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In the Estate of Stefanie Aber, deceased, 2015 ONSC 5123
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IN THE ESTATE OF STEFANIE ABER, deceased
IN THE MATTER OF THE PASSING OFACCOUNTS
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Gregory M .Sidlofsky and Brendan Donovan, for the Appellant Hilda Heston-Cook
Lisbeth A. Hollaman, for the Respondent Erna Schneider, as Estate Trustee and Attorney for Property |
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HEARD at Toronto: June 30, 2015 |
Swinton J.:
Overview
[1] This is an appeal pursuant to s. 10 of the Estates Act, R.S.O. 1990, c. E.21 from the order of C. Brown J. (“the trial judge”) dated December 16, 2013. Following a five day trial on a contested passing of accounts, the trial judge held that Erna Schneider, as Estate Trustee and Attorney for Property (‘the respondent”), was entitled to compensation of $129,861.05. In the costs decision dated December 3, 2014, the trial judge ordered that Hilda Heston-Cook (“the appellant”) pay costs personally on a full indemnity basis in the amount of $192,000.
[2] On this appeal, the appellant seeks to set aside the passing of accounts on the basis that the compensation awarded was excessive. She also seeks leave to appeal the costs order, both on the basis of quantum and the fact that it was made against her personally.
[3] For the reasons that follow, I would allow the appeal of the order passing the accounts in part, reducing the deduction from the appellant’s shareof the residue from $7,000 to $3,500 and reducing the compensation of the Estate Trustee to remove the care and management fee. I would grant leave to appeal the costs order and impose a blended costs order, whereby the appellant is required to pay partial indemnity costs of the litigation with the balanceof the respondent’s legal costs payable from the estate.
Background Facts
[4] The appellant and the respondent are sisters. The respondent lives with her family in Toronto, in a house not far from the home where the parties’ parents lived until their deaths. The appellant has lived most of her adult life in the United States.
[5] The parents, August Albert Aber and Stefanie Aber, named the respondent as Attorney for Property and as Estate Trustee in their wills. The respondent began exercising the Powers of Attorney in September 2002, after the parents were declared incapable. Mr. Aber died in February 2004 and Mrs. Aber in March 2008. Both parents had continued to live in their home until death. The respondent managed their assets, paid their bills, filed their income taxes, hired and supervised caregivers, and ensured that the house was maintained and kept in good repair.
[6] Under Mrs. Aber’s will, made in 1995, the respondent received the parents’ house in Toronto and the appellant received a specific bequest of$100,000. The respondent transferred the house in May 2008 and paid the $100,000 bequest by October 2008. The residue of the estate was to be divided equally between the two sisters.
[7] The appellant initiated detailed inquiries about the assets in the estate and the actions of the respondent while she was acting as her mother’s Attorney for Property. The appellant was provided with copies of the respondent’s estate accounts in court format in November 2008, and further information was supplied in response to the appellant’s requests for information and objections in January 2009. The respondent prepared these materials.
[8] In January 2009, the appellant asked that new accounts be provided in an accounting format, rather than court passing of accounts format. The respondent arranged for an accountant to prepare these accounts, and they were provided to the appellant immediately. Further requests for information and meetings followed. By September 2009, the appellant had been provided with over 750 pages of documents, including backup receipts for expenditures, tax information and information relating to employee payroll accounts.
[9] On February 11, 2011, the respondent applied to the Court to pass her accounts as Attorney for Property from September 13, 2002 to February 29, 2008 and as Estate Trustee from March 1, 2008 to November 1, 2010. She initially requested compensation of $141,222.59. The appellant filed a Noticeof Objection in April 2011, arguing that the requested compensation was too high. The amount of compensation sought was reduced to $138,074.67 in the Response to the Notice of Objections.
[10] Ultimately, a five day trial was held with respect to the passing of accounts in May 2013. The trial judge ruled in the respondent’s favour on every issue except the valuation of the house, which she reduced from $890,000 to $820,000, thus reducing the compensation by about $9,000. She awarded the respondent compensation of $63,200.84 as Attorney for Property and $66,660.21 as Estate Trustee for a total of $129,861.05. She also ordered that $7,000 be deducted from the appellant’s share of the residue to compensate the estate for $7,000. That amount had been paid from the estate to the respondent to satisfy a 2003 costs order made against the appellant that was not paid. The 2003 litigation was brought by the appellant seeking an order that the respondent pass her accounts as Attorney for Property for her parents, as well as provide financial and medical information. That application was dismissed.
The Issues on Appeal
[11] With respect to the passing of accounts, the appellant argues that the trial judge erred in three ways: in finding that the respondent was entitled to compensation based on the tariff and guidelines, including a care and management fee; in relying upon opinion evidence from real estate agent Donovan Clarke with respect to the valuation of the house; and in ordering that $7,000 be deducted from the appellant’s share of the residue of the estate becauseof the 2003 costs order.
[12] With respect to costs, the appellant argues that the trial judge erred in awarding costs on a full indemnity basis and in making those costs payable by the appellant personally.
The Passing of Accounts Issues
The Standard of Review
[13] Both parties agree that an appellate court cannot set aside an order passing accounts unless the judge has made an error in law or misapprehended the evidence such that there is a palpable and overriding error (Housen v. Nikolaisen, 2002 SCC 33 (CanLII) at paras. 8 and 10).
[14] With respect to an order of compensation for trustees, an appellate court should exercise “great restraint”. However, such restraint does not apply where the trial judge has made an error in principle, or the quantum of compensation is grossly insufficient or excessive (Laing Estate v. Laing Estate(1998), 1998 CanLII 6867 (ON CA), 41 OR. (3d) 571 (C.A.) at para. 10).
The Issue of Compensation
[15] An attorney for property may claim compensation in accordance with s. 40(1) of the Substitute Decisions Act, S.O. 1992, c. 30 (“the SDA”),which states:
A guardian of property or attorney under a continuing power of attorney may take annual compensation from the property in accordance with the prescribed fee scale.
The regulations under the Act set out a prescribed fee scale: 3% on capital receipts and disbursements, 3% on revenue receipts and disbursements, and a care and management fee of 3/5 of 1% annually on the annual average value of the assets (O. Reg. 26/95, s. 1).
[16] Entitlement to compensation for estate trustees is found in s. 61 of the Trustee Act, R.S.O. 1990, c. T.23 (“the TA”). Subsections 61(1) and 61(3)provide:
61(1) A trustee, guardian or personal representative is entitled to such fair and reasonable allowance for the care, pains and trouble, and the time expended in and about the estate, as may be allowed by a judge of the Superior Court of Justice.
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61(3) The judge, in passing the accounts of a trustee or of a personal representative or guardian, may from time to time allow a fair and reasonable allowance for care, pains and trouble, and time expended in or about the estate.
[17] While the TA does not set out a method to calculate compensation, the courts in Ontario have developed percentage guidelines to assist in quantifying trustee compensation. Since 1975, the Ontario guidelines or tariff provide for 2½% on capital receipts and disbursements, 2½% on revenue receipts and disbursements, and a care and management fee of 2/5 of 1% per annum on the gross value of the assets under administration.
[18] The judge conducting the passing of accounts should first test the compensation using the percentages approach and then cross-check the amount against the five factors set out in Toronto General Trust v. Central Ontario Railway (1905), 6 O.W.R. 350 (H.C.): the size of the trust, the care and responsibility involved, the time occupied in performing the duties, the skill and ability displayed, and the success resulting from the administration (LaingEstate, para. 8).
[19] With respect to a care and management fee for an estate trustee, a judge should consider whether “an extra allowance should be made for management, based on special circumstances” (Re Jeffery Estate, 1990 CarswellOnt 503 (Surr. Ct.) at para. 16, approved in Laing Estate at para. 9). The rationale for a care and management fee was explained by Horkins J. in Irwin v. Robinson, 2007 CarswellOnt 6368 (S.C.J.) at para. 70:
Care and investment in the executor’s year does not entitle the estate trustee to a care and management fee. The fee is intended to compensate after the executor’s year where the will creates a continuing trust that requires ongoing investment and management. Alternatively, there may be justification for the fee when litigation prevents immediate distribution for an appreciable period of time and management of the monies is required.
[20] In the present case, the trial judge set out the correct legal principles in her reasons, observing at para. 26:
Really, then, neither care and management fees nor any other part of an estate trustee’s compensation should be awarded as a matter ofroutine adherence to fixed percentages. Every case requires a careful examination of the facts to determine whether the compensation sought would be fair and reasonable.
