IN THE SUPREME COURT OF BRITISH COLUMBIA
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Citation: |
Kraft v. Kraft, |
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2018 BCSC 1184 |
Date: 20180713
Docket: E16952
Registry: Smithers
Between:
Virginia Anne Lily Kraft
Claimant
And
Klaus Helmut Kraft
and
Sylvia Kempenaar
Respondents
Before: The Honourable Madam Justice Maisonville
Reasons for Judgment on Costs
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Written submission by the Claimant: |
April 30, 2018 |
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Written submission by the Respondent, Klaus Helmut Kraft: |
May 11, 2018 |
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Written submission by the Respondent, Sylvia Kempenaar: |
May 11, 2018 |
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Response submission by the Claimant: |
May 17, 2018 |
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Place and Date of Judgment: |
Smithers, B.C. July 13, 2018 |
[1] These reasons on costs follow my decision in Kraft v. Kraft, 2018 BCSC 496, delivered on March 27, 2018 (the “Reasons for Judgment”). The issues at trial were division of family property, retroactive and ongoing spousal support, and pension division.
[2] The parties also seek directions on a number of additional matters, namely the disposition of $14,000 remaining in a trust account for the claimant, Ms. Kraft, and settling of the order with respect to pension division. These matters are addressed below.
[3] The claimant, Ms. Kraft, sought retroactive and ongoing spousal support and division of family assets, including a claim for division at source of Mr. Kraft’s pension with BC Hydro and Power Authority. She also made a claim against the respondent Sylvia Kempenaar that Ms. Kempenaar held the house she lived in with Mr. Kraft, which is registered in her name only, in trust. At trial, it was argued this pertained to Mr. Kraft’s payments towards the mortgage on the house, which was referred to at trial as the Telkwa property.
[4] Mr. Kraft’s position at trial was that no retroactive or ongoing spousal support should be ordered. He also opposed reapportionment of his pension.
[5] In my Reasons for Judgment, I ordered that Mr. Kraft and Ms. Kraft’s family assets be divided equally. I found that Ms. Kraft had wrongfully dissipated $90,000 (originally $100,000 but $10,000 was paid back) by loaning it to her friends, Mr. and Mrs. Jellett, and ordered that the money be divided equally between Mr. Kraft and Ms. Kraft in the event that it is paid back.
[6] I found that Ms. Kraft was entitled to retroactive spousal support of over $550,000. To give effect to the spousal support award, I ordered Mr. Kraft to pay his share of the family assets toward the arrears, and that Mr. Kraft’s pension be divided equally with Ms. Kraft as at the date of trial, pursuant to s. 129 of the Family Law Act, S.B.C. 2011, c. 25 [FLA].
[7] I dismissed Ms. Kraft’s claim against Ms. Kempenaar in its entirety.
[8] Ms. Kraft argues that she was successful at trial as against Mr. Kraft and, additionally, she seeks double costs against Mr. Kraft. Further, Ms. Kraft says the costs award should be made on the “more than ordinary difficulty” scale pursuant to Appendix B of the Supreme Court Family Rules, B.C. Reg. 169/2009 [SCFR], given the evidentiary difficulties associated with the 18-year gap between the parties’ separation and the date of trial; the pension division issue; an adjournment of the trial necessitated by last minute disclosure of 1,000 pages of records three days before the scheduled trial date; and the length of trial, of ten days, which exceeded the original estimate by five days.
[9] Ms. Kraft relies on two offers to settle that she made to Mr. Kraft. The first offer, made in December 2014, stipulated that Ms. Kraft would abandon her claim for retroactive and ongoing spousal support; Mr. Kraft would transfer his interests in the two family properties to Mr. Kraft; the pension would be divided pursuant to the “Rutherford” formula with Ms. Kraft’s entitlement dates being “the date of commencement of the pension until the date of the divorce order”; Ms. Kraft would abandon her trust claim against Ms. Kempenaar; Mr. Kraft would pay $70,000 to Ms. Kraft by March 1, 2015 to pay for repairs to the Houston home; Ms. Kraft would agree to disclose her dealings with Mr. and Mrs. Jellett regarding the $100,000 loan and to divide equally with Mr. Kraft any monies she may receive from the them on account of that loan; and the parties would bear their own costs. This offer was repeated in June 2017, during the adjournment period between the first and second halves of the trial, and Ms. Kempenaar was included on that offer.
