Superior Court of Justice - Ontario
Newmarket Court File No.: CV-14-117750-00 Date: 2015-09-29
In the Matter of the Estate of Giuseppina Gabriele, deceased
Between:
Mary Spadafora personally, as a named Estate Trustee and a Beneficiary of the Estate of Giuseppina Gabriele Applicant
– and –
Frank Gabriele and Tony Gabriele Personally and as named Estate Trustees and Beneficiaries of the Estate of Giuseppina Gabriele Respondents
Counsel: Gordon Meiklejohn, for the Applicant Ronald Moldaver, for the Respondents
Heard: September 4, 2015
Reasons for Decision
Douglas J.
OVERVIEW
[1] The Applicant seeks the following relief:
(a) An order declaring that a photocopy of the Last Will and Testament of Giuseppina Gabriele dated August 15, 2008 is a valid Last Will and Testament of Giuseppina Gabriele, and
(b) An Order that a Certificate of Appointment of Estate Trustee with a Will shall be issued naming Mary Spadafora as the sold Estate Trustee of the Estate of Giuseppina Gabriele.
[2] The relief sought with respect to (a) above is consented to by the Respondents.
[3] In relation to the remaining issue, the central question is whether the Respondents are in a conflict of interest such that they cannot act as co-trustees of the Estate of Giuseppina Gabriele (hereinafter “the deceased”).
BACKGROUND
[4] The facts are largely undisputed.
[5] The deceased died on January 8, 2009.
[6] She is survived by her three children, Mary Spadafora (hereinafter “Mary”), Frank Gabriele (hereinafter “Frank”) and Tony Gabriele (hereinafter “Tony”).
[7] The deceased was predeceased by her husband Pierino Gabriele (hereinafter “Pierino”).
[8] The deceased left a Last Will and Testament dated August 15, 2008 (hereinafter the “Will”).
[9] The Will names Mary, Frank and Tony as Estate Trustees and provides that the Estate is to be equally shared by her children alive at the date of her death. Those children are Mary, Frank and Tony.
[10] It appears the original Will was lost by the Applicant’s prior counsel; however, photocopies exist. The deceased is not known to have prepared any subsequent testamentary instruments and the deceased’s capacity when executing the Will is not in question.
[11] Pierino’s Will named Mary, Frank and Tony as his Executors and Trustees. He left his entire estate to the deceased. Those children are Mary, Frank and Tony.
[12] On April 15, 2010 Justice Penny ordered on consent of the parties that Mary, Frank and Tony file an application for Certificate of Appointment of Estate Trustee with a Will for the deceased’s Estate within 30 days of the date of that order and that if Frank and Tony failed to comply with that direction they would be deemed to have renounced their right to be appointed as Estate Trustees. Mary, Frank and Tony were also ordered to serve statements of the nature of the Estate assets with values as of date of death within 20 days of the date of the order.
[13] Mary’s prior counsel prepared an application for a Certificate of Appointment of Estate Trustee with a Will (individual applicant) in furtherance of the parties’ obligations regarding the order of Penny J. from April 2010. Frank and Tony each delivered to Mary’s prior counsel the required affidavits of support.
[14] Thereafter, the parties became bogged down regarding inventory of Estate assets and valuation of same.
[15] Matters were further delayed while Mary pursued an application for sale of the deceased’s home (then occupied by the deceased’s mother).
[16] In November 2011 Mary’s application for sale of the deceased’s home was dismissed and eventually costs were awarded against her in favour of Frank and Tony and in favour of the deceased’s mother.
[17] Conclusion of the sale proceedings triggered payment of the Estate Administration Tax in late 2011.
[18] In June 2012 Mary’s prior counsel drafted and delivered to Frank and Tony a draft consent to Proof of Lost Will including a provision for the appointment of Mary, Frank and Tony as Estate Trustees. Frank and Tony executed the consent and returned same promptly. Although prepared by her then counsel, there is no evidence that Mary ever signed the Consent.
[19] Current counsel for Mary was retained in February of 2013.
[20] By way of letter dated February 5, 2013 Mr. Meikeljohn communicated Mary’s position with respect to the outstanding issues. Those issues included:
(a) Whether the preference shares owned by the deceased in 1458157 Ontario Limited (hereinafter “145”) carried no specific payment date or interest and subject to accounting and tax advice had an estimated value of about $1.85 million.
(b) The shares in 145 were owned by Pierino at the time of his death and passed to the deceased pursuant to the terms of Pierino’s Will. 145 is the sole shareholder of 549087 Ontario Limited (hereinafter “549”) which in turn is the sole shareholder of P. Gabriele and Sons Ltd., (hereinafter “PGS”) a property development company operated by Frank and Tony.
