COURT FILE NO.: FS-16-0223 DATE: 2023 08 16

SUPERIOR COURT OF JUSTICE – ONTARIO

RE: W. S., Applicant

• and - P.I.A., Respondent

BEFORE: McGee J.

COUNSEL: Gary Gottlieb, for the Applicant Gary S. Joseph, for the Respondent

CORRECTED SUPPLEMENTAL COSTS ENDORSEMENT

Corrected decision: The text of the original reasons for decision was corrected on August 16, 2023 and the description of the correction is appended.

August 16, 2023: Paragraph 63 has been corrected.

Overview and Decision

[1] These reasons are supplemental to my costs endorsement dated January 4, 2022 in which I awarded the applicant father (“Mr. S”) $677,610 in costs, calculated as $140,000 of fees incurred prior to Trial, $70,000 for fees on the finding of contempt against the respondent mother (“Ms. A”) $370,000 in fees of the Trial, disbursements of $19,655, and HST thereon.

[2] Relevant to these supplemental reasons, I made a finding that Ms. A had acted in bad faith during the five-year period between the parties’ separation and the hearing of the Trial. I declined Ms. A’s request for a reduction based on her claim of modest means for reasons that included Ms. A’s “win at all costs” litigation strategy.

[3] I ordered that the $677,610 in costs was to be set off against the retroactive and ongoing net spousal support and the equalization payment that Mr. S had agreed to pay to Ms. A in Minutes of Settlement dated May 10, 2021 [1] (“the Minutes”) that had been executed just prior to the start of Trial. The balance of costs owing was payable forthwith. But for the set off amounts and a small amount of garnished funds, no payments have been made to satisfy the costs award.

[4] Set-off is relief available to a debtor whose obligation to pay monies arises from the same transaction (or a closely related transaction) in which she is owed monies. The debtor is permitted to deduct the amount of her claim from the debt she owes and then tender any balance of the debt. Section 111 of the Courts of Justice Act establishes a statutory basis for ordering a set off of debts as between parties. The Superior Court of Justice also has the authority to grant equitable set off relief by virtue of section 96(3) of the Courts of Justice Act.

[5] The Minutes provide for Mr. S. to pay $75,000 in retroactive child support and $20,000 in retroactive section 7 expenses to Ms. A. Section 7 expenses are a form of child support per section 7 of the Federal Child Support Guidelines. He asked in his earlier costs submissions that these two amounts also be set off against any costs owing.

[6] In my January 4, 2022 endorsement I declined to rule on Mr. S’s request for set off of the child support because I was not satisfied that the submissions from either party had fully addressed this request, and I was hopeful that a set off against child support would not prove necessary. In early 2022 the rise in the real estate market held the potential for Ms. A’s one-half share of the equity in the former matrimonial home located at 99 Elliot Street Brampton, Ontario (“the home”) to be sufficient to satisfy the remaining costs.

[7] Nonetheless, I gave leave in my January 4, 2022, endorsement for the claim to return to me on notice, should the remaining costs became unrecoverable for any reason, such as Ms. A declaring bankruptcy.

[8] The litigation continued. On December 17, 2021, the mother’s appeal of my decision was dismissed, and she was ordered to pay a further $25,000 to the father in costs. On June 27, 2022, a penalty of $10,000 was agreed to be paid by the mother to the father on the contempt finding. Throughout this period, Ms. A resisted the sale of the home. The sale of the home was also a term agreed by the parties in the May 10, 2021 Minutes. Ultimately, Mr. S had to take steps to enforce the sale. He was successful, and Ms. A was ordered to pay a further $7,500 in costs. None of these additional costs have been paid.

[9] On December 13, 2022 Ms. A made an Assignment in Bankruptcy. As a result, her joint ownership of the former matrimonial home passed to the Trustee.

[10] The Trustee and Mr. S cooperated in the sale of the home. Certain expenses had to be incurred for it to close and by the time of the sale, the market had dropped. When the sale finally closed on March 2, 2023, there were insufficient funds from the net sale proceeds to satisfy either the balance of the January 4, 2022 Costs Order, or the additional costs and penalty of $47,000.

[11] Mr. S’s claim for the set-off of retroactive child support and section 7 expenses against the costs owing to him now returns to me for determination.

