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  • Writer's pictureJared Davies, Lawyer

Examining some of the cost consequences of bad faith behaviour

In an earlier blog post, I examined how costs awards (i.e. lawyer fees, disbursements, etc.) are granted in family law. But there is a breadth of additional case law on one very specific consideration, that of bad faith. A finding of bad faith can have significant consequences on the party committing it. Rule 24(8) states: If a party has acted in bad faith, the court shall decide costs on a full recovery basis and shall order the party to pay them immediately. In other words, if the court finds that a party acted in bad faith, they will likely have to pay the other party’s legal fees on a full recovery basis. Despite this, the court has stated in cases like Jackson v Mayerle, 2016 ONSC 1556 that, [e]ven where the "full recovery" provisions of the Rules are triggered — either by an offer which meets Rule 18(14) requirements, or by a finding of bad faith — quantification of costs still requires an overall sense of reasonableness and fairness. For instance, unreasonable lawyer fees may not necessarily be automatically awarded.

In the 2017 Ontario Court of Appeal case of Berta v Berta, a mixed success result at trial, the wife had to pay the husband’s lawyer fees of $322,125.70 because of bad faith, plus her own lawyer fees. In other words, when a court finds bad faith has occurred, they can shift the entirety of the reasonable party’s fees to the “guilty” party. This can occur even where the party was not wholly successful at the proceeding.

Manchella v Manchella, 2013 ONSC 367, is a frequently cited decision on bad faith. The court remarked:

Conduct that is intended to deceive or mislead can establish bad faith. Bad faith can also be established by the intentional failure to fulfill an agreement in order to achieve an ulterior motive or, an intentional breach of a court order with a view to achieving another purpose: P. (M.L.) v. P. (G.W.) (2004), 129 A.C.W.S. (3d) 123 (Ont. S.C.J.).

The essence of bad faith is the representation that one's actions are directed toward a particular goal while one's secret, actual goal is something else, something that is harmful to other persons affected or at least something they would not willingly have supported or tolerated if they had known. However, not all bad faith involves an intent to deceive. To come within the meaning of bad faith in rule 24(8), behaviour must be shown to be carried out with the intent to inflict financial or emotional, harm on the other party or other persons affected by the behaviour, to conceal information relevant to the issue or to deceive the other party or the court. S. (C.) v. S. (M.) (2007), 38 R.F.L. (6th) 315 (Ont. S.C.J.) (S.C.J. affirmed in 2010 CarswellOnt 1493 (Ont. C.A.))

Unreasonable conduct stemming from bad judgment, carelessness, negligence, or otherwise should not be equated with bad faith. Husein v. Chatoor, 2005 ONCJ 487, [2005] O.J. No. 5715 (Ont. C.J.).

Bad faith requires a finding of intent to conceal information relevant to an issue, or to deceive the other party or the court. The potential for an innocent explanation does not inoculate a party from a finding of bad faith, but neither is it to be ignored absent evidence of intent.

A finding of bad faith must be approached cautiously as the consequences will often extend beyond an increased award of costs. In high conflict matters such as this, a finding can escalate conflict as parties battle to hold, or to reclaim the litigation high ground.

While the statements in Manchella are quite broad, the reality is that a judge will have the discretion to consider whether a party’s conduct is in fact bad faith conduct—decided on a case-by-case basis. This might occur if the court finds that one of the parties intended to deceive the other party by hiding assets or misrepresenting their income, for example. However, bad faith is actually a rather rare finding.

Other cases provide more insight. In the more recent decision of Weber v Weber, 2020 ONSC 6855, the court outlined more principles:

As indicated above, Rule 24(8) is relevant to both liability for costs and the appropriate quantum. It provides that where a party has acted in bad faith, the court shall decide costs on a full recovery basis and shall order that the party pay them immediately. The full recovery portion of the award should relate to the issues affected by the bad faith. Once the full recovery analysis is complete with respect to those issues, the court should assess costs in relation to the other issues by considering the overall circumstances of the case in light of the factors outlined in Rule 24(12), and should use the discretion permitted by that section to reach a correct overall result (Hunt v. Hunt, 2001 CarswellOnt 4548 (Ont. S.C.J.), at para. 13; Snelgrove, at para. 32).

In other words, according to this decision, the court should consider which issues were affected by bad faith conduct and only award full recovery costs on those issues alone. The other issues, not affected by bad faith, should not be lumped into this. Regarding specific conduct amounting to bad faith, Appeldoorn v Mills, [2009] O.J. No. 2081, an appeal decision, noted:

[The judge] went on to find that the father acted in bad faith, based on a number of considerations: the father's unilateral acts to change the parenting schedule in December 2007; his claim for interim sole custody for both children, while having K live with the respondent, which was described as "nonsensical" and motivated by a desire to control K's treatment; his efforts to control the respondent's access to E, which was "unsupportable and contrary to the children's best interests"; his malicious and unfounded allegations against the respondent; and his unfounded complaints about K's therapist. The motions judge concluded that the conduct "goes well beyond merely bad judgment". She found that he had acted in bad faith, and, therefore, costs should be on a full indemnity basis.

She also found that the respondent's behaviour was reasonable and the applicant's was not. She did not find it appropriate to take into account the applicant's ability to pay. Having considered the costs sought, she made a reduction and ordered the amount she believed was reasonable and in keeping with the circumstances.