(c) No steps were taken to probate Pierino’s Will despite Pierino’s ownership of preference shares in 145 worth almost $2 million that indirectly owned Frank and Tony’s development company, PGS.
(d) There is a judgment of approximately $1.5 million in favour of Ontario Realty Corporation pursuant to which PGS and, as alleged by Frank, Pierino, were responsible; however, Pierino had been released as a Defendant prior to trial in 2008. Mary and her husband were also parties to that litigation. The trial judgment was critical of Frank’s credibility and found that Frank had participated in a number of unlawful conspiracies giving rise to the judgment in favour of Ontario Realty Corporation.
(e) Although in 2012 PGS mortgaged a property for $3 million the funds were not used to retire the preference shares which were then owned by the deceased’s Estate.
[21] As a consequence of the above concerns Mary took the position that both Frank and Tony, as the common shareholders of 549 and as the operating minds of PGS, have an interest as the equity owners of 549 in reducing the value of the preference 145 shares owned by the deceased’s Estate and in delaying the retirement of those shares. Further, given Frank’s position that Pierino was somehow responsible for a portion of the judgment granted in favour of Ontario Realty Corporation, and thus further reducing the value of the Estate, both Frank and Tony had conflicts between their personal interest and the interests of the beneficiaries of the Estate and as a result could not act as Estate Trustees.
[22] Frank and Tony take the position that all of the preference 145 shares are retractable by the holders and redeemable by the corporation.
THE LAW
[23] Pursuant to s.37 of the Trustee Act the court may remove a personal representative upon any ground which the court may remove any other Trustee and may appoint some other proper person or persons to act in the place of the Executor or administrator removed.
[24] The court will remove a Trustee when there is an obvious conflict between their interests and their duties as trustees.
[25] In Orenstein v. Feldman 1978 CarswellOnt. 515 the Applicants were beneficiaries under a Trust. They sought to remove the Respondents as Trustees. Griffiths J. concluded that there was “much ill feeling” between the new Trustee and primary beneficiary and that this accounted in part for the “problems and lack of communication between them.” However, “while this obvious friction and hostility” between the Trustee and primary beneficiary “may not in itself be a ground for removal of a Trustee, it is certainly a factor to be taken into consideration.” Griffiths J. found it “difficult to accept” that the Trustee could do as he is required to do, in his capacity as Trustee, with the interest of the beneficiary in a non-partisan manner. Further, the “most cogent reason” why the Trustees could not continue to act as trustees was because of the “obvious conflict between their interests and their duties as trustees”. The Trustees had a duty to realize on the lands and mortgage as security and to pay off in priority the principal sum owing to the primary beneficiary. At the same time, the Trustee had a “very personal interest” to see that monies owing to the bank were paid off. There was no real effort made by the Trustees to sell the lands and realize the Trust assets and the court inferred that the Trustee was determined to hold and develop the lands with a view to achieving sufficient recovery to pay off the indebtedness of the bank as well. These two conflicting interests rendered it impossible for the Respondent Trustees to properly discharge their functions. The Trustees had a duty to look at the interests of all the beneficiaries, and not those of any particular beneficiary. The personal interests of the Trustee placed him in the position where he must inevitably weigh his interests against the interests of other beneficiaries. In view of the friction and hostility between the primary beneficiary and the trustees, the fact that they will later be involved in litigation, the outcome of which will involve their credibility, and taking into consideration the clear conflict of interest of the trustees, Griffiths J. concluded that the Trustees should be removed.
[26] In Re Owen Family Trust 1989 CarswellBC 495, where the parties were brothers and co-trustees of a trust established by their parents for the benefit of the parents’ grandchildren, the Applicant sought to remove the Respondent as trustee on the basis that a company controlled by the Respondent owed the Trustees more than $35,000 and had for one and one-half years failed to pay the full amount owing. In addition, the Respondent had failed to reply to letters from the solicitors for the Trustees requesting payment of the monies owing. In concluding that the Respondent Trustee ought to be removed Legg J. observed:
(a) The obvious ill feeling between the parties was detrimental to the beneficiaries of the trust.
(b) The failure of the company controlled by the Respondent to pay the substantial sum owed by it indicated that the continuation of the Respondent as Trustee might place the property of the Trust in some danger. There was a conflict between the duty of the Respondent as Trustee and his company’s position as debtor to the Trust.