[12] Mr. S. brings several other claims which for oral reasons given, I cannot determine at this time. For example, I cannot decide whether any ongoing child support should also be set off because there is no Order that Mr. S pay ongoing child support. The amount agreed to be paid in the Minutes was terminated effective September 9, 2021 when primary care of the parties’ two sons was transferred to Mr. S. Neither can I determine his claim that Ms. A pay her proportionate share of his section 7 expenses incurred for the boys since September 2021. This is not a Motion to Change.

[13] Ms. A opposes the request to set off child support against costs. She argues that the bankruptcy claims must be determined first, and that the child support should remain a protected amount payable to her directly. In effect, she hopes to be relieved of her obligation to pay costs to Mr. S as a discharged bankrupt, with the amount of child support owing to her untouched.

[14] For the reasons set out below, I grant Mr. S’s claim for set-off of the amounts of $75,000 and $20,000 owed by him for retroactive child support and section 7 expenses against the amount owing to him for costs.

Factual Background

[15] My reasons for decision in the Trial of this action and the contempt hearing can be found at S. v. A., 2021 ONSC 5976. Reasons on the dismissal of the appeal can be found at W.S. v. P.I.A., 2021 ONCA 923.

[16] The parties agree that approximately $729,000 is owing in costs to Mr. S, inclusive of interest. Ms. A has never made a voluntary payment against the costs owing. A small amount, in the range of $4,300 to $5,500 [2] has been garnished.

[17] On December 13, 2022, Ms. A made an Assignment in Bankruptcy with A. Farber & Partners (“the Trustee”). She assigned the costs Orders, including the costs ordered by the Court of Appeal, credit card and financing debt totaling approximately $75,000, CRA debt of $12,000; and $610,129 stated as owing to her brother, Peter & John. She has not listed the retroactive child support as an asset in the bankruptcy.

[18] Peter and John are Ms. A’s brothers, whom I found in my reasons to be her litigation allies. In addition, she assigns $260,639 in debt secured on the home to Zenaide and Jose Ferreira; for a total bankrupt estate of $1,674,843.

[19] In separate proceedings, Mr. S seeks to annul the bankruptcy as an abuse of process. A motion is anticipated for August 21, 2023. His counsel calculates that even if he is wholly successful, so that all of Ms. A’s one-half share of the sale proceeds from the home were paid to him, Ms. A would still owe him an amount of at least $118,751 in costs.

[20] The net sale proceeds for the home were only $620,731.36, less than anticipated were the home to have been sold earlier, or if it had been sold cooperatively with a shared goal of maximizing its value on the open market.

[21] The sale proceeds that were realized were divided evenly, with the sum of $310,365.68 being the Estate’s Share of the property. From the remaining half, only $210,365.68 was paid to Mr. S because there were last minute demands that monies be held back from his share as security for the retroactive child support and section 7 expenses. To make certain that the sale closed, Mr. S agreed that $100,000 (being the amount of $95,000 ($75,000 + $20,000) rounded up to account for interest) would be held in trust by the real estate lawyer.

[22] The obligation for $95,000 originates in the Minutes executed by the parties in the days leading up to the start of the May 2021 Trial. The Minutes are at the crux of this supplemental costs decision. They provide for Mr. S to pay to Ms. A:

a) $75,000 in retroactive child support, b) $20,000 in retroactive contributions towards the children's special or extraordinary expenses, c) $75,000 in retroactive spousal support, and d) $115,000 in equalization to be paid from Mr. S’s 50% share of the net sale proceeds of the matrimonial home located at 99 Elliot Street, Brampton, Ontario, L6Y 2J3 “in accordance with paragraphs 12 and 13 of the Minutes.”

[23] Paragraph 10 of the Minutes reads that, “[t]he parties' jointly owned matrimonial home shall be listed for sale forthwith with a mutually agreeable real estate agent. So long as the Applicant is current with his payments of support, the Respondent shall pay the carrying costs of the home.”

[24] Ms. A did not pay the property taxes after May 2021 and ceased paying the mortgage in November 2022. The total unpaid taxes on closing were $10,803.90. Outstanding utility debts on closing were $3,690.89.

[25] Paragraphs 12 and 13 of the Minutes provide:

12. The remaining net sale proceeds shall be divided as follows: (a) The Respondent shall receive 50% of the net sale proceeds, plus the sum of $285,000.00 (from the Applicant's share, calculated as follows: $75,000.00 retroactive table child support, plus $20,000.00 retroactive contribution towards children's special or extraordinary expenses, plus $75,000.00 retroactive spousal support, plus $115,000.00 equalization); and (b) The Applicant shall receive 50% of the net sale proceeds, less the sum of $285,000.00 referred to in subparagraph (a) above.

