Court File and Parties
COURT FILE NOS.: CV 17-28-ES, CV-14-133, and CV-16-55 DATE: 2019-03-08 ONTARIO SUPERIOR COURT OF JUSTICE CAYUGA
IN THE ESTATE OF PEARL WARBICK, deceased
BETWEEN:
Helen Jones and William Warbick Applicants/Estate Trustees – and – Ann Warbick, Michael Warbick, and Pearl Moir Respondents/Objectors
Helen Jones, in Person William Warbick, not appearing
Caitlin Murray, Counsel for the Respondents/Objectors
– and – John Warbick Respondent/Objector
John Warbick, in Person
HEARD: In Writing
COSTS ENDORSEMENT
1This costs endorsement follows my decision on the contested passing of accounts [1]. The costs are in respect of the contested passing of accounts and other related litigation between Helen Jones (“Helen”) and William Warbick (“William”), the estate trustees named in the Last Will and Testament of the late Pearl Warbick (respectively, the “Will” and “Mrs. Warbick”), and the other beneficiaries concerning the administration of Mrs. Warbick’s estate (the “Estate”).
2Three of the beneficiaries who objected to the accounts put forth by Helen and William, namely Ann Warbick (“Ann”), Michael Warbick (“Michael”) and Pearl Moir, were represented by counsel (collectively the “Represented Objectors”). A fourth, unrepresented, beneficiary, John Warbick (“John”), took part in the passing of accounts hearing before me. A fifth beneficiary, Paul Warbick, did not participate in this litigation.
Interim Orders and Final Judgment
3In the course of the litigation, Helen and William were ordered to pass their accounts as estate trustees. They failed to do so, were found in contempt and removed. Michael and Ann were appointed as successor estate trustees. In addition, William was ordered to vacate the farm, the sole unrealized estate asset, so that it could be sold [2].
4The estate accounts submitted by Helen and William were not approved. The court appointed Michael Carnegie, an accountant with Taylor Leibow (“Carnegie”) to prepare a forensic accounting of the accounts submitted by Helen and William and to prepare accounts in estate passing form. Carnegie’s fees were paid from the net proceeds of the sale of the farm, paid into court [3].
5Pursuant to later court orders, there were further payments out of court to pay Carnegie’s fees, the fees of Dominic Fruci (“Fruci”), the accountant appointed to prepare the Estate tax returns, and to pay Estate income taxes [4].
6The hearing on the passing of accounts took place on December 10 - 12, 2018. The accounting prepared by Carnegie was found to be “the most accurate and reliable accounts of the administration of the” Estate by Helen and William and were passed as their Estate accounts [5].
7Paragraph 73 of the Amended Reasons for Judgment states that as the successful parties, the Represented Objectors were presumptively entitled to their costs and entitled to seek payment of their costs from the Estate and/or a party to the proceedings.
Positions of the Parties
The Represented Objectors
8The Represented Objectors submit that, because of Helen and William’s “reprehensible conduct in defrauding the estate”, the legal costs of the Represented Objectors should be paid by Helen and William on a full indemnity basis [6]. In their submissions, the Represented Objectors also acknowledge that, while some costs would have been incurred to prepare tax returns and to prepare estate accounts, the costs actually incurred for those tasks was tripled as a result of Helen and William’s failure to keep proper records and file regular tax returns. In the alternative, the Represented Objectors requested that their costs be fixed and payable by Helen and William on a substantial indemnity basis, and that the difference be paid by the Estate.
John
9John, was self-represented but actively participated in the litigation. John does not ask for any costs but asks that Helen and William be ordered to pay all of the legal and professional fees that were incurred by the Estate and/or the Represented Objectors, including all of the fees paid to Carnegie and Fruci.
Helen and William
10William did not participate in the passing of accounts hearing and has filed no costs submissions.
11Helen did participate at the hearing but has not provided any costs submissions. Instead, by email of February 21, 2019, addressed to counsel and the Court, Helen provided a doctor’s letter dated February 11, 2019, that states, in part: “I would like to recommend this patient [Helen] not attending any court for two months due to her medical conditions”. The letter concludes by stating that if there are any questions, the addressee may contact the doctor. In her covering email, Helen advised that privacy issues prevent her doctor from “telling all” but that the judge may contact him. I have not done so.
12In her covering email, Helen asserts that something happened to her in court: she could not make out the letters on her paper, felt dizzy, asked for a break and could not recall leaving the courtroom. She states she has no lawyer and no money for a lawyer and is “at a loss as to what to do” and was afraid to submit anything.
