Court File and Parties

COURT FILE NO.: CV-16-0289-00 DATE: 2017/05/29 SUPERIOR COURT OF JUSTICE – ONTARIO

IN THE MATTER OF THE ESTATE OF MARY KATHLEEN KUKLIS, Deceased

RE: THE BANK OF NOVA SCOTIA TRUST COMPANY, in its capacity as Estate Trustee During Litigation of the ESTATE OF MARY KATHLEEN KUKLIS, deceased Applicant

AND

MARTIN ANTHONY KUKLIS, KARLA ANNE SHAWN KUKLIS and THE OFFICE OF THE PUBLIC GUARDIAN AND TRUSTEE Respondents

BEFORE: Madam Justice Sylvia Corthorn

COUNSEL: Kathleen McDormand, Counsel for the Applicant Sheri Thompson and Dagney Benton, Counsel for the Respondent, Martin Anthony Kuklis Karla Anne Shawn Kuklis, self-represented Gary H. Luftspring, Counsel for Wesley Ellis and Shawna Ellis

HEARD: By written submissions

COSTS ENDORSEMENT

Overview

[1] This ruling with respect to costs follows an application by the Bank of Nova Scotia, in its capacity as the Estate Trustee During Litigation of the Estate of Mary Kathleen Kuklis (the “ETDL” and the “Estate”), with respect to (a) the sale of real property in Ontario (the “Ontario Property”), (b) the disposition, through a sale or otherwise, of the personal property of Mary Kathleen Kuklis (the “Deceased”), and (c) the production of documents from Martin Kuklis (“Martin”), who was for a period of time the Deceased’s attorney for property.

[2] The Deceased was the mother of both individual respondents to this application − Karla Anne Shawna Kuklis (“Karla”) and Martin. In a proceeding separate from the application before the Court at this time, Karla challenged the validity of two wills said to have been executed by the Deceased – one in June 2009 and another in July 2010. The ETDL was appointed in the context of that proceeding.

[3] This application by the EDTL was initially opposed by Martin. He withdrew his opposition on the final business day prior to the date on which the application was returnable before the Court.

[4] Initially, Karla consented to the relief sought with respect to the Ontario Property. However, she ultimately opposed the sale of the Ontario Property as proposed by the ETDL. Her stated reason for doing so was that she wanted a family member, her son Wesley Kuklis (“Wesley”), to have an opportunity to purchase the Ontario Property. Karla was self-represented and made submissions on the return of the application.

[5] Shawna Ellis (“Shawna”) and Wesley Kuklis (“Wesley”) are not named as respondents to the application. They are Karla’s adult children. They were each served with the application record because they fall within the category of “[a]ny person who appears to have a financial interest in [the Estate].” Pursuant to Rule 75.06(1) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, they are identified as beneficiaries under at least one of the two wills in dispute. As a result, and pursuant to Rule 75.06(1) of the Rules of Civil Procedure, it was mandatory for the ETDL to serve the application record on each of Shawna and Wesley. After being served with the application record, they retained counsel jointly.

[6] Shawna and Wesley initially consented to the proposed sale of the Ontario Property. On Sunday, October 2, 2016 (the day prior to the return date for the application), Shawna and Wesley informed the ETDL that they opposed the relief sought with respect to the Ontario Property. That communication was effected, by email, from counsel for Shawna and Wesley to counsel for the ETDL. Shawna’s and Wesley’s respective interests were the same as their mother’s − for Wesley to have an opportunity to purchase the Ontario Property.

[7] On October 3, 2016, I heard submissions on behalf of the ETDL, on behalf of Martin, and from Karla personally. Shawna and Wesley were not represented on the return of the motion and did not attend personally.

[8] Following argument, the parties reached a settlement of the application. The order made pursuant to the settlement reached includes terms that provide for:

a) The sale of the Ontario Property; b) The disposition, through sale or otherwise, of some of the Deceased’s personal property; c) The production by Martin of documents related to the Estate, including those with respect to his management of the Deceased’s assets during the period in which he was the attorney for property for the Deceased; and d) The method by which various documents are to be served on individuals entitled to service of documents related to the administration of the Estate.