[21] In this appeal, the appellant raises many of the arguments made before the trial judge. I would summarize the arguments as follows:
1. The estate was a simple one to administer, and therefore compensation should be reduced. The assets in the estate, at the time that the respondent began to act as Attorney for Property, were valued at $1.4 million, consisting of the house, bank accounts, savings bonds, and GICs. At the time she became Estate Trustee, the assets totaled $1.43 million in essentially the same mix.
2. The trial judge inappropriately considered the time taken by the respondent in providing personal care to her parents (see the Reasons, para. 34). This is not relevant to the respondent’s compensation as Attorney for Property.
3. The respondent, as Estate Trustee, is not entitled to fees for capital receipt and disbursement attributable to the distribution of the house to herself personally.
4. The respondent did not exercise much responsibility over the assets of the trust during her mother’s lifetime. She continued to invest in GICs and bonds, as her parents had done, rather than employ a financial advisor.
5. The respondent failed to maintain accurate accounts.
6. It was inappropriate to award a care and management fee, given the nature of the estate and given the respondent’s lack of skill in managing the financial assets. In particular, there were no special circumstances justifying the award of a care and management fee while she was Estate Trustee.
[22] Some of these complaints relate to the period when the respondent acted as Attorney and some when she was Estate Trustee. It is helpful to treat the two periods separately.
[23] The compensation of $63,200.84 as Attorney is for a period of 5 ½ years. About $27,000 of that amount is attributable to the care and management fee, which was calculated at the rate of 2/5 of 1%, rather than 3/5 of 1% in accordance with the regulations under the SDA.
[24] The appellant has made great efforts to minimize the extent of the work done by the respondent in her capacity as Attorney for Property and to question the quality of the work she performed. The trial judge very reasonably rejected those arguments, given the evidence before her. In doing so, the trial judge did not improperly consider work done for personal care rather than care of property. The tasks that the respondent carried out were many and time consuming, including hiring and supervising the caregivers on a daily basis, paying for groceries and medications, and paying taxes and housing costs. The respondent also had ongoing responsibilities with respect to the maintenance and repair of the home that would not be compensated by a simple application of the percentages for capital and revenue.
[25] The respondent carried out her responsibilities in a manner respectful of her parents’ wishes to remain in their home until death. Her conservative treatment of investments was consistent with the way in which her parents had invested, and this is not a reason to reduce her compensation.
[26] The respondent also kept meticulous records, as the trial judge stated more than once. The respondent did so, in part, because it was apparent from the appellant’s behaviour, including the unsuccessful litigation she commenced in 2003, that the respondent’s actions would be closely watched and questioned by the appellant. While there were some minor errors, they were corrected and explained - for example, as errors in transcription or description that did not affect the numbers.
[27] In my view, the trial judge, having considered the tariff and the five factors, reasonably concluded that fair and reasonable compensation for the period as Attorney for Property should be $63,200.84, including a care and management fee of $27,000, based on the tariff. She made no error in principle, and the amount cannot be said to be “grossly excessive”, given the lengthy period of time involved and the tasks performed by the respondent.
[28] With respect to the period in which the respondent acted as Estate Trustee, compensation was approved in the amount of $66,660.21. Of that, about $6,500 is for a care and management fee.
[29] The appellant argues that the respondent should not be awarded compensation on the receipt and distribution of the house, because the gift was to her personally. In the alternative, the level of compensation should be reduced, given the simplicity of the distribution of assets and the size of theestate, and there should be no care and management fee.
[30] The trial judge did not err in principle in awarding compensation based on the receipt and distribution of the value of the house. The courts have held that an executor is entitled to compensation when making a distribution under a will to himself or herself, as it is an essential part of the executor’s job to pay legacies and bequests, including bequests to the executor (Re Cohen (1997), 1 E.T.R. 80 (Ont. Surr. Ct.) at para. 24; Re Atwell Estate, 1997 CarswellOnt 3036 (Gen. Div.) at para. 7; Re Stanley Estate (Gen. Div.), 1996 CarswellOnt 1180 (Gen. Div.) at paras. 9-10).
[31] The appellant relies on Re Heron Estate, 1996 CarswellOnt 196 (Gen. Div.), asserting that it is appropriate to reduce compensation when the Attorney managing property for an individual later becomes Estate Trustee. However, the case does not stand for the proposition that compensation should always be reduced in this situation. Rather, the court applied the five factors and reduced the compensation, in part because the information provided by the corporate trustee as to the time spent by its employees was deficient (at paras. 34-35).
[32] Moreover, the trial judge correctly stated that the respondent did not receive 3% on the house as a capital receipt as Attorney and 3% on the capital disbursement as Attorney. The house was not included as a capital item in the Power of Attorney accounts, and there was no double taking ofcompensation.
[33] With respect to the award of the tariff for the capital and revenue receipts and disbursements, I see no error in principle by the trial judge. While the amount is generous, I cannot say that it is grossly excessive. As the Divisional Court noted in Laing Estate, 1996 CarswellOnt 775 (upheld by the Court of Appeal), the percentages usually apply to estates of average complexity (at para. 47).
[34] It is with respect to the care and management fee that the trial judge fell into error. While she acknowledged the need for special circumstances (Reasons, para. 25), she never examined whether there were special circumstances that required a care and management fee.
[35] It is true that a care and management fee may be appropriate if the administration of the estate is time consuming and carried out with diligence (see, for example, Re Macivor Estate, 2011 ONSC 4175 (CanLII) at para. 33). However, in Macivor, the estate trustee continued to care for the deceased’s home, arranging renovations so that the house could be sold. In other words, there was an ongoing supervision and management of the property that was compensated.
[36] In the present case, the bulk of the estate was distributed by October 2008. The house was transferred in May 2008, less than two months after Mrs. Aber’s death. The residue of the estate, at under $500,000, was in bank accounts and GICs, and there is no evidence of any significant time required for the ongoing management of these funds.
[37] It is true that the dispute over the accounts took up a great deal of time, and the trial judge made reference to this factor (at para. 42). However, most of that dispute, it would appear, related to the period while the respondent acted as Attorney, rather than Estate Trustee. Moreover, the trial judge stated that the respondent “spent considerable amounts of time from February 2011 onward” dealing with requests for information. That is true, but not relevant to the fixing of compensation for the Estate Trustee in the period up to November 2010.
[38] In Re Archibald Estate, 2007 CarswellOnt3872, Perell J. explained why a judge should be cautious in awarding a care and management fee to anestate trustee, as the percentage award made on capital and revenue receipt and disbursement is aimed at compensating executors for the duties they perform, including maintaining accounts and reporting to beneficiaries (at paras. 23-24). Accordingly, the trial judge should have considered the amount payable based on the percentages for capital and revenue, and asked whether that would provide reasonable compensation for the Estate Trustee in the period from March 1, 2008 to November, 2010. She did not engage in that exercise.
[39] In my view, the care and management fee is not justified, given the size of the estate, the disposition of the bulk of the estate in the executor’s year, the lack of evidence of any supervision and management of the remaining assets, and the generous compensation provided on the percentages award for capital and revenue. Accordingly, the compensation for the Estate Trustee should be reduced by deduction of the care and management fee.
The Evidence Regarding the Value of the House
[40] The trial judge heard evidence from Donovan Clarke, a real estate agent who had given a letter of opinion concerning the valuation of the house for purposes of probate. That value was $890,000 in March 2008. Mr. Clarke filed no expert report in accordance with rule 53 of the Rules of Civil Procedure, but he was allowed to testify at trial.
[41] The appellant produced an expert report from Barry Lebow about a week before trial valuing the house, on a retrospective basis, at $750,000. In his view, that amount should be reduced by $10,000 to $15,000 because of the wiring. He was also allowed to testify at trial despite the late delivery ofthe report.
[42] The trial judge did not accept the evidence of either witness and explained why in her reasons (see para. 67). She considered their evidence and the MPAC valuation of $779,000 as of 2008 and $824,000 in 2013, observing that MPAC valuations are generally lower than actual property valuations. Ultimately, she concluded that a fair valuation of the house would be $820,000. The result of her finding was to reduce the compensation sought by the respondent by about $9,000.
[43] The appellant argues that the trial judge inappropriately relied on Mr. Clarke’s evidence, as he was not a qualified expert witness and his opinion lacked justification. I see no merit to this argument. The trial judge did not accept his valuation.
[44] Nor did the trial judge accept the valuation of the respondent’s witness because of the weaknesses she noted. She was entitled to reject both valuations, given their weaknesses. She considered the MPAC data and came up with a valuation that is reasonable. Accordingly, I would not give effect to this ground of appeal.
