ONTARIO
SUPERIOR COURT OF JUSTICE
IN THE MATTER OF THE GRAHAM
FAMILY TRUST
BETWEEN:
MICHAEL LLOYD GRAHAM personally and in his capacity as Trustee for the Graham Family Trust
Applicant
– and –
MICHELLE BENTON, DAVID BENTON, GEORGE H. SMITH in his capacity as Trustee for the Graham Family Trust, RICHARD SHIELDS in his capacity as Trustee for the Graham Family Trust, HARRY GRAHAM, DALTON GRAHAM, SANDRA LEE GRAHAM, MARIE HUTCHINSON, KAREN PILLON, MELISSA GRAHAM, SHANNON NEDDO, NICOLE GRAHAM, STEPHEN HUTCHINSON, GRAHAM HUTCHINSON, SHANE HUTCHINSON, MATTHEW PILLON, SARAH BENTON, VICTORIA BENTON, DAVID BENTON, MICHAEL A. GRAHAM, ROBERT J. GRAHAM, THE OFFICE OF THE CHILDREN’S LAWYER on behalf of the minors HADLEY MAE HUTCHINSON and GWENDOLYN HUTCHINSON, and all unborn and unascertained Beneficiaries of the Graham Family Trust
Respondents
Ian Hull and Rebecca Rauws, for the Plaintiff
Bradley Phillips and David Wagner, for the Respondents
HEARD: February 3, 4, 5, 6, 7, 10, 11, and 12, 2020
REASONS for decision
Introduction
Overview
1This trial was heard between February 3 and February 12, 2020 with written submissions received by May 22, 2020. I have checked the references to the evidence and the exhibits in the submissions and find them to be accurate. As a result, they are not included in these Reasons.
2There are two Trial Records, both dated January 15, 2019. It is essential to set out some details of the records to understand what issues are before the court.
3The first Trial Record includes the following:
(i) An Amended Statement of Claim (Court File 15 – 1370) issued on November 10, 2015 in which Michael Lloyd Graham (“Mike”) sought relief against Michelle and David Benton (“Michelle” and “David” or “the Bentons”) and various pleadings in that action. Note that Mr. Graham asked to be called Mike at trial, so I have used first names for everyone throughout these Reasons.
(ii) A Notice of Application (Court File 17 – 184) issued on January 30, 2017 in which Michelle, Karen Pillon (“Karen”) and Sandra Lee Graham (“Sandra”) sought relief against Mike as Trustee for the Graham Family Trust (“the Family Trust”). The relief requested included the removal of Mike as Trustee; an order requiring Mike to pass accounts as Trustee; a declaration that Mike is in breach of his fiduciary obligations; a declaration that two mortgages registered on title on August 17, 2016 with charges on a 66 acre farm property in West Gwillimbury (“the Property”) in favour of Mike, are invalid; a declaration that a transfer of land to Virginia Graham (“Virginia”), the wife of Harry Graham (“Harry”), on June 18, 2013 is invalid; that the transfer to Virginia be set aside with that property returned to the Family Trust; and a stay of proceedings of 15 – 1370 pending the trial of the application.
(iii) A Notice of Application for Directions (Court File 08 – 004/17) issued on April 10, 2017 brought by Mike personally and in his capacity as Trustee against all of the potential Beneficiaries of the Family Trust.
(iv) A court order on May 25, 2017 (on consent) that 15 – 1370 and 17 – 184 be transferred to the Estates List in Toronto, that the action and application be consolidated with application 08 – 004/17, and that it continue as application 08 – 004/17.
4The second trial record in 08 – 014/17 includes the following:
(i) The Notice of Application to Pass Accounts;
(ii) The Notice of Objection to the Accounts;
(iii) The Reply to the Notice of Objection to Pass the Accounts; and
(iv) The same order referenced in 3(iv) above.
5I am using the term Beneficiaries in these Reasons, as opposed to Respondents, because the Respondents include Mike’s accountant, George Smith (“George”), and Mike’s nephew, Richard Shields (“Richard”), two of the Trustees of the Family Trust. Mike is the third Trustee.
6The trial issues include the following:
(i) Is Mike entitled to recover $710,000 from the Family Trust, arising from the transfer of the Property to the Family Trust on December 31, 1993 allegedly secured by a mortgage and registered on August 17, 2016?
(ii) Is Mike barred from seeking recovery by the statutory limitation period?
(iii) Was Mike’s transfer of the Property to the Family Trust akin to an Estate Freeze?
(iv) Is Mike entitled to recover $500,000 for work performed building the house on 108 Park Avenue, as well as expenses paid by him on behalf of the Family Trust?
(v) If the construction costs of 108 Park Avenue were intended to be a loan, is the recovery barred by the statutory limitation period? In any event, has Mike established the value of his construction?
(vi) Do Michelle and Marie owe money to the Family Trust?
(vii) Can Michelle and her family continue to live on the Property?
(viii) Should the Trustees be removed and replaced and, if so, by whom?
(ix) What should be done regarding the lot line adjustment?
(x) Status of the accounts?
