COURT FILE NOS.: CV-17-28-ES, CV-16-55 and CV-14-133
DATE: 2019-01-09
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: December 10, 11 and 12, 2018
AMENDED REASONS FOR JUDGMENT
The text of the original Reasons for Judgment was corrected on January 9, 2019 and the description of the correction is set out in Appendix ‘A’.
Justice L. SHEARD
[1] This application for a passing of accounts is the end of a long road of litigation involving various family members of the late Pearl Warbick. These reasons also apply to the outstanding issues raised in Court File Numbers CV-16-55 and CV-14-133[1].
Background
[2] Pearl Warbick (“Mrs. Warbick”) died on September 12, 2002. She was survived by her seven children: Pearl Moir, Ann Warbick, Paul Warbick, John Warbick, William Warbick, Helen Jones and Michael Warbick. In these reasons, I refer to each child by their first name.
[3] Mrs. Warbick’s estate consisted essentially of two pieces of real property located in Dunnville, Ontario: 219 Hendershot Avenue (“Hendershot”) and a residence and 70 acres of land at 7940 Highway 3, R.R. 5, (the “Farm”). At the time of this hearing, both properties had been sold.
[4] In her Last Will and Testament (the “Will”), Mrs. Warbick named Helen and William as her estate trustees, (collectively the “Estate Trustees”). Paragraph 3(c) of the Will directed the Estate Trustees to hold the Farm for William and Paul:
…for a period of 10 years or for so long as William Warbick chooses to remain on the property using it as his principal residence, whichever comes first, provided that my Trustees may at any time with the consent of William Warbick sell the said property, and further provided that all costs for the property including but not limited to taxes, insurance, upkeep and maintenance shall be the responsibility of any of my said sons, William Warbick and Paul Warbick, residing on the property, and upon the termination of the right of occupation as hereinbefore referred to or upon the unwillingness of my said sons to pay the expenses for the property as hereinbefore referred to, the said property shall be sold and the net proceeds therefrom shall form part of the residue of my estate and to be disposed of accordingly.
[5] For reasons that are not relevant here, Paul did not reside on the Farm but William did. William remained on the Farm until February 27, 2017, more than four years beyond the 10 years set out in paragraph 3(c) of the Will. William moved off the Farm pursuant to court order and the sale of the Farm was completed thereafter.
[6] Soon after the death of Mrs. Warbick, Paul brought two claims against the estate[2]. Both were ultimately dismissed for delay in 2009 but Paul’s lien claim respecting Hendershot resulted in a portion of the sale proceeds of Hendershot being paid into court and an order freezing the estate assets. Those funds were then unavailable to pay estate debts, including Mrs. Warbick’s line of credit with TD Canada Trust in the approximate amount of $65,000 (the “LOC”).
[7] On October 20, 2014, Ann, Michael and Pearl, represented by Caitlin Murray, obtained an order requiring the Estate Trustees to file their estate accounts and to bring an application to pass accounts within 30 days[3]. The Estate Trustees did not do so.
[8] In January 2015, Ann, Michael and Pearl brought a motion to find Helen and William in contempt of the October 20, 2014 Order[4].
[9] On April 28, 2016, Ann, Michael and Pearl brought an application seeking, among other things, an order removing the Estate Trustees and appointing Michael and Ann as successor estate trustees, requiring the Estate Trustees to pass their accounts and that William vacate the Farm[5].
[10] In his Reasons for Decision dated January 5, 2017 (the “January 5 Order”), Gordon J. found the Estate Trustees in contempt of the October 20, 2014 Order. Helen and William were removed as estate trustees and Michael and Ann appointed as successor estate trustees. Also, Helen and William were ordered to turn over to Michael and Ann all documents and information relating to the estate; William was ordered to vacate the Farm by February 28, 2017; and the Farm was to be immediately listed for sale, if the agreement of purchase and sale previously entered into by Helen and William failed to close. All other claims raised in Court File Nos. CV-14-133-ES and 16-55 were reserved to be addressed on the passing of accounts.
Helen and William’s Estate Accounts
[11] On February 27, 2017, the Estate Trustees filed their estate accounts and brought an Application to have them passed.[6] The accounts covered the period September 2002 to November 2016.[7]
[12] Ann, Michael and Pearl, represented by Ms. Murray, and John, who was self-represented, filed Notices of Objections to the Estate Trustees’ accounts. The Estate Trustees filed a Response to the Notices of Objection.
[13] The hearing of the passing of accounts came before Gordon J. on September 26, 2017[8]. He did not approve the accounts and instead ordered the appointment of a forensic accountant to review and report to the court respecting the Estate Trustees’ accounts. The Estate Trustees and Michael and Ann, as the succeeding estate trustees, were to co-operate with the forensic accountant. The cost of the preparing new estate accounts was to be paid initially by Mrs. Warbick’s estate.
