Court File and Parties

COURT FILE NO.: 05-40/07 DATE: 2012-04-16 SUPERIOR COURT OF JUSTICE – ONTARIO

RE: Estate of John Johannes Jacobus Kaptyn, deceased

BEFORE: G.R. Strathy J.

COUNSEL: Jordan Oelbaum, for Simon Kaptyn Ron Bohm, for Henry Kaptyn Michael W. Kerr, for Jason and Jonathan Kaptyn Daniel Dochylo, for the Office of the Children’s Lawyer

HEARD: April 13, 2012

Endorsement

[1] John Kaptyn died in May 2007. His grandchildren have still not received their bequests. The estate trustees, John Kaptyn’s sons, Henry Kaptyn (Henry) and Simon Kaptyn (Simon), have been unable to reach agreement on many routine matters in the administration of the estate.

[2] On these motions, as a result of the inability of the estate trustees to discharge their duties, the court is once again being asked to take over the role of “third trustee” or estate solicitor.

[3] In the interests of efficiency, and because the matters at issue are of concern only to the immediate parties, I do not propose to review the history of the estate or the events giving rise to these motions.

Relief Sought

[4] Henry moves for orders:

(a) requiring 1171757 Ontario Limited (757) to pay the retained earnings of Parkway Racquet and Fitness Club (PAC) in the amount of $484,000 to the estate;

(b) requiring the estate to immediately pay $1 million, which is a compensation payment for proceeding with the “partial pipeline strategy”, to the testamentary trust for Henry’s children;

(c) directing Simon to deliver distribution documents to McCarthy Tétrault (McCarthy’s) for the purpose of review and amendment;

(d) requiring Simon and Henry to jointly direct McCarthy’s to draft an indemnity for the benefit of Captain Investments Inc. (CII), Marktur Limited (Marktur) and SARK Holdings Inc. (SARK), for any claims associated with the distribution of the common shares of CII to the testamentary trust.

[5] Jason and Jonathan Kaptyn (Jason and Jonathan) move for orders:

(e) that the estate trustees execute Indemnification and Share Pledge Agreements;

(f) that the estate trustees transfer the shares of 9005 Leslie Street Inc. (9005 Leslie) and 757 to Jason and Jonathan upon their execution of the Indemnification and Share Pledge Agreements;

(g) that the estate trustees pay the accounts of KPMG within 30 days of the accounts being rendered.

[6] Simon requests an order:

(h) varying this court’s order dated June 8, 2011 to confirm that the condition that Simon shall retain signing authority over all CII cheques in excess of $5,000 is to be an internal obligation of CII and that Henry and Alex Kaptyn forward all such cheques and related invoices to Simon for his signature. The Children’s Lawyer has approved the form of order.

[7] In addition to these issues, there were submissions on two other matters:

(i) a timetable for the remaining steps that must be accomplished to complete the distribution to the grandchildren; and

(j) whether Henry, in his representative capacity, must be represented by counsel.

Positions of the Parties

Henry

[8] With respect to issue (a), PAC, Henry says that he and Simon, as estate trustees made a payment to Doreen Kaptyn (Doreen) representing the after-tax value of the retained earnings of PAC and he now seeks the return of that money from 757, which is a company bequeathed to Jason and Jonathan. He says that this was paid “with the understanding that the amount would be returned to the Estate once it was determined whether in fact [Doreen] was to receive the retained earnings as it appeared according to the Will that she would.”

[9] Henry also reiterates complaints about the cancellation of the PAC lease by Simon and Jason, something which he raised at various times, but about which he has done absolutely nothing in his capacity as estate trustee or otherwise. That claim, if there is one, may well be time-barred.

[10] As Henry notes, Doreen executed a trust agreement, prior to John Kaptyn’s death, stating that she held PAC for the benefit of 757. He now complains that his father’s intentions with respect to PAC have been “undone” by 757 claiming ownership in PAC.