The Treatment of the 2003 Costs Order
[45] The trial judge ordered that the $7,000 costs order from the 2003 litigation, which the appellant was supposed to pay personally, should be deducted from the appellant’s share of the residue. The trial judge did this because the estate had paid the $7,000 to the respondent to cover her legal fees as Attorney.
[46] In my view, the trial judge made a mathematical error that results in excess compensation to the respondent. Had she ordered the appellant to pay $7,000 to reimburse the estate, the appellant and respondent would have each received half of that amount in the distribution of the residue. However, she ordered that the $7,000 be deducted from the appellant’s share, which results in over-compensation of $3,500 to the respondent. The appropriate order is to deduct $3,500 from the appellant’s share of the residue and credit that amount to the respondent.
[47] Aside from amending the order on the merits in this manner and deducting the care and management fee from the compensation of the EstateTrustee, I would dismiss the appeal with respect to the passing of accounts.
The Costs Appeal
[48] I turn now to the costs appeal. The appellant seeks leave to appeal the costs order, arguing that the trial judge erred in ordering her to pay costs personally on a full indemnity basis. She also argues that the amount awarded was plainly wrong.
[49] However, the appellant also argued that if she achieved substantial success on the appeal of the order passing accounts, it would be necessary to reconsider the costs award at trial. In my view, the appellant has only succeeded on a minor issue with respect to the amount to be deducted from her shareof the residue because of the 2003 costs order and the deduction of about $6,500 from her compensation as Estate Trustee. In my view, those small adjustments would not require a reconsideration of the costs awarded at trial. Therefore, it is necessary to consider whether leave to appeal the costs order should be granted.
[50] Leave to appeal a costs order requires “strong grounds” upon which the appellate court could find that the trial judge erred in exercising the discretion to award costs (Brad-Jay Investments Ltd. v. Szijjarto (2006), 2006 CanLII 42636 (ON CA), 218 O.A.C. 315 (Ont. C.A.) at para. 21). An appellate court should only interfere with a costs order if the judge awarding costs erred in principle or made an award that was clearly wrong (Hamilton v. Open Window Bakery Ltd., 2004 SCC 9 (CanLII), [2004] 1 S.C.R. 303 at para. 27).
[51] In my view, the trial judge erred in principle in awarding costs throughout on a full indemnity basis against the appellant. Accordingly, I would grant leave to appeal the costs order and set aside the order, substituting a blended order whereby some of the costs are payable by the appellant personally on a partial indemnity basis, with the balance of the legal fees payable from the estate.
The Principles Governing Costs in Estate Litigation
[52] Generally speaking, an estate trustee is entitled to be indemnified for his or her reasonably incurred legal fees, unless he or she has acted unreasonably (Sawdon Estate v. Watch Tower Bible and Tract Society of Canada, 2014 ONCA 101 (CanLII) at para. 82).
[53] Where there has been litigation involving the estate, the question arises as to who should pay the trustee’s costs - the estate or a party unsuccessful in the litigation? The modern approach to costs in estates litigation was set out in McDougald Estate v. Goodherham (2005), 2005 CanLII 21091 (ON CA), 255 D.L.R. (4th) 435, where the Ontario Court of Appeal held that the general costs regime applicable in civil litigation should apply to estatelitigation, absent relevant public policy considerations (at paras. 78-80). For example, where the difficulties giving rise to the litigation are caused by the action of the testator, costs should be paid out of the estate (at paras. 80 and 85). Similarly, the estate should bear costs “reasonably associated with ensuring that it is duly administered” (at para. 99). Otherwise, the court should consider factors such as the result of the litigation, the conduct of a party that lengthened the litigation, and offers to settle, as in other civil litigation.
The Costs Issues
[54] The appellant conceded, in her costs submissions after trial, that the respondent was entitled to be indemnified for her reasonably incurred legal expenses.
[55] In accordance with the analysis in McDougald Estate, the following issues had to be determined by the trial judge:
1. Who should pay the respondent’s legal costs in respect of the litigation: the estate or the appellant?
2. If the appellant should be ordered to pay costs, should those costs be on a partial or substantial indemnity basis?
3. If the appellant is required to pay some but not all of the respondent’s costs, should a blended order for costs be made, with the balanceof the legal costs payable by the estate?
4. Were the legal costs reasonably incurred by the respondent? In other words, what is the appropriate quantum of costs?
Did the trial judge err in awarding costs against the appellant personally?
[56] The trial judge rejected the appellant’s argument that the respondent’s costs should be payable by the estate. In my view, she did not err in principle in finding that the appellant should personally pay some of the costs, given the outcome of the litigation. This is not a case where public policy considerations would lead to an award of all the costs out of the estate, because the litigation did not arise as a result of actions of the testator.
[57] It is true that the appellant, as a beneficiary of the estate, was entitled to receive and review the estate accounts and to ask questions about them. She was also entitled to ask for a passing of accounts. However, once a passing of accounts is necessary, the beneficiary may be required to pay costs, if unsuccessful in the ensuing litigation (Re Bedont Estate, 2004 CarswellOnt 1930 (S.C.J.) at para. 4). Such a result is consistent with the practice in civil litigation, where a successful party has a reasonable expectation of obtaining costs from the unsuccessful party.
[58] In the present case, the trial judge did not make explicit reference to the factors in rule 57.01 of the Rules of Civil Procedure that are to be considered in the awarding of costs. However, she made reference to a number of factors properly considered in determining costs in civil litigation. In particular, she considered the result of the litigation. Here, as in Bedont, the appellant caused significant legal costs to be incurred in litigation over the passing of accounts. For example, motions by the respondent were necessary to excuse the parties from the court-ordered mediation, to obtain a pre-trial date and to obtain a trial date.
[59] The respondent had substantial success. After a five day trial, the appellant succeeded only in having the house valuation reduced by $70,000, with the result that the respondent’s compensation was reduced by about $9,000. On all the other issues, such as the amount of the compensation, the care and management fee, and the questioning of certain actions, such as the new roof for the house or providing Mr. Aber with a small monthly allowance, the appellant failed. Clearly, she was unsuccessful at trial. That is true even with the adjustments made on this appeal, which result in a reduction ofcompensation of about $6,500 and a reduced deduction from the appellant’s share of the residue in the amount of $3,500.
[60] One of the factors clearly influencing the trial judge’s order of full indemnity costs was the three offers to settle made by the respondent. The appellant’s only complaint before and throughout the litigation was the amount of the compensation taken by the respondent. The latter made three offers to settle. In the first, on February 27, 2012, she agreed to reduce the amount of compensation sought. Subsequently, on April 18, 2012 and December 5, 2012, she made offers in which she waived any claim to compensation, along with other terms including the payment of some of the appellant’s legal costs. The December offer remained on the table until the commencement of the trial.
[61] Had the appellant accepted either of the offers waiving compensation, there would have been no need for the litigation to continue, and significant costs would have been avoided. While she argues that she did not accept the last offer because the proposed release was too broadly worded, she made no effort to negotiate the terms of the release. She made no counter-offer until the eve of trial, and her offer of $20,000 in compensation for the respondent was far below what the trial judge awarded.
[62] While the appellant argues that she could not accept the December offer because of the terms of a proposed release, as I noted, she did not make a counter-offer with respect to the release. A litigant in a passing of accounts who does not accept reasonable offers to settle is at risk of an order to pay costs (see, for example, Re Pilo Estate, 1999 CarswellOnt 1577 (S.C.J.) at para. 10).
[63] In my view, given factors such as the result of the litigation, the delays caused by the appellant, and the rejection of reasonable offers to settle, the trial judge properly held that the appellant should pay costs personally, rather than have all the legal costs paid out of the estate. Otherwise, the respondent, as one of the two beneficiaries of the residue of the estate, would effectively be paying half the legal costs.
Did the trial judge err in ordering those costs on a full indemnity basis?
[64] The next issue that the trial judge was required to consider was the level and amount of costs payable by the appellant. The trial judge engaged in no analysis of the justification for awarding costs on a full indemnity basis. In my view, given the jurisprudence on substantial indemnity costs, she erred in principle in awarding costs of the whole proceeding on a full indemnity basis.
[65] In Sawdon Estate, above, the Court of Appeal made a blended order for costs. The trial judge had awarded costs to the estate trustee on a partial indemnity basis against Watch Tower Bible and Tract Society in litigation relating to the ownership of bank accounts. The Court of Appeal held that the trial judge erred in refusing to order that the difference between the trustee’s legal costs on a full and partial indemnity basis be paid from the estate, so that the estate trustee would not be required to pay personally for legal costs reasonably incurred in the administration of the estate.
