CITATION: Pletch v. Pletch Estate, 2024 ONSC 1411

DIVISIONAL COURT FILE NO.: DC-23-195

DATE: 20240418

ONTARIO SUPERIOR COURT OF JUSTICE DIVISIONAL COURT

Lococo, Emery and Schabas JJ.

BETWEEN:

Alannah Pletch, Julia Pletch, Brendan Pletch, Talia MacLellan, by her Litigation Guardian, Terry Marcelle MacLellan, and Amy Sue Potter

Applicants

(Respondent on Appeal)

Derek Sinko, for the Respondents on Appeal, Terry MacLellan and Talia MacLellan, by her Litigation Guardian, Terry Marcelle MacLellan

– and –

THE ESTATE OF DARRELL JAMES HERBERT PLETCH, by the Estate Trustee Without a Will, Kerry-Ann Pletch, Terry Marcelle Maclellan and jeffery leroy pletch

Respondents

(Appellant/Respondent on Appeal)

Jacob Damstra and Kimberly A. Cura, for the Appellant, The Estate of Darrell James Herbert Pletch

Heard at Hamilton on October 30, 2023

REASONS ON APPEAL

Emery J.

[1] The estate trustee, Kerry-Ann Pletch (Kerry-Ann) appeals the costs order made by Justice R.J. Harper (the “application judge”) dated March 31, 2022. The costs award followed the application judge’s reasons for judgment on a consolidated application brought by or on behalf of dependents of the deceased, Darrell James Herbert Pletch (“Darrell”), who died without a will.

[2] Darrell died on May 12, 2015. He left behind four children: Brendan, Alannah and Julia from his first marriage to Amy Potter (“Amy”), and the youngest child, Talia, from his second marriage with Terry MacLennan (“Terry”).

[3] The application judge found that Darrell had not made adequate provision to support his children and for payment of his debts. He then made certain orders in the reasons for judgment to distribute Darrell’s estate under the Succession Law Reform Act, R.S.O. 1990, c. S.26 (SLRA).

[4] Specifically, the application judge made orders as to what assets would be considered to fall within s. 72 of the SLRA to form part of Darrell’s net estate to provide for the children. An order under s. 72 is made to ascertain the value of assets in an estate to make the capital value of those assets available for distribution for specified purposes.

[5] Kerry-Ann is the estate trustee of Darrell’s estate (the “estate”) and was Darrell’s sister. Kerry-Ann was not awarded any costs for the legal expense she incurred to have the estate represented in the application.

[6] The application judge awarded costs to Darrell’s brother, Jeffrey Pletch (“Jeffrey”), in the amount of $50,000, and to his daughter Julia, in the amount of $25,000, payable by Terry. He then held that no other legal costs shall be paid out of the estate, without reference to the costs claimed by Kerry-Ann on behalf of the estate.

[7] Kerry-Ann bases her appeal on two grounds. First, Kerry-Ann submits she is entitled to costs because the failure of the application judge to award costs to her as the estate trustee was plainly wrong. She submits that it is well settled law that an estate trustee is entitled to indemnity for reasonably incurred legal costs to represent the estate.

[8] Second, she submits that the application judge erred in law by not giving adequate reasons in the costs endorsement that denied her costs.

[9] Kerry-Ann does not seek to vary the costs awarded to Jeffrey or to Julia. Accordingly, neither of those individuals took part in the appeal. Kerry-Ann only seeks to set aside the costs order that “no further costs shall be paid out of the estate”, and to award her costs to fully recover her legal expenses of $160,988.69. She seeks a “blended costs order” for the payment of those costs, payable on a substantial indemnity basis by Terry, with the balance payable by the estate.

Background

[10] Darrell and Terry were married on February 25, 2006. They had one child together: Talia MacLellan. They separated on November 21, 2014. Prior to his marriage to Terry, Darrell was married to Amy, and they had three children together: Brendan, Alannah and Julia Pletch.

[11] The four children were parties to the litigation. Alannah, Julia and Talia were under eighteen years of age at the time, so Amy acted as litigation guardian for Alannah and Julia, and Terry acted as litigation guardian for Talia.

[12] Three separate applications were commenced in 2016 after Darrell’s death:

(a) Terry brought an application for an order appointing her as Estate Trustee Without a Will, among other orders;

(b) The Office of the Children’s Lawyer (the “OCL”) brought an application for dependent’s relief on behalf of Darrell’s minor children Alannah, Julia, and Talia, for Kerry-Ann’s appointment as Estate Trustee During Litigation and an order that Terry pay to the estate trustee the proceeds representing Darrell’s one-half interest in the matrimonial home that she had received from its sale; and

(c) Amy brought an application on behalf of all Darrell’s children for dependent’s relief under the SLRA.

