Court of Appeal for Ontario

Date: 2025-07-16
Docket: COA-24-CV-1038
Coram: Julie Thorburn, J. Copeland, P.J. Monahan

Between

Alexander Muscat
Applicant (Respondent)

and

Estate of Dan Muscat (aka Danny Muscat and Daniel Anthony Muscat), Ilinka Armstrong and Dean Tully
Respondents (Appellants)

Appearances:
David Lobl and Anna Chen, for the appellants
Robert Haas, for the respondent

Heard: 2025-07-10

On appeal from the judgment of Justice Evelyn M. ten Cate of the Superior Court of Justice, dated September 12, 2024, and from the costs order, dated November 28, 2024.

Reasons for Decision

Background

[1] The appellants, Ilinka Armstrong and Dean Tully, appeal an order removing them as estate trustees for the estate of Dan Muscat (the “Estate”), and seek leave to appeal a related costs order.

[2] By way of background, the respondent is the sole residual beneficiary of the estate of his late father, Dan Muscat. The primary assets of the estate were a jewelry business along with the building in which the business was located (collectively, the “Business”), and a property in Haliburton, Ontario that is of no consequence to this litigation.

[3] The respondent was nearly 17 years old at the time of his father’s death in July 2022. His share in the estate is to be held in trust until he reaches the age of 25. Pursuant to the terms of Dan Muscat’s Will, the appellants were appointed as estate trustees in 2022.

[4] In February 2023, Steve Malizia, who was in a romantic relationship with Ms. Armstrong, offered to buy the Business for $400,000. This offer was significantly less than valuations that had been obtained for probate purposes, which valued the Business at approximately $515,000.

[5] The respondent retained counsel, who wrote to counsel for the Estate on a number of occasions in January and February 2023, raising concerns that Ms. Armstrong was in an apparent conflict of interest due to her romantic relationship with Mr. Malizia and requesting that she resign as estate trustee.

[6] On February 28, 2023, counsel for the Estate wrote to counsel for the respondent stating that “[t]he fact that Ms. Armstrong may or may not have a relationship of some kind with Mr. Malizia, on which point I make no comment or statement, is irrelevant.” Estate counsel forwarded Mr. Malizia’s “final offer” to purchase the Business to counsel for the respondent, with a 10-day deadline for acceptance.

[7] Estate counsel further advised that the appellants were recommending that Mr. Malizia’s final offer be accepted since it was a “bona fide offer, and is the best available option for purposes of the greatest return for the Estate, and its sole beneficiary”.

[8] The respondent, through his counsel, asked for additional time to consider Mr. Malizia’s offer. When this was refused, the respondent commenced an application seeking the removal of both appellants as estate trustees. He later obtained his own valuations of the Business which indicated that it could be worth as much as $911,550.

Application Judge’s Findings

[9] The application judge noted that the test to remove an estate trustee is very high, and courts do not lightly interfere with a testator’s choice in this regard: citing Chambers Estate v. Chambers, 2013 ONCA 511, paras. 95-96. The application judge nevertheless found that it was necessary to remove the appellants as estate trustees in order to ensure proper management of the trust and to protect the interests of the sole beneficiary, the respondent.

[10] The application judge found that Ms. Armstrong stood to benefit from the sale of the Business to her romantic partner, Mr. Malizia. She was therefore in a conflict of interest, which neither she nor Mr. Tully disclosed or acknowledged. Moreover, the appellants failed to undertake any due diligence on Mr. Malizia’s offer, nor did they make any effort to ascertain the then fair market value of the Business, in breach of their fiduciary duty to the Estate and the beneficiary.

[11] In addition to removing the appellants as Estate trustees, the application judge ordered the appellants to pay the respondent’s costs personally on a partial indemnity basis in the amount of $56,693.01. However, the application judge exempted the appellants from personal liability for their breach of trust, pursuant to s. 35(1) of the Trustee Act, RSO 1990, c T.23.