(c) The unexplained failure of the Respondent to respond to the Trust’s solicitor’s request for payment of the monies owing by the company substantiated the allegations that the Respondent was not faithfully and diligently performing his duties as Trustee.
[27] In Rose v. Rose 2006 CarswellOnt. 3776, a decision of the Ontario Superior Court of Justice, the court was dealing with a Trust established with father as Trustee and his two children as beneficiaries. The Trustee and his wife separated and the relationship between the beneficiaries and the Trustee rapidly deteriorated. The court found that there was “a great deal of hostility between the beneficiaries and the Trustee, mostly emanating from the beneficiaries toward the Trustee. The beneficiaries refused to speak with their father. Additionally, the Trustee had an interest in using the Trust properties himself (being a family cottage and chalet). That interest, considering that the beneficiaries did not want him to use the trust property, was in conflict with his role as a trustee given that the terms of the trust did not confer upon him an entitlement to use trust property. The application to remove the father as trustee was granted as the degree of hostility between the beneficiaries and trustee was so great that administration of the trust had become difficult and it was impossible for the trustee to act impartially. The Trustee had interest in using the properties himself and the beneficiaries opposed such use and enjoyment and thus a conflict of interest was generated.
[28] In Craig v. Craig 2007 SKQB 391 the Saskatchewan Court of Queen’s Bench considered whether an executor should be removed as a consequence of conflict arising by not taking steps to realize on the assets of the Estate. The court observed that it is the obligation of an executor/trustee to act in the best interests and to the welfare of the beneficiaries. The trustee’s decision not to prosecute a claim of the deceased when he was a son of the beneficiary of that claim not proceeding clearly taints the decision not to proceed, even with the best of intentions.
[29] In Mitchell v. Mitchell 2006 SKQB 267, a case cited by the Respondents, the Queen’s Bench for Saskatchewan referred, as did several of the cases cited by the Applicant, to a decision of Lord Blackburn in Letterstedt v. Broers (1884) 9 App. Cas. 371(PC), cited in Welch v. Travis 1997 17194 (SK QB), 1997 159 Saskatchewan Reports 275 (QB):
[9] The general principles applicable to the removal of a personal representative were set forth years ago by Lord Blackburn in Letterstedt v. Broers [supra]. He said, at pp. 385 and 386:
… It is not disputed that there is a jurisdiction “in cases requiring such a remedy,” as is said in Story’s Equity Jurisprudence, s. 1287, but there is very little to be found to guide us in saying what are the cases requiring such a remedy; so little that their Lordships are compelled to have recourse to general principles.
“Story says, s. 1289, “But in cases of positive misconduct, Courts of Equity have no difficulty in interposing to remove trustees who have abused their trust; it is not indeed every mistake or neglect of duty, or inaccuracy of conduct of trustees, which will induce Courts of Equity to adopt such a course. But the acts or omissions must be such as to endanger the trust property or to shew a want of honesty, or a want of proper capacity to execute the duties, or a want of reasonably fidelity.”
It seems to their Lordships that the jurisdiction which a Court of Equity has no difficulty in exercising under the circumstances indicated by Story is merely ancillary to its principal duty, to see that the trusts are properly executed. … It must always be borne in mind that trustees exist for the benefit of those to whom the creator of the trust has given the trust estate…
In exercising so delicate a jurisdiction as that of removing trustees, their Lordships do not venture to lay down any general rule beyond the very broad principle above enunciated, that their main guide must be the welfare of the beneficiaries. Probably it is not possible to lay down any more definite rule in a matter so essentially dependent on details often of great nicety. But they proceed to look carefully into the circumstances of the case.
In MacDonnell, Sheard and Hull on Probate Practice (4th Ed.) (Toronto: Carswell, 1996), it is stated, at p. 164:
Although Lord Blackburn’s remarks have been repeatedly referred to, the basic principles he enunciated have been neither enlarged nor qualified, and subsequent cases simply illustrate the application of those principles to various sets of circumstances. In each case those asking for the removal of the trustee must convince the court that his continuance in office would be likely to prevent the trust being properly executed.
[30] According to the court in Mitchell:
It is obvious from the foregoing authority that overriding duty of the court in the exercise of its discretion to remove an executor is to ensure that the trusts established by the Will will be properly executed, that the trust property will not be endangered and that there not be a want of honesty or proper capacity or reasonable fidelity on the part of the executor. Broadly put, the overriding consideration is the welfare of the beneficiaries.