[9] The settlement reached did not include terms as to costs of the application. In my endorsement, the parties were given a limited period of time within which to resolve the issue of costs. Deadlines were set for the delivery of costs submissions in the event an agreement with respect to costs was not reached.

[10] The issue of costs was not resolved. I received written submissions on behalf of each of the ETDL, Martin, and Shawna and Wesley (the latter two individuals, jointly). I did not receive costs submissions from Karla or on her behalf.

[11] In summary, the respective positions of the parties and individuals who delivered costs submissions are as follows:

• The ETDL seeks full indemnification of its costs of the application, with the costs paid out of the Estate. The EDTL also requests that each of Martin, Karla, Wesley, and Shawna reimburse the Estate, from their respective shares of the Estate, a portion of the costs paid from the Estate to the EDTL. The costs order proposed is described by the EDTL as a ‘blended order.’ The full indemnity costs sought by the EDTL are in the amount of $28,918.92 (inclusive of fees, disbursements, and HST).
• Martin acknowledges that the ETDL is entitled to some measure of costs. However, he submits that the ETDL is entitled to costs on a partial indemnity basis. The amount proposed by Martin is $11,316.34 (inclusive of fees, disbursements, and HST). In addition, Martin submits that there is no basis for an award of costs against him personally.
• Shawna and Wesley seek their costs of the application in the amount of $1,500 plus HST and payable out of the Estate. Their position is that they should not be held personally responsible for any portion of the costs paid from the Estate to the EDTL.

Background

[12] For a period of time in 2009 and 2010, Martin acted as the attorney for property for the Deceased. He was removed from that function by way of an order of this Court in November 2010. Thereafter, the Public Guardian and Trustee managed the assets of the Deceased until her death in 2012.

[13] In April 2013, an order was made, in the context of the proceeding with respect to the validity of the wills, pursuant to which (a) the ETDL was appointed, (b) the ETDL was directed to compel the production of financial records with respect to the assets held solely or jointly by the Deceased, and (c) Martin was directed to pass his accounts, as the attorney for property, for the relevant period (the “April 2013 Order”). There is no evidence that Martin ever passed his accounts as directed by the April 2013 Order.

[14] The evidence of the ETDL is that since the April 2013 Order was made it has had difficulty securing Martin’s co-operation in the production of the relevant financial records. As a result, the EDTL has been hampered in its efforts to administer the Estate including, for example, payment of the Estate’s liabilities.

[15] The evidence of the ETDL is that as of the date on which the notice of application was issued, the liabilities of the Estate were $142,000 – more than 15 times the cash then available in the Estate ($6,400). The ETDL obtained appraisals for each of the Ontario Property and property in Calgary, the latter also owned by the Deceased (the “Alberta Property”). Based on the appraisals, the ETDL believes that the total fair market value of the two properties is $510,000.

[16] The appraisal obtained by the ETDL for the Ontario Property is in the amount of $145,000. That property is described by the ETDL as a “seasonal cottage located in a remote area south of Algonquin Park.” [3] Taking into consideration income tax, real estate commission, and legal fees associated with the sale of the Ontario Property, the position of the ETDL was that the sale of the Ontario Property (i.e. without the sale of the Alberta Property) would not generate sufficient funds to pay the liabilities of the Estate.

[17] In the notice of application, it is specifically identified that the sale of the Alberta Property would be addressed in a separate proceeding in the Alberta Court of Queen’s Bench.

[18] In response to the application, Martin delivered a 29-paragraph affidavit, with 11 exhibits. The affidavit was sworn on September 22, 2016 – slightly less than two weeks prior to the return of the application. In the affidavit, Martin addressed his management of the Deceased’s assets, difficulties he alleges that he encountered in securing documents to permit him to pass his accounts, and reasons why he believes that neither of the Ontario Property and the Alberta Property should be sold. At least ten paragraphs of Martin’s affidavit relate solely to the Alberta Property.

