ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
MICHAEL ANDREW WALLING
Mr. J.D. Shanks, for the Plaintiff
Plaintiff
- and -
KEVIN WALLING
The defendant not appearing
Defendant
HEARD: November 15 , 2012,
at Thunder Bay, Ontario
Regional Senior Justice H.M. Pierce
Reasons on Motion for Judgment
1The plaintiffs, Michael Andrew Walling and Stephen James Walling are the only children of James Walling who died on May 22, 1999 when Michael was 16 and Stephen was 12. At the time of James Walling’s death, Michael had been living for two years with his father and his father’s fiancée in Stratford, Ontario. Stephen lived with the boys’ mother in Belleville, Ontario. Upon his father’s death, Michael returned to live with his mother and brother.
2The defendant is the brother of the deceased and an uncle to the plaintiffs. He was named as the sole executor and trustee of the estate of James Walling in his last will and testament. The will provided that each son would be entitled to one half of the proceeds of the estate when the youngest son, Stephen, reached the age of 21 years, which occurred in December 12, 2007.
3The trustee neglected or refused to pass accounts of the estate or to distribute the proceeds. The plaintiffs allege, in effect, that the defendant converted the estate to his own use, or squandered it and that he has committed breach of trust and breach of fiduciary duty by failing to administer the estate. They seek damages for these breaches based on what the estate should have realized plus interest on the value of the estate; reimbursement of legal fees expended to attempt to have the trustee account for the estate; interest on the legal fees paid; punitive and exemplary damages; and costs.
4The within action was served personally on the defendant on May 31, 2012. Pursuant to the Rules of Civil Procedure, his statement of defence was due within twenty days after service of the statement of claim. As he filed no statement of defence, he was noted in default on June 21, 2012. Pursuant to Rule 19.02, the defendant is deemed to admit the truth of the allegations in the statement of claim.
5The plaintiffs seek general, special and punitive damages. The question for this court is whether those damages are appropriate?
The Facts
6After the death of their father, the children’s mother made inquiries in July of 1999 and obtained a copy of the will from the defendant’s solicitor. She was then advised that the defendant was in the process of converting the estate into cash so that it could be invested for the benefit of the children. No further communication was initiated by the defendant or his solicitor. In July, 2007, the plaintiffs requested an accounting of their father’s estate. A cursory accounting was provided in October, 2007, purporting to show that the sum of $11,428.16 was being held in the estate, available for distribution.
7The accounting was very unsatisfactory. The plaintiffs requested supporting evidence, documents, details of bank accounts and interest income as they believed that the estate contained far greater assets that were not realized. Repeated requests for a proper and detailed accounting went unanswered. No distribution of the estate has ever been made.
8Specifically, the plaintiffs believed that the deceased’s personal property was given away to friends, sold significantly under value, or simply dissipated. There is no evidence these items were ever independently appraised. Michael has since attempted to do so, based on their depreciated value.
9Many of the assets were tools and equipment owned by the deceased, a millwright, as tools of his trade. Other assets were attributable to the deceased’s equipment rental business which he retained when the business was wound up in 1990. Much of the inventory of that business consisted of tools. The plaintiffs’ mother, who also worked in the business, points to year-end financial statements for the business dated February 28, 1988 showing the book value of equipment after depreciation of $26,750. She deposes that the value of tools in 1990 exceeded $75,000. When the plaintiffs’ parents separated in 1993, the deceased still had possession of the tools and rental equipment. The evidence suggests that he took these items with him when he moved to Stratford subsequently.
10Michael recalls seeing and using many of these items at his father’s home, up to the time of his death. He produced a lengthy and detailed inventory of the tools and equipment in his father’s possession, many of which were not referred to in the cursory accounts prepared by the defendant.
11The record indicates that the deceased’s fiancée gave away certain of the deceased’s personal effects upon his death. For example, Michael observed her give an expensive watch to her son. The only mementos the plaintiffs received were a watch and a camping lantern. The children were given their dirt bikes in June of 1999 after some argument with their uncle, but the defendant refused to give them any of the rest of their father’s personal effects, saying that they were part of the estate. Some of these items were of sentimental value, such as the deceased’s tools, his Victroinox Swiss Army watch, tools belonging to the plaintiffs’ grandfather, and their great grandfather’s fishing bag.
