DATE: 20050715
DOCKET: C42595 C42639
COURT OF APPEAL FOR ONTARIO
DOHERTY, MACFARLAND AND LAFORME JJ.A.
B E T W E E N :
TD CANADA TRUST COMPANY, in its capacity as executor of the estates of Emidio Simone and Laila Simone and trustee of the Simone Family Trust, SIFAM MANAGEMENT & SALES LTD., and AMD ONE INC.
William V. Sasso
for the appellant
Stephen Cheifetz
and Starlyn
Thomas J. Corbett
for the appellant
Barbara Cheifetz
Plaintiffs (Respondent)
- and -
BARBARA CHEIFETZ, STEPHEN CHEIFETZ, STARLYN
INVESTMENT CORP., SBC CORP., NATHAN CHEIFETZ FAMILY TRUST, DOE 1, DOE 2 AND DOE 3
Aaron A. Blumenfeld
for the respondent
TD Canada Trust
Defendants (Appellants)
Heard: June 15, 2005
On appeal from the order of Justice Elizabeth Stewart of the Superior Court of Justice dated October 21, 2004.
MACFARLAND J.A.:
[1] On August 19, 1994 Emidio Simone and his wife Laila were tragically killed in a plane crash. During his life, Mr. Simone was an entrepreneur and owned a very successful tooling company known as Active Mould. That company made moulds for the use of those engaged in the business of manufacturing auto parts.
[2] Stephen Cheifetz is a lawyer who at the time practised law in Windsor, Ontario where the Simones lived. Stephen Cheifetz did all Simone’s legal work including the wills of Mr. and Mrs. Simone. In the wills Stephen Cheifetz was named as one of three executors and trustees. As the result of the plane crash two of the three named executors/trustees were killed and Stephen Cheifetz became the sole executor and trustee.
[3] Mr. and Mrs. Simone were survived by their two daughters, Emi and Lisa who were respectively 19 and 18 years of age at the time of their parents’ death.
[4] The relationship between Stephen Cheifetz and Emi and Lisa quickly deteriorated. In the face of an application by them to remove him as executor and trustee, he resigned in June, 1996.
[5] When Stephen Cheifetz was to pass his accounts before the court, Emi and Lisa brought an application for repayment of monies paid to him and to his holding company as compensation. Those matters proceeded before Flinn J. over eight days in December 1997 and March 1998. In his reasons released July 21, 1998 he concluded:
I have wrestled with the question of his motivated self-interest and intent to profit with the recovery that the estate made on the disposition of the Sifam assets. The court cannot excuse avaricious motives that have been injurious to certain of the assets of the estate notwithstanding the overall recovery. Consequently, it seems to me that the observations made by McLachlin J. in Soulos v. Korkontzilas, supra, may be properly accomplished by disallowing to the estate trustee any premium in fixing the executor’s fees at the amount taken for management fees (including car rental and benefits) approximately $490,000. In this connection I feel that the court is addressing McLachlin J.’s observations that:
Good conscience addresses not only fairness between the court, but the larger public concern of the courts to maintain the integrity of institutions like fiduciary relationships which the courts of equity supervised …
This is a particularly significant statement in light of the fact that the estate trustee is here a solicitor.
In accordance with the obligation of an estate trustee to account, the balance of the monies received by Cheifetz and/or Starlyn, that is to say $512,000 shall be repaid to Sifam and Active as their interests may appear together with the following:
a) The fees of the Canada Trust Company totalling $15,772.13. The keeping of the accounts is an essential duty of an estate trustee. There is a long history of this being a requirement of an estate trustee. See Carley Estate, Re (1994), 2 E.T.R. (2d) 142 (Ont. Gen. Div.) at p 160. As a solicitor he would understand the obligations of estate trustees to keep accounts, they were not particularly difficult, and indeed with the facilities available to him at Sifam one would have thought they could have been kept internally with little cost;
b) The account of Roney for an appraisal of $12,571. This was solely for Cheifetz’ benefit, was not authorized by any of the outside directors or beneficiaries, and therefore should be for the account of Cheifetz personally;
The accounts of Siskind, Cromarty for the preparation of the accounts of the estate trustee for submission to the court shall be paid by Cheifetz to Siskind, Cromarty, Ivey & Dowler after assessment. This, too, follows a long line of authorities that the accounts to be presented to the court and any advice with respect thereto ought to be for the account of the estate trustee. The latest case with respect to such observations is Gordon Estate, Re (May 19, 1998), Doc. Ottawa 97-DV-63 (Ont. Div. Ct.) in the Divisional Court of Ontario. I have endorsed the record in the application accordingly.
