Court File and Parties
CITATION: Baran v. Cranston, 2022 ONSC 6636
DIVISIONAL COURT FILE NO.: DC-21-2639
DATE: 20221129
ONTARIO SUPERIOR COURT OF JUSTICE DIVISIONAL COURT
Swinton, J.A. Ramsay and Leiper JJ.
BETWEEN:
PHILLIPPA MARY BARAN in her capacity as Trustee of the ESTATE OF TOLLER JAMES MONTAGUE CRANSTON
Applicant (Respondent on Appeal)
AND:
GUY FRANCIS CRANSTON and HUGH GOLDIE CRANSTON
Respondents (Appellant on Appeal)
COUNSEL:
Amanda M. Estabrooks and Douglas D. Buchmayer, for the Applicant (Respondent on Appeal)
Miriam Vale Peters, for the Respondent (Appellant on Appeal) Hugh Goldie Cranston
HEARD at Ottawa (by videoconference): November 17, 2022
REASONS FOR JUDGMENT
Swinton J.:
Overview
[1] This is an appeal pursuant to s. 10(1) of the Estates Act, R.S.O. 1990, c. E.21 from an order of R. Smith J. dated February 22, 2021 in respect of an application for the passing of accounts by the respondent Phillippa Baran in her capacity as Trustee of the Estate of Toller James Montague Cranston. In his reasons (reported at 2021 ONSC 1347), the audit judge substantially approved the accounts, awarded Ms. Baran compensation and ordered the respondents to the application, her two brothers, to pay her costs personally on a substantial indemnity basis.
[2] The appellant, Hugh Goldie Cranston, appeals the order of the audit judge based on several alleged errors and seeks leave to appeal the costs order dated May 20, 2021 (reported at 2021 ONSC 3704). For the reasons that follow, I would dismiss the appeal, as the appellant has not demonstrated any error of law or palpable and overriding error of fact, and I would deny leave to appeal the costs order.
Background Facts
[3] The reasons of the audit judge describe the factual background in detail. In brief, Toller Cranston was a talented and renowned figure skater and a prolific artist. He had lived in Mexico for many years, and he died there on January 23, 2015. The will he had left was found invalid by the Mexican courts, and his three siblings, Phillippa, Hugh and Guy, were recognized as the beneficiaries of his estate in August 2015.
[4] The estate was valued at over $6,000,000. It consisted primarily of Toller’s two Mexican residences, located on a lot that had to be severed, and 400 paintings. The estate assets also included approximately 18,000 items including furniture, art, crafts, ceramics, and household items.
[5] Ms. Baran was appointed as the executor of the estate in Mexico on September 3, 2015. Approximately half of the artwork was divided among the siblings, and the other half was sold or sent on consignment to agreed-upon Canadian art galleries to be sold. An estate sale took place in Mexico in October 2015, where the household articles were sold. Guy and Goldie assisted in that sale. By January 2017, all of the real property in Mexico was sold.
[6] Ms. Baran was appointed as estate trustee for the estate in Ontario on December 6, 2016. She commenced an application to pass her interim accounts in July 2017, after her brothers commenced an application in March 2017 seeking an order that she pass her accounts and seeking to remove her as estate trustee, among other relief.
[7] The brothers raised over 300 objections to the accounts, seeking some $796,074.69 in repayments to the estate. This led to a hearing before the audit judge that lasted from October 5 to 23, 2020. The period of the accounting was January 23, 2015 to April 30, 2018.
[8] The audit judge found that Ms. Baran met the standard of care imposed on estate trustees, and he largely approved the accounts. However, he refused to approve five expenditures (four totalling $8,520 and a $50,000 accounting error relating to shipping and insurance costs for the paintings). He ordered compensation of $200,000 exclusive of HST to Ms. Baran, and he ordered the brothers to pay her legal costs personally, on a substantial indemnity basis, in the amount of $325,000, with the balance of her legal costs payable from the estate.
[9] Hugh Goldie Cranston now appeals.