Background and Other Miscellaneous Facts
7Mike is the father of six children: Michelle, Harry, Dalton Graham (“Dalton”), Sandra, Marie, and Karen. In 1993, Mike settled the Family Trust, an irrevocable trust for the benefit of his children and their issue. Its’ Trustees are Mike, George, and Richard. They operate as Trustees pursuant to a Trust Agreement dated December 31, 1993 (“the Trust Agreement”). The Property, an approximate 66 acres of farmland in West Gwillimbury that Mike inherited, is the sole asset of the Family Trust.
8In the late 1980s, Mike and his late wife sold the Property to a property developer, Tridel, for approximately $4 million. They were paid a substantial deposit, amounting to more than a quarter of the purchase price, and the balance was to be paid by the purchaser through a vendor take-back mortgage. Sometime after the purchase, the farm decreased in value, Tridel defaulted on the mortgage, and Mike took back the Property.
9By the time Mike took back the Property, he had already paid the capital gains tax owing from its disposition. In 1993, the Property, valued at $710,000, represented a sizeable portion of Mike’s total assets. His other assets had a collective total value of about $1 million.As such, when Mike was 52 years of age, the Property amounted to about half of his assets.
10George advised Mike that in order to reclaim some of the tax he had paid, he would have to transfer the Property to either a corporation or a trust to trigger a capital loss.This loss could be claimed against taxes paid up to three years ago, which period included the tax years when Mike had paid the capital gains tax.
11As set out above, Mike set up the Family Trust with the Property as its sole asset. The Trust Agreement was dated December 31, 1993, the last day by which the Property could be transferred to the Family Trust in order for Mike to take advantage of the loss carry back. The named Trustees at that time were Mike, George, and Catherine Callaghan (“Ms. Callaghan”). However, within a month, a second transfer document was prepared by Ms. Callaghan removing her as Trustee and adding Richard in her place.
12Mike was born in the original farmhouse on the Property. Michelle, Marie, and their families reside in other houses located on the Property. In or around 1984, a house was built in which Marie and her family reside - 128 Park Avenue. In or around 1996 or 1997, a new house was built, which Michelle and her family have been living in since - 108 Park Avenue. Harry lives on a nearby property, which is not part of the Property - 132 Park Avenue. Some of the Property land is leased to a farmer.
13The sole asset of the Family Trust is this approximately 66-acre Property, which presently contains the two residential houses with municipal addresses of 108 and 128 Park Avenue, Holland Landing. As set out above, the two houses are occupied by Michelle, Marie, and their families. The Family Trust’s income comes from the rent paid by Marie and Michelle for the houses.
14On August 17, 2016, the Trustees encumbered the Property with two mortgages in favour of Mike for $710,000 and $500,000. Note that the latter amount was amended to $386,000. These figures purportedly represent the acquisition costs of the Property transferred by Mike to the Family Trust, reimbursement for construction costs for 108 Park Avenue, and other expenses incurred in the maintenance of the Property. Mike submits that these mortgages secure valid subsisting debts owed by the Family Trust to him. He also submits that Michelle and Marie owe money for unpaid rent and expenses to the Family Trust.
15In 2015, Mike attempted to evict Michelle and her family from 108 Park Avenue for unpaid rent and expenses (totalling about $22,000) but failed to obtain an order from the Landlord and Tenant Board (“the LTB”) to uphold the eviction. The LTB ruled that they did not have jurisdiction over the matter as the relationship between Mike and Michelle was not one of landlord and tenant. Mike seeks this Court’s direction in respect of Michelle’s interest in, and occupation of, 108 Park Avenue going forward.
16The main issue to be determined is the true nature of the transaction on December 31, 1993. The Beneficiaries submit that the transfer of the Property to the Family Trust was a gift by Mike. Alternatively, if the transfer is a loan or encumbered gift or receivable, they submit that Mike is out of time and statutorily barred from enforcement. The Beneficiaries point to the absence of documentation evidencing Mike’s intention and the absence of evidence of unanimous agreement amongst the Trustees regarding the nature of the transaction.
17The Beneficiaries also submit that Mike never intended to be compensated for his maintenance of the Family Trust. If this Court finds that he did, they submit that he is out of time and statutorily barred from seeking repayment of these amounts.
18The Beneficiaries do not dispute the amounts owed by Michelle and Marie to the Family Trust. However, they suggest that the doctrine of estoppel and the determination by the LTB prevents Mike from seeking directions on Michelle’s interest in and occupation of 108 Park Avenue going forward.
19Finally, the Beneficiaries seek the removal of Mike, George, and Richard as Trustees and seek to make Mike liable for the value of the portion of the Property lands severed and transferred for the benefit of Harry in 2013.
20Mike’s position is as follows:
(i) The transfer of the Property to the Family Trust was a loan or receivable or an encumbered gift (all three terms are used to mean an amount owing to him);
(ii) There is no reason to remove the Trustees;
(iii) The lot line adjustment (severance of a portion of the Property) was done in exchange for good consideration as Harry cleaned up the Property, which Mike was required to do by the municipality and which no one else was doing;
(iv) Michelle owes $34,158.14 and Marie owes $14,000 to the Family Trust as at the date of the trial; and
(v) Mike is entitled to the various fees and expenses claimed despite there being no proper documentation.
