Court File and Parties
SUPERIOR COURT OF JUSTICE – ONTARIO
IN THE ESTATE OF ROSA GALVANO
RE: Tecla Tarantino and Rosa Pignatelli, Plaintiffs/Applicants
AND:
Nellie Galvano also known as Leonarda Galvano, Defendant/Respondent
BEFORE: Madam Justice Kristjanson
COUNSEL: Nicholas Tibollo, for the Plaintiffs/Applicants
Peter Chin, for the Defendant/Respondent
HEARD: In Writing
costs ENDORSEMENT
1After a ten day trial, I issued a judgment (2017 CarswellOnt 10607, 2017 ONSC 3535) in which both parties were substantially successful. The application, later converted to an action, was brought by two of the three estate trustees (Rosa Pignatelli and Tecla Tarantino, granddaughters of the deceased Rosa Galvano). The action was against the third estate trustee, Nellie Galvano, daughter of Rosa Galvano and aunt to the granddaughters. The three parties are also the only beneficiaries under the will – Nellie has a 50% share, and Rosa and Tecla each have a 25% share of the Estate.
2I decided in favour of the granddaughters on the following issues:
(i) the March 2008 Agreement entered into by Nellie personally and as attorney for Rosa, which transferred to Nellie substantially all of the assets of Rosa before her death, should be set aside;
(ii) the house (transferred by the Agreement) should be returned to the Estate, although Nellie is ultimately entitled to 59.81% of the house (her existing 19.62% share, plus 50% of the remaining 80.38% share);
(iii) Nellie was under a duty to account from December, 2007 (although I found that she had met the duty to account for income and expenses and indeed, had subsidized the care of Rosa from her own resources);
(iv) In entering the Agreement using the power of attorney for property, Nellie breached her fiduciary duties under the Substitute Decisions Act (although I also found that Nellie, on the advice of a lawyer, believed that she had the authority to enter into the Agreement, and having entered into the Agreement, she did not believe that she had to keep accounts);
(v) Nellie is not entitled to additional compensation as attorney under the power of attorney for personal care or for property, due to her failure to keep contemporaneous accounts as required under the Substitute Decisions Act, and her poor record-keeping; and,
(vi) I disallowed the quantum meruit claim for the services of Nellie’s son, Claudio, as he was not a party to the lawsuit.
3I found in favour of Nellie on the following issues:
(i) Nellie is entitled to a quantum meruit equitable set-off for the value of services provided by Nellie which enabled Rosa to live and die as she had wished. Nellie has a quantum meruit claim in the amount of $273,039.54 to be set off against the value of the Estate prior to distribution, and the Estate owes Nellie approximately $1300. Nellie had originally claimed the value of her contribution to her mother’s property, household and personal care (over a much longer period of time) in the amount of $909,218.60. Her expert report at trial asserted a claim for personal care of Rosa of $596,383 for Nellie and $146,639 for Claudio.
(ii) Some of the expenditures undertaken by Nellie with respect to the maintenance of the house accrue to the benefit of the house, and proceeds of the sale of the house will have to account for these expenses;
(iii) Nellie is not liable for occupation rent from September 20, 2012 forward, or for any other damages payable to the Estate (the occupancy rent sought was between $91,068 and 111,095, and the claim for monies improperly spent net of Rosa’s costs was between $78,746 and $96,985);
(iv) Nellie should not be removed as an executrix and trustee of the Estate of Rosa Galvano; and,
(v) No punitive damages should be ordered.
4I found that it was not “reasonably necessary” under the Substitute Decisions Act to dispose of the house and the interest in the pension under the March, 2008 Agreement to provide the care that Rosa wished, and that Nellie deemed appropriate both in her capacity as attorney for property and as attorney for personal care. I recognized that Nellie consulted a solicitor and the solicitor testified that he believed that the Agreement was permissible under the power of attorney, and did not breach Nellie’s fiduciary duties. I held that: “If required, I would find under s. 33(2) of the Substitute Decisions Act that Nellie should be relieved of liability for committing a breach of duty, as she acted honestly, reasonably and diligently.”
