Court File and Parties

COURT FILE NO.: CV-18-798-ES DATE: 2019-02-20 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: THE CANADA TRUST COMPANY, EXECUTOR AND TRUSTEE OF THE ESTATE OF SARAH McMAHON GRAFTON, DECEASED, Applicant AND: STEWART GRAEME ROSS, JOHN GORDON ROSS, JAMES GRAFTON ROSS and JAMES HENRY ROSS, Respondents

BEFORE: D.A. Broad

COUNSEL: Jeramie Gallichan, for the Applicant Mark A. Radulescu, for the Respondents Stewart Graeme Ross, James Grafton Ross and James Henry Ross Steven D. Gadbois, for the Respondent John Gordon Ross

HEARD: January 29, 2019

Endorsement

Background

[1] The applicant (“Canada Trust”) is the estate trustee of the estate (the “Estate”) of Sarah McMahon Grafton (the “testator” or “Sarah Grafton”). The testator died on July 28, 1971.

[2] The respondents are the surviving grandchildren of the testator and the surviving residuary beneficiaries of the Estate. The respondents’ sister, Sarah Mary Jane Ross (“Jane”), died on June 23, 1992, intestate, without a spouse and without issue.

[3] For ease of reference, the respondents Stewart Graeme Ross, James Grafton Ross and James Henry Ross (whose interests are aligned in respect of the motion before the court) shall be referred to jointly as the “responding beneficiaries.” The moving beneficiary John Gordon Ross shall be referred to as “Gordon Ross.”

[4] The testator had two daughters, Sarah Margaret Grafton (“Margaret”) and Mary Elizabeth Grafton (“Mary”). Mary died on September 13, 2002. She was unmarried and had no issue. Margaret was the mother of the four respondents as well as Jane.

[5] All of the provisions of the testator’s will were administered in the Estate, with the exception of the life interest granted to Margaret and Mary in respect of the cottage property at Port Carling, Ontario that had been owned by the testator (the “cottage property”).

[6] Margaret and Mary, or the survivor of them, were required by the terms of the will to pay taxes, insurance and maintenance costs for the cottage property during their life tenancy. Following Mary’s passing, Margaret became responsible for paying all taxes, insurance and maintenance costs in respect of the cottage property.

[7] Upon application by Canada Trust, Justice Gordon granted an Order Giving Directions that the cottage property be sold and on October 15, 2013 the sale of the cottage property was completed, realizing proceeds of sale in the sum of $1,664,144.08 which was held in trust by Canada Trust under the terms of the will (the “cottage trust”).

[8] As directed by the Court, Canada Trust satisfied from the proceeds of sale a number of accumulated costs and expenses and paid to itself arrears of executor’s fees allowed by the Court. It also reimbursed itself for an overdraft that had been created in the cottage trust account. The balance of the proceeds of sale of the cottage property, after payment of these amounts, remained in the cottage trust.

[9] Margaret died on December 15, 2015.

[10] Canada Trust brought an application to pass accounts in respect of the cottage trust for the period from January 27, 1994 to December 15, 2015.

[11] By Judgment on Passing of Accounts dated September 20, 2018 I declared the accounts of the cottage trust as filed by Canada Trust for the period mentioned above to be passed, and approved for payment to Canada Trust a specified amount as compensation for its trustee services and for disbursements expended in administering the affairs of the cottage trust. I also fixed the costs to be paid to Canada Trust on the passing of accounts and fixed the costs to be paid to the responding beneficiaries on the passing of accounts.

[12] The Judgment on Passing of Accounts directed that Canada Trust bring a motion, on notice to all of the respondents, for interpretation of the Last Will and Testament of the testator regarding distribution of the assets of the cottage trust, and that the liability for payment of the costs fixed for payment to Canada Trust and to the responding beneficiaries be reserved to the first return of the motion for interpretation of the will.

Nature of the Motion

[13] Gordon Ross has brought a motion for the following relief:

(a) A declaration that the Will of the testator did not require the life tenants to pay for capital repairs to the cottage property; (b) a determination of and an accounting of all capital repairs to the cottage property between 1993 and 2016; (c) an order that the Judgment on Passing of Accounts in the accounts of Canada Trust in respect of the cottage trust be amended to show a liability to the estate of Margaret in respect of capital expenditures made by her on the cottage property; and (d) an order that the costs fixed on the passing of accounts in favour of Canada Trust in the responding beneficiaries be paid from the cottage trust at large.