[14] On October 24, 2017, Gordon J. appointed Michael Carnegie, B. Comm, CPA, CA, CBV, of Taylor Leibow LLP, to provide a forensic accounting of the Estate Trustees’ accounts and, if possible, to prepare accounts in the form prescribed by r. 74.18[9].
[15] By Order dated March 20, 2018, Gordon J. set out a timetable for the preparation of Mr. Carnegie’s draft report and the parties’ responses to the draft report. He also ordered that Dominic Fruci, the accountant who was to prepare the requisite income tax returns, and Mr. Carnegie were to be paid from estate funds at the first instance but the final determination of who should pay some or all of fees was to be decided by this Court.
Current Passing of Accounts: December 10-12, 2018
(i) The Carnegie Report
[16] Mr. Carnegie prepared an Estate Accounting Report (the “Carnegie Report”). It included his Executive Summary of the forensic accounting he undertook of the Estate Trustees’ accounting and an accounting at Tab 2, which consisted of a 63-page Excel spreadsheet (the “MC Accounts”) that record the estate’s assets, liabilities, income, and expenses that Mr. Carnegie was able to ascertain from the available documentation and information[10]. The MC Accounts cover the period September 12, 2002 to February 2017. No transactions in the estate bank account were recorded in February 2017, but the spreadsheet does record, without a date, funds that were paid pursuant to the Orders of Gordon J.
[17] The MC Accounts include a column entitled “Beneficiaries’ Equity” that tracks monies paid to or from the estate by or to a beneficiary. As the only beneficiaries to have had financial dealings with the estate, William and Helen are the only beneficiaries with Beneficiary Equity accounts. Tab 3 of the Carnegie Report sets out the scope of review and lists the documents reviewed or relied upon[11].
[18] Mr. Carnegie also referenced a report prepared by Jack Huitema of Coldwell Banker K. Miller Realty, Brokerage who was asked to provide Mr. Carnegie with a figure attributable to the rental income that the estate would have earned had the Farm been rented to a tenant between September 12, 2012 to February 27, 2017, on which date William vacated the Farm (the “Huitema Opinion”).
[19] At the outset of the hearing, Helen was asked for her position with respect to the Carnegie Report. She objected to it on the basis that the accounting went beyond the December 31, 2016 end date used in the Estate Trustees’ accounts, and that it did not appear to refer to the Estate Trustees’ original accounts. Those objections were addressed in the course of the hearing: Helen agreed that the Estate Trustees’ accounts should extend to January 5, 2017 and Mr. Carnegie confirmed that he did consider the Estate Trustees’ accounts, referenced at Tab 3 of the Carnegie Report.
(ii) Evidence of Michael Carnegie: Beneficiary Equity Accounts
[20] Mr. Carnegie attended the hearing, ready to testify and to answer any questions about the Carnegie Report. He was the first witness at this hearing and, although Ms. Murray conducted his examination-in-chief, his evidence was given as the court-appointed expert.
[21] Mr. Carnegie was qualified as an expert chartered professional accountant with expertise in litigation and forensic accounting issues. He confirmed that he reviewed the documents listed at Tab 3 of the Carnegie Report and had invited and received comment from the beneficiaries, including Helen. Mr. Carnegie stated that when faced with missing bank statements, credit card statements, and receipts, he made assumptions based on a pattern that he had seen in this estate and/or his professional experience and judgment.
[22] Mr. Carnegie assumed that, during his occupation of the Farm, William was to be responsible for all Farm-related expenses. Therefore, any cheques written on the estate account to pay a post-death Farm-related expense such as insurance, property taxes, hydro or telephone, those expenses were added to William’s “Beneficiary Equity Account”. Cheques paid to William or “to cash” that were characterized as household expenses, were also added to William’s Beneficiary Equity Account.
[23] In her cross-examination of Mr. Carnegie, Helen challenged his adding the cost of the roof repairs on the Farm to William’s Beneficiary Equity Account. She asserted that this was not “upkeep and maintenance” as contemplated by the Will, but a replacement of the roof which had not been replaced since the late 1970s. Mr. Carnegie’s response was that, based on his understanding of the Will and the direction given to him by Gordon J., all the post-death Farm expenses were to be allocated to William, including the roof repair, subject to my final determination of any such allocations.
[24] Using the rental amounts in the Huitema Opinion, Mr. Carnegie imputed rent payable by William from and after October 1, 2012. Mr. Carnegie gave William credit for any property taxes he paid after October 1, 2012, because he believed that tenants are not usually required to pay property taxes in addition to rent.
