Court File and Parties

COURT FILE NOs.: 16-58321 16-58746 DATE: 2017-03-20

SUPERIOR COURT OF JUSTICE – ONTARIO

RE: IN THE MATTER OF THE ESTATE OF FRANK ERNEST WARREN, Deceased AND RE: CHERYL BOLTON, Applicant

AND:

ARCHIBALD ARMSTRONG, personally and in his capacity as Estate Trustee for Frank Ernest William Warren, and ANN ARMSTRONG, personally and in her capacity as Estate Trustee for Frank Ernest William Warren and CATHY WATSON, ROYAL CANADIAN CADETS 826 GRYPHON SQUADRON SPONSORING COMMITTEE, Respondents

BEFORE: The Honourable Mr. Justice J.W. Sloan

COUNSEL: Jordan Diacur - Counsel, for the Applicant William P. Dermody - Counsel, for the Respondent

HEARD: March 17, 2017

Endorsement

[1] There are two applications before me today. One brought by the trustees of the Warren estate to pass their accounts and one brought by the applicant seeking various declarations, including that the trustees are in breach of trust and have breached their fiduciary duties to Ms. Bolton and an order removing them as trustees and further orders requiring the trustees to reimburse the estate for monies they are alleged to have improperly converted to their own use and for the payment of exorbitant legal fees and unnecessary expenses.

[2] The deceased made a Will on March 18, 2014, and passed away on September 17, 2014.

[3] He appointed Mr. and Mrs. Armstrong, who live in Scotland, as his estate trustees.

[4] The estate was a modest uncomplicated one, having a value of approximately $316,000, the bulk of which came from the sale of Mr. Warren’s home.

[5] After paying the debts of the estate and specific bequests made by the deceased, there is currently $65,632.55 in the trust account of Dermody Law, the estate solicitors.

[6] The deceased set up a “Henson like” trust for his friend Cheryl Bolton. Ms. Bolton is only 46 years of age and receives ODSP from the Government of Ontario.

[7] The evidence before the court is that Bolton could receive up to $6,000 per year from the trust without it impacting negatively on her entitlement to ODSP benefits.

[8] The trustees are claiming compensation in the amount of $14,177.41 and the estate has incurred legal fees up to March 15, 2016, in the amount of $26,423, however, this amount includes a real estate account in the amount of $1,855, which is not being challenged, and therefore the amount the court is being asked to deal with is $24,568, exclusive of disbursements and HST.

[9] The complaints against how the trustees carried out their duties are numerous and include coming to Canada and staying in a hotel rather than the deceased’s residence for four weeks and allowing Dermody Law to use its resources at the cost of at least $95 per hour to do routine “estate trustee” work.

Cheryl Bolton’s Position

[10] Ms. Bolton submits that the estate trustees are in breach of trust and have breached their fiduciary duty to her by:

i) failing to act in the applicant’s best interests, ii) improperly delegating their authority as estate trustees and/or, iii) placing their own interests ahead of hers.

[11] She requests several declarations, that the estate trustees be removed and replaced and that the estate trustees repay to the Warren estate any monies that they have converted to their own use and reimburse the estate for exorbitant legal fees and unnecessary expenses.

[12] Bolton submits that there are no time dockets nor vouchers for disbursements to back up the legal fees and the disbursements themselves.

[13] She takes issue with the fact that the trustees relinquished their authority in part to a Mr. & Ms. Corkey, in breach of their position as estate trustees.

[14] She submits that the trustees have been less than truthful as set out in paragraphs 13 and 14 of her responding factum dated October 28, 2016 and that they did very little if anything to carry out their duties as estate trustees and in addition have not filed any type of time dockets to show what they did and how long it took to do it.

[15] Bolton submits, based on the material and in particular the legal bills in evidence, that almost all of the estate trustee work was done by clerks at Dermody Law and that they charged $95 per hour for doing it.

[16] Bolton also submits that she did reply to requests from the estate trustees with respect to the possibility of winding up a trust but that the trustees did not like her answer.