[10] Ms. Kraft’s position is that the December 2014 offer is “nearly exactly” what was decided by the court in 2018, and that Mr. Kraft ought to have accepted it. Pursuant to Rule 11-6 of the SCFR, Ms. Kraft should be entitled to double costs.
[11] With respect to Ms. Kempenaar, Ms. Kraft acknowledges that ordinarily she would be entitled to her costs, but argues that no costs order should be made given the second offer to settle including Ms. Kempenaar with Mr. Kraft. She argues that Mr. Kraft and Ms. Kempenaar have been “spousal partners” for the purposes of this litigation, rather than “independent litigants” without any legal duty or connection to each other. If Mr. Kraft had accepted the December 2014 offer or the June 2017 offer, the claim against Ms. Kempenaar would have been withdrawn.
[12] Mr. Kraft seeks that no costs be payable by him to Ms. Kraft. He argues that the parties experienced mixed success at trial, saying he succeeded in his claim for equal division of the two family properties, and in his opposition to Ms. Kraft’s claim for ongoing spousal support. As I understand his argument, he also suggests that the pension division order as at the date of trial was less favourable to Ms. Kraft than if she had accepted an offer to settle he made to divide the pension as at the date of separation, plus $500 in ongoing monthly spousal support payments.
[13] In the alternative, if the court finds that Ms. Kraft was substantially successful, Mr. Kraft says I should exercise my discretion to decline to award costs against him. Mr. Kraft argues that:
i. he is 71 years old, has a limited income consisting mostly of pension benefits, and expects to make approximately $41,000 a year;
ii. he has no significant assets, excluding the Telkwa property, as he is not on title, and his BC Hydro pension, and he has significant debt accrued from legal fees;
iii. the court found at para. 179 of the Reasons for Judgment that the parties need a clean break;
iv. awarding costs would upset the balance achieved by the judgment allowing both parties to have a modest retirement with some financial security.
[14] With respect to the scale of costs, Mr. Kraft’s position is that this matter was of ordinary difficulty, and if the matter is found to be of increased difficulty, it was mostly due to Ms. Kempenaar being added as a respondent on a novel claim not founded in law. If costs are awarded, they should be at the ordinary difficulty scale.
[15] Mr. Kraft further argues that if costs are awarded against him, the amount should consist of a lump sum award equal to half of the funds held in trust by Ms. Kraft’s counsel, or approximately $7,000.
[16] Ms. Kempenaar says she was wholly successful at trial as against Ms. Kraft, and costs should follow the event. She further seeks double costs, based on an offer to settle she made to Ms. Kraft on December 9, 2016. The offer was as follows: “If your client withdraws the claim against my client, my client will not seek costs against your client for the proceedings thus far”, including the previous proceedings at the Court of Appeal. She relies on Rule 11-1(5) of the SCFR.
[17] The issues with respect to costs are as follows:
a. Whether Ms. Kraft was substantially successful against Ms. Kraft, and if so, whether the court should award her double costs;
b. Whether Ms. Kempenaar is entitled to double costs as against Ms. Kraft; and
c. Whether the costs should be determined at the “more than ordinary difficulty” scale.
[18] Unless the court otherwise orders, costs in a family law case are awarded to the successful party: SCFR, Rule 16-1(7). A successful party is one who has been substantially successful: MacLean v. Mio, 2011 BCSC 148 at para. 30.
[19] Determining which party has been substantially successful requires an objective comparison of the results obtained by the parties with the parties’ submissions at trial: MacLean at para. 30.
