COURT OF APPEAL FOR ONTARIO
Simmons, Pepall and van Rensburg JJ.A.
BETWEEN
Judy Brown, Brenda Dale and Bruce Shackleton
Applicants (Respondents)
and
Janet Rigsby and Paul Shackleton
Respondents (Appellants)
Ondrej Sabo, for the appellants
Lou-Anne F. Farrell, for the respondents
Heard: February 10, 2016
On appeal from the Order of Justice Lynne C. Leitch of the Superior Court of Justice, dated March 30, 2015.
Pepall J.A.:
Background Facts
1This action involves a familial dispute over an estate. The parties to this estate action are five of the six children of the deceased mother. The six children are the residual beneficiaries under the mother’s will. The two appellants are the estate trustees of their mother’s estate and attorneys pursuant to a power of attorney granted to them by their mother.
2In August 2008, the three respondents commenced an application1 against the appellants in which they sought the appellants’ removal as estate trustees, a passing of accounts, and an order that the appellants repay to their mother’s estate amounts found to have been improperly taken or, alternatively, pay damages for breach of fiduciary duty. The sixth child opted not to participate in the action but supported the position of the appellants throughout.
3The action was settled shortly before the commencement of the trial in 2014. However, the parties were unable to agree on the costs of the action. They agreed that entitlement of the parties to costs was to be determined by the court.
Parties’ Positions Before the Motion Judge
4Before the motion judge, the appellants sought an order of costs of $74,299.37 on a substantial indemnity scale, plus HST, to be paid by the respondents. The respondents sought costs personally from the appellants in the amount of $80,380.63 on a substantial indemnity scale, plus HST. While the parties had agreed that entitlement to costs was to be determined by the motion judge, no one asked that the estate be burdened with payment of anyone’s costs.
Motion Judge’s Reasons
5The motion judge gave extensive reasons for her decision. She found:
- the application did not relate to a challenge to a will, but began with a request that the attorneys pass their accounts and answer questions raised by the appellants;
- the commencement of the application by the respondents was reasonable;
- the appellants did not adequately address the reasonable questions of the respondents early in the application;
- a statement in the affidavit of one of the appellants was untrue: that as attorneys, they had not used the power of attorney to manage their mother’s affairs. The power of attorney was used to sign the mortgage discharges in favour of the appellant Shackleton;
- the reference to the doctor’s assertion of the mother’s capacity was unhelpful as he last saw her on March 15, 2007 and the mortgage discharges were signed in June 2007;
- although requested as a priority, the notes of the mother’s lawyer, which were relevant to the instructions given on the discharge of the two mortgages, continued to be outstanding in June 2009;
- the respondents’ questions remained unanswered for a considerable period of time;
- undertakings given by the appellants on their cross-examinations were not fulfilled and a motion was required;
- another motion was brought by the respondents to have the appellants found in contempt because the order compelling answers to undertakings remained unfulfilled; and
- the answers given were not fully responsive and many were still outstanding as of October 2013.
6The motion judge reviewed the parties’ offers, including one delivered by the appellants, which provided that the appellants’ costs be paid out of the estate with the respondents being responsible for their own costs. She also reviewed the parties’ positions on costs and the jurisprudence. With respect to the latter, she noted McDougald Estate v. Gooderham (2005), 2005 CanLII 21091 (ON CA), 255 D.L.R. (4th) 435 (Ont. C.A.), for the proposition that the historical practice of ordering an estate to bear the costs of all parties had been replaced by the modern approach that reflected the “loser pays” costs regime applicable in civil litigation.
7The motion judge concluded that the settlement of the substantive issues in dispute between the parties reflected divided success. She stated that she could not conclude that one party was more successful than the other and these were not circumstances where a “loser” should pay. She was satisfied that the appropriate order was that each party be responsible for their own costs.
8The appellants successfully sought leave to appeal the costs order, which was granted by this court on September 1, 2015.
Grounds of Appeal
9The appellants submit that the motion judge erred in principle in finding that, as estate trustees, the appellants were responsible for their own costs. They state that they were duty bound to respond to the action and to defend the estate and that absent serious misconduct, or self-interested or unreasonable conduct, an estate trustee is entitled to costs payable out of the estate.
10The appellants acknowledge that no one asked the motion judge for an order that costs be paid out of the estate, but they submit that this should not be considered fatal. First, the only issue before the motion judge was which side was to bear the costs of the action. Secondly, there was no evidentiary basis to support the motion judge’s conclusion that the appellants should bear their own costs. Put differently, there was no basis on which the motion judge could have concluded that the appellants were guilty of serious misconduct, acted in their own self-interest or were unreasonable and that they therefore should be denied payment of their costs from the estate.
