Sawdon, in his capacity as Trustee of the Estate of Sawdon, deceased, et al. v. Watch Tower Bible and Tract Society of Canada et al.

[Indexed as: Sawdon Estate v. Watch Tower Bible and Tract Society of Canada]

Ontario Reports

Court of Appeal for Ontario,

Hoy A.C.J.O., Gillese and Strathy JJ.A.

February 5, 2014

119 O.R. (3d) 81 | 2014 ONCA 101

Case Summary

Trusts and trustees — Costs — Applicant estate trustee seeking resolution of issue whether funds held in bank accounts formed part of testator's estate — Trial judge agreeing with applicant that funds did not form part of estate — Trial judge ordering respondent to pay applicant's costs on partial indemnity basis — Trial judge erring in refusing applicant's request for order that estate indemnify him for balance of his costs — Litigation benefitting estate — Blended costs order being appropriate with respondent being liable to pay applicant's partial indemnity costs and estate being obliged to indemnify applicant for balance of his costs.

Trusts and trustees — Resulting trust — Father transferring his bank accounts into joint accounts with right of survivorship to himself and two of his five children on understanding that funds were to be distributed equally among all his children upon his death — Presumption of resulting trust rebutted — Father making immediate inter vivos gift of beneficial right of survivorship to all his children when joint bank accounts were opened — Funds in bank accounts not forming part of father's estate.

The testator transferred his seven bank accounts into joint accounts, with a right of survivorship, to himself and two of his five children, WS and SS. His will did not mention the bank accounts. WS was appointed the estate trustee. The respondent took the position that upon the testator's death, the funds in the bank accounts formed part of the estate by way of resulting trust. WS and SS claimed that the testator had instructed them to distribute the funds equally among all five children on his death. On an application by WS and SS, the trial judge heard evidence that the testator was unhappy with the difficulty and delay he experienced in getting the contents of a bank account that had been in his wife's sole name after her death. An account representative with the bank testified that she had explained to the testator that the bank offered a joint bank account with a right of survivorship and one without that right, that he told her that he wanted his children to have the money upon his death without having to go through probate, and that he transferred his money into joint accounts with a right of survivorship. The testator's lawyer had previously advised the testator that the effect of transferring his bank accounts into joint accounts with his sons would be that the money would pass directly to the joint account holders upon his death, bypassing the estate, unless there was a signed declaration of trust. The testator never instructed his lawyer to prepare a declaration of trust, nor did he ask his sons to execute such a declaration. The trial judge found that the funds in the bank accounts did not form part of the estate. He found that, although gratuitous transfers between a parent and an adult child are subject to the presumption of resulting trust in favour of the deceased parent's estate, that presumption had been rebutted. The trial judge ordered the respondent to pay the estate trustee's [page82 ]trial costs on a partial indemnity basis. He refused the estate trustee's request for an order that the estate indemnify him for the balance of his trial costs. The respondent appealed, and the estate trustee cross-appealed the costs order.

Held, the appeal should be dismissed; the cross-appeal should be allowed.

The trial judge did not err in finding that the presumption of resulting trust had been rebutted in the circumstances of this case. When the testator transferred the bank accounts into joint names with WS and SS, he created a trust. Legal title in the accounts vested in the testator, WS and SS jointly, immediately upon transfer into their joint names. Based on the trial judge's unassailable findings of fact, when the testator, WS and SS jointly became the legal owners of the bank accounts, they did so on the understanding that on the testator's death, they were to distribute the contents of the bank accounts to all five children in equal shares. When the bank accounts were opened, the testator made an immediate inter vivos gift of the beneficial right of survivorship to the five children. Thus, from the time that the bank accounts were opened, those holding the legal title to the bank accounts held the beneficial right of survivorship in trust for the five children in equal shares.

The trial judge erred in refusing the estate trustee's request for an order that the estate indemnify him for the balance of his trial costs. Where, as here, the problems giving rise to the litigation were caused by the testator, it is appropriate that the testator, through his estate, bear the cost of their resolution. Moreover, the trial judge erred in finding that the litigation was for the estate trustee's personal benefit and did not benefit the estate. The estate benefitted from being properly administered, and proper administration required the court's determination as to the ownership of the moneys in the bank accounts on the testator's death. A blended order, requiring the respondent to pay the estate trustee's trial costs on a partial indemnity basis and the estate to indemnify the estate trustee for the balance of his trial costs, was appropriate.

Pecore v. Pecore, [2007] 1 S.C.R. 795, [2007] S.C.J. No. 17, 2007 SCC 17, 279 D.L.R. (4th) 513, 361 N.R. 1, J.E. 2007-874, 224 O.A.C. 330, 32 E.T.R. (3d) 1, 37 R.F.L. (6th) 237, EYB 2007-118938, 156 A.C.W.S. (3d) 502, consd