[20] In D.J.D. v. M.L.D., 2017 BCSC 1417, Justice Dardi summarized the law on determining substantial success:
[14] … In a family law case involving multiple issues and where there has been divided success, the Court must engage in a “substantial success” analysis. Substantial success, as defined in the authorities, is when the prevailing party succeeds on 75% or more on the matters in dispute. Substantial success in the litigation is measured objectively and is to be determined by the trial judge by considering the disputed matters globally. The weight and importance of all the matters in dispute are to be taken into account together with the parties’ corresponding relative success or failure. The 75% success threshold is intended to serve as a “rough and ready guide” and the Court is not required to evaluate the substantial success threshold with mathematical precision: Gold v. Gold (1993), 82 B.C.L.R. (2d) 180, 106 D.L.R. (4th) 452 (C.A.), leave to appeal ref’d [1993] S.C.C.A. No. 441; Fotheringham v. Fotheringham, 2001 BCSC 1321, leave to appeal ref’d 2002 BCCA 454; Paul v. Pumple, 2013 BCSC 1844; Marquez v. Zapiola, 2014 BCCA 35 at paras. 15-16; D.R. v. E.P.R., 2016 BCSC 550 at para. 8.
[15] In Fotheringham at para. 46, Mr. Justice Bouck endorsed a four-step inquiry in assessing whether a party in a family law case has achieved substantial success in the litigation:
1. First, by focusing on the “matters in dispute” at the trial. These may or may not include “issues” explicitly mentioned in the pleadings.
2. Second, by assessing the weight or importance of those “matters” to the parties.
3. Third, by doing a global determination with respect to all the matters in dispute and determining which party “substantially succeeded,” overall and therefore won the event.
4. Fourth, where one party “substantially succeeded,” a consideration of whether there are reasons to “otherwise order” that the winning party be deprived of his or her costs and each side then bear their own costs.
[16] It is clear from the appellate decisions that a trial judge retains the discretion to determine whether there is a sound basis for displacing the usual costs award. Any discretionary exception to the usual costs rules must be made judicially: Bailey v. Victory (1995), 4 B.C.L.R. (3d) 389 at para. 13, 57 B.C.A.C. 23 (C.A.).
[21] In Litt v. Gill, 2016 BCCA 288, Justice Garson commented on the unique problem costs pose in family law cases involving multiple issues, noting that the concept of “success” may require a more flexible approach for the purposes of assessing costs:
[53] At its most basic, the successful party is the plaintiff who establishes liability and obtains a remedy, or the defendant who obtains dismissal of the plaintiff's case: Loft v. Nat, 2014 BCCA 108 at para. 46. This general principle is more difficult to apply in the context of family cases, where there may be a panoply of claims advanced by each party, and divided success. There, a more flexible “substantial success” test may be more appropriate: see this Court’s decisions in Harras v. Lhotka, 2016 BCCA 246 at para. 48 and Marquez v. Ziapola, 2014 BCCA 35 at para. 16. Costs can also be divided among parties where there is divided success. Success does not imply that a successful plaintiff must be successful on every issue in order to recover costs: Robbins v. Pacific Newspaper Group, 2006 BCSC 872, 54 B.C.L.R. (4th) 135 at para. 17.
[22] In Gold v. Gold, [1993] B.C.J. No. 1792 (Q.L.), 106 D.L.R. (4th) 452 (C.A.), the Court of Appeal described the trial judge’s discretion to deviate from the usual rule that costs are awarded to the successful party:
[20] The question, then, is: when should the Court order otherwise? With respect, 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.
[23] The onus of persuading the court that it should depart from the usual rule rests on the unsuccessful litigant: Louie v. Louie, (1996) 64 A.C.W.S. (3d) 1321 (S.C.) at para. 7.