[13] The three applications were consolidated by the order of Kent J. dated April 29, 2016.

[14] Originally, Kerry-Ann and Terry were both appointed as Estate Trustees Without a Will by Sloan J. Terry was later removed as co-estate trustee by the order of Parayeski J. dated January 12, 2018. Terry was found to be in a conflict of interest while acting as Talia’s litigation guardian at the same time as estate trustee. Terry had also waived her entitlement to the preferential share of the estate as Darrell’s surviving spouse by the time the application was heard.

[15] The application commenced by Amy was the application that was ultimately heard by the application judge. After hearing the application and considering the estate’s support obligations to the children, the application judge made the following findings on what assets of the estate would fall under s. 72 of the SLRA to satisfy those obligations:

(a) The value of Darrell’s one-half interest in the matrimonial home he held as joint tenants with Terry was a s. 72 asset. The application judge made this finding on the evidence that the joint tenancy had been severed by the intentions of the parties.

(b) Terry had sold the matrimonial home after Darrell’s death and used the entire net proceeds to purchase a new home in which she and Talia live.

(c) The value of the Locked-In Retirement Account (“LIRA”) was a s. 72 asset. Terry had also received the payout of Darrell’s LIRA in which she had been named the sole beneficiary, and which she had added to her own Registered Retirement Savings Plan (“RRSP”) accounts.

(d) An RRSP that Darrell had funded and an insurance policy he had taken out with Great West Life were s. 72 assets. The RRSP had a value of $208,366.96 and the insurance policy had a payout of $174,387.33. Jeffrey was the beneficiary for each of those accounts and turned the net proceeds over to the estate for distribution.

[16] The application judge ordered two distributions based on those findings: one from the assets of the estate and the other with respect to the s. 72 assets.

[17] From the net value of assets in the estate totaling $176,875.48, he deducted $53,638.26 to pay the estate’s priority debts. He then ordered seven categories of expenses totaling $7,433.80 be paid by the estate. He included “any outstanding legal fees reasonably incurred for the estate administration” as one expense category but did not designate a specific amount for those fees. From the balance of $115,803.45 remaining in the estate, the application judge ordered that $28,950.85 be disbursed to each child.

[18] For the second distribution, the application judge found that the estate did not have enough value to make adequate provision for Darrell’s children, and Talia in particular. Talia was five years old on the date of Darrell’s death, and ten years old at the time the application was heard. Prior to his death, Darrell and Terry agreed that he would pay child support for Talia each month in the amount of $1,076, plus $350 for Talia’s day care expenses. She was by far the youngest child with the greatest need for child support over the longest period of time.

[19] Even though the application judge found that the value of Darrell’s interest in the matrimonial home and the value of the LIRA were s. 72 assets, he did not require Terry to return the value of those assets. He concluded the value of those s. 72 assets were now integrated with Terry’s own assets at the time of the hearing. Terry argues that she had made submissions on the application that child support for Talia would amount to $170,229.76 until she turned 18. He therefore permitted Terry to retain that value of those assets for the benefit of Talia but ordered that Talia would not have a further claim to support from the estate.

[20] After subtracting $164,014.02 for Darrell’s interest in the matrimonial home and $67,626.69 for the LIRA, the application judge distributed an additional $20,500 to each of the children from the remaining $82,000 from the insurance proceeds. He acknowledged that Parayeski J. had already directed that the estate pay $75,000 to each of Darrell’s children received under the policy in the order dated January 12, 2018. Collectively, each of the four children received $124,240.85 under the distribution of funds from the s. 72 assets.

References to Costs in the Main Reasons

[21] In his reasons for judgment, the application judge commended Kerry-Ann for her decision not to seek compensation for administering the estate. When Kerry-Ann asked about indemnification for her costs, including the litigation costs she funded on behalf of the estate, the applications judge stated at paragraph 71 of his decision that he would not be dealing with costs at that time. The applications judge stated later in his reasons, at paragraph 113, that “no other legal costs shall be paid out of the estate.”

Costs Endorsement

[22] In the costs endorsement that followed, the application judge criticized the litigation guardians for making the case a long and drawn-out process. The application judge was particularly critical of Terry. He referred specifically to her actions, such as failing to acknowledge her conflict to serve as a co-estate trustee as well as Talia’s litigation guardian, concealing material facts from her financial statement, and receipt of the LIRA, as conduct that increased the costs of the litigation.

[23] The application judge ultimately ordered Terry to pay costs to Jeffrey and Julia to indemnify them for their legal expenses. Despite Kerry-Ann’s request for costs to indemnify her for the legal expense she incurred to defend the estate, the applications judge ordered that “there shall be no other order as to costs.”

