Court File and Parties

COURT FILE NO.: 05-107/14 DATE: 20180926 SUPERIOR COURT OF JUSTICE - ONTARIO

BETWEEN: Henia Gefen, in her personal capacity and as estate trustee of the estate of Elias Gefen, Plaintiff

AND: Arie Gaertner, Miller, Canfield, Paddock and Stone, LLP, The Jewish Home for the Aged, Baycrest Hospital, Baycrest Centre for Geriatric Care, Yehuda Gefen and Harry Gefen, Defendants

AND BETWEEN: Harry Gefen, Plaintiff by Counterclaim

AND Henia Gefen in her personal capacity and as estate trustee of the estate of Elias Gefen, Harvey Gefen, Ashley Gefen, Dundas-Thickson Properties Ltd., 1393522 Ontario Limited and 1585708 Ontario Limited, Defendants by Counterclaim

AND BETWEEN: Harvey Gefen, Third Party Plaintiff

AND Harry Gefen, Third Party Defendant

BEFORE: Penny J.

COUNSEL: Gregory Azeff and Stephanie De Caria for Ronald Rutman, Estate Trustee during Litigation of the Estate of Elias Gefen Shaun Laubman and Matthew Law for Harvey Gefen and Ashley Gefen Aaron Blumenfeld for Harry Gefen Christopher Graham for the Estate of Yehuda Gefen Ronald Moldaver for Henia Gefen David Milosevic for Irving Garten Brett Moldaver for Sheldon Finkelstein

HEARD: September 14, 2018

Endorsement

Overview

1This is a motion by Ronald Rutman, the estate trustee during litigation for the estate of Elias Gefen. The ETDL was appointed in 2015 by the order of Mr. Justice Newbould. After three years of acrimonious litigation, much of which was with, against or in opposition to the ETDL, ETDL’s fees are significant indeed – they now exceed $1 million. [1] With a trial pending in November of this year, the ETDL seeks an order:

(a) allowing the ETDL to pay for his services from: (i) any asset of the estate of Elias Gefen [2] ; (ii) any asset held jointly by the deceased at the time of his death; (iii) distributions received from certain Properties following sale; or (iv) proceeds from any loans taken out against the Properties;

(b) granting a priority charge on the Properties as security for his fees and disbursements, including the fees and disbursements of his agents and professional advisors, such as lawyers; and

(c) allowing the ETDL to “pre-take” compensation out of monies on hand prior to the passing of accounts, to be applied against his fees and disbursements.

2The motion is supported by Harry Gefen and the estate of Yehuda Gefen and opposed by Henia Gefen, Harvey Gefen, and a non-party, Dr. Finkelstein (who is a co-tenant in three of four properties).

Background

3This dispute involves the estate of Elias Gefen who died in October 2011. Elias was survived by his wife Henia and his three sons Harvey, Harry and Yehuda (Eddy). Eddy subsequently died and his participation in this litigation is continued by his estate.

4The main assets involved in this dispute are Elias’ interest in four properties described in Exhibit A to Harvey’s July 31, 2018 affidavit and in para. 6 of the ETDL’s factum (I will refer to these four properties as the Properties). In each case the Properties are owned by a bare trustee corporation. What are described as “co-tenants” or beneficial owners are the shareholders of the corporations. Each co-tenant’s interest in the Properties is in proportion to their shareholdings in each bare trustee company. Elias held a 50% interest in three of the Properties and a 40% interest in the fourth (I will describe Elias’ purported interest in these Properties as the Property Interest). Harvey also has an independent interest in two of the Properties. Harry claims an interest in one of the Properties. And, there is a non-party co-tenant involved in each of the Properties as well.

5There are many issues in dispute in this litigation but two of the major disputes, and those which principally gave rise to the need for an ETDL, are:

(1) Harvey and Henia’s assertion, denied by Harry and Eddy, that Henia and Elias were joint owners of Elias’ Property Interest so that title passed to Henia, not to Elias’ Estate, on Elias’ death; and

(2) Harry and Eddy’s assertion, denied by Harvey and Henia, that Elias and Henia made a mutual will agreement (MWA) which prohibited Henia from changing her testamentary dispositions to all three sons equally, and therefore prohibited her from dealing with the Property Interest in any manner inconsistent with that testamentary obligation. [3]

Each of these disputes puts the ownership of Elias’ Property Interest in question.

