COURT OF APPEAL FOR ONTARIO
SHARPE, ARMSTRONG AND MACFARLAND JJ.A.
B E T W E E N :
C43796
ROBERT VAN DEN HOEF JR. and
GIGI MONIQUE LOUGH
Gerald E. Langlois, Q.C.
Applicants (Respondents)
for the appellant
Richard van den Hoef
- and -
RICHARD VAN DEN HOEF
Paul A. Dancause
For Gigi Monique van den Hoef
Respondent (Appellant)
Lough and respondent Robert
R.L. van den Hoef
A N D B E T W E E N:
Linda Omazic
For the Children’s Lawyer
ROBERT VAN DEN HOEF
C44879
Plaintiff (Respondent)
- and -
ROBERT VAN DEN HOEF JR. and
GIGI MONIQUE VAN DEN HOEF
LOUGH
Defendants (Appellants)
A N D B E T W E E N:
ROBERT R. L. VAN DEN HOEF, and GIGI MONIQUE LOUGH, in their
capacity as Trustees of the
MAASBREE GROUP TRUST
C44887
Applicants (Appellants)
- and -
RICHARD VAN DEN HOEF, a
Bankrupt
Respondent
Heard: September 14, 2006
On appeal from the judgments of Justice Robert J. Cusson of the Superior Court of Justice dated June 2, 2005 and from the judgments and orders on costs of Justice Cusson dated September 27, 2005.
MACFARLAND J.A.:
1There are three appeals before the court, all of which are brought by various members of the van den Hoef family and arise in relation to a family trust. I refer to the parties to these appeals by their first names for ease of identification and intend no disrespect.
2In the first appeal, Richard van den Hoef appeals from the judgment of Cusson J. rendered at L’Orignal on June 2, 2005, wherein he ordered the sale of realty and chattels comprising the trust with the proceeds thereof to be paid into court to the credit of the beneficiaries.
3The second and third appeals are both brought by Richard’s siblings, Robert van den Hoef Jr. and Gigi Monique van den Hoef Lough, who appeal from two cost orders of Cusson J. dated September 27, 2005.
THE FACTS
4In 1993, the appellants’ father, Robert van den Hoef Sr., and his then-wife, Maria, decided to immigrate to Barbados and establish residency there in order to take advantage of certain Canadian income tax laws. They left behind their recreational residence, situated on 32 acres in South Glengarry, Ontario (the “property”) and all of the household contents (the “chattels”).
5By an agreement dated December 1, 1994, Robert Sr. made the property and chattels the subject of a trust for the benefit of his grandchildren, and established a trust fund to be used for the maintenance of the property. He named his three children, Robert Jr., Gigi, and Richard, trustees.
6The terms of the trust provide that the trust property and fund are to be used for the benefit and enjoyment of the beneficiaries, for as long as the trustees consider appropriate. A unanimous decision of the trustees is required to sell the property, and a two-thirds majority decision to take any other action. Should the trustees decide to sell, the trust directs that they hold and invest the proceeds on behalf of the beneficiaries until the youngest beneficiary reaches twenty-one years of age.
7By the terms of the trust, Richard was made managing trustee. He was authorized to handle the day-to-day management of the trust fund and the property, and sign cheques, contracts or documents on behalf of the trust.
8Between 1994 and 1999 the actual use of the subject property did not change. Robert Sr. and Maria occupied the property when they came to Canada, mostly in the summer months. Robert Sr. funded a bank account to maintain the property, and Richard was the only trustee authorized to sign on that account.
9Beginning in 1999, Richard occupied the trust property and paid rent according to his ability at the time with the concurrence of his co-trustees. When he was unemployed the rent was reduced; when employed it increased. Richard, for his part, maintained the property, shovelling the snow in winter, cutting the grass in the other seasons, and arranging for any necessary repairs. There was no objection to Richard’s occupation of the property or his activities in relation thereto until May of 2002.