[25] Mr. Carnegie assumed that payments to credit card companies and other expenses made shortly after Mrs. Warbick’s death, related to her pre-death credit card debt. Those were recorded as expenses of the estate. Mr. Carnegie found a number of estate cheques payable to William, without explanation or receipt, which he credited to William’s Beneficiary Equity Account. Other payments or withdrawals made without explanation or receipt were allocated equally to Helen’s and William’s Beneficiary Equity Accounts.
[26] Mr. Carnegie determined that William had been paid or received the net equivalent of $92,157.94 from the estate. Consequently, William’s Beneficiary Equity Account shows a balance of that amount. Helen questioned how that was possible, given the estate did not have $92,157.94 to pay to William. Mr. Carnegie explained that in arriving at that figure, he included the monthly rent that William ought to have paid between October 2012 and February 2017 (52 months at between $600 - $700 per month); $2,500 allocated to William for the car that belonged to the estate, which he took for himself as evidenced by a receipt signed by William on December 15, 2002 and witnessed by Helen[12]; all cheques or withdrawals payable to William, and 50 percent of all cheques or withdrawals recorded in the bank statement but for which no cheque or explanatory invoice or receipt was produced.
[27] Using the same approach, Helen’s Beneficiary Equity Account is shown to have a balance of ($18,421.80), which reflects a net (over)payment to the estate in that amount. The majority of this overpayment is attributable to $30,000 paid on October 21, 2004 by Helen on behalf of the estate to reduce the LOC. In cross-examination, Mr. Carnegie stated that he did not calculate or credit Helen with any interest payable by the estate on her $30,000 payment, in part, because the estate might have been able to pay down the LOC sooner, had William and/or Helen not withdrawn or spent estate funds for their own use.
(iii) Reconciliation of Beneficiary Equity Accounts
[28] The Carnegie Report suggests two ways for the estate to address the balances in William’s and Helen’s Beneficiary Equity Accounts.
[29] The first approach treats Helen and William separately: Helen’s overpayment to the estate of $18,421.80 would be added to her 1/7 distributive share of the estate and William’s overpayment from the estate would be set off against his 1/7 distributive share of the estate. In the likely event that William’s 1/7 share is less than $92,157.94, William would owe money to the estate.
[30] The second approach groups William and Helen together on the basis that as co-estate trustees they are jointly responsible for losses to the estate. On that basis, the ($18,421.80) in Helen’s Beneficiary Equity Account is applied to reduce William’s $92,157.94 overpayment, leaving the net amount of $73,736.14 owing jointly by the Estate Trustees. This amount is then deducted in equal amounts from Helen and William’s distributive shares of the estate. Using this approach, and based on the estimated amount available for distribution, the estate is made whole and Helen and William could each receive some payout from the estate upon final distribution.
[31] The Carnegie Report also estimates amounts that might be available for distribution. That estimate includes the $92,157.94 owing to the estate by William and deducts the $18,421.80 payable to Helen. The Carnegie Report includes alternative estimates, with and without reserves, for legal fees incurred by Helen and William, estimated at $38,658.11. In either scenario, if William and Helen are treated separately, William’s distributive share of the estate is insufficient to repay what he has already received from the estate.
[32] Mr. Carnegie was clear in his testimony that his calculations and suggested approaches were included for the benefit of the parties and the Court. He also fully understood that those decisions were not his to make. He also offered to assist the parties in calculating amounts when the Court had decided which deductions or credits or expenses should be made.
[33] Mr. Carnegie’s evidence and the Carnegie Report were of invaluable assistance to the parties and to the Court in understanding what has happened with the estate assets from September 12, 2002 to January 5, 2017.
(iv) Evidence of Helen
[34] Although Helen and William had engaged lawyers from time to time, she was self-represented at the hearing. Helen testified that she did (and does) treat her role as estate trustee very seriously. However, almost from the outset, she felt “bombarded” by the beneficiaries who challenged her ability to act as a trustee. Helen believes that the beneficiaries interfered with her ability to discharge her duties as estate trustee.
[35] Helen was ill-prepared at the hearing. She had few documents with her and, in particular, did not bring legal invoices from lawyers Yanch, Charko, or Bastien, on which she wished to rely. On day one of the hearing, rather than to lose valuable court time by adjourning early to allow Helen to go home to collect her documents, John agreed to begin his cross-examination of Helen on the basis that Helen would be permitted to continue her evidence in-chief on the following day.
[36] On day two of the hearing, Helen returned with some documents. These included what she stated was a default judgment obtained by solicitor Charko against her and William. Counsel for the Objectors objected to this document being entered in evidence. Firstly, Helen did not have a copy of Mr. Charko’s invoice, which would show what services he had rendered and, secondly, because this document had not been previously produced. The default judgment was ruled inadmissible as evidence.