Other cases referred to

Bilek v. Salter Estate, 2009 28403 (ON SC), [2009] O.J. No. 2328, 50 E.T.R. (3d) 227, 178 A.C.W.S. (3d) 54 (S.C.J.); Brad-Jay Investments Ltd. v. Szijjarto, 2006 42636 (ON CA), [2006] O.J. No. 5078, 218 O.A.C. 315, 154 A.C.W.S. (3d) 226 (C.A.) [Leave to appeal to S.C.C. refused [2007] S.C.C.A. No. 92]; Clark v. BMO Nesbitt Burns Inc., [2008] O.J. No. 3789, 2008 ONCA 663, 69 C.C.E.L. (3d) 71, 300 D.L.R. (4th) 313, [2008] CLLC Â210-043, 243 O.A.C. 235, 169 A.C.W.S. (3d) 576; Dallaway (Re), [1982] 3 All E.R. 118, [1982] 1 W.L.R. 756 (Ch. Div.); Geffen v. Goodman Estate, 1991 69 (SCC), [1991] 2 S.C.R. 353, [1991] S.C.J. No. 53, 81 D.L.R. (4th) 211, 127 N.R. 241, [1991] 5 W.W.R. 389, J.E. 91-1059, 80 Alta. L.R. (2d) 293, 125 A.R. 81, 42 E.T.R. 97, 27 A.C.W.S. (3d) 930; Hamilton v. Open Window Bakery Ltd., [2004] 1 S.C.R. 303, [2003] S.C.J. No. 72, 2004 SCC 9, 235 D.L.R. (4th) 193, 316 N.R. 265, J.E. 2004-470, 184 O.A.C. 209, 40 B.L.R. (3d) 1, [2004] CLLC Â210-025, 128 A.C.W.S. (3d) 1111; 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.); Michaels v. Bogun Estate, [2006] O.J. No. 122, 2006 718 (C.A.); Penney Estate v. Resetar, [2011] O.J. No. 490, 2011 ONSC 575, 64 E.T.R. (3d) 316 (S.C.J.); Perez (Litigation Guardian of) v. Salvation Army in Canada (1998), 1998 7197 (ON CA), 42 O.R. (3d) 229, [1998] O.J. No. 5126, 171 D.L.R. (4th) 520, 115 O.A.C. 328, 28 C.P.C. (4th) 11, 58 C.R.R. (2d) 320, 87 A.C.W.S. (3d) 375 (C.A.); [page83 ]Primo Poloniato Granchildren's Trust (Trustee of) v. Browne (2012), 115 O.R. (3d) 287, [2012] O.J. No. 5772, 2012 ONCA 862, 300 O.A.C. 71, 82 E.T.R. (3d) 165, 225 A.C.W.S. (3d) 281; Reid Estate v. Reid Estate, [2010] O.J. No. 3076, 2010 ONSC 3800, 59 E.T.R. (3d) 312 (S.C.J.)

Statutes referred to

Courts of Justice Act, R.S.O. 1990, c. C.43, s. 131 [as am.]

Rules and regulations referred to

Rules of Civil Procedure, R.R.O. 1990, Reg. 194, Rule 57

APPEAL from the judgment of Ricchetti J., [2012] O.J. No. 3387, 2012 ONSC 4042 (S.C.J.) for the applicants in an estate litigation; CROSS-APPEAL from a costs order.

David Gnam and Sylvain Deschênes, for appellant.

Lorne Silver, Lindsay Histrop and Colin Pendrith, for respondent Wayne Robert Sawdon.

The judgment of the court was delivered by

[1] GILLESE J.A.: — An aging father placed several bank accounts into joint names with two of his five children. He told the two children that on his death the funds in the bank accounts were to be distributed equally among all of his children.

[2] When the father died, the question arose: to whom did the funds in the bank accounts belong? The father's estate, the two children or all of his children? This appeal answers that question. In so doing, it must explore the Supreme Court of Canada's decision in Pecore v. Pecore, [2007] 1 S.C.R. 795, [2007] S.C.J. No. 17, 2007 SCC 17.

[3] The cross-appeal in this case raises an interesting question in respect of costs in estate litigation: must the court choose between ordering costs against the losing party or from the estate, or can it fashion a costs order that blends the two?

Overview

[4] Arthur Sawdon died on March 27, 2007. He was survived by his five children: Wayne Sawdon, Stephen Sawdon, Brian Sawdon, James Sawdon and Carolyn Anding (the "children"). Because a number of these individuals share the same last name, for ease of reference I will refer to each of them by their first names.

[5] Between 2004 and 2006, Arthur transferred his seven bank accounts into joint accounts, with a right of survivorship, to himself, Wayne and Stephen (the "bank accounts"). At the time of his death, there was approximately $1,076,000 in the bank accounts. [page84 ]

[6] Arthur's will, executed in 2006, did not mention the bank accounts (the "will"). It contained a hotchpot clause entitling each of the children to the greater of $100,000 or the largest amount owing on mortgages he held on each of Wayne and Stephen's homes. It also provided that the Watch Tower Bible and Tract Society of Canada ("Watch Tower") would receive the share of any child who died without issue, as well as the residue of his estate (the "estate").

[7] Watch Tower is a registered charity representing the religious community of Jehovah's Witnesses in Canada.

[8] The will appointed Arthur's son Wayne as the estate trustee (the "estate trustee").

[9] A dispute emerged between Watch Tower and the children when the estate trustee sought to pass accounts. Watch Tower claimed that upon Arthur's death, the funds in the bank accounts formed part of the estate by way of resulting trust. Wayne and Stephen claimed that their father had instructed them to distribute the funds in the bank accounts equally among the children, on his death.

[10] A trial was held to resolve the issue. Wayne and Stephen were the applicants, with Wayne acting in his capacity as estate trustee as well as in his own right. Watch Tower was the respondent.