[14] Gordon Ross, who is a practising lawyer in Kitchener, maintains that, although the application for the passing of accounts was served by the lawyers for Canada Trust on him via regular mail addressed to his office, he did not receive it. He submits that rule 16.07 of the Rules of Civil Procedure applies, such that the passing of accounts of the cottage trust should be reopened to allow him to argue that a liability to the estate of Margaret should be shown for capital expenditures made by her in respect of the cottage property.

[15] Rule 16.07 provides that, even though a person has been served with a document in accordance with the rules, the person may show, on a motion to set aside the consequences of default, that the document did not come to his or her notice.

[16] Neither Canada Trust nor the responding beneficiaries opposed rule 16.07 being applied to permit the Court to consider Gordon Ross’ claim on behalf of Margaret’s estate that the accounts should be amended to show a liability to Margaret’s estate for reimbursement of capital expenditures.

[17] It is noted that no estate trustee has been appointed in respect of Margaret’s estate, as there is pending litigation between Gordon Ross and the responding beneficiaries respecting the proper last will and testament of Margaret. No Estate Trustee during Litigation has been appointed in respect of Margaret’s estate pursuant to rule 74.10. Accordingly, Gordon Ross has no apparent legal status to act on behalf of Margaret’s estate to advance a claim against the Estate for reimbursement of capital expenditures made by her on the cottage property. He is a beneficiary of Margaret’s estate but is not its legal representative.

[18] Notwithstanding the apparent lack of standing on the part of Gordon Ross to advance the claim against the Estate represented by his motion, Canada Trust and the respondent beneficiaries, in response to an enquiry from the Court, advised that they are satisfied to have the question of the entitlement of Margaret’s estate to seek reimbursement from the estate for capital expenditures dealt with in the context of Gordon Ross’ motion rather than await the appointment, at some future time, of an estate trustee of Margaret’s estate, to advance the claim.

Position of Canada Trust and the Responding Beneficiaries

[19] Canada Trust and the responding beneficiaries take the position that:

(a) The issue of the alleged capital expenditures was previously adjudicated by Justice Milanetti by her Judgment dated January 15, 2013 (the “Milanetti Judgment”) dismissing Margaret’s application seeking removal of Canada Trust as estate trustee of the Estate and Gordon Ross’ claim on behalf of Margaret’s estate should therefore be barred by the principles of issue estoppel or abuse of process; (b) Gordon Ross has failed to provide sufficient evidence to meet the onus on him of showing that the alleged repairs to the cottage property were capital in nature and were actually paid for by Margaret; and (c) the claim advanced by Gordon Ross on behalf of Margaret’s estate is barred by the Limitations Act, 2002, S.O. 2002, c. 24, Sched. B or, in the alternative, by the doctrine of laches.

Position of Gordon Ross

[20] Gordon Ross’ position is that:

(a) Margaret paid the sum of $111,854.38 for capital repairs to the cottage property prior to her death. The expenditures consisted of payments to two contractors, John Comeau and Dave Rogers, in the sums of $10,000 and $101,854.38 respectively. The payment to John Comeau is alleged to have been made in or about August, 2000. The payments to Dave Rogers are alleged to have been made between December 2006 and July, 2007; (b) Canada Trust acknowledged that the expenditures made by Margaret were capital in nature, by including them as additions to the Adjusted Cost Base of the cottage property for capital gains tax purposes in the tax return filed by it for the Estate for 2014, following the sale of the cottage property; (c) Canada Trust acknowledged by letter dated May 13, 1999 that Margaret and Mary, as the life tenants, could fund capital expenditures and seek reimbursement from the Estate when the property was sold; (d) the claim by Margaret’s estate for reimbursement of capital expenditures on the cottage property was not adjudicated by the Milanetti Judgment and therefore the doctrines of issue estoppel and abuse of process have no application; and (e) the claim of Margaret’s estate is not barred by the Limitations Act, 2002 or by the doctrine of laches. He argues that Canada Trust never made a specific demand on Margaret or on him for proof of payment of the capital expenditures and therefore the limitation period for advancement of the claim never began to run. He also argues that the Limitations Act, 2002 has no application to a claim advanced in the context of a passing of accounts.

Determination

[21] For the reasons that follow I find that a claim advanced or to be advanced on behalf of the estate of Margaret against the Estate for reimbursement of capital expenditures on the cottage property is, or would be, barred by the Limitations Act, 2002 and therefore the motion seeking to have the accounts of the cottage trust amended to reflect such a liability must be dismissed. In light of this, it is not necessary to consider whether the claim is, or would be, barred by the principles of issue estoppel or abuse of process or whether Gordon Ross has satisfied the onus on him of proving that the capital expenditures were paid for by Margaret.