[17] Bolton is troubled and perplexed by the fact that either the estate lawyer did not want the estate trustees to meet with her or the estate trustees did not want to meet with her as set forth in the time dockets of the law firm for November 10, 2014. This is particularly so given the fact that the estate trustees were only going to be in Canada for a short period of time and it would have been a perfect opportunity to discuss the trust and potential problems of administering it.

[18] Bolton submits the trustees have breached their fiduciary duty to her because they have made no payments to her under the trust to date, even though they have had her two recent tax returns since December 17, 2015, showing her income for both years at slightly over $14,000 per annum.

The Trustee’s Position

[19] The trustees submit they had a concern that the expenses to continue the trust set up for Bolton would be more than what the corpus of the trust would earn each year. Unfortunately no figures were drawn to the court’s attention with respect to what those annual costs might be.

[20] The trustees also submit that they were having difficulty getting information from Bolton about her income sources so they could properly exercise their discretion.

[21] By letter dated August 5, 2015, the trustees proposed as an alternative to continuing with the trust, that the residue be paid out immediately, 50% to Bolton, 40% to Cathy Watson and 10% to 826 Gryphon Squadron.

[22] On December 17, 2015, Bolton attended at the Dermody Law offices and delivered copies of her income tax returns and other financial information. On that date Bolton was upset/angry with the trustees and among other things that suggested she retain independent legal advice which she did.

[23] By letters dated January 29, 2016 and March 22, 2016, Mr. Dermody wrote to Bolton’s lawyer asking whether Bolton wished to revisit the trustees’ earlier proposal to wind up the trust early and included copies of their legal accounts as had been requested by Bolton’s lawyer.

[24] Because of lack of progress being made to resolve matters, by letter dated August 4, 2016, Dermody enclosed a copy of their application to pass accounts.

[25] In response, Bolton changed lawyers to Mr. Diacur, who sent a letter on August 18, 2016 asking for information.

[26] Mr. Dermody took the court through his firm’s various accounts explaining why the work was necessary.

Findings

[27] This unfortunate situation was set in motion prior to Mr. Warren’s death. For some reason he chose executors who lived outside of Canada and several thousand miles away.

[28] Then, after he died, and I say this with some benefit of hindsight, it would have been preferable, given the size of this estate and its lack of complexity, if the Armstrongs had renounced their right to be estate trustees and allowed the Corkeys to be appointed.

[29] There is no evidence before me with respect to whether or not this was ever discussed.

[30] However, because of Mr. Warren’s choice of executors, he has unduly burdened his estate.

[31] There was no argument before the court about whether or not it was necessary for the Scottish estate trustees to come to Canada to administer this estate and therefore I am prepared to allow them reimbursement for their flights.

[32] Also there is conflicting evidence on whether or not the estate trustees could have stayed in Mr. Warren’s home and I therefore allow their hotel and meal expenses. I appreciate that the estate trustees would have had to eat whether they were in Canada or Scotland, however under the circumstances of their being in Canada, they would have to eat in restaurants and I do not find their meal expenses including gratuities to be out of line. As stated before, this is a situation Mr. Warren created and he was entitled to do so.

[33] I commented in court that I thought the legal fees for an estate of this size and complexity at this stage of the proceeding would have garnered legal fees closer to the $5,000 - $10,000 range.

[34] With respect to the December 16, 2014, legal bill set out at Tab B of the amended application record, there is a charge for 93.7 hours of clerk time at $95 per hour which equals $8,901.50.

[35] The legal bill at Tab C dated August 5, 2015, has clerk time charged for 31.1 hours at $95 an hour which equals $2,954.50.

[36] The legal bill at Tab D dated September 14, 2015, has clerk time charged for 6.9 hours at $95 an hour which equals $655.50.

[37] The legal bill at Tab E dated October 5, 2015, has clerk time charged for 4.2 hours at $95 an hour which equals $399.

[38] The legal bill at Tab F dated November 10, 2015, has clerk time charged for 6 hours at $95 an hour which equals $570. In addition, on this bill a young lawyer with the initials ZS did 9.1 hours worth of work at $200 per hour which equals $1,820.