[24] In a family law case in which an offer to settle has been made, Rule 11-1(5)(b) provides that, among other options, the court may “award double costs of all or some of the steps taken in the family law case after the date of delivery or service of the offer to settle”.
[25] A double costs award 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. It serves as a reminder that costs rules are in place “to encourage the early settlement of disputes by rewarding the party who makes a reasonable settlement offer and penalizing the party who declines to accept such an offer”: Hartshorne v. Hartshorne, 2011 BCCA 29 at para. 25. In addition, the purpose of costs rules includes deterring frivolous actions or defences; encouraging conduct that reduces the duration and expense of litigation and discouraging litigation that has the opposite effect; encouraging litigants to settle wherever possible, thus freeing up judicial resources for other cases; and providing a “winnowing function in the litigation process” by requiring litigants to carefully assess the strengths and weaknesses of their cases at the outset and throughout the course of the litigation: Hartshorne at para. 25.
[26] Rule 11-1(6) provides that 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.
[27] The first factor, whether the offer to settle ought reasonably to have been accepted, requires the court to determine whether, at the time that the offer was open for acceptance, it would have been reasonable for it to have been accepted. The reasonableness is to be assessed by considering such factors as “the timing of the offer, whether it had some relationship to the claim (as opposed to simply being a “nuisance offer”), whether it could be easily evaluated, and whether some rationale for the offer was provided”: Hartshorne at para. 27.
[28] A plaintiff who rejects a reasonable offer should usually face some sanction in costs: C.P. v. RBC Life Insurance Company, 2015 BCCA 30.
[29] Appendix B of the SCFR provides that if the court has made an order for costs, it “may determine if the family law case involves less than ordinary difficulty, ordinary difficulty or more than ordinary difficulty.”
ANALYSIS
[30] Considering the parties’ positions and the outcome at trial, I conclude that Ms. Kraft clearly enjoyed substantial success at trial as against Mr. Kraft. The court found that Ms. Kraft was entitled to retroactive spousal support, and ordered that Mr. Kraft’s one-half share of the family assets be used to pay down the arrears. Ms. Kraft was successful on the evidentiary issues, including credibility, and establishing a reasonable basis for her delay in bringing the claim for spousal support. Ms. Kraft was successful with respect to the pension, which was divided as at the date of the Reasons for Judgment in this matter. As noted at para. 183 of the Reasons for Judgment, the family property order and the pension division order combined had the effect of a lump sum payment of spousal support, in lieu of both retroactive and ongoing support. Mr. Kraft’s argument that he was successful because no ongoing support was ordered is, therefore, without merit.
[31] I note as well that equal property division was not a contentious issue at trial. The most contentious and time-consuming issues were retroactive spousal support and pension division, and Ms. Kraft was successful on both. Even considering my finding that Ms. Kraft wrongfully dissipated the $100,000 she loaned to Mr. and Mrs. Jellett, Ms. Kraft was easily more than 75% successful in this matter.
[32] I see no compelling reason to exercise my discretion to depart from the usual rule that costs follow the event. Mr. Kraft says I should consider the hardship he would experience as a result of a costs award, his low earning capacity, and the importance of not upsetting the balance achieved by the Reasons for Judgment. It must be remembered that Ms. Kraft was the financially disadvantaged party after the parties separated. I do not consider that a costs award would cause hardship or upset the balance achieved by the Reasons for Judgment. In all the circumstances, I have determined that a costs award is appropriate.
[33] I now turn to Ms. Kraft’s application for double costs, and a consideration of the factors in Rule 11-1(6).
[34] I am of the view that the December 2014 offer to settle ought reasonably to have been accepted by Mr. Kraft. The offer was made well before trial. It was comprehensive in nature, and would have resolved all of the issues in dispute between the parties, thus avoiding the need for a trial. It was sufficiently detailed and clear so as to be easily evaluated by Mr. Kraft. These factors weigh in favour of a finding that the offer was reasonable, as set out in Hartshorne and noted by the court in K.M. v. I.M., 2017 BCSC 716 at para. 15.