5The granddaughters argued that incapacity arose earlier than January 14, 2008, and sought an accounting from the date the power of attorney for property was granted, in 2005, or an earlier date of incapacity. I found the granddaughters did not meet their burden of establishing such earlier date, which used up quite a bit of trial time.
6The evidence for the accounting was based on a longer period than awarded. I accepted some of Nellie and Claudio’s evidence, and some of the evidence and assumptions of the forensic accountant Mr. Mak, although there were flaws in both approaches.
7The granddaughters raised an unfounded allegation of significant wrongdoing, akin to fraud, with respect to funds they alleged were taken from an RBC investment account by Nellie and improperly diverted to an account held by Nellie and Rosa in August, 2007.
8Summary of Nellie’s Submissions: Nellie submitted a bill of costs on a partial indemnity basis, without supporting documents, in the amount of $172,762.41 inclusive of fees, HST and disbursements. Nellie submits that both parties were only partially successful in obtaining the relief which they sought, and as a result there should be no order as to costs. They point to the success of Nellie on the quantum meruit claim, the lack of success on the occupancy rent and damages claims, the lack of liability of Nellie. They also note that much of the proceedings, including cross-examinations and disclosure, were "a direct result of the Plaintiffs/Applicants attempts to discredit Nellie." This includes the failure to establish incapacity prior to January 14, 2008, and the related accounting issues for the earlier time period. They also note that the granddaughters "took much effort in attempting to paint Nellie in a very poor light", including challenging her honesty with respect to the RBC account, and "they challenged her love for the deceased when they suggested that the care she provided was less than adequate and deserving of compensation." In referring to the principles under Rule 57.01, they note that both sides were only partially successful, and all parties stood to gain personally from the success or failure of the litigation.
9Summary of the Granddaughters’ Submissions: The granddaughters seek $343,552.42 on a substantial indemnity basis, and $292,066.23 on a partial indemnity basis, inclusive of fees, HST and disbursements. This includes the Mak expert report costs of $53,088.76, part of which is for the occupancy rent report. In the alternative, the granddaughters ask that their full indemnity costs be paid by the Estate, prior to any distribution to Nellie for her services or to the beneficiaries.
10The granddaughters submit that they were acting as Estate Trustees, and not in their personal capacities, and the relief sought was entirely for the benefit of the Estate. They note that the counterclaim was dismissed (although the equitable set off represented a partial success by Nellie), and that Claudio’s quantum meruit claim was dismissed. The March 3 Agreement was declared void, and Rosa’s share in the house was returned to the Estate. The Estate Trustees were legally obligated, and it was reasonable, to commence the litigation for the benefit of the Estate and its beneficiaries. All costs relating to the Mak accounting were necessitated by Nellie’s “poor record-keeping,” and at trial Nellie accepted the accounting (subject to argument on some of the assumptions). Nellie breached her fiduciary duties and obligations under the Substitute Decisions Act.
Analysis
11This case requires consideration of both the modern costs rules governing estates litigation as well as rules governing indemnification of estate trustees. The normal cost rules in civil litigation apply in estates litigation unless the court finds that one or more relevant policy considerations dictate that costs, or some portion thereof, should be paid out of the assets of the estate: McDougald Estate v. Gooderham, (2005), 2005 CanLII 21091 (ON CA), 255 D.L.R. 435 (Ont. C.A.) at para 80.
12The court must have regard to the factors set out in section 131 of the Courts of Justice Act, Rule 57 of the Rules of Civil Procedure, and the principle of proportionality articulated in Rule 1.04 (1.1). The “loser pays” principle applies. Ultimately, the court is to determine what is “fair and reasonable” in fixing costs, with a view to balancing compensation of the successful party with the goal of fostering access to justice, rather than reflecting the amount of actual costs incurred by the successful litigant: Boucher v Public Accountants Council (Ontario), 2004 CanLII 14579 (C.A.) at paras. 26 and 37-38. As stated by Price, J. in David v. TransAmerica Life Canada, 2016 ONSC 1777 at para. 22:
In reviewing a claim for costs, the court does not undertake a line by line analysis of the hours claimed, and should not second-guess the amount claimed, unless it is clearly excessive or overreaching. It considers what is reasonable in the circumstances and, taking into account all the relevant factors, awards costs in a global fashion.
