Feinstein v. Freedman et al.The Children's Lawyer, as litigation guardian for Joshua Freedman et al. v. Jacob Freedman et al.
[Indexed as: Feinstein v. Freedman]
Ontario Reports
Court of Appeal for Ontario,
Laskin, van Rensburg and Hourigan JJ.A.
March 12, 2014
119 O.R. (3d) 385 | 2014 ONCA 205
Case Summary
Trusts and trustees — Costs — Court-appointed trustee intending to resign and bringing application for directions as to appropriate procedure governing appointment of his successor(s) — Office of the Children's Lawyer bringing unsuccessful cross-application for order appointing another independent trustee — Application judge not erring in exercise of her discretion in ordering that unsuccessful parties' costs be paid out of estate.
Trusts and trustees — Trustees — Appointment — Court removing settlor's children as trustees of inter vivos spousal trust as their acrimonious relationship was having adverse impact on operation of company which was trust's sole asset — Children intending to appoint themselves as trustees under mechanism in trust agreement when court-appointed trustee resigned — Application judge not erring in dismissing application by Office of the Children's Lawyer for appointment of another independent trustee under s. 5 of Trustee Act — Earlier appointment of independent trustee not precluding operation of trust agreement for all future trustee appointments — Children's actions as directors of company in declaring dividends in excess of net annual income of company in certain years not amounting to breach of trust — Trustee Act, R.S.O. 1990, c. T.23, s. 5.
The settlor's children (the "Children") were previously the trustees of RFT, an inter vivos spousal trust. RFT's sole asset was FHI, a company which held most of the real estate previously owned by the settlor. The Children were income beneficiaries under a testamentary trust which derived its income from FHI. They were also the settlor's executors and directors of FHI. The Children were removed as trustees of RFT because their acrimonious relationship was having an adverse impact on the operation of FHI. The court appointed an independent trustee. That trustee subsequently expressed a desire to resign. Under the terms of the trust agreement, the Children, as the settlor's executors, were entitled to fill the vacancy. The Children intended to appoint themselves as trustees. The independent trustee brought an application for directions as to the appointment of his successor(s). The Office of the Children's Lawyer ("OCL"), supported by one of the Children and his children (the "B appellants"), brought a cross-application for an order under s. 5 of the Trustee Act appointing another independent trustee. The OCL complained that the other three Children (the "three siblings") had declared dividends in excess of the net annual income of FHI and that that conduct amounted to a breach of trust. The application judge dismissed the application. The OCL and the B appellants appealed. There were also several motions for leave to appeal the order of the application judge that the unsuccessful applicants' costs be paid out of the estate.
Held, the appeals and motions should be dismissed. [page386]
Mismanagement or negligence is not sufficient to warrant court intervention under s. 5 of the Trustee Act. There must be evidence of some dishonesty, an inability to act or management that is clearly unfair to the beneficiaries. As directors of FHI, the three siblings were entitled to declare dividends, provided that they did not render the corporation insolvent. For the directors, the Ontario Business Corporations Act, R.S.O 1990, c. B.16, not the provisions of the trust agreement, was the applicable standard for the declaration of dividends. The three siblings did not depart from their statutory obligations in relation to the declaration of dividends. There had been no significant erosion of capital, and FHI had been turned around from an underperforming business with an uncertain future to a fiscally sound company with growing capital and significant net income. While the payment of dividends in certain years exceeded net income, the dividends cumulatively did not exceed net income. It was open to the application judge to find that the three siblings' conduct, when viewed in its totality, did not require court intervention through the appointment of an independent trustee.