[24] Kerry-Ann submits that the application judge made this order without addressing the principles that are established in the authorities for costs awards in estate litigation. These principles are founded upon public policy considerations where an estate trustee is acting for the benefit of the estate and its beneficiaries. The decision on costs does not discuss those public policy considerations. Nor does the costs decision mention the availability of awarding blended costs in an estates case where circumstances warrant. Instead, the application judge gave no reasons for declining to award any other costs.

Jurisdiction and Standard of Review

[25] The authority of the Divisional Court to hear this appeal comes from ss. 19(1)(a) and 133(b) of the Courts of Justice Act, R.S.O. 1990, c. C.43. The denial of costs to the appellant as the estate trustee by the application judge was final in nature and comes within the monetary jurisdiction of the Divisional Court described in s. 19(1.2), with leave under s. 133 (b). Leave to bring this appeal was granted by Sachs, Corbett and Ramsay JJ. on April 21, 2023.

[26] The test for the intervention of the appellate court on a costs award is a high one to meet. Justice Coroza restated that standard recently in More v. 1362279 Ontario Ltd. (Seiko Homes), 2023 ONCA 527, at para. 30, writing that

Appellate courts are deferential to discretionary costs orders made by first instance judges and will intervene only if the judge “has made an error in principle or if the costs award is plainly wrong”: Hamilton v. Open Window Bakery Ltd., 2004 SCC 9, [2004] 1 S.C.R. 303, at para. 27.

Issues on Appeal

[27] There are two issues on this appeal:

(a) Did the application judge err by ordering that no further costs, including Kerry-Ann’s litigation expenses, shall be paid from the estate to indemnify her for those expenses?

(b) Did the application judge err in failing to make a blended costs award in favour of Kerry-Ann to recover costs on a substantial indemnity scale from Terry, with the balance those costs payable by the estate?

1. Did the Application Judge Err in Not Awarding Costs to Kerry-Ann?

Governing Principles

[28] As the general rule, an estate trustee is entitled to be fully indemnified for her legal costs from the estate, including litigation costs, provided the estate trustee is acting in good faith and those litigation costs are reasonably incurred. In Geffen v. Goodman Estate, 1991 69 (SCC), [1991] 2 S.C.R. 353, at 390-391, the Supreme Court of Canada recognized that those legal costs include the costs of an action that has been reasonably defended.

[29] The entitlement of an estate trustee to costs has evolved over time, from an expectation that those costs be paid exclusively from the estate, to a loser pay regime routinely applied in other civil proceedings, and now to a model where liability for costs may be allocated between an adverse party and the estate in a “blended costs order.” The Ontario Court of Appeal in Sawdon Estate v. Watch Tower Bible and Tract Society of Canada, 2014 ONCA 101, 119 O.R. (3d) 81, at para. 82, confirmed the governing 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.

[30] Justice Gillese in Sawdon Estate, at para. 86, held that “it is appropriate that the testator, through his or her estate, bear the cost of their resolution… it ought not to fall to the estate trustee to pay the costs associated with having the court resolve the problems.” At para. 86, Gillese J.A. then went on to caution that “if estate trustees were required to bear their legal costs in such situations, they might decline to accept appointments or be reluctant to bring the necessary legal proceedings to ensure the due administration of the estate.”

[31] Following her reasons in Sawdon Estate, Gillese J.A. later held in Neuberger Estate v. York, 2016 ONCA 303, 131 O.R. (3d) 143, at para. 24, that public policy considerations in estate litigation may dictate that an estate trustee’s costs should be paid from the estate. These public policy considerations include the need to incur costs: “(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”: Neuberger Estate, at para. 24.

[32] In Brown v. Rigsby, 2016 ONCA 521, 350 O.A.C. 236, at para. 12, the Ontario Court of Appeal reaffirmed the general rule that estate trustees are entitled to be “fully indemnified” by the estate for their reasonable costs incurred, to the extent they are not recovered from another person or party. Referring to Geffen, as well as Sawdon Estate and Neuberger Estate as authorities, Pepall J.A., at para. 14, summarized the principles that apply to an estate trustee’s ability to recover legal costs from an estate as follows:

a. an estate trustee is entitled to indemnification from the estate for all reasonably incurred legal costs;

b. 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

c. 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.

[33] The failure of a judge to give any or sufficient reasons is an error of law. The Ontario Court of Appeal recently held in Champoux v. Jefremova, 2021 ONCA 92, at para. 18, that reasons are necessary to “(i) justify and explain the result; (ii) tell the losing party why they lost; (iii) provide public accountability and satisfy the public that justice was done and seen to have been done; and (iv) permit effective appellate review”. As the court noted, meaningful appellate review is “precluded if the decision of the court below does not provide some insight into how the legal conclusion was reached and what facts are relied on in reaching that conclusion”: Champoux, at para. 18, citing Longo v. MacLaren Art Centre, 2014 ONCA 526, 323 O.A.C. 246, at para. 63. The failure to give reasons constitutes an error of law and is subject to two considerations: whether in the opinion of the appellate court it precludes meaningful appellate review and where it arises from the circumstances of the case: R. v. Sheppard, 2002 SCC 26, [2002] 1 S.C.R. 869, at paras. 43 and 46.