13Public policy considerations in estate litigation that may justify a departure from the normal cost rules generally arise where: (1) the difficulties leading to the litigation are caused by the testator; or (2) there is a need to ensure that estates are properly administered. Blended costs awards, in which a portion of costs is payable by the losing party with the balance payable out of the estate, may be awarded in the discretion of the court where a relevant policy consideration is engaged: Neuberger Estate v. York, 2016 ONCA 303 at paras. 24- 25. This case engages the public policy concern with respect to proper administration of estates, given the conduct of Nellie in her capacity as attorney for property and attorney for the person during Rosa’s lifetime.
14The modern approach to costs in estates litigation also “recognizes the need to restrict unwarranted litigation and protect estates from being depleted by litigation”: McDougald Estate v. Gooderham, (2005), 2005 CanLII 21091 (ON CA), 255 D.L.R. 435 (Ont. C.A.) at para 85.
15The general rule regarding estate trustees is that they are entitled to be fully indemnified by the estate for their reasonably incurred legal costs to the extent they are not recovered from any other person: Brown v. Rigsby, 2016 ONCA 521. However, “a court may order otherwise if an estate trustee has acted unreasonably or in substance for his or her own benefit, rather than for the benefit of the estate”: Geffen v. Goodman Estate, 1991 CanLII 69 (SCC), [1991] 2 S.C.R. 353, at 391; Brown v. Rigsby, para. 14.
16The significant difficulty in this case is that all parties were participating as estate trustees at least in part, the parties are the sole beneficiaries, and all parties acted unreasonably with respect to certain issues. As noted above, success was divided. I review key issues below.
17The Principle of Indemnity/Amount Claimed and Recovered: Both parties were partially successful on issues critical to their interests. The March 3 Agreement was set aside and Rosa’s interest in the house was returned to the Estate. Nellie failed to account prior to the lawsuit. Nellie breached her fiduciary duties and duties under the Substitute Decisions Act, although I found she acted reasonably in the circumstances of the case. The granddaughters did not succeed in the occupation rent claim, the claim for a longer period of incapacity and concomitant longer period for the accounting, or the bank account closure claim which was essentially an allegation of dishonesty akin to fraud. Nellie succeeded on a large quantum meruit equitable set-off, and was not removed as estate trustee. I find that success was essentially divided.
18The Amount Claimed and Recovered/Proportionality: This was a ten day trial, with legal fees, disbursements and HST (on a substantial indemnity basis) collectively amounting to approximately $621,660. The main asset of the Estate was 80.398% of a house valued at $680,000 in 2012. While the house was returned to the Estate, Nellie is entitled to 59.81% of the house, with the two granddaughters entitled to share as beneficiaries in the remaining 40.19% share. I found that Nellie was under a duty to account for Rosa’s income of $141,990.00, and did so. It is also clear that she subsidized Rosa’s care out of her own resources; in the absence of receipts, for example, no costs were allocated for food or clothing to Rosa for the period. While there are some other minor Estate assets, it is clear that the fees of this litigation will deplete the Estate. The only beneficiaries of the Estate are the three participants in this lawsuit. They collectively decided, by the way they chose to advance this litigation, to incur fees that deplete the Estate. This cannot be proportionate to the amounts and issues raised in the proceeding.
19Complexity/Importance: The issues were complex and important for all parties. It was necessary for the Estate Trustees to commence the lawsuit to compel the accounting and set aside the March 3 Agreement. It was necessary for Nellie to assert a quantum meruit claim, since the granddaughters were unwilling to recognize the value of the care given, and indeed, actively sought to question the quality of care given by Nellie and Claudio to Rosa. It was necessary for Nellie to respond to the attempt to remove her as Estate Trustee.