13. If the Applicant's 50% share of the net sale proceeds totals less than $285,000.00 after deducting the expenses listed in paragraph 11, then the Respondent shall receive her 50% share of the net sale proceeds.

[26] Section 97(3) of the Bankruptcy and Insolvency Act provides that the law of set-off or compensation applies to all claims made against the estate of a bankrupt.

ANALYSIS

[27] Ms. A makes a number of arguments against set-off.

a) Mr. S does not need the money given his current finances in comparison to those of Ms. A. b) Mr. S does not come to court with clean hands because he was in arrears at the time the Minutes were executed. c) Mr. S does not come to court with clean hands because he stopped paying monthly spousal support after receipt of the January 4, 2022 Costs Endorsement, and he has not paid any child support since the children settled into a shared parenting schedule.

[28] The recovery of monies owed pursuant to a court order is not a needs-based exercise. A court order is a court order. There is a legal obligation to pay the costs orders of the Superior Court of Justice and the Ontario Court of Appeal irrespective of the parties’ current means as represented.

[29] I do not find that Mr. S comes to court with unclean hands. The arrears agreed to be paid within the May 21, 2021 Minutes fully satisfied the claims. Specifically, the parties placed into writing that the amounts would be paid “in full and final satisfaction.” The monies were to be paid from the sale proceeds of the home. Ms. A then resisted the sale of the home. She cannot now assert that the failure to pay the arrears disentitles Mr. S to the relief of set off.

[30] Neither can Ms. A make an argument with respect to his termination of spousal support payments in February of 2022. Mr. S was permitted to stop paying spousal support within my January 4, 2022 Costs Endorsement because spousal support was ordered to be paid as a partial set-off against the costs award.

[31] Ms. A is correct that no ongoing child support has been paid by Mr. S since the children settled into a shared parenting schedule. Neither did Ms. A pay any child support while the children were in their father’s exclusive care. She has not contributed to their section 7 expenses since September 8, 2021. Those expenses include the counselling and therapy costs required as a term of her reintegration.

[32] Ongoing child support and the proportionate sharing of section 7 expenses are outstanding issues that must be decided in a Rule 15 Motion to Change. In fact, the parties agreed at paragraphs 4 and 5 of the Minutes to a process that will determine ongoing child support and section 7 expenses. I can consider neither Mr. S’s claim for section 7 expenses nor Ms. A’s claim for section 9 child support in this supplemental costs decision.

Set-Off Against Arrears of Child Support

[33] Since 2007, the Ontario Court of Appeal has held that costs awards in favour of a child support payor against the support recipient may be set off against arrears of child support owed by the payor: Burisch v. Gosal, 2007 ONCA 569.

[34] In M.B. v. A.F., 2021 ONCJ 45, Finlayson J. concluded that a costs order is a “debt” within the meaning of section 111 of the Courts of Justice Act, and that child support arrears owed to a recipient parent are likewise a debt owed to the recipient within the meaning of section 111. Accordingly, he held that a costs award in favour of the payor parent can be set off against child support arrears owed to a support recipient pursuant to section 111 of the Courts of Justice Act.

[35] The tests for the set-off of ongoing child support are less clear. Traditionally, courts drew a “bright white line” [3] around ongoing child support, considering it the right of the child, and thus unaffected by outstanding debts between the parties.

[36] However, the theory of the “bright white line” seems to have lost traction over time. Starting with Peers v. Poupore, 2008 ONCJ 615, Justice Spence declined to follow Walsh and exercised his discretion to order set-off of ongoing child support obligations. At paragraph 61, he stated that the imposition of a blanket prohibition against such set-off orders would in some cases “give a support recipient licence to litigate and act as unreasonably as he or she saw fit, possibly with complete impunity.”

[37] The Court of Appeal noted in Rego v. Santos, 2015 ONCA 540, that a set-off of costs against ongoing child support is unusual, but upheld a decision in which the motions judge had clearly made the order with the best interests of the child in mind. They quoted the motion judge’s decision which set out the unreasonable litigation conduct of the appellant (failure to pay the section 30 assessor’s retainer and being found in contempt of a parenting Order), stating at para. 12 that the set-off could be “structured to ensure the child does not suffer unduly adverse economic consequences.”