The result is that Stephen M. Cheifetz and Starlyn Investment Corp. shall repay to Sifam and Active or their successors, the present estate trustee, the sum of $540,343.13 plus pre-judgment interest from the 1st day of January, 1996. For the purpose of enforcing this judgment the two companies are made parties to the passage of accounts.
[6] Stephen Cheifetz and his holding company Starlyn appealed the order of Flinn J. made on the passing of accounts and Emi and Lisa, the beneficiaries under the wills of their parents, cross-appealed from what they submitted was a dismissal of their claim for repayment of $914,431 arising from what has been referred to as the “Supercart transaction”. The Supercart transaction is detailed in the reasons of Flinn J. as well as in the judgment of this court.
[7] In relation to the Supercart transaction it is important to note what this court said:
In 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.
Flinn 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[sic] compensation.
Moreover, 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.
While 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.
[8] TD Canada Trust Company was by order of Flinn J. appointed executor of the estates of Mr. and Mrs. Simone and trustee of the Simone Family trust. It brings this action against the defendants Stephen Cheifetz, his wife Barbara, the two companies of which Stephen Cheifetz and Barbara Cheifetz are the sole officers and directors, their family trust and persons unknown for damages essentially for breach of trust and breach of fiduciary duty on the part of Stephen Cheifetz while he acted as executor and estate trustee following the deaths of Mr. and Mrs. Simone up to the time he was replaced in those capacities by the plaintiff TD.
[9] The plaintiffs alleged that the defendants have pleaded by way of defence matters already determined by Flinn J. in his judgment rendered on the passing of accounts. The plaintiffs moved for judgment under Rule 20, and moved under Rule 21 to strike those parts of the statements of defence which purported to put into issue matters already determined in the earlier proceeding.
[10] While the motions judge declined to grant judgment she struck out those parts of the statement of defence which appeared to raise matters she found had been earlier determined by Flinn J.
[11] The defendants appeal to this court from that part of the judgment which struck parts of their statements of defence. The plaintiffs cross-appeal the motions judge’s refusal to grant judgment.
[12] In our view the appeal must succeed and the cross-appeal fail.
[13] The analysis must necessarily begin with a consideration of the issues of concern in the two proceedings.
[14] On the passing of accounts the court was concerned with the proper amount to be paid by way of compensation to Stephen Cheifetz for the period when he was the estate executor/trustee.
[15] In an action for damages for breach of trust and/or breach of fiduciary duty the court will be concerned with issues of a very different nature. While aspects of Stephen Cheifetz’s conduct considered on the passing of accounts may be considered also in the current action it will be for a different purpose and different legal considerations will apply. While the passing of accounts concerned itself with the amount properly payable to Stephen Cheifetz in his capacity as executor/trustee, the damage action will concern itself with whether the estate is entitled to any payment (by way of damages) from Stephen Cheifetz. Further, this court in its reasons on the appeal from the judgment of Flinn J. pointed out the undesirability of litigating the issue of breach of fiduciary duty on a passing of accounts. In almost extending an invitation to the beneficiaries to bring an action for breach of fiduciary duty, this court noted that Flinn J. had neither considered nor dismissed such a claim.
[16] In his reasons for judgment on the passing of accounts Flinn J. does not make specific findings in respect of the conduct of Stephen Cheifetz which in his view constituted breach of trust and/or breach of fiduciary duty. He does specifically conclude in paragraph 44 of his reasons that in appointing himself as President of Sifam and of Active his actions were NOT in breach of trust.
[17] Further in those reasons he says:
The evidence would lead to the conclusion that notwithstanding the motives of Cheifetz, the financial interests of the beneficiaries were preserved during his administration of these companies with one exception and that is his dealings with the company known as Supercart.