Analysis
(a) Legal Fees of Estate Trustees
11Estate trustees are entitled to be indemnified for all reasonably incurred costs in the administration of an estate. This includes the legal costs of an action reasonably defended, to the extent these costs are not recovered from another person. However, a court may order otherwise if an estate trustee has acted unreasonably or in substance for his or her own benefit, rather than for the benefit of the estate: Geffen v. Goodman Estate, 1991 CanLII 69 (SCC), [1991] 2 S.C.R. 353, at 391. The principles described in Geffen were not displaced by this court’s decision in McDougald Estate.
12In Sawdon Estate v. Watch Tower Bible and Tract Society of Canada, 2014 ONCA 101, 119 O.R. (3d) 81, at para. 82, this court reiterated the principle that estate trustees are entitled to be fully indemnified by the estate for their reasonably incurred legal costs to the extent they are not recovered from any other person. That is the general rule.
13Most recently, in Neuberger Estate v. York, 2016 ONCA 303, [2016] O.J. No. 2151, Gillese J.A. addressed the costs of parties engaged in estates litigation. At paras. 24 and 25, she wrote:
In estates litigation in Ontario, the historical approach to costs has been displaced in favour of one in which the costs rules in civil litigation apply both at first instance and on appeal, unless the court finds that one or more of the relevant public policy considerations dictate that costs (or some portion thereof) should be paid out of the assets of the estate: McDougald Estate v. Gooderham (2005), 2005 CanLII 21091 (ON CA), 255 D.L.R. (4th) 435 (Ont. C.A.), at para. 80; see also Sawdon Estate v. Sawdon, 2014 ONCA 101, 370 D.L.R. (4th) 686, at para. 101. The public policy considerations at play in estate litigation are primarily of two sorts: (1) where the difficulties or ambiguities that give rise to the litigation are caused, in whole or in part, by the testator; and (2) the need to ensure that estates are properly administered.
Blended costs awards, in which a portion of costs is payable by the losing party and the balance is payable out of the estate, are available at first instance and on appeal, in the discretion of the court, where one or more of the relevant public policy considerations are found to be engaged: Sawdon, at paras. 93-100 and 107.
14In summary, subject to the discretion of the court, the general rules governing an estate trustee’s ability to recover legal costs from an estate are as follows:
- an estate trustee is entitled to indemnification from the estate for all reasonably incurred legal costs;
- if an estate trustee acts unreasonably or in his or her own self-interest, he or she is not entitled to indemnification from the estate; and
- if an estate trustee recovers a portion of his or her costs from another person or party, he or she is entitled to indemnification from the estate for the remaining reasonably incurred costs.
(b) Standard of Review for Cost Awards
15An appellate court should set aside a costs award only if the trial judge has made an error in principle or if the costs award is plainly wrong: see Hamilton v. Open Window Bakery Ltd., 2004 SCC 9, [2004] 1 S.C.R. 303, at para. 27.
(c) Merits of Appeal
16On their face, the motion judge’s reasons appear to conflate the issues of trustee indemnification and the civil litigation costs regime. She did not engage in an analysis of whether the appellants’ conduct rose to the level of unreasonableness or self-interest that would justify denying them indemnification for the legal costs associated with defending the action.
17That said, the parties agreed that the issue of a trustee’s ability to obtain indemnification from the estate was not advanced before the motion judge. This explains the motion judge’s failure to focus on the issue of indemnification.
18However, I would deny the appellants indemnification from the estate on the grounds of both unreasonableness and self-interest. In large measure, the parties’ dispute centred on a need for the appellants to make disclosure. Their failure to be forthcoming resulted in elevated costs for all parties. Although prior cost awards addressed some of the appellants’ conduct, as illustrated by the motion judge’s findings, the appellants’ behaviour is fairly characterized as unreasonable.
19Moreover, the conduct under scrutiny, and the appellants’ failure to exhibit timely candour, related for the most part to conduct that pointed to an aggrandizement of their personal holdings at the expense of the estate and the other residual beneficiaries. In substance, their dilatory conduct served to protect their own interests, not those of the estate.
20For these reasons, I agree with the motion judge’s conclusion. The appellants are not entitled to recovery of their costs from the estate in this case.
Disposition
21Accordingly, I would dismiss the appeal. As agreed, I would order the appellants to pay the respondents’ costs fixed in the amount of $5,000 on a partial indemnity scale, inclusive of disbursements and HST.
Released:
“JUN 30 2016” “S.E. Pepall J.A.”
“JS” “I agree Janet Simmons J.A.”
“I agree K. van Rensburg J.A.”