[11] In a further affidavit, Henry says that when he consented to an order declaring that 757 owned the PAC shares, he did so to avoid the unnecessary costs of a lengthy trial and “upon the understanding that the separate and distinct issue of the ownership of the $484,000 retained earnings held within that company at the time of my late father’s passing would be separately determined by the Court.” He refers to a letter that he wrote, on December 7, 2011, in connection with the preparation of an agenda for a case conference on December 22, 2011, dealing with, among other things, the trial of the issue concerning the ownership of the PAC shares. He indicated that he wanted to bring a motion dealing with the retained earnings of PAC and the cancellation of the PAC lease and suggested that it be heard prior to the PAC trial.

[12] With respect to issue (b), the compensation payment to his children with respect to the pipeline strategy, Henry says that the order directing this payment (see my endorsement June 8, 2011, Kaptyn Estate (Re.), 2011 ONSC 3491, 2011 O.J. 2626) was unconditional and there is no reason for further delay.

[13] With respect to issue (c), the distribution documents, Henry sets out his version of the events giving rise to the dispute and the inability of the estate trustees, and their lawyers, to reach agreement concerning the documentation necessary. He asks that the court order the parties to execute the form of documentation proposed by Mr. Kelleher of McCarthy’s.

[14] With respect to issue (d), SARK is a company incorporated for the benefit of Henry’s children, Samantha, Alex and Robert, as a means to dividend money out of Marktur Limited to the residue of the estate, as part of the partial pipeline strategy. Henry says that in connection with this strategy, $6.3 million has been dividended in and out of SARK, to the residue of the estate, out of the normal course of business, and in order to minimize taxes payable by the estate. He says that if there are taxes or penalties levied on SARK due to the strategies implemented by the estate trustees, SARK should not be held responsible for them. He has told Simon that he wants an indemnity to be given for the benefit of the testamentary trust in favour of his children, SARK and CII.

[15] Simon has said that he is prepared to agree to a reasonable form of indemnity. Henry says that Simon is now demanding that the same indemnity should be given to the other corporations being gifted out of the estate.

Simon

[16] With respect to issue (a), the retained earnings of PAC, Simon submits that the issue was resolved by the consent judgment of this court dated January 9, 2012. In any event, he says that the issue cannot properly be resolved on a motion.

[17] On issue (b), the $1 million payment to the testamentary trust, Simon agrees that the payment is required to be made, but not before the distribution of shares to all grandchildren beneficiaries and only after share pledge agreements and indemnities have been provided by the grandchildren and the estate trustees.

[18] On issue (c), the distribution documents, Simon notes that Jason and Jonathan have concerns, discussed below, about the form and content of the indemnity and share pledge agreements prepared by McCarthy’s. Simon has discussed these concerns with Henry, but he says that Henry is not prepared to amend the agreements to address these concerns.

[19] With respect to issue (d), the indemnity, Simon does not agree that the indemnity is required, but agrees to it being provided if it protects the grandchildren beneficiaries who are entitled to receive their gifts “free and clear”.

[20] On Jason and Jonathan’s issues (e), and (f), Simon is agreeable to executing an indemnity and share pledge agreement and thereafter distributing the shares of 9005 Leslie and 757, but says that the shares should be pledged to the estate, rather than to Henry and Simon.

[21] On Jason and Jonathan’s issue (g), the KPMG accounts, Simon agrees to the order that such accounts be paid within 30 days, provided it is clear that such payment is to be made by the estate, and not by the estate trustees personally.

Jason and Jonathan

[22] It is the position of Jason and Jonathan that Henry’s motion with respect to the retained earnings of PAC should be dismissed because the ownership of PAC was squarely raised in the interpretation applications heard by Brown J. and was ultimately resolved by a consent judgment declaring that 757 owns the shares of PAC. They say that the issue should have been raised in the interpretation applications, that this is a collateral attack on the consent judgment and an abuse of process. Further, they say that the issue is statute-barred. In any event, they say that the claim advanced by Henry cannot be brought by notice of motion.

[23] A trial of the issue concerning the ownership of the shares of PAC was scheduled for January, 2012. Prior to trial, the parties entered into a consent judgment dated January 9, 2012, whereby it was declared that 757 owned the outstanding shares of PAC. Henry consented to this judgment. Jason and Jonathan say that issue estoppel operates so as to bar Henry’s claim: see Danyluk v. Ainsworth Technologies Inc., 2001 SCC 44, [2001] 2 S.C.R. 460. They also say that it is an abuse of process and an impermissible collateral attack: see Toronto (City) v. CUPE Local 79, 2003 SCC 63, [2003] 3 S.C.R. 77.