[38] In Izyuk v. Bilousov, 2011 ONSC 7476, Justice Pazaratz took a middle-ground approach, suggesting the following at para. 66:

…There may be some circumstances in which an equitable set-off of costs against child support may be appropriate: for example, where the claim was in relation to child support; where the set-off is against arrears of child support; and where it is clear that the set-off will not harm or diminish the child's lifestyle. But child support is a right of the child, and should not be traded against unrelated obligations of a parent.

[39] In Collins v. Garmoe, 2012 ONCJ 643, Justice O’Connell determined that the court had jurisdiction to order set-off, adopting Justice Spence’s review of the case law in Peers v. Poupere. She reasoned that the children would suffer hardship if it set off costs against ongoing child support, but that the same was not true regarding the setting off of costs against past child support arrears.

[40] In Ignjatov v Di Lauro, 2014 ONSC 7362, Justice Harvison Young also followed Peers and ordered set-off of child support. She noted that while courts should generally be reluctant to encroach on the child’s right to child support, in this case, the mother’s pattern of past conduct indicated a serious concern that she would not pay her outstanding costs: see paras. 25-28.

[41] In Berry v. Berry, 2014 ONSC 4146, the court ordered costs of a three-day trial of $15,277.02, and that it be set off against the applicant’s ongoing child support obligation until paid in full.

[42] Most recently, Justice Chappel summarized the law of set-off as it relates to child support and costs in M.A.B. v. M.G.C., 2023 ONSC 3748. She ultimately exercised the court’s discretion to do so as a form of equitable relief writing at para. 82:

[82] If the court concludes that a significant costs award is appropriate in a Family Law case involving individuals of limited or modest means, it must give careful consideration to how the costs should be paid and the appropriate timeframe for payment. The determination of these issues is a highly discretionary exercise that requires the court to carefully weigh the objectives of costs awards, the factors relevant to the assessment of costs, the impact of the costs award on the liable party and any child in their care, the interest of the other party in obtaining redress for their costs in a timely manner, and the impact of delaying payment of the costs on that party. The ultimate goal in crafting an appropriate payment plan is to achieve a fair and just result that balances the rights and interests of all parties in a manner that respects the objectives of costs, so as to safeguard the integrity and efficiency of the administration of justice.

[43] She goes on at paragraph 83 to describe how the right of set-off arises in three circumstances: by agreement of the parties, by operation of statute (legal set-off) or in equity, citing M.P.A.N. v. J.N., 2018 ONCJ 769, at para. 271, per Finlayson J.; Telford v. Holt, [1987] 2 S.C.R. 193, at paras. 23-38.

[44] She concludes the following at para. 86 that:

[86] The determination of whether it is appropriate to set off costs against child support arrears or an ongoing child support obligation is ultimately a matter of judicial discretion that involves a careful consideration of the facts of each case, and a delicate balancing the interests of the parties involved, the best interests of any children in the support recipient’s care, all of the objectives of costs awards and the importance of ensuring that costs awards are in fact paid. This latter consideration must remain central to the analysis, since crafting a costs order that is doomed to be breached from the start erodes the legitimate expectation of litigants and the public that court orders will be respected, sends an inappropriate message to unreasonable litigants that they may litigate with impunity without financial consequences, and undermines the administration of justice as a whole.

Reasons Why Arrears of Child Support Must be Set Off Against the Costs Award

[45] There can be no doubt that Ms. A has litigated with impunity throughout this proceeding. She has a lengthy history of non-payment of costs and non-compliance with court orders. She has never made a voluntary payment towards an award of costs at the trial or the appellate level. Her delay in selling the home resulted in a shortfall of equity available to satisfy the costs award.

[46] I note that Ms. A’s own legal fees do not appear as debts within her assignment in bankruptcy.

[47] It is reasonable to conclude that Ms. A will continue to avoid the payment of costs through any means available to her.

[48] The ability to set off child support arrears against an award of costs appears to be well accepted within the caselaw. The request here is to apply a further $100,000 against the total amount of costs of approximately $729,000. The amount is being held in trust from Mr. S’s one-half share of the sale proceeds. The value of that one-half share has been diminished by Ms. A’s own actions in resisting the sale.

[49] If Ms. A’s debts are proven in the bankruptcy, there is no other way for Mr. S to recover the balance of costs owed to him but for a set-off of the arrears of child support, less any percentage recovered through his claim as a debtor. Since she declared bankruptcy, Mr. S has been unable to garnish Ms. A’s wages or pursue other collection actions. Meanwhile, he continues to bear the financing costs for his own legal fees.