Cases referred to
Byers (Litigation guardian of) v. Pentex Print Master Industries Inc. (2003), 2003 42272 (ON CA), 62 O.R. (3d) 647, [2003] O.J. No. 6, 167 O.A.C. 159, 28 C.P.C. (5th) 258, 119 A.C.W.S. (3d) 363 (C.A.); Consiglio Trusts (No. 1) (Re), 1973 681 (ON CA), [1973] 3 O.R. 326, [1973] O.J. No. 2022, 36 D.L.R. (3d) 658 (C.A.); McDougald Estate v. Gooderham, 2005 21091 (ON CA), [2005] O.J. No. 2432, 255 D.L.R. (4th) 435, 199 O.A.C. 203, 17 E.T.R. (3d) 36, 140 A.C.W.S. (3d) 220 (C.A.); McNaughton Automotive Ltd. v. Co-Operators General Insurance Co. (2008), 95 O.R. (3d) 365, [2008] O.J. No. 5040, 2008 ONCA 597, 62 C.P.C. (6th) 196, 298 D.L.R. (4th) 86, 250 O.A.C. 352; Meredith v. Plaxton (2002), 2002 32496 (ON SC), 62 O.R. (3d) 427, [2002] O.J. No. 4472, [2002] O.T.C. 921, 48 E.T.R. (2d) 72, 118 A.C.W.S. (3d) 478 (S.C.J.); R. v. Palmer, 1979 8 (SCC), [1980] 1 S.C.R. 759, [1979] S.C.J. No. 126, 106 D.L.R. (3d) 212, 30 N.R. 181, 50 C.C.C. (2d) 193, 14 C.R. (3d) 22, 17 C.R. (3d) 34, 4 W.C.B. 171; St. Joseph's Health Centre v. Dzwiekowski, 2007 51347 (ON SC), [2007] O.J. No. 4641, 2007 CarswellOnt 7642, 162 A.C.W.S. (3d) 348 (S.C.J.); Vance Estate v. Vance Estate, [2010] O.J. No. 4240, 2010 ONSC 4944, 62 E.T.R. (3d) 294 (S.C.J.)
Statutes referred to
Business Corporations Act, R.S.O. 1990, c. B.16, s. 38(3)
Trustee Act, R.S.O. 1990, c. T.23, ss. 3, (1), 5 [as am.]
Rules and regulations referred to
Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rule 57.01
APPEALS from the orders of Parfett J., [2013] O.J. No. 1220, 2013 ONSC 1616 (S.C.J.) and [2013] O.J. No. 3045, 2013 ONSC 4420 (S.C.J.) dismissing an application to appoint an independent trustee; MOTIONS for leave to appeal a costs order.
Joseph Y. Obagi, for appellants Liat Ben-Choreen, Tal-Or Ben-Choreen and Elishua Ben-Choreen. [page387]
Clare E. Burns and Bianca La Neve, for appellant Office of the Children's Lawyer as litigation guardian for Joshua Freedman, Adam Freedman, Samuel Prizant, Asher Freedman, Netta Grace Schneck, Nili Sarit Schneck and Ora Tmemah Aviner.
Catherine Francis and Mark Freake, for respondents Jacob Freedman, Rose-Anne Freedman-Prizant and Josh Freedman.
Gregory M. Sidlofsky, for respondents Michael Freedman, Shira Schneck, Rachel Freedman, Joshua Freedman, Eli Freedman, Joshua Prizant and Sarah Prizant.
Peter G. Hagen, for respondent Abraham Feinstein.
Kenneth Radnoff, Q.C., for respondent Riva Freedman Rotenberg.
Jaye Hooper, for respondent Jonathan Freedman.
The judgment of the court was delivered by
HOURIGAN J.A.: —
A. Introduction
[1] There are two appeals before the court from the order of Parfett J., dated March 18, 2013 dismissing the cross-application of the Office of the Children's Lawyer (the "OCL") for the appointment of a sole independent trustee for the Riva Freedman trust ("RFT") upon the resignation of its current trustee, Abraham Feinstein. There are also several motions for leave to appeal the costs order of Parfett J., dated June 2, 2013.
[2] For the reasons that follow, the appeals and the motions for leave to appeal are dismissed.
B. Background
[3] The RFT is an inter vivos spousal income trust established by the late Jarvis Freedman on October 11, 1985 in favour of his surviving wife, Riva Freedman Rotenberg, pursuant to a trust agreement (the "trust agreement"). The RFT's only asset is its holding of 8,400,000 preferred voting shares of Freedman Holdings Inc. ("FHI"), a company which holds most of the real estate previously owned by Jarvis Freedman. These preferred shares constitute the majority of the voting shares in FHI and, consequently, whoever controls the RFT effectively controls FHI. Pursuant to the trust agreement, Riva Freedman Rotenberg is entitled to the income from the preferred shares of FHI on a discretionary basis.