Is Mike entitled to recover the $710,000 from the Family Trust arising from the transfer of the Property on December 31, 1993?
21To deal with this issue, it is necessary to determine the true nature of the December 31, 1993 transaction. Mike takes the position that it was an encumbered gift or loan or receivable. The Beneficiaries take the position that it was a gift.
22The leading case dealing with gratuitous transfers is Pecore v Pecore.1 In such a dispute, the issue is the actual intention of the transferor at the time of the transfer. The gratuitous transfer is presumed to be a loan and the onus is on the transferee to demonstrate that a gift was intended. The Court should begin the inquiry with the applicable presumption and then weigh the evidence relating to the actual intention of the transferor to try to ascertain their intention at the time of the transfer. The presumption of resulting trust will only determine the result where there is insufficient evidence to rebut it on a balance of probabilities.
23The traditional rule is that evidence adduced to show the intention of the transferor at the time of the transfer ought to be contemporaneous, or nearly so, with the transaction. However, evidence of intention that arises after the transfer should not be automatically excluded. The court can also consider evidence relating to the quality of the relationship between the transferor and the transferee to determine whether the presumption of resulting trust is rebutted.
24In cases concerning monies transferred from parents to adult children, courts often refer to the following factors to distinguish loans from gifts:
Whether there were any contemporaneous documents evidencing a loan;
Whether the manner for repayment is specified;
Whether there is security held for the loan;
Whether there are advances to one child and not others, or advances of unequal amounts to various children;
Whether there has been any demand for payment;
Whether there has been any partial repayment; and
Whether there was any expectation, or likelihood, of repayment.
25In this case, there are no contemporaneous documents evidencing a loan; no manner of repayment was specified; there was no security for the loan until the mortgages were registered in 2016; the children have been dealt with somewhat equally by Mike; there has not been any demand for repayment; and there has been no partial repayment.
26By the Trust Agreement, Mike set up the irrevocable trust in order for the Property to be transferred to the Family Trust. This was done in order for Mike to receive the loss carry back for the taxes already paid by him. This transaction was legally characterized as a transfer for “cash paid or cash to be paid”. The Affidavit of Residence and of Value of the Consideration indicates that the total consideration is $710,000 in “monies paid or to be paid in cash”. As a consequence of the amount of consideration, land transfer tax was calculated and paid pursuant to the Land Transfer Tax Act2 in the amount of $10,725. Mike and the other Trustees acknowledge that there is no promissory note, vendor take-back mortgage, or other documentation suggesting that the Family Trust owed Mike $710,000 as a result of the transfer.
27However, I agree with Mike that if the transfer of the Property had been intended as a gift it would have been made for no or nominal consideration and the land transfer tax would not have been paid. The documentation created at the time of the transfer does not support that the transfer was a gift. There was a lot of evidence about this transaction and why it occurred, including that Mike wanted to protect his assets from a “new female friend”. At the end of the day, I do not find that Mike gifted the Property to the Family Trust.
28George, Mike’s accountant and one of the Trustees, confirmed that the only way for Mike to reclaim some of the tax arising from the Tridel sale was to effect a transfer of the Property to either a corporation or a trust. Mike did so on George’s advice, and I accept the evidence of Mike, George, and Richard that it was never Mike’s intention for the transfer to be an outright gift.
29Further, at the time of the transfer, the Property represented a significant portion of Mike’s total assets - almost half. Mike was only 52; common sense dictates that one does not give away half of their assets at an early age (at least not an individual with this net worth). Mike submits that the creation of the Family Trust was financially motivated and it would be illogical for him to seek to recover taxes for financial gain while simultaneously divesting himself of one of his more significant assets. Instead, the logical conclusion from the surrounding facts of his financial planning is that the Property was transferred for an interest flowing to Mike equal to the value of the Property, and not for free.
30Mike also submits that, in characterizing the transaction, the Court may look at his general pattern of gift giving. The evidence at trial shows that he has been a generous father and has provided housing to all of his children at some point or other since the 1980s. However, his generosity has never been absolute and he always expected something in return.
31For the homes he provided, Mike charged his children nominal rents.In an instance wherein Mike and one of his children entered into a venture to acquire an income-generating rental property, Mike insisted that his child contribute financially and not just reap the rewards. Mike also always sought to ensure that there was equality in his generosity towards his children. Despite their homes being of different sizes and market values, he charged all his children roughly the same amount of rent. He also went to some lengths to maintain his properties in his own name, so that their collective value would be divided as equally as possible amongst his children upon his passing.
