Court File and Parties

COURT FILE NO.: CV-16-0369 DATE: 2018-08-02

ONTARIO

SUPERIOR COURT OF JUSTICE

IN THE ESTATE OF IRMGARD BURGSTALER, a person under a disability

IN THE MATTER of an Application to Pass Accounts

B E T W E E N:

Erwin Burgstaler, Unrepresented, the Attorney for Property Attorney for Property

• and -

Barbara Morison and Peter Burgstaler, J. Lester, for the Objectors Objectors

HEARD: Via Written Submissions

Mr. Justice D.C. Shaw

Reasons On Costs

1This is a decision on the costs of a passing of accounts.

Background

2On April 21, 2016, Pierce J. ordered that Erwin Burgstaler pass his accounts under a power of attorney for property granted by his mother, Irmgard Burgstaler.

3The Objectors are Barbara Morison and Peter Burgstaler. They are two of Erwin’s siblings.

4The hearing on the passing of accounts was held over the course of four days. Extensive written submissions were received after the hearing concluded.

5The facts surrounding the passing of accounts are set out at length on my Reasons For Judgment On Passing of Accounts, dated February 20, 2018.

6I found that Erwin breached his fiduciary duty to act in Irmgard’s interest when he took $82,000.00 from her bank account to purchase a home which he registered in his name alone.

7Erwin also used Irmgard’s money to pay legal fees of $44,098.50. Erwin incurred those legal fees in litigation against the Objectors. Erwin sought to set aside decisions which the Objectors had made under a power of attorney for personal care granted by Irmgard. He sought to set aside the power of attorney for personal care, itself. He engaged in litigation with the Objectors to obtain the return of his personal property.

8I found that Erwin had not established that the legal services billed to him and paid from Irmgard’s account were for Irmgard’s benefit.

9Erwin used Irmgard’s account to pay for other expenses that were not for Irmgard’s benefit.

10He also retained $5,000.00 from the sale of a trailer which belonged to Irmgard’s estate.

11I ordered that the house purchased in Erwin’s name was subject to a resulting trust in favour of Irmgard, that the home be sold and that the net proceeds of sale be paid to Irmgard’s estate. The net sale proceeds are to be credited against Erwin’s obligation to repay Irmgard’s estate the $82,000.00 used to purchase the house.

12I also ordered that Erwin repay Irmgard’s estate for the legal fees of $44,098.50 and that he repay disallowed expenses of $1,297.02 and the $5,000.00 which he retained from the sale of the trailer, for a net total of $45,395.52.

13The Objectors propose that they should receive their costs on a full recovery basis, payable on a blended basis as follows:

$23,604.82 payable from the estate; and $4,317.75 payable by Erwin personally.

14The $4,317.75 sought from Erwin personally is comprised of:

(a) $2,930.50 for the last two days of the four day hearing which the Objectors say were required because Erwin’s accounts were not in the proper format and because supporting documentation was not available; (b) $890.50 for replying to reply submissions that Erwin improperly delivered in response to the Objectors’ reply submissions; and (c) HST.

15The Objectors have delivered a detailed Bill of Costs setting out time expended and hourly rates.

16The Bill sets out fees, exclusive of HST, of:

(a) Full indemnity - $24,287.00 (b) Substantial indemnity - $21,858.30 (c) Partial indemnity - $14,572.20

17Erwin did not deliver submissions on the issue of costs.

Discussion

18In Zimmerman v. McMichael Estate, 2010 ONSC 3855, the conduct of the estate trustee in the administration of the estate was the subject of serious criticism by Strathy J., as he then was. At para. 4, Strathy J. held that the following principles were appropriate in determining the issue of costs sought by the Objectors in that case:

(a) pursuant to s. 131 of the Courts of Justice Act, the costs of a proceeding are in the discretion of the court and the court may determine by whom and to what extent costs should be paid; (b) estate litigation, like any other form of civil litigation, operates subject to the general civil litigation costs regime; (c) as a general proposition, the principle that the “loser pays” applies to estate litigation; (d) in the determination of costs, the court must have regard to the factors set out in Rule 57 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, but, at the end of the day, the court’s responsibility is to make an award that is fair and reasonable, having regard to all the circumstances, including the reasonable expectations of the parties; (e) the court’s discretion to award costs on a full indemnity basis is preserved by rule 57.01(4)(d); (f) full indemnity costs are reserved for those exceptional circumstances where justice can only be done by complete indemnity.

19The Court of Appeal expanded on these principles in Sawdon Estate v. Watch Tower Bible and Tract Society of Canada, 2014 ONCA 101. Gillese J.A., with Strathy J.A. and Hoy J.A. concurring, observed at paras. 83-86 that historically in estate litigation, the courts would order the estate to bear the costs of all parties. However, this has been replaced by the modern approach set out by the court in McDougald Estate v. Gooderham (2005), 255 D.L.R. (4th) 435 (Ont. C.A.). At paras. 84-85, the Court of Appeal in Sawdon stated:

The court is to carefully scrutinize the litigation and, unless it finds that that one or more of the relevant public policy considerations apply, it shall follow the costs rules that apply in civil litigation. That is, the starting point is that estate litigation, like any other form of civil litigation, operates subject to the general civil litigation costs regime established by section 131 of the Courts of Justice Act, R.S.O. 1990, c.C.43, and Rule 57 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, except in those limited circumstances where public policy considerations apply.