10In 2000 Robert Sr. and Maria separated. Maria returned to Canada and also took up residence in the property. The relationship between Richard and his mother soon deteriorated, as did the relationship between Maria and Robert Sr.
11It is unnecessary for present purposes to detail all the interactions among the parties which led to the institution of the proceedings that are the subject of this appeal. Suffice it to say that, as the trial judge noted, what was a “somewhat normal family dynamic” became “sour and antagonistic in the spring of 2002.” Robert Jr. and Gigi sided with Maria while Richard took Robert Sr.’s part. Needless to say, it was quite impossible for Robert Jr. and Gigi on the one hand and Richard on the other to agree on anything. Robert Jr. and Gigi wanted Richard removed as a trustee, evicted from the property, and the property sold. Richard wanted Robert Jr. and Gigi removed as trustees and the property maintained.
12The lines were drawn. Shortly thereafter, legal proceedings were instituted.
THE PROCEEDINGS
13By Statement of Claim issued May 31, 2002, Robert Sr. commenced an action against Robert Jr. and Gigi for the return of personal items that he alleged they had taken from the trust property on May 14 and 15, 2002. In addition, Robert Sr. claimed the return of over $10,000.00 that he alleged Robert Jr. had taken from a bank account the two (Robert Sr. and Robert Jr.) held jointly.
14I note that the Statement of Claim did not state that the action was brought under Rule 76. It appears, however, that on February 3, 2003 the claim was amended “as a simplified rules proceeding.”
15The personal items allegedly removed from the trust property included Robert Sr.’s will, his written instructions to his executors kept with his will, corporate documents including the corporate seal and bearer share certificates of Maasbree Holdings Ltd., several works of art, and about $12,000.00 in cash.
16In their Statement of Defence, Robert Jr. and Gigi admitted taking the items but claimed they were justified in doing so because the property (with the exception of their father’s will, which they said had been taken in error and subsequently returned) was either trust property or property to be used for the maintenance of the trust, which it was their duty as trustees to preserve and protect.
17By Notice of Application issued August 21, 2002, Robert Jr. and Gigi, in their capacity as trustees, commenced an application against Richard pursuant to the provisions of sections 3 and 60 of the Trustee Act. In their original Notice of Application they sought an order removing Richard as trustee and requiring him to return trust chattels and vacate the trust property. In their amended Notice of Application they sought additional relief, including leave to “dispose of the trust premises” without the consent of Richard or any trustee appointed to replace him.
18By Notice of Cross-Application issued January 7, 2004, Richard sought the removal of Robert and Gigi as trustees.
19The action, application and cross-application were ordered tried together. The matter came on for hearing before Cusson J., commencing November 8, 2004. The action was tried first and took five days to complete. The application and cross-application followed immediately thereafter and took a further seven days.
20In the action, the trial judge dismissed Robert Sr.’s claims for certain works of art and a trust property file, but ordered all monies, corporate documents and materials claimed by Robert Sr. be returned to him. He found that the actions of Robert Jr. and Gigi in removing those items were not motivated by any desire to protect the interests of the beneficiaries of the trust, but rather to even things up as between Maria and Robert Sr. in relation to their pending divorce. His findings in this respect are well supported by the evidence and, in my view, unassailable.
21In the application and cross-application, the trial judge concluded that none of the trustees was to be removed from office. Instead, he directed the trustees to appoint a real estate agent and to sell the property and its contents forthwith. Richard was to continue to occupy and maintain the property until it was sold, at which time he was to give vacant possession. An auctioneer was to be retained to dispose of the trust chattels. All net proceeds of sale were to be paid into court to the credit of beneficiaries of the trust on the terms set out in the original trust agreement.
22A reference was directed for Richard to provide an accounting of rental monies actually paid by him from July 1, 2000.
23Costs submissions in all proceedings were made September 12, 2005 and reasons for the costs disposition delivered September 27, 2005. In his action against Robert Jr. and Gigi, Robert Sr. was awarded costs on a substantial indemnity scale in the fixed sum of $55,084.57. Counsel agreed that the sum of $3,500.00 previously paid was to be deducted from this sum, leaving a total of $51,584.57 awarded against Robert Jr. and Gigi personally.