32Mike also submits that the Court should draw inferences from his previous dispositions of properties as gifts. For example, when disposing of his interest in a property that he had purchased (the “Botany Hill House”), there was evidence regarding an agreement between himself and Karen to the effect that Karen would contribute a certain financial amount in exchange for an interest in the property. The evidence from both Mike and Karen establishes that, within the first few years after Mike’s purchase of the Botany Hill House, Karen paid him somewhere between $20,000‑$25,000 and that she owed him a further $80,000-$85,000. After her initial payment, Mike added Karen’s name on title, but she would not receive any rental money until she had paid Mike the full amount that she owed him pursuant to their deal. Eventually, Mike sold his interest in the Botany Hill House to Karen’s Aunt Joan for $245,000. Mike’s evidence is that the sale price was the same as the amount of money he had put into the property, including the purchase price and any repairs.
33Additionally, when disposing of his property, Mike would sometimes characterize the transactions as gifts even though there was consideration flowing from the recipient.For instance, Mike characterized the Botany Hill House transfer as gift to Aunt Joan, despite receiving payment of $245,000.
34From this evidence, Mike submits that the Court should accept that when transferring the Property to the Family Trust he was not gifting in the absolute; he intended to do so in exchange for an interest in the Family Trust equivalent to the value of what he had put into it. As such, characterizing the transaction as a gift does not mean that there is no consideration owing back to Mike.
35George and Richard both confirmed, and I accept, that when Mike transferred the Property to the Family Trust there was an agreement between them and an understanding that the amount of $710,000 was owing to Mike.
36The Beneficiaries did not adduce any evidence regarding the reason for or Mike’s intentions in the creation of the Family Trust. Their position is that the transfer of the Property to the Family Trust was a gift. As set out above, they bear the onus of proof. They have not met this onus. There is no evidence that the transfer was a gift. Instead, it was done to enable Mike to claim back the paid capital gains tax, which he did. Things fell apart between Mike and some of his children starting, I gather, with his attempt to evict Michelle and her family from the Property and leading to the litigation as set out in the trial records.
37In summary, on the issue of the intention behind the transfer of the Property to the Family Trust, I believe and accept Mike’s evidence, which establishes the following:
(i) The transfer was clearly treated as a sale on a number of fronts: the Land Transfer Tax Affidavit, the transfer itself, and the involvement of the income tax department.
(ii) The terms of the Family Trust require the unanimous approval of the Trustees to create a debt obligation. Mike, George, and Richard testified that when the Property was transferred to the Family Trust, they understood and therefore intended that the Family Trust would owe Mike an amount equal to $710,000.
38There is a side issue in that Ms. Callaghan was a last-minute stand-in Trustee for Richard, who was not available on December 31, 1993. On this point, I accept that the tax advantage would have been lost if there was no temporary Trustee. Once Richard formally took his position, unanimous approval of the Trustees for the money owing to Mike was given. This issue, raised by the Beneficiaries, was a smoke screen only, as practicality and logic define what was done at that time to save the taxes.
39That said, a genuine problem did arise in that Mike took no steps to enforce the $710,000 receivable or loan. No payments were ever made and no mortgage was prepared or registered at the time of the transfer, and in any event not until August of 2016. This logically leads into the limitations issue.
Is Mike statute barred by the Limitations Act from seeking recovery?
40Mike seeks to recover $710,000, the value of the Property transferred to the Family Trust on December 31, 1993. The Beneficiaries submit that the limitation period for the enforcement of the $710,000 receivable has expired. This transfer occurred 23 years before enforcement was sought. No matter the nature of the transaction, the claim will be barred if the applicable limitation period has expired. Mike and George confirmed that this receivable was payable, on demand, as at the date of the transfer of the Property into the Family Trust (i.e. December 31, 1993). This is consistent with the case law, which states that where a loan has no terms and no date for repayment, it is a demand obligation.3
41With respect to a demand obligation, s. 5(3) of the Limitations Act, 2002 provides that the limitation period begins to run on the first day on which there is a failure to perform the obligation following a demand for performance being made.4 However, s. 5(4) makes clear that this provision only applies to demand obligations created on or after January 1, 2004.5 Pursuant to s. 24(2) of the Limitations Act, 2002, a demand obligation arising as of December 31, 1993 would be subject to the application of the previous Limitations Act (“the Old Limitations Act”).6
42Under the Old Limitations Act, the cause of action on a demand loan runs from the date of advancement.7 The relevant provision is s. 45(1)(g), which provides for a six-year limitation period from the date of advancement.8
43The Trustees concede that Mike did not make any demand on the $710,000 receivable prior to the mortgage being registered on August 17, 2016.
44The $710,000 receivable was created on December 31, 1993. As a result of s. 45(1)(g) of the Old Limitations Act, any claim would be statute barred as of December 31, 1999.
45The parties disagree as to whether the claim is out of time, as the Trustees discussed and acknowledged the debt owing from time to time over the years.Richard testified that the Trustees met annually and discussed the $710,000 receivable at those meetings. George testified that the meetings were more sporadic but confirmed that this sum was discussed when they occurred.