Kerry-Ann’s Position

[34] Kerry-Ann takes the position that she is entitled to costs to indemnify her for the litigation expenses she incurred as the estate trustee for the Darrell’s estate. She bases her position on two grounds. First, the application judge did not consider the relevant legal principles that entitle her to those costs. She submits that the order denying her costs is plainly wrong. Second, the applications judge erred in law because he did not give adequate reasons for denying her the costs requested.

[35] On the first ground, Kerry-Ann raises the legal principles found in the case law for awarding costs to an estate trustee. These principles include the entitlement of an estate trustee to legal costs that are reasonably incurred in defending an action on behalf of an estate, and for the costs of litigation where the issues giving rise to the litigation were caused by the testator. Kerry-Ann refers to the principle that an estate trustee should only be disentitled to reimbursement of their litigation expenses if they have acted unreasonably or for their own benefit. Kerry-Ann submits that none of the principles that would disentitle her to costs are present in this case.

[36] The application judge made no such findings in either the main reasons or the costs endorsement. Kerry-Ann submits that the failure of the application judge to follow the relevant legal principles that entitle her to costs was plainly wrong.

[37] On the second ground, Kerry-Ann states that the application judge failed to give sufficient reasons for excluding her as the estate trustee from the costs he awarded. The authorities are clear that the purposes of requiring that the court give sufficient reasons are to (i) justify and explain the result; (ii) tell the losing party why they lost; (iii) provide public accountability and satisfy the public that justice has been done and is seen to have been done; and (iv) permit effective appellate review. Kerry-Ann submits that none of these purposes are satisfied because of the absence of reasons.

Terry’s Position

[38] Terry takes the opposite position. She submits that this court should not interfere with the costs award and the application judge’s costs awards should be given deference by this court. Terry argues the costs award from the application judge clearly considered what costs, if any, were to be paid by the parties or from the estate and to whom. Terry submits that there is no basis for the court to order her to pay a portion of Kerry-Ann’s legal expense or as part of a blended costs order.

[39] Terry also submits that she was always acting to maximize the amount Talia should recover from the estate for child support. She takes the position that she was the more successful party on the application as compared to Kerry-Ann.

Analysis

[40] I propose to deal with the second ground raised by Kerry-Ann on the issue of entitlement to costs under appeal. The submission that the application judge failed to give adequate reasons for the costs order under appeal is logical because it presents itself in numerous places in argument and it naturally precedes any subsequent consideration of principles and factors on costs the application judge should have considered.

[41] The application judge did not explain why he found that Kerry-Ann was not entitled to be indemnified by the estate for her litigation costs. He acknowledged Kerry-Ann’s position on costs at paragraph 69 of his main reasons but made no findings with respect to her conduct. Furthermore, he did not perform the necessary analysis required by the jurisprudence. He simply stated at paragraph 71 that he “will not deal with costs at this time, other than to assign the appropriate amount of costs properly related to the administration of the estate.”

[42] Without providing any analysis or findings of fact, the application judge subsequently concluded in the costs endorsement that “[n]o other legal costs shall be paid out of the estate.” This summary dismissal of all other claims for costs disentitled Kerry-Ann to be indemnified as estate trustee for her litigation costs without reasons. Kerry-Ann was left with no understanding of why she was denied costs and the decision gives no reasons for meaningful appellate review: Champoux, at para. 18.

[43] Kerry-Ann cited several of the authorities to the application judge on both the merits and when making submissions on costs. The applications judge was obliged to consider Kerry-Ann’s request to be indemnified for the costs she incurred on behalf of the estate. The applications judge failed to cite, let alone follow, the governing principles on costs that are awarded in estate cases in Ontario.

[44] I therefore conclude that the applications judge erred in law when he failed or neglected to give reasons why he did not award Kerry-Ann her litigation costs for defending the estate.

[45] In her first ground for claiming entitlement, Kerry-Ann submits that the costs award is plainly wrong because she should have been awarded costs had the application judge considered the general rules for costs in estate matters.

[46] The estate was a necessary party to this proceeding. The applications judge made no finding of misconduct on Kerry-Ann’s part. She should not be left to assume personal responsibility for the litigation costs she incurred as the estate trustee on behalf of the estate. This omission stands in stark relief to the findings of misconduct on Terry’s part. This misconduct was a significant factor that increased Kerry-Ann’s costs in this litigation.

