NEWMARKET COURT FILE NO.: 62091/02
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
SALVATORE DISERA and ITALIA BERNARDI in their capacities as TRUSTEES OF THE ESTATE OF ANNA DISERA, Deceased and ITALIA BERNARDI in her personal capacity
Plaintiffs
Craig Losell, for the Plaintiffs
- and -
FIORE DISERA, DAVID RAFFAELE DISERA and FREDERICK BRYON DISERA in their capacities as TRUSTEES OF THE ESTATE OF RAFFAELE DISERA, Deceased
Defendants
Justin de Vries, for the Defendants Fiore Disera and Frederick Disera Rick Bickhram, for the Defendant David Raffaele Disera
HEARD: December 2, 2011
TRIAL MANAGEMENT ENDORSEMENT
1In this action the Estate of Anna Disera (“Anna estate”) and the Estate of Raffaele Disera (“Raffaele estate”) are in litigation. I use first names throughout for convenience since the personal parties all have the surname Disera. The two estates have been working towards a resolution. There is some $12.5 million held in trust by a lawyer, Barry Fish, former counsel to the Raffaele estate.
2I pre-tried this case on October 18, 2011. David, one of the trustees of the Raffaele estate, raised a number of issues including the alleged impropriety of the conduct of his fellow trustees, and asserted his own interests as a beneficiary. One of the difficulties at the pre-trial was that David was not represented by counsel. In light of the complexities of the matter and his emotional volatility I strongly urged him to retain counsel.
3I endorsed the pre-trial form as follows:
Given late notice of the need for a judge to assist the parties, it is not possible to do so before the sitting in November [2011]. A one to two-day session will be arranged in the sitting with a judge having estate experience. Any party may bring a motion in relation to this matter which will be determined by the judge who will also carry out a case-management role. Some particulars:
(i) Mr. David Disera will give notice of his complaint against the Raffaele estate and trustees in writing limited to 25 pages, double spaced, to be served on Mr. de Vries by November 3, 2011 – reply by November 14, 2011. The court copy of the complaint will be kept in a sealed file.
(ii) Otherwise the ordinary court rules will apply with a motion date of “November 14, 2011 or so soon thereafter…” The trial coordinator will provide notice of the date selected.
(iii) The plaintiff and defendant estates will prepare and file by November 14, 2011 an agreed Statement of Facts on the current agreements and will file a separate statement setting out the areas of remaining disagreement and their respective positions. The matter is otherwise removed from the trial list and adjourned to the spring sitting [2012] if it is not settled.
4As required by the pre-trial order, David filed a complaint dated November 3, 2011, and the Raffaele estate filed a reply on November 14, 2011.
5The matter came back before me on December 2, 2011, for trial management purposes. Mr. Bickhram appeared for David.
The Motions
6There are three motions before me. The first is for an order requiring the Raffaele estate to pay out $7.9 million to the Anna estate pursuant to a settlement agreement. This motion was adjourned on consent sine die. The second motion is to remove David as trustee of the Raffaele estate. This was reserved and the parties were given directions on written submissions. The third motion is for the court’s retrospective approval of payments made by the Raffaele estate for professional services. This was also reserved and the parties made written submissions. In addition to deciding these motions, my task as the trial management judge is to structure the remaining litigation.
Background Facts
7The Agreed Statement of Facts was filed. I extract from it the background facts relevant to the motions.
Raffaele died May 20th, 1989 leaving an estate valued in excess of $28,000,000.00. He was a successful land developer. Anna was his lifelong spouse. Anna was dissatisfied with Raffaele’s will which left the bulk of his estate to his son Fiore, also known as Fred, and Fred’s sons, Bryon and David, who were also his estate trustees. Anna Disera indicated she intended to challenge Raffaele’s will and in the year following Raffaele’s death, Anna and Fred negotiated terms.
