COURT FILE NO.: FS-13-77390
DATE: 2023-11-30
ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN:
Carl GORMAN Applicant
- and -
MICHELLE LEE MUNDY (GORMAN) Respondent
COUNSEL: Stephen Kirby, for the Applicant Self-Represented Respondent
HEARD: In writing
COSTS ENDORSEMENT
MCGEE J
Results
[1] This is a proceeding brought by Ms. Mundy to set aside terms within the parties’ final consent Order. She withdrew her proceeding on the eve of Trial, after Mr. Gorman had incurred substantial costs to defend her claim and to prepare for the Trial.
[2] Mr. Gorman seeks $105,504 in costs, being $55,265 for a partial recovery of his costs incurred up to the service of an Offer to Settle with terms that he asserts were more favorable to Ms. Mundy than the result - and $50,240 in fees, thereafter, being a full recovery of his costs. Ms. Mundy has not responded to Mr. Gorman’s written submissions for costs.
[3] In the reasons below, I set out the operation of Rule 12(3) of the Family Law Rules (“Rules”) which provides for a payment of costs upon the withdrawal of a proceeding, then address the scale of costs claimed and the factors that I must consider in setting the amount of costs.
[4] In deciding the scale of costs, I decline to grant Mr. Gorman a full recovery of his fees after service of his Offer to Settle because the term providing for Ms. Mundy to withdraw without costs was only open for acceptance 9 days over 20 months.
[5] Ms. Mundy shall forthwith pay costs of $51,076[^1] to Mr. Gorman being $44,000 in fees $1,200 in disbursements and HST thereon of $5,876.
Background Facts
[6] The parties are former spouses and the parents of two children, now 18 and 15 years of age. Their eight-year marriage ended in August of 2012. This Application was issued in 2013. In a final consent Order dated February 3, 2014, (“the final Order’) the parties resolved the legal issues arising from their separation.
[7] At some point after the final Order, Mr. Gorman sued the operator of a company in which he had prior involvement: Low-Risk Logistics (“the company.”) The litigation proceeded to an Arbitration and was ultimately unsuccessful. The litigation formally ended September 2020, with no recovery to Mr. Gorman and a costs award against him of over $200,000.
[8] In 2016, prior to the end of the litigation against the company, Ms. Mundy brought a motion to set aside terms within the final Order, claiming that Mr. Gorman had held an undisclosed interest in the company on the date of separation and therefore owed her an equalization payment. She also asserted that he received additional income from the company.
[9] There were procedural irregularities with her claim. She did not amend her original Application, nor did she issue a fresh Application to set aside the final Order. She did not issue a Rule 15 Motion to Change with respect to her claims for support. Instead, she served a Form 14A motion within the original 2013 Application. This is relevant because she did not claim an equalization payment in her original Application.
[10] Nonetheless, the parties, who were each represented by experienced counsel, proceeded in good faith to discover the case as if the motion to set aside terms in the final Order was a pleading.
[11] The proceeding should have ended in September 2020 when Mr. Gorman’s litigation against the company failed. The status of the arbitration was contemporaneously communicated to Ms. Mundy. The failure of the litigation against the company plainly eliminated any basis for a potential equalization claim, or a material change respecting support. Moreover, the limitation period for a claim for an equalization payment had expired in August of 2018 pursuant to section 7(3) of the Family Law Act.
[12] To this end, Mr. Gorman made two formal, Rule 18 Offers to Settle pursuant to the Family Law Rules, (the Rules”) . The Offers were identical, but for the dates on which the term for a withdrawal without costs was available. Otherwise, each Offer was open for acceptance until the first day of Trial.
[13] The first Offer was dated Wednesday February 9, 2022, and set out the following terms:
- All of the claims made by the parties in this matter shall be dismissed.
- Acceptance of this Offer to Settle shall be in writing.
- If the respondent, Michelle Gorman accepts this Offer to Settle by [Monday – Family Day] February 21, 2022 at 4:00 pm there shall be no costs payable between the parties; if the respondent accepts this Offer to Settle at any point after 4:00 pm on February 21, 2022, the costs of this matter shall be determined by way of further written agreement between the parties or Court Order.