[47] The governing principles summarized in Brown, at para. 14, make it clear that an estate trustee is entitled to indemnification for her litigation costs unless the court orders otherwise. The court can order otherwise only where it finds that she has acted unreasonably or that she acted for her own benefit. The applications judge did not make any of those findings to order otherwise. He therefore erred in law in disentitling Kerry-Ann to be indemnified by holding “no other legal costs shall be paid out of the estate.” In doing so, the application judge made a costs order that is plainly wrong and must be set aside.

2. Is a Blended Costs Award Appropriate?

[48] Having decided that Kerry-Ann is entitled to costs to indemnify her for the legal expenses she incurred as estate trustee, the process for awarding those costs remains to be determined.

[49] The application judge has retired since his decisions on the application and on costs were released. Section 134 of the Courts of Justice Act gives this court the power to make any order the court below could have made, to order a new hearing on the issue varied on appeal, or to make such other order that is considered just. Such an order could include sending the issue of fixing an appropriate amount to award Kerry-Ann for costs, and against whom, back to the Superior Court of Justice for another judge in Central South region to determine.

[50] This court is in as good a position as any other sitting judge to decide the costs that should be awarded to Kerry-Ann. I consider that it would be just for this court to make the order that the application judge should have made. In my view, this remedy would be the most efficient use of judicial resources now that the background, issues, and positions taken by the parties are known.

Guiding Principles for Deciding Blended Costs

[51] As a starting point, Gillese J.A. in Sawdon Estate, at para. 99, described the appropriate situation for blended costs to be where “the losing party's conduct unnecessarily increased the costs of litigation.” In that case, “it should be open to the court to order that party to pay a part of the estate trustee's costs, while at the same time ordering the estate to pay the balance of the estate trustee's costs”: Sawdon Estate, at para. 99.

[52] More recently in McGrath v. Joy, 2022 ONCA 119, 471 D.L.R. (4th) 211, at paras. 94-95, Gillese J.A. expanded upon the circumstances in which a blended costs order would be appropriate by setting out the process to follow to make that determination:

The jurisprudence is clear: at first instance, when deciding costs in estate litigation, the court must begin by carefully scrutinizing the litigation to determine whether one or more of the public policy considerations applies. If so, as a general principle, the parties’ reasonable costs are to be paid from the testator’s estate.

It is worthy of note that this approach is not a balancing of the public policy considerations against the rationale for cost rules that ordinarily apply to civil litigation. Rather, it is a sequential analysis, the first step of which is to determine whether one or more of the public policy considerations apply. If so, generally the parties’ reasonable costs should be payable from the estate. A departure from this general principle requires justification on the part of the court.

Kerry-Ann’s position

[53] Kerry-Ann takes the position that the application judge should have made a blended costs award for payment of her litigation expenses, and his failure to do so was an error in principle. She submits the court may make a “blended” order to divide the estate trustee’s litigation expenses between the estate and a losing party where the conduct of a losing party unnecessarily increased the costs of litigation. Kerry-Ann takes no quarrel with the finding of the application judge that Terry’s conduct was unreasonable and contributed to the length and complexity of the litigation. Her issue is with the failure of the application judge to award costs based on those findings.

[54] Accordingly, Kerry-Ann argues an elevated costs award against Terry is appropriate in the circumstances. She has significant legal costs because the estate was a necessary party to the litigation that was continued inordinately in large part because of the positions Terry took. Kerry-Ann submits it would be “manifestly unjust and unreasonable” for her to personally pay the litigation expenses and that the application judge erred in depriving her of any reimbursement from Terry or from the estate.

Terry’s Position

[55] Terry opposes a blended costs award on three grounds:

a. her actions were not unreasonable,

b. she did not unduly lengthen the proceedings, and

c. she cannot be described as a losing party.

[56] Terry submits that the factors in r. 57.01(1) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, and the principle of indemnity, considered along with the 2016 offer to settle she made, should insulate her from a costs award.

[57] In answer to Kerry-Ann’s submission that Terry has acted unreasonably in the litigation, Terry disagrees with her and with the application judge. She claims she was focused on securing appropriate support for Talia at all times. She submits she encouraged the parties to participate in mediation and offered to settle in 2016, an offer the other parties would not accept. She also submits that the parties only marginally beat her settlement offer. In contrast, Terry states that she obtained a significantly better outcome for Talia in the litigation than she offered in the settlement discussions.

[58] Terry disagrees that her conduct unduly lengthened the proceedings. It is her position that Kerry-Ann and Jeffrey are to blame for the length and complexity of the estate litigation. She argues Parayeski J. had to intervene for Jeffrey as bare trustee of the RRSP and the insurance policy to distribute funds. She further argues Kerry-Ann’s investigation into the s. 72 assets under Terry’s control were unnecessary and contrary to the interests of the children.