24No costs were awarded in the application and cross-application except to the Children’s Lawyer. No issue is take in this court in relation to those costs.
25Richard appeals the merits of the disposition of the application and cross-application which ordered the sale of the trust property (the merits appeal). Robert Jr. and Gigi appeal the costs disposition in the action as well as in the application and the cross-application, which were, as noted above, treated as one proceeding.
ANALYSIS
The Merits Appeal
26The trial judge concluded that, as all three trustees were “in a conflict of interest position with the interest of the beneficiaries of the trust, simply removing those on one side or the other would not be a viable option.”
27He contemplated the appointment of an independent third party to continue the management of the trust, but concluded he could not make such an appointment because independent trustees are usually compensated for their duties, and he had no evidence of the ability of the trust to offer compensation. He concluded that the only viable option was the sale of the entire trust, both real property and chattels.
28The thrust of the appellant’s submission is that the trial judge erred in law in ordering a sale of the trust property without taking into consideration the intention of the settlor in establishing the trust, and the fact that there was no power in the trust document for the trustees to sell the trust property absent their unanimous consent.
29In seeking an order for the sale of the trust property without Richard’s consent, Robert Jr. and Gigi were in effect attempting to amend the terms of the trust agreement.
30I begin by observing that when a trust is created, the creator is divested of title. Legal title vests in the trustees and equitable title vests in the beneficiaries. Without an express power of revocation in the trust deed, ending the trust is not an option.
31Where there is no express amending power contained in the trust document, amendment or alteration of the trust can be achieved only by an application to the courts. As Hon. Eileen E. Gillese and Martha Milczynski note in The Law of Trusts, 2d ed. (Toronto: Irwin Law, 2005) at p. 88:
A broadly worded power of amendment and careful attention to its terms is the most secure guarantee for the valid amendment of a trust. What can be done if the trust instrument does not contain an amending power, or the amending power is not drafted so as to create sufficient flexibility? One option is to end the trust. But situations may still arise in which the desire is to keep the trust afoot, but to modify its terms in someway. The only avenue of recourse – apart from terminating the trust and starting over – is to the courts.
The English courts, unfortunately, took a very restrictive view of the assistance that could be offered in such cases. The House of Lords held that the courts do not have an inherent jurisdiction to vary the terms of a trust. This inability exists even when beneficiaries who are sui juris agree to the variation and the variation would clearly benefit the remaining minor or unascertained beneficiaries. The courts, it was held, could vary the terms of a trust only in extremely limited circumstances. The Canadian courts followed suit, with the result that, at common law, the courts can vary trusts only in conversion, compromise, emergency and maintenance situations. [Footnote omitted.]
32The learned authors go on to describe these four situations, of which only two – conversion and emergency – have possible relevance to the issues raised here. As the authors note at pp. 89-90:
Conversion describes the power of the court to direct that realty held for the benefit of a minor may be changed into personalty and vice versa. It must be established, to the court’s satisfaction, that the conversion is for the benefit of the minor.
The court may approve variations of trust in emergencies. Emergencies are situations which had not been foreseen by the settlor, which were not provided for, and which threaten the existence of the trust.
33Another possible way a trust may be altered or amended is by the court pursuant to statute. Where a trust is to be maintained but some clarification or amendment is needed and the amending power is insufficient, two different statutory mechanisms can be used to gain the assistance of the court. Trustee legislation and rules of court may provide some limited relief, though the assistance sought must not be tantamount to a variation of trust. For a change of that magnitude, resort may be had to the Variation of Trusts Act, R.S.O. 1990, c. V.1. In any variation application three things are required: (i) there must be someone on whose behalf the court can act in giving consent; (ii) there must be a proposed arrangement; and (iii) the court must be satisfied that there will be a benefit to those on whose behalf it gives consent.