On July 13th, 1990, after receiving independent legal advice, Anna entered into a settlement agreement that was signed by the beneficiaries and executors of Raffaele’s estate. Land dealings and dealings with the Canada Revenue Agency continued for many years and Anna’s estate awaited final payment.
On April 29, 2004, the Raffaele trustees gave an undertaking to the Anna estate to cause “all of the proceeds of sale” of the following properties or interests held by the Raffaele estate to be paid to Fish and Associates in trust:
(a) a parcel of land of approximately 98 acres on Woodbine Avenue in Whitchurch-Stouffville (the “Woodbine Property”),
(b) a property of approximately 3.8 acres near Dufferin Street and Carrville Road in the City of Vaughan, (the “Rutherford Property”) and
(c) all future payments to be made pursuant to the sale of lands by the said estate to 1541677 Ontario Inc.
This undertaking was mirrored by two other documents dated April 29, 2004. The first was an “Irrevocable Direction” to Mr. Fish’s firm to “retain in your trust account…all of the proceeds of sale…” The second was an undertaking Mr. Fish gave to the Anna estate that mirrored the undertaking given that day by the Raffaele trustees to the Anna estate, except for the handwritten insertion of the word “net” into the phrase, “all of the proceeds of sale,” so that it provides: “all of the net proceeds of sale.”
On October 12th, 2011, Mr. Fish confirmed the amount held in trust was $12,352,056.92. [Emphasis added throughout]
8After two days of mediation on May 25 and October 17, 2011, the estates reached an agreement in principle, but David would not agree to the settlement. In particular, David disputes the method by which the Raffaele estate disposed of and used the proceeds of sale from two properties in which he was given an interest in Raffaele’s will. The Rutherford property was sold in 2002 for approximately $2.2 million. The Woodbine property was sold in 2011 for approximately $3.5 million.
9David alleges that the Raffaele estate used these proceeds in a manner that is inconsistent with the intention of the deceased and with the irrevocable direction signed by the trustees of the Raffaele estate on April 29, 2004, which expressly requires either “a further joint direction from the trustees of the estates of both Raffaele Disera and Anna Disera or an order from a court of competent jurisdiction authorizing or directing you to release any such funds.” It is common ground that neither a joint direction from the trustees nor a court order has been obtained. I note that David is not asserting any claims against the Anna estate.
10I now turn to consider the two motions.
The Motion to Remove David as a Trustee of the Raffaele Estate
11In light of David’s claims, the remaining trustees of the Raffaele estate, Fred and Bryon, move for an order removing David as trustee. They assert that he is no longer acting in the interests of the estate and its beneficiaries, but only in his own interest.
12In the complaint that he was required to file with the court, David asserted:
If the estate dispute is not resolved, David will resign as a trustee and commence an application compelling the estate trustees to pass accounts, and David will also commence an action against the estate trustees for, amongst other relief, breach of trust.
13Mr. Bickhram, David’s counsel, requested an adjournment of this motion to allow him to seek interim relief effectively freezing the trust funds. He pointed out that he has only been lately retained and has had little time to get up to speed in an estate dispute that has lasted about 20 years.
14Given David’s position and his clearly self-interested comments in court, I conclude that the request to remove him as trustee for the Raffaele estate is well-founded and I do so effective immediately. The ill-feeling among the trustees is evident and it would be unreasonable to expect the underlying issues to be resolved: Re Owen Family Trust, (1989) 33 E.T.R. 213 at para. 17 (B.C.S.C.); Consiglio Trusts (No.1), 1973 681 (ON CA), [1973] O.J. No. 2022, [1973] 3 O.R. 326 (C.A.). The estate must be administered.
15This will leave David in a vulnerable position as a beneficiary; accordingly the trustees of the Raffaele estate will do nothing directly or indirectly to disburse funds from the Fish trust account pending further order of the court.