Discussion

(a) Does the Limitations Act, 2002 apply to Gordon Ross’ claim on behalf of the estate of Margaret advanced in his motion seeking to re-open the Judgment Passing the Accounts of the Estate to have the claim recognized?

[22] The Court of Appeal (sitting as the Divisional Court) considered the question of whether a beneficiary’s Notice of Objection filed in response to an estate trustee’s Application to Pass Accounts may be barred by the Limitations Act, 2002 in the recent case of Wall v. Shaw 2018 ONCA 929 (C.A.). In that case, an estate trustee brought an application to pass his accounts, some of which pre-dated the issuance of the application by more than two years. In response to the application, a beneficiary filed a notice of objection that included objections to the accounts pre-dating the issuance of the application by more than two years. The estate trustee moved to strike out the objections pertaining to the accounts on the basis that they were barred by the basic two-year limitation period in s. 4 of the Limitations Act, 2002.

[23] The Court held that the estate trustee was not entitled to move to strike out the objections in reliance on the Limitations Act, 2002.

[24] The Court determined, at para. 2, that, by filing a notice of objection to accounts in response to an estate trustee’s application to pass accounts, a beneficiary is not commencing a proceeding in respect of a claim within the meaning of s. 4 of the Limitations Act, 2002.

[25] The Court noted the provisions of ss. 49(2), (3) and (4) of the Estates Act R.S.O. 1990, c. E. 21 at para. 24. which provide as follows:

(2) The judge, on passing the accounts of an executor, administrator or trustee under a will of which the trustee is an executor, has jurisdiction to enter into and make full inquiry and accounting of and concerning the whole property that the deceased was possessed of or entitled to, and its administration and disbursement.

(3) The judge, on passing any accounts under this section, has power to inquire into any complaint or claim by any person interested in the taking of the accounts of misconduct, neglect, or default on the part of the executor, administrator or trustee occasioning financial loss to the estate or trust fund, and the judge, on proof of such claim, may order the executor, administrator or trustee, to pay such sum by way of damages or otherwise as the judge considers proper and just to the estate or trust fund, but any order made under this subsection is subject to appeal.

(4) The judge may order the trial of an issue of any complaint or claim under subsection (3), and in such case the judge shall make all necessary directions as to pleadings, production of documents, discovery and otherwise in connection with the issue.

(underlining added)

[26] It is clear that on a passing of accounts a judge only has the power to enquire into a complaint or claim by a person interested in the taking of the accounts that financial loss to the estate or trust fund has been occasioned. Upon proof of such claim the judge may order the estate trustee to pay such sum as the judge considers proper or just to the estate or trust fund.

[27] There is no authority in the Estates Act to inquire into any complaint or claim that does not relate to an alleged financial loss to the estate or trust fund. Upon proof that there has been misconduct, neglect or default on the part of the estate trustee causing financial loss to the estate or trust fund, the remedy is limited to ordering the estate trustee to make payment, by way of damages or otherwise, to the estate or trust fund.

[28] There is no provision in the Estates Act for the Court, on an Application to Pass Accounts, to inquire into a claim by an alleged creditor of the estate, or a claim by a beneficiary on behalf of an alleged creditor (as in the case at bar), for payment by the estate to such creditor.

[29] Rule 74.18(3) of the Rules of Civil Procedure provides that an estate trustee, in making an application to pass its accounts, must serve the notice of application “on each person who has a contingent or vested interest in the estate.” Rule 74.18(7) provides that a person who has been served and who wishes to object to the accounts shall serve a notice of objection to accounts.

[30] There is no provision in rule 74.18 requiring service of the notice of application to pass accounts on creditors or alleged creditors of the estate. No authority has been cited to me to support the proposition that a creditor or an alleged creditor is a “person with a contingent or vested interest in the estate” and I find that a creditor or an alleged creditor is not such a person.

[31] The Court of Appeal in Wall held at para. 32 that the filing of a notice of objection in response to an application by an estate trustee to pass its accounts does not commence a “proceeding” within the meaning of s. 4 of the Limitations Act, 2002 by virtue of the definition of that term in rule 1.03 of the Rules of Civil Procedure which provides that a “proceeding” means an action or application.

[32] Moreover the Court adopted the motion judge’s reasoning that a beneficiary’s notice of objection filed in response to an estate trustee’s application to pass accounts is not a “claim” within the meaning of the Limitations Act, 2002. The Court of Appeal made reference to its earlier decision in Armitage v. The Salvation Army, 2016 ONCA 971 (C.A.), in which it was found that an application by an attorney for property to pass accounts under the Substitute Decisions Act, 1992, S.O. 1992, c. 30 was not a “claim” within the meaning of the Limitations Act, 2002. At para. 37 of Wall, Brown, J.A., writing for the Court, observed that “there is force to the argument that if the estate trustee’s initial application to pass accounts is not a “claim” within the meaning of the Limitations Act, then neither is a responding objection made by the beneficiary within that proceeding.”