6I should add that there is no dispute in this motion that the question of ownership of the Property Interest represents a serious issue for trial. But, while the merits of the parties’ positions is not in issue on this motion, it is important context for this motion that, if Harvey and Henia’s position in the litigation prevails, there will be no significant assets in Elias’ Estate. It is important because Harvey and Henia argue that the ETDL knew this when he accepted the appointment and, they say, took the risk that there might be no “estate assets” from which the ETDL could be paid. They argue that because the Estate’s title to these assets is in dispute, there should be no expectation of payment from those assets if the dispute is resolved in Harvey and Henia’s favour. They further argue that there is, for the same reason, no basis for granting security for the ETDL’s fees over the Property Interest.

The Issues

7There are essentially three issues on the motion:

(1) Is the ETDL entitled to look to the Property Interest for payment of his fees and disbursements? If so should the ETDL be granted any type of charge over the Property Interest to secure his fees? If so what type of charge?

(2) Should the ETDL be entitled to increase any financings on the Properties to generate cash to pay his fees? and

(3) Should the ETDL be permitted, subject to an ultimate passing of accounts where his fees will be reviewed and approved by the Court, to “pre-take” interim payments from available cash on hand generated by the Property Interest?

Analysis

1. A Charge on the Property Interest

8The starting point for the analysis of this issue is the endorsement and order of Mr. Justice Newbould from 2015.

9By endorsement of January 27, 2015, Newbould J. appointed Mr. Rutman as the estate trustee during litigation. Newbould J. found that there was animosity between the parties and there had been arguably questionable asset transfers. As a result, he concluded “This case cries out for an ETDL.” Newbould J. also found, in the event it was required, that there was a good arguable case in favour of the claims of Harry and Eddy, at whose behest the appointment of the ETDL was sought. Importantly, he found that Mr. Rutman was qualified and “neutral between the parties to this dispute.”

10It is also important to have regard to the terms of the appointment order. The Newbould Order provides that:

Para. 1(a): the ETDL be appointed with respect to “all of the property of the Estate pending the final disposition of” the will challenge claim;

Para. 1(b): the ETDL “shall receive out of the assets of the Estate of the deceased reasonable remuneration for its services”;

Para. 1(d): the ETDL and “shall be entitled to take custody and control of the estate assets and recover on any debts if deemed appropriate regardless whether the assets have since been transferred into the names of others, or title is held in the names of other parties, or the present estate trustee has purported to release debts.” The ETDL also has the right to recover any material assets which belonged to Elias during the three year period prior to his death;

Para. 1(n): the parties are required to cooperate in turning over to the ETDL the assets of the estate of Elias as they are broadly defined in para. 1(d) above; and

Para 1(q): the ETDL is at liberty at any time to come back to court for advice and further directions with respect to any aspect of his appointment in the conduct of his responsibilities as ETDL.

11It is also important to the analysis of this issue to consider the Orders of Conway J. and Pattillo J. As a result of the ongoing dispute over ownership of the principal asset, the Property Interest, the ETDL moved for the opinion, advice and direction of the Court. The first motion before Conway J. in August 2016 dealt with the Dundas-Thickson and Brampton Properties. The second motion before Pattillo J. in May 2018 dealt with the Dundas Street and Kingston Road Properties. The combined effect of these Orders was, among other things, to order that the ETDL immediately assume management over the “interest allegedly owned by Elias and/or Henia at the time Elias died” in the bare trustee corporations owning the Properties (that is, what I have defined as the Property Interest).

12What are described as “estate assets” in the Newbould Order are clearly, in my view, the same assets as those described in the Conway and Pattillo Orders as "the interest allegedly owned by Elias and/or Henia at the time Elias died.” The parties were aware, on the motion before Newbould J., that ownership of the principal assets was in dispute. It is not credible or reasonable to think the Newbould Order was meant to convey no powers to the ETDL to deal with the very assets that were in dispute merely because they were described as “estate assets” rather than the later terminology referring to “alleged” ownership.

13The whole point of the appointment of an ETDL in this case was to ensure preservation and prudent management of these assets because the Gefen family’s dispute was rendering the parties unable to do so. The power to appoint an ETDL must necessarily, it seems to me, include the power to enable the ETDL to take charge of assets in respect of which the estate may have only a contingent interest or in which the interest of the estate is asserted by way of a claim which may be in dispute.

14If the ETDL was meant to have interim control and management over the assets in dispute, then it logically follows that the ETDL was meant to have the right to receive payment from the same assets. This follows from the language of the Newbould Order, because both the powers of the ETDL to manage property and the source of payment of his fees is described by the same term –“estate assets.” It also follows from the fact that the preservation and prudent management of the Property Interest pending the resolution of the dispute in this litigation benefits both sides in the dispute. It would little benefit either side, for example, to find, at the conclusion of this acrimonious and lengthy fight, that the Property Interest had wasted or otherwise become devalued for any number of reasons in the meantime. In other words, the benefit of the ETDL to the parties is not restricted to the scenario in which the Property Interest is ultimately found to be an “estate asset” alone.