The Motion for Court Approval of Payments by the Raffaele Estate
16The Raffaele will requires unanimity on the part of the trustees for the Raffaele estate to act. David states that he did not approve the sale of the Woodbine property although he has no objections to the price that was obtained. He also takes the position that he did not see the Fish undertaking, with the insertion of the word “net” to require payment into trust of “all of the net proceeds of sale.” David contests the use of some of the proceeds of sale of the Woodbine property to pay some of the expenses of the Raffaele estate.
17David’s position is that: “Contrary to the submissions by Fred and Bryon, David has never opposed the payment of professional fees from the assets of the RD [Raffaele] Estate, however he has made repeated requests for receipts and vouchers prior to the disbursements of monies that should have been held in trust, regarding the sale of the Woodbine Property.” He adds that he: “cannot provide his consent to the payment of the professional fees until he has seen the receipts, vouchers, dockets that would justify the $515,000 in expenses that the Raffaele’s Trustees have incurred.”
18The underlying numbers are set out in the submissions of the Raffaele estate:
When the Woodbine Property was sold in June 2011, the RD Estate netted approximately$3,300,000. Before the Woodbine Property sale proceeds were paid into the Fish Trust Account, the RD Estate paid its professional advisors $305,000. de VRIES LITIGATION received $250,000 to: (a) pay its outstanding March and July 2010 accounts; (b) to pay unbilled time from July1, 2010 to June 10, 2011; and (c) pay for on-going legal work, including a second day of mediation, continuing settlement negotiations, an October 18th pre-trial conference, and a 3 week trial scheduled for November. de VRIES LITIGATION also paid the mediator’s fee of $10,480.18. The RD Estate accountants received $55,000 to pay its outstanding account and for on-going work including: (a) updating estate accounts; (b) preparing multiple years of estate tax returns; (c) providing capital gains tax advice; and (d) attending at trial in November.
The Raffaele estate also paid Fred $210,000 out of the Woodbine Property sale proceeds as partial reimbursement for the approximately $415,000 Fred personally paid to the Raffaele estate to fund expenses (mostly professional fees). The remaining Woodbine Property net sale proceeds, approximately $2,800,000, were then deposited into the Fish trust account.
19By letter dated July 25, 2010, Mr. Losell, counsel for the Anna estate, learned of the sale of the Woodbine property for $3.5 million and demanded that all of the proceeds of sale be paid into the Fish trust account. Mr. Bickhram drew the court’s attention to an email sent by Mr. de Vries to Mr. Losell, on July 29, 2011, in which he advised that he is seeking instructions from his clients but stated: “I have recommended that the net proceeds of the sale of the Woodbine property, less the payments identified on my earlier email, be paid into Mr. Fish’s trust account. I can confirm that $250,000.00 has now been transferred to de Vries Litigation.” A copy of the earlier email to which Mr. de Vries refers was not provided to the court. Mr. Losell did not complain to the court on behalf of the Anna estate about the payments.
20In my view, this is a situation where the estate’s expenses should be paid despite the lack of unanimity among the trustees; the court must intervene in the estate’s interest. I take an approach similar to that of Strathy J. in Re Kaptyn Estate, 2011 ONSC 2212, [2011] O.J. No. 1631 at para.17:
The parties acknowledge that the court has inherent jurisdiction over the activities of trustees and that where the trustees are unwilling or unable to exercise their discretion, or where a disagreement makes it impossible to exercise their discretion, the court is entitled to direct the trustees to take appropriate action: see Haasz Estate (Re) (1959), 1959 386 (ON CA), 21 D.L.R. (2d) 12, [1959] O.J. No. 354, (C.A.); Re Billes (1983), 1983 1732 (ON SC), 42 O.R. (2d) 62, [1983] O.J. No. 3057 (H.C.J.). While the removal of deadlocked trustees is one option, the court can intervene and resolve the impasse between the trustees by, in effect, making the "casting vote": Re Blow (1977), 1977 1274 (ON SC), 82 D.L.R. (3d) 721, [1977] O.J. No. 2510 (H.C.J.).