[66] Costs in civil litigation are normally awarded on a partial indemnity basis. While substantial indemnity costs can be awarded against a party, the usual reason for such an order is the fact that the party has engaged in reprehensible, scandalous or outrageous conduct (Young v. Young, 1993 CanLII 34 (SCC), [1993] 4 S.C.R. 3 at p. 134). Substantial indemnity costs may also be awarded to a successful plaintiff under rule 49.10(1), where a plaintiff has made an offer to settle and has received a judgment at trial that is as favourable or more favourable than the offer. However, in such a situation, costs are awarded on a partial indemnity basis to the date of the offer, with substantial indemnity costs from the date of the offer, unless the court orders otherwise.
[67] In the present case, the trial judge did not rely on rule 49.10(1), given the way in which the offers were framed. However, even if it were open to her to consider the offers to settle, she gave no explanation why she awarded full indemnity costs rather than substantial indemnity costs and why she did so from the outset of the litigation, rather than from the date of one or other of the offers.
[68] The other reason for a costs award on a substantial indemnity basis is the conduct of a party. The Court of Appeal discussed what constitutes reprehensible, scandalous and outrageous conduct that might justify a punitive costs award in Davies v. Clarington (Municipality), 2009 ONCA 722 (CanLII). The Court emphasized that there is a difference between “hard-fought litigation that turns out to have been misguided, on the one hand, and malicious counterproductive conduct, on the other” (at para. 45). The Court also explained the result in Apotex Inc. v. Egis Pharmaceuticals (1991), 1991 CanLII 2729 (ON SC), 4 O.R. (3d) 321 (Gen. Div.), a case relied upon by the respondent in the present appeal. There a punitive costs award was justified because the losing party used “fruitless litigation” to harass the defendant and made “meritless claims of fraud, deceit and dishonesty based on pure speculation” (at paras. 45-46). In Apotex and other like cases, the party ordered to pay such costs has engaged in an abuse of process (at para. 45).
[69] In the present case, the trial judge made no finding that the appellant’s conduct was reprehensible, scandalous or outrageous, as she was required to do when awarding substantial indemnity costs. She did not make a finding that the litigation was fruitless or designed to harass.
[70] The appellant, as a beneficiary of the estate, was entitled to ask for a passing of accounts. She did have minimal success in the litigation with respect to the house valuation. In the circumstances, the trial judge erred in awarding full indemnity costs against the appellant, as she did not make the necessary finding that the appellant was engaged, in effect, in harassment or improper conduct in pursuing the litigation. Therefore, costs against the appellant should be properly have been awarded on a partial indemnity basis.
Should the trial judge have made a blended costs order?
[71] What then is the proper order as to the respondent’s costs? The Court of Appeal in Sawdon Estate made a blended order. In my view, that would be the appropriate order in the present case.
[72] As I stated above, the trial judge should have awarded costs on a partial indemnity basis against the appellant. It would then be appropriate to order that the balance of the legal costs of the respondent be paid from the estate, so that the estate trustee is indemnified for her legal costs reasonably incurred in the litigation.
Were the legal costs reasonably incurred by the respondent?
[73] That brings me to the issue of quantum. The appellant argued before the trial judge that the respondent should only receive compensation for legal costs reasonably incurred, citing Re Vano Estate, 2012 ONSC 262 (CanLII) at para. 36. Vano is a case where the estate trustee appears to have asked for costs of a contested passing of accounts to be paid from the estate, rather than the objector.
[74] On this appeal, the appellant argues that the costs award in the amount of $192,632.53 was plainly wrong. She argued that the fees of the respondent’s first counsel, Hull & Hull, were excessive and reflected duplication of effort by the lawyers involved. As well, she argued that the fees should be reduced because the respondent abandoned the issue of personal care during the course of the litigation, and costs of steps relating to that issue should be deducted from the legal expenses recovered. Moreover, the appellant submitted that she should receive costs of a 2013 motion for medical records, the examination of the respondent, and a motion for refusals on a partial indemnity basis in the amount of $22,608.62.
[75] The trial judge rejected those arguments, albeit with minimal analysis, stating that she had reviewed the documents and did not find the costs excessive (Reasons, para. 10).
[76] Having considered the appellant’s arguments, I see no basis to interfere with the trial judge’s conclusion about the reasonableness of the respondent’s costs. They were reasonably incurred in the administration of the estate, and the appellant has not demonstrated that the trial judge’s conclusion that they were not excessive is “clearly wrong” (Hamilton Street Bakery, above).
[77] The appellant argues that the accounts of Hull & Hull were excessive because ten lawyers worked on the file. However, an examination of the dockets shows that there were at most four main providers of services. The appellant has not pointed to any overlap in the dockets, which were provided to the trial judge and this Court.
[78] The fees were also increased in part by the appellant’s conduct. As the trial judge noted, a number of motions were required in this proceeding, in part because of the appellant’s conduct - for example, setting aside the requirement for mediation and obtaining pre-trial and trial dates. The appellant’s detailed objections to the accounts prolonged the process before trial and the trial itself, which examined numerous expenditures over a long period oftime.
[79] With respect to the “abandoned issues”, the trial judge made no error. The respondent did not “abandon” the issue of personal care. At all times, she was seeking compensation for her role as Attorney for Property and Estate Trustee. She was not claiming any compensation for providing personal care services, and her provision of personal care was not an issue in the proceeding. The fact that she clarified this in April 2013 in an Amended Response to the Notice of Objection does not amount to an abandonment of the issue of personal care.
[80] Moreover, there should be no deductions with respect to the items identified by the appellant, nor should the appellant receive costs for these stagesof the litigation. In particular, the appellant is not entitled to her costs of the motion before Allen J. in early 2013. She had to bring that motion to obtain leave to examine the respondent, as the application had been set down for trial. She did not obtain the medical records she sought, as the motions judge accepted that the appellant had already been provided with them. All that was ordered was the production of any missing records. The examination of the respondent that was ordered was limited in scope to personal care issues, and costs were left to the trial judge. Moreover, after the examination, a motion for refusals was dismissed by Aston J. While this was after the clarification of the respondent’s response, it is evident in his endorsement that he doubted that the information sought was relevant.
[81] In sum, the appellant has not shown any error in the trial judge’s finding that the costs incurred by the respondent were reasonable. The respondent, as Attorney and Estate Trustee, is entitled to be fully indemnified for those expenses.
[82] The remaining issue is the amount of those costs that the appellant should be ordered to pay personally, given the finding that she should pay partial indemnity costs. Determining what a reasonable costs order would be against an unsuccessful litigant is a different inquiry from whether an estatetrustee has reasonably incurred legal expenses for which he or she should be indemnified by the estate. As the Court of Appeal emphasized in Davies, above (a case which I acknowledge is not an estates case), the court must always ask what is a reasonable amount that the unsuccessful party should pay (at para. 52).
[83] On a purely mathematical basis, calculating partial indemnity costs as 60% of the full indemnity costs, the appellant would be required to pay $115,200. While this may at first seem high, in my view it is a fair and reasonable amount for the losing party to pay when one takes into consideration the length of the litigation, the number of motions, the five day trial, and the need for extensive preparation in order to examine in detail some 750 pages ofdocuments. While the Court does not have access to the dockets of appellant’s counsel as a measure of reasonable expectations that she might have with respect to costs, one can see that the costs sought by the appellant for the “abandoned issues” are within a few thousand dollars of the fees of the respondent’s counsel for these steps.
[84] In my view, an award of $115,200 for partial indemnity costs payable by the appellant is fair and reasonable in the circumstances of this case.
Conclusion
[85] For these reasons, the appeal on the merits is allowed in part to amend paragraph 3 of the trial judge’s order of December 16, 2013 allowing $7,000 to be deducted from the distribution of the estate to the appellant and substituting a deduction of $3,500 and to amend paragraph 11 to remove the care and management fee from the compensation of the Estate Trustee. Otherwise, the appeal on the merits is dismissed.
[86] Leave is granted to appeal the costs award, and the costs appeal is allowed. The costs order shall be set aside, and an order is to go requiring the appellant to pay the respondent costs of the litigation on a partial indemnity basis in the amount of $115,200. If not paid within 60 days, the amount may be paid out of the appellant’s distribution of the estate to the respondent. The balance of the respondent’s legal expenses incurred are payable to the respondent out of the estate.
[87] If the parties cannot agree on costs of the appeal, including the costs appeal, the parties shall make brief written submissions through the Divisional Court office within 30 days of the release of this decision.