[24] They say that the effect of this court’s order is that 757 owns the shares of PAC and it is entitled to the retained earnings. If Henry wished to raise this issue, he should have done so at an earlier stage of this protracted litigation.

[25] Jason and Jonathan also say that the claim is time-barred. John Kaptyn died in May 2007.

The Children’s Lawyer

[26] Mr. Dochylo’s primary concern, on behalf of the Children’s Lawyer, is that the distribution to the grandchildren should proceed as expeditiously as possible and, to the extent reasonably possible, that the distributions should take place at the same time.

Discussion and Disposition

Issue (a): Retained Earnings of PAC

[27] I am not prepared to grant the relief sought by Henry with respect to the retained earnings of PAC. Leaving aside, for a moment, the substantive issues, PAC and 757 are not parties to this proceeding and I have no jurisdiction to make an order affecting their rights.

[28] The issue of the ownership of the shares of PAC was finally resolved by the consent judgment of this court dated January 9, 2012. Henry was a party to that proceeding and consented to the judgment. His consent was not qualified in any way. The issue is res judicata and it would be an abuse of process to re-litigate it.

[29] Moreover, the retained earnings of PAC are the property of PAC and follow the ownership of the shares of PAC. As 757 owns the shares of PAC, it is entitled to the retained earnings. The issue of the retained earnings of PAC was not raised on the interpretation applications and I have been provided with no factual or legal theory under which the retained earnings of PAC can be treated as a separate asset of the estate, distinct from the ownership of PAC.

Issue (b): Payment of $1 Million to Testamentary Trust for Henry’s Children

[30] My previous decision on this issue dealt with the substantive question, not the mechanics. It was implicit that usual and necessary documentation would be delivered at the time of the payment.

[31] As discussed below, the parties and their counsel are to confer immediately with a view to reaching agreement on the documentation to be prepared, executed and exchanged in order to complete this transaction and the other transactions necessary to make the distributions to the grandchildren.

[32] In the interests of fairness, or perhaps equal unfairness is a better term, to all the grandchildren, it is my view that all these transactions should be completed at substantially the same time, provided this can take place in the short term, which I would define as 60-90 days. Each of the trustees will have some incentive, therefore, to act reasonably and expeditiously, to resolve the issues. If irreconcilable issues arise, I am prepared to consider an order for uneven timing of the distributions.

Issue (c): Distribution (Indemnity and Pledge Agreements)

[33] I am satisfied that the issues raised by Jonathan and Jason are matters of substance, not form, and that they raise legal issues as set out in the factum of counsel for Simon. I will direct that the issue be resolved in the manner set forth under issues (e) and (f) below.

Issue (d)

[34] This issue should be resolved in the manner set out under (e) and (f), below.

Issues (e) and (f): Indemnification and Share Pledge Agreements

[35] There has been, and continues to be, what I described nearly a year ago as an “unconscionable delay” on the part of the trustees in proceeding with the distribution of the estate. At that time, June 8, 2011, I made an order with respect to the distribution of the shares of the gifted corporations: Kaptyn Estate (Re.), 2011 ONSC 3491. I was satisfied that the security proposed by Simon was adequate and that the timing was appropriate. I stated, at para. 12:

The shares of the gifted corporations will be pledged, promissory notes will be given to the estate by the gifted corporations, and the trustees will be indemnified. This will be confirmed by the order of the Court directing the distribution. The parties shall proceed on this basis.

[36] The parties have been unable to agree on the form of the share pledge and indemnity agreements, in spite of the involvement of several counsel as well as two separate and very reputable law firms.

[37] An Indemnification Agreement and a Pledge Agreement have been drafted by Miller Thomson, retained by Jason and Jonathan. They reflect input from Simon and from his counsel. In my view, they provide a reasonable framework for further discussions between the parties with a view to resolving the issues.