[33] At para. 47, Justice Brown noted that an application to pass accounts does not possess the remedial characteristics typically associated with a civil lis between two parties. A conventional civil “claim”, if successful, results in judgment in favour of the claimant, whereas, after inquiring into a notice of objection on a contested passing of accounts, a judge may order the estate trustee to pay a sum, by way of damages or otherwise “to the estate”(emphasis in the original).

[34] In the case at bar any “claim” by Margaret’s estate for reimbursement of alleged capital improvements, if successful, would not result in payment by Canada Trust to the Estate. Rather it would result in a judgment in favour of Margaret’s estate. In my view it is therefore a “claim” within the meaning of s. 4 of the Limitations Act, 2002.

[35] Section 1 of the Limitations Act, 2002 defines “claim” for the purposes of the Act as “a claim to remedy an injury, loss or damage that occurred as a result of an act or omission.”

[36] In essence, Gordon Ross asserts that the Estate omitted to reimburse Margaret or her estate, for capital expenditures made by her for the cottage property and that, as a result, her estate suffered a loss.

[37] There is no evidence that Gordon Ross filed a notice of objection pursuant to rule 74.18 of the Rules of Civil Procedure to advance the claim on behalf of Margaret’s estate, nor could he have for the reasons set forth above. He has advanced the claim by a motion seeking amendment of the Judgment on Passing of Accounts in the accounts of the cottage trust “to show a liability to the Estate of Sarah Margaret Ross.”

[38] Even though the advancement of a claim by Margaret’s estate in response to Canada Trust’s application to pass its accounts is not contemplated by the Estates Act or the Rules of Civil Procedure, it is a “claim” to which the Limitations Act, 2002 applies. Margaret’s estate is not assisted by the fact that Gordon Ross advanced a claim that the accounts recognize a liability to it by a motion brought in the passing of accounts proceeding rather than by issuance of a Statement of Claim.

[39] But for the acknowledgement by Canada Trust and the responding beneficiaries that the court may consider the claim of Margaret’s estate notwithstanding Gordon Ross’ lack of standing to advance it, it would have been appropriate to dismiss the motion on that ground. However, given that the claim advanced by Gordon Ross is a “claim” for the purposes of the Limitations Act, 2002, it is appropriate to consider whether the applicable limitation period under that Act has expired such that the claim is or would be barred in any event.

(b) Has the limitation period applicable to the claim of Margaret’s estate against the Estate for reimbursement of capital expenditures expired?

[40] The applicable provisions of the Limitations Act, 2002 are as follows:

4 Unless this Act provides otherwise, a proceeding shall not be commenced in respect of a claim after the second anniversary of the day on which the claim was discovered.

5 (1) A claim is discovered on the earlier of, (a) the day on which the person with the claim first knew, (i) that the injury, loss or damage had occurred, (ii) that the injury, loss or damage was caused by or contributed to by an act or omission, (iii) that the act or omission was that of the person against whom the claim is made, and (iv) that, having regard to the nature of the injury, loss or damage, a proceeding would be an appropriate means to seek to remedy it; and (b) the day on which a reasonable person with the abilities and in the circumstances of the person with the claim first ought to have known of the matters referred to in clause (a). (2) A person with a claim shall be presumed to have known of the matters referred to in clause (1) (a) on the day the act or omission on which the claim is based took place, unless the contrary is proved.

[41] Gordon Ross did not address the issue of the limitation period in his Factum. As I understood his oral submissions, Mr. Gadbois argued that the limitation period under the Limitations Act, 2002 has not begun to run because Canada Trust never made a specific demand for proof that Margaret had paid for the capital improvements and that the Estate was in a “state of flux”. On this basis, neither Margaret, during her lifetime, nor her estate, after her death, could have been expected to have commenced an action against the Estate for reimbursement of the capital expenditures which she made for the cottage property.

[42] I am unable to accept this submission.

[43] It is well-established that the commencement of the limitation period under the Limitations Act, 2002 is based upon the discoverability by the person with a claim of the elements at s. 5(1)(a)(i) to (iv). The commencement of the limitation period is not based upon notice by the person against whom the claim may exist seeking information about the claim or upon a notice refusing to pay the claim.

[44] As indicated above, the payment to John Comeau is alleged to have been made by Margaret in or about August, 2000 and the payments to Dave Rogers are alleged to have been made between December, 2006 and July, 2007. Pursuant to s. 5(2), Margaret was arguably presumed to have known of the matters referred to in clause 5(1)(a) when those payments were allegedly made or within a reasonable time thereafter.