[37] Similar objections were made when Helen sought to put forward documents relating to legal invoices, copies of which had not been previously disclosed to or provided to the respondents. Similarly, these documents were held to be inadmissible.
[38] Helen also sought to give evidence about certain photographs taken by William of the Farm and that had been filed in response to the Objections. The goal of this evidence was to show that William had cleaned up the Farm and was entitled to payment for his services, as per the invoices he submitted to the estate, which have not been paid. While the photographs show tires and other debris at the Farm, Helen did not know when the photographs were taken nor whether the debris shown in the photos had been removed by William, or at all. Helen’s evidence could not establish that William had performed any of the services for which he had submitted invoices to the estate and was of little value.
[39] Helen acknowledged that she did not have receipts and that she and William had kept records only in the first two years of their administration of the estate. Those records were lost in a flood in her home. Helen stated that the Estate Trustees stopped keeping records because they were overwhelmed by the two lawsuits initiated by Paul. Later, Helen said she could not properly fulfil her role as estate trustee because of personal responsibilities, which took precedence. Helen resisted stepping aside as an estate trustee in the expectation that her personal life would resolve and she would again be able to discharge her duties as an estate trustee.
[40] Helen testified that the estate account cheques required two signatures and that she and William routinely exchanged pre-signed blank cheques so that each of them would be able to complete cheques without having to meet in person to sign. Helen admitted she did not check the bank account to monitor the amounts coming out of the estate bank account; instead she accepted William’s word that any cheques or withdrawals he completed were for proper estate expenses. Helen acknowledged that she did not fulfill her due diligence obligations and was not aware of what monies were coming in and out of the estate account.
[41] Helen also disclosed that she discovered William had forged her name on estate cheques. She said that her trust with William was broken when she discovered this but that she neither disclosed his breach of trust to the beneficiaries, nor sought to have him removed, or to resign herself. Helen asserted that she took the remaining blank cheques to keep William from signing her name on them. However, it is clear from the Carnegie Report that William continued to sign cheques on his own, the last of which cleared after January 5, 2017 on which date the Estate Trustees were removed.
[42] Helen stated that her last visit to the Farm was in 2011. She stopped visiting out of concern for her asthma because she learned that there was asbestos in the residence on the Farm. Helen stated that she had submitted a claim for compensation for the asbestos as part of a class-action lawsuit, but did not produce any supporting documentation.
[43] Helen also asserted that the Farm could not be sold while the asbestos class-action lawsuit was ongoing and, for that reason, William had to remain on the Farm, which justified his paying no rent on the Farm for the 52 months following the expiration of the 10-year period. Helen stated that once the class-action lawsuit was settled and compensation had been received, she and William immediately listed the Farm. Helen stated the estate was paid $392 in compensation in the class-action lawsuit, but could not explain why that amount was not deposited into the estate bank account. The Estate Trustees entered into an Agreement of Purchase and Sale for the Farm in December 2016.
[44] In her cross-examination by Ms. Murray, Helen further defended the decision to allow William to stay on the Farm and to postpone its sale on the basis that the paragraph 3(a) of the Will gave the Estate Trustees discretion to delay realization of the estate assets. Helen ultimately conceded that the clear language of paragraph 3(c) of the Will required the Farm to be sold at the conclusion of 10 years or prior to that date if William did not pay the expenses for the Farm.
[45] Both in her examination in-chief and in cross-examination, Helen stated that the lawyers retained by the Estate Trustees recommended that the Farm be sold. Helen stated that the Estate Trustees did not accept that advice because they had only been ordered to pass accounts, not to sell the Farm. Also, the Estate Trustees had retained lawyers to assist them to prepare estate accounts, not to give advice on selling the Farm.
(v) $13,000 “interest” payment to Helen
[46] As a result of the litigation brought by Paul, a portion of the Hendershot sale proceeds was paid into court. On August 12, 2010 those monies were released from court and $47,634.76 was deposited into the estate bank account. On that date the $33,571.99 balance owing on the LOC was paid and Helen wrote herself a $13,000 cheque on the estate account. Helen explained that the $13,000 was for present and future interest owing on the $30,000 she lent to the estate in 2004. Helen admitted that the Estate Trustees had never agreed that she could charge the estate interest for this loan and that she just “told” William that she was taking this money. Helen testified that she was glad she had taken the money because she had been told by the beneficiaries that she would never see the return of her $30,000.
[47] The $13,000 is reflected in Helen’s Beneficiary Equity Account as a repayment on account of the principal respecting the $30,000 loan.
Executor Compensation
[48] Helen and William are not claiming compensation as estate trustees.
Issues to be Decided
Should the MC Accounts be passed as the accounts of the Estate Trustees?