It is unclear whether each factor, “unilateral acts to change the parenting schedule, efforts to control the respondent’s access contrary to the best interests of the children’s best interests, malicious and unfounded allegations against the respondent and unfounded complaints about the therapist” was enough to support the bad faith finding or whether it was a cumulation of all the factors. Further, In Reisman v Reisman, [2007] OJ No 5538 the court noted:

I found that the respondent had failed to make complete, frank and early disclosure and that this required the applicant to come to court many times which should not have been necessary. I found that he put roadblocks in the way of the applicant's disclosure requests and that my review of the answers he provided suggested that he was being deliberately evasive. I found that he dealt with his obligation to make disclosure as though it were a game or a tactic and that the tactic appeared to be to stonewall the applicant's legitimate requests for disclosure in the hope that she will be run out of resources and give up.

In my view, this conduct amounts to bad faith. Pursuant to Rule 24(8) of the Family Law Rules, if a party has acted in bad faith, the court shall decide costs on a full recovery basis and shall order the party to pay them immediately.

This is an interesting finding given that non-disclosure is a very common issue in family law that does not always lead to a finding of bad faith. However, in Reisman, perhaps the finding of deliberate evasiveness is what crossed the threshold.

Most significantly (i.e., regarding financial consequences), in Berta v Berta, 2017 ONCA 874, the wife appealed several of the trial judge’s decisions, such as her award of over $8,000 per month in spousal support, the equalization award, and costs. Despite having success in the appeal, such as spousal support increasing from $8,000 per month to almost $14,000 per month and having the equalization payment changed, the court did not change the award of costs against the wife:

At the first trial, the trial judge awarded [the husband] full indemnity costs fixed at $460,179.57.

On appeal, this court identified two errors in the trial judge's costs analysis — his treatment of [the husband's] offer to settle and his conclusion that [the husband] had been successful at trial "[o]n all material issues". The court returned the costs issue to the trial judge "to fix an appropriate award of costs, in light of the relative success of the parties, their conduct at trial, and other relevant considerations under the Rules."

At the rehearing, the trial judge made a specific finding that [the wife] acted in bad faith at the original trial. However, he heeded the comments of this court and concluded that [the husband] should recover "a substantial portion of his costs", not full indemnity. He reduced the full indemnity costs by 30 per cent and awarded [the husband] costs of $322,125.70.

[The wife] submits that this costs award is unreasonable, especially since she was 'successful' on the spousal support issue.

I do not accept this submission. The trial judge was in the best position to assess the parties' conduct before and during a nine day trial. In both his trial and rehearing reasons he made explicit negative findings about [the wife's] conduct. In his rehearing reasons, the trial judge specifically stated that his findings at the trial "describe conduct that amounts to bad faith".

In its appeal reasons, this court referred to the trial judge's findings that "the Wife and her expert both acted unreasonably throughout the litigation" and "the Wife also made baseless allegations of fraud against the Husband", and continued: "These findings are amply supported by the evidentiary record. They strongly support an award of costs to the Husband on a full recovery basis."

Importantly, at the rehearing, the trial judge, taking account of this court's comments in its appeal reasons, reduced the costs award in favour of [the husband] by about $138,000.

In the end, I cannot say that the new costs award made by the trial judge at the rehearing — $322,125.70, not full indemnity costs of $460,179.57 — even approaches being unreasonable.

Thus, while the wife got several favourable decisions, she was still required to pay most of the husband’s legal fees because of her bad faith conduct. Why? At trial, in 2015 ONSC 1493 the court noted:

I find that the issues in the proceedings were both important and complex. The complexity was exacerbated by the conduct of the Applicant. Until the opening of the trial the Applicant would not even acknowledge the separation date. That remained an issue until the opening. At that time the parties agreed to the date of separation.

I also found in my reason for judgment that the applicant created the climate that gave the ostensible orders to her accounting expert to proceed in such a litigious manner that efforts to settle were throated by her accountant taken the unreasonable position of not participating in meetings that would narrow or possibly settle some or all of the issues.

The unending requests for disclosure were out of proportion to the task that the applicant's expert was engaged to do and qualified at trial to do. Instead, I found, in my reason that the applicant and her experts sought to find fraud under every rock they sought to look under. This unreasonable conduct on the part of the Applicant and her accounting professionals positioned this matter in in such a way that the only path to completion was a litigious and costly path.

I agree with counsel for the Respondent, that the Applicant made baseless allegations of fraud, despite fraud not being pled. She was also unsuccessful on many of the positions she took relative to the net family property statements she was advancing. An example of her taking such unreasonable positions was her attempts to have gifts from her husband to her excluded from the calculation of her net family property. That position had no chance of success in law. Yet that issue occupied trial time and clouded the real issues that had to be addressed.

On the matter of bad faith, the Court of Appeal agreed at 2015 ONCA 918:

These findings are amply supported by the evidentiary record. They strongly support an award of costs to the Husband on a full recovery basis. In particular, I note that, although the Wife did not expressly plead fraud, the record confirms that, supported by her expert, the Wife repeatedly alleged or insinuated fraudulent conduct by the Husband throughout the trial. On the trial judge's findings, the Wife failed to establish fraud and, generally, acted unreasonably in the conduct of the litigation.

The Court of Appeal indicated there was mixed success at trial. Thus, the costs award mostly reflected the fact that the wife engaged in bad faith conduct throughout trial. In addition to getting the bill of over $300,000 for her husband’s fees, she also reportedly spent over $700,000 on her own.

Obvious takeaways? While there are a number of considerations the court has at their disposal in looking at the global context of a case, in order to award costs (i.e. see here), a finding of bad faith has significant implications. The court has discretion in finding bad faith, and the court has repeatedly stated that these findings are usually resulting from intent to deceive and/or mislead, or intent to cause emotional or financial harm. Obviously, the conduct must be severe enough to “matter”. Unreasonable conduct, which suggests a lack of intent, should not normally reach this threshold. Finally, some cases have suggested that despite the fact that the legislation directs a full recovery basis for bad faith conduct, the court still must look at the overall fairness and reasonableness of the costs award.


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