[19] In the only paragraph of his affidavit in which Martin addressed the Ontario Property, he said:

I am not agreeable to either property being sold at this time as I believe the sale is premature. There may not be the tax liabilities that Scotia Trust is expecting, Scotia Trust may be successful at getting back the penalties that have already been paid to Revenue Canada and there is at least $15,000 still being held by the PGT.

[20] Martin’s responding record is identified as having been filed with the Court on September 27, 2016. As noted above, on Sunday, October 2, 2016, through email communication between counsel, the EDTL was informed that Martin no longer opposed the application.

[21] No responding materials were filed on behalf of Shawna and Wesley. Karla did not file any responding materials.

The Issues

[22] There is no dispute that the EDTL is entitled to costs of the application. The issues to be determined are as follows:

1. Is a ‘blended order’ with respect to costs appropriate in the circumstances of this case? If so, which, if any, of Martin, Karla, Shawna, and Wesley are personally responsible for the costs incurred by the EDTL?
2. On what scale are the EDTL’s costs of the application to be fixed?
3. Taking into consideration the applicable scale, what are the reasonable costs of the EDTL on the application?
4. Are Shawna and Wesley entitled to their costs of the application?

Issue No. 1 – ‘Blended Order’

a) Generally

[23] The EDTL relies on the 2014 decision of the Ontario Court of Appeal in Sawdon Estate v. Watch Tower Bible and Tract Society of Canada, 2014 ONCA 101 in support of its request for a ‘blended’ order as to costs. In upholding the decision of the trial judge to make a blended order, Gillese J. referred to the 1991 decision of the Supreme Court of Canada in Goodman Estate v. Geffen, [1991] 2 S.C.R. 353.

[24] In Goodman, Wilson J. (as she then was) “reiterated the long-standing principle that estate trustees are entitled to indemnified for all reasonably incurred costs, including legal costs.” Sawdon Estate, at para. 82. Wilson J. quoted with approval from a decision of the English Chancery Division:

In so far as [an estate trustee] does not recover his costs from any person, he is entitled to take his costs out of the fund held by him unless the court otherwise orders; and the court can otherwise order only on the ground that he has acted unreasonably, or in substance for his own benefit, rather than for the benefit of the fund. Dallaway, Re, [1982] 3 All E.R. 118, at p. 122 as quoted in Sawdon Estate, at para. 82

[25] It is clear from the decision in Sawdon that the modern approach with respect to costs awards in estate litigation is to avoid the potential depletion of the estate through litigation. Depletion of the estate is avoided by applying the ‘loser pays’ principle, as developed in the context of civil litigation, and thereafter requiring that the balance, if any, of the estate trustee’s reasonable costs be paid from the Estate. Sawdon Estate, at para. 96.

[26] The EDTL proposes that it be fully indemnified from the Estate and then one or more of Martin, Karla, Shawna, and Wesley be required to reimburse the Estate from their respective share(s) of the Estate. In my view, the approach proposed by the EDTL is the reverse of what was done in Sawdon and of what is contemplated by a ‘blended’ order as to costs in estate litigation. My interpretation of the process outlined in Sawdon is as follows:

• The first step is to determine which, if any, individual is personally liable for the costs of an estate trustee.
• The second step is to determine the scale and quantum of costs to which the estate trustee is entitled and the apportionment of those costs as between the individuals adverse to the estate trustee.
• The final step is to determine whether the circumstances warrant a blended order. If so, then the difference, if any, between the estate trustee’s full reasonable costs and the costs awarded against one or more of the individuals adverse to the estate is to be paid from the estate.