[39] I don’t know why ZS was researching who had a financial interest in the estate, and pre-taking of executors’ compensation. Based on the material before me this research was unnecessary and of no benefit to the estate and I disallow the charge of ZS on the November 10, 2015 account.

[40] The legal bill at Tab G dated December 10, 2015, has 14 hours of clerk time charged at $95 an hour which equals $1,330.

[41] The legal bill at Tab H dated January 12, 2016 (December 12, 2016 is a typo), has 10.5 hours of clerk time at $95 an hour which equals $997.50.

[42] The legal bill at Tab I dated March 1, 2016, has 24 hours of clerk time charged at $95 per hour which equals $2,280.

[43] The likelihood that Bolton will live long enough to exhaust the trust is overwhelming, so in essence since she is essentially the only residual beneficiary, all expenses charged to the estate decrease her inheritance.

[44] The majority of the time spent by the law clerks appears to be for work that should have been done by the estate trustees.

[45] On the material before me and submissions made to me, I find that 70% of the work done by the law clerks was work that should have been done by the estate trustees. By my calculations the law clerks spent 184.4 hours on this file.

[46] Therefore, starting with Exhibit S to the affidavit of Joanne Brigmantas dated February 28, 2017, setting out the legal fees to March 15, 2016 at $26,423, when I deduct 70% of the law clerks time or $12,255 and $1,820 for ZS’s time, I am left with $12,348 including the real estate account.

[47] I therefore approve the legal fees at $12,348 exclusive of disbursements and HST and I find the disbursements set out in the legal bills appropriate.

[48] I approve of the reimbursement to the estate trustees for their disbursements as presented but I find that they have not earned any executors’ compensation.

[49] They have not put forward any time dockets for the court to review.

[50] I am deeply troubled by the estate trustees’ proposal to Bolton which would have benefited two other contingent beneficiaries with 50% of the trust when the likelihood of them getting anything is close to zero.

[51] I am further troubled by the suggestion of the estate trustees or their advisors that the “Henson trust” should be collapsed which goes directly against the testator’s wishes.

[52] The testator obviously knew of the financial plight of Bolton, would have known of her young age and specifically set out a plan in his will to benefit her as much as he could, while at the same time allowing her government benefits to continue.

[53] Why it would ever be in Bolton’s interest to give away half the trust was never explained.

[54] On the evidence before me, if the trust had been collapsed, Bolton would have essentially gotten nothing or close to nothing, because it appears that the ODSP rules would have simply reduced her monthly ODSP pension possibly to zero until her inheritance was used up.

[55] Although, there was a bald assertion submitted by the estate trustees that the trust may not earn enough money each year to pay estate trustee fees and tax filings, absolutely nothing was filed before this court in an attempt to quantify what the annual cost would be and it appears to the court that the executors’ fees for setting up some type of a monthly payment, in their discretion, to Bolton until the trust was depleted would not have taken much of their time.

[56] Whatever tax filings would be necessary would essentially be very similar every year and therefore likely not expensive.

[57] Even if the trustees had to dip into the corpus of the trust to the tune of $1,000 or $2,000 per year it was still (overwhelming) in Bolton’s overwhelming best interest to have the trust maintained.

[58] At the end of the hearing, I told counsel that I would be removing the estate trustees from their position. It was my understanding, during the motion, that there was agreement for a trustee to take over. If counsel are unable to agree I may be spoken to.

[59] If there are any other issues counsel feel need to be addressed in this order, they may email me at the address below.

[60] If the parties are unable to agree on costs, Mr. Diacur shall forward his brief submissions on costs to me by March 24, 2017. Mr. Dermody shall forward his brief response to me by March 29, 2017. Mr. Diacur shall then forward his reply, if any, to me by March 29, 2017. Cost submissions may be sent to my attention by email, care of Kitchener.Superior.Court@ontario.ca

Justice James W. Sloan Date: March 20, 2017