15The conclusion I have reached is not only a matter of logic and reason, however. It is supported by precedent as well. As stated by Prof. Waters in Law of Trusts in Canada (2nd ed.), Carswell 1984, “it would be an extraordinary system of law which did not permit trustees to recover their out-of-pocket expenses incurred in the discharge of their duties and powers under the trust, and in fact courts of Chancery were never in any doubt that the trustee was entitled to such indemnification.” This principle has been repeatedly upheld by this and other courts, see Re Reid (1970), 17 DLR (3d) 199 (BCCA) and W (M) Estate v. (W) Y (1996), 16 ETR (2d) 51 (Ont Ct Gen Div), cited and applied in McLennan v McLennan, 2000 CarswellOnt 3131 (SCJ).

16Harvey and Henia argue that none of these cases deal with payment of trustee’s expenses from assets in respect of which the estate’s claim was in dispute. Even if this were true, it does not answer the point. They have neither offered a case where “disputed” assets were definitively held by the court not to be available to pay the trustee’s fees. The Court’s appointees - trustees, receivers, monitors and the like - are routinely involved in proceedings where there are competing claims to ownership of property. It is frequently the case in such circumstances that contribution to the cost of preservation of assets during litigation is demanded even from those who may ultimately be found to be entitled to the particular asset in question. The jurisdiction of the Court to order payment for the Court’s appointee from such assets cannot, in my view, be in doubt. Rather, the question must be, in the circumstances of the case, is such payment just and equitable? For the reasons articulated above, I find, in this case, that it is.

17I am further supported in this view by the fact that the opposite conclusion - that whether there are any “estate” assets from which the ETDL’s fees may be paid depends upon Harry and Eddy prevailing in the litigation - would necessarily place the ETDL in a significant conflict. The ETDL would have a stake in the outcome of the litigation. If one side prevails, he is unlikely to be paid for his work. If the other side prevails, he will be paid. This, it seems to me, is an untenable outcome. I am also confidant that it was not, in any event, an outcome that could have been in the contemplation of Newbould J. when the Order was made in 2015.

18Mr. Moldaver argued that the ETDL could always look to Harry and Eddy for payment of his fees if Harvey prevails in the litigation. The mechanism by which that could occur was not clear but the suggestion was that it could be addressed when it comes to costs following the trial. This proposition, it seems to me, stands the principle of trustee indemnity on its head. The ETDL (a non-party I might add) should not be placed in the position of chasing after certain parties during cost submissions following a trial. Rather, it is the parties who should be left to raise claims to indemnity for their “share” of the ETDL’s fees against other parties, if they chose to do so, at the end of the day.

19For these reasons, I find that the Newbould Order, properly construed, enables the ETDL to look to the Property Interest for payment of his fees and disbursements.

20Even if I am wrong in the conclusion that the Newbould Order always contemplated, in form and substance, that the ETDL was entitled to look to the Property Interest for payment of his fees, I would, for essentially the same reasons articulated above, vary the Newbould Order to so provide.

21Having decided that the ETDL is entitled to look to the Property Interest for payment of his fees regardless of the outcome of this litigation between the parties, the question becomes, is the ETDL entitled to any form of security against the Property Interest regarding those fees and if so what form of security?

22As a general matter, it seems to me that the answer to the first question is yes. If there is a deficiency of assets to meet all creditor claims, costs of the administration take priority over other debts. The trustee also has a lien against the estate’s assets which takes precedence over all beneficial interests, see McLennan, supra, at para 18.

23In this case, the scope of the relief sought by the ETDL has evolved over the course of the motion. The ETDL is no longer seeking a first or indeed any charge over the Properties themselves, only a charge on the Property Interest.

24One objection to granting security over the Properties was that, by the terms of the third-party mortgages on the Properties, even subsequent encumbrances, if not consented to by the third-party mortgagees, would constitute an event of default under those mortgages. The ETDL has answered that criticism by assuring the parties and the Court that he would not seek to register any charge against the Properties without the prior consent of those third-party mortgagees.

25I do not think the present record permits me to make a definitive finding on the right of the ETDL to register a charge on title to the Properties. I say this because the interest in the Properties in dispute is, legally speaking, shares in the corporations which own the Properties. The disputed interest (the Property Interest) appears to represent a beneficial, partial ownership interest in the Properties, but whether the ETDL’s charge on that interest is registerable on title or not was not argued before me. All I am able to say at this point is, if a charge to secure the ETDL’s fees does represent a registerable interest on title, no registration may be made, as undertaken by the ETDL, without the prior consent of third-party mortgagees.

