COURT OF APPEAL FOR ONTARIO
BORINS, MACPHERSON AND SHARPE JJ.A.
In the matter of the Estates of Emildio Simone, also
known as Dino Simone, and Laila Simone , and in the
matter of the Simone Family
BETWEEN: )
EMI LOUISE SIMONE AND ) Robert P. Armstrong Q.C. and
LISA ANNE SIMONE ) Clare Burns for the respondents,
(Applicants/ ) appellants in the appeal Chiefetz
Respondents) ) and Starlyn Investment Corp.
and )
STEPHEN M. CHEIFETZ, STARLYN )
INVESTMENT CORP.,JOHN ROBSON, )
SIFAM MANAGEMENT & SALES LTD., ) Aaron A. Blumenfeld
ACTIVE MOULD & DESIGN (1977) ) for the applicants, respondents
LIMITED, THE CHILDREN’S LAWYER ) in the appeal
AND SISKIND, CROMARTY IVEY )
& DOW )
(Respondents/ )
Appellants) ) Heard: May 29 and 30, 2000
On appeal from the judgments of Justice R. Jeffrey Flinn dated May 13, 1999.
BORINS J.A.:
[1]
Background
Stephen Cheifetz was the executor and trustee of the estates of Emidio Simone and Laila Simone and a trustee of the Simone Family Trust (the “Trust”). By the order of Flinn J. he was replaced as executor and trustee of the estates and trustee of the Trust by the Canada Trust Company and was ordered to pass his accounts as executor and trustee of the estates and as trustee of the Trust.
2In his capacity as trustee of the Trust, Mr. Cheifetz appointed himself as president and executive officer of the Simone family holding company, Sifam Management & Sales Ltd. (“Sifam”) and its subsidiary, Active Mould and Design (1977) Limited (“Active”). During the period of 22 months while he held these positions, he was paid $487,600 in salary and approximately $525,000 by way of a bonus. In addition, he continued to receive remuneration from the law firm with which he practiced for the first four months of this period until he left the firm to devote his full time and attention to serving as president of Sifam and Active, executor and trustee of the estates and trustee of the Trust. Prior to the deaths of Mr. & Mrs. Simone in an airplane crash, Mr. Cheifetz had been their personal lawyer and performed the legal work on behalf of Sifam and Active, as well as other companies owned by the Simone family.
3Flinn J. conducted an audit of the accounts over an eight-month period. Mr. Cheifetz claimed compensation for his services as trustee of the estates and the Trust on the basis of the usual percentages as described in Re Jeffrey Estate (1990), 39 E.T.R. 173 (Ont. Surr. Ct.), in the cumulative amount of $753,296.95. In addition, he claimed that he was entitled to retain the salary of $487,600 which he had been paid by Sifam and Active while he served as their president. He, therefore, sought total compensation of $1,240,896.95.
4The beneficiaries challenged not only the amount of the compensation claimed, but the payment of anything. It was their position that because Mr. Cheifetz was in breach of his fiduciary obligations as executor and trustee he was not entitled to any compensation. They contended that he had attempted to benefit personally at the expense of the estate assets in respect to a transaction (the “Supercart transaction”) that he had orchestrated involving a subsidiary of Sifam, Supercart International Inc. (“Supercart”) and Ingenious Retailing Inc. (“Ingenious”), a company owned by a former business associate, which was indebted to him. The beneficiaries sought the return of $914,431 which they claimed the estate lost as a result of Mr. Cheifetz causing Sifam and Active to pay that sum to Ingenious.
5Flinn J. fixed Mr. Cheifetz’s compensation as estate trustee and trustee of the Trust in the amount of $490,000 and ordered that Mr. Cheifetz and Starlyn Investment Corp., his management company, repay Sifam, Active, or Canada Trust, $512,000. In addition, he ordered them to pay further amounts of $15,772, reflecting the fees of Canada Trust, and $12,571, reflecting the fees of Roney & Co. He found that there was insufficient evidence to determine the loss, if any, to Sifam arising from the Supercart transaction. Subsequently, Flinn J. ordered Mr. Cheifetz and Starlyn to pay 60% of the costs of the beneficiaries to be assessed on a solicitor and client basis. As the reasons of Flinn J., which are reported in (1998), 24 E.T.R. (2d) 74, contain a thorough recitation of the facts, there is no need to review them.