[4] The four children of Jarvis Freedman, being Jacob Freedman, Rose-Anne Freedman-Prizant, Josh Freedman and Jonathan Freedman (collectively, the "Children"), are income beneficiaries [page388] under a testamentary trust, the Jarvis Freedman insurance trust (the "JFIT"), which derives its income from FHI. The JFIT currently holds all the common shares of FHI and is a minority shareholder of that company. These income beneficiaries are entitled to receive the net income of FHI, save for the income accruing to the RFT. The Children are the executors of Jarvis Freedman's estate and are also the directors of FHI.
[5] The capital of both the RFT and the JFIT will flow to the grandchildren of Jarvis Freedman (the "capital beneficiaries") in 2035. Ten of the grandchildren are adults. The remaining capital beneficiaries are minors represented by the OCL.
[6] The Children were previously the trustees of the RFT. However, in 2008, the respondent Liat Ben-Choreen, supported by Jonathan Freedman and the OCL, brought an application before Parfett J. for the appointment of an institutional trustee for the RFT, alleging that the Children were in a conflict of interest and that they, as trustees, could no longer effectively work together to properly administer the RFT.
[7] Justice Parfett found that the Children could act as executors of the estate, directors of FHI and trustees of the RFT and that there was no disqualifying conflict of interest. However, the court removed them as trustees because their acrimonious relationship was having an adverse impact on the operation of FHI. Justice Parfett's concern was that, if the Children continued to act as trustees, the operations of the RFT and, consequently, of FHI, would "grind to a halt".
[8] The court appointed Mr. Feinstein as independent trustee of the RFT, with all the powers, authority and discretion contained in the trust agreement, as if he were the original trustee. Mr. Feinstein was not required to report to the court on the administration of the RFT.
[9] In or around February of 2012, Mr. Feinstein expressed his desire to retire as trustee of the RFT. Paragraph 12 of the trust agreement provides that any trustee is entitled to resign on 30 days' notice in writing delivered to the person entitled to appoint a trustee or on such shorter notice as is agreed. Thereafter, the persons entitled to appoint a trustee, being the executors of Jarvis Freedman's estate, are entitled to fill the vacancy.
[10] Despite the wording of the trust agreement, given the original order made by Parfett J., the parties raised issues as to the appropriate procedure governing Mr. Feinstein's resignation and the appointment of his successor(s). Consequently, Mr. Feinstein applied to the Superior Court of Justice for directions.
[11] The OCL, supported by Jonathan Freedman and his adult children (being Tal-or Ben-Choreen, Elishua Ben-Choreen and [page389] Liat Ben-Choreen -- collectively, the "Ben-Choreen appellants"), brought a cross-application to disqualify the Children from appointing a replacement trustee. They sought an order pursuant to s. 5 of the Trustee Act, R.S.O. 1990, c. T.23 for the appointment of an institutional trustee, the Bank of Nova Scotia Trust Company, to replace Mr. Feinstein.
[12] Jacob Freedman, Rose-Anne Freedman-Prizant and Josh Freedman (collectively, the "three siblings"), supported by their adult children (being Michael Freedman, Shira Schneck, Rachel Freedman, Joshua Freedman, Eli Freedman, Joshua Prizant and Sarah Prizant -- collectively, the "Freedman/Prizant grandchildren"), and Riva Freedman Rotenberg, took the position on the application that the appointment mechanism in the trust agreement should govern. They also advised the court that they would appoint themselves as trustees if the court did not intervene and appoint an independent trustee.
[13] Thus, the issue before the application judge was whether the mechanism in the trust agreement should operate to allow the previously removed trustees to reappoint themselves as trustees of the RFT or whether the court should exercise its statutory discretion to appoint an independent trustee.
C. Decision of the Application Judge
(i) Decision on applications
[14] The application judge dismissed the OCL's cross-application and ruled that, upon Mr. Feinstein's resignation, the Children could appoint replacement trustees, including themselves.