[45] In any event, in her Factum dated November 7, 2012 in connection with her application for removal of Canada Trust estate trustee of the Estate, Margaret stated at para. 10, citing her Affidavit sworn September 7, 2012, “Margaret Ross and Mary Elizabeth Grafton, until her passing on September 13, 2002, paid for the upkeep of the property including capital repairs, firstly by leaving bequests to themselves in the Estate and later in the case of Margaret Ross investing approximately $126,000 in capital repairs.”

[46] In her Reasons for Judgment released December 6, 2012 Milanetti, J. stated as follows at para. 9:

“Ms. Ross, I heard, invested approximately $126,000 of her own money into the property. It is argued that full disclosure of these expenditures has not been made. Moreover, there is wonder whether the funds represent capital expenditure or maintenance costs. If the latter, the responding residual beneficiaries argue that such should not be repaid Ms. Ross as such expenditures were contemplated as her responsibility during her lifetime.”

[47] Moreover, it is noted that in his Order Giving Directions dated April 19, 2013, Gordon J. ordered at para. 9, inter alia, that Canada Trust’s costs in the sum of $25,000 “shall be deducted from any claim for reimbursement from the Estate that the Respondent, Margaret Ross, may make for capital expenditures made by her in respect of the Property.”

[48] It is clear from the foregoing that Margaret Ross knew, by one or more of the following dates, namely,

(a) September 7, 2012, the date of her Affidavit in support of her application for removal of Canada Trust as estate trustee of the Estate; (b) December 6, 2012, the date of release of the Reasons for Judgment of Justice Milanetti; or (c) April 19, 2013, the date of the Order giving Directions of Justice Gordon which made specific reference to a claim which she may make for capital expenditures made by her.

of the matters referred to in s. 5(1)(a) of the Limitations Act, 2002.

[49] Each of the three dates referred to above pre-dated Margaret’s death on December 15, 2015, by in excess of two years.

[50] In my view, the claim of Margaret’s estate for reimbursement from the Estate is, or would be barred by the Limitations Act, 2002.

[51] On the authority of Wall, the motion of Gordon Ross is not a “proceeding” for the purposes of the Limitations Act, 2002, as it does not fall within the definition of a “proceeding” in rule 1.03 of the Rules of Civil Procedure. Indeed, the motion does not seek payment from the Estate. The relief requested is that the Judgment on Passing of Accounts and the accounts of the cottage trust be “amended to show a liability to the estate of Sarah Margaret Ross in respect of capital expenditures made at the cottage property.”

[52] Given that any future claim against the Estate by an estate trustee for Margaret’s estate for reimbursement of capital expenditures alleged to have been made by her would be barred by the Limitations Act, 2002, it is not appropriate that the Judgment on Passing of Accounts and the accounts of the cottage trust be amended to show a liability for such a claim.

[53] The relief sought at paras. (a) and (b), of the Notice of Motion, for a declaration that the Will of the testator did not require the life tenants to pay for capital repairs to the cottage property, and for an accounting of all capital repairs between 1993 and 2016, were not pursued in submissions and in any event are moot in light of my finding that any claim for reimbursement for capital expenditures would be statute-barred.

[54] The relief sought at para. (d) that the costs fixed at paragraphs 6 and 7 of the Judgment on Passing of Accounts be payable from the cottage trust at large is premature, as the Judgment on Passing of Accounts provides that the liability for payment of the costs shall be reserved to the first return of the motion for interpretation of the Will of the testator.

Disposition

[55] For the reasons set forth above, the motion of John Gordon Ross is hereby dismissed.

Costs

[56] The parties are strongly urged to agree upon costs. If they are unable to do so, responding parties to the motion, The Canada Trust Company and Stewart Graeme Ross, James Grafton Ross and James Henry Ross may make written submissions as to costs within 14 days of the release of this Endorsement. The moving party John Gordon Ross has 10 days after receipt of the said parties’ submissions to respond and the responding parties have a further 5 days to reply. Each party’s initial written submissions shall not exceed 5 double-spaced pages, exclusive of Offers to Settle, Bills of Costs or Costs Outlines and authorities, while the responding parties’ reply submissions, if any, shall not exceed 2 double-spaced pages. All submissions shall be forwarded to me at my chambers at 85 Frederick Street, 7th Floor, Kitchener, Ontario N2H 0A7. If no submissions are received within this timeframe, the parties will be deemed to have settled the issue of costs as between themselves.

D.A. Broad Date: February 20, 2019