[11] By judgment dated July 23, 2012 (the "judgment"), the trial judge ordered that the funds in the bank accounts were not part of the estate. He relied on Pecore for the relevant legal principles and concluded that although gratuitous transfers between a parent and an adult child are subject to the presumption of resulting trust in favour of the deceased parent's estate, that presumption had been rebutted.

[12] By order dated April 18, 2013 (the "costs order"), the trial judge ordered Watch Tower to pay the estate trustee's trial costs on a partial indemnity basis. He refused the estate trustee's request for an order that the estate indemnify him for the balance of his trial costs. (He also ordered Watch Tower to pay very modest costs to the Office of the Public Guardian and Trustee, who had appeared at trial to represent the interests of James, one of the children who had certain disabilities.)

[13] Watch Tower appeals. It contends that the trial judge applied the wrong legal principles and that the estate is entitled to the funds in the bank accounts.

[14] The estate trustee seeks leave to appeal the costs order and, if leave is granted, would cross-appeal, arguing that he is entitled to indemnification from the estate for his legal costs not recovered from Watch Tower. [page85 ]

[15] For the reasons that follow, I would dismiss the appeal and allow the cross-appeal.

Background

[16] The process of transferring Arthur's bank accounts into joint names with his sons Wayne and Stephen began in 2004.

[17] In May 2004, Arthur had a discussion with his wife Hilda on the topic of succession. Hilda was in hospital with a terminal illness. In the presence of Wayne and James, Hilda asked Arthur to reassure her that any money to be left to the children would go to each of them equally. Arthur promised his wife that he would honour that commitment.

[18] That same year, Arthur asked his lawyer, Daniel Pole, to prepare a will. He told his lawyer that he was thinking about transferring his bank accounts into joint names with two of his sons, Wayne and Stephen. His lawyer advised him that if, on his death, he did not want the funds in the bank accounts to pass directly to the other joint bank account holders, he would need a declaration of trust to that effect.

[19] On May 17, 2004, Hilda passed away.

[20] Arthur and Hilda had held all their assets, with the exception of one bank account, in their joint names with the right of survivorship. The one bank account not held jointly was in Hilda's name alone.

[21] Upon Hilda's death, all the assets that they held jointly passed to Arthur without difficulty through the right of survivorship, without becoming a part of Hilda's estate, and without the necessity of probate.

[22] However, Arthur experienced difficulty and frustration in getting the contents of the one bank account that had been in Hilda's sole name. He ended up needing to present the bank with a copy of Hilda's will, showing that he was the sole beneficiary. He was unhappy with the delay in accessing those funds and with having to prove his entitlement to them.

[23] In June 2004, Arthur met with Gladys Fisher, a CIBC account representative, because he wanted to transfer one of his CIBC bank accounts into a joint account with Wayne and Stephen. Ms. Fisher explained to Arthur that the bank offered a joint bank account with a right of survivorship and one without that right. She also explained the risks associated with joint bank accounts, including the ability of the other joint account holders to withdraw the funds while he was still alive, and the potential risk of seizure by their creditors should they become bankrupt or get divorced. [page86 ]

[24] Arthur told Gladys Fisher that, upon his death, he wanted his children to have the money without having to go through probate, and that Wayne and Stephen "knew what to do with the money". He did not want his children to experience the same problems he had with Hilda's bank account after her death. He then proceeded to transfer the bank account into a joint account with a right of survivorship to himself, Wayne and Stephen.

[25] Over the next few years, Arthur transferred his other bank accounts at the Royal Bank and TD Canada Trust into joint accounts with a right of survivorship for himself, Wayne and Stephen.

[26] The transfer of the last two bank accounts into joint names with Wayne and Stephen occurred on July 19, 2006, just two weeks after Arthur met with his lawyer Mr. Pole to change his 2004 will. One of those accounts held approximately 60 per cent of the total moneys in the bank accounts combined.

[27] It will be recalled that Mr. Pole had previously advised Arthur that the effect of transferring his bank accounts into joint accounts with his sons would be that the money would pass directly to the joint account holders upon his death, bypassing the estate, unless there was a signed declaration of trust. Arthur never instructed his lawyer to prepare a declaration of trust, nor did he ask his sons to execute such a declaration.

[28] Until his death, apart from some mortgage payments made by Wayne and Stephen into one of the bank accounts, Arthur alone deposited and withdrew funds from the bank accounts.

[29] Four witnesses testified at trial: Daniel Pole; Wayne; Stephen; and Gladys Fisher.

[30] Daniel Pole admitted that he did not know about the bank accounts until after Arthur's death. However, he also claimed that Arthur expressed the intention to him that the money in the bank accounts should form part of the estate.

[31] It emerged at trial that Daniel Pole was an elder with the Jehovah's Witnesses and had acted as Watch Tower's counsel in the past, and that he did not disclose this information to Arthur at the time of executing the will.

[32] Wayne and Stephen both testified that they had made a commitment to their father that, upon his death, the money in the bank accounts was not to be theirs personally, but was to be for the benefit of the five children equally. Wayne further testified that he told Mr. Pole that he would sign a document to the effect that he was holding the money in the bank accounts in trust for the children. [page87 ]

[33] Gladys Fisher testified as to her knowledge of Arthur's intentions in transferring his money into joint bank accounts with a right of survivorship. She told the court about the information she had given Arthur relating to the operation of a right of survivorship, and Arthur's statement to her that he wanted his children to have the money on his death without having to go through probate.