[15] In so ruling, the application judge rejected the OCL's submission that her earlier order appointing Mr. Feinstein precluded the operation of the trust agreement for all future trustee appointments. Parfett J. noted that her decision to appoint Mr. Feinstein was made following an arbitrator's temporary order that required unanimity on all major decisions of the FHI board. In those circumstances, she found that FHI was not properly functioning and that the appointment of an independent trustee was appropriate.
[16] On the present application, Parfett J. held that, in order for her to exercise her discretion under s. 5 of the Trustee Act, she must be satisfied that there was more than mere mismanagement at play and found, at para. 18 of her reasons, that "dishonesty, an inability to act, or management that is clearly unfair to the beneficiaries is required before the court ought to intervene". [page390]
[17] The application judge went on to consider the specific allegations of misconduct levelled against the directors of FHI by the OCL. She found that an impugned $500,000 distribution to the Children was done in accordance with an independent consultant's advice and that the board of directors did not abuse its discretion in authorizing the disbursement. The application judge found that, contrary to the allegation made by the OCL, the company did have a consolidated operating budget and that the budget provided the board with sufficient information to assess the payment of dividends during the course of the year. The increase in mortgage debt complained of by the OCL was also not found to be problematic given that the current loan-to-value ratio was healthy.
[18] The application judge expressed concerns regarding the company's dividend practice but stated, at para. 39, that the critical factor was whether "the declaration of dividends over the last four years has eroded FHI's capital". Ultimately, she concluded, at paras. 51 and 52, that there was no significant erosion of capital and no need to appoint an independent trustee:
Despite the concerns noted with respect to the declaration of dividends, there is no evidence thus far that FHI's capital has been significantly eroded. A close examination of the figures presented to this court show that FHI is a fiscally sound company that is producing significant net income and whose properties are slowly increasing in value. While there may be differences of opinion among the siblings concerning how FHI should be run, generally the decisions that have been made have improved the operation of FHI. So long as the board establishes a dividend policy that addresses the concerns that I have already noted and that results in a more balanced approach to the declaration of dividends, I am of the view that FHI is being well run.
Consequently, I find that there is no evidence of abuse of discretion that would justify this court interfering pursuant to s. 5(1) of the Trustee Act. Section 3(1) of that Act governs and the executors of Jarvis Freedman's estate can appoint the next trustees of RFT.
(ii) Decision on costs
[19] With respect to costs, the application judge found that Mr. Feinstein's application for approval of his resignation and directions for the method of appointing new trustees was clearly necessary for the proper administration of the estate. Consequently, she ruled that his costs should be paid out of the estate.
[20] The application judge rejected the submission of the successful parties that the OCL cross-application was of no benefit to any party, finding, at para. 12 of her reasons on costs [2013 ONSC 4420, [2013] O.J. No. 3045 (S.C.J.)], as follows: [page391]
In my view, the cross-application was a vitally necessary part of the determination of how the trustees of RFT would be appointed in the future, so as to determine who would be directors of FHI and how that company would be run -- a matter of critical importance to both the income and capital beneficiaries of the trust. Given the highly litigious history of this estate and the long-standing acrimony between the four children of the testator this decision was essential to any effort to move forward without further litigation. Therefore, the costs should be paid out of the estate.
[21] After considering the relevant factors on the assessment of costs enumerated in rule 57.01 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, the application judge awarded costs, inclusive of HST and disbursements, payable out of the estate as follows:
(a) the three siblings -- $160,000;
(b) the Freedman/Prizant grandchildren -- $55,000;
(c) Riva Freedman Rotenberg -- $27,500;
(d) Jonathan Freedman -- $35,000;
(e) the Ben-Choreen appellants -- $31,500; and
(f) the OCL -- $160,000.
[22] On May 30, 2013, the 2012 non-consolidated financial statements of FHI were released. Those statements, which had been ratified by the company's board of directors on May 8, 2013, included information that FHI's net income was $871,718 for the year and that the dividends declared totalled $1,058,000.
[23] The Ben-Choreen appellants brought a motion to admit as fresh evidence the 2012 non-consolidated financial statements in support of their application for the appointment of an independent trustee. At the time the motion was brought, none of the application judge's orders had been issued and entered. The application judge dismissed the motion to admit fresh evidence on the basis that she lacked jurisdiction.