[59] Terry points out that she signed a release precluding her from any claims against the estate other than child support. She reminds the court that she agreed that half the proceeds from the sale of the matrimonial home were an estate asset, and she took reasonable positions throughout the litigation.

[60] Finally, Terry submits that she cannot be described as a “losing party.” According to her, she obtained a disproportionate share of the estate assets on behalf of Talia, and she submits that she achieved a result that was better than the 2016 settlement offer. She argues that the award of a greater part of the estate to Talia is evidence of her success.

Analysis

[61] The decision of the application judge that effectively denied Kerry-Ann a blended costs award is a focal point of the appeal. In Sawdon Estate, Gillese J.A. explained how the governing principles favour blended costs orders in estate litigation where responsibility for the litigation costs is divided between another party and the estate. She noted, at para. 97, that “the availability of a blended costs order gives the court the ability to both respect the public policy considerations that may be involved and maintain the discipline of which Brown J. spoke [in para. 6 of Salter v. Salter Estate, 2009 28403 (Ont. S.C.)].”

[62] In this case, the application judge made the finding that Terry’s conduct “was a significant factor in increasing the costs of this litigation.” He found that the evolution of Terry’s positions “contributed extensively to this protracted litigation.” He held that Terry’s “lack of complete timely and accurate financial disclosure increased the costs and the complexity of this litigation.” The application judge also found that “Terry knew or should have known that she was in a conflict position as the executor of the estate” while she retained s. 72 assets she did not initially disclose.

[63] In the course of the litigation, Kerry-Ann took steps to protect the interests of the estate, which included the following: (a) bringing a motion for Terry’s removal as Estate Trustee Without a Will due to the latter’s irreconcilable conflict of interest; (b) responding to Terry’s motion to be appointed as Talia’s litigation guardian and for her costs to be paid out of the estate; (c) making the necessary investigations to maximize the value of the estate, including the issue of whether Darrell’s 50 percent share of the matrimonial home was an estate asset or a section 72 asset; (d) complying with Sloan J.’s order dated March 18, 2016 and making no disbursements to any beneficiary or creditor of the estate; (e) making herself available to the court and to all parties to provide up-to-date information about the estate; and (f) declining to accept compensation for her work as estate trustee.

[64] Kerry-Ann set all this information before the applications judge in her written and oral submissions on costs. At no time did the application judge, nor any of the other judges who were involved at any stage of this litigation, ever find Kerry-Ann’s conduct to be unreasonable.

[65] Terry has raised the issue that Kerry-Ann ought not to have investigated whether one-half of the matrimonial home proceeds were properly an estate asset as an argument that she acted unreasonably. This is an untenable position to take against an estate trustee except in the most unusual of circumstances. Justice Gillese rejected a similar argument in Sawdon Estate, at para. 88, stating that: “[o]ne of an estate trustee’s duties is to call in the assets of the estate.” Justice Gillese went on to state that “the Estate Trustee was obliged to determine whether the Bank Accounts were held by way of resulting trust for the Estate”: Sawdon Estate, at para. 88.

[66] In this case, Kerry-Ann had a duty to determine whether one-half of the proceeds from the sale of the matrimonial home were an estate asset or a s. 72 asset. In light of an estate trustee’s obligation to determine the estate assets and call them in, Terry’s criticism of Kerry-Ann for investigating the proper characterization of the matrimonial home proceeds and the LIRA was unfounded.

[67] As estate trustee, Kerry-Ann was a necessary party to these proceedings: Furtney Estate v. Furtney, 2014 ONSC 3774, at para. 33. The right to a trustee to recover legal costs extends to the right of trustees to be indemnified for all costs. This right includes legal costs which have been reasonably incurred and the costs of an action reasonably defended. See Trustee Act, R.S.O. 1990, c. T.23, s. 23.1.

[68] There is no evidence in the record that the steps taken by Kerry-Ann in the litigation were taken for her personal benefit. Kerry-Ann was not a beneficiary of Darrell’s estate and stood to gain nothing from it, regardless of how it was ultimately distributed. The application judge expressly commended Kerry-Ann for not seeking compensation for administering the estate.

[69] Terry submits that she was more successful than her offer to settle dated January 9, 2020, and should not pay costs as she was a successful party. However, the offer to settle showed no compromise on her part, nor any recognition that she was improperly holding s. 72 assets. On the other hand, Kerry-Ann made an offer to settle dated August 14, 2020, in which she attempted to balance the interests of all parties while making a significant concession as to costs. Alannah, Brendan, and Jeffrey (subject to the other parties’ acceptance of his offer) all accepted Kerry-Ann’s offer.

[70] The application judge made no reference to either offer to settle in the costs endorsement.