[35] In the circumstances, the content of the offer was reasonable in terms of Mr. Kraft’s position. The spousal support claim would have been abandoned in exchange for reasonable reapportionment of assets between the parties. For a relatively moderate sum of $70,000 and half his properties, Mr. Kraft would have been freed of any retroactive or ongoing spousal support obligations. This was significant because Ms. Kraft had a strong claim for spousal support. It was also reasonable for the offer to provide that Mr. Kraft would agree to divide the pension pursuant to the Rutherford formula with Ms. Kraft’s entitlement date running from the date of the commencement of the pension until the date of the divorce order. The parties would have had a clean break, and avoided the costly and time-consuming litigation that ensued.
[36] As noted in Crick v. Crick (1997), 43 B.C.L.R. (3d) 251 at para. 8, where there has been an accurate and timely offer to settle potentially destructive litigation, double costs “ought to be the rule rather than the exception.”
[37] Mr. Kraft argues that Ms. Kraft’s offer to settle required him to gain the cooperation of Ms. Kempenaar and, therefore, was not one that ought reasonably to have been accepted: 469238 B.C. Ltd. (Lawrence Heights) v. Okanagan Aggregates Ltd. (Motoplex Speedway and Event Park), 2016 BCSC 1159 at paras. 18 and 22–25. However, the language of the December 2014 offer to settle did not strictly require Mr. Kraft to obtain Ms. Kempenaar’s cooperation. One of the terms of the offer was: “Ms. Kraft will sign any release document prepared by [Mr. Kraft’s counsel] abandoning her trust claim against Sylvia Kempenaar for Mr. Kraft’s interest in that property”. This term did obligate Mr. Kraft to prepare the release, but gave him the option to do so, which would have been favourable to his position and that of Ms. Kempenaar. Further, such a release could likely have been prepared in such a way as not to require Ms. Kempenaar’s cooperation, if necessary, because it ultimately related to a claim to Mr. Kraft’s interest in the property.
[38] In terms of the relationship between the offer and the result at trial, the December 2014 offer to settle was roughly equivalent to the result at trial. I am satisfied that Mr. Kraft would have been financially better off, on a global basis, if he had accepted the offer as compared to proceeding to trial: see Kopp v. Kopp, 2011 BCSC 889 at para. 7. The offer contained a term that Mr. Kraft would pay a lump sum of $70,000 to Ms. Kraft, on top of transferring his interests in the family properties and dividing the pension. No such order was made at trial. However, Mr. Kraft was found to owe Ms. Kraft over $550,000 in spousal support arrears, which he was not ordered to pay all of only because of his inability to pay that amount. Regardless of the $70,000, Mr. Kraft would have been in a better global financial position in 2014 upon acceptance of the offer because he would not have incurred the significant legal fees that he would go on to incur in the following three years of preparation for trial and the trial itself.
[39] Further, if Mr. Kraft had accepted the offer, he would not have been in the position of being ordered by Justice Crawford to pay interim monthly spousal support in the amount of $2,750 commencing February 1, 2015, which resulted in him paying $33,000 per year from 2015 to 2017: see Reasons for Judgment at paras. 48 and 58. That amounts to $99,000 in expenditures that he would have avoided. Those amounts were taken into account in the final judgment, and thus form part of the result at trial.
[40] The third factor under Rule 11-1(6), the relevant financial circumstances of the parties, also weighs in favour of a double costs order. As noted in the Reasons for Judgment, Ms. Kraft has lived a lifestyle of poverty and Mr. Kraft has not. Ms. Kraft was financially dependent on Mr. Kraft during their relationship and after separation, and was in a poor financial situation in part due to Mr. Kraft underpaying her spousal support over so many years.
[41] In considering the circumstances of this case, I exercise my discretion to award double costs against Mr. Kraft from the beginning to the end of trial.
