07 January 2012

Supreme Court Decision Summarizes Law on Costs

In the recent case of Schuller v. Roback, the court has been called upon the explain the thorny, vexing and generally irksome area of the law known as "costs." Costs has a special legal meaning; it's not the bill of the client's lawyer and it's not the client's out-of-pocket expenses for photocopying, court fees and so forth. Costs are a way of compensating someone for the overall expense and hassle they've been put to as a result of having to go to court, and costs are only available in the Supreme Court.

Costs are usually awarded to the person who is mostly successful in a law suit or an application, and in a way they function like an idiot tax. It the person making the application wins, the respondent shouldn't have fought the application and has to pay the applicant's costs; if the person making the application loses, the application shouldn't have been brought in the first place and the applicant has to pay the respondent's costs.

The rule on costs is Rule 16-1 and says that the court can award costs as ordinary costs or "special costs." Ordinary costs are calculated under Appendix B to the rules; special costs are awarded only in those rare cases where someone's conduct has been utterly unreasonable or frustratingly obstructive and amount to the whole of the lawyer's total bill plus disbursements. Under Appendix B, ordinary costs are calculated according to a schedule of fixed rates for particular activities, like drafting pleadings, arguing an application or writing letters, that are common to all law suits and the rates vary depending on whether the case was less difficult than usual, usual, or more difficult than usual. Ordinary costs assessed at the scale for usual difficulty might amount to 40 to 50% of a lawyer's bill.

Anyhow, the reason why I'm writing about Schuller v. Roback is because the law on costs in family law is all over the place. In the past there seemed to be two kinds of cases on costs in family law, one which said that family law is special and awards of costs can upset the delicate balance the trial judge has achieved making orders for support and division of assets, and other which said that family law is like any other kind of civil law and the party who is mostly successful should get his or her costs. Although the costs-are-costs cases seem to have won the battle, you still see an awful lot of cases where no costs order is made or the judge orders each party to bear their own costs... even when the result looks an awful lot like one party was more successful than the other.

In Schuller, after judgment had been given, the applicant sought an order that each party bear their own costs while the respondent asked for an order that he have "double costs" of the application, assessed at the rate for cases of more than usual difficulty.

First, the court discussed the basic idea about which party should have his or her costs, beginning with the leading case under the old rules.
"[15] Under the former Rule 57(9), costs normally followed the event, and went to the party who enjoyed 'substantial success.' This Court's discretion to depart from awarding costs to the successful party must be exercised judicially: Gold v. Gold."
The rule about costs under the new rules of court is Rule 16-1(7) and says that "costs of a family law case must be awarded to the successful party unless the court otherwise orders."
"[16] The new Rule does not incorporate the same reference to 'substantial success' but the Court retains the discretion to refuse an award for costs despite the success of the party making application for costs: Gain v. Gain.

"[17] In Gold the Court described the considerations that should instruct the Court in evaluating a claim for costs:
The question, then, is: when should the Court order otherwise? ... when the court should order otherwise is a matter of discretion, to be exercised judicially by the trial judge, as directed by the Rules of Court. To lay down any strict guidelines or even to attempt to give exhaustive examples is not, I think, helpful because the facts and issues in each family law case vary so greatly. Factors such as hardship, earning capacity, the purpose of the particular award, the conduct of the parties in the litigation, and the importance of not upsetting the balance achieved by the award itself are all matters which a trial judge, quite properly, may be asked to take into account. Assessing the importance of such factors within the context of a particular case, however, is a matter best left for determination by the trial judge."
Costs, then, continue to be discretionary under the new rules as they were under the old, but the starting point is set out in Rule 16-1(7): costs go to the successful party. But who is responsible for proving that costs should be awarded in any other manner?
"[18] The onus of persuading the court that it should depart from the usual rule that the successful party is entitled to costs rests on the unsuccessful litigant: Rattenbury v. Rattenbury."
And what happens when there is divided success, when each party is partially successful?
"[24] In cases where one party has achieved substantial success, the court may nonetheless award only a portion of the substantially successful party’s costs: Cohen v. Cohen, Newstone v. Newstone and Rolls v. Rolls."
Next, the court discussed the rules about when someone should have "double costs" under Rule 11-1(5). This rule says that when someone makes an offer to settle — a written proposal of terms on which an application or a law suit could be resolved — the court can deprive someone of costs even if they've won or give an offeror double costs whether they've won or lost, taking into account the factors set out a subrule (6):
In making an order under subrule (5), the court may consider the following:
(a) whether the offer to settle was one that ought reasonably to have been accepted, either on the date that the offer to settle was delivered or served or on any later date;