46The Beneficiaries submit that, while an acknowledgment of a debt may create a continuing contract that extends the limitation period, s. 51.(1) of the Old Limitations Act requires such an acknowledgment be made in writing if it is to have that effect.9 The Beneficiaries point to ample case law that states that an oral acknowledgement is not sufficient to extend the date on which the limitation period begins to run.10 This is such even in family debt situations and even when the verbal acknowledgment is undisputed.11
47In addition to the obligation to obtain a written acknowledgement, there is a heightened obligation on Mike and the other Trustees as fiduciaries to document any purported acknowledgement. Where a fiduciary engages in a transaction with himself, which creates a conflict of interest, that transaction is subject to scrutiny.12
48Mike concedes that an acknowledgment of debt owing must be in writing but submits that the requirement should be waived because of the familial nature of the Family Trust and his level of education. He also says that he held off on making a demand for the receivable on the basis that the Family Trust did not have the assets to satisfy the demand, and he did not wish to vacate his children and sell the Property in order to satisfy the $710,000 debt.
Analysis
49Although I am sympathetic to Mike, I do not accept his submissions. The requirement in the Old Limitations Act that any acknowledgment of debt be in writing is clear and unequivocal. Mike has not pointed to any case law suggesting that I have jurisdiction to relax this requirement. On the other hand, the Beneficiaries have adduced ample jurisprudence in favour of enforcing the requirement that an acknowledgment of debt be in writing, even in familial situations and even where the verbal acknowledgment is not in dispute, as is the case here.
50I am also unconvinced that it would be unfair to enforce the limitation period because Mike did not wish to see the Property sold and his children forced to move from the land. Not only is he currently seeking to embark on this exact course of conduct, albeit at a later date, but neither Limitations Act can be ignored, despite any unfortunate result for a party bringing a claim.
51On this basis, Mike’s claim for recovery of the $710,000 value of the Property, as transferred to the Family Trust on December 31, 1993, is barred by the expiry of the limitation period.
Was Mike’s transfer of the Property to the Family Trust akin to an Estate Freeze?
52Mike submits that the transfer of the Property to the Family Trust created an equitable interest in his favour that is not susceptible to the provisions of the Old Limitations Act.
53Mike submits that the appropriate analysis with respect to the $710,000 claim is based on unjust enrichment and not on the basis of a simple loan. The Property transfer to the Family Trust created an interest to him in the Family Trust’s assets in the fixed amount of $710,000, which is more akin to an Estate Freeze.
54Due to the nature of the transaction and the manner in which he acquired the interest in the Family Trust’s assets, Mike submits that there was no requirement that the liability be called on within any particular time. Such an obligation would defeat the entire purpose of the Family Trust, which was for the Beneficiaries to retain the benefit of the growth of the Property throughout the life of the Family Trust. Furthermore, there is no limitation period applicable to unjust enrichment under the Old Limitations Act.
55Mike submits that the court should look at his interest as a constructive trust, which he says is the appropriate remedy for his unjust enrichment claim. A constructive trust is construed or imposed by law regardless of intention. One of the bases for which a constructive trust may be imposed is unjust enrichment.13
56In order to establish a constructive trust in the case of unjust enrichment, the claimant must establish a link between their contribution and the property in question.14 Mike submits that the link between his contribution and the Family Trust’s assets is clear: the sole asset of the Family Trust is the real property that Mike transferred to it.
57A constructive trust “secures to the claimant specific recovery of the asset he submits, or a proportionate share when he claims part of an asset or its value, and the asset itself has increased in value since the deprivation of the claimant commenced.”15 Mike submits that the concept of constructive trust is therefore particularly fitting in the context of the Family Trust, the transfer of the Property, and the unique transaction by which it was transferred. He says that constructive trust and unjust enrichment are more applicable than either a contract or a straightforward loan.
58There is no requirement to “call in” a constructive trust interest within any set period and a constructive trust does not expire. The interest exists by operation of law and is held by the constructive trustee for the benefit of another.16
59In this way, Mike submits that the transfer of the Property to the Family Trust was not a loan. Rather, it was akin to an Estate Freeze with Mike retaining an interest in the Family Trust’s assets to the extent of his contribution. Accordingly, if he is prevented from recovering his contribution, the Family Trust would be unjustly enriched. The appropriate remedy for this unjust enrichment is a remedial constructive trust.
60The Beneficiaries submit that the Estate Freeze submission is an after-the-fact explanation to justify the fact that Mike is now seeking the return of the value of the Property.They submit that if a sophisticated Estate Freeze mechanism was the route by which Mike sought to transfer the Property, he would have documented this rather than rely upon a Land Transfer Tax Affidavit as the sole indicia of his purported plan.
61The Beneficiaries submit that the law firm retained by Mike to establish the Family Trust and to transfer the Property did not mention a transaction akin to an Estate Freeze. Likewise, nothing was documented by Mike’s accountant, who is also a Trustee and the accountant for the Family Trust. The August 6, 1993 memo by George’s accounting firm, which he acknowledged as giving rise to the Family Trust, made no mention of the Estate Freeze concept either.
62Mike also submits that this was akin to an Estate Freeze because he was “giving away the growth in the asset” and that “this is exactly what was intended by Mike”. The Beneficiaries submit that the flaw with this analogy is that Mike did not gift anything to the trust. According to the main theory of Mike’s claim, the Property was transferred to the Family Trust in exchange for a receivable equivalent to the full fair market value of the Property at that time. The Beneficiaries submit that had Mike actually only intended to gift the “growth interest” of the Property to the Family Trust while keeping the “freeze interest”, this receivable would have been for less than the full fair market value of the Property at that time.