21The expenses paid by the Raffaele estate have to do with ordinary estate expenses such as the preparation of income tax returns and with the ongoing dispute between the Raffaele estate and the Anna estate. If that the dispute must go through to a trial, then the Raffaele estate must be able to pay for counsel and expert assistance: Geffen v. Goodman Estate, 1991 69 (SCC), [1991] 2 S.C.R. 353 at para. 75.
22It is not possible in the course of trial management to assess whether David’s claims have merit; this will require a careful assessment of credibility based on viva voce evidence. But the expense numbers are not so out of line that they give rise to the court’s suspicion of self-dealing by the remaining trustees. In my view, in the circumstances it would be more appropriate for the payments by the estate of these expenses to be ratified by the court, but without prejudice to the right of David or another beneficiary to challenge the propriety of the payments at the passing of accounts. The comments of D.M. Brown J. in Hosein v. Hosein, [2010] O.J. No. 2261, 2010 ONSC 3167 at para. 5 apply with necessary modifications:
It is well established that trustees are entitled to be indemnified for all costs, including legal costs, which they have reasonably incurred. Reasonable expenses include the costs of an action reasonably defended: Geffen v. Goodman Estate, 1991 69 (SCC), [1991] 2 S.C.R. 353, at para. 74. The Application was brought against the defendant in his capacity as estate trustee of the Estate of his late mother. Mr. Markin submitted that the endorsement of Code J. that costs of the Application were reserved to the judge hearing the trial of the Action meant that the estate trustee was precluded from seeking indemnification of his legal costs until such time. I disagree. The endorsement of Code J. dealt with the determination of the costs between the parties. I do not read that endorsement as altering the general principle of indemnification for legal costs incurred in responding to litigation against the estate. Whether the total amount paid for responding to the Application -- $47,432.86 -- was reasonable or not is a matter to be determined on the estate trustee's passing of accounts.
See also Craven v. Osidacz Estate, 2010 ONSC 6637, [2010] O.J. No. 5154 per Lofchik J. at paras. 21, 22, and 24. Advance payment to estate counsel may be permitted: Chisholm v. Barnard, (1864), 10 Gr. 479 (U.C. Ch.), (1864) CarswellOnt 40.
23I do not see this outcome as inconsistent with the authorities David invokes. The passing of accounts is the place to sort these issues out: Re McDougall Estate, 2011 ONSC 4189, [2011] O.J. No. 3327; Bott v. Macaulay, (2005), 2005 29341 (ON SC), 76 O.R. (3d) 422 (S.C.); DeLorenzo v. Beresh, 2010 ONSC 5655, [2010] O.J. No. 4367 (S.C.).
24I approve the amounts paid by the Raffaele estate out of the proceeds of sale of the Woodbine property before they were deposited into the Fish trust account, without prejudice to the right of David or another beneficiary to challenge the propriety of the payments at the passing of accounts.
Next Steps in the Litigation
25The active parties in this litigation are now represented by competent counsel. David has indicated a desire to proceed with a motion to freeze the Raffaele estate while the dispute between him and the other beneficiaries of the estate proceeds to a conclusion. At the same time, the original motion by the Anna estate for part payment of funds owing under the settlement agreement between the Anna estate and the Raffaele estate must also proceed.
26I expect counsel to be able to put together a road map and timetable to deal with all of the outstanding matters including any required pleadings, production and discovery. These matters include the Anna estate’s motion for payment under the settlement agreement, David’s challenge to the administration of the Raffaele estate, and the passing of accounts by the Raffaele estate. If the parties are unable to agree, then within 30 days of the date of this decision each interested party will file a proposed litigation plan with the court along with submissions limited to five pages.
27I continue to be of the view that it is in the interests of both estates and the beneficiaries to reach a settlement and urge the parties to consider reconvening the mediation to see whether a compromise that does not further sap the estates is possible.
28I will accept cost submissions within ten days of the date of this decision and replies within an additional ten days.
Justice P.D. Lauwers
DATE: March 14, 2011