If so, what allowances or holdback, if any, should be given for contingent liabilities identified in the Carnegie Report?
Did the Estate Trustees meet the requisite standard of care in administering the estate? If not, are they jointly liable for any damages caused as a result of their failure to properly discharge their fiduciary and other duties as estate trustees?
If the Estate Trustees failed to properly discharge their duties, what damages were caused as a result?
Issue 1: Should the MC Accounts be passed as the accounts of the Estate Trustees?
[49] As stated above, Helen’s objections respecting the end date of the MC Accounts and that they did not appear to consider the original Estate Trustee accounts was fully addressed in Mr. Carnegie’s evidence. With respect to allocations to the Beneficiary Accounts for unexplained payments or missing cheques, Helen concedes that the Estate Trustees have no records to verify that any of those payments were valid estate expenses. Moreover, Helen admits that she relied on William to inform her with respect to the management and maintenance of the Farm. As William chose not to participate in the hearing, his evidence was not available.
[50] The Objectors accept the Carnegie Report and the MC Accounts, but did make submissions on which of the two approaches set out in the Carnegie Report for dealing with the Beneficiary Equity Accounts should be used. Those are addressed below.
Disposition
[51] In the face of incomplete records, I find the MC Accounts to be the most accurate and reliable accounts of the administration of the estate by the Estate Trustees as could be prepared. Accordingly, the MC Accounts, including the Beneficiary Equity Accounts, are passed as the estate accounts of the Estate Trustees.
[52] My reasons with respect to my approval of the Beneficiary Equity Accounts are as follows:
(a) Rent chargeable to William:
I accept as reasonable and approve the imputation of rent to William from and October 1, 2012 to February 27, 2017. I note that the rent varies in accordance with the Huitema Opinion and that credit was properly given to William for property taxes that he paid.
(b) Roof repairs:
I accept as reasonable and approve the allocation to William of the cost of all repairs to the Farm while he occupied the Farm. By the terms of the Will, William was responsible for all expenses and there is no basis to separate or segregate expenses that might be characterized as capital expenses from expenses that might be characterized as operating or ongoing expenses.
(c) $13,000 payment to Helen:
I accept as reasonable and proper the allocation of the $13,000 payment made to Helen as a partial repayment the $30,000, and not as a payment of interest. In reaching that conclusion I consider that there was never any agreement that the estate pay Helen interest. Further, Helen’s evidence was that the payment included future interest. Paying herself interest, yet to have accrued, was clearly improper.
I also consider that but for mismanagement and self-dealing by the Estate Trustees, there would have been money in the estate to service or repay the LOC. An example of mismanagement was the Estate Trustees’ failure to vigorously defend Paul’s claims which had the effect of depriving the estate of a portion of the sale proceeds of Hendershot. Further, Helen and William did not pursue obtaining a costs order against Paul. If there were any failures on the part of lawyers retained by the Estate Trustees, as alleged by Helen, the Estate Trustees, and not the estate should suffer the consequences of the choices made and actions taken or not taken, to obtain redress for shortcomings or failings, if any, on the part of their lawyers.
Issue 2: What allowances or holdback, if any, should be given for contingent liabilities identified in the Carnegie Report?
[53] Page 18 of the Carnegie Report lists a possible reserve for legal fees totaling $38,658.11 for legal fees respecting lawyers Yanch, Charko and Bastien. For the reasons set out below, I conclude that no reserve for these legal fees should be included in the estate accounts.
(a) Yanch Accounts
There is a reserve shown in the amount of $18,546.45. The Estate Trustees did not provide a copy of the Yanch account for the Court’s consideration. Accordingly, there is no evidence upon which this Court could find that any or all of the services rendered by Mr. Yanch ought to be treated as estate expenses, payable by the estate.
Further, in her evidence, Helen indicated that Mr. Yanch’s account(s) were not paid. Finally, Helen’s evidence suggests that Mr. Yanch has not attempted to collect his account(s) and that the limitation period for his doing so has long since expired. I therefore conclude that no amount ought to be reserved for the payment of this account.
(b) Charko Accounts
The MC Accounts include a payment of $2,500 to Mr. Charko as an estate expense. I would not disturb that allocation. However, there was no evidence put forward on this passing to support a reserve of $11,388.43. At the hearing, Helen did not have a copy of the Charko invoice upon which his default judgment against the Estate Trustees is apparently based. Also, Ann and Michael (as successor estate trustees) are aware of the Charko default judgment. I would have expected that if Mr. Charko had obtained a judgment against the estate, as opposed to a judgment against the Estate Trustees, that the beneficiaries would have raised that issue before me.