The Appeal

[12] The appellants appeal the removal order and seek leave to appeal the costs order.

[13] The appellants argue that the application judge made palpable and overriding errors as her decision to remove the Estate Trustees was based on erroneous findings of fact. In particular, they argue that the respondent was aware of the romantic relationship between Ms. Armstrong and Mr. Malizia, and thus “there was nothing for [them] to disclose to [the applicant or his litigation guardian] that [he] did not already know.” They also argue that they had no obligation to obtain fair market appraisals for the Business since they were not selling the Business but merely conveying Mr. Malizia’s offer to the respondent for his approval. Therefore, the application judge erroneously concluded that it was necessary to remove the Estate trustees to ensure proper management of the trust.

[14] These arguments are without merit.

Analysis and Decision

[15] The application judge correctly found that Ms. Armstrong was in a conflict of interest because of her romantic relationship with Mr. Malizia, since she stood to benefit if his offer to purchase the Business were accepted. When the respondent asked Ms. Armstrong to resign as trustee because of the conflict, she refused to do so, instead incorrectly maintaining that any romantic relationship she might have with Mr. Malizia was irrelevant to her position as Estate trustee. Ms. Armstrong’s claim that she was not in a conflict because the respondent was aware of her relationship with Mr. Malizia is unfounded. Regardless of the respondent’s knowledge of the relationship between Ms. Armstrong and Mr. Malizia, the trustees never disclosed the existence of the relationship to the respondent. A fiduciary’s breach of duty cannot be excused by the beneficiary becoming aware of the breach from other sources and, as occurred here, requesting the trustee’s resignation as a result.

[16] Nor can the appellants claim that they had no duty to assess the reasonableness of Mr. Malizia’s offer and were entitled to merely convey it to the respondent for his approval. A trustee’s duty of loyalty requires that they manage trust assets with honesty and integrity and in the best interests of the beneficiaries. A trustee cannot abdicate that duty and responsibility by purporting to require the beneficiary to approve an offer that places the trustee’s interests ahead of those of the beneficiary. It is also telling that the appellants did not merely passively convey the offer to the respondent for his consideration, but recommended acceptance as the “best available option for purposes of the greatest return for the Estate”, knowing there had been significantly higher valuations, and that time did not permit the respondent to obtain other valuations.

[17] The appellants had no basis for making the claim that this was “the best available option”, since they had failed to undertake any due diligence on Mr. Malizia’s offer, much less investigate any alternative options available to the Estate. They were simply doing so to attempt to insulate themselves from future consequences.

[18] Thus, the application judge did not err in concluding that it was clearly necessary to remove the trustees to ensure the proper management of the trust and to protect the interests of the respondent.

[19] Nor did the application judge err in ordering that the appellants pay the respondent’s costs personally. An estate trustee may be ordered to pay costs personally where they have acted unreasonably or in substance for their own benefit, rather than for the benefit of the estate: Westover Estate v. Jolicouer, 2024 ONCA 81, para. 14. The application was made necessary because of the appellants’ steadfast denial of any conflict, and their unjustified refusal to resign in the face of a clear and unequivocal request that they do so. The application judge’s costs order was thus consistent with the modern approach to fixing costs in estate litigation, one that seeks to ensure estates are not depleted through the costs of unnecessary litigation and the assets of an estate are not treated “as a kind of ATM bank machine from which withdrawals automatically flow to fund their litigation”: Salter v. Salter Estate, para. 6; Johnson v. Johnson, 2022 ONCA 682, para. 21, leave to appeal refused, [2022] S.C.C.A. No. 444.

[20] The appeal is dismissed and the application for leave to appeal costs is denied. The appellants shall pay the respondent’s costs of the appeal on a partial indemnity basis in the amount of $22,703.44 all inclusive.

Julie Thorburn J.A.
J. Copeland J.A.
P.J. Monahan J.A.