“Leveling the playing field” with interim disbursements

• by Ainsley Doell

Originally published in the OFLM 2024-01 edition

Overview

When a litigant finds themselves in need of funds to advance their legal claims, they may bring a motion seeking interim disbursements. This article looks at the test that needs to be met by the moving party in such a case, and looks at leading and recent case law, starting with Justice Sharma’s decision in Hrvic v. Hrvic (2023 ONSC 6429).

Introduction

The cost of advancing legal claims can be a significant barrier for many litigants, no matter how strong their claims may be. This access to justice concern is compounded where there is a large disparity between the financial means of the parties.

One way in which the court can help “level the playing field” between litigants is by awarding interim disbursements to ensure that parties have the cash on hand that is needed to advance their claims. Of course, this cannot be done in all instances and there is a test that must be met before the court will exercise its discretion to make such an order.

The rationale underlying an award for interim disbursements mirrors that which justifies costs awards, except that interim disbursements are awarded where the funds are needed right away, otherwise the case may not proceed for lack of funds.

This was an issue that was addressed by Justice Sharma in the recent case Hrvic v. Hrvic (2023 ONSC 6429), where the Respondent wife brought a motion seeking either an advance on her equalization payment or interim disbursements in order to ensure that she was able to continue pursuing her legal claims.

Justice Sharma declined to order an advance on the wife’s equalization payment, as there was significant uncertainty as to the likely minimum amount that she would be entitled to. However, he did order that the husband to pay the wife $118,000 as an interim disbursement, which was not far from the $150,000 that she initially sought.

This article will look at Hrvic v. Hrvic as an entry point into a discussion of the leading case law on the issue of interim disbursements in family law cases, and then discuss other recent cases where similar orders have been made. In doing so, the article will highlight what appear to be relevant facts that tend to militate in favour of interim disbursements being awarded.

Hrvic v. Hrvic

  1. Setting the scene

In Hrvic, the parties were married for around 10 years, during which time the wife stayed home and cared for the parties’ child while the husband worked.  The husband worked for a construction company, and the parties take different positions on whether he is self-employed or merely an employee of the company. The husband maintained that he did not have an interest in the company, and that the 50% interest that the wife sought to attribute to him was in fact his mother’s.

As family law lawyers know, this is a common recipe for a headache when it comes to determining income for support purposes.

The wife’s position on her motion was that she had exhausted all of her financial resources, and that the husband had substantially more than her and was causing delay by failing to comply with his disclosure obligations. The husband argued that he did not have the funds to pay the $150,000 disbursement sought and that he had provided all the disclosure in his possession, and that disclosure from the construction company was not something that he could comment on.

  1. Interim disbursements

Justice Sharma began by pointing to Rule 24(18) of the Family Law Rules as the source of the court’s authority to order interim disbursements “to cover part of all of the expenses of carrying on the case, including a lawyer’s fees” (at para. 30). As we will go on to see, this goes beyond the payment of the lawyer’s legal fees and often extends to fees required for the preparation of an income or business valuation by a Chartered Business Valuator.

Justice Sharma highlighted that this authority is discretionary and also “inherent in the equitable jurisdiction of the courts to order costs” (at para. 31).

The equitable test to meet can be found in British Columbia (Minister of Forests) v. Okanagan Indian Band (2003 SCC 71):

  1. Without the order, the moving party would be “deprived of the ability to proceed with the case”;
  2. There is a “prima facie case of sufficient merit to warrant pursuit”, which must be established by the moving party; and
  3. “Special circumstances must exist to satisfy the Court that the case is within a narrow class of cases where this extraordinary exercise of power is appropriate (Hrvic at para. 31).

However, courts have appeared to use their discretion to loosen the requirement of “special circumstances” and instead focus on evidence that the disbursements are both necessary and reasonable (Hrvic at para 33; Samis (Litigation Guardian of) v. Samis, 2011 ONCJ 273 at para 100). It will generally be important for the moving party to demonstrate specifically how the funds will be used.

Justice Sharma looked at the relationship between the husband and the construction company for which he claimed to just be an employee, and found that the evidence pointed toward there being a closer relationship between the company and the husband than simply an employer-employee. For example, the company had paid the husband's vacation expenses and child support payments.

The court was also satisfied that given the wife’s status and budget as a student, she required the interim disbursements to be able to pursue her claim.

The legal expenses that she outlined were also found to be necessary, based on the state of the wife’s disclosure and pattern of non-compliance.

Part of these legal expenses involved preparing a critique of the reports that were to be prepared for the husband by a Chartered Business Valuator. The husband argued that awarding interim disbursements to cover this expense was premature, given that the reports had not yet been prepared and so there was no way to know whether a critique would even be necessary. Justice Sharma rejected this argument, as he was satisfied that based on the husband’s conduct thus far, it was clear that the wife would need to undertake some form of external review of any report prepared by the husband (at para. 41).

The wife’s success on her motion seemed attributable in part to the fact that she came prepared with a clear outline of the fees that she sought and what they would be used for. The husband on the other hand had clear omissions from his disclosure and a pattern non-disclosure that deemed the preparation of a report essential. The information in his financial statements clearly could not be accepted at face value.

It is important to note however, as Justice Sharma did, that meeting the test for interim disbursements is not the same as a determination on the merits of the parties’ positions.

Additionally, Sharma J. made it clear that awards for interim disbursements are not intended to cover parties’ personal costs during litigation – only the specific expenses that are incurred in relation to moving the matter forward.