Based on the admissible evidence, I was unable to determine if all or any of the services rendered by Mr. Charko ought to be treated as estate expenses, payable by the estate. Therefore, I conclude that no reserve should be included in the MC Accounts.
(c) Bastien Professional Corporation Accounts
Helen did not provide the Court with a copy of the Bastien invoice(s) which may comprise the reserve of $8,723.23 noted at page 18 of the Carnegie Report. Accordingly, there is no evidence upon which this Court could find that any or all of the services rendered by Mr. Bastien ought to be treated as estate expenses, payable by the estate.
Further, Helen’s evidence respecting the services that may have been rendered by Bastien Professional Corporation suggest that he was retained to defend the contempt motion and to prepare estate accounts. If the accounts filed by the Estate Trustees were prepared by Bastien Professional Corporation, and for which they paid Mr. Bastien, then the Estate Trustees may address reimbursement of that expense in their costs submissions.
(d) Wayne Sydney Novak
Helen asked that the estate reimburse her for legal fees taken by Wayne Sydney Novak. Helen stated she had retained Mr. Novak to act for her personally on a slip and fall claim and to act for the Estate Trustees. She stated that Mr. Novak used her slip and fall settlement to pay himself for services rendered to the Estate Trustees. Mr. Novak was disciplined for this and other things, and on March 7, 2018, the Law Society of Upper Canada revoked his licence to practise law. A copy of the Discipline Decision was made an exhibit at this hearing. Paragraph 34(5) of that decision states that Mr. Novak is to execute a direction to the Warbick estate “directing that any funds owed or found in future to be owing to the Respondent [Mr. Novak] by the estate of PW [Pearl Warbick] shall be paid to HJ [Helen]…”
Helen did not provide Ann and Michael with a copy of the Novak invoice or with any documentation concerning the services Mr. Novak may have rendered on behalf of the estate, as she was required to do pursuant to the January 2017 Order. As a result of her nondisclosure, Helen was not permitted to put a copy of the Novak invoice into evidence at this hearing. Therefore, there was no evidence before the Court as to what amount Helen may have paid to Mr. Novak and whether any or all of that payment related to legal services rendered to the Estate Trustees and for which the estate should be responsible.
[54] I wish to make clear that my decision with respect to the holdback for legal fees is restricted to the passing of the estate accounts of the Estate Trustees. When Ann and Michael determine to make a final distribution of the estate, it will be up to them to decide whether a holdback or reserve is required to protect them from any claims mentioned here.
Issue 3: Did the Estate Trustees meet the requisite standard of care in administering the estate?
[55] In the January 5 Order, Gordon J. set out the factors to be considered by a court on an application to remove estate trustees. He found that all the factors identified in applicable jurisprudence applied to this case. In particular, Gordon J. determined that the Estate Trustees had delayed in selling the Farm, failed to account, and failed to keep the beneficiaries informed.
[56] The evidence at this hearing showed that the Estate Trustees used the estate monies for their own purposes; failed to keep receipts or a complete set of bank statements; failed to explain or account for amounts disbursed from the estate bank account; failed to act with diligence in defending claims against the estate; failed to pay the expenses related to the Farm as required by the Will; and allowed William to overstay his permitted occupation of the Farm by more than four years.
[57] In her testimony, Helen acknowledged that the Estate Trustees knowingly breached the terms of the Will and knowingly misapplied and misspent estate funds to the detriment of the beneficiaries of the estate. Helen further admitted that the Estate Trustees refused to follow legal advice given to them to sell the Farm.
[58] It is significant that William did not take part in the passing of accounts. Not only was he obliged by law and court order to do, as the person with effective control of the Farm from and after the death of Mrs. Warbick, William alone was able to offer evidence concerning the Farm. In failing to attend the hearing, William left Helen in the difficult position of having to explain and defend the conduct of the Estate Trustees.
[59] Helen’s testimony revealed the Estate Trustees’ numerous breaches of their duties. Those breaches are detailed above and do not need to be repeated.
Disposition
[60] The evidence before the Court unequivocally supports a finding that the Estate Trustees failed to meet the requisite standard of care in administering the estate. The testimony of Helen alone leads me to conclude that the Estate Trustees fell well below the standard of care expected of an estate trustee who is expected to act as a “person of ordinary prudence would act” (Fales v. Canada Permanent Trust Co., 1976 CanLII 14 (SCC), [1977] 2 S.C.R. 302, at 316).
Issue 4: Are the Estate Trustees jointly liable for any damages caused as a result of their failure to properly discharge their fiduciary and other duties as estate trustees?