34In the present case, as it proceeded before the trial judge, no apparent effort was made to consider the interests of the beneficiaries of the trust. Moreover, it could reasonably be argued that the settlor did foresee that the three trustees might disagree on the disposition of the trust property, and for that very reason specifically included the term that all three had to agree to any sale of the property while for other decisions only a two-thirds majority was necessary. In my view, the court should not have entertained the requests of Robert Jr. and Gigi under its inherent power or under the trustee legislation or the Rules. Although the relief sought is technically just the conversion of real and personal property into money, that change is one which, given the nature of the trust, is anything but minor.
35It is clear from the language of the trust document that it was the settlor’s intention that the trust property was to be maintained and held in the state in which it existed at the time the trust document was signed unless all three trustees agreed it should be sold.
36Paragraph three of the trust document provides:
The property shall be held and not sold in any event unless by unanimous consent of all trustees, until all of the present children of the Trustees, and all natural children of the Trustees born in the fifteen (15) years following the date of the agreement, if any, have reached the age of twenty-one (21) years.
37Provision was made that all income generated by the trust was to be used to pay expenses related to the trust property including property taxes, insurance, heat, electricity, regular repairs, maintenance and upkeep of the property.
38In addition to the language of the document itself, the evidence of the settlor, Robert Sr., was to the effect that he wished the property maintained.
39Neither of the applicants (Robert Jr. and Gigi) who sought the sale of the trust property called any evidence to demonstrate that the scheme they proposed – converting the trust property to cash – would result in an overall benefit to the beneficiaries. Absent such evidence, the court is precluded by s. 1(2) of the Variation of Trusts Act from approving the sale of the trust property.
40The trial judge found that until the spring of 2002 no one took issue with the use and management of the trust property. The trial judge also concluded that “both sides are in a conflict of interest position with the interests of the beneficiaries of the trust.”
41In my view the trial judge erred in concluding Richard was in a conflict of interest because he lived at the trust premises and may not have paid fair market rent when he did so.
42There was no evidence as to what a market monthly rental for the property would have been during Richard’s occupation. Further, there was evidence that Richard performed valuable services in relation to the property, which, if performed by a third party, would have to have been paid for. There was no evidence as to the value of those services.
43Absent a showing that Richard in fact occupied the premises at less than fair market value, there was no evidentiary basis upon which to find that his residence there conflicted with the beneficiaries’ interest in the property. On the contrary, his occupation of and maintenance of the premises could only benefit the beneficiaries as the property was being cared for and not falling into a state of disrepair.
44Clearly the trustees were and remain at an impasse, and that difficulty must be resolved. Accordingly, I find that Richard should remain the trustee, there being no reason on the evidence to remove him. Robert Jr. and Gigi should be removed. This will serve to break the impasse. Also, in my view, their conduct as trustees, as described above, justifies their removal.
45As the trial judge ordered, Richard shall obtain from a qualified independent person an opinion of the fair market monthly rental value of the trust property. He should also obtain an independent opinion from a qualified person of the value of his services in maintaining the property. The difference between the two, if any, is the amount of rent Richard should pay to the trust each month.
46His obligation to pay rent at the amount to be determined on the basis of the opinions outlined above should commence September 1, 2002, which is the approximate time when the positions of the parties crystallized. Monthly rent should be calculated at the new rate from that date, and Richard shall be credited for the amounts he has already paid from that date.
47If there is any disagreement about the amount or amounts, the matter can be returned to the Superior Court of Justice at L’Orignal for directions.
48The judgment of Cusson J. is set aside and in its place judgment shall issue in terms of these reasons.
49Having been successful on the appeal, Richard is entitled to his costs before this court as well as his costs below on a partial indemnity basis. His costs of appeal are fixed in the sum of $7,500.00 inclusive of disbursements and G.S.T. The costs below are to be agreed upon or assessed.
50I now turn to consideration of the costs appeals.
