different. The case law indicates that the success of a negotiated settlement must be much clearer and more substantial than in the case of an argued matter to attract costs. The issue of success must indicate, in the wording of one case, a “clear capitulation” by one party to another: see Atkinson v. Houpt, 2017 ONCJ 316. Other cases have said that the measure of success for costs consequences must be “overall success”: Scipione v. Del Sordo, 2015 ONSC 5982.
[17] The reason for this is clear as pointed out in the latter case: in the course of negotiating a settlement, costs should not be permitted to hijack the process. If a party is negotiating while keeping his or her eyes on the terms of their offer, this impedes settlement for obvious reasons. A party conducting himself in this manner puts the cart before the horse and to place costs at the forefront of negotiations is an impediment to settlement and to be discouraged. As noted by Kurz J. in Frape v. Mastrokalos, 2017 ONCJ 915 adopting the words of Starr J. in Shute v. Shute, 2017 ONCJ 533:
Where a matter settles, the success and/or reasonableness of the conduct of the parties is a consideration but not the most important one. In such cases, the emphasis should be on discouraging inappropriate conduct and promoting settlement. Thus, instead of identifying a reason not to award costs, the court must identify a compelling reason to make an award.
[18] I adopt this reasoning. In reviewing the matter, both offers were reasonable in their terms and genuine offers to settle the matters. Concerning the issue of overall success, although the Respondent’s offer was closer to the amount of spousal support agreed to, it must be remembered that the overall result included a reduction of the spousal support amount in the original final order of $12,000 per month to $8,676 per month because of the issue of tax deductibility of support. There was no “clear capitulation” but a series of compromises giving rise to a reasonable settlement where both parties had a measure of success. Overall, and taking into account both motions and the positions of both parties, success was divided and, accordingly, costs can be, in the words of r. 24(8), apportioned as necessary.
[19] In doing this, however, I note that the Respondent instigated this proceeding because the Applicant did not provide disclosure as he was obliged to do under the November 30 order. Later, the Applicant did not provide disclosure as agreed to under the September 17, 2021 agreement. This is unreasonable behaviour on the part of the Applicant which resulted in the Respondent having to bring these proceedings. The Applicant should bear the costs for the Respondent’s having to bring the motion returnable on April 13, 2022 to enforce the order under para. 97 of the Boswell J. order. Disclosure was only made by the Applicant on April 13 and thereafter. The Applicant should bear the costs of the Respondent having to bring those proceedings due to the Applicant’s unreasonable behaviour and because he did not comply with the final order signed on November 30, 2021.
[20] The Applicant might respond by stating that he also had to bring proceedings because of the issue of tax deductibility. However, that was not the responsibility of the Respondent; it was not her fault that the Applicant did not consider the fact that support was not tax deductible to himself under U.S. law. And the reasonableness of the Respondent was shown when she agreed to negotiate that issue when it was raised by the Applicant.
[21] I am therefore going to apportion costs accordingly. There shall be an award of costs to the Respondent in the amount of $6,500 payable by the Applicant reflecting partial recovery costs of the appearances on March 13 and April 14, 2022 as well as the commencement of the second set of proceedings by the Respondent which she should not have had to do. Thereafter, there shall be no award of costs. Costs shall be payable within 60 days of this endorsement, failing which costs shall be collectable as support.
McDERMOT J.
Corrected Date: November 23, 2022
November 23, 2022 – Corrections:
Para 5, sentence 4 now reads: After that, there was evidence from the Respondent’s expert showing that the Applicant’s annual income was actually $693,509.
Para 15, 1st sentence now reads: The Respondent’s solicitor says that her client’s offer was closer to the negotiated result, thereby confirming her client’s success.
Para 17, 1st sentence now reads: The reason for this is clear as pointed out in the latter case: in the course of negotiating a settlement, costs should not be permitted to hijack the process.
Para 19, second sentence now reads: Later, the Applicant did not provide disclosure as agreed to under the September 17, 2021 agreement.
[^1]: The date of September 17, 2021 was long before the final order was signed on November 30, 2021. [^2]: O. Reg. 114/99 [^3]: The Respondent offered that the Applicant’s 2020 income would be set at $592,371 and the Applicant suggested setting it at $565,437. The Respondent’s figures was used in the settlement. [^4]: The Respondent offered ongoing spousal support at $8,676 per month while the Applicant suggested $8,391 per month. The Respondent’s figure was used in the settlement. [^5]: The Respondent offered an overpayment of $34,828. The chart says that the Applicant offered an overpayment of $95,811. The settlement provided that the overpayment was $46,328, closer to the Respondent’s figure. Mr. Codas says in his costs submissions that the overpayment offered by his client was only $51,747 and that this figure was closer to the settlement amount; however, the total of the two overpayment figures contained in para. 9 and 11 of the Applicant’s offer was $95,811 as set out in the Respondent’s comparative chart.