[71] The application judge erred in principle by not ordering Terry to pay all or part of Kerry-Ann’s costs as estate trustee. Instead, he ordered Terry to pay costs to Jeffrey and Julia. He found only that Jeffrey’s costs had been increased as a direct result of the positions taken in the proceeding by Terry. He provided even less of a reason for awarding Julia her costs and gave no reason for omitting to award Kerry-Ann any costs at all. The impact of Terry’s conduct on the complexity and cost of the litigation applied equally to Kerry-Ann as estate trustee as it did to Jeffrey and Julia.

[72] I can only conclude that this uneven treatment of Kerry-Ann’s claim for costs was the result of one of two oversights on the part of the application judge. First, he may have mistakenly believed that Kerry-Ann had waived any claim to costs when she advised the court that she was not charging for the administration of the estate, even though she made submissions for costs in the litigation. Alternatively, the application judge misapprehended the nature of Kerry-Ann’s claim as the estate trustee and did not put his mind to her claim. Either way, his decision on costs was plainly wrong and merits appellate intervention.

[73] There are several factors under r. 57.01(1) that justify a costs order against Terry. These factors were set out in Kerry-Ann’s appellate factum and include:

a. The principle of indemnity is clearly established by Kerry-Ann in the legal fees she has been charged to identify assets of the estate and those that fall within s. 72 for the estate to answer all claims;

b. The counsel she retained as estate trustee were experienced and charged reasonable hourly rates that correspond with that experience;

c. Terry could expect to pay the costs of the estate trustee on a substantial indemnity basis given the amount she chose not to disclose at first, as well as the number of motions heard by the court;

d. The proceeding was complex given the competing claims against the estate and the limited resources to answer those claims. Kerry-Ann incurred fees to challenge to have s. 72 assets identified, to adduce evidence and to make submissions to award support to minor children, and to distribute assets brought into the estate to beneficiaries on Darrell’s intestacy under the SLRA;

e. The complexity of the proceeding was further enhanced by the personal relationships of the parties and their respective and collective connections with Darrell;

f. The proceeding and its outcome were of crucial importance to all the parties, which was heightened in Kerry-Ann’s case as she had a duty at law to ensure all proper steps were taken for the estate to respond to all claims. The importance of the proceeding to Kerry-Ann in particular justified the higher costs she incurred to fulfill those obligations for the estate and on behalf of all beneficiaries;

g. Terry unduly lengthened the proceeding by the positions she took and the assets she did not disclose until compelled by the court; and

h. Terry’s refusal to admit that the s. 72 assets were available ended up costing Kerry-Ann further legal expense to obtain that disclosure.

[74] In addition to the factors under r. 57.01(1), Terry also took the following steps to further complicate the application:

a. She signed a Full and Final Release on April 29, 2016, releasing all claims “arising out of her marriage to Darrell Pletch” but kept all the proceeds of sale of the matrimonial home for herself, even though one-half of these proceeds were an asset of the estate and later found to be a s. 72 asset;

b. She attempted to keep all the proceeds of the LIRA for herself without disclosing them even though the LIRA was later found to be a s. 72 asset;

c. She sought an uneven distribution of the estate assets and the monies held in trust by Jeffrey that favoured Talia, despite the following facts:

(i) Terry was earning more than Darrell at the date of his death;

(ii) Terry’s financial statement dated February 18, 2020, shows that her income for 2019 was $170,000 and her net worth was in excess of $1,100,000;

(iii) Terry spends the excessive amount of $49,000 annually to support Talia;

(iv) Talia has enjoyed the benefit of the net proceeds of sale of the matrimonial home, a fact that Terry has admitted; and

(v) Brendan, Alannah, and Julia all relied heavily on their father for financial support during his lifetime as their mother, Amy, had limited means.

d. Terry alleged in her factum at paragraphs 27 to 29 that certain debts of the estate are “statute-barred”, despite an estate trustee’s clear statutory discretion under s. 48 of the Trustee Act to pay or allow any debt or claim upon receipt of evidence she deems sufficient. Terry did not pursue this position at the hearing.

[75] By the same measure, Kerry-Ann did not behave unreasonably or in her own self-interest throughout this proceeding. She agreed to act as estate trustee without compensation. As estate trustee, she took the following steps for the purpose of protecting the interests and integrity of the estate:

a. She brought a motion for Terry’s removal an estate trustee;

b. She responded to Terry’s motion to be appointed as Talia’s litigation guardian and for her costs to be paid out of the estate;

c. She made necessary investigations to maximize the value of the estate, including the collection of evidence needed for the court to determine whether Darrell’s 50 per cent share in the matrimonial home was an estate asset or a s. 72 asset;

d. She investigated whether Darrell’s retainer with his family law solicitor could be recovered from the estate (of which she recovered $17,221.20);

e. She issued a claim against the solicitor who acted for the estate in the sale of Darrell’s rental property and who paid money to an unsecured creditor in priority to other creditors, thereby preserving the estate’s right to claim against the solicitor, if required;

f. She complied with Sloan J.’s order of March 18, 2016, and made no disbursements to any beneficiary or creditor of the estate; and

g. She consistently made herself available to the court and to all parties to provide information about the estate assets and liabilities.