12The deceased was employed at the time of his death, but no wages, vacation pay or a bank account at the Bank of Nova Scotia, where the deceased banked, were ever itemized in the estate. No investments or interest earned was ever particularized and supporting documents were never produced.
13When questioned, the defendant’s solicitor indicated that estate proceeds were invested in a 2 year GIC account at Canada Trust where they earned interest at 5.8%, maturing at $4,964.84 each. He stated that thereafter the proceeds were invested in Canada Savings bonds. The plaintiffs believe the monies were in fact invested in Canada Premium bonds. However, the amount shown as the estate balance to October, 2007, $11,428.16 provides no details of the investments or the proceeds.
14To add insult to injury, the defendant did not invite plaintiffs to the spreading of their father’s ashes. This upset the boys greatly. Michael suffered depression and received psychiatric care and medication for more than a year after his father’s death. His school work suffered as a result.
15Had the defendant properly administered the estate, the plaintiffs would have been able to plan and pay for an education of their choice. Instead, their options were limited to programs they could afford, becoming encumbered by debt in the process. But for the support of their mother who has assumed the cost of this litigation, the plaintiffs would not have been able to seek recourse against the defendant. As of August, 2011, the plaintiffs’ mother has paid legal fees in the amount of $27,773.65 to attempt to obtain a proper accounting of the estate. She has incurred further legal fees and disbursements to prosecute this action. The plaintiffs expect that they will reimburse their mother for these costs.
16The plaintiffs estimate that the estate should have been worth approximately $25,845.87 excluding interest that should have been earned.
17In 2000, prejudgment interest according to s. 127 of the Courts of Justice Act varied between 5%-6%. The Bank of Canada interest rate was the same. The prime rate charged in the Canadian Imperial Bank of Commerce in 2000 ranged between 6.75% in February to 7.5% in May.
18On March 25, 2009, Mr. Justice G.P. Smith issued an order requiring the defendant to file accounts of the estate and pass accounts within thirty days of service of the order on the defendant. The defendant ignored the order.
19On December 17, 2009, Mr. Justice D.C. Shaw found the defendant in contempt of Justice Smith’s order. The defendant was fined $1,000 which was conditionally suspended; ordered to pay costs of $1,800 within thirty days; and again ordered to pass the estate accounts. The defendant ignored that order as well.
20A further contempt motion was heard by Mr. Justice Shaw on February 5, 2010. The defendant was found in contempt of Justice Shaw’s previous order. The conditional fine was ordered to be paid forthwith and a further fine of $1,500 was imposed as well as a further costs order of $1,000. The defendant also ignored this order.
21On November 26, 2010, Mr. Justice Shaw ordered the defendant to be personally served with notice of motion for imprisonment and with a copy of his endorsement. Further costs of $1,500 were awarded for the latest motion as well as costs of $1,500 to secure the estimated expense of effecting personal service. The defendant continued to ignore the court’s orders.
22On January 25, 2011, Mr. Justice Fregeau ordered the defendant imprisoned for seven days; however, enforcement of that order was suspended until April 1, 2011 to permit the defendant to comply with Justice Smith’s original order to pass accounts. Costs of $2,000 were ordered in favour of the plaintiffs.
23When the pattern of non-compliance continued, I signed a warrant of committal on May 13, 2011. Not even imprisonment for seven days in the London District Jail secured the defendant’s compliance. Costs of $750 in connection with the committal order were also ordered in favour of the plaintiffs.
24The defendant did not voluntarily pay the costs awards. By virtue of a garnishment of the defendant’s wages, the sum of $5,373.40 has been realized and credited against costs orders totalling $8,778.53 (which include disbursements for garnishments).