[14] The second Offer was dated Friday September 22, 2023. In that Offer, the deadline for a withdrawal without costs was Tuesday, September 26, 2023.
[15] Ms. Mundy did not accept either Offer. Neither did she make a reasonable Offer. In her only Offer to Settle dated February 11, 2022, she set out a term that she be paid $250,000 as a lump sum of equalization and spousal support, in satisfaction of her claim to set aside certain paragraphs of the final Order.
[16] Mr. Gorman reports that there were a dozen court attendances from 2016 to 2023, mostly brought by Ms. Mundy for disclosure from him, during periods when she did not make any disclosure. For example, her 2018 Financial Statement was not updated until 2023. Questioning was conducted. Ms. Mundy did not answer undertakings.
[17] The matter was organized for Trial within the Trial Scheduling Endorsement dated February 17, 2022, and was scheduled to be heard in October 2022. Just prior to trial, Ms. Mundy sought and received an adjournment. At no time did she comply with the terms of the Trial Scheduling Order. She did not serve any exhibits. She did not update her Financial Statement after February 17, 2022.
[18] In March 2023 Ms. Mundy brought a motion for disclosure against two third parties which was not successful. She was ordered to pay $900 to each of the two third parties. Those amounts remain outstanding.
[19] The matter came before me as an in-person Exit Pre-Trial on October 13, 2023. Ms. Mundy did not attend. She had not filed any materials for the conference. The Court Registrar was able to reach her on the phone and the conference proceeded as a teleconference with Mr. Gorman present in the courtroom. Ms. Mundy indicated that she wished to withdraw her claims against Mr. Gorman as she was no longer interested in participating in the proceeding.
[20] The Trial date for the following week was vacated, the motion dismissed, and it was left to me to decide the costs to be paid to Mr. Gorman. I granted Ms. Mundy’s request that the determination of costs be adjourned to October 18, 2023.
[21] Mundy did not attend the in-person October 18, 2023 costs hearing. Mr. Gorman appeared with his counsel and asked for costs of the proceeding in the range of $100,000.
[22] I gave Ms. Mundy one further opportunity to make submissions on costs by requiring Mr. Gorman to provide written costs submissions with a Bill of Costs and any relevant Offers to Settle within a timeline that permitted her to fully participate in the decision. Mr. Gorman served, filed, and uploaded his submissions on October 25, 2023 in accordance with that timeline.
[23] No submissions have been received from Ms. Mundy, who was to have provided her submissions by November 8, 2023. I must now determine the amount of costs payable to Mr. Gorman on a default basis.
Costs of a Withdrawn Proceeding
[24] Rule 12 of the Rules provides that a party who does not want to continue with all or part of a case, may withdraw all or part of the application, answer or reply by serving a notice of withdrawal. Subrule 12(3) states that “a party who withdraws all or part of an application, answer or reply shall pay the costs of every other party in relation to the withdrawn application, answer, reply or part, up to the date of the withdrawal, unless the court orders or the parties agree otherwise.”
[25] Subrule 12(3) creates a presumption that the withdrawing party must pay the costs of the other parties. It is a rebuttable presumption. The Justice hearing the claim for costs can decline to make an award of costs when the application was commenced in good faith, see B.L. v. M.L., 2003 CanLII 1948 (ONSC), and Davidson v. Ferrill, 2006 ONCJ 472.
[26] Here, Ms. Mundy did not serve a formal Notice of Withdrawal. She simply stopped participating after her unsuccessful motion for disclosure against the third parties. She never complied with the terms of the Trial Scheduling Order. At some point over the summer of 2023, she released her counsel, and she did not communicate with Mr. Gorman’s counsel. She filed no materials for the Exit Pretrial and she did not advise counsel or the Trial Coordinator that she was not attending.
[27] In determining costs, I find that Ms. Mundy’s stated withdrawal of her proceeding at the Exit Pre-Trial had the same legal effect as having served a formal Notice of Withdrawal. In my view, the cost consequences of a withdrawal, as set out in Rule 12(3) ought to be extended to a moving party who has effectively abandoned a proceeding by failing to further participate. The harm caused to the participating party is the same.