[38] The parties and their counsel, are directed to immediately confer, together with Miller Thomson and McCarthy’s, with a view to reaching agreement on the form of agreements acceptable to all parties. I urge the parties, and their lawyers, to approach the issues in a practical manner, and to make the compromises that may be necessary in order to get the issues resolved.

[39] To assist the parties, it seems to me that the content of the documents should reflect:

(a) the conclusions and directions set out in my endorsements of April 8 and June 8, 2011;

(b) the requirements of the Estates Act, R.S.O. 1990, c. E.21, as amended, and of the Trustee Act, R.S.O. 1990, c. T.23, as amended;

(c) the principles of law applicable to the relationship between trustees and beneficiaries, including the circumstances, if any, in which a trustee is entitled to indemnity from a beneficiary, the duties of trustees to act together and the liability of trustees for taxes.

[40] Some of the applicable principles are helpfully summarized in the factum of counsel for Simon.

[41] These agreements will be the templates that will apply to the transactions applicable to all the grandchildren.

[42] If agreement is not reached within twenty days, or such other reasonable time as the parties agree upon, with the approval of the court, the parties are to provide, within ten days thereafter, annotated copies of the agreements, setting out the provisions in dispute and the basis of the dispute. Counsel for the parties may make additional written submissions, within that time frame, if they wish.

[43] I am reluctant to engage in the drafting of documents. If, however, after being given this last opportunity, the parties cannot reach agreement, I will make the necessary decisions to resolve the issues. The parties should be forewarned that if I find a party has unnecessarily prolonged the process, has insisted on unnecessary or unreasonable terms, or caused another party or the estate to incur unreasonable expense, an appropriate costs award may issue.

[44] As set out above, it is my view that, to the extent reasonably possible and practical, distributions to the grandchildren should take place at about the same time, provided that this will not unreasonably delay any particular distribution(s).

Issue (g): KPMG Accounts

[45] It appears that this issue has now been resolved. KPMG is providing ongoing assistance on tax and related issues. I expect the accounts of KPMG to be paid as they fall due. This, of course, subject to any reasonable issues that the estate trustees may have with respect to the quantum of the accounts or the services rendered, in which case the court shall be immediately advised of the issue.

Issue (h): Variance of the court’s order dated June 8, 2011

[46] The order sought was signed at the hearing, with the consent of all parties.

Issue (i): Timetable for Remaining Steps

[47] At the hearing of the motion, I asked about the steps remaining to complete the distributions to the grandchildren. It appears that progress is being made and, with the resolution of the matters identified above, will continue to be made.

[48] I direct the estate trustees to prepare a joint memorandum setting out, in detail, the steps remaining to complete the distribution and a timetable for the completion of those steps at the earliest possible date. The memorandum should identify any areas of disagreement and the reasons for such disagreement. The memorandum should also identify any issue(s) that may require a motion before the court and should address how and when the issue(s) will be brought before the court.

[49] The memorandum shall be delivered to me within fifteen days. If the parties agree on the steps and the timetable, it will, subject to my review, be incorporated into an order of the court. If there are any areas of dispute, a case teleconference must be arranged through my assistant to discuss the issues and to schedule a hearing, if necessary.

Issue (j): Representation of Henry

[50] At the hearing of the motions Mr. Oelbaum raised, for the first time, the question of whether Henry must be represented by counsel, as required by Rule 15.01 of the Rules of Civil Procedure, R.R.O. 1990, reg. 194. While Henry was represented by counsel solely for the purpose of the hearing of his motions, he has been self-represented from time to time in the past and he brought the above motions on a self-represented basis.

[51] If this issue is not resolved, it will be addressed in writing. Mr. Bohm will have seven days within which to make submissions on this issue. Counsel for the other parties will have seven days within which to reply.

Costs of these Motions

[52] I have under reserve the costs submissions of the parties with respect to several previous motions. Mr. Oelbaum advised that his reply submissions will be delivered shortly. In order that I may deal with all submissions at the same time, the parties are directed to deliver their submissions on the costs of these motions within 10 days. I see no need for reply submissions. The submissions should be addressed to me, care of Judges’ Administration.

G.R. Strathy J.

DATE: April 16, 2012