D. Positions of the Parties
[24] The Ben-Choreen appellants appeal the decision of the application judge declining to appoint an independent trustee on the grounds that the application judge erred in (i) failing to quantify the amount of encroachment into capital and to appreciate the significance of the encroachment as a breach of trust; (ii) refusing on jurisdictional grounds to hear the motion to admit fresh evidence; and (iii) failing to apply the appropriate legal test to determine whether judicial intervention was warranted to protect the welfare of the beneficiaries. These appellants also submit that [page392] motions for leave to appeal the costs award ought not to be granted and that the parties should have their costs of the application paid from the estate.
[25] The OCL also appeals the decision of the application judge, submitting that the application judge erred in focusing on the overall financial viability of RFT instead of the putative trustees' conduct. Further, the OCL seeks leave to appeal the costs order on the basis that the application judge erred by failing to award full indemnity costs payable to the OCL. However, the OCL opposes the motions for leave to appeal the costs order brought by the three siblings, the Freedman/ Prizant grandchildren, Riva Freedman Rotenberg and Mr. Feinstein.
[26] The three siblings submit that the application judge made various factual errors regarding their conduct as directors of FHI. However, they submit that the application judge was correct in concluding that the appointment of an independent trustee was not required in the circumstances. The three siblings seek leave to appeal the costs order and seek an order that the Ben-Choreen appellants, the OCL and Jonathan Freedman be denied any costs on the application and pay their costs on a full indemnity basis. They also seek an order that these parties pay the full indemnity costs of Mr. Feinstein and his counsel.
[27] The Freedman/Prizant grandchildren support the position taken by the three siblings that there is no basis to interfere with the application judge's dismissal of the OCL's application for the appointment of an independent trustee. They also seek leave to appeal the costs order and seek an order that the Ben-Choreen appellants, the OCL and Jonathan Freedman be denied any costs on the application and pay their costs on a full indemnity basis.
[28] Riva Freedman Rotenberg seeks an order dismissing the appeals of the OCL and the Ben-Choreen appellants. She also seeks leave to appeal the costs order and seeks an order that her costs of the application be increased to the amount she claimed on a substantial indemnity basis and that the costs of the respondents be paid jointly and severally by the Ben-Choreen appellants, the OCL and Jonathan Freedman.
[29] Mr. Feinstein submits that the appeals should be dismissed. He also seeks leave to appeal the costs order and seeks an order that the Ben-Choreen appellants, the OCL and Jonathan Freedman pay the costs of the respondents in the amounts quantified by the application judge.
[30] Jonathan Freedman has not appealed the order of the application judge. However, he submits that the appeals of the OCL and the Ben-Choreen appellants should be allowed and [page393] that the matter be remitted to the Ontario Superior Court of Justice for a rehearing or, in the alternative, that an independent trustee be appointed with the matter being remitted to the Ontario Superior Court for "directions on succession planning of that trustee". He further submits that the motions for leave to appeal the costs order be dismissed.
E. Analysis
(i) Appeals on the merits
[31] The relevant provisions of the Trustee Act are as follows:
Power of appointing new trustees
3(1) Where a trustee dies or remains out of Ontario for more than twelve months, or desires to be discharged from all or any of the trusts or powers reposed in or conferred on the trustee, or refuses or is unfit to act therein, or is incapable of acting therein, or has been convicted of an indictable offence or is bankrupt or insolvent, the person nominated for the purpose of appointing new trustees by the instrument, if any, creating the trust, or if there is no such person, or no such person able and willing to act, the surviving or continuing trustees or trustee for the time being, or the personal representatives of the last surviving or continuing trustee, may by writing appoint another person or other persons (whether or not being the persons exercising the power) to be a trustee or trustees in the place of the trustee dying, remaining out of Ontario, desiring to be discharged, refusing or being unfit or incapable.
Power of court to appoint new trustees
5(1) The Superior Court of Justice may make an order for the appointment of a new trustee or new trustees, either in substitution for or in addition to any existing trustee or trustees, or although there is no existing trustee.
