• by Amruta Ponkshe
Originally published in the OFLM 2024-01 edition
Overview
Rule 24 of the Family Law Rules specifically deals with costs and establishes a presumption that the successful party is entitled to costs of a motion, enforcement, case or appeal.
But what happens when a proceeding is withdrawn before its conclusion? In such situations, subrule 12(3) comes into play in supplement to the broader Rule 24.
Subrule 12(3) establishes 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withdraws all or part of an application, answer or reply shall pay the costs of every other party in relation to the withdrawn application, answer, reply or part, up to the date of the withdrawal, unless the court orders or the parties agree otherwise.
In this article, we look at two recent cases discussing the application of rule 12(3), as well as factors judges consider in determining whether costs should be awarded or not, as well as the quantum of costs.
Gorman v. Gorman (2023 ONSC)
The recent decision of Justice McGee in Gorman v. Gorman (2023 ONSC 6837) provides a thorough refresher on costs payable on withdrawal of a claim.
Facts
The parties in this case separated in 2012 after their eight-year marriage. In a final consent Order dated February 3, 2014, the parties resolved the legal issues arising from their separation.
At some point after the final Order, the husband sued the operator of a company, Low-Risk Logistics, in which he had prior involvement. The litigation formally ended September 2020, with no recovery to the husband and a costs award against him of over $200,000.
In 2016, the wife brought a motion to set aside terms within the final Order, claiming that the husband has held an undisclosed interest in the company on the date of separation and therefore owed her an equalization payment.
The husband’s failure of the litigation against the company eliminated any basis for the wife’s 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.
To this end, the husband made two formal, Rule 18 Offers to Settle. The Offers were identical, but for the dates on which the term for a withdrawal without costs was available. The wife did not accept either offer. Neither did she make a reasonable offer.
Ultimately, in October 2023, the matter came before Justice McGee as an Exit Pre-Trial. The wife did not attend. She did not file any materials for the conference either. The Court Registrar was able to reach the wife on the phone at which point the wife indicated she was no longer interested in participating in the proceeding.
The trial date was vacated, and the motion dismissed. It was left to Justice McGee to decide the costs to be paid to the husband.
The wife did not attend the cost hearings. The husband asked for costs of the proceeding in the range of $100,000.
Decision and Orbiter Dicta
Justice McGee held that 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 wife had not served a formal Notice of Withdrawal. Instead, she simply stopped participating. She also failed to comply with the terms of the Trial Scheduling Order and to advise the husband’s counsel and the trial coordinator that she was not attending the trial. However, her Honour explained that the harm caused to the participating party was the same.
After reviewing the costs principles under Rule 24, establishing that a successful party is presumptively entitled to an award of costs per Rule 24(1), her Honour discussed that:
(A)n 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. (at para. 29)
In reaching her decision, Justice McGee considered the purposes of a costs award as discussed in Mattina v. Mattina (2018 ONCA 867).
In Mattina, at paragraph 10, the Ontario Court of Appeal reiterated that the modern family cost rules are designed to foster three fundamental purposes:
- to partially indemnify successful litigants;
- to encourage settlement; and,
- to discourage and sanction inappropriate behaviour by litigants.
The Appellate Court also recognised that rule 2(2) adds a fourth fundamental purpose: to ensure that cases are dealt with justly. This was previously established in E.H. v. O.K. (2018 ONCJ 578), at paragraph 8 and in Sambasivam v. Pulendrarajah (2012 ONCJ 711), at paragraph 37.
In setting the amount of costs payable by the wife, Justice McGee reviewed the factors set out in Rule 24(12) and the cost consequences of failure to accept an offer. Her Honour noted that the wife “was a litigant of some sophistication” and that she had “started her litigation in good faith” (at para. 31).
However, Justice McGee discussed that the wife should have reassessed her family law claim after the husband’s civil litigation had failed. But she did not do so. Most of the litigation costs were incurred after the civil litigation failed and the husband incurred significant legal costs in defending a proceeding that became increasingly disproportionate. Her Honour discussed that when the wife found nothing upon which to improve her litigation position, she abandoned the proceeding, leaving the husband with significant legal fees.