63As an example, the Beneficiaries submit that if Mike had sold the Property to a bona fide third party purchaser on condition that the purchaser would only receive the growth interest in the property, such a purchaser would never be willing to pay the full market value for a limited “interest” in the Property.
Analysis
64I accept the Beneficiaries’ submissions on this issue. Mike has not pointed to any evidence showing that the transfer of the Property was intended as an Estate Freeze. Mike agrees that the party transferring the asset in a typical Estate Freeze transaction does so in exchange for preference shares, which themselves point to the intention of utilizing this tax planning mechanism. While Mike does not have to point to preference shares, as no corporation was involved in this alleged Estate Freeze, he has failed to point me to anything to suggest that he maintained an interest equal to the value of the Property when transferred, while the increase in the value of the Property would materialize to the Family Trust. Further, Mike did not retain any interest in the Property when it was transferred to the Family Trust. He instead got a receivable - cash to be paid.
65This was not an Estate Freeze and Mike is still barred by the expiry of the limitation period from enforcing the $710,000 mortgage.
Is Mike entitled to recover $500,000 for building the house on 108 Park Avenue, as well as expenses paid by him on behalf of the Family Trust?
66In addition to the $710,000 mortgage registered on the Property in 2016, Mike also registered a $500,000 mortgage to cover the costs of constructing 108 Park Avenue in or about 1996 or 1997 and the day-to-day expenses incurred by him on behalf of the Family Trust (including mileage, meals, and maintenance fees). Although the amount registered as a mortgage is $500,000, Mike submits that the evidence shows that this amount was more akin to a line of credit, for which he is only seeking payment of approximately $386,000.
Were the construction costs of 108 Park Avenue intended to be a gift or a loan?
67Mike submits that, despite not keeping records of the construction costs of 108 Park Avenue, he always intended to be reimbursed these amounts. He claims an amount of $177,035.80. David testified that Mike showed him something following the construction of 108 Park Avenue that indicated that Mike had paid $107,000 to build the house.
68The Beneficiaries claim that the costs of construction were intended to be a gift and not a loan for two reasons. First, the building costs being a loan was never discussed with or approved by the Trustees. Second, Mike’s conduct was consistent with his intention that the construction be a gift and with the conduct other people who had no expectation of repayment for their contribution to the construction.
69On the first point, the Beneficiaries submit that George could not recall whether he was contemporaneously aware that Michelle’s house was being built or whether he became aware of it subsequently.George testified that the first time the Trustees discussed and agreed that Mike would be reimbursed for the construction of Michelle’s house was when they met in 2016 and decided to register the mortgages. The Beneficiaries submit that, based on George’s evidence, there was no unanimous agreement amongst the Trustees that Mike was to be reimbursed at the time that he purportedly advanced funds for the benefit of the Family Trust. I agree.
70Furthermore, the Beneficiaries submit that Mike’s lack of contemporaneous recordkeeping was not a product of the lax recordkeeping rules that Trustees can follow in a family trust situation, but because he never intended to be reimbursed. Both Mike and David helped build the house, but neither maintained records reflecting the values of their respective contributions. The Beneficiaries submit that Mike never kept any such records, despite having an obligation as a Trustee seeking recovery of his costs to do so, because he had no expectation of being reimbursed. Similarly, other family members contributed to the construction without expectation of reimbursement.
71Mike submits that the Trust Agreement provides the Trustees with discretion to implement the level of recordkeeping they deem to be adequate. On the ground that this was a family trust, where recordkeeping is relaxed, Mike points to s. 10.01 of the Trust Agreement, which provides:
The Trustees shall keep or cause to be kept such records and books of account with respect to the Trust Property as in their absolute discretion they deem to be adequate to reflect the transactions and dealings of and the assets and liabilities of the Trust.
72Mike cites the case of Christmas Estate v. Tuck (“Christmas Estate”)17 for the proposition that strict accounting is not necessary in family situations such as this one. The Beneficiaries disagree with this characterization and submit that Christmas Estate does not stand for the principle that the familial nature of a trust affects the requirement of strict and formal recordkeeping and documentation.
73The Beneficiaries submit that the transactions in Christmas Estate were made by the deceased’s children at the deceased’s directions and while the deceased was capable. The donor, as such, was reviewing the transactions contemporaneously. Moreover, Christmas Estate is distinguishable because the executor, who was seeking the passing of accounts, knew about the large transaction in question. Here, the Beneficiaries of the Family Trust were not informed of the expenses being sought until the $500,000 mortgage was registered in 2016.