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IN THE ESTATE OF STEFANIE ABER, deceased
IN THE MATTER OF THE PASSING OFACCOUNTS
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Gregory M .Sidlofsky and Brendan Donovan, for the Appellant Hilda Heston-Cook
Lisbeth A. Hollaman, for the Respondent Erna Schneider, as Estate Trustee and Attorney for Property |
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HEARD at Toronto: June 30, 2015 |
Swinton J.:
Overview
[1] This is an appeal pursuant to s. 10 of the Estates Act, R.S.O. 1990, c. E.21 from the order of C. Brown J. (“the trial judge”) dated December 16, 2013. Following a five day trial on a contested passing of accounts, the trial judge held that Erna Schneider, as Estate Trustee and Attorney for Property (‘the respondent”), was entitled to compensation of $129,861.05. In the costs decision dated December 3, 2014, the trial judge ordered that Hilda Heston-Cook (“the appellant”) pay costs personally on a full indemnity basis in the amount of $192,000.
[2] On this appeal, the appellant seeks to set aside the passing of accounts on the basis that the compensation awarded was excessive. She also seeks leave to appeal the costs order, both on the basis of quantum and the fact that it was made against her personally.
[3] For the reasons that follow, I would allow the appeal of the order passing the accounts in part, reducing the deduction from the appellant’s shareof the residue from $7,000 to $3,500 and reducing the compensation of the Estate Trustee to remove the care and management fee. I would grant leave to appeal the costs order and impose a blended costs order, whereby the appellant is required to pay partial indemnity costs of the litigation with the balanceof the respondent’s legal costs payable from the estate.
Background Facts
[4] The appellant and the respondent are sisters. The respondent lives with her family in Toronto, in a house not far from the home where the parties’ parents lived until their deaths. The appellant has lived most of her adult life in the United States.
[5] The parents, August Albert Aber and Stefanie Aber, named the respondent as Attorney for Property and as Estate Trustee in their wills. The respondent began exercising the Powers of Attorney in September 2002, after the parents were declared incapable. Mr. Aber died in February 2004 and Mrs. Aber in March 2008. Both parents had continued to live in their home until death. The respondent managed their assets, paid their bills, filed their income taxes, hired and supervised caregivers, and ensured that the house was maintained and kept in good repair.
[6] Under Mrs. Aber’s will, made in 1995, the respondent received the parents’ house in Toronto and the appellant received a specific bequest of$100,000. The respondent transferred the house in May 2008 and paid the $100,000 bequest by October 2008. The residue of the estate was to be divided equally between the two sisters.
[7] The appellant initiated detailed inquiries about the assets in the estate and the actions of the respondent while she was acting as her mother’s Attorney for Property. The appellant was provided with copies of the respondent’s estate accounts in court format in November 2008, and further information was supplied in response to the appellant’s requests for information and objections in January 2009. The respondent prepared these materials.
[8] In January 2009, the appellant asked that new accounts be provided in an accounting format, rather than court passing of accounts format. The respondent arranged for an accountant to prepare these accounts, and they were provided to the appellant immediately. Further requests for information and meetings followed. By September 2009, the appellant had been provided with over 750 pages of documents, including backup receipts for expenditures, tax information and information relating to employee payroll accounts.
[9] On February 11, 2011, the respondent applied to the Court to pass her accounts as Attorney for Property from September 13, 2002 to February 29, 2008 and as Estate Trustee from March 1, 2008 to November 1, 2010. She initially requested compensation of $141,222.59. The appellant filed a Noticeof Objection in April 2011, arguing that the requested compensation was too high. The amount of compensation sought was reduced to $138,074.67 in the Response to the Notice of Objections.
[10] Ultimately, a five day trial was held with respect to the passing of accounts in May 2013. The trial judge ruled in the respondent’s favour on every issue except the valuation of the house, which she reduced from $890,000 to $820,000, thus reducing the compensation by about $9,000. She awarded the respondent compensation of $63,200.84 as Attorney for Property and $66,660.21 as Estate Trustee for a total of $129,861.05. She also ordered that $7,000 be deducted from the appellant’s share of the residue to compensate the estate for $7,000. That amount had been paid from the estate to the respondent to satisfy a 2003 costs order made against the appellant that was not paid. The 2003 litigation was brought by the appellant seeking an order that the respondent pass her accounts as Attorney for Property for her parents, as well as provide financial and medical information. That application was dismissed.
The Issues on Appeal
[11] With respect to the passing of accounts, the appellant argues that the trial judge erred in three ways: in finding that the respondent was entitled to compensation based on the tariff and guidelines, including a care and management fee; in relying upon opinion evidence from real estate agent Donovan Clarke with respect to the valuation of the house; and in ordering that $7,000 be deducted from the appellant’s share of the residue of the estate becauseof the 2003 costs order.
[12] With respect to costs, the appellant argues that the trial judge erred in awarding costs on a full indemnity basis and in making those costs payable by the appellant personally.
The Passing of Accounts Issues
The Standard of Review
[13] Both parties agree that an appellate court cannot set aside an order passing accounts unless the judge has made an error in law or misapprehended the evidence such that there is a palpable and overriding error (Housen v. Nikolaisen, 2002 SCC 33 (CanLII) at paras. 8 and 10).
[14] With respect to an order of compensation for trustees, an appellate court should exercise “great restraint”. However, such restraint does not apply where the trial judge has made an error in principle, or the quantum of compensation is grossly insufficient or excessive (Laing Estate v. Laing Estate(1998), 1998 CanLII 6867 (ON CA), 41 OR. (3d) 571 (C.A.) at para. 10).
The Issue of Compensation
[15] An attorney for property may claim compensation in accordance with s. 40(1) of the Substitute Decisions Act, S.O. 1992, c. 30 (“the SDA”),which states:
A guardian of property or attorney under a continuing power of attorney may take annual compensation from the property in accordance with the prescribed fee scale.
The regulations under the Act set out a prescribed fee scale: 3% on capital receipts and disbursements, 3% on revenue receipts and disbursements, and a care and management fee of 3/5 of 1% annually on the annual average value of the assets (O. Reg. 26/95, s. 1).
[16] Entitlement to compensation for estate trustees is found in s. 61 of the Trustee Act, R.S.O. 1990, c. T.23 (“the TA”). Subsections 61(1) and 61(3)provide:
61(1) A trustee, guardian or personal representative is entitled to such fair and reasonable allowance for the care, pains and trouble, and the time expended in and about the estate, as may be allowed by a judge of the Superior Court of Justice.
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61(3) The judge, in passing the accounts of a trustee or of a personal representative or guardian, may from time to time allow a fair and reasonable allowance for care, pains and trouble, and time expended in or about the estate.
[17] While the TA does not set out a method to calculate compensation, the courts in Ontario have developed percentage guidelines to assist in quantifying trustee compensation. Since 1975, the Ontario guidelines or tariff provide for 2½% on capital receipts and disbursements, 2½% on revenue receipts and disbursements, and a care and management fee of 2/5 of 1% per annum on the gross value of the assets under administration.
[18] The judge conducting the passing of accounts should first test the compensation using the percentages approach and then cross-check the amount against the five factors set out in Toronto General Trust v. Central Ontario Railway (1905), 6 O.W.R. 350 (H.C.): the size of the trust, the care and responsibility involved, the time occupied in performing the duties, the skill and ability displayed, and the success resulting from the administration (LaingEstate, para. 8).
[19] With respect to a care and management fee for an estate trustee, a judge should consider whether “an extra allowance should be made for management, based on special circumstances” (Re Jeffery Estate, 1990 CarswellOnt 503 (Surr. Ct.) at para. 16, approved in Laing Estate at para. 9). The rationale for a care and management fee was explained by Horkins J. in Irwin v. Robinson, 2007 CarswellOnt 6368 (S.C.J.) at para. 70:
Care and investment in the executor’s year does not entitle the estate trustee to a care and management fee. The fee is intended to compensate after the executor’s year where the will creates a continuing trust that requires ongoing investment and management. Alternatively, there may be justification for the fee when litigation prevents immediate distribution for an appreciable period of time and management of the monies is required.
[20] In the present case, the trial judge set out the correct legal principles in her reasons, observing at para. 26:
Really, then, neither care and management fees nor any other part of an estate trustee’s compensation should be awarded as a matter ofroutine adherence to fixed percentages. Every case requires a careful examination of the facts to determine whether the compensation sought would be fair and reasonable.