The Issues on Appeal
[10] The following issues have been raised on this appeal:
Did the audit judge err with respect to the standard of recordkeeping required of an estate trustee?
Did the audit judge err in finding that Ms. Baran met the standard of care with respect to a trustee’s duty to account?
If the answer to (1) or (2) is yes, what is the remedy?
Did the audit judge err in holding that the estate trustee was not required to respect the beneficiaries’ wishes in the case of an intestacy, where the beneficiaries were claiming specific rights to original artwork?
Did the audit judge err in dismissing certain issues during the passing of accounts instead of ordering a trial of issues pursuant to Rule 74.18(13.1)?
Did the audit judge err in his award of costs?
The Standard of Review
[11] The standard of review on this appeal is correctness on questions of law. With respect to errors of fact or errors of mixed fact and law in which there is no extricable question of law, the standard is that of palpable and overriding error (Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235 at paras. 1-3 and 10-25).
Analysis
Issue 1: Did the audit judge err with respect to the standard of recordkeeping required of an estate trustee?
Issue 2: Did the audit judge err in finding that Ms. Baran met the standard of care with respect to a trustee’s duty to account?
[12] The appellant submits that the audit judge erred in the standard of recordkeeping that is expected of an estate trustee. Rule 74.17(1) of the Rules of Civil Procedure requires that an estate trustee “shall keep accurate records of the assets and transactions in the estate and accounts filed with the court shall include” the items that follow (emphasis added). The appellant submits that this requires a standard of perfection with respect to the keeping of records and includes a requirement to provide receipts to document all expenditures. In the present case, he argues that Ms. Baran failed to provide written receipts or documentation for some $142,099.67 of the expenses, and the audit judge erred in upholding these expenditures on the basis of Ms. Baran’s testimony at the hearing.
[13] The appellant further argues that the audit judge erred in failing to find that Ms. Baran was in breach of trust because she failed to keep proper records and did not meet her duty to account.
[14] The audit judge found that the accounts filed by Ms. Baran contained the details required by Rule 74.17(1) (see para. 48 of his reasons). He did not err in the standard of care that he applied. He correctly held, consistently with the decision of the Supreme Court of Canada in Fales v. Canada Permanent Trust Co., 1976 14 (SCC), [1977] 2 S.C.R. 302 at p. 315, that the standard of care for an estate trustee is the standard of care of a person of ordinary care and diligence in managing their own affairs. The Supreme Court also held that the standard was to exercise “ordinary skill and prudence”, along with the application of common sense (at p. 316). The audit judge cited Fales at paras. 51-52 of his reasons and correctly followed it at para. 57.
[15] The audit judge was also correct when he held that the case law relied on by the appellant, Zimmerman v. McMichael Estate, 2010 ONSC 2947 and Lanthier v. Cousineau Dufresne Estate, 2002 2653 (Ont. S.C.), did not support the conclusion that an estate trustee must reimburse the estate for any expense for which there is no written receipt. At paras. 55-56 he stated,
[55] In the Lanthier and Zimmerman situations the power of attorney/trustees failed to keep any records for their substantial cash withdrawals and were unable to provide any explanation for the withdrawals. These cases are distinguishable because in this case the estate trustee provided an accurate record of all receipts and disbursements, provided detailed explanations under oath explaining the reasons for each expense, and also produced copious records to justify and corroborate the amount of each expense charged to the estate.
[56] The Lanthier and Zimmerman decisions do not stand for the proposition that a trustee should be ordered to repay all expenses paid on behalf of the estate where he or she is unable to provide a written receipt. For example, Toller’s staff were paid in cash each week and the trustee made a note of each payment in a ledger or in her iPad. The objectors do not dispute that Toller’s staff in Mexico were paid in cash each week nor do they dispute the accuracy of the amounts set out in the trustee’s accounts. Their objection is technical and not substantial in nature.