The Trial Decision

[34] The trial judge began by quoting extensively from Pecore, noting that it is the Supreme Court's most recent pronouncement on a survivor's entitlement to moneys in a joint bank account.

[35] Pecore established that gratuitous transfers between a parent and an adult child are subject to the presumption of resulting trust in favour of the deceased parent's estate. As there had been a gratuitous transfer of the bank accounts from Arthur into his name jointly with Wayne and Stephen, the trial judge then considered whether the presumption had been rebutted. He concluded that it had, saying that Arthur intended to make an inter vivos gift of the beneficial interest in the bank accounts when they were opened.

[36] The trial judge made a key factual finding when concluding that the presumption had been rebutted, namely, that Arthur had transferred the bank accounts into joint names, with a right of survivorship, knowing full well how the right of survivorship would operate on his death. This finding was based on three pieces of evidence in particular.

[37] First, there was Arthur's first-hand experience with how joint accounts with a right of survivorship operated. It will be recalled that Arthur and Hilda had held all their assets in their joint names with the right of survivorship, with the exception of one bank account, which was in Hilda's name alone. When Hilda predeceased Arthur in 2004, he had difficulty in getting the contents of the one bank account that had been in Hilda's sole name. This emphasized to Arthur the practical way in which joint bank accounts with a right of survivorship operated on the death of a joint account holder.

[38] Second, when Arthur told his lawyer that he was thinking about transferring his bank accounts into joint names with his sons, Wayne and Stephen, his lawyer advised him that if he did not want the funds in the bank accounts to go to the other joint bank account holders on his death, he would need a declaration of trust to that effect. It was after he received this legal advice [page88 ]that Arthur made the transfers into joint names; he never instructed his lawyer to prepare a declaration of trust.

[39] Third, the trial judge accepted Gladys Fisher's evidence that she had explained to Arthur the option of opening a joint account with or without a right of survivorship and the differences between the two types of accounts. Understanding all of this, Arthur told Ms. Fisher that he wanted his children to have his money on his death without having to go through probate and that he did not want his bank accounts frozen upon his death. He did not want his children to have the same problems that he had had with the one bank account that was solely in Hilda's name when she died.

[40] The trial judge also accepted Wayne and Stephen's evidence that their father had made it clear to them on numerous occasions that on his death the funds in the bank accounts were to go to his children equally.

[41] The trial judge offered two different lines of reasoning for finding that the beneficial interest in the bank accounts belonged to the children. First, he was of the view that Arthur made a gift of the beneficial interest in the bank accounts to the children, with Wayne and Stephen being used by Arthur to facilitate the transfer of that beneficial interest. Alternatively, he reasoned, Arthur made a gift of the legal and beneficial interest to Wayne and Stephen, but they were to hold whatever money they ultimately received from the bank accounts in trust for their siblings.

[42] In either event, the trial judge stated, the result was the same: the bank accounts did not form part of the estate. Instead, the children held equal beneficial interests in the bank accounts on Arthur's death.

Costs of the Trial

[43] The estate trustee incurred actual trial costs of just under $193,000. He sought to recover substantial indemnity costs from Watch Tower on the basis that the litigation was unnecessary. He also asked that the estate be ordered to indemnify him for any of his trial costs that were not recovered from Watch Tower.

[44] Watch Tower took the position that partial indemnity costs were appropriate, provided that such costs were reasonable.

[45] The trial judge ordered Watch Tower to pay costs to the estate trustee, on a partial indemnity basis, of $75,000 plus HST and disbursements. He rejected the estate trustee's request for costs from Watch Tower on a substantial indemnity basis. In his view, this submission failed to recognize that the onus was on [page89 ]the estate trustee to rebut the presumption of resulting trust in respect of the bank accounts.

[46] The trial judge also refused to order the estate to indemnify the estate trustee for the balance of his trial costs. He saw the trial as a contest between the children and Watch Tower, with the benefit of the litigation flowing to the children. In his view, the litigation "was of no benefit to the Estate".

The Issues

[47] The appeal raises two issues. Did the trial judge err

(1) in failing to find that the bank accounts are held on resulting trust for the estate; and

(2) in failing to apply the legal principles applicable to secret trusts?

[48] If leave to appeal the costs order is granted, the estate trustee raises a single issue by way of cross-appeal: did the trial judge err in refusing to order the estate to indemnify him for his trial costs not recovered from Watch Tower?

[49] Pecore provides the legal framework for resolving the appeal. Thus, before turning to the issues, it is necessary to carefully consider that decision.

Pecore

The facts

[50] In Pecore, an aging father gratuitously placed the bulk of his assets (mutual funds, bank accounts and income trusts) into joint accounts with one of his three children, Paula. Paula made no deposits into the accounts. Some of the financial institution documents creating the joint accounts specifically confirmed Paula's right of survivorship.

[51] The father's accountant advised him that transfers to Paula would trigger a capital gain and that tax on the gain would be due as of the year of disposition. As a result, the father wrote letters to the financial institutions stating that he was the 100 per cent owner of the assets and that they were not being gifted to Paula.