Ms. Kempenaar’s costs application
[42] Ms. Kempenaar was wholly successful at trial as against Ms. Kraft, as the claim against her was dismissed. Costs should follow the event.
[43] I conclude, in the circumstances of this matter, that Ms. Kempenaar will enjoy double costs for the trial of this action before me, pursuant to Rule 11-1(5) of the SCFR, and considering the factors under Rule 11-1(6) of the SCFR.
[44] With regard to the factors outlined in Hartshorne, in my view, Ms. Kempenaar’s offer to settle ought reasonably to have been accepted by Ms. Kraft. The offer was made after Ms. Kempenaar was successful at the Court of Appeal in an attempt by Ms. Kraft to amend her pleadings relating to the claim against Ms. Kempenaar to add claims of, inter alia, unjust enrichment. It was also made well before trial. Given the comments of the Court of Appeal in its decision and the novelty of the claim against Ms. Kempenaar without a foundation in law, and given that the amendments were not permitted by the Court of Appeal, the offer by Ms. Kempenaar to forgo all costs was a reasonable one and ought to have been accepted by Ms. Kraft.
[45] Ms. Kempenaar’s offer was also more favourable to Ms. Kraft than the result at trial as between her and Ms. Kempenaar. If Ms. Kraft had accepted the offer, she would not have been in the position she is in now — being ordered to pay costs to Ms. Kempenaar.
[46] With respect to the relative financial circumstances of the parties, I find that this factor is not of much significance here.
[47] I do not accede to Ms. Kraft’s argument that Ms. Kempenaar and Mr. Kraft should be not be viewed as independent litigants for the purposes of determining costs. I was referred to no authority in support of this assertion. Ms. Kraft made the decision to add Ms. Kempenaar as a named respondent, and made a separate trust claim against her. Further, Ms. Kempenaar was represented by different counsel than Mr. Kraft. While Mr. Kraft’s and Ms. Kempenaar’s interests were aligned in this litigation, they were independent litigants for cost purposes, and it was unnecessary for Ms. Kempenaar to be a named respondent.
[48] Overall, in all the circumstances, the considerations under Rule 11-1(6) of the SCFR weigh in favour of a double costs order from the date of the offer to the completion of the trial.
[49] I have determined that the costs awarded in this matter should be assessed based on ordinary difficulty.
[50] The trial took place over ten days. The court heard from lay witnesses, and was provided with an expert report along with property appraisals. While the parties certainly had to deal with evidentiary difficulties given the 18-year gap between the parties’ separation and the time of trial, the legal issues themselves were not overly complex. In the circumstances, I see no basis for a finding that the trial was of more than ordinary difficulty.
ADDITIONAL MATTERS
[51] The parties raised additional matters.
[52] Any issues relating to costs of the Court of Appeal proceeding should have been dealt with at the Court of Appeal. I will not order costs in this regard and leave it to the parties to pursue that issue before the Court of Appeal should they wish to do so.
[53] In respect of the settling of the order, I direct that it be settled before a registrar or master of the court.
[54] Approximately $14,000 is currently being held in trust for Ms. Kraft by her counsel, Mr. Greene. The funds were obtained from Canada Savings Bonds which were cashed in as of 2014. The parties have not agreed on how the funds should be disposed of.
[55] I order that the $14,000 in Mr. Greene’s account held in trust for Ms. Kraft, as with the other assets of the parties, is to be divided equally, and Mr. Kraft’s share is to be applied towards the arrears of spousal support owing by Mr. Kraft to Ms. Kraft. This order is consistent with the Reasons for Judgment and the disposition of the spousal support and property division issues set out in those Reasons.
[56] Ms. Kraft in essence sought to reopen the issue of the pension by arguing the survivorship issue of Mr. Kraft’s pension and hers. The pension has been divided at source and is the property of each respective party which he or she can do what he or she sees fit. This issue, accordingly, has been determined and will not be further addressed.
[57] I thank counsel for their written submissions on this matter.
“Maisonville J.”