Breach of Breach of Fiduciary Duty
25In Alberta v. Elder Advocates of Alberta Society, 2011 SCC 24, [2011] 2 S.C.R. 261, the Supreme Court of Canada concisely described the nature of a fiduciary relationship. At para. 22, the Court observed that the doctrine relating to fiduciary duty arises out of trust principles. It requires the fiduciary to act with absolute loyalty toward the beneficiary in managing the beneficiary's affairs. In general terms, a fiduciary relationship comprises the following characteristics:
The fiduciary has scope for the exercise of some discretion or power;
The fiduciary can unilaterally exercise that power or discretion so as to affect the beneficiary's legal or practical interests;
The beneficiary is peculiarly vulnerable to or at the mercy of the fiduciary holding the discretion or power: see Elder at para. 27.
26An estate trustee, such as the defendant, is in a fiduciary relationship with the beneficiaries of the estate. By the terms of the will, the testator creates a trust and places the executor as trustee with authority over that trust. The trustee has the freedom to refuse the appointment; however, when he accepts the appointment he is bound by his fiduciary obligations. Accordingly, he must forsake the interests of all others in relation to the legal interest at stake in favour of the beneficiaries of the trust: Elder at paras. 30 - 31.
27In this instance, the defendant was the only trustee. He had complete discretion in winding up and distributing the estate, pursuant to the terms of the will. The beneficiaries of the estate were minors at the time of their father’s death. They were completely vulnerable from a legal point of view. They were also emotionally vulnerable, having lost their father.
28Instead of protecting the interests of the children, the defendant exploited them, failing to account for the estate or distribute it and treating their father’s estate as his own cash box. It is hard to think of a more egregious example of breach of fiduciary duty.
Damages
29The plaintiffs estimate that the value of the estate, including revenue receipts (excluding interest) less capital disbursements equals $25,845.87. I accept this estimate. I also accept as reasonable the interest calculations of the plaintiffs as set out in schedule “A” to these reasons, in that they represent reasonable interest calculations for GIC and Canada Premium bond investments the defendant said he made. The interest calculations are also comparable to prejudgment interest tables pursuant to the Courts of Justice Act during the relevant period. I find that interest on the estate should have reached $16,310.61 as of November, 2012. Therefore, the total value of the estate, in accordance with the plaintiff’s calculations, is $42,156.48.
30The plaintiffs are also entitled to be reimbursed for the legal fees incurred by their mother in trying to persuade or compel the defendant to perform his duties as estate trustee. In view of the evidence that the plaintiffs expect to reimburse their mother for her expenses made on their behalf, such an award is reasonable. In calculating costs, credit must be given to the defendant for amounts paid on account of previous costs orders recovered through garnishment. As set out in Schedule “A,” this amount, including prejudgment interest pursuant to the Courts of Justice Act from May 3, 2012 (the date of issuance of the statement of claim) to November 15, 2012 equals $22,889.82.
Punitive and Exemplary Damages
31The plaintiffs claim the sum of $50,000 for punitive and exemplary damages. Punitive and exemplary damages are awarded in rare circumstances to punish a litigant for egregious conduct and to provide a message of deterrence to him and others who are minded to behave in the same way.
32The Supreme Court of Canada commented on the purpose for punitive damages in Whiten v. Pilot Insurance Co., 2002 SCC 18, [2002] 1 S.C.R 595. The court reflected that “retribution, denunciation and deterrence are the recognized justification for punitive damages” (at para. 111). The Court observed that an award of punitive damages must be:
proportionate to the blameworthiness of the defendant’s conduct;
proportionate to the vulnerability of the plaintiff;
proportionate to the harm or potential harm directed specifically at the plaintiff;
proportionate to the need for deterrence; and
proportionate to the advantage wrongfully gained by the defendant from the misconduct: see paras. 111-125.
33In my view, punitive damages are called for in this case. The defendant was completely derelict in his duties to the estate, and therefore to the plaintiffs who are beneficiaries of the estate. The plaintiffs were children when the defendant became the trustee of their father’s estate. Their vulnerability is obvious. The defendant’s sin is compounded by the fact he was an uncle to the plaintiffs, an adult whom they should have been able to trust. Instead, he squandered their inheritance.
34The defendant’s defaults include failing to offer the children any meaningful mementos of their late father; permitting others to take items from the estate; selling chattels from the estate under value; failing to preserve or properly account for the estate; and failing to distribute the estate. The only reasonable conclusion appropriate is that the defendant converted the funds in the estate to his own use.