[18] And in relation to Supercart, Flinn J. concluded:
… there can be no doubt but that Cheifetz intended to benefit himself and his partnership friends at the expense of one or more of the Sifam companies.
and that his (Stephen Cheifetz’s) evidence in this respect was
… half truths and unreliable.
[19] Yet the court went on to conclude in relation to Supercart:
In summary then we have an estate trustee who in his administration of the companies no matter what his motive preserved the assets of the estate with the exception of what the beneficiaries call the Supercart fiasco. The fact is that Sifam, Active and E.L.S. assets were sold for something in the vicinity of two-and-one-half times the KPMG valuation. During the course of Cheifetz’ administration, the companies showed increased sales and indeed increased profits although costs had not come into line with previous years. The fact is that Supercart was at the time of the death of Dino Simone beset with liabilities and a questionable future notwithstanding the optimism expressed in the early descriptions. The difficulty is in assessing a loss, if any, with respect to Supercart. Indeed, there is investment of substantial sums in the Supercart venture-not only on the date that the fiduciary duties arose but thereafter through into 1996 until an interim court order prevented further payments. The evidence does not state what happened to Supercart. The agreements with respect to the sale of the assets of Sifam, Active and ELS do not refer in any way to Supercart except to exclude the moulds from the Sifam agreement. While Exhibit 3A indeed shows the outgoings, and they are substantial, it is a matter of conjecture what the loss would have been had Supercart been merely closed up and the assets disposed of. I therefore have no evidence upon which I can assess the loss, if any, to the estate as a result of the dealings between Supercart and Ingenious. However, one thing is clear Cheifetz intended to profit personally.
[20] In his concluding paragraphs the application judge remarked:
I have wrestled with the question of his motivated self-interest and intent to profit with the recovery that the estate made on the disposition of the Sifam assets.
[21] While he clearly made findings that Stephen Cheifetz was motivated by self-interest and an intention to profit personally he does not correlate that motivation to conduct which he finds to be breach of fiduciary duty and/or breach of trust. Motivation without more, is insufficient to establish those breaches.
[22] Given the very different nature of the proceedings and the absence of specific findings of fact to support a breach of fiduciary duty it is not clear at this stage of the proceedings that Stephen Cheifetz should not be permitted to litigate the issues pertaining to the alleged breach.
[23] Further Barbara Cheifetz, the Cheifetz family corporation and family trust were not parties to the proceeding before Flynn J. At this early stage without some evidence, it would be quite unfair to attribute Stephen Cheifetz’s motivation to them particularly in the absence of any finding as to what specific conduct amounted to breach of trust and/or breach of fiduciary duty. Clearly these parties had no interest on the passing of accounts in any legal sense. Barbara Cheifetz is the wife of Stephen Cheifetz and an officer of the family corporation. In my view that alone is quite insufficient to make her a “privy” in law. There must be some connection or identification of interest between her and Stephen Cheifetz in terms of the legal issues raised to make it:
… Just and common sense to hold that a court decision involving the party litigant that it should be binding in a subsequent proceeding upon the non-litigant party in the original proceeding. Currie v. McDonald’s Restaurants of Canada Ltd. (2005), 2005 3360 (ON CA), 250 D.L.R. (4th) 224 at para. 47.
[24] In my view it will be for the trial judge to determine on the basis of the evidence called before him/her to determine what in fact Barbara Cheifetz’s knowledge was at the material times and whether in all the circumstances it is appropriate to apply the principles of issue estoppel and abuse of process.
[25] When a party moves to strike a pleading it bears a heavy onus and must establish that it is “plain, obvious and beyond doubt” that the plea could not succeed. Hunt v. Carey Canada Inc., 1990 90 (SCC), [1990] 2 S.C.R. 959.
[26] In my view that onus is not met on the facts of this case.
[27] Appeal is allowed and the order of Stewart J. striking out paragraphs of the statements of defence filed on behalf of the appellants is set aside.
[28] In all other respects her order is affirmed and the cross-appeal is dismissed.
[29] The parties should exchange Bills of Costs and file them with the court within 30 days.
RELEASED:
“DD” “J. MacFarland J.A.”
“JUL 15 2005” “I agree Doherty J.A.”
“I agree H.S. LaForme J.A.”```