13The issue of costs was raised on December 12, 2018, the third and final day of the hearing. On that date, consistent with the position taken in orders sought in previous motions and applications, the Responding Objectors made it clear that they would be looking to Helen and William to pay the costs of the litigation including a portion of the professional fees paid to Carnegie and Fruci.
14On December 12, 2018 I made it clear that, absent an agreement among the parties, I would require written costs submissions following the release of my decision. The parties were told that I did not anticipate releasing my decision until early 2019 and that I would allow the parties ample time from the date of the release of my decision to prepare, exchange, and submit written costs submissions.
15The schedule for the delivery of costs submissions is found at paragraphs 76 to 81 of my Amended Reasons for Judgment, dated January 9, 2019. The Represented Objectors were allowed 21 days to provide their costs submissions; John was given a further seven days after service upon him of the costs of the submissions from the Represented Objectors to deliver his cost submissions; and Helen was provided 14 days after service upon her of John’s cost submissions to deliver her cost submissions, with a final deadline of February 25, 2019.
16As set out above, throughout this litigation, Helen has been on notice that the Represented Objectors would be looking to her and William for the costs of this litigation, including the fees paid to Carnegie and Fruci. Apart from Carnegie’s invoice for preparing for and attending at the hearing before me, rendered after the hearing, Helen knew what had been paid to the accountants.
17There has been an inordinate delay in the administration of the Estate. She died in September 2002 and, had the Will been followed, the Estate could and should have been distributed within a year of September 2012. However, because of the acts and omissions of Helen and William, the realization of the Estate did not conclude until 2017 and its distribution awaits my decision with respect to costs, almost 17 years after the death of Mrs. Warbick and well over five years later than was ever contemplated by the Will.
18Helen does not specifically offer a date on which she would be able to provide written costs submissions. The doctor’s letter attached to Helen’s email of February 21, 2019 states that she may not attend any court for two months (i.e. to April 11, 2019) but is silent on Helen’s ability to prepare written costs submissions. However, I infer that the same recommended two-month deferral would apply to written submissions.
19Helen’s stress related to the Estate administration and accounting is understandable. The Amended Reasons for Judgment contain findings that she and William were in breach of their fiduciary duty and that Helen and William are responsible to repay the Estate for the losses it suffered as a result of those breaches. In addition, William, arguably the more blameworthy of these two estate trustees, chose not to participate in the passing of accounts but left to Helen the unpleasant and impossible task of explaining and justifying their conduct as estate trustees. However, Helen must shoulder responsibility for her actions and inaction as estate trustee and her conduct in the litigation which, to a significant degree, increased the related litigation and professional fees.
20For all the foregoing reasons, it would be unreasonable and unfair in the extreme to delay this costs decision to some future unknown date in order to allow Helen a hiatus from this litigation. Therefore, my decision on costs will be based on the materials and submissions received.
Principles Applicable to Costs
21The Represented Objectors relied on the leading case of Zimmerman v. Fenwick, 2010 ONSC 3855 (“Zimmerman”) in support of their submissions that Helen and William should personally bear the costs connected with the passing of accounts. Zimmerman followed the contested passing of accounts hearing (the “Zimmerman Trial Decision”) in which the court concluded that the estate trustee’s conduct fell well below the standards expected of a trustee and that the estate trustee had breached some of his most basic obligations [7].
22Similar to the findings in this case, in the Zimmerman Trial Decision, the court found that the estate trustee had failed to account; his accounts were inaccurate and incomplete; he failed to comply with court orders that required him to respond to the objections to the accounts; he made improper and unauthorized payments and loans to himself, or for his benefit, from the estate; and he used other assets of the trust for his own personal benefit.
23In the Zimmerman Trial Decision, as in this case, the estate trustee was required to repay amounts wrongly taken. At paragraph 125, the court commented on costs:
[125] Where a lengthy and expensive hearing is required by reason of the trustee’s failure to keep proper accounts, the court may not only deprive him/her of his compensation but also order him/her to personally pay some or all of the costs associated with the passing of accounts: [Carmen S. Theriault, Widdifield on Executors and Trustees, [6th ed. 9 Scarborough, Ont: Carswell, 2002)] at p. 13-7 (other citations omitted).