[76] The estate was a necessary party to this proceeding and Kerry-Ann had no choice but to protect the interests of the estate as estate trustee. Given that the application judge made no finding of misconduct on Kerry-Ann’s part, as estate trustee she should not be left to assume personal responsibility for her litigation costs. This is particularly the case where the applications judge did make findings of misconduct on Terry’s part, which was a significant factor in increasing Kerry-Ann’s costs in this litigation.

[77] Elevated costs are appropriate when a party to the litigation has behaved in a reprehensible or egregious fashion, deserving of sanction: Davies v. Clarington (Municipality), 2009 ONCA 722, 100 O.R. (3d) 66, at paras. 28-29. Terry’s conduct and the positions she took throughout this proceeding, as found by the applications judge, meets this test.

[78] There is no principled or logical reason that Terry’s costs exposure should have been limited to paying Jeffrey and Julia their costs and not extend equally to Kerry-Ann. Kerry-Ann incurred significant legal costs in this litigation, largely resulting from Terry’s conduct. It would be manifestly unjust and unreasonable in these circumstances for Kerry not to recover her costs from Terry, from the estate or from both in a blended costs award.

[79] The public policy reasons behind McGrath support this finding. It is important as a matter of public policy for the law to allow all costs reasonably incurred on behalf of an estate by an estate trustee to be indemnified for litigating issues arising through the fault of the testator or person who died intestate. The expectation of indemnity for costs provides the financial basis for an estate trustee to address those issues and to take whatever steps necessary as a trustee on behalf of the estate. As Gillese J.A. observed in Sawdon Estate, at para. 86, if an estate trustee were required to cover their own legal expenses without a reasonable prospect of recovering those expenses for retaining representation for an estate in litigation, they might decline to accept an appointment or be reluctant to bring necessary legal proceedings to ensure the proper administration of an estate.

[80] Kerry-Ann was required to hire counsel and to have steps taken in this case because of the various obligations Darrell left behind. The expense she incurred justifies the making of a costs award to Kerry-Ann against the estate. However, Darrell’s estate is liable only for the balance after a costs award against Terry as her conduct in the litigation caused Kerry-Ann the greatest amount of the legal expense for which she now seeks costs.

[81] I find that Terry’s conduct was egregious and driven by self-interest for herself and her daughter. For that reason, I would award costs on a substantial indemnity basis to Kerry-Ann and payable by Terry, with the balance payable by the estate.

Conclusion

[82] Accordingly, I would allow the appeal. I would vary the judgment of Harper J. to award blended costs in the amount of $160,988.69 to Kerry-Ann for the full recovery of her litigation expense incurred as the estate trustee. This amount includes the legal costs reserved under paragraph 6 of the order of Sloan J. dated March 18, 2016, and pursuant to paragraphs 18 and 19 in the order of Parayeski J. dated January 12, 2018. I would fix those costs payable by Terry on a substantial indemnity basis in the amount of $136,988.69. The balance of $24,000, representing approximately 15 per cent of the amount Kerry-Ann claims, would be payable by the estate.

[83] I would award costs of the appeal to Kerry-Ann as the successful party, payable by Terry. After the court advised counsel at the hearing that parties to an appeal in the Divisional Court are expected to agree on the amount of costs to be awarded, counsel informed the court that they have discussed costs of the appeal but would wait for this decision before making any agreement known. If the parties do not notify the trial coordinator’s office in Hamilton within 30 days that they have agreed on those costs, the court will fix the amount and order accordingly.

___________________________ Emery J.

I agree: ___________________________ Lococo J.

I agree: ___________________________ Schabas J.

Date of Release: April 18, 2024

CITATION: Pletch v. Pletch Estate, 2024 ONSC 1411

DIVISIONAL COURT FILE NO.: DC-23-195

DATE: 20240418

ONTARIO

SUPERIOR COURT OF JUSTICE

DIVISIONAL COURT

Lococo, Emery and Schabas JJ.

BETWEEN:

Alannah Pletch, Julia Pletch, Brendan Pletch, Talia MacLellan, by her Litigation Guardian, Terry Marcelle MacLellan, and Amy Sue Potter

Applicants

– and –

THE ESTATE OF DARRELL JAMES HERBERT PLETCH, by the Estate Trustee Without a Will, Kerry-Ann Pletch, Terry Marcelle Maclellan and jeffery leroy pletch

Respondents

REASONS ON APPEAL

Date of Release: April 18, 2024