[27] I apply that process in sections (b) and (c) immediately below.

b) Personal Responsibility for the EDTL’s Costs

i) Martin

[28] In my view, Martin’s conduct with respect to the Deceased’s property has for some time been problematic. I consider, for example, the following:

• Martin’s failure to pass accounts for the period during which he was the Deceased’s attorney for property. That failure has persisted since at least the April 2013 Order, when Martin was ordered by this Court to pass accounts, if not from 2010 when he was removed as attorney for property.
• The failure on Martin’s part to properly administer the Deceased’s assets and liabilities when he was the attorney for property has served to make it more difficult than it would otherwise have been for the EDTL to administer the Estate.
• Despite his long-standing failure to produce relevant documents, Martin was critical of the EDTL for what Martin perceives to be a failure on the EDTL’s part to appreciate the true potential value of the Estate and the potential to preserve the Alberta Property and potentially the Ontario Property.
• In responding to the application, Martin’s focus was clearly the Alberta Property. His efforts were directed to preventing the EDTL from selling that property. His responding materials made minimal reference to the Ontario Property.

[29] I find that Martin’s conduct, in particular with respect to this application, was motivated by self-interest including his desire to preserve the Alberta Property for his benefit. I find that the intention of the EDTL to deal with the Alberta Property separately in a proceeding in that province is clearly set out in the notice of application. As a result, to a large extent much of Martin’s evidence was relevant to the Alberta proceeding and minimally relevant, if at all, to the application before this Court.

[30] I find that by reason of his conduct over time, including with respect to his obligations as an attorney for property, Martin prevented the EDTL from fulfilling its obligation to properly administer the Estate. I find that the further result of Martin’s conduct is that the liabilities of the Estate are higher than they would otherwise have been. Those liabilities are higher specifically because of the delays in the administration of the Estate resulting from Martin’s behaviour.

[31] In summary, Martin’s conduct supports an award of costs against him personally.

[32] I agree with the EDTL that Martin’s affidavit is replete with evidence as to his precarious financial position. On the basis of that evidence I find that there is a more than reasonable possibility that Martin does not have the ability to pay the costs awarded against him other than from his share of the Estate. Therefore the costs awarded against Martin are to be paid first from his share of the Estate, with Martin remaining personally liable for the balance, if any, then owed.

ii) Karla, Shawna, and Wesley

[33] I find that Karla, Shawna and Wesley were, at a minimum, naive in their approach to the Ontario Property. It was clear from the submissions made by Karla that she and her children failed, with respect to the Ontario Property, to appreciate that (a) nothing prevented Wesley from making an offer to purchase once an order for sale was made, (b) the EDTL has an obligation in the administration of the Estate to secure a reasonable purchase price, and (c) the EDTL is not in a position to ‘discount’ the sale price for the benefit of a particular potential purchaser.

[34] It was not until long after the notice of application was issued that one or more of Karla, Shawna, and Wesley took a position on the application that precluded the matter from proceeding on consent. I find that it was Martin’s initial position which drove the EDTL to issue the notice of application and set the matter down for a hearing. It was not until September 30, 2016 that Martin’s position changed and he consented to the relief sought. It was on October 2, 2016 that Wesley and Shawna withdrew their support for the relief requested.

[35] The vast majority of the work on the application was complete before one or more of Karla, Shawna, and Wesley withdrew their support for the relief requested. I find that their conduct does not warrant an award of costs against them.

c) Payment of Costs from the Estate

[36] For the reasons set out above in sections (a) and (b), I find that the EDTL had no alternative but to proceed with the application, and the costs incurred for the application were reasonably necessary, to ensure the proper administration of the Estate. As a result, the EDTL is entitled to payment from the Estate of the difference between its reasonable full indemnity costs and the costs for which Martin is responsible. See Feinstein v. Freedman, 2014 ONCA 205, at para. 51, as quoted in Bryant v. Bryant Estate, 2015 ONSC 1853, at para. 43.

Issue No. 2 – Scale of Costs

[37] I find that Martin’s conduct, including as described in paragraphs 28 and 29, above, falls within the type of reprehensible conduct that warrants an award of costs against him on a substantial indemnity basis. See Hunt v. TD Securities Inc..