[32] It appears to be common ground among the parties that the threshold for the court to act under s. 5 to override s. 3 of the Trustee Act is evidence of an abuse of discretion. Mismanagement or negligence is not sufficient to warrant court intervention. There must be evidence of dishonesty, an inability to act or management that is clearly unfair to the beneficiaries: Meredith v. Plaxton (2002), 2002 32496 (ON SC), 62 O.R. (3d) 427, [2002] O.J. No. 4472 (S.C.J.); Consiglio Trusts (No. 1) (Re), 1973 681 (ON CA), [1973] 3 O.R. 326, [1973] O.J. No. 2022 (C.A.); and St. Joseph's Health Centre v. Dzwiekowski, 2007 51347 (ON SC), [2007] O.J. No. 4641, 2007 CarswellOnt 7642 (S.C.J.).
[33] The gravamen of the complaint levelled against the three siblings is that they have persistently taken dividends in excess of the net annual income of FHI and that this conduct amounts to a breach of trust. The Ben-Choreen appellants and the OCL submit that any encroachment into capital was impermissible and, because the application judge failed to calculate the precise [page394] quantum of the encroachment, she must have failed to appreciate its significance. Finally, they argue that the application judge erred in considering the overall financial viability of RFT in excusing the three siblings' conduct.
[34] The application judge made several factual findings wherein she expressed concerns regarding the dividend policy of the board of FHI. She found that the board did not take into consideration the payment of corporate taxes in the calculation of net income. She found that the FHI policy of expensing all of its capital improvements worked to the detriment of the capital beneficiaries. Further, she was troubled by the board's decision to include the net proceeds of the sale of a property in income. Finally, the application judge found that a report prepared by Jacob Freedman (the "CEO report") was unreliable and that his analysis of significant increases in the value of FHI's properties was "nonsense".
[35] The respondents contend that the application judge misapprehended the evidence in making these findings. They point to irrefutable evidence that the board of directors of FHI included taxes payable in the calculation of net income. They also note that FHI spends substantial sums on repairs and maintenance annually which are charged against income to the benefit of the capital beneficiaries. They submit that the entirety of the proceeds of the sale of the property in issue was used to make improvements to FHI's properties. Finally, they note that the figures used in the CEO report were obtained from an independent party, District Realty Corporation, in 2010. They submit that the differences between the figures in the CEO report and the figures in FHI's audited financial statements were a consequence of the fact that the CEO report was prepared on a per property, calendar year basis, whereas FHI had fractional interests in some of the properties and had a September 30 year-end until 2010.
[36] I accept the submission that the application judge clearly misapprehended the evidence regarding the inclusion of taxes in the calculation of income. I also do not endorse the application judge's finding that the CEO report was unreliable and find that her conclusion that portions of the report were "nonsense" was an overstatement. It was, however, open to the application judge to choose not to rely upon that evidence and to make the other factual findings complained of by the respondents. The more significant point to be taken from her findings is that they were all to the benefit of the appellants, as they support their submission that the three siblings in the future will prefer their personal interests to the interests of the capital beneficiaries. [page395] Notwithstanding these findings, the application judge still found that a court-appointed trustee was unnecessary.
[37] It is important to remember that the conduct of the three siblings complained of was undertaken in their capacity as directors of FHI and not as trustees. While that conduct may be instructive regarding their future ability to serve as trustees, particularly their ability to carry out those functions in an even-handed manner, there are limits to the utility of using past conduct to predict future behaviour.
[38] The assumption that the conduct of the three siblings must be assessed as though they were already acting as trustees underlay a fundamental submission made the appellants. They assert that under the trust agreement trustees are prohibited on a yearly basis from declaring dividends that are in excess of net income. They then point to isolated years where the directors did so and submit that they have committed a breach of trust and, consequently, should not be permitted to serve as trustees in the future.
[39] This argument ignores the fact that FHI is an Ontario company governed by the Ontario Business Corporations Act, R.S.O. 1990, c. B.16 ("OBCA"). Pursuant to s. 38(3) of the OBCA, the directors are entitled to declare dividends, provided that they do not render the corporation insolvent. For the directors, the OBCA, not the provisions of the trust agreement, was the applicable standard for the declaration of dividends. The three siblings did not depart from their statutory obligations in relation to the declaration of dividends.