[28] Neither do I differential between “all or part of the application, answer or reply” in circumstances in which the moving party failed to properly plead her claim. It was clear to both parties what was being sought and the process by which Ms. Mundy’s claims were to be determined. The failure to properly plead one’s claims is not a defense to being subject to a costs award upon their withdrawal.
Costs: General principles
[29] A successful party is presumptively entitled to an award of costs per Rule 24(1) of the Rules, but an award is neither a recovery of every dollar spent, nor a line-by-line analysis of what was, or ought to have been incurred in legal fees. Instead, the analysis is founded on what an unsuccessful party could have reasonably expected to pay in costs. Parties are responsible for the positions that they take in litigation, and for the costs incurred by the opposing party, if those costs were incurred as a result of a party’s unreasonable litigation conduct.
[30] The purposes of a costs award are to indemnify a successful litigant who has acted reasonably to resolve the dispute or to seek an equitable outcome; to discourage and sanction inappropriate litigation behaviour, and to encourage and incentivize settlement. Rule 2(2) adds a fourth purpose, to ensure that cases are dealt with justly, see Mattina v. Mattina, 2018 ONCA 867.
[31] I accept Mr. Gorman’s submissions that Ms. Mundy was a litigant of some sophistication. She had been involved in family law proceedings and had the assistance of experienced counsel for more than a decade. Her litigation efforts after September 2020 were a deliberate attempt to find an alternative basis for additional settlement funds.
[32] In setting the amount of costs, the court shall consider the factors set out in Rule 24(12):
24(12) 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
vii. Any other relevant matter.
[33] When a party has served an Offer to Settle with terms as favourable or more favourable than those achieved, Rule 18(14) applies:
Costs consequences of failure to accept Offer
18(14) A party who makes an offer is, unless the court orders otherwise, entitled to costs to the date the offer was served and full recovery of costs from that date, if the following conditions are met:
If the offer relates to a motion, it is made at least one day before the motion date.
If the offer relates to a trial or the hearing of a step other than a motion, it is made at least seven days before the trial or hearing date.
The offer does not expire and is not withdrawn before the hearing starts.
The offer is not accepted.
The party who made the offer obtains an order that is as favourable as or more favourable than the offer. O. Reg. 114/99, r. 18 (14).
Analysis
Request for Costs
[34] Mr. Gorman asks for costs of $105,505 calculated as follows:
a. $29,700, being a partial (60%) recovery of $49,500 in legal fees and $14,898 in expert’s fees incurred from the start of Ms. Mundy’s motion until September 2020 when it became clear that there was no longer any basis for Ms. Mundy’s claim; plus
b. $20,540, being partial indemnity costs from September 2020 to the service of his February 21, 2022 Offer.
c. $24,457 in full recovery fees from February 21, 2022 to September 22, 2023, and a further
d. $30,808 in full recovery fees thereafter to prepare for trial.
[35] I am satisfied by the materials before me that Ms. Mundy started her litigation in good faith. After she had negotiated a final Order in the family proceeding, she learned that Mr. Gorman was asserting in a civil lawsuit that he had held ownership interests in a company at, or around the time of separation. He did not disclose those interests during the family law negotiation. It is understandable that Ms. Mundy would bring a claim to set aside any terms in the final Order that would not have been realized had the undisclosed information been known.
[36] Both parties and their counsels took the claim seriously and litigated accordingly. However, once Ms. Mundy learned that the civil litigation had failed, she had an obligation to reassess her family law claim.
[37] She did not do so. Most of the litigation costs were incurred after the civil litigation failed in what Mr. Gorman’s counsel describes as a fishing expectation to find some other basis for the failed claim. Mr. Gorman incurred significant legal costs in defending a proceeding that became increasingly disproportionate. When Ms. Mundy found nothing upon which to improve her litigation position, she abandoned the proceeding, leaving Mr. Gorman with significant legal fees.
[38] This is unreasonable litigation conduct that must be discouraged. I see no basis upon which Ms. Mundy ought not be required to pay Mr. Gorman’s costs of the proceeding.
Costs to be paid on a Partial Recovery Basis
[39] Rule 12(3) of the Rules does not set out the scale of costs to be paid by a withdrawing party. Costs are discretionary and there is no provision for a general approach of “close to full recovery” costs. Instead, courts may increase or decrease what would ordinarily be an appropriate amount of costs based on the behaviour of the parties and the presence of absence of Offers to Settle, see: Beaver v. Hill, 2018 ONCA 840.