[31] The court in Mitchell refers to the comments of Wimmer J. of the Queen’s Bench for Saskatchewan in the case of Ulmer Estate v. Ulmer Estate 2000 SKQB 2009 as follows:
To override a testator’s choice of an executor is a sensitive exercise not to be lightly undertaken. Presumably, the testator has appointed those in whom he has confidence to give effect to his wishes and a court should interfere only where it is clear that the confidence was misplaced. Section 85 of the Act [The Trustee Act, supra] authorizes the appointment of a judicial trustee to act in the place of existing trustees if sufficient cause is shown. The phrase “sufficient cause” does not encompass every mistake of judgment or neglect of duty. Rather, it contemplates serious misconduct of a kind that impairs the trust, frustrates its administration, or puts the beneficiaries at risk. In this case, it is unfortunate that the maintenance order has not been strictly adhered to. However, I am advised that this has, or will immediately be, put right. The executors have explained their decisions in regard to the management of estate assets and while the applicant may question their wisdom she has not, in my opinion, established misconduct amounting to sufficient cause for removal. For that reason, the application must be dismissed.
[32] In Mitchell one executor was applying for removal of the co-executor, alleging that the Respondent was in conflict of interest, that he had neglected his duties as co-executor and that he had become liable to the Estate as a result of his delays and inadequate attention to the administration of certain estate assets. The Respondent answered the Applicant’s allegations and alleged misfeasance and delay on the part of the Applicant. In concluding that the application should be dismissed, the Court observed that in many aspects the Respondent’s interest did not coincide with that of the Applicant; however, “in the case of any large, complicated estate in which the executors are major beneficiaries, it can easily become necessary to make decisions on a give and take basis, even to resort to litigation. That circumstance does not necessarily require the removal of an executor.”
ANALYSIS
[33] In my view, the application for an order that a Certificate of Appointment of Estate Trustee with a Will issue naming Mary Spadafora as the sole Estate Trustee of the Estate of Giuseppina Gabriele must fail for the reasons that follow.
[34] Regarding the preference shares in his affidavit sworn April 14, 2014 Frank deposes as follows:
a. Pierino Gabriele (our father) owned 30 Common shares in 549087 Ontario Limited. Those shares were transferred on January 15, 2001 to 1458157 Ontario Inc. by way of a rollover of shares pursuant to Section 85 of the Income Tax Act. Pierino received 2,250 Class “A” Preference shares in 1458157 Ontario Inc. in return on the rollover. These shares had a fair market value of $2,250,000.00 – and are redeemable and retractable according to my reading. After the rollover, I lent my father $400,000.00 to assist in respect of the construction of his home (now our home) and he agreed to transfer 400 of his said 2,250 Class “A” Preference shares in 1458157 Ontario Inc. Mary was well aware of this loan and that is why, presumably, she adopted the value of the remaining Class “A” Preference shares in 1458157 Ontario Inc. However, the inventory is misstated in that the number of Class “A” Preference shares should have been stated at 1,850.
b. I, Frank Gabriele, owned 5 Common shares in 549087 Ontario Limited. Those shares were transferred on January 15, 2001 to 1458157 Ontario Inc. by way of a rollover of shares pursuant to Section 85 of the Income Tax Act. Frank received 375 Class “A” Preference shares in 1458157 Ontario Inc. in return on the rollover. These shares had a fair market value of $375,000.00.
c. Our brother, Tony (Antonio) Gabriele owned 5 Common shares in 549087 Ontario Limited. Those shares were transferred on January 15, 2001 to 1458157 Ontario Inc. by way of a rollover of shares pursuant to Section 85 of the Income Tax Act. Tony received 375 Class “A” Preference shares in 1458157 Ontario Inc. in return on the rollover. These shares had a fair market value of $375,000.00.
d. Therefore, the Class “A” Preference shares in 1458157 Ontario Inc. are owned as follows: Pierino – 2,250 (now part of this estate of my mom), Frank – 375 and Tony – 375. These shares are redeemable at $1,000 per share.
e. Frank and Tony own 60 Common shares each in the capital of 1458157 Ontario Inc.
f. 1458157 Ontario Inc. owns all of the issued and outstanding shares of 549084 Ontario Limited.
g. 549087 Ontario Limited owns all of the issued and outstanding shares of P. Gabriele & Sons Limited.
[35] Mary argues that Frank’s position that the preference shares are retractable and the Estate can ask to be paid is unworkable as until Mary is appointed sole Estate Trustee she cannot request that the preference shares be redeemed. Frank and Tony maintain that the shares are retractable; that is, they are redeemable at the instance of each of the Applicant and the Respondents without the corporation agreeing. Resolution of the issue at the heart of this particular dispute is beyond the scope of the application before me. It is clear however, that the parties are disagreed. Does this render administration of the Estate unworkable? I think not. Holding opposing views on issues central to the administration of the Estate does not by itself, create a conflict of interest. It may be that these particular issues will require resolution by the court, but this reality does not necessarily render administration of the Estate so unworkable that removal of the Respondents is required (see Mitchell).