[16] The audit judge meticulously considered the various objections made by the brothers and found Ms. Baran’s explanations given for the absence of receipts credible and reliable. He was in the best position to assess Ms. Baran’s credibility, having heard her over many days of testimony in chief and cross-examination. In my view, the appellant has not demonstrated any palpable and overriding error in the audit judge’s findings of fact or in his application of the standard of care with respect to record keeping and with respect to the administration of the estate. Paragraphs 61 and 69 of the audit judge’s reasons provide a useful explanation of his findings:
[61] I agree that the approach adopted in Laird [v. Mulholland, ][1988] O.J. No. 855 (S.C.J.)] applies in the circumstances of this complicated estate in Mexico. While obtaining a receipt for all estate expenses is the recommended approach, I find that the estate trustee was not required to obtain a receipt for every expense in order to allow her to be reimbursed for expenses she incurred, where she produced accurate accounts for all expenses, which were incurred for the benefit of the estate, along with volumes of corroborating documents. In addition, Philippa explained each expense that was objected to under oath and her evidence was not undermined during a lengthy cross examination. Having observed her for 11 days giving evidence in chief and being cross-examined on her explanations for the expenses, I find that Philippa acted honestly and reasonably throughout the administration of Toller’s estate.
[65] For the above reasons, while the estate trustee’s accounting was not perfect, she has accounted for all capital receipts and all expenses accurately in the unique circumstances of this estate, she has explained the reason for each expense under oath, she has provided corroborating evidence for almost all expenses, and I find that she acted honestly, in good faith, and reasonably throughout her administration. As a result, I find that she has met the required standard of care of a person of ordinary prudence using common sense in the complicated circumstances of this estate. However, there are a few expenses that I will not allow that are outlined in this decision.
[17] The appellant also argues that the audit judge erred in allowing Ms. Baran to claim a per diem for travel expenses in Mexico, based on the rate paid by the Government of Canada. Again, he argues that this is contrary to the estate trustee’s obligation to maintain receipts of expenditures.
[18] The audit judge found that the per diem rate was reasonable and consistent with the travel expenses claimed by and reimbursed to the objectors. I see no error that requires appellate intervention.
[19] Given that I would uphold the audit judge’s findings with respect to the accounts, I see no basis to interfere with his award of compensation to Ms. Baran. The appellant argued strenuously before the audit judge that Ms. Baran’s compensation should be substantially reduced because of her failure to keep receipts. I see no error of law by the audit judge in the award of compensation. He considered both the tariff and the five factors approach approved by the Court of Appeal in Laing Estate v. Hines, 1998 6867 (ON CA). His award of compensation was a reasonable exercise of his discretion.
[20] Finally, given my conclusions with respect to issues 1 and 2, I need not address issue 3, remedy.
Issue 4: Did the audit judge err in holding that the estate trustee was not required to respect the beneficiaries’ wishes in the case of an intestacy, where the beneficiaries were claiming specific rights to original artwork?
[21] The appellant submits that when a trust instrument is silent, the trustee’s duties, rights and obligations are governed by general law, and that the trustee must hold the property in the trust for the benefit of the beneficiaries in a way that the real benefit accrues to the beneficiaries and not to the trustee (Valard Construction Ltd. v. Bird Construction Co., 2018 SCC 8 at paras. 15-16). He claims that Ms. Baran, as estate trustee, was required to hold all property in trust in such a way that the beneficiaries benefitted. However, despite the brothers’ request that she stop art sales through galleries and distribute the remaining artwork in specie, she ignored their wishes. As a result, the brothers brought an interim motion that resulted in an order to stop further art sales.
[22] The audit judge pointed out in his reasons that Guy had agreed on cross-examination that the estate trustee must act in accordance with the law and not as directed by a majority of beneficiaries (reasons at para. 64). He found that Ms. Baran had kept the brothers reasonably informed about the administration of the estate, and she had met the standard of care in administering the estate.
[23] The audit judge also concluded that Ms. Baran was not required to distribute the remaining artwork in specie, as demanded by the brothers, until after the accounts were passed and the estate expenses paid (at para. 129). That was a reasonable conclusion on his part. I would give no effect to this ground of appeal.
Issue 5: Did the audit judge err in dismissing certain issues during the passing of accounts instead of ordering a trial of issues pursuant to Rule 74.18(13.1)?