[21] In this appeal, the appellant raises many of the arguments made before the trial judge. I would summarize the arguments as follows:
1. The estate was a simple one to administer, and therefore compensation should be reduced. The assets in the estate, at the time that the respondent began to act as Attorney for Property, were valued at $1.4 million, consisting of the house, bank accounts, savings bonds, and GICs. At the time she became Estate Trustee, the assets totaled $1.43 million in essentially the same mix.
2. The trial judge inappropriately considered the time taken by the respondent in providing personal care to her parents (see the Reasons, para. 34). This is not relevant to the respondent’s compensation as Attorney for Property.
3. The respondent, as Estate Trustee, is not entitled to fees for capital receipt and disbursement attributable to the distribution of the house to herself personally.
4. The respondent did not exercise much responsibility over the assets of the trust during her mother’s lifetime. She continued to invest in GICs and bonds, as her parents had done, rather than employ a financial advisor.
5. The respondent failed to maintain accurate accounts.
6. It was inappropriate to award a care and management fee, given the nature of the estate and given the respondent’s lack of skill in managing the financial assets. In particular, there were no special circumstances justifying the award of a care and management fee while she was Estate Trustee.
[22] Some of these complaints relate to the period when the respondent acted as Attorney and some when she was Estate Trustee. It is helpful to treat the two periods separately.
[23] The compensation of $63,200.84 as Attorney is for a period of 5 ½ years. About $27,000 of that amount is attributable to the care and management fee, which was calculated at the rate of 2/5 of 1%, rather than 3/5 of 1% in accordance with the regulations under the SDA.
[24] The appellant has made great efforts to minimize the extent of the work done by the respondent in her capacity as Attorney for Property and to question the quality of the work she performed. The trial judge very reasonably rejected those arguments, given the evidence before her. In doing so, the trial judge did not improperly consider work done for personal care rather than care of property. The tasks that the respondent carried out were many and time consuming, including hiring and supervising the caregivers on a daily basis, paying for groceries and medications, and paying taxes and housing costs. The respondent also had ongoing responsibilities with respect to the maintenance and repair of the home that would not be compensated by a simple application of the percentages for capital and revenue.
[25] The respondent carried out her responsibilities in a manner respectful of her parents’ wishes to remain in their home until death. Her conservative treatment of investments was consistent with the way in which her parents had invested, and this is not a reason to reduce her compensation.
[26] The respondent also kept meticulous records, as the trial judge stated more than once. The respondent did so, in part, because it was apparent from the appellant’s behaviour, including the unsuccessful litigation she commenced in 2003, that the respondent’s actions would be closely watched and questioned by the appellant. While there were some minor errors, they were corrected and explained - for example, as errors in transcription or description that did not affect the numbers.
[27] In my view, the trial judge, having considered the tariff and the five factors, reasonably concluded that fair and reasonable compensation for the period as Attorney for Property should be $63,200.84, including a care and management fee of $27,000, based on the tariff. She made no error in principle, and the amount cannot be said to be “grossly excessive”, given the lengthy period of time involved and the tasks performed by the respondent.
[28] With respect to the period in which the respondent acted as Estate Trustee, compensation was approved in the amount of $66,660.21. Of that, about $6,500 is for a care and management fee.
[29] The appellant argues that the respondent should not be awarded compensation on the receipt and distribution of the house, because the gift was to her personally. In the alternative, the level of compensation should be reduced, given the simplicity of the distribution of assets and the size of theestate, and there should be no care and management fee.
[30] The trial judge did not err in principle in awarding compensation based on the receipt and distribution of the value of the house. The courts have held that an executor is entitled to compensation when making a distribution under a will to himself or herself, as it is an essential part of the executor’s job to pay legacies and bequests, including bequests to the executor (Re Cohen (1997), 1 E.T.R. 80 (Ont. Surr. Ct.) at para. 24; Re Atwell Estate, 1997 CarswellOnt 3036 (Gen. Div.) at para. 7; Re Stanley Estate (Gen. Div.), 1996 CarswellOnt 1180 (Gen. Div.) at paras. 9-10).
[31] The appellant relies on Re Heron Estate, 1996 CarswellOnt 196 (Gen. Div.), asserting that it is appropriate to reduce compensation when the Attorney managing property for an individual later becomes Estate Trustee. However, the case does not stand for the proposition that compensation should always be reduced in this situation. Rather, the court applied the five factors and reduced the compensation, in part because the information provided by the corporate trustee as to the time spent by its employees was deficient (at paras. 34-35).
[32] Moreover, the trial judge correctly stated that the respondent did not receive 3% on the house as a capital receipt as Attorney and 3% on the capital disbursement as Attorney. The house was not included as a capital item in the Power of Attorney accounts, and there was no double taking ofcompensation.
[33] With respect to the award of the tariff for the capital and revenue receipts and disbursements, I see no error in principle by the trial judge. While the amount is generous, I cannot say that it is grossly excessive. As the Divisional Court noted in Laing Estate, 1996 CarswellOnt 775 (upheld by the Court of Appeal), the percentages usually apply to estates of average complexity (at para. 47).
[34] It is with respect to the care and management fee that the trial judge fell into error. While she acknowledged the need for special circumstances (Reasons, para. 25), she never examined whether there were special circumstances that required a care and management fee.
[35] It is true that a care and management fee may be appropriate if the administration of the estate is time consuming and carried out with diligence (see, for example, Re Macivor Estate, 2011 ONSC 4175 (CanLII) at para. 33). However, in Macivor, the estate trustee continued to care for the deceased’s home, arranging renovations so that the house could be sold. In other words, there was an ongoing supervision and management of the property that was compensated.
[36] In the present case, the bulk of the estate was distributed by October 2008. The house was transferred in May 2008, less than two months after Mrs. Aber’s death. The residue of the estate, at under $500,000, was in bank accounts and GICs, and there is no evidence of any significant time required for the ongoing management of these funds.
[37] It is true that the dispute over the accounts took up a great deal of time, and the trial judge made reference to this factor (at para. 42). However, most of that dispute, it would appear, related to the period while the respondent acted as Attorney, rather than Estate Trustee. Moreover, the trial judge stated that the respondent “spent considerable amounts of time from February 2011 onward” dealing with requests for information. That is true, but not relevant to the fixing of compensation for the Estate Trustee in the period up to November 2010.
[38] In Re Archibald Estate, 2007 CarswellOnt3872, Perell J. explained why a judge should be cautious in awarding a care and management fee to anestate trustee, as the percentage award made on capital and revenue receipt and disbursement is aimed at compensating executors for the duties they perform, including maintaining accounts and reporting to beneficiaries (at paras. 23-24). Accordingly, the trial judge should have considered the amount payable based on the percentages for capital and revenue, and asked whether that would provide reasonable compensation for the Estate Trustee in the period from March 1, 2008 to November, 2010. She did not engage in that exercise.
[39] In my view, the care and management fee is not justified, given the size of the estate, the disposition of the bulk of the estate in the executor’s year, the lack of evidence of any supervision and management of the remaining assets, and the generous compensation provided on the percentages award for capital and revenue. Accordingly, the compensation for the Estate Trustee should be reduced by deduction of the care and management fee.
The Evidence Regarding the Value of the House
[40] The trial judge heard evidence from Donovan Clarke, a real estate agent who had given a letter of opinion concerning the valuation of the house for purposes of probate. That value was $890,000 in March 2008. Mr. Clarke filed no expert report in accordance with rule 53 of the Rules of Civil Procedure, but he was allowed to testify at trial.
[41] The appellant produced an expert report from Barry Lebow about a week before trial valuing the house, on a retrospective basis, at $750,000. In his view, that amount should be reduced by $10,000 to $15,000 because of the wiring. He was also allowed to testify at trial despite the late delivery ofthe report.
[42] The trial judge did not accept the evidence of either witness and explained why in her reasons (see para. 67). She considered their evidence and the MPAC valuation of $779,000 as of 2008 and $824,000 in 2013, observing that MPAC valuations are generally lower than actual property valuations. Ultimately, she concluded that a fair valuation of the house would be $820,000. The result of her finding was to reduce the compensation sought by the respondent by about $9,000.
[43] The appellant argues that the trial judge inappropriately relied on Mr. Clarke’s evidence, as he was not a qualified expert witness and his opinion lacked justification. I see no merit to this argument. The trial judge did not accept his valuation.
[44] Nor did the trial judge accept the valuation of the respondent’s witness because of the weaknesses she noted. She was entitled to reject both valuations, given their weaknesses. She considered the MPAC data and came up with a valuation that is reasonable. Accordingly, I would not give effect to this ground of appeal.