[52] Paula's father continued to use and control the accounts after they were transferred into joint names. He declared and paid all the taxes on income from the assets. Paula made some withdrawals but was required to notify her father before doing so. [page90 ]

[53] There was no mention of the accounts in the father's will. In his will, he left the residue of his estate to be divided equally between Paula and her husband, Michael.

[54] After her father died, Paula took the remaining funds in the accounts. Later, in divorce proceedings, Michael challenged Paula's entitlement to the funds.

[55] The trial judge concluded that Paula's father intended to make a gift of the joint accounts to her. On appeal, this court upheld the trial decision. A further appeal to the Supreme Court was dismissed.

The legal framework

[56] Justice Rothstein, writing for the majority in Pecore, cleared away much of the confusion that has beset the common law presumptions of resulting trust and advancement. He stated that the presumptions continue to play a role in resolving disputes over gratuitous transfers, with the presumption of resulting trust being the general rule for gratuitous transfers (paras. 23-24). He made it clear that the presumption of resulting trust applies to gratuitous transfers made from a parent to an adult child, whereas the presumption of advancement is the starting point when the gratuitous transfer is from a parent to a minor child (paras. 38-40).

[57] In either case, the relevant presumption can be rebutted by evidence of the transferor's contrary intention on a balance of probabilities (para. 43). The trial judge must begin the inquiry with the applicable presumption and then weigh all of the evidence in an attempt to ascertain, on a balance of probabilities, the transferor's actual intention at the time of transfer (para. 44).

[58] Justice Rothstein explained that the court may consider the following types of evidence when determining the transferor's actual intention:

evidence of the transferor's intention subsequent to the transfer (paras. 56-59);

the wording of the bank/financial institution documents (paras. 60-61);

-- control and use of the funds in the accounts (paras. 62-66);

the terms of any power of attorney granted to the transferee (paras. 67-68); and

-- the tax treatment of the accounts (paras. 69-70). [page91 ]

[59] Justice Rothstein concluded, based on the trial judge's findings of fact, that the presumption of resulting trust had been rebutted because, at the time the joint accounts were opened, Paula's father intended to make a gift to her of the right of survivorship.

The Appeal

1. Are the bank accounts held on resulting trust for the estate?

[60] After a thorough summary of the relevant trial evidence, the trial judge set out his credibility findings. He accepted the evidence of Wayne and Ms. Fisher, saying that it was "credible and reliable". He accepted most of Stephen's evidence, noting that significant portions were consistent with Wayne's evidence and the documentation that Arthur had signed. He rejected the evidence of Mr. Pole, Watch Tower's sole witness, in its entirety, giving lengthy and compelling reasons for finding it neither credible nor reliable.

[61] The trial judge then quoted the governing legal principles set out in Pecore. He noted that as Arthur had made a gratuitous transfer of the bank accounts into joint names with Wayne and Stephen, the presumption of resulting trust arose. He went on to determine, as he was obliged to, whether that presumption had been rebutted by evidence of Arthur's actual intention at the time of the transfers.

[62] The trial judge made clear findings of fact about Arthur's intention at the time he opened the bank accounts. He carefully examined the types of evidence that Pecore indicated could be considered in determining Arthur's actual intention, including direct evidence at the time the bank accounts were opened, the wording of the bank documents, control and use of the funds, the terms of the power of attorney that Arthur had granted to Wayne, and the tax treatment of the bank accounts.

[63] The trial judge's findings of fact are thoughtful, detailed and fully available on the record.

[64] The trial judge then concluded that the presumption of resulting trust had been rebutted and that the children were the beneficial owners of the bank accounts.

[65] It will be recalled that the trial judge offered two different lines of reasoning for finding that the beneficial interest in the bank accounts belonged to the children. The first is that Arthur made a gift of the beneficial interest in the bank accounts to the children, with Wayne and Stephen being used by Arthur to facilitate the transfer of that beneficial interest. Alternatively, he [page92 ]reasoned, Arthur made a gift of the legal and beneficial interest to Wayne and Stephen, but they were to hold whatever money they ultimately received from the bank accounts in trust for their siblings.

[66] In my view, the trial judge correctly concluded that the children are beneficially entitled to the funds in the bank accounts.

[67] However, I arrive at that conclusion on a different legal analysis. When Arthur transferred the bank accounts into joint names with Wayne and Stephen, he created a trust. Legal title to the bank accounts vested in Arthur, Wayne and Stephen jointly, immediately upon transfer into their joint names. Based on the trial judge's unassailable findings of fact, when Arthur, Wayne and Stephen jointly became the legal owners of the bank accounts, they did so on the understanding that on Arthur's death, they were to distribute the contents of the bank accounts to the children in equal shares. In legal terms, when the bank accounts were opened Arthur made an immediate inter vivos gift of the beneficial right of survivorship to the children. Thus, from the time that the bank accounts were opened, those holding the legal title to the bank accounts held the beneficial right of survivorship in trust for the children in equal shares.

[68] This analysis differs from that of the trial judge in two significant respects.