Her Honour reiterated that the wife’s actions amounted to unreasonable litigation conduct that must be discouraged. At paragraph 38, Justice McGee stated:
I see no basis upon which (the wife) ought not be required to pay (the husband’s) costs of the proceeding.
Her Honour discussed Beaver v. Hill (2018 ONCA 840) and held that:
Rule 12(3) 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.
The husband asked that he receive a partial recovery of his fees up to the date of his second Offer and a full recovery thereafter because the wife could have withdrawn her claims without costs.
Rule 18(14) 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. However, Justice McGee declined to award a full recovery of the husband’s fees for the period between the date of his second order and the start of the hearing because subrule 18(14)(3) also requires that the Offer not expire and not be withdrawn before the hearing starts.
Justice McGee noted that the term that the wife pay no costs upon withdrawal was only open for acceptance for nine business days, not until the start of the hearing.
The wife was ordered to pay the husband costs of $51,076 with $44,000 towards legal fees, $1,200 in disbursements and HST of $5,876.
Walia v. Walia (2022 ONSC)
In Walia v. Walia (2022 ONSC 6704), the applicant husband added the respondent wife’s parents and brother as parties to the family law proceeding. He then withdrew all of the application as against the wife’s parents and brother. The added parties then sought approximately $37,000 in costs on a full recovery basis. The applicant argued that rule 12(3) does not include circumstances where the case against only a co-party was withdrawn. He contended that the rule only applies in limited circumstances where a case is ended by withdrawal before trial.
Justice Agarwal disagreed and at paragraph 20, discussing that:
Rule 12(3) states that a “party who withdraws all or part of an application….” [emphasis added]. The legislature expressly contemplated circumstances where, as here, the case continues after withdrawal. There is nothing in the “grammatical and ordinary sense” of the words in the rule that would limit the entitlement to costs under rule 12(3) to withdrawals against the main party.
As discussed in Walia, while there is no binding legal test for the exercise of the court’s discretion to deny costs under rule 12(3), the caselaw identifies some factors:
- whether the claim was frivolous or vexatious: Sgrignuoli v Sgrignuoli (2015 ONSC 5537);
- whether the claim had merit: B.L. v. M.L. (2003 ONSC 1948);
- whether the costs were “thrown away”: Benson v. Crawford (2012 ONSC 5932);
- the withdrawing party’s financial means: Dixon v McGhann (2021 ONCJ 72).
Justice Agarwal then considered factors in rule 24(12), including with each party’s behaviour. His Honour noted that both parties litigated in the most aggressive and high-conflict manner possible, and that the parties repeatedly used the court’s limited resources and time for their personal ends, taking away court time from other parties in the system who have equally important matters that need resolution. His Honour also examined the time spent by each party, whether there were any written offers to settle, and the legal fees incurred by each party.
Justice Agarwal concluded that the case did not justify full indemnity costs, considering that all parties conducted themselves poorly and that full recovery of costs is available where a changed order is set aside [Rule 15(13)], failing to accept an offer [Rule 18(14)], and for bad faith [Rule 24(8)].
Test under Rule 23.05(1) of the Rules of Civil Procedure
As discussed above, in a family law case, if a party withdraws a case, or an answer to a case, they shall pay the costs of the other party, unless the Court orders or the other party agrees otherwise.
Notice that this is not the same as the rule governing civil cases where a party may ask the Court to order costs. Under the civil law regime, as per Rule 23.05 (1) of the Rules of Civil Procedure, if all or part of an action is discontinued, any party to the action may, within thirty days after the action is discontinued, make a motion respecting the costs of the action.
Rule 23.05(1) was amended in 2009 to remove the plaintiff’s prima facie entitlement to costs. In contrast, rule 12(3) of the Family Law Rules maintains “every other party’s” prima facie right to costs.
In Digiuseppe v. Todd (2012 ONSC 1028) at paragraphs 22-24, Justice McCarthy discussed that when a plaintiff discontinues an action against a defendant, “the plaintiff must satisfy the court that the material filed discloses a bona fide cause of action, that is not frivolous or vexatious and which the plaintiff had some justification to commence, having regard to the conduct of the defendant”.