[6]
The Appeal
Mr. Cheifetz and Starlyn have appealed from the order of Flinn J. made on the audit and have sought leave to appeal, and if leave is granted, appeal his order respecting costs. The beneficiaries have cross-appealed from what they submit was the dismissal of their claim for the return of $914,431 arising from the Supercart transaction.
7Flinn J. concluded that Mr. Cheifetz was not entitled to the full amount of the compensation which he claimed and that he and Starlyn were required to repay Sifam and Active $512,000, and to pay the other sums to which I have referred, on the basis of his finding that Mr. Cheifetz had acted dishonestly in the way in which he performed the trust that had been imposed on him. Primarily in respect to the Supercart transaction, which Flinn J. found was an attempt by Mr. Cheifetz to benefit personally at the expense of the estate assets, he held that Mr. Cheifetz had demonstrated a corrupt intent to benefit himself. He stated that Mr. Cheifetz’s evidence consisted of half truths and was unreliable. In supplementary reasons dealing with costs, the audit judge said Mr. Cheifetz had been in breach of his fiduciary responsibilities, untruthful and misleading, and described his actions as reprehensible and scandalous.
8Counsel for Mr. Cheifetz, Mr. Armstrong, properly recognized that he was bound by the audit judge’s findings in respect to Mr. Cheifetz’s conduct as trustee. He also recognized that the audit judge had found as a fact that the amounts paid to Mr. Cheifetz for salary and bonus by Sifam and Active were to be accounted for in respect to the executor’s compensation to which he was entitled. Mr. Armstrong also conceded that Mr. Cheifetz’s dealings with Supercart and Ingenious “were not the right thing for him to do”, but pointed out that the audit judge found that no loss to the estate had resulted. This finding is challenged by the beneficiaries in their cross-appeal.
9Mr. Armstrong’s position was that Flinn J. had erred in principle in the compensation award which he made by failing to give Mr. Cheifetz credit for his good work in preserving the assets of the estate which were sold for a favourable amount after his resignation as trustee and by placing undue weight upon his improper conduct, particularly because no loss had resulted from the Supercart transaction. It was his position that his client had been treated harshly by the audit judge, whose award he characterized as “a punitive judgment against this young lawyer”. I do not agree.
10Although the result reached by Flinn J. may appear to the trustee to be harsh, given his findings that Mr. Chiefetz was in breach of his fiduciary duties as a trustee I am not persuaded that he erred in principle in the exercise of his discretion in fixing the amount of compensation that was awarded, nor in the amounts that he ordered Mr. Cheifetz to repay. In my view, as a court of equity, Flinn J. did not err in principle by intervening to sanction Mr. Chiefetz’s improper conduct. In doing so, he did not ignore the fact that Mr. Chiefetz looked after the trusts carefully and, in the main honestly, and to that extent rendered a valuable service to the estates. Indeed, for this court to interfere would be to entirely disregard the findings of Flinn J. concerning Mr. Cheifetz’s dishonesty and his corrupt intention to benefit himself at the expense of the estate. The authorities are clear that where a trustee has breached his or her fiduciary duties the court may allow full, partial or no compensation and, where appropriate, may order the trustee to make restitution to the estate. I am satisfied that the audit judge properly exercised his powers under s. 49 of the Estates Act, R.S.O. 1990, c. E. 21 and s. 61 of the Trustee Act, R.S.O. 1990, C.T. 23. I would, therefore, dismiss Mr. Cheifetz’s appeal.