(b) the relationship between the terms of settlement offered and the final judgment of the court;

(c) the relative financial circumstances of the parties;

(d) any other factor the court considers appropriate.
Essentially, said the court, an award of double costs is intended to punish a party who rejects a reasonable offer:
"[31] The issue of awarding double costs was recently reviewed in Hartshorne v. Hartshorne. The rationale for the Rules ... emphasizes that an award of double costs is a 'punitive measure against a litigant for that party's failure, in all of the circumstances, to have accepted an offer to settle that should have been accepted'."
The court then looked at the circumstances of the parties, the application and the offer to settle, considering the 11-1(6) factors and the decision in Hartshorne:
"[35] In my view [the respondent's] offer was delivered in a timely way. However it was a lengthy proposal and not easily evaluated. The offer included a readjustment of the division of family assets which was a claim not properly before the Court at this time. ...

"[36] In my view this offer was overbroad and while it was open for acceptance it would not have been reasonable for [the applicant] to accept the terms. I also note that some terms were simply 'nuisance' terms that [the applicant] could not accept.

"[37] Subrule (6)(b) also refers to the relationship between the offer and the final judgment of the court. Again, the offer addressed many issues on which [the respondent] did not succeed ... [the respondent] failed to achieve a result equal to or better than his offer on [a number of points] ...

"[39] ... In view of the results of the ... applications, [the applicant's] failure to accept the offer from [the respondent] was not unreasonable and she should not suffer the punishment contemplated in Hartshorne.

[40] Subrule (6)(c) invites the court to consider the relative financial circumstances of the parties. Although I have considered that [the applicant's] financial circumstances do not rise to the level of hardship for the purposes of refusing [the respondent's] claim for costs, I am mindful that her obligations and means are limited. In my view, the state of [the applicant's] financial circumstances also militates against an order for double costs.

[41] In view of [the applicant's] circumstances, the fact that the offer to settle was not one that could reasonably have been accepted and that [the respondent's] measure of success was divided leads me to conclude that this is not a case warranting an award to [the respondent] of double costs.
Summarizing these factors, in rejecting the respondent's claim for double costs as a result of his offer to settle under Rule 11-1(5), the court took into account:
  • whether the offer was delivered in a timely manner relative to the application;
  • the complexity of the offer;
  • whether the offer dealt with issues not before the court on the application;
  • the presence of terms unacceptable on their face;
  • the number of issues on which the result was as good as or better than the offer; and,
  • the applicant's financial circumstances.
Finally, the court considered the respondent's claim for costs assessed at more than usual difficulty.
[45] ... Bouck J. described the test of what is necessary to succeed in a claim for costs at the higher scale in Bradshaw Construction Ltd v. Bank of Nova Scotia:
To get an assessment out of the category of 'ordinary' difficulty under Scale 3, into the categories of 'more than ordinary difficulty'; Scale 4, or to 'matters of unusual difficulty'; Scale 5, it is necessary to show a higher degree of difficulty. Scale 5 uses the word 'unusual'. Its dictionary meaning is 'not often occurring or observed, different from what is usual; out of the common, remarkable, exceptional.' Therefore, the question is whether the collection and proof of the difficult facts were uncommon, remarkable or exceptional events? I do not believe they were.
"[46] The evidence did not rise to the level of more than ordinary difficulty. The affidavits recounted each parties' understanding of the facts and there was little conflict or difficulty in explaining the facts ... this application did not engage uncommon, remarkable or exceptional events or circumstances ... nothing in the applications engaged a difficult issue of law or fact. [The respondent's] efforts were not uncommon, remarkable or exceptional."
At the end of the day, the respondent failed to receive double costs or have his costs assessed at more than the usual level of difficulty. Because success was divided, the ordinary costs awarded to the respondent were offset by the ordinary costs awarded to the applicant. And as for the costs of the application on costs?
"[58] The parties will each bear their own costs of this application."
This case is perhaps unremarkable in its result, however it deserves to be noted for its extremely helpful digest of the case law on costs and its application of the cases determined under the old rules to the new rules.