Court File and Parties

COURT FILE NO.: CV39/15 & CV40/15 DATE: 2016-July-14

ONTARIO SUPERIOR COURT OF JUSTICE

IN THE MATTER OF THE ESTATE OF PAULINE MEDYNSKI, DECEASED – and – IN THE MATTER OF THE GUARDIANSHIP OF ANDREW MEDYNSKI

Applicant: BMO Trust Company Counsel: K. Whaley, L. Tupman and A. Bloom

Respondent/Objector: Lillian Sawchuk Counsel: N. Pizzale

Beneficiary: Aileen Young Counsel: P. Amey and H. Alexander

Beneficiary: Carol Medynski Counsel: M. McEniry

COSTS SUBMISSIONS HEARD: June 23 and 24, 2016

The Honourable J.C. Kent

Reasons for Costs Order

Introduction

[1] As noted in the Reasons for Judgment released on the 30th day of May 2016, BMO Trust Company made application to this court to have its account for services in the matter of the Estate of Pauline Medynski and in the matter of the Guardianship of Andrew Medynski, passed by this court.

[2] Pursuant to the Reasons for Judgment aforementioned, this court passed the accounts, as amended and directed that the compensation sought in the amount of $27,655.05 be reduced by 6% and a further $3,800.00.

[3] Counsel have now had an opportunity to make submissions concerning costs for the passing of accounts. This court has had the benefit of submissions on behalf of BMO Trust Company; the objector, Lillian Sawchuk; the beneficiaries, Aileen Young and Carol Medynski and has received costs outlines from the respective parties.

[4] Unfortunately, this became a highly contentious matter and the total of the costs claims for what is a summary proceeding now exceed $300,000.00.

[5] The hearing itself took 3 court days and the costs argument 1.5 court days.

The Agreement

[6] When the three adult daughters of Pauline and Andrew Medynski were unable to work together to manage their parents’ affairs both before and after their parents’ deaths, they entered into an agreement with BMO Trust Company to act as Estate Trustee for the Estate of Pauline Medynski and as a guardian of property for Andrew Medynski. The agreement that they executed provided that BMO Trust Company, in addition to compensation for its services, would be reimbursed for all legal fees, costs, disbursements and out of pocket expenses. The legal obligation of the 3 daughters then is to indemnify BMO Trust Company in accordance with the agreement that they signed.

[7] By March 28, 2016, BMO noted that its legal costs were already above the normal tariff and served a request for increased costs. At the time of the request and before preparing for and attending at the hearing for the passing of accounts, BMO’s costs were already well beyond $80,000.00. As of the costs hearing, they now amount to $263,171.10.

[8] Clearly, a costs order of that magnitude would be most detrimental to the estate and all beneficiaries, if ordered payable by the estate. If ordered payable by the objector whose success at the hearing was very limited, it would be a burden far out of proportion to any value that might be placed on the objections made by Lillian Sawchuck.

Law

[9] Historically, our courts have held that trustees are entitled to be indemnified for all costs including legal costs. See: Goodman Estate v. Geffen, [1991] 2 S.C.R. 353. That is the legal obligation that the 3 daughters agreed to assume in this case.

[10] Costs must, of course, be reasonable and not excessive. See: Fiacco v. Lombardi, 2009 ONSC 46170 at para. 35 and Vano Estate, 2012 ONSC 262 at para. 27 and 35-36. Costs may be ordered payable out of an estate or by an individual or the costs order may be “blended” by a combining of both. See: Sawdon Estate, 2014 ONCA 101 at para. 95-97.

[11] Current jurisprudence makes it clear that an estate is no longer almost automatically required to fund costs of litigation and generally the “loser pays” principle followed in other civil matters should be applied. See: McDougald Estate v. Gooderham, 2005 ONCA 21091 (ON CA), 2005 Carswell Ont. 2407 at para. 85; Villa v. Villa, 2013 ONSC 4421 at para. 3 and Brown v. Rigsby 2015 ONSC 1777 at para. 26.

[12] While the compensation agreements provide and some case law supports requiring full indemnification of the trustees’ legal costs, it is implicit that those legal costs be reasonable and not excessive. We have reached a point in time where the courts no longer regularly make costs awards, for some or even all parties, payable out of the estate. The accepted guidelines applicable to costs in other civil proceedings are now to be considered when determining costs in a trustee/estate situation. Those concepts include: a consideration of the factors in Rule 57.01 of the Rules of Civil Procedure; fairness and reasonableness; proportionality; the reasonable expectation of a party who is unsuccessful; consistency with other cases; access to justice. See: Davies v. Clarington, 2009 ONCA 722 at para. 51.

Considerations

[13] It is very doubtful that an estate beneficiary who is properly advised concerning making objections on a passing of accounts would anticipate a risk of having to pay a costs award in excess of one quarter of a million dollars upon the completion of a summary proceeding.

[14] Both counsel for the objector and counsel for BMO contend that a considerable portion of their involvement was motivated by the need to prove a matter of principle. BMO was required to respond to an extremely large number of objections. More importantly, however, as a professional trustee BMO felt it was required to respond fully to what it perceived to be an attack on its ability carry out its fiduciary obligations to beneficiaries.

[15] One can understand that any professional would feel a need to respond when his professional expertise was under attack. In such circumstance, the party under attack is entitled to “pull out all stops” in its response. The issue then becomes to what extent some other party should be required to pay for the preparation and arguing of that response.

[16] One wonders whether non-objecting beneficiaries should bear a risk of a very significant reduction in their share of an estate when they are quite prepared to accept the accounts as presented. If all parties had their costs paid out of the estate, the estate would be reduced by more than $315,000.00.

Analysis

[17] The objector had only a very modest degree of success. As the court observed during the course of submissions, BMO might not have received an A+ for the manner in which it conducted the trusteeship, but it certainly was entitled an A. BMO was clearly more successful than Lillian Sawchuck.

[18] Lillian Sawchuk and her counsel could not have reasonably foreseen that this passing of accounts, a summary proceeding, would generate costs in excess of $260,000.00 on the part of the trustee.

[19] BMO had a burden, far beyond the norm to respond to not only the objections but also to the notices to admit.

[20] BMO acted reasonably in responding to what it perceived to be an allegation that it was in breach of its fiduciary obligation to the beneficiaries.

[21] A beneficiary who is considering making objections on a passing of accounts would certainly not imagine the possibility of a costs award against herself/himself requiring the payment, if unsuccessful, in excess of $260,000.00. An award of that magnitude becomes an access to justice issue. It would have a chilling effect on most potential objectors.

[22] One must bear in mind that costs in this matter became extremely disproportionate to the potential value of all of the objections. All of the parties, to a greater or lesser extent, share responsibility for that result.

Result

[23] Given all of the foregoing, with particular emphasis on reasonableness, fairness, proportionality and the reasonable expectation of the unsuccessful party, I have concluded that an award of costs to BMO, payable by the objector, Lillian Sawchuk, must be limited to $69,000.00 plus disbursements of $7,325.72. Any amount beyond that would be both excessive and unreasonable.

[24] Based upon the shared responsibility referred to in paragraph 22, no costs award is made for or against any other party or the estate of Andrew Medynski.

The Honourable J.C. Kent Released: July 14, 2016