35The defendant also failed to include the children in any funeral ceremonies for their late father and was completely indifferent to their feelings, causing them great distress. One of the children required psychiatric care as a result of this callous treatment.
36The misconduct of the defendant led to a frustration of the children’s post-secondary education for lack of funds. The enormity of the defaults is quite shocking.
37The harm is compounded when one looks at the systematic failure of the defendant to comply with any of the court orders issued to secure the defendant’s compliance with the terms of the will and his wanton failure to pay costs as ordered. He embarked on a course of conduct that increased the cost to the plaintiffs of attempting to secure their rights, and delayed any redress.
38In sum, the defendant’s conduct has been outrageous.
39Although the plaintiffs submit that punitive damages should be fixed at $50,000, I am not satisfied that an award at this level properly reflects the court’s abhorrence of the defendant’s conduct and the need to deter the defendant and others from similar conduct in future.
40There are two aspects to the defendant’s conduct that I have considered in fixing an amount of punitive damages. The first relates to the defendant’s mismanagement and squandering of the estate with the financial, emotional, and educational consequences that flow from it. The second relates to the defendant’s complete disregard of the court’s orders. Either course of conduct would warrant a punitive award. The court must be vigilant against threats to its authority if the rule of law is to be maintained. I am of the view that the modest amount the plaintiffs are claiming for punitive damages is not sufficient to effect deterrence in this or other similar cases or to secure respect for the court’s orders. I therefore fix punitive damages at $100,000.
Costs
41I agree that the plaintiffs are entitled to their costs of this action on a substantial indemnity basis. This scale of costs is reserved for cases in which the court finds a party has engaged in reprehensible conduct. For all of the reasons above, I find that this is such a case. The basis for the costs award can be found in the plaintiffs’ calculation in Schedule “A.” The defendant shall pay the plaintiffs’ costs fixed at $19,308.23.
Summary
42The plaintiffs shall have judgment against the defendant in the amount of $165,046.30
together with their costs, inclusive of disbursements and HST in the amount of $19,308.23.
“Original Signed by”
Regional Senior Justice H.M. Pierce
Released: November 20, 2012
COURT FILE NO.: CV-12-0179-SR
DATE: 2012-11-20
ONTARIO
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
MICHAEL ANDREW WALLING
Plaintiff
- and –
KEVIN WALLING
Defendant
REASONS ON MOTION FOR JUDGMENT
Pierce, J
Released: November 20, 2012
/nf
SHEDULE A
WALLING V. WALLING - PLAINTIFFS REQUEST JUDGMENT AS FOLLOWS:
- Estate funds **Revised figures - Affidavit of Michael Walling (Tab 3, p.140)
indicates $30,254.41. We included all Revenue Receipts less Capital Disbs.
Should not have included the interest income of $4,508.54 in that calculation.
(Tab 3C, p.154)
$22,556.25 (See paragraph 32 of Affidavit of Michael Walling Affidavit
(Tab 3, p.139/140, Tab3K, p.199)
PLUS
$ 5,536.09 (total of Revenue Receipts (not including interest income)
(Tab 3C, p.154)
$28,092.34
LESS the Capital Disbursements - Tab 3C, p.153
$ 2,246.47 (shows $2,346.47 but addition error of $100.00)
$25,845.87 PLUS interest as calculated below. $25,845.87
Compound interest from 2000 on the amount of $25,845.87 at 5.8%
to October 31, 2005 when Canada Premium Bonds may have been
purchased. See Affidavit of Jacqueline Lloyd Smith, Tab 2, p. 11,
para. 22 (refers to GIC accounts at 5.8% - See Merrill Baker letter
dated July 7, 2007, Tab 2E, pg. 44).