Issue No. 3 – Quantum of Costs

a) Position of the EDTL

[38] In the bill of costs submitted by the EDTL the full indemnity costs are broken down as follows:

Fees $ 23,464.50 HST on Fees $ 3,050.39 Fees (appearance) $ 1,050.00 HST on Fees $ 136.50 Disbursements $ 1,098.28 HST on Disbursements $ 119.25 Total $ 28,918.92

[39] In support of the amount requested for costs, the EDTL asks the Court to consider the following:

• The hourly rate for all timekeepers is charged at a reduced amount. Each hourly rate is reduced by 10 per cent from the usual rate charged. For example, the hourly rate at which senior counsel’s time is charged is $350 – a reduction of slightly more than 10 per cent from her full rate of $390.
• In preparation for the return of the application it was necessary to update the original application record. In the end, the materials filed on behalf of the EDTL included the application record, three supplementary records, a factum, and a book of authorities. In addition, it was necessary for counsel for the EDTL to review the affidavit materials delivered by Martin.
• It was specifically as a result of the failure of Martin to fulfil his obligations as attorney for property and to comply with the April 2013 Order that the EDTL obtained information over time, including after the initial supporting affidavit was delivered. The preparation of the three supplemental application records was required to ensure that the Court had up-to-date evidence as to the Estate’s assets and liabilities and as to the steps required to complete the administration of the Estate.

[40] The EDTL also made submissions with respect to the factors identified in rule 57.07(1) of the Rules of Civil Procedure. That aspect of the EDTL’s submissions is discussed in the analysis in section (c) below.

b) Martin’s Position

[41] Martin’s position is that the application was “simple”, the amount of time incurred (91 hours in total) on behalf of the EDTL is excessive whether considered in isolation or when measured against the time spent on the matter by Martin’s counsel, the hourly rate charged by senior counsel for the EDTL is well beyond Martin’s reasonable expectations, and the amount claimed for fees is well beyond Martin’s reasonable expectations. [12]

[42] Martin acknowledges that it is reasonable that the time spent on behalf of the EDTL was more than the time spent by his counsel. However, Martin submits that a reasonable amount of time is double the amount spent by his counsel − not triple that amount as is reflected in the EDTL’s bill of costs.

[43] Martin does not dispute the amount claimed by the EDTL for disbursements.

c) Analysis

[44] I turn first to the factors outlined in rule 57.07(1) of the Rules of Civil Procedure. I agree with the submissions on behalf of the EDTL and make the following findings. First, the fees incurred in seeking directions with respect to an estate which has a potential value estimated at $640,000 are reasonable. Second, the proceeding was made more complex by virtue of the changes over time in the positions respectively of Martin, Karla, Shawna, and Wesley. The complexity of the proceeding was also affected by reason of the difficulties encountered by the EDTL in collecting information and the requirement to file supplemental affidavits.

[45] Third, the issues were of importance because without directions from the Court, in particular with respect to the sale of the Ontario Property, the liabilities of the Estate would have continued to increase. There would have been further depletion of the value of the Estate. It was also important that the EDTL obtain directions from the Court to facilitate the cost-effective and efficient service of documents on the putative beneficiaries of the Estate.

[46] Lastly, Martin’s opposition to the relief requested and last-minute reversal of that opposition constitute (a) conduct that lengthened the proceeding, and (b) a refusal to admit something that should have been admitted, namely that the Ontario Property must be sold.

[47] I am satisfied that the hourly rates charged by all timekeepers are reasonable, in particular given that they are reduced by 10 per cent from the full rates usually charged. I am, however, concerned about overlap between the work done by each of the articling student (13.3 hours), associate counsel (24.6 hours), and senior counsel (45.2 hours). I find that a reduction of 15 per cent of the time entered for each of the student, associate counsel, and senior counsel is reasonable.

[48] In my view, it is not reasonable to draw a comparison between the time spent by counsel for Martin and the time spent by counsel for the EDTL. The nature, complexity, and volume of work done by each are sufficiently different to preclude such a comparison being meaningful in this analysis.