[69] First, the language used by the trial judge suggests that beneficial entitlement to the bank accounts lay with the children from the time the bank accounts were created. If by that the trial judge meant that the children were entitled to the beneficial right of survivorship from the time that the bank accounts were opened, I agree. However, if he was suggesting that the children were beneficially entitled to the contents of the bank accounts from the time the accounts were opened, I would respectfully disagree. The question of beneficial entitlement on Arthur's death is a question of who owns the right of survivorship, whereas the question of beneficial ownership generally would encompass the period from the time that the bank accounts were opened. As I have explained, on the trial judge's findings of fact, Arthur's intention and instructions related only to the former, namely, beneficial entitlement on his death.

[70] Second, the trial judge founded the children's entitlement on the alternative bases of gift or trust. With respect, one cannot find that a gift of the beneficial right of survivorship has been made and, at the same time, find that the recipient holds it in trust for others. Where the legal title holder of property is obliged to hold the property for the benefit of another, a trust [page93 ]has been created. In short, once the trial judge found that Wayne and Stephen were obliged to hold the beneficial right of survivorship for the children in equal shares, he found that a trust had been created, and gift analysis (vis-à-vis Wayne and Stephen) was no longer available.

[71] It may be that some of the confusion around the gift/ trust analysis stems from Pecore because Pecore says nothing about trusts, as distinguished from resulting trusts. Two points can be made in this regard, however. First, the possibility of a trust did not arise in Pecore, where the ownership choices were the estate or Paula, the former on the basis of a resulting trust and the latter based on a gift. Second, the power of an owner to dispose of his or her ownership rights by means of a trust is fundamental. If Pecore were to be read as having taken away that right, it dramatically changed property and trust law and it did so without explanation. In my view, there is nothing in the reasoning in Pecore to support such a radical change in the law.

[72] I hasten to reiterate that the legal analysis I offer in no way detracts from the correctness of the trial judge's conclusion that on Arthur's death, the children became entitled to the moneys in the bank accounts in equal shares. In my view, that conclusion is not only correct in light of the trial judge's findings, it is inescapable.

2. Do the legal principles relating to secret trusts apply?

[73] Watch Tower says that Arthur created a secret trust when he asked Wayne and Stephen to distribute the funds in the bank accounts to the children equally, upon his death. Thus, Watch Tower submits, the trial judge erred by failing to apply the legal principles relating to secret trusts. Based on this premise, it argues that (1) the secret trust fails for lack of certainty of objects and the funds in the bank accounts must revert to the estate, or (2) the beneficiaries of the secret trust are the beneficiaries of Arthur's 2006 will.

[74] This is a new issue, raised for the first time on appeal. Accordingly, I would decline to entertain it.

[75] It is trite law that appellate courts are not to entertain new issues except in very limited circumstances: Perez (Litigation Guardian of) v. Salvation Army in Canada (1998), 1998 7197 (ON CA), 42 O.R. (3d) 229, [1998] O.J. No. 5126 (C.A.), at p. 233 O.R. As Watch Tower raises the secret trust issue for the first time before this court and none of the exceptional circumstances exist, it would be improper to decide the issue. To do so would be unfair to the respondents, who may very well have adduced different evidence [page94 ]had they known that such an issue was before the court. Moreover, there is an obligation to raise the issue before the trial judge to allow for an appealable issue: see Clark v. BMO Nesbitt Burns Inc., [2008] O.J. No. 3789, 2008 ONCA 663, 300 D.L.R. (4th) 313, at para. 54.

[76] In any event, without deciding the matter, it seems to me that the secret trusts argument is doomed to fail. Even if the secret trusts doctrine could apply to a situation such as this, where a parent makes an inter vivos gratuitous transfer to an adult child, there can be no problem with the certainty of objects requirement because, on the findings of the trial judge, the objects of the "secret trust" are indisputably the children.

The Cross-Appeal

1. Should leave to appeal the costs order be granted?

[77] Leave to appeal a costs order requires strong grounds upon which an appellate court could find that the trial judge erred in the exercise of his or her discretion: see Brad-Jay Investments Ltd. v. Szijjarto, 2006 42636 (ON CA), [2006] O.J. No. 5078, 218 O.A.C. 315 (C.A.), at para. 21, leave to appeal to S.C.C. refused [2007] S.C.C.A. No. 92. An 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] 1 S.C.R. 303, [2003] S.C.J. No. 72, 2004 SCC 9, at para. 27.

[78] Watch Tower submits that leave to appeal the costs order ought not to be granted. It says that the trial judge made no error in principle in following the modern approach to awarding costs in estate litigation, namely, by applying the usual costs rules in civil litigation and awarding reasonable partial indemnity costs to the successful party.

[79] As I will explain, in my view, the trial judge erred in principle in refusing to declare that the estate trustee is entitled to be indemnified for his trial costs not recovered from Watch Tower. Accordingly, I would grant leave to appeal the costs order.

2. Should the estate trustee be indemnified?

[80] The estate trustee submits that two errors underpin the trial judge's refusal to order that the estate indemnify him. The first alleged error is the trial judge's finding that the litigation was of no benefit to the estate. The second is the trial judge's failure to take into consideration the estate trustee's obligation [page95 ]to ascertain the assets of the estate as a necessary precondition to properly administering it.