[40] Mr. Gorman asks that he receive a partial recovery of his fees up to his February 9, 2022 Offer and a full recovery thereafter because Ms. Mundy could have withdrawn her claim without costs. Rule 18(14) of the Rules provides that a party who makes an Offer with more favourable terms than the result is entitled to a full recovery of costs to the date the Offer was served unless the court orders otherwise.
[41] I decline to award a full recovery of fees for the period of February 9, 2022 to October 13, 2023 because Rule 18(14)3 also requires that the Offer not expire and not be withdrawn before the hearing starts.
[42] During the 20 months between February 9, 2022 and October 13, 2023, the term that Ms. Mundy pay no costs upon a withdrawal was only open for acceptance for 9 business days not counting the day of service, assuming that the Offer was served on the same day as it was signed. The Affidavits of Service for the two Offers to Settle were not placed before me.
[43] Moreover, I find that it is not appropriate to grant Mr. Gorman a full recovery in circumstances in which Ms. Mundy had only seven business days in February 2022 and two days in September 2023 in which to accept a term for a cost-free withdrawal. Whether or not represented, a party is entitled to a reasonable period to obtain legal advice. Moreover, if one or both Offers were served on her counsel at a time when counsel was unavailable or off the record, she may not have even known about the withdrawal term, or its legal effect prior to the term expiring.
Rule 24(12) Factors and Calculation of Costs
[44] Mr. Gorman’s counsel team have provided their full accounting of fees, disbursements and HST charged from September 24, 2020 to October 13, 2023 within four invoices totaling $82,825; and one page from prior counsel entitled “Gorman Ledger” which is a listing of monthly invoices from July 2017 to September 28, 2020 in varying amounts from $144 to $17,528, totaling $64,395.95. The ledger has no breakdown of fees, disbursements or HST, and no description of the work performed, or the amounts charged.
[45] I decline to award any significant amount in costs on the prior counsel’s involvement as I lack the detail to do so. I cannot consider the factors in Rule 24(12) in the absence of any information but for a bottom-line ledger amount on a series of dates. Some events may not be relevant to this proceeding, others may not attract an award of costs. One line item in particular stands out as unsubstantiated; $17,528 on February 26, 2018, sandwiched between a January 29, 2018 amount of $6,636 and a March 28, 2018 amount of $2,821.
[46] For the same reason, I am not prepared to make an award of costs based on the stated expert’s fees tucked into the bottom of the single page. I have no information on the purpose for which the expert was engaged, nor do I have any information respecting the work undertaken or the fees charged.
[47] For this prior period, I only award the nominal amount of $5,650.00, being fees of $5,000 and HST of $650 to recognize that some costs should be payable during this period proportionate to the proceeding as a whole.
[48] In contrast, I have significant detail with respect to the four invoices from MacDonald & Partners. Here, I can assess the reasonableness of the hourly rates, the time spent, and the work performed.
[49] In doing so, I note that some charges amongst the legal team are duplicative, some relate to the case and settlement conferences, and a few dockets touch on a motion for which costs have already been determined.
[50] In looking at the cumulative sum of the four invoices, I set fees in the rounded amount of $65,000 to account for these adjustments. A partial recovery of this amount (60%) is $39,000. I then accept the whole of the disbursements claimed in the rounded amount of $1,200 for a subtotal of $40,200. HST of $5,226 thereon is $45,426. When I add the costs for the prior period of $5,650, I reach a total of $51,076.
[51] I find that $51,076 is a fair and reasonable amount of costs for Ms. Mundy to pay in this proceeding and an amount that an unsuccessful party ought to have expected to pay in these circumstances upon a withdrawal.
Order Setting Amount of Costs
[52] Order to issue that the Respondent shall forthwith pay costs of $51,076 being $44,000 in fees ($5,000 + $39,000) $1,200 in disbursements and HST thereon of $5,876.
McGee J
Released: December 4, 2023
[^1]: All amounts set out in these reasons have been expressed as whole dollars by rounding to the nearest dollar.