[36] The Applicant further submits that Frank and Tony are in a conflict of interest as “Frank’s position also appears to be that the value of the preference shares is not the $2,250,000 amount set out in Agreement to buy the shares from Pierino but rather some other amount as determined by the articles of 145 or the value of the development company” (see Applicant’s Factum para. 19).
[37] However, a disagreement on the value of an Estate asset is, in my view, insufficient to ground a finding of conflict of interest. This is a factual dispute which can be easily resolved by securing the opinion of a jointly retained valuator, or other means, including trial of an issue. Again, as in Mitchell, the possibility of litigation being required to resolve an issue in dispute is not enough by itself to support the removal of a trustee.
[38] The Applicant submits that “Frank has not provided any financial information respecting 145, 549 or the development company”.
[39] Frank and Tony argue that there is no such documentation. I cannot draw conclusions either way on conflicting evidence.
[40] The Applicant further submits that Frank and Tony are in a conflict of interest as a result of the position that they have taken that Pierino’s estate owes a portion of the ORC judgment; however, if Frank has taken this position, it appears to be incorrect, assuming Pierino was released from the litigation that later resulted in the judgment. Again, taking a position that is contrary to Mary’s, and may be incorrect, does not necessarily put Frank and Tony in a conflict of interest. More is required in the nature of “friction and hostility” as in Orenstein.
[41] Mary complains of delays in administering the Estate; however, it appears that she may herself have contributed to some delay. In this regard I note that in 2012 Frank and Tony signed a consent, prepared by Mary’s counsel, regarding Proof of Lost Will and appointment of the three children as trustees. Mary apparently failed to sign the consent, inexplicably.
[42] It is also apparent that in 2012 Mary was content that she, Frank and Tony act as co-trustees. There is scant evidence of palpable conflict before me arising since, beyond the disagreement to which I have already referred.
[43] Mary submits that Frank and Tony, as the owners of the shares of 145 and in turn 549 and PGS have a conflict of interest since they benefit personally from any reduction of the amount to be paid to the Estate in respect of the preference shares. While this may be so, the existence of this possible motive is insufficient to supplant a testator’s choice of trustees. In this case, the deceased chose all of Mary, Frank and Tony to act collectively as trustees of his estate. Overriding a testator’s choice “is a sensitive exercise not to be lightly undertaken” (see Mitchell). A court should interfere only where it is clear that this confidence was misplaced (see Mitchell). Section 37 of the Trustee Act does not replicate the language of s.85 of Saskatchewan’s Trustee Act (before the Court in Mitchell) which authorized replacement of existing trustees if sufficient cause is shown; however, s. 37 is broadly worded and similarly designed to achieve the overarching objective of “ensuring that the trust established by the Will will be properly executed, that the trust property will not be endangered and that there will not be a want of honesty or proper capacity, or reasonable fidelity on the part of the executor” (see Mitchell).
[44] In the case before me it appears likely that none of the parties has moved matters forward in a manner fully consistent with the interests of the Estate and its proper administration, having regard ultimately to the interests of the beneficiaries. The parties may not fully trust one another and communication is likely imperfect, to say the least; however, the evidence before me is insufficient to amount to “obvious friction and hostility” as in Orenstein, the “obvious ill feeling” as in Re Owen, or the complete breakdown in communication as in Rose. While the parties may not fully trust one another, this reality may serve to ensure proper administration of the Estate, given the high level of scrutiny to which each trustee will be subject by the others.
[45] Circumstances may change, depending upon how the parties conduct themselves in discharge of their duties as Estate trustee henceforth. If such changes warrant, resort may be had to the court by way of renewed application for removal.
[46] For the foregoing reasons, order to go:
Per para. 1(a) above, on consent.
Balance of relief sought on application dismissed.
The Applicant and Respondents are appointed Joint Estate Trustees. Certificate of Appointment to issue accordingly.
The parties shall, within 30 days, exchange written requests for any documentary disclosure.
Cross-examinations, if desired, shall be conducted within 120 days, or as the parties otherwise agree.
Written submissions on costs (restricted to three pages excluding Bills of Costs and Offers to Settle) and the possibility of pursuing mediation to be forwarded to me through my assistant at Barrie, within 30 days.
DOUGLAS J.
Released: September 29, 2015