Year 2000 - $25,845.87 X 5.8% = $1,499.06
2001 - $27,344.93 X 5.8% = $1,586.01
2002 - $28,930.94 X 5.8% = $1,677.99
2003 - $30,608.93 X 5.8% = $1,775.32
2004 - $32,384.25 X 5.8% = $1,878.29
2005 -$34,262.54 X 5.8% = $1,987.23 = $165.60
per month X 10 months to Oct.31, 2005 = $ 1,656.00
$10,072.67 $10,072.67
$35,918.54
-- 2 -
**using the rounded number of $35,900.00 and investing it in Canada
Premium Bonds Series No. 46 and No. 47 (Tab 2, p. 11, para. 22), the value
of those Bonds as at November 1, 2012 (Tab 2G, p.63 and p.64) would be:
Canada Premium Bonds No. 46 issued in November, 2005 -$18,000.00 = $21,083.05
$10,000.00 Bond $11,712.81
$ 5,000.00 Bond $ 5,856.40
$ 1,000.00 Bond = $1,171.28 X 3 = $ 3,513.94
$21,083.05
Canada Premium Bonds No. 47 issued in December, 2005 - $17,900.00 = $21,073.43
$10,000.00 Bond = $11,772.86
$ 5,000.00 Bond = $ 5,886.43
$ 1,000.00 Bond = $1,177.29 X 2 = $ 2,354.58
$ 500.00 Bond = $ 588.64
$ 300.00 Bond - $ 353.19
$ 100.00 Bond - $ 117.73
$21,073.43
TOTAL AMOUNT CLAIMED WITH INTEREST TO NOVEMBER, 2012 = $42,156.48
**See Affidavit of Michael Walling, Tab 3, para. 32, p. 140 re alternate
interest rates, i.e. prejudgment, Bank of Canada, CIBC, etc., Tab 3L,
p. 202 - 208. If using Courts of Justice Act prejudgment interest rates
at either 4.8 or 5%, the totals with interest vary only slightly (higher).
PJI under Courts of Justice Act at 4.8% from July 1, 1999
$25,845.87 X 4.8% = $1,240.60 X 13 years to June 30, 2012 = $16,127.80
= $3.40 per day (July 1, 2012 to November 15, 2012 = 138 days = $ 469.20
Interest at 4.8% re Courts of Justice Act from July 1, 1999 $16,597.00
Estate Funds $25,845.87
TOTAL $42,442.87
PJI under Courts of Justice Act at 5% from January 1, 2000
$25,845.87X 5% = $1,292.29X 12 years to December 31, 2011 = $ 15,507.48
= 3.54 per day (January 1,2012 to November 15, 2012=319 days = $ 1,129.26
Interest at 5% re Courts of Justice Act from January, 2000 $ 16,636.74
Estate Funds $ 25,845.87
TOTAL $ 42,482.61
-3-
- Reimbursement of Accounts rendered by Cheadles LLP totalling
$27,773.65 - Jacqueline Smith Affidavit, Tab 2, p.12, para.25, Tab 2H.
Costs ordered - $7,278.53 (error in Affidavits re confusion of Order dated
November 26, 2010 (Michael's Affidavit, Tab 3H, p.177) and Order dated
January 25, 2011 (Tab 31, p.185) difference of $1,500.00 re $1,500.00
ordered in advance as estimated costs.
Costs paid $5,373.40 (which include garnishment disbs.) Actually $5,043.40
received as $330.00 were additional disbursements given by Registrar for
issuing garnishees, etc.).
$27,773.65 less $5,043.40 = $22,730.25 owing under accounts to May, 2012
Plus prejudgment interest under Courts of Justice Act from May 3, 2012
(issuance of Statement of Claim) at 1.3% = $159.57 ($.81 per day X 197 days)
= $22,889.82 (legal accounts less costs recovered, plus interest)
Total amount claimed for reimbursement of accounts,
including prejudgment interest to November 15, 2012 - $22,889.82
Punitive and exemplary damages - Requested at - $50,000.00
Costs of the action on a substantial indemnity basis -
Further accounts rendered:
May14, 2012 - $ 1,306.17
August 27, 2012 - $ 6,587.33
September 21, 2012 - $ 3,102.52
$ 10,966.02
Additional fees, disbursements and
HST to November 14, 2012 (attached) - $ 6,803.66
Plus counsel fee on motion - $ 1,335.00
Plus HS.T. - $ 173.55
Total Costs (substantial indemnity) - $19,308.23 $19,308.23