Leading case law

Many recent cases continue to affirm Stuart v. Stuart (2001 CanLII 28261) as the leading case on interim disbursements in family law cases (e.g., Vohra v. Vohra, 2023 ONSC 2443; S.M. v. C.B., 2022 ONSC 340).

Stuart sets out the following “themes” in the case law applying to interim disbursements:

  1. They are discretionary;
  2. The moving party must demonstrate that they cannot proceed without the advance of the requested funds;
  3. The expenses for which the fees are sought must be shown to be necessary;
  4. The claim being advanced must have merit;
  5. This discretion should be limited to “exceptional cases”;
  6. They may be granted in family law matters to “level the playing field”; and
  7. Funds may be advanced against an equalization payment that will later become owing to the party (Stuart at para. 8).

Stuart strongly emphasizes the essential nature of full and proper financial disclosure in ensuring that a family law matter proceeds fairly. To this end, Justice Rogers emphasizes the importance of both parties being able to tackle the issue of disclosure on equal footing. It is clear that in cases like Hrvic, where one party is the higher income earner and has a more convoluted income situation, the other party is at a disadvantage in obtaining full disclosure.

While Stuart is not specifically cited in Hrvic, Justice Sharma opts to cite Samis (Litigation Guardian of) v. Samis, 2011 ONCJ 273 instead: A more recent case where Justice Sherr instead offers a summary of the state of the law on the direction to award interim disbursements, which includes the factors considered in Stuart.

One helpful note made by Justice Rogers in Stuart that is not highlighted in Hrvic is that "the leveling of the playing field [through interim disbursements] should not be limited to those with an expected equalisation payment” (at para. 14), which goes back to the purpose underlying the awarding of interim disbursements. Given that these orders are aimed at allowing poorer litigants to pursue their legal claims, or at least, ensuring that they are not barred from pursing meritorious claims due to lack of resources, it does not make sense to bar their access to this equitable remedy where their rights may be at stake.

Themes from recent case law

A quick glance at some other recent case law suggests that many of the cases where litigants are successful in obtaining interim disbursements occur where the preparation and critique of business valuation and income analysis reports are deemed necessary. These reports are often needed where litigants are self-employed and operating through a corporation. They are not cheap, and often pose the only reasonable prospect of obtaining an accurate picture of a litigant’s income.

In Bartley v. Danso (2023 ONCJ 284), the Respondent husband worked for a church, and his affairs were “so intertwined with the Church that it is impossible to know what belongs only to the Church and what belongs to the Church and the Respondent” (at para. 36).  The income report prepared by the Respondent raised so many questions that the report itself was “on its face... of limited value” and required critique (at para. 47). Justice Sager awarded $25,000 in interim disbursements to fund this.

Therefore, a court will carefully review the proposed expenses that the funds are being requested to cover and will likely only award the quantum of disbursements that they deem to be appropriate or necessary.

Justice McDermot in Vohra v. Vohra (2023 ONSC 2443) ordered interim disbursements to cover the cost of responding to an income valuation and the costs of a lawyer through arbitration. However, the moving party had also requested disbursements to cover the preparation of a vocational assessment, which Justice McDermot declined to order, as he would not fund a “fishing expedition.”

Another theme seems to be that it is a lack of liquidity that is relevant to a determination of whether a party is in need of the disbursements. Specifically, a litigant does not necessarily have to be destitute in order to successfully obtain an order for interim disbursements.

This was the case in S.M. v. C.B. (2022 ONSC 340), where Justice Pinto awarded $186,000 in interim disbursements to an Applicant who owned several properties, but who did not necessarily have the liquidity necessary to fund the litigation.

While less recent, Justice Douglas’ decision in Rea v. Rea (2016 ONSC 382) is helpful in so far as it provides a summary of the quantum of awards for interim disbursements that had been made. The following summary is provided at paragraph 16:

  • Belittchenko v. Belittchenko, 2007 CanLII 20673 (ON SC), [2006] O.J. No. 5493, total interim disbursements of $217,616.
  • Lakhoo v. Lakhoo, [2015] ABQB 357, interim disbursements of $400,000.
  • Bagheri-Sadr v. Taghoub-Azari, [2011] ONSC 611, interim disbursements of $125,000.
  • J.K.L. v. N.C.S., [2009] O.J. No. 804, interim disbursements of $115,361.
  • Hughes v. Hughes, [2009] ABQB 154, interim disbursements of $500,000.
  • Levina v. Levine, [2014] O.J. No. 2238, interim disbursements of $100,000 upheld by Divisional Court.

Conclusion

Obtaining complete financial disclosure can be a long, arduous, and expensive process for family law litigants, but is a very important part of being able to obtain just outcomes. Interim disbursements can be used to help “level the playing field”.

For the litigant seeking interim disbursements and their counsel, the case law in this area advises coming to court with a clear action plan. Namely, to carefully outline the expenses that you plan to incur and explain why they are necessary. The court will consider each expense in determining the appropriate quantum of an award for interim disbursements.

For the more financially comfortable litigant, the case law can serve as a reminder of the importance of producing income disclosure in a timely fashion, so as not to give the court any reason to suspect that they are not acting forthright. Interim disbursements are often awarded where the court believes that a litigant may not be revealing the whole truth about their income and finances.

So, when going to court to level the playing field, be sure to come prepared.