[81] I would accept this submission. In my view, an application of the governing principles makes it clear that the estate trustee is entitled to be indemnified for his trial costs. As I will explain, the costs order requiring Watch Tower to pay part of those costs does not derogate from that entitlement.

a. The governing principles

[82] In Geffen v. Goodman Estate, 1991 69 (SCC), [1991] 2 S.C.R. 353, [1991] S.C.J. No. 53, at pp. 390-91 S.C.R., Wilson J., writing for the court on this issue, reiterated the long-standing principle that estate trustees are entitled to be indemnified for all reasonably incurred costs, including legal costs. She quoted with approval the following statement from Dallaway (Re), [1982] 3 All E.R. 118, [1982] 1 W.L.R. 756 (Ch. Div.), at p. 122 All E.R.:

In so far as [an estate trustee] does not recover his costs from any other person, he is entitled to take his costs out of the fund held by him unless the court otherwise orders; and the court can otherwise order only on the ground that he has acted unreasonably, or in substance for his own benefit, rather than for the benefit of the fund.

[83] However, the practice of ordering costs from the estate did not extend solely to estate trustees. Historically in estate litigation, the courts would order the estate to bear the costs of all parties.

[84] The historical approach to costs in estate litigation created the danger that estates would be unreasonably depleted because of unwarranted or needlessly protracted litigation. Consequently, it has been displaced by the modern approach set out by this court in 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: the court is to carefully scrutinize the litigation and, unless it finds that one or more of the relevant public policy considerations apply, it shall follow the costs rules that apply in civil litigation. That is, the starting point is that estate litigation, like any other form of civil litigation, operates subject to the general civil litigation costs regime established by s. 131 of the Courts of Justice Act, R.S.O. 1990, c. C.43 and Rule 57 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, except in those limited circumstances where public policy considerations apply.

[85] The public policy considerations at play in estate litigation are primarily of two sorts: (1) the need to give effect to valid wills that reflect the intention of competent testators; and (2) the [page96 ]need to ensure that estates are properly administered. In terms of the latter consideration, because the testator[^1] is no longer alive to rectify any difficulties or ambiguities created by his or her actions, it is desirable that the matter be resolved by the courts. Indeed, resort to the courts may be the only method to ensure that the estate is properly administered.

[86] In any event, where the problems giving rise to the litigation were caused by the testator, it is appropriate that the testator, through his or her estate, bear the cost of their resolution. In such situations, it ought not to fall to the estate trustee to pay the costs associated with having the court resolve the problems. As Kruzick J. observed in Penney Estate v. Resetar, [2011] O.J. No. 490, 2011 ONSC 575, 64 E.T.R. (3d) 316 (S.C.J.), at para. 19, 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.

b. Applying the principles to the present case

[87] In my view, the second public policy consideration -- the need for the proper administration of the estate -- underlies the present proceedings. Consequently, as the estate trustee acted reasonably throughout and for the benefit of the estate, he is entitled to be indemnified from the estate for his trial costs not recovered from Watch Tower.

[88] One of an estate trustee's duties is to call in the assets of the estate. Thus, in the present case, the estate trustee was obliged to determine whether the bank accounts were held by way of resulting trust for the estate. While it is true that the estate trustee was one of the joint owners of the bank accounts and also a beneficiary of the estate, his multiple roles do not change the fact that his obligation as estate trustee was to determine the estate assets and call them in. Accordingly, the trial judge erred in finding that the litigation was for the estate trustee's personal benefit.

[89] Moreover, the difficulties and problems arising from the bank accounts were caused by Arthur, who transferred the bank accounts into his name jointly with Wayne and Stephen without clearly spelling out, by will or otherwise, what he intended by those transfers. As we have seen, it was not clear whether Arthur intended to make a beneficial gift of the right [page97 ]of survivorship in the bank accounts to Wayne and Stephen; to have them hold the funds in the bank accounts on resulting trust for the estate; or, on Arthur's death, to have them hold the funds in the bank accounts on trust for the children. Because these problems were caused by Arthur, it is appropriate that he -- through his estate -- bears the cost of their resolution.

[90] Furthermore, in this case, the estate trustee had personal knowledge of Arthur's intentions. As estate trustee, he had no choice but to take a position consistent with those intentions. He could not stand by as Watch Tower adduced evidence concerning Arthur's intentions that did not accord with his understanding of those intentions. His fiduciary duty, as estate trustee, compelled him to participate in these proceedings to ensure that the court had the best evidence on which to determine Arthur's intentions in respect of the bank accounts. From this perspective, the estate trustee's involvement engages both of the public policy considerations.

[91] The trial judge also erred in finding that the litigation was of no benefit to the estate. The estate benefits from being properly administered and proper administration required the court's determination as to the ownership of the moneys in the bank accounts on Arthur's death.

[92] It will be apparent from these reasons that I do not accept Watch Tower's submission that the public policy considerations apply only to situations where a will is challenged or its interpretation is in issue, and not to other estate litigation matters. This submission fails to take into account the public policy consideration in favour of the due administration of estates.

c. The costs order combined with indemnification

[93] The costs award that would result from allowing the cross-appeal is somewhat unusual. Rather than ordering costs from the estate or from Watch Tower, the costs award would be a blend of the two, with Watch Tower being liable to pay the estate trustee's partial indemnity costs and the estate being obliged to indemnify the estate trustee for his costs not recovered from Watch Tower. Is there a problem with a blended costs order of this sort? My answer to this question is no.