[49] Taking into consideration all of the above, I fix the full indemnity fees and substantial indemnity fees of the EDTL as follows:

	Full	Substantial [14]
Senior counsel	$ 13,447.00	$ 12,102.30
Associate counsel	$ 4,077.45	$ 3,669.71
Clerks	$ 1,185.00	$ 1,066.50
Articling student	$ 1,413.13	$ 1,271.82
Total	$ 20,122.58	$ 18,110.33

[50] To those amounts, the total for disbursements (including HST) and HST on fees are added as follows:

	Full	Substantial
Fees	$ 20,122.58	$ 18,110.33
HST on fees	$ 2,615.94	$ 2,354.35
Disbursements	$ 1,098.28	$ 1,098.28
HST on Disbursements	$ 119.25	$ 119.25
Total	$ 23,956.05	$ 21,682.20

[51] In summary, the EDTL’s full indemnity costs are fixed in the amount of $23,956.05 and substantial indemnity costs in the amount of $21,682.20.

Issue No. 4 – Shawna and Wesley

[52] In this section of the endorsement, I refer to Shawna and Wesley collectively as “the grandchildren.” There are internal inconsistencies in the costs submissions delivered on behalf of the grandchildren. First, it is acknowledged that they were under no obligation to respond to the application, to consent to the relief requested, or to oppose the relief requested. I agree with the grandchildren in that regard.

[53] It is also submitted by the grandchildren that the application was necessitated by the “actions and inactions of Martin Kuklis in not responding to the Estate Trustee, which actions and inactions are set out in the [application record].” [15] Again, I agree with the grandchildren.

[54] The grandchildren next submit that, “[h]aving been served, Wesley and Shawna were forced to retain counsel to review the material and advise them.” In that regard, I disagree with the grandchildren.

[55] The grandchildren were served with the application record pursuant to rule 75.06(1) of the Rules of Civil Procedure because, as potential beneficiaries, they appear to have a financial interest in the Estate. The EDTL did nothing more than comply with the Rules of Civil Procedure related to contentious estate proceedings. It was entirely up to the grandchildren to determine what steps, if any, they would take in response to the application.

[56] The fact that the grandchildren chose to retain counsel to review the application record does not in and of itself entitle them to costs on the application. There is no evidence that they sought to become involved in the application by filing materials or by requesting that they be added as parties to the proceeding. Rule 75.06(3)(b) of the Rules of Civil Procedure provides that the Court may, on an application of the kind brought by the EDTL, direct who the parties are and who shall be served with the order for directions etc.

[57] I find that Shawna and Wesley are not entitled to their costs in this matter. Their request for same is dismissed.

Summary

[58] In summary, I order as follows:

1. The Applicant shall have its costs of the application on a substantial indemnity basis in the amount of $21,560.45 and for which the respondent, Martin Kuklis is solely responsible.
2. The substantial indemnity costs for which Martin Kuklis is solely responsible shall be paid from his share of the Estate of Mary Kathleen Kuklis (the “Estate”) and, in the event Martin Kuklis’ share of the Estate is insufficient to pay the substantial indemnity costs awarded Martin Kuklis shall be personally responsible for the balance of the substantial indemnity costs.
3. The full indemnity costs of the Applicant are fixed in the amount of $23,956.05.
4. The Applicant shall be paid from the Estate the difference between the full indemnity costs and the substantial indemnity costs, that difference being $2,273.85.
5. The order with respect to costs bears post-judgment interest from the date of this ruling and in accordance with the Courts of Justice Act, R.S.O. 1990, c. C.43 as amended.

Madam Justice Sylvia Corthorn Date: May 29, 2017

Footnotes

[3] Affidavit of Leslie-Ann Buchanan sworn on July 18, 2016, at para. 56. [12] Submissions with respect to costs on behalf of Martin Kuklis, paras. 16-18. [14] Substantial indemnity fees are calculated using the following formula – Full Indemnity Fees x 0.6 x 1.5 [15] Costs submissions of the grandchildren, at para. 5.