[40] I pause here to note, parenthetically, that even if the three siblings had served in the dual role of trustees and directors and had declared dividends in excess of net income, it remains open whether these acts would constitute a breach of trust. Section 8(d) of the trust agreement provides in part:
. . . If a Trustee is also a director of the Corporation, he shall be entitled, without liability to any beneficiaries hereunder, to carry out his duties and exercise his powers as a director of the Corporation in the same manner as if he were not a Trustee hereunder[.]
[41] The determination of this question is not necessary for present purposes. However, I note the issue to demonstrate that, given the complex corporate and trust structure established by Jarvis Freedman, any claim of an alleged breach of trust must be carefully scrutinized.
[42] Absent a proven allegation of a breach of trust, the application judge was correct in focusing her analysis of the three siblings' conduct on its overall impact on the interests of the capital beneficiaries. In particular, she noted that there had been no [page396] significant erosion of capital and that the company had been turned around from an underperforming business with an uncertain future to a fiscally sound company with growing capital and significant net income. She also found that, while the payment of dividends in certain years exceeded net income, the dividends cumulatively did not exceed net income. The application judge concluded that the three siblings' conduct, when viewed in its totality, did not require court intervention through the appointment of an independent trustee. That was a conclusion that was open for her to make, even on factual findings that were skewed in favour of the appellants.
(ii) Fresh evidence application
[43] I now turn to the application for the admission of fresh evidence. It is understandable that the application judge was reluctant to deal with the proposed new evidence given that several weeks had passed since the release of her reasons and given that notices of appeal had already been filed. However, her orders had not been issued and entered and thus the application judge was not functus officio: Byers (Litigation guardian of) v. Pentex Print Masters Industries Inc. (2003), 2003 42272 (ON CA), 62 O.R. (3d) 647, [2003] O.J. No. 6 (C.A.). Consequently, it was an error in law for the application judge to conclude that she did not have jurisdiction to entertain the motion for the admission of fresh evidence.
[44] I accept the submission of the Ben-Choreen appellants that in these circumstances it falls to this court to exercise the discretion which should have been exercised by the application judge, including a determination of whether the new evidence would have affected her decision.
[45] The test for admitting fresh evidence, as established in R. v. Palmer, 1979 8 (SCC), [1980] 1 S.C.R. 759, [1979] S.C.J. No. 126, at p. 775 S.C.R., is well settled. In order for fresh evidence to be admissible in a civil law context, it must meet each of the following criteria:
The evidence should generally not be admitted if, by due diligence, it could have been adduced at trial;
The evidence must be relevant in the sense that it bears upon a decisive or potentially decisive issue in the trial;
The evidence must be credible in the sense that it is reasonably capable of belief; and
It must be such that if believed it could reasonably, when taken with the other evidence adduced at trial, be expected to have affected the result.
[46] I am not satisfied that the proposed fresh evidence, when taken with the other evidence, could reasonably be expected to [page397] have affected the result. This evidence suffers from the same flaw as the other evidence relied upon by the appellants to establish a breach of trust. As noted above, the declaration of dividends by the directors of FHI in excess of net income in a given year does not constitute a breach of trust.
[47] The only potential relevance of the new evidence is as part of a consideration of whether the overall management of the company by the directors has been so unfair to the capital beneficiaries that court intervention is required. The application judge quite properly looked at the overall fiscal strength of FHI, satisfied herself that it was a well-run company, and concluded that appointing an independent trustee was not necessary to protect the interests of the capital beneficiaries. In my view, this new evidence of the declaration of dividends in excess of net income, when placed in the context of the management of the company over the past several years, could not reasonably be expected to have affected the court's decision. Accordingly, the application to admit fresh evidence is dismissed.
(iii) Costs appeals
[48] As referenced above, the successful parties on the application, being the three siblings, the Freedman/Prizant grandchildren, Ms. Freedman Rotenberg and Mr. Feinstein, all seek leave to appeal the costs award made by Parfett J. They seek an order for the payment of their costs by the unsuccessful parties on the application, being the OCL, the Ben-Choreen appellants and Jonathan Freedman, and they seek an order that those unsuccessful parties be denied their costs.
[49] The essence of their argument is that the application judge improperly departed from the "loser-pays" costs regime normally followed by Ontario courts. They also submit that the OCL went beyond its traditional responsibility of defending the rights of the minors within the litigation and took on a more adversarial role.