THE COSTS APPEALS
Application and Cross-Application
51In view of the disposition of the merits appeal, it follows that this appeal must be dismissed with costs on a partial indemnity scale fixed in the sum of $2,500.00 inclusive of disbursements and G.S.T., such costs to be paid personally by the appellants, Robert Jr. and Gigi.
Action
52In this proceeding, Robert Sr. claimed against Robert Jr. and Gigi. The trial judge awarded costs in favour of Robert Sr. on a substantial indemnity basis fixed in the sum of $55,084.57. As earlier noted counsel are agreed this sum should be reduced by $3,500.00 to $51,584.57.
53The appellants submit that because success was divided there should have been no costs awarded; that there was no basis on which to award costs on a substantial indemnity basis; and, in the alternative, that Robert Sr.’s costs should not exceed $15,000 inclusive of disbursements and G.S.T., and should be payable by the trust.
54It is trite law that absent an error in principle an appellate court will not interfere with a trial judge’s discretionary costs order.
55What the appellants suggest is “divided success” is characterized very differently by the trial judge. Claims that Robert Sr. abandoned were said by the trial judge to have occupied very little trial time. Clearly the trial judge was in the best position to make this observation and to conclude that the plaintiff had been largely successful in the action. While the quantum of costs awarded seems high, it must be remembered that the trial of just this part of the proceedings took some five days.
56In addition to the trial itself, the appellants instituted a number of motions against the respondent in which they were largely unsuccessful. Costs of those motions were made against them, and, but for the $3,500.00 payment referenced earlier, all of those costs awards remained unpaid. The appellants may be described as having played “hard ball” and they now face the costs consequences of their strategy.
57I would have agreed that there did not seem any basis for costs to have been awarded on a substantial indemnity scale. I do note, however, that both the appellants and the respondent sought costs on a substantial indemnity basis before the trial judge. Most importantly all parties agreed that costs were to be awarded on a substantial indemnity basis. As the trial judge gave no reasons indicating the basis for his decision to award costs on the higher scale, I can only assume he did so because of the agreement of counsel.
58Finally, there is no basis on which to make the trust liable for the costs of this proceeding.
59These proceedings were most unfortunate for all. In one of the motions before him, Lalonde J. aptly described the situation as “an ugly family squabble.” It is clear on this record that the divorce of Robert Sr. and Maria resulted in a bitter division among their three children. The trial judge was alive to the situation and reasonably concluded that it was this division that motivated the parties’ actions and drove the litigation. There was no evidence of thought or consideration for the beneficiaries of the trust, and the trust itself did not benefit in any way from the litigation.
60Robert Jr. and Gigi decided, without consulting Robert Sr. or Richard, to adopt a self-help approach to ensuring that the distribution of property between their mother and father accorded with their sense of what was fair in the circumstances. As the trial judge found, their actions had nothing to do with protecting the trust or furthering the interests of the beneficiaries. They were interested only in helping their mother at the expense of their father and brother. The trial judge’s findings in this respect are well supported in the evidence. Robert Jr. and Gigi must personally bear the costs of this proceeding.
61I would therefore dismiss this appeal with costs fixed on a partial indemnity scale in the sum of $2,500.00 inclusive of disbursements and G.S.T.
COSTS OF THE CHILDREN’S LAWYER
62In this court none of the parties took issue with the trial judge’s award of costs to the Children’s Lawyer.
63In my view, it was necessary for the Children’s Lawyer to participate in the appeal because of the position of Robert Jr. and Gigi that any costs award should be payable by the trust rather than themselves personally. As the trial judge noted, if costs were ordered paid by the trust “…there would be little left for the beneficiaries. That would be manifestly unjust, especially in the present case.”
64In the circumstances, it is appropriate that Robert Jr. and Gigi be responsible for the costs of the Children’s Lawyer in these appeals.
65Those costs are fixed in the sum of $2,500.00 inclusive of disbursements and G.S.T.
RELEASED: December 18, 2006 “RJS”
“J. MacFarland J.A.”
“I agree Robert J. Sharpe J.A.”
“I agree Robert P. Armstrong J.A.”