[11]
Costs
Nor am I persuaded that we should interfere with the audit judge’s exercise of his discretion in his award of costs. Given his findings concerning Mr. Cheifetz’s breach of his fiduciary responsibilities, the untruthful or misleading statements in Mr. Cheifetz’s affidavits which caused excessive preparation by the respondents’ counsel and his characterization of Mr. Cheifetz’s actions as reprehensible and scandalous, he did not err in principle in awarding costs on a solicitor and client basis or in his apportionment of the costs. Although I would grant leave to appeal, the appeal respecting costs is dismissed.
[12]
The Cross-Appeal
The beneficiaries have cross-appealed from what they characterize as the rejection of their request that Mr. Chiefetz return $914.431.00 to Sifam which, in their submission, was the loss to the estate sustained from the Supercart transaction. In my view, they have misapprehended the approach taken by the audit judge to this alleged loss. In my view, from reading his extensive reasons it is not at all clear that Flinn J. addressed the question of this alleged loss as a claim for damages for breach of trust even though, as Flinn J. noted at p. 89 of his reasons, the issue was raised before him.
13Flinn J. reviewed the evidence concerning the Supercart transaction at pp. 90 – 93. He returned to the transaction at p. 100 for the purpose of examining the loss which it occasioned to Sifam and concluded, on the evidence, that it was “a matter of conjecture what the loss would have been had Supercart been merely closed up and the assets disposed of” after Mr. Chiefetz’s removal as trustee. He concluded:
I therefore have no evidence upon which I can assess the loss, if any, to the estate as a result of the dealing between Supercart and Ingenious. However, one thing is clear Chiefetz intended to profit personally.
14In my view, Flinn J. did not find that no loss to Sifam had resulted from the Supercart transaction but found that the deficiency in the evidence concerning the loss precluded a finding of the amount of the loss, if any.
15Flinn J. did not appear to have approached the Supercart transaction as a claim asserted by the beneficiaries against Mr. Chiefetz for damages for the breach of his fiduciary duties, but rather as one of the factors to be taken into account in determining his compensation. At p. 96 Flinn J. expressly noted that the Supercart transaction was one of the factors relative to assessing Mr. Chieftez’s compensation.
16Moreover, there is nothing in the audit judge’s reasons which would indicate he had considered, and dismissed, a claim for damages against Mr. Chiefetz based on the breach of his fiduciary duties. In none of the three formal judgments of the court is there a clause dismissing such a claim. It is, of course, from the formal judgment of the court that an appeal is taken, and not from the reasons delivered by the judge. As well, I would note that in the Notice of Objection to Accounts of Stephen Chiefetz as Executor and Trustee filed on the audit by the beneficiaries there is no reference to such a claim being asserted.
17While there is statutory authority for awarding damages for “misconduct, neglect or default” by a trustee on the passing of accounts (Estates Act, s.49 (3)), it is rare for the court to permit the parties to litigate a substantial claim for damages for breach of a trustee’s fiduciary duties through the medium of an audit. As Professor Waters states: “…the courts prefer to see beneficiaries bring breach of trust actions for reinstatement of loss to the trust, rather than that a breach allegation be fought out through the medium of a remuneration hearing.” Waters, Law of Trusts in Canada, (2nd ed., 1984) 956. I would add that Flinn J.’s consideration of the Supercart transaction as a factor to be considered in fixing the trustee’s remuneration does not preclude the beneficiaries from asserting a breach of trust claim claim in respect to that transaction, if so advised.
18In these circumstances, I would not give effect to the respondents’ cross-appeal.
[19]
Disposition
The parties are in agreement that paragraph 7 of the judgment on the passing of accounts in the estate of Emidio Simone should be varied by substituting $33,781.25 for $12,571, and I so order.
20In the result, Mr. Cheifetz’s appeal is dismissed with costs on a solicitor and client basis subject to the above variation. The cross-appeal of the beneficiaries is dismissed with costs.
Released: November 7, 2000 (signed) “S. Borins J.A.”
(signed) “J.C. MacPherson J.A.”
(signed) “R. J. Sharpe J. A.”