Analysis
74I agree with the Beneficiaries that Christmas Estate does not assist Mike in utilizing a more relaxed accounting standard for the Family Trust. Additionally, while the Trust Agreement provides the Trustees with the discretion to utilize the accounting practice they deem sufficient, that standard cannot be so relaxed as to allow the Trustees to not record their transactions at all. As will be discussed in greater length below, trustees act in a fiduciary capacity vis-à-vis a trust and its beneficiaries. Fiduciary obligations cannot be maintained when the trustees decide not to account for substantial expenditures of the trust, as they do here.
75On a factual basis, I find that the construction costs of 108 Park Avenue were never intended as a loan. Mike is a very generous father with a long pattern of giving to his children. He has been involved in housing transactions with all his children. On the basis of all the evidence, I do not accept that he or the Trustees ever intended the building costs to be paid back to him, but that he instead provided them as a gift to his children. Only later, when the family unit imploded, was a decision made to register the mortgages. Further, this is the only house for which Mike seeks construction costs, dating back some 20 years.
If the building costs of 108 Park Avenue were intended to be a loan, is their recovery barred because of the Limitations Act?
76108 Park Avenue was constructed in 1996-1997. I have already found Mike’s intention for the costs expended to be a gift and not a loan. Even if I am incorrect, Mike had a demand obligation that arose in 1996-1997. For the same reasons that he is statute barred by the application of the Old Limitations Act from claiming the $710,000 value of the Property, Mike is also statute barred from claiming the $177,035.80 cost of constructing 108 Park Avenue.
77Mike makes the same submission against the strict enforcement of the requirement that acknowledgments of debt be in writing as he did with the Property. For the same reasons as above, no such relief from the enforcement of the Old Limitations Acts is granted. As such, even if I had found the construction costs of 108 Park Avenue to have been a loan, Mike would nevertheless be statute barred from claiming that amount.
If the construction costs were a loan and the claim is not statute barred, has Mike established the value of his contribution?
78The Beneficiaries submit that Mike’s failure to keep contemporaneous records or produce sufficient, reliable evidence that would allow the Court to reconstruct the quantum of his contribution should allow him to only recover a nominal amount, if he is to recover at all.
79The Beneficiaries submit that a claimant carries the burden of proving the existence and the quantum of their loss.18 Where evidence is available but not adduced and the absence of evidence makes it impossible to assess damages, the claimant is entitled to nominal recovery, at best.19
80In general, the claimant has the onus of proving the quantum of the loss on a balance of probabilities.20 This onus ought to be applied stringently where, as in this case, the claimant has a specific fiduciary obligation to maintain records. Accordingly, Mike bears the onus of proving the amount he contributed to the construction of Michelle’s house on a balance of probabilities. In the absence of any contemporaneous records, Mike calculated the amount of his financial contribution by retroactively estimating the cost of construction. To that end, he claimed that constructing Michelle’s house cost approximately $78.60 per square foot.
81The Beneficiaries take issue with this calculation for various reasons. First, Mike is seeking reimbursement for the total estimated cost of constructing the house despite admitting at trial that David contributed labour and machinery and that some of the construction was incurred at no cost due to the assistance of Mike’s brother. Mike did not call any of the labourers he purportedly paid, nor did he produce any documentation to corroborate his claims. His estimation that the house cost $78.60 per square foot to build was based on Richard’s claim that he found this information on publicly available data. However, this data was never submitted as evidence and Mike did not adduce any expert evidence.
82For these reasons, the Beneficiaries submit that even if Mike is successful in the recovery of the cost of constructing Michelle’s house, he should only be entitled to a nominal amount and not the $177,035.80 he seeks.
83Mike submits that he should not be disentitled from recovering the amount merely based on insufficient recordkeeping. Once again, he claims that the Trust Agreement imbued the Trustees with the discretion to set the level of recordkeeping required and that it is reasonable for the requirements to be relaxed in family situations.21 As the custodian of the Property, the only just outcome would be for the Court not to impose strict accounting requirements upon him.
84With respect to the amounts owing, Mike claims that his credibility is also of relevance to the Court’s consideration. He submits that perfect records are only important where the Court makes an adverse finding about the witness’s credibility and there is a belief that they misappropriated funds for their own benefit.22 Where there are no such concerns, the Court may accept the Family Trust’s expenses without comprehensive supporting vouchers. I agree that there are no such concerns in this case, nor were any such concerns raised by any of the Beneficiaries.
85Mike submits that the Court needs to appreciate that the building process for 108 Park Avenue was unconventional. He contracted with several different labourers whom he paid with cash, which resulted in a shortage of records. Mike points to David’s evidence that Mike had showed him something around the time of completion of the construction to the effect that he had paid $107,000 to build the house, but now estimates the building costs at $177,035.80.
86For the Beneficiaries, the discrepancy between David’s evidence and the estimate provided by Mike is the crux of the issue on proving the loss. I agree. Mike is seeking to claim compensation based purely on an estimate, without any supporting documentation or an expert’s report.Accepting that David was presented with a document purporting to show that Mike paid $107,000 for the construction of the house, that still leaves an approximate $70,000 gap. This is precisely the issue with compensating Mike for a loss that he has not corroborated with supporting documents or expert reports: it produces a substantial range such that any potential order may completely miss the mark on the actual loss, overcompensating the claimant to the detriment of the Family Trust.