[94] There is some case law that suggests that the awarding of costs in estate litigation is a binary matter: either costs are payable according to the usual rules governing civil litigation, or from the estate, but not both. See, for example, Reid Estate v. Reid Estate, [2010] O.J. No. 3076, 2010 ONSC 3800, 59 E.T.R. (3d) 312 (S.C.J.), at para. 3. And, I acknowledge, the parties and [page98 ]the courts often operate on the assumption that costs are to be awarded on an "either/ or" basis.

[95] However, I see nothing in the jurisprudence that would prevent a court from making such a blended costs order. On the contrary, the passage quoted from Geffen v. Goodman Estate, set out earlier in these reasons, contemplates this very thing. It will be recalled that in the quotation, Wilson J. affirmed the following:

In so far as [an estate trustee] does not recover his costs from any other person, he is entitled to take his costs out of the fund . . .

(Emphasis added)

[96] Moreover, the modern approach to costs in estate litigation, which seeks to ensure that estates are not depleted through the costs of unnecessary litigation, supports the availability of a blended approach. As D.M. Brown J. noted in Bilek v. Salter Estate, 2009 28403 (ON SC), [2009] O.J. No. 2328, 50 E.T.R. (3d) 227 (S.C.J.), at para. 6:

Parties cannot treat the assets of an estate as a kind of ATM bank machine from which withdrawals automatically flow to fund their litigation. The "loser pays" principle brings needed discipline to civil litigation by requiring parties to assess their personal exposure to costs before launching down the road of a lawsuit or a motion. There is no reason why such discipline should be absent from estate litigation. Quite the contrary. Given the charged emotional dynamics of most pieces of estates litigation, an even greater need exists to impose the discipline of the general costs principle of "loser pays" in order to inject some modicum of reasonableness into decisions about whether to litigate estate-related disputes.

[97] 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.

[98] A simple example illustrates this point. Suppose an estate trustee faces a situation similar to that in the present case: the court must determine whether a joint bank account is held by way of resulting trust for the estate. At trial, the responding party loses, although it had a reasonable basis for opposing the estate trustee.

[99] In such a situation, the court may begin with the premise that both parties are entitled to their costs from the estate because of the public policy consideration in favour of the due administration of estates. However, as in any type of civil litigation, the court must consider the parties' conduct and the costs they are claiming. If the court were to find that the losing party's conduct unnecessarily increased the costs of litigation, 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. Put another way, [page99 ]the estate ought only to bear the costs reasonably associated with ensuring that it is duly administered. Accordingly, in my view, the modern approach to costs in estate litigation supports the availability of blended costs orders.

[100] Finally, given the discretionary nature of costs orders, there would have to be a compelling reason for me to conclude that the courts lack the power to make blended costs orders. I see none.

Costs of the Appeal and Cross-Appeal

[101] In McDougald Estate, at para. 91, this court briefly considered the principles that govern costs awards in estate litigation at the appellate level. It noted that the limited jurisprudence on point was to the effect that at the appellate level, costs are normally awarded against an unsuccessful appellant. Thus, it appears, the usual rules apply with the unsuccessful party being liable for costs on a partial indemnity basis. On that basis, given that the estate trustee was fully successful on the appeal and cross-appeal, it is entitled to its costs from Watch Tower, on a partial indemnity basis.

[102] A similar question to that discussed above arises: is this court's jurisdiction limited to its normal practice in respect of costs or can it make a blended order and declare that the estate trustee is entitled to be indemnified for the balance of its costs of the appeal and cross-appeal from the estate? If so, ought it to make such an order?

[103] The parties disagree on this issue.

[104] Watch Tower contends that this court lacks the jurisdiction to make such an order. It does not deny that the estate trustee is ultimately entitled to be indemnified by the estate for the costs of the appeal and cross-appeal, but maintains that to obtain such an indemnification, the estate trustee must return to the Superior Court of Justice and assert that claim on a passing of accounts.

[105] The estate trustee, on the other hand, has provided cases in which this court has ordered that full costs be paid from the estate: see Primo Poloniato Granchildren's Trust (Trustee of) v. Browne (2012), 115 O.R. (3d) 287, [2012] O.J. No. 5772, 2012 ONCA 862, 82 E.T.R. (3d) 165 and Michaels v. Bogun Estate, [2006] O.J. No. 122, 2006 718 (C.A.).

[106] I note, however, that the court has not been provided with any cases in which costs have been awarded on a blended basis at the appeal level, with partial indemnity costs being paid by the losing party and the balance of the costs being paid by the estate. [page100]

[107] For similar reasons to those given above in respect of the first instance court's power to make blended costs orders, in my view, such costs orders can be made on appeal.

Disposition

[108] Accordingly, I would dismiss the appeal, grant leave to appeal the costs order and allow the cross-appeal. I would amend the costs order by adding an order declaring that the estate trustee is entitled to be indemnified from the estate for the balance of his trial costs not recovered from Watch Tower.

[109] I would award the estate trustee costs of the appeal and cross-appeal on a partial indemnity basis from Watch Tower, fixed at $30,000, all-inclusive. I would also declare that the estate trustee is entitled to be indemnified by the estate for the balance of his costs of the appeal and cross-appeal not recovered from Watch Tower, in accordance with his bill of costs.

Appeal dismissed; cross-appeal allowed.

Notes

[^1]: I will follow the modern practice of using the term "testator" to refer to both males and females who die leaving a will.

End of Document