The public policy considerations at play in estate litigation are primarily of two sorts: (1) the need to give effect to valid wills that reflect the intention of competent testators; and (2) the need to ensure that estates are properly administered.

20In Sawdon, the Court of Appeal found that the second policy consideration – the need for proper administration of the estate – was the underlying consideration in that case.

21The Court of Appeal held that there was nothing in the jurisprudence that would prevent a court from making a blended costs order – from the unsuccessful party and from the estate.

22The Court of Appeal referred to the following statement of Brown J., as he then was, in Salter v. Salter Estate (2009), 50 E.T.R. (3d) 227 (Ont. S.C.), at para. 6:

Parties cannot treat the assets of an estate as a kind of ATM bank machine from which withdrawals automatically flow to fund litigation. The “loser pays” principle brings needed discipline to civil litigation by requiring parties to assess their personal exposure to costs before launching down the road of a lawsuit or a motion. There is no reason why such discipline should be absent from estate litigation. Quite the contrary. Given the charged emotional dynamics of most pieces of estates litigation, an even greater need exists to impose the discipline of the general costs principle of “loser pays” in order to inject some modicum of reasonableness into decisions about whether to litigate estate-related disputes.

23The Court of Appeal held, at para. 97, that the availability of a blended costs order gives the court the ability to respect the public policy consideration that may be involved and to maintain the discipline of which Brown J. spoke.

24In Sawdon, the Court of Appeal ordered that a beneficiary, who unsuccessfully opposed the estate trustee’s passing of accounts, was liable to pay the estate trustee partial indemnity costs and that the estate was liable to indemnify the estate trustee for his costs not recovered from the unsuccessful beneficiary.

25In my view, these principles are applicable to the costs of this application to pass accounts arising from the exercise of the power of attorney for Irmgard’s property.

26The following factors set out in Rule 57.01 are significant in the case before me.

27Rule 57.01(1)(0.a) – the principle of indemnity: the time spent by counsel for the Objectors was reasonable as were their hourly rates. The passing of accounts was heard over the course of four days.

28Rule 57.01(1)(0.b) – amount that the unsuccessful party could reasonably expect to pay: Erwin had received many lawyers’ accounts in connection with his litigation against the Objectors. He was familiar with the costs of litigation. He had been subject to at least one other adverse cost award.

29Rule 57.01(1)(a) – the amount claimed and recovered: the Objectors were substantially successful. Erwin was ordered to repay the estate approximately $127,000.00.

30Rule 57.01(1)(c) – the complexity of the proceedings: the application was unnecessarily complicated as a result of Erwin’s failure to provide his accounts in a proper form and his failure to respond to proper objections.

31Rule 57.01(1)(d) – the importance of the issues: the matter was important to Irmgard. Her estate was not managed prudently. It did not provide a stream of income to support her needs. Her property was unnecessarily depleted for reasons that had nothing to do with the basic purpose of the Substitute Decisions Act. The approximately $127,000.00 which Erwin was ordered to repay constituted a significant portion of Irmgard’s property.

32Rule 57.01(1)(e) – the conduct of any party that tended to unnecessarily lengthen the duration of the proceeding: as noted above, Erwin’s accounts were not in the proper form. He failed at the beginning of the hearing to provide necessary documentation regarding the lawyer’s accounts in question. This required an adjournment and further attendances at the hearing.

33Rule 57.01(1)(g) – denial or refusal to admit anything that should have been admitted: although Erwin was informed by counsel for Barbara and Peter that his accounts were not in the proper format, his failure to provide proper accounts and to provide documentation on a timely basis prolonged the proceeding and increased the Objectors’ costs. To similar effect, Erwin delivered improper submissions following the hearing.

34A blended costs order is appropriate in this case. The second policy consideration referred to in Sawdon is applicable to the facts of this case. The litigation was necessary to ensure that Irmgard’s property was properly administered by her attorney for property. The outcome of the contested passing of accounts is that Erwin has been ordered to repay Irmgard’s estate approximately $127,000.00 for expenses that Irmgard should never have borne. As a fiduciary, Erwin was not permitted to put himself in a position where his interests and his duty to Irmgard were in conflict. Her funds were not used to pay for her support and care.

35I am not in agreement with the proposal by the Objectors that the estate should pay approximately 85% of the Objectors’ full indemnity costs. Although I am prepared to award full indemnity costs in the unusual circumstances of this case, where the Objector’ costs were incurred in the interest of the proper administration of Irmgard’s property, a costs order that requires Erwin to pay only 15% of the Objectors full indemnity costs would not give sufficient recognition to the general costs principle of “loser pays” and the “discipline” that the principle is intended to encourage.

36In my view, it would be fair and reasonable for Erwin to pay partial indemnity costs and for the estate to pay the difference between partial indemnity costs and full indemnity costs.

37Erwin therefore shall pay partial indemnity costs of $14,572.20 for fees and HST thereon of $1,894.40, for a total of $16,466.60, plus disbursements of $429.00 and HST thereon of $49.25.

38The estate shall pay the balance of full indemnity costs of $24,287.00 for fees and $3,157.30 for HST, for a total of $27,444.30, less the $16,466.60 in partial indemnity fees to be borne by Erwin, for a net total payable by the estate of $10,977.70.

“original signed by” The Honourable Justice D. C. Shaw

Released: August 02, 2018