[61] The law is well-established that a co-trustee is “not entitled to shrug off the wrongful actions of a co-trustee on the basis that he knew nothing of what the other was doing; as a fiduciary, he is responsible for all acts of trusteeship, and he therefore carries a several, as well as a joint, liability for all that is done in the name of the trust or through the exercise of the office of trustee.” (Donovan W. M. Waters, Waters’ Law of Trusts in Canada, 4th ed. (Toronto: Carswell, 2012), at p. 43, cited with approval in Cahill v. Cahill, 2016 ONCA 962, at para. 35). Further, as noted in Cahill, s. 35 of the Trustee Act does not excuse a person who does nothing (at para. 54).
[62] As described above, both Helen and William were in breach of their duties as estate trustees and by virtue of their joint liability, the Estate Trustees are jointly and severally responsible to the beneficiaries for the losses and damages suffered by the estate as a result of their breaches, acts and omissions.
Damages
[63] Ann, Michael, and Pearl accept the MC Accounts. John also accepts the MC Accounts, but opposes a reserve for legal fees. I need not address that issue in light of my decision not to allow a reserve. Further, as set out in detail above, the Beneficiary Equity Accounts track the direct losses to the estate as a result of the Estate Trustees’ breaches and represent a reasonable estimation of the damages suffered by the estate.
Repayment of Overpayment
[64] On a passing of accounts, the court must determine the amount that remains in the hands of the estate trustees at the end of the accounting period. That amount takes into account any expenses that have been claimed but not allowed. The end result can be a judgment that requires the estate trustees to repay disallowed amounts to the estate. It is not uncommon to reduce the executor’s compensation payable by the amount of any disallowed expenses. Here, although no compensation is claimed, the Estate Trustees are also beneficiaries, which allows repayment to come from Helen and William’s respective shares of the estate (see Fraser (Shaw) v. Shaw, 2016 ONSC 1073).
[65] As mentioned above, the Carnegie Report suggests two approaches to recovering William’s overpayment. Using the first approach, William and Helen are treated separately: Helen is repaid her $18,421.80 credit and the $92,157.94 owed by William is repaid from his distributive share of the estate. The estate would then have to pursue collection from William of any shortfall.
[66] Under the second suggested approach, William’s and Helen’s Beneficiary Accounts are grouped together, resulting in a net amount owing to the estate of $73,736.14. Helen and William would then pay 50 percent of the $73,736.14 from their distributive share of the estate. This approach benefits William in two ways. Firstly, his $92,157.94 debt is reduced by Helen’s $18,421.80 credit and then it is divided in half, with each of the Estate Trustees paying 50 percent. This approach simplifies collection for the estate and is likely to guarantee full recovery of its losses from amounts payable by the estate to the Estate Trustees.
[67] Ann, Michael and Pearl ask the Court to adopt the second approach.
Disposition
[68] I have considered the two above approaches and conclude that neither would lead to a just result. Instead:
(1) because William received a greater benefit from the estate than Helen, I order that William’s distributive share of the estate should be used/applied to repay his $92,157.94 debt to the estate;
(2) thereafter, because of her own breaches and also because both Estate Trustees are jointly and severally liable to the estate for damages, if William’s distributive share of the estate is insufficient to repay the $92,157.94, Helen’s $18,421.80 credit shall next be used/applied to pay the balance owing on the $92,157.94; and
(3) if, after applying the $18,421.80, the $92,157.94 has still not been repaid, the estate may next look to Helen’s distributive share of the estate to pay any balance.
[69] In addition to the above, should the Estate Trustees owe any additional amounts to the estate, including any costs that may be awarded against them, those additional amounts may be paid from William and Helen’s distributive share of the estate.
[70] It is intended by these Reasons, and the Court directs, that neither William nor Helen is to receive payment of any portion of their distributive share of the estate, or, in the case of Helen, any portion of her $18,421.80 credit, unless and until the estate has been paid any and all amounts that may be found owing to it by one or both of the Estate Trustees, including any costs that may be awarded.
[71] Should any party require clarification of how to implement my decision above, and/or seek a court order to authorize Mr. Carnegie’s accounting assistance to implement this decision, within 15 days of the release of this decision they may contact the trial co-ordinator to schedule a short hearing via conference call.
Costs
[72] I did hear brief costs submissions on December 12, 2018 but advised the parties that they would have the opportunity to make written costs submissions following the release of my decision.
[73] In accordance with accepted principles, costs in estate litigation are generally awarded to the successful party(ies), payable by the unsuccessful party(ies). In this case, and subject to any contrary determinations that were made by the Court in the other related proceedings, the Objectors are the successful parties. Therefore, the Objectors, Ann, Michael and Pearl, and John, are presumptively entitled to their costs. They are free to ask for their costs to be paid from one or more of the estate and a party to the proceedings.
[74] The costs to be addressed include not only the costs of this application to pass accounts but also include any costs that were reserved to be decided by me in this or the other two Applications referred to in paragraph [1] above.