20Other factors: A significant issue relating to costs is the unfounded allegation by the granddaughters that Nellie improperly diverted funds from RBC Account 7459, an allegation in the nature of fraud/dishonesty. Unfounded allegations of dishonesty in the nature of fraud often give rise to claims for substantial indemnity costs, in this case, in Nellie’s favour. In making this serious allegation, I note that the granddaughters were the only parties on the signature card to the account. They did not call any bank representative to explain how a non-signatory, not entitled to the account, could have accessed the account.
21Nellie was under a legal obligation to keep accounts, and failed to do so. The granddaughters retained a forensic accountant caused by Nellie’s poor record-keeping. However, they also sought an accounting for a longer period than justified by the incapacity finding. They took unreasonable positions which preferred their self-interest. A good example is the position taken on the distributions made to the three litigants. In May 2011, there was a withdrawal of $21,000 from Rosa’s account. $10,000 was paid to Nellie, $5,000 was paid to Rosa P., and $5,000 was paid to Tecla, in accordance with their percentage interests as beneficiaries. The three Estate Trustees/beneficiaries (Nellie and the two granddaughters) agreed on the withdrawal of the $20,000, payable to themselves, and all three understood it was coming from Rosa's funds. Yet in the litigation, the granddaughters took the position that the funds they received were not accounted for, and Nellie should pay the whole amount (including the funds they had approved) back to the Estate. They would then be in the position of receiving a double-benefit (keeping the initial funds, and then receiving the funds as a distribution from the Estate.) There are many other examples of this, both unreasonable, and preferring their own self-interest, in the positions taken in this litigation.
22In signing the March 3 Agreement to transfer the house and Rosa’s income, Nellie breached her fiduciary duties, although the lawyer called by granddaughters testified that he believed the March 3 Agreement was permissible under the power of Attorney, and he did not believe that it breached Nellie’s fiduciary duties. At the same time, while the Agreement was set aside, Nellie abided by the terms of the Agreement, and cared for Rosa at home until she died. The granddaughters unreasonably sought to attack the quality of care provided by Nellie to Rosa, although they did not intervene or comment on this during Rosa’s lifetime. They took unreasonable positions on expenditures in the accounting, without taking into consideration the necessity and desirability of those home-care related expenses during Rosa’s lifetime. They sought and obtained an undertaking that Nellie could not transfer the house, but also sought to impute an unreasonable level of occupation rent which did not adequately take into account the fact that Nellie owned 19.62% of the house.
23The granddaughters commenced the application in their capacity as Estate Trustees, but they are also the sole beneficiaries, along with Nellie, of the Estate. Nellie as Estate Trustee was successful in preventing her removal as executrix and Estate Trustee. Estate trustees are generally entitled to indemnification from the estate, unless motivated by self-interest or unreasonable. I find the position of the granddaughters to have a large element of self-interest, and their positions on the improper diversion of funds, care for Rosa, occupation rent, and many elements of the accounting as set out in my decision, to be unreasonable and motivated by self-interest. At the same time, Nellie breached her fiduciary duties and her duties under the Substitute Decisions Act, although I found that if required, Nellie should be relieved of liability under s. 33(2) of the Substitute Decisions Act for committing a breach of duty, as she acted honestly, reasonably and diligently. She upheld her end of the bargain, although as a matter of law, the bargain was set aside. This, too, is relevant to costs.
24I have considered all of the above factors. The mixed success, the lack of proportionality, the fact that the three Estate Trustees are the sole beneficiaries, unreasonableness, and self-interest are important elements of my decision. The disbursement costs of the Mak Report in the amount of $53,000.00, plus HST, are awarded to the granddaughters to be paid from the Estate. Although there were issues with respect to the assumptions and classifications in that report, it was used by all parties and benefitted the Court’s understanding of the contested issues. In the circumstances, no other costs are awarded. None of the three Estate Trustees are entitled to indemnification, given their conduct in the litigation.
Kristjanson J.
Released: November 6, 2017