[50] The OCL seeks leave to appeal the costs award made by Parfett J. on the grounds that the application judge erred in failing to award the OCL its full indemnity costs. In particular, the OCL alleges that it was an error of the application judge to rely upon the expert report filed by the OCL in the application and then not make an order that the costs of the report be fully funded from the estate.
[51] Generally, the loser-pays regime applies to estate litigation, and successful parties are entitled to have their reasonable costs paid by the unsuccessful parties. Courts are careful to ensure that the resources of the estate are not wasted on unnecessary [page398] litigation; thus, costs are usually only payable from an estate where the litigation arose out of the actions of the testator or was reasonably necessary to ensure the proper administration of the estate: McDougald Estate v. Gooderham, 2005 21091 (ON CA), [2005] O.J. No. 2432, 255 D.L.R. (4th) 435 (C.A.), at paras. 78, 80, 85, 91; and Vance Estate v. Vance Estate, [2010] O.J. No. 4240, 2010 ONSC 4944 (S.C.J.), at para. 4.
[52] The awarding and fixing of costs is highly discretionary and is afforded significant deference. Leave to appeal a costs order is granted sparingly and only where there are strong grounds to believe that the lower court erred: McNaughton Automotive Ltd. v. Co-Operators General Insurance Co. (2008), 95 O.R. (3d) 365, [2008] O.J. No. 5040, 2008 ONCA 597, at paras. 23-27.
[53] I am not satisfied that the application judge erred in her conclusion that costs should be payable out of the estate. At the time of the application, there was considerable uncertainty regarding how a new trustee(s) would be appointed, given Parfett J.'s previous order. This uncertainty is best captured in an e-mail dated February 9, 2012, written by Mr. Feinstein's counsel, Kenneth Webb, to counsel for the three siblings, wherein he stated:
The position of Mr. Obagi and Ms. Burns is that he cannot resign on any other basis than upon the appointment by the court of a replacement.
If I felt that this position was entirely unfounded, I would not hesitate to so advise Mr. Feinstein. Clearly it would be preferable from the point of view of his personal convenience to simply sign and tender a written resignation, relying on the procedures set out in the trust agreement as summarized in your email. However, when those procedures were previously invoked, the result was litigation which led to the court removing the trustees appointed under them and directing the parties to agree upon the appointment of an independent trustee, failing which the matter was to come back before the court. Mr. Feinstein was appointed by the consent of the parties as just such an independent trustee as a result of that order.
With this as the background of his appointment, I am far from convinced that the formula in the trust agreement remains available. That was the very formula which the court refused to accept a little over three years ago. Is it proper to rely upon it now? I don't know the answer to that question, though I do know that there are strenuous objections from the Children's Lawyer and at least one of the grandchildren.
In my opinion Mr. Feinstein has little choice but to put before the court his desire to resign and to obtain the direction of the court as to the process by which he can properly do so. He takes no position as to the correctness of your position or that of Ms. Burns or Mr. Obagi. He simply wants to resign and will proceed to do so as the court directs.
[54] In these circumstances, I see no error in the application judge's finding that the litigation enured to the benefit of the [page399] estate and in her consequential ruling that costs should be paid from the estate. Having made that determination, the application judge properly considered the quantum of the costs claimed, having regard to the relevant factors enumerated in rule 57.01. I find no error in her assessment of the costs. In particular, I find that her global assessment of the OCL's costs was reasonable and that she was not obliged to make a specific order that the costs of the OCL's expert be paid in full from the estate.
[55] I am not satisfied that there are strong grounds to conclude that the application judge erred in making her costs order. Accordingly, the applications for leave to appeal the costs order are dismissed.
F. Disposition
[56] The appeals and the applications for leave to appeal are dismissed.
[57] The parties may make written submissions on costs. The submissions of Mr. Feinstein and the respondents, save for Jonathan Freedman, shall be served and filed by March 21, 2014. The responding submissions of the appellants and Jonathan Freedman shall be served and filed by April 4, 2014. Any reply submissions shall be served and filed by April 11, 2014.
Appeals and motions dismissed.
End of Document