[24] The appellant argues that the audit judge erred by determining issues relating to a claim for lost commissions and commingling of estate funds in his reasons, after confirming that the matter before him was limited to a passing of accounts. By ruling on the issues and failing to order a trial of those issues, the audit judge is said to have deprived the respondent of due process.
[25] According to the audit judge’s reasons, the objectors, Hugh and Goldie, raised two new objections during responding submissions. One related to alleged lost commissions on art sales by the galleries in the amount of $229,763.12. They also alleged that Ms. Baran had commingled personal funds in the estate bank account in the amounts of $178,269.18 CDN and $39,905 USD. The audit judge refused to allow the objectors to raise these claims at this late stage of the process, as to allow them to do so would be procedurally unfair to Ms. Baran. I see no error on his part in making this ruling.
[26] The appellant now submits that the audit judge erred in failing to order a trial of these two issues. Instead, having said that he was only determining a passing of accounts, he expressed his opinion on the merits of these two objections, finding that there was no merit to either.
[27] I see no error in his failure to order the trial of these two issues. No such relief seems to have been formally sought by the appellant, and the audit judge correctly held that his task was to rule on the passing of accounts. These objections could and should have been raised much earlier in the process. I would not give effect to this ground of appeal.
Issue 6: Did the audit judge err in his award of costs?
[28] The appellant seeks leave to appeal the award of costs, arguing that the audit judge erred in awarding costs on a substantial indemnity basis and in awarding costs personally against him. He also claims that the quantum of costs awarded was excessive.
[29] The Ontario Court of Appeal has instructed that leave to appeal a costs order should be granted only “in obvious cases where the party seeking leave convinces the court there are ‘strong grounds upon which the appellate court could find that the judge erred in exercising his discretion’” (Brad-Jay Investments Limited v. Village Developments Limited, 2006 42636 (ON CA) at para. 21; Levant v. DeMelle, 2022 ONCA 79 at para. 74).
[30] The test to be applied in a costs appeal is set out in Hamilton v. Open Window Bakery Ltd., 2004 SCC 9 at para. 27: an appellate court should not interfere with an award of costs unless there has been an error of principle or the costs award is plainly wrong.
[31] The appellant has not demonstrated that there are strong grounds to show either condition is met here. Leave to appeal the costs order is denied.
Conclusion
[32] The appeal is dismissed. Leave to appeal costs is denied.
[33] The respondent has uploaded costs submissions to Caselines in which she seeks costs of $28,353.69 payable by the appellant. The appellant’s cost outlines shows that he would have sought much more if successful – close to $71,000 on a partial indemnity basis.
[34] At the hearing of the appeal, both parties requested an opportunity to make further costs submissions after the decision of this Court was released. Parties are expected to have their costs outlines posted before a hearing before the Divisional Court, as the Court expects to deal with costs at the hearing. However, an indulgence is granted here to allow written submissions in accordance with the Court’s direction if the parties are unable to agree on costs.
[35] Accordingly, the respondent shall make brief written submissions, not to exceed three pages, within seven days of the release of this decision. The appellant shall make responding submissions, not to exceed three pages, within seven days of the receipt of the respondent’s submissions. All submissions are to be uploaded to Caselines.
___________________________ Swinton J.
I agree
J.A. Ramsay J.
I agree
Leiper J.
Date of Release: November 29, 2022
CITATION: Baran v. Cranston, 2022 ONSC 6636
DIVISIONAL COURT FILE NO.: DC-21-2639
DATE: 20221129
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
Swinton, J.A. Ramsay and Leiper JJ.
BETWEEN:
PHILLIPPA MARY BARAN in her capacity as Trustee of the ESTATE OF TOLLER JAMES MONTAGUE CRANSTON
Applicant (Respondent on Appeal)
AND:
GUY FRANCIS CRANSTON and HUGH GOLDIE CRANSTON
Respondents (Appellant on Appeal)
REASONS FOR JUDGMENT
Swinton J.
Date of Release: November 29, 2022