87Mike has failed to provide the Court with any supporting documents for the amounts claimed for construction. I find that this is because Mike never intended to be repaid these amounts. In any event, even if I had found that Mike intended this amount to be a loan, I would not order the Beneficiaries to compensate him in any way because he has failed to properly quantify his loss.
Is Mike entitled to recover mileage, meals, and maintenance fees incurred in the administration of the Family Trust?
88Section 23.1 of the Trustee Act provides that “[a] Trustee who is of the opinion that an expense would be properly incurred in carrying out the trust may, (b) pay the expense personally and recover a corresponding amount from the trust property.”23 However, the Beneficiaries submit that this is qualified by s. 23.1(2) of the same Act, which provides that “[t]he Superior Court of Justice may afterwards disallow the payment or recovery if it is of the opinion that the expense was not properly incurred in carrying out the trust.”24
89The Beneficiaries submit that the onus is on the Trustee on a passing of accounts to establish that the expenses were properly incurred.25 In allowing or refusing claims made by trustees, the court must consider whether the expense arose out of an act within the scope of the trustee’s duties and powers, whether it was reasonable in the circumstances, and whether it was something that his duty as trustee required him to do.26 Whether an expense is proper depends on a number of different factors, such as:
(i) The character of the services rendered;
(ii) Whether the trustee was properly exercising the powers given to him when they were incurred;
(iii) Whether the services are contracted in good faith and with reasonable judgment; and
(iv) Whether the services were rendered with or without the advice of counsel.27
90The Beneficiaries further submit that, as a rule, a trustee is required to keep a complete record of his activities. Not only must his conduct be prudent, but he must be able to explain and prove it. The trustee is obliged to document his activities; reliance on recollection in answer to inquiries invites suspicion.28 Moreover, while a fiduciary is obligated to keep records of all transactions, the need to keep diligent records becomes even more important where the claim for reimbursement raises concerns of a conflict of interest.29 As such, the Beneficiaries claim that Mike cannot meet the onus imposed upon him to support his claims for mileage, meals, or maintenance fees.
91Mike submits that the concept of reimbursement is incompatible with a conflict of interest, as reimbursement is simply the repayment of costs incurred, in contrast with compensation, which would allow the claimant to profit. He submits that the reimbursements he seeks are self‑evident as this is a 66‑acre farm property that had to be maintained, and there was no evidence that anyone else was maintaining it.
92Mike distinguishes his case from Omulski Estate v. Omulski Estate (“Omulski Estate”) because there were never any excess funds of the Family Trust to make ongoing payments; the nature of the work could not be captured by a paper trail and the Court has to take into account his level of education and the terms of the Trust Agreement to determine the appropriate level of record‑keeping; and his trial evidence was sufficiently particular with respect to tasks completed, considering the length of time he was looking after the Property.
1. Mileage
93Mike seeks reimbursement of $92,988.41 for mileage in driving from his home in Scarborough to the Property for maintenance purposes. He estimates that he made the 120 km journey 8-15 times per month, and that six trips a month were for maintenance purposes. He claims mileage at the rate of $0.50/km.
94The Beneficiaries oppose this amount not only on the basis that it is not documented, but also because they submit it is grossly exaggerated and untrue. Although Mike asserts that the mileage he seeks pertains solely to travel costs to the Property, they allege that his accounting claims this mileage is also attributable to attendances at the Trustees’ offices.Moreover, they submit that the claims for mileage until May 1994 are not correct, as Mike was living immediately adjacent to the Property during that year. Finally, at trial Mike admitted that he visited Harry as much as three times per week. As such, the Beneficiaries submit that some of the mileage he incurred was unrelated to the Family Trust.
95Mike submits that the other Trustees lived near the Property, so there is no material difference between travelling to the Property or travelling to meet with the Trustees. The five‑month error made in 1994 was a simple mistake and Mike immediately admitted to it at trial. The error is easily quantifiable and can be removed from the total amount.
96I agree with the Beneficiaries that Mike’s claim for mileage is exaggerated and reflects costs he incurred unrelated to the Family Trust. The claim is disallowed. Some of it is also out of time and statute barred.
2. Meals
97Mike seeks reimbursement for six meals a month, totalling $21,186.10, which he suggests he ate while on his visits to maintain the Property.
98The Beneficiaries submit that there was evidence at trial that Mike would frequently eat meals at the homes of his relatives, that he rarely went to restaurants, and that Mike has not met his onus of proving that he has incurred this cost.
99I agree with the Beneficiaries that Mike has not met his onus of demonstrating that he incurred any meal costs in respect of the Family Trust. He has no contemporary evidence to support the claim. It is therefore disallowed. Some of it is also out of time and statute barred.
3. Maintenance Fees
100Mike also seeks reimbursement of $80,448 for the maintenance work he performed on the Property. He does not have records of the work but submits that he generally spent three hours during each of his six trips per month to maintain the Property.
101The Beneficiaries submit that Mike must be seeking to recover these fees as a third‑party provider, as otherwise he would be precluded from doing so in his capacity as a