[50] Moreover, I am satisfied that the children will not suffer undue hardship should set-off be ordered. Their father has fully met their financial, health, medical and therapeutic needs since the conclusion of Trial. For example, in my September 9, 2021 final Order I required Ms. A to proportionately contribute to the children’s reintegration counselling and therapy. She has not done so. Mr. S has paid the whole of those expenses, which continue. The release of the balance of his share of the house sale proceeds will assist him with those ongoing expenses which directly benefit the children.

[51] Although she indicated at this hearing for the first time that she had just lost her job, Ms. A had returned to earning a significant income since the conclusion of Trial. I do not have a current Financial Statement from her, but it is uncontested that she has the ability to earn in excess of $100,000 per year in hospital and/or project administration. She appears to have unlimited financial resources through her extended family. She demonstrates no conduct that would suggest that the set off of the child support arrears and section 7 expenses would hamper her ongoing ability to provide for the children, who continue in a schedule of shared parenting.

[52] Order to issue that the amount of $100,000 plus any accrued interest, being held back from the distribution of Mr. S’s share of the net sale proceeds of the home shall be paid to him forthwith.

Directions on Outstanding Issues

Spousal Support

[53] The Minutes provide that Mr. S shall pay spousal support to Ms. A in the amount of $2,597.00 per month, commencing June 1, 2021, and continuing on the first day of each month that follows; and that the payments shall terminate forever on June 30, 2025. He asks that the ongoing payments be crystallized into a present-day value and also applied against the costs award as a lump sum.

[54] However, the Minutes also provide at para. 3 that the spousal support payments shall be subject to variation upon proof of a material change in circumstances. For that reason, I must decline to calculate the ongoing spousal support as a present-day lump sum. [4]

[55] At the same time, I recognize the dilemma facing Mr. S.: if the costs award is discharged within the bankruptcy, he may find himself paying spousal support from the date of the discharge to June 30, 2025. This was not my intention in my January 4, 2022 Costs endorsement that provided for past and ongoing spousal support be set off against the costs.

[56] Order to issue that the amount of spousal support to be set off or varied is to return to me for determination upon the earlier of:

a) Ms. A’s discharge from bankruptcy, or b) June 30, 2025

[57] By that time, the total amount recovered on the award of costs (including any payment from the Trustee) will be known. I will then be able to determine the amount of the costs award that has been paid and/or discharged to date and hear submissions on the payment of spousal support.

[58] In the interim, no Support Deduction Order for the payment of spousal support may be issued. The amount of spousal support set out in the Minutes, or as subsequently varied, shall be a set-off to any outstanding amount of costs until such time as the debt is satisfied or discharged.

Motion to Change and Set-Off of Ongoing Child Support

[59] The payment of ongoing child support and section 7 expenses and/or a variation of spousal support may be addressed within a Rule 15 Motion to Change. The Case Conference following the exchange of pleadings shall be before a Dispute Resolution Officer.

[60] Any claim to set off ongoing child support may be raised and determined at the same time as the hearing of a motion for child support. Any response filed by Ms. A must include the status of her bankruptcy proceeding and a calculation of the outstanding portion of the costs awards after deducting all set off amounts and payments against the debts applied to date.

[61] The issuing of a Support Deduction Order for section 7 expenses payable by Ms. A may proceed if so agreed or ordered within the Motion to Change.

Costs on These Submissions

[62] The parties are once again encouraged to resolve costs arising from these further costs submissions on the issue of set-off. If costs cannot be resolved, submissions are to be served on the following timetable, filed, and uploaded to CaseLines with a copy emailed to my assistant at Cindy.Martins@ontario.ca.

[63] Mr. S’s submissions for costs is to be served and filed by September 1, 2023, response by Ms. A may be served and filed by September 15, 2023 and reply is due September 22, 2023. Submissions are limited to two pages exclusive of a Bill of Costs and any Offers to Settle. Caselaw is to be hyperlinked within the body of the submissions.

McGee J.

DATE: August 16, 2023

Footnotes

[1] Incorporated into an Order dated July 22, 2022.

[2] The parties dispute the exact amount garnished, in that tax payable on the garnished funds was not held back in the calculation.

[3] A phrase as best I can tell was first coined by Justice Corbett in Walsh v. Walsh.

[4] For future reference, the lump sum value was calculated by Mr. S as $72,716, less an average tax rate of 35.4% for a balance of $46,974.53 (assuming no material change).