[75] The parties’ costs submissions may address the amount payable for:
(i) legal fees and by whom the fees should be paid; and
(ii) professional fees, including, but not limited to, fees paid, or payable, to Mr. Carnegie and Mr. Fruci (including any claim for reimbursement to the estate for amounts previously paid pursuant to court order).
Schedule for Delivery of Costs Submissions
[76] Unless costs have otherwise been resolved between the parties, within 21 days of release of these reasons (January 28, 2019), Ann, Michael, and Pearl, (the “Represented Objectors”) shall serve Helen and John with their written costs submissions (not to exceed three pages) together with any supporting dockets, invoices, and accounts, and offers to settle, if applicable, and submit them to the Court, with proof of service.
[77] Within 7 days after service upon him of the costs submissions from the Represented Objectors (February 4, 2019), John shall serve Helen and counsel for the represented Objectors, with his costs submissions (not to exceed three pages, together with any supporting dockets, invoices and accounts and applicable offers to settle) and submit them to the Court, with proof of service. If John chooses not to deliver written costs submissions, he shall in any event advise the parties and the Court in writing.
[78] Within 14 days after service upon her of John’s written costs submissions or of his written notice that he will not be delivering costs submissions (February 18, 2019), Helen shall serve the Represented Objectors and John with her written costs submissions (not to exceed three pages, together with any supporting dockets, invoices, and accounts, and applicable offers to settle) and submit them to the Court, with proof of service.
[79] If either of the Represented Objectors or John seeks to deliver responding submissions to Helen’s costs submissions, they shall serve and submit their responding submissions within 7 days of service upon them of Helen’s costs submissions (February 25, 2019).
[80] The costs submissions may be served by email as follows:
(a) Helen Jones at: krystil2222@gmail.com
(b) William Warbick, c/o Helen Jones at: krystil2222@gmail.com
(c) John Warbick at: kjcanboro@gmail.com
(d) Caitlin Murray at: caitlin.murray@arrelllaw.com
[81] Materials are to be forwarded to me via email at Hamilton.superior.court@ontario.ca or sent by mail to my attention at 45 Main Street East, Suite 626, Hamilton, Ontario, L8N 2B7. If costs submissions have not been submitted to me by February 25, 2019, I will assume that the parties have resolved the issues of costs.
Sheard J.
Released: January 9, 2019
APPENDIX A
January 9, 2019
- At paragraph [9] of these Reasons for Judgment, the name “Michael” has been replaced with “William”:
[9] On April 28, 2016, Ann, Michael and Pearl brought an application seeking, among other things, an order removing the Estate Trustees and appointing Michael and Ann as successor estate trustees, requiring the Estate Trustees to pass their accounts and that William vacate the Farm5.
- At paragraph [62] of these Reasons for Judgment, the name “Michael” has been replaced with “William”:
[62] As described above, both Helen and William were in breach of their duties as estate trustees and by virtue of their joint liability, the Estate Trustees are jointly and severally responsible to the beneficiaries for the losses and damages suffered by the estate as a result of their breaches, acts and omissions.
COURT FILE NOS.: CV-17-28- ES CV-16-55, and CV-14-133
DATE: 2019-01-09
ONTARIO
SUPERIOR COURT OF JUSTICE
CAYUGA
IN THE ESTATE OF PEARL WARBICK, deceased
BETWEEN:
Helen Hones and William Warbick
Applicants/Estate Trustees
– and –
Ann Warbick, Michael Warbick, and Pearl Moir
Respondents/Objectors
– and –
John Warbick
Respondent/Objector
REASONS FOR JUDGMENT
Sheard J.
Released: January 9, 2019
[1] As per Order of Gordon J., Reasons for Decision, dated January 5, 2017, Ct. File Nos.CV-14-133 and CV-16-55
[2] Paul did not participate in this or the related application.
[3] Court File No. CV-14-133-ES, Gordon J.
[4] Court File No. CV-14-133
[5] Court File No. CV-16-55
[6] Court File No. CV-17-28-ES
[7] Marked as Exhibit 3 at the hearing of the passing of accounts.
[8] Gordon J. endorsement is mistakenly dated 26/10/17.
[9] Rules of Civil Procedure, R.R.O. 1990, Reg. 194
[10] The Estate Trustees’ had no receipts and bank records were incomplete.
[11] Including statements and cancelled cheques for the estate bank account, LOC statements, the original Estate Trustee accounts, available credit card statements, land-rental receipts (relating to income earned from the rental of the Farm) and statements of adjustments from the sales of Hendershot and the Farm.
[12] Marked as Exhibit “2” at the hearing
5 Court File No. CV-16-55