In Bank of Nova Scotia v. Pappas (2019 ONSC 840), at paragraph 15, the court explained how to assess the merits or good faith of a withdrawn case as follows:
A consideration of what constitutes a bona fide claim should not involve speculation on the ultimate merits of the claim nor on what might have been the result had the claim been adjudicated. Similarly, it should not be part of the court’s analysis to weigh the merits of potential defences available to the defendant.
Test for determining costs under Rule 12(3)
In Walia, Justice Agarwal discussed that the factors considered under rules 24 and 12(3) mirror this test used under rule 23.05(1) of the Rules of Civil Procedure. Based on the analysis of the test under the civil law regime, his Honour proposed that the correct approach for deciding costs under rule 12(3) is as follows:
- First, the preliminary question is whether the applicant satisfied the court that the material filed discloses a bona fide cause of action (i.e., that is not frivolous or vexatious and that the applicant had some justification to start the proceeding, having regard to the respondents’ conduct).
- If the proceeding is not bona fide then it is necessarily started in bad faith and, under rule 24(8), the court shall decide costs on a full recovery basis and shall order the applicant to pay them immediately.
- If the proceeding is bona fide, the court’s discretion should be exercised by reference to the considerations in rule 24(12) of the Family Law Rules.
In Dixon v. McGhann (2021 ONCJ 72), at paragraph 28, Justice Spence discussed that on the wording of subrule 12(3), the court must decide two things – first, does the presumption of an entitlement to costs apply; and second, if it does, what is the amount of costs that the court ought to order.
The test proposed by Justice Agarwal, as discussed above, aligns with Justice Spence’s decision in Dixon.
Jurisprudence
In Serra v. Serra (2009 ONCA 105), at paragraph 103, the Ontario Court of Appeal held that the withdrawal of a case can be done unilaterally at any stage of the proceedings as per rule 12, unlike under the comparable provision in civil cases where leave of the court is necessary once the pleadings are closed. But there are cost consequences. Thus, if the withdrawing party seeks to avoid the cost consequences flowing from the withdrawal, that party must persuade the court to make an order avoiding or minimizing the costs.
As seen in B.L. v. M.L. (2003 ONSC 1948) and Davidson v. Ferrill (2006 ONCJ 472), the judge hearing the claim for costs can decline to make an award of costs when the application was commenced in good faith.
In Welch v. Welch (2023 ONSC 6550), at paragraphs 42 and 43, Justice Pazaratz noted that Rule 12(3) creates a rebuttable presumption that a party withdrawing a claim must pay costs of the other party. His Honour further discussed that failing to show up for your court case is even worse than formally withdrawing your claim, because it leaves the other side having to prepare and attend for a needless court appearance.
Justice Pazaratz held that determining costs requires more than a simple mathematical totalling of how much the successful party paid their lawyer.
- The amounts actually incurred by the successful litigant are not determinative. The Court’s role in assessing costs is not necessarily to reimburse a litigant for every dollar spent on legal fees: Aprile v. Aprile (2016 ONCJ 678) and Kommineni v. Guggilam (2022 ONCJ 191).
- The overall objective is to fix an amount that is fair and reasonable from the unsuccessful party’s perspective. This includes considering the amount the unsuccessful party could reasonably have expected to pay if they were unsuccessful in the litigation: Arthur v. Arthur (2019 ONSC 938); Mussa v. Imam (2021 ONCJ 92) and Kerr v. Moussa (2023 ONCJ 82).
Finally, as held by Justice Chown at paragraph 13 in Tintinalli v. Tutolo (2022 ONSC 6276), the costs award should reflect more what the court views as a fair and reasonable amount that should be paid by the unsuccessful party rather than any exact measure of the actual costs of the successful litigant.
Conclusion
The possibility of severe cost consequences is one of the many significant factors that family lawyers should discuss with clients in determining the course of action for their family law issues. It is very important that as family lawyers, we advise clients that there has to be a good reason to commence a case in the family court, and at times there needs to be an even better reason to withdraw it.