24In Zimmerman [8], Strathy J. set out the cost principles that applied in that case and which have equal application here:
(a) 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: Courts of Justice Act, R.S.O. 1990, c. C.43, s. 131(1); (b) estate litigation, like any other form of civil litigation, operates subject to the general civil litigation costs regime: McDougald Estate v. Gooderham, 255 D.L.R. (4th) 435, [2005] O.J. No. 2432 (C.A.); (c) as a general proposition, the principle that the “loser pays” applies to estate litigation: Bilek v. Salter Estate; (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: Mark M. Orkin, The Law of Costs, Vol. 1, 2nd ed., looseleaf, (Aurora, Ontario: Canada Law Book, 2010).
25There is little doubt that the Objectors, both the Represented Objectors and John, were successful and that Helen and William would be liable for costs if the “loser pays” principle were applied.
26As in Zimmerman, I too must consider the factors set out in r.57.01 which I apply to the facts here as follows:
(i) Rule 57.01(1)(0.a) – the principle of indemnity: The Represented Objectors were repeatedly required to seek the assistance of the court to obtain an accounting from Helen and William and then to enforce the order directing the accounting to be prepared and filed. There were numerous court proceedings and hearings, culminating in a three-day hearing on the passing of accounts. The costs of those court appearances and applications were reserved to the judge hearing the passing of accounts. In his Reasons for Decision [9] Gordon J. stated that in his view, a lawyer was required to assist in the administration of the estate, including the sale of the farm, filing of income tax returns and tax issues with Canada Revenue Agency and to deal with the estate accounts. [10] Except for one hour, carriage of the litigation on behalf of the Represented Objectors was with Caitlin Murray, a lawyer with five years’ experience as of the date of the Bill of Costs. Through Ms. Murray’s efforts, her clients obtained an accounting of the Estate assets and an order compensating, to some degree, the losses suffered by her clients as a result of the acts and omissions of Helen and William. I am satisfied that the time spent by Ms. Murray was reasonable and appropriate in the circumstances. Ms. Murray’s hourly rates were beyond reasonable: she initially charged her clients $150 per hour, and, as her experience increased, so did her hourly rate, which had increased to $200 per hour as of June 2017.
(ii) Rule 57.01(1)(0.b) – amount that the unsuccessful party could reasonably expect to pay: While ultimately self-represented at the passing of accounts hearing, from time to time Helen and William did retain lawyers from which they would have gained some understanding of the time and effort required from counsel for the various stages of this litigation and the accompanying legal fees. Moreover, as evidenced from the legal accounts rendered to Helen and William by their lawyers from time to time, the rates charged by their counsel exceeded the hourly rate charged by Ms. Murray. As per the submissions of the Represented Objectors, Helen and William were ordered to pay costs on two prior occasions and could have reasonably anticipated that the Represented Objectors would request substantial, if not full indemnity costs, from Helen and William. Those submissions are supported by the credit given of $1,600 to Helen in the Represented Objectors’ Bill of Costs, with respect to Helen’s payment of costs she was ordered to pay.
(iii) Rule 57.01(1)(a) – the amount claimed and recovered: By reason of the litigation initiated by the Represented Objectors, in March 2017, the farm property was sold. The net sale proceeds were $550,000. After payment of certain expenses including outstanding property taxes, $504,720 was paid into court to the credit of the Estate. In addition to that amount, pursuant to my Amended Reasons for Judgment, William and Helen were collectively ordered to repay the Estate the net amount of $73,736.14, bringing the gross amount recovered to close to $600,000. As Helen and William represent two of the seven beneficiaries of the Estate, it is expected that, counted together, their shares of the Estate will be sufficient to fully satisfy the amounts they been ordered to repay to the Estate. However, the Represented Objectors correctly point out that William withdrew and obtained a benefit from the Estate that exceeded his distributive share and, had Helen and William not been stopped in their conduct, it is possible that the Estate could have been consumed in its entirety. [11]
(iv) Rule 57.01(1)(c) – the complexity of the proceeding: Had Helen and William kept accounts or bank statements or any records, their accounting would not have been overly onerous or complicated. Further, because Helen and William refused to provide the beneficiaries with information reasonably requested with respect to the Estate, and failed to pass their accounts, even after they were ordered to do so, the appointment of an accountant was required to prepare a forensic accounting of estate accounts. The conduct of Helen and William unnecessarily complicated the Estate accounting and required the Estate to incur professional fees (accounting, tax and real estate), that it would not otherwise have incurred.