The Treatment of the 2003 Costs Order
[45] The trial judge ordered that the $7,000 costs order from the 2003 litigation, which the appellant was supposed to pay personally, should be deducted from the appellant’s share of the residue. The trial judge did this because the estate had paid the $7,000 to the respondent to cover her legal fees as Attorney.
[46] In my view, the trial judge made a mathematical error that results in excess compensation to the respondent. Had she ordered the appellant to pay $7,000 to reimburse the estate, the appellant and respondent would have each received half of that amount in the distribution of the residue. However, she ordered that the $7,000 be deducted from the appellant’s share, which results in over-compensation of $3,500 to the respondent. The appropriate order is to deduct $3,500 from the appellant’s share of the residue and credit that amount to the respondent.
[47] Aside from amending the order on the merits in this manner and deducting the care and management fee from the compensation of the EstateTrustee, I would dismiss the appeal with respect to the passing of accounts.
The Costs Appeal
[48] I turn now to the costs appeal. The appellant seeks leave to appeal the costs order, arguing that the trial judge erred in ordering her to pay costs personally on a full indemnity basis. She also argues that the amount awarded was plainly wrong.
[49] However, the appellant also argued that if she achieved substantial success on the appeal of the order passing accounts, it would be necessary to reconsider the costs award at trial. In my view, the appellant has only succeeded on a minor issue with respect to the amount to be deducted from her shareof the residue because of the 2003 costs order and the deduction of about $6,500 from her compensation as Estate Trustee. In my view, those small adjustments would not require a reconsideration of the costs awarded at trial. Therefore, it is necessary to consider whether leave to appeal the costs order should be granted.
[50] Leave to appeal a costs order requires “strong grounds” upon which the appellate court could find that the trial judge erred in exercising the discretion to award costs (Brad-Jay Investments Ltd. v. Szijjarto (2006), 2006 CanLII 42636 (ON CA), 218 O.A.C. 315 (Ont. C.A.) at para. 21). An appellate court should only interfere with a costs order if the judge awarding costs erred in principle or made an award that was clearly wrong (Hamilton v. Open Window Bakery Ltd., 2004 SCC 9 (CanLII), [2004] 1 S.C.R. 303 at para. 27).
[51] In my view, the trial judge erred in principle in awarding costs throughout on a full indemnity basis against the appellant. Accordingly, I would grant leave to appeal the costs order and set aside the order, substituting a blended order whereby some of the costs are payable by the appellant personally on a partial indemnity basis, with the balance of the legal fees payable from the estate.
The Principles Governing Costs in Estate Litigation
[52] Generally speaking, an estate trustee is entitled to be indemnified for his or her reasonably incurred legal fees, unless he or she has acted unreasonably (Sawdon Estate v. Watch Tower Bible and Tract Society of Canada, 2014 ONCA 101 (CanLII) at para. 82).
[53] Where there has been litigation involving the estate, the question arises as to who should pay the trustee’s costs - the estate or a party unsuccessful in the litigation? The modern approach to costs in estates litigation was set out in McDougald Estate v. Goodherham (2005), 2005 CanLII 21091 (ON CA), 255 D.L.R. (4th) 435, where the Ontario Court of Appeal held that the general costs regime applicable in civil litigation should apply to estatelitigation, absent relevant public policy considerations (at paras. 78-80). For example, where the difficulties giving rise to the litigation are caused by the action of the testator, costs should be paid out of the estate (at paras. 80 and 85). Similarly, the estate should bear costs “reasonably associated with ensuring that it is duly administered” (at para. 99). Otherwise, the court should consider factors such as the result of the litigation, the conduct of a party that lengthened the litigation, and offers to settle, as in other civil litigation.
The Costs Issues
[54] The appellant conceded, in her costs submissions after trial, that the respondent was entitled to be indemnified for her reasonably incurred legal expenses.
[55] In accordance with the analysis in McDougald Estate, the following issues had to be determined by the trial judge:
1. Who should pay the respondent’s legal costs in respect of the litigation: the estate or the appellant?
2. If the appellant should be ordered to pay costs, should those costs be on a partial or substantial indemnity basis?
3. If the appellant is required to pay some but not all of the respondent’s costs, should a blended order for costs be made, with the balanceof the legal costs payable by the estate?
4. Were the legal costs reasonably incurred by the respondent? In other words, what is the appropriate quantum of costs?
Did the trial judge err in awarding costs against the appellant personally?
[56] The trial judge rejected the appellant’s argument that the respondent’s costs should be payable by the estate. In my view, she did not err in principle in finding that the appellant should personally pay some of the costs, given the outcome of the litigation. This is not a case where public policy considerations would lead to an award of all the costs out of the estate, because the litigation did not arise as a result of actions of the testator.
[57] It is true that the appellant, as a beneficiary of the estate, was entitled to receive and review the estate accounts and to ask questions about them. She was also entitled to ask for a passing of accounts. However, once a passing of accounts is necessary, the beneficiary may be required to pay costs, if unsuccessful in the ensuing litigation (Re Bedont Estate, 2004 CarswellOnt 1930 (S.C.J.) at para. 4). Such a result is consistent with the practice in civil litigation, where a successful party has a reasonable expectation of obtaining costs from the unsuccessful party.
[58] In the present case, the trial judge did not make explicit reference to the factors in rule 57.01 of the Rules of Civil Procedure that are to be considered in the awarding of costs. However, she made reference to a number of factors properly considered in determining costs in civil litigation. In particular, she considered the result of the litigation. Here, as in Bedont, the appellant caused significant legal costs to be incurred in litigation over the passing of accounts. For example, motions by the respondent were necessary to excuse the parties from the court-ordered mediation, to obtain a pre-trial date and to obtain a trial date.
[59] The respondent had substantial success. After a five day trial, the appellant succeeded only in having the house valuation reduced by $70,000, with the result that the respondent’s compensation was reduced by about $9,000. On all the other issues, such as the amount of the compensation, the care and management fee, and the questioning of certain actions, such as the new roof for the house or providing Mr. Aber with a small monthly allowance, the appellant failed. Clearly, she was unsuccessful at trial. That is true even with the adjustments made on this appeal, which result in a reduction ofcompensation of about $6,500 and a reduced deduction from the appellant’s share of the residue in the amount of $3,500.
[60] One of the factors clearly influencing the trial judge’s order of full indemnity costs was the three offers to settle made by the respondent. The appellant’s only complaint before and throughout the litigation was the amount of the compensation taken by the respondent. The latter made three offers to settle. In the first, on February 27, 2012, she agreed to reduce the amount of compensation sought. Subsequently, on April 18, 2012 and December 5, 2012, she made offers in which she waived any claim to compensation, along with other terms including the payment of some of the appellant’s legal costs. The December offer remained on the table until the commencement of the trial.
[61] Had the appellant accepted either of the offers waiving compensation, there would have been no need for the litigation to continue, and significant costs would have been avoided. While she argues that she did not accept the last offer because the proposed release was too broadly worded, she made no effort to negotiate the terms of the release. She made no counter-offer until the eve of trial, and her offer of $20,000 in compensation for the respondent was far below what the trial judge awarded.
[62] While the appellant argues that she could not accept the December offer because of the terms of a proposed release, as I noted, she did not make a counter-offer with respect to the release. A litigant in a passing of accounts who does not accept reasonable offers to settle is at risk of an order to pay costs (see, for example, Re Pilo Estate, 1999 CarswellOnt 1577 (S.C.J.) at para. 10).
[63] In my view, given factors such as the result of the litigation, the delays caused by the appellant, and the rejection of reasonable offers to settle, the trial judge properly held that the appellant should pay costs personally, rather than have all the legal costs paid out of the estate. Otherwise, the respondent, as one of the two beneficiaries of the residue of the estate, would effectively be paying half the legal costs.
Did the trial judge err in ordering those costs on a full indemnity basis?
[64] The next issue that the trial judge was required to consider was the level and amount of costs payable by the appellant. The trial judge engaged in no analysis of the justification for awarding costs on a full indemnity basis. In my view, given the jurisprudence on substantial indemnity costs, she erred in principle in awarding costs of the whole proceeding on a full indemnity basis.
[65] In Sawdon Estate, above, the Court of Appeal made a blended order for costs. The trial judge had awarded costs to the estate trustee on a partial indemnity basis against Watch Tower Bible and Tract Society in litigation relating to the ownership of bank accounts. The Court of Appeal held that the trial judge erred in refusing to order that the difference between the trustee’s legal costs on a full and partial indemnity basis be paid from the estate, so that the estate trustee would not be required to pay personally for legal costs reasonably incurred in the administration of the estate.