26I conclude, however, on the fundamental issue, that the ETDL is entitled to a charge on the Property Interest to secure his fees and disbursements, at least in priority to other creditors of the Estate and all of the parties with an interest in the disputes between the Gefen family members in this litigation – that is Henia, Harvey, Harry and Eddy’s estate.

2. May the Properties be Further Mortgaged to Raise Funds for the ETDL’s Fees?

27Here too, the ETDL’s position seems to have evolved over the course of this motion. As I understand it, the ETDL is now proposing that only the portion of any additional financing represented by Elias’ interests in the Properties would be used to fund interim payments to the ETDL.

28The Properties, of course, each have beneficial co-tenants who are not parties to this litigation. A charge on the Properties to pay the ETDL’s fee incurred in connection with the Gefen family’s disputes would offer no benefit to these third parties, yet the entire Property would be exposed to the associated liability of the additional financing. The charge on the Property or Properties securing that financing would be indifferent to the fact that 40% or 50% (or perhaps less,) of the funds went to pay the fees of the ETDL.

29I am unable, on this record, to conclude that it would be just and equitable to adversely affect the interests of non-parties in the Properties with burdens created only because of the Gefen family’s dispute.

30Further, evidence about the extent to which any additional financing could be used to pay the ETDL’s fees (as opposed, for example, to needed maintenance or remediation on the Properties) was conflicting and inadequate. As a result, I am unable to conclude it is just and equitable to enable the ETDL to increase the secured borrowings on any of the Properties to fund interim payment of his fees.

3. The “Pre-Taking” of Interim Fees Pending a Final Accounting

31The ETDL also seeks the right to “pre-take” compensation for his fees and disbursements out of monies on hand, including monies derived from distributions made in respect of the Property Interest.

32There is no serious opposition to the principle of these interim advances on account of fees, Vano (Re), 2011 ONSC 1429. Nor, as I understand it, does Harvey take issue with the use of cash distributions resulting from the Property Interest to be used, if otherwise available, for some interim payments to the ETDL.

33The problem arises around the question of what amount of moneys on hand might prudently be used to make interim payments on account of the ETDL’s fees (as opposed, for example, to other needed deployment of those funds to preserve and protect the Properties). The evidence is that something in the neighborhood of $200,000 may currently be on hand from distributions on account of the Property Interest.

34It seems to me that the ETDL is in the best position to assess whether there are sufficient funds to meet the needs of preserving and protecting the Properties and the Property Interest, which is his main purpose, while at the same time having sufficient surplus over and above those needs to make payments on account of the ETDL’s fees. I therefore grant the ETDL the right to “pre-take” interim payments on account of fees from available distributions subject to adjustment on a final passing of accounts.

Costs

35The ETDL was substantially successful on the main issue but results were otherwise mixed. Although the ETDL was partially successful, the initial scope of the motion raised numerous issues to which the parties in opposition were obliged to respond. They were required to incur costs to do so needlessly when many of those issues were abandoned by the ETDL on the argument of the motion. In all the circumstances, I find that Harvey and Henia should each pay personally $5,000 in costs to the ETDL forthwith. The ETDL is entitled to recover the balance of his costs from the Estate (including from the Property Interest) on a full indemnity basis.

36No other party is granted costs on the motion.

37Harry’s submissions, while supportive of the ETDL, were largely spent on issues not relevant to the motion. They were calculated to advance his position on the merits in the litigation which was not before me.

38Regarding the motion to strike (which I have dealt with in a separate handwritten endorsement following an oral ruling at the motion), Harvey was successful; Harry was unsuccessful.

39The attempted use of the Hull accounts, in my view, was doomed to fail. Harry’s position, arguing the merits of waiver, may well have merit but missed the point entirely. Conway J. had already ordered that no use could be made of the Hull accounts on any interlocutory motion. The waiver issue concerning those accounts was unambiguously reserved to the trial judge.

40Cost of $12,000 payable by Harry to Harvey forthwith.

41No other order as to costs.

Penny J. Date: September 26, 2018

1Apart from supplying context, the quantum of the fees is not before me on this motion. The ETDL acknowledges that his fees are subject to a final passing of accounts.

2In this category, the ETDL includes any asset in respect of which there is a dispute about whether it was, or remains, in Elias’ estate. This is important, as will be discussed further below, because some of the litigants, i.e., Henia and Harvey, take the position that the principal material assets available, Elias’ beneficial interests as a co-tenant in the Properties, are not, or are no longer, assets of Elias’ estate.

3Henia is alleged to have transferred the Property Interest inherited by her after Elias’ death, thereby defeating the intent of the MWA.