(v) Rule 57.01(1)(d) – the importance of the issues: A full and proper accounting was important to all of the beneficiaries of Mrs. Warbick’s Estate, the majority of whom had received nothing from it despite the clear wishes set out in the Will that the Estate be distributed, at the latest, 10 years after Mrs. Warbick’s death. The realization of the Estate and its distribution to the beneficiaries should have happened in late 2012 or early 2013. Because of the breaches of Helen and William, and the resulting litigation, the beneficiaries still await the receipt of their respective shares of the Estate. I echo the words of Strathy J. in Zimmerman [12] that the issues here are also important, in a broader sense, to the court’s supervisory responsibility over the conduct of trustees.
(vi) Rule 57.01(1)(e) – the conduct of any party that tended to lengthen unnecessarily the duration of the proceeding: Helen and William’s conduct throughout the litigation unnecessarily added to its duration. The Represented Objectors obtained an order in 2014 that Helen and William pass their accounts. Notwithstanding, as a result of Helen and William’s refusal and/or failure to account, to provide accounts, to honour the clear terms of the Will and to realize and distribute the Estate assets, the Represented Objectors had to return to court on numerous occasions to obtain and enforce orders, and to proceed with a three-day hearing on the passing of accounts. Helen and William’s approach to the proper requests for an accounting and the realization and distribution of the Estate was to delay, deny and obstruct. They were found in contempt of court orders, and removed. The successor trustees required the assistance of legal counsel to clean up the mess left by Helen and William.
(vii) Rule 57.01(1)(f) – whether any step in the proceeding was improper, vexatious or unnecessary: The steps taken by the Represented Objectors were proper, reasonable and necessary.
(viii) Rule 57.01(1)(g) – denial or refusal to admit anything that should have been admitted: At the hearing, Helen refused to admit that the Will required the farm to be sold on the 10th anniversary of Mrs. Warbick’s death; she opposed any order that William pay rent for his continued occupation of the farm or that he was obliged to pay all the costs associated with the farm. Rather, Helen initially asserted that the Will gave the estate trustees the discretion to indefinitely defer the sale of the farm, but ultimately conceded the point in cross-examination. Another example of Helen’s refusal to admit something she should have admitted was her claim to be entitled to pre-take interest on the monies she had loaned to the Estate. She objected to Carnegie’s re-characterization of the payment that was made to her as a partial repayment of the loan. The Court accepted the assumptions made by Mr. Carnegie. Helen’s refusal to take a reasonable position on the foregoing and other issues unnecessarily consumed court time and legal and professional fees.
Costs Sought
27In their costs submissions, the Represented Objectors asked for full indemnity costs to be paid by Helen and William in the amount of $59,680.43. This figure includes disbursements and HST less $1,600 already paid by Helen pursuant to a cost order. For the reasons set out above, I have no hesitation in accepting as reasonable the full amount of the legal fees and disbursements claimed in the amount of $61,280.43 reduced to $59,680.43 by reason of the $1,600 already paid by Helen.
28In their written submissions, the Represented Objectors concede that some accounting costs would have been incurred to prepare estate accounts but that because of the lack of record-keeping and failure to prepare and file regular income tax returns the costs of those services was tripled.
29I therefore understand that the Represented Objectors ask for an order that Helen and William be ordered to reimburse the Estate an amount equal to two-thirds of the fees paid to Carnegie and Fruci. Based on the information available to me, I understand that the fees paid to Carnegie and Fruci, either pursuant to court orders or by the Represented Objectors, personally, to be as follows [13]:
(a) Fruci $11,074 [14]; (b) Fruci $4,373.10 [15]; (c) Carnegie $16,950 [16]; and (d) Carnegie $4,972 [17].
Analysis
30As set out in my Amended Reasons for Judgment, Helen and William failed to meet the requisite standard of care in administering the Estate; they breached their obligations as estate trustees and, particularly in the case of William, took advantage of the Estate for their personal benefit and to the detriment of the other beneficiaries. Moreover, even after being ordered to pass their accounts, Helen and William continued their conduct of ignoring their obligations and court orders for reasons personal to them and to the detriment of the other beneficiaries of the Estate.
31The conduct of Helen and William demands cost sanction.
32Based on the facts here, I do not conclude that Helen and William should be ordered to pay costs on a full indemnity scale. However, the facts here easily support a finding, which I make, that Helen and William ought to pay costs on a substantial indemnity scale:
(a) at the end of the day, despite the self-dealing, the farm, which was the largest asset of the Estate, remained available and was able to be sold for an amount that will provide each of the beneficiaries with a reasonable distributive share of the Estate; (b) although the other beneficiaries may not be fully compensated for the loss suffered by reason of the lengthy delay in receiving their share of the Estate or for related losses [18], because Helen and William are also beneficiaries, the losses to the Estate caused by them will be repaid to a significant degree, through Helen and William’s distributive shares of the Estate; (c) Helen and William claim no executor’s compensation. Of course, had that compensation been sought, given the facts as I found them, it would not have been awarded. However, in the early days at least, Helen and William, did protect the Estate assets by defending claims against the Estate brought by Paul Warbick. Those claims were ultimately dismissed, to the benefit of the Estate; and (d) while there was evidence that William signed Helen’s names on cheques, I made no findings of fraud.