[66] Costs in civil litigation are normally awarded on a partial indemnity basis. While substantial indemnity costs can be awarded against a party, the usual reason for such an order is the fact that the party has engaged in reprehensible, scandalous or outrageous conduct (Young v. Young, 1993 CanLII 34 (SCC), [1993] 4 S.C.R. 3 at p. 134). Substantial indemnity costs may also be awarded to a successful plaintiff under rule 49.10(1), where a plaintiff has made an offer to settle and has received a judgment at trial that is as favourable or more favourable than the offer. However, in such a situation, costs are awarded on a partial indemnity basis to the date of the offer, with substantial indemnity costs from the date of the offer, unless the court orders otherwise.
[67] In the present case, the trial judge did not rely on rule 49.10(1), given the way in which the offers were framed. However, even if it were open to her to consider the offers to settle, she gave no explanation why she awarded full indemnity costs rather than substantial indemnity costs and why she did so from the outset of the litigation, rather than from the date of one or other of the offers.
[68] The other reason for a costs award on a substantial indemnity basis is the conduct of a party. The Court of Appeal discussed what constitutes reprehensible, scandalous and outrageous conduct that might justify a punitive costs award in Davies v. Clarington (Municipality), 2009 ONCA 722 (CanLII). The Court emphasized that there is a difference between “hard-fought litigation that turns out to have been misguided, on the one hand, and malicious counterproductive conduct, on the other” (at para. 45). The Court also explained the result in Apotex Inc. v. Egis Pharmaceuticals (1991), 1991 CanLII 2729 (ON SC), 4 O.R. (3d) 321 (Gen. Div.), a case relied upon by the respondent in the present appeal. There a punitive costs award was justified because the losing party used “fruitless litigation” to harass the defendant and made “meritless claims of fraud, deceit and dishonesty based on pure speculation” (at paras. 45-46). In Apotex and other like cases, the party ordered to pay such costs has engaged in an abuse of process (at para. 45).
[69] In the present case, the trial judge made no finding that the appellant’s conduct was reprehensible, scandalous or outrageous, as she was required to do when awarding substantial indemnity costs. She did not make a finding that the litigation was fruitless or designed to harass.
[70] The appellant, as a beneficiary of the estate, was entitled to ask for a passing of accounts. She did have minimal success in the litigation with respect to the house valuation. In the circumstances, the trial judge erred in awarding full indemnity costs against the appellant, as she did not make the necessary finding that the appellant was engaged, in effect, in harassment or improper conduct in pursuing the litigation. Therefore, costs against the appellant should be properly have been awarded on a partial indemnity basis.
Should the trial judge have made a blended costs order?
[71] What then is the proper order as to the respondent’s costs? The Court of Appeal in Sawdon Estate made a blended order. In my view, that would be the appropriate order in the present case.
[72] As I stated above, the trial judge should have awarded costs on a partial indemnity basis against the appellant. It would then be appropriate to order that the balance of the legal costs of the respondent be paid from the estate, so that the estate trustee is indemnified for her legal costs reasonably incurred in the litigation.
Were the legal costs reasonably incurred by the respondent?
[73] That brings me to the issue of quantum. The appellant argued before the trial judge that the respondent should only receive compensation for legal costs reasonably incurred, citing Re Vano Estate, 2012 ONSC 262 (CanLII) at para. 36. Vano is a case where the estate trustee appears to have asked for costs of a contested passing of accounts to be paid from the estate, rather than the objector.
[74] On this appeal, the appellant argues that the costs award in the amount of $192,632.53 was plainly wrong. She argued that the fees of the respondent’s first counsel, Hull & Hull, were excessive and reflected duplication of effort by the lawyers involved. As well, she argued that the fees should be reduced because the respondent abandoned the issue of personal care during the course of the litigation, and costs of steps relating to that issue should be deducted from the legal expenses recovered. Moreover, the appellant submitted that she should receive costs of a 2013 motion for medical records, the examination of the respondent, and a motion for refusals on a partial indemnity basis in the amount of $22,608.62.
[75] The trial judge rejected those arguments, albeit with minimal analysis, stating that she had reviewed the documents and did not find the costs excessive (Reasons, para. 10).
[76] Having considered the appellant’s arguments, I see no basis to interfere with the trial judge’s conclusion about the reasonableness of the respondent’s costs. They were reasonably incurred in the administration of the estate, and the appellant has not demonstrated that the trial judge’s conclusion that they were not excessive is “clearly wrong” (Hamilton Street Bakery, above).
[77] The appellant argues that the accounts of Hull & Hull were excessive because ten lawyers worked on the file. However, an examination of the dockets shows that there were at most four main providers of services. The appellant has not pointed to any overlap in the dockets, which were provided to the trial judge and this Court.
[78] The fees were also increased in part by the appellant’s conduct. As the trial judge noted, a number of motions were required in this proceeding, in part because of the appellant’s conduct - for example, setting aside the requirement for mediation and obtaining pre-trial and trial dates. The appellant’s detailed objections to the accounts prolonged the process before trial and the trial itself, which examined numerous expenditures over a long period oftime.
[79] With respect to the “abandoned issues”, the trial judge made no error. The respondent did not “abandon” the issue of personal care. At all times, she was seeking compensation for her role as Attorney for Property and Estate Trustee. She was not claiming any compensation for providing personal care services, and her provision of personal care was not an issue in the proceeding. The fact that she clarified this in April 2013 in an Amended Response to the Notice of Objection does not amount to an abandonment of the issue of personal care.
[80] Moreover, there should be no deductions with respect to the items identified by the appellant, nor should the appellant receive costs for these stagesof the litigation. In particular, the appellant is not entitled to her costs of the motion before Allen J. in early 2013. She had to bring that motion to obtain leave to examine the respondent, as the application had been set down for trial. She did not obtain the medical records she sought, as the motions judge accepted that the appellant had already been provided with them. All that was ordered was the production of any missing records. The examination of the respondent that was ordered was limited in scope to personal care issues, and costs were left to the trial judge. Moreover, after the examination, a motion for refusals was dismissed by Aston J. While this was after the clarification of the respondent’s response, it is evident in his endorsement that he doubted that the information sought was relevant.
[81] In sum, the appellant has not shown any error in the trial judge’s finding that the costs incurred by the respondent were reasonable. The respondent, as Attorney and Estate Trustee, is entitled to be fully indemnified for those expenses.
[82] The remaining issue is the amount of those costs that the appellant should be ordered to pay personally, given the finding that she should pay partial indemnity costs. Determining what a reasonable costs order would be against an unsuccessful litigant is a different inquiry from whether an estatetrustee has reasonably incurred legal expenses for which he or she should be indemnified by the estate. As the Court of Appeal emphasized in Davies, above (a case which I acknowledge is not an estates case), the court must always ask what is a reasonable amount that the unsuccessful party should pay (at para. 52).
[83] On a purely mathematical basis, calculating partial indemnity costs as 60% of the full indemnity costs, the appellant would be required to pay $115,200. While this may at first seem high, in my view it is a fair and reasonable amount for the losing party to pay when one takes into consideration the length of the litigation, the number of motions, the five day trial, and the need for extensive preparation in order to examine in detail some 750 pages ofdocuments. While the Court does not have access to the dockets of appellant’s counsel as a measure of reasonable expectations that she might have with respect to costs, one can see that the costs sought by the appellant for the “abandoned issues” are within a few thousand dollars of the fees of the respondent’s counsel for these steps.
[84] In my view, an award of $115,200 for partial indemnity costs payable by the appellant is fair and reasonable in the circumstances of this case.
Conclusion
[85] For these reasons, the appeal on the merits is allowed in part to amend paragraph 3 of the trial judge’s order of December 16, 2013 allowing $7,000 to be deducted from the distribution of the estate to the appellant and substituting a deduction of $3,500 and to amend paragraph 11 to remove the care and management fee from the compensation of the Estate Trustee. Otherwise, the appeal on the merits is dismissed.
[86] Leave is granted to appeal the costs award, and the costs appeal is allowed. The costs order shall be set aside, and an order is to go requiring the appellant to pay the respondent costs of the litigation on a partial indemnity basis in the amount of $115,200. If not paid within 60 days, the amount may be paid out of the appellant’s distribution of the estate to the respondent. The balance of the respondent’s legal expenses incurred are payable to the respondent out of the estate.
[87] If the parties cannot agree on costs of the appeal, including the costs appeal, the parties shall make brief written submissions through the Divisional Court office within 30 days of the release of this decision.
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Swinton J.
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Lederman J.
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Harvison Young J.
Released: August 24, 2015
Swinton J.
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Lederman J.
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Harvison Young J.
Released: August 24, 2015