Disposition
33For the reasons set out above, William and Helen are ordered to pay the Represented Objectors’ costs on a substantial indemnity basis which I fix at $40,724.28 as follows:
Legal Fees: $31,121.35 HST on that amount of $ 4,045.77 Disbursements plus HST $ 7,177.16 Less Paid by Helen ($ 1,600.00) $40,744.28
34The balance of the fees incurred by the Represented Objectors, namely $18,936.15 ($59,680.43 - $40,744.28) shall be borne by the Estate.
35I accept the submissions of the Represented Objectors that the accounting costs were at least three times what they would have been had Helen and William kept proper accounts and filed regular tax returns. On that latter issue, I note that Fruci submitted voluntary disclosure requests to CRA, by which the Estate sought forgiveness of interest and penalties otherwise payable on the annual unreported income.
36As set out above, I understand that Fruci’s fees totalled $15,477.10 [19]. Helen and William shall reimburse the Estate two-thirds of that amount, namely $10,298.07. The balance of $5,159.03 shall be borne by the Estate. I understand that Carnegie’s fees total $21,922, of which $16,950 was paid from Estate assets and $4,972, (Carnegie’s invoice dated December 18, 2018) was paid directly by the Represented Objectors. The Represented Objectors ought not to be out of pocket at all for Carnegie’s fees. Therefore, at the first instance, they shall be reimbursed by the Estate the $4,972 they paid to Carnegie. However, in the usual course, it is the estate trustees and not their accountant, who would give evidence on a contested passing of accounts. Therefore, I conclude that Helen and William ought to reimburse the Estate the full amount of Carnegie’s invoice of December 18, 2018.
37Helen and William shall also reimburse the Estate the sum of $11,300 which is two-thirds of the $16,950 paid to Carnegie from the Estate assets.
38Helen and William are jointly and severally liable to pay the costs and disbursements set out above. As per paragraph 69 of my Amended Reasons for Judgment, the amounts awarded here shall be paid from William and Helen’s distributive share of the Estate.
39Again, as per paragraph 71 of my Amended Reasons for Judgment, should any party require clarification of how to implement this cost award and/or seek a Court order to authorize Carnegie’s accounting assistance to implement this decision, within 15 days of the release of this decision, they may contact the trial coordinator to schedule a short hearing via conference call.
L. Sheard J.
Released: March 8, 2019
[1] Amended Reasons for Judgment, (released January 9, 2019) 2019 ONSC 88 [2] Reasons for Decision, Gordon J, January 5, 2017 [3] Orders of Gordon J., dated September 10, 2017, December 19, 2017, and March 20, 2018 [4] Order of Gordon J., March 20, 2018. [5] Amended Reasons for Judgment, at para. 51 [6] Written Submissions of the Represented Objectors at para.15 [7] Zimmerman v. McMichael Estate, 2010 ONSC 2947 at para. 113 [8] 2010 ONSC 2947 at para. 4 [9] January 5, 2017, 2017 ONSC 56 [10] Reasons for Decision, at para. 19 [11] As set out in the Amended Reasons for Judgment, as co-estate trustee, to the extent William’s distributive share of the Estate is insufficient to repay what he has taken, Helen’s distributive share is to be used to make up the shortfall. [12] At para. 10 [13] If any party submits that these figures are not correct, they may advise the other party(s) and the Court. [14] Order, Gordon J., December 19, 2017 [15] Order, Gordon J., March 20, 2018 [16] Supra [17] See: Taylor Leibow (Carnegie) Account dated December 18, 2018 for professional services rendered from May 2018 to that date including telephone calls with Helen Jones, receiving her submissions, making changes to the report, printing and shipping the report, preparing for attendance at trial and attending at trial on December 10, 2018 and all other meetings, discussions etc., attached to Respondent Objectors’ cost submissions. [18] The Represented Objectors submitted that this claim was not pursued out of concern that the professional fees would be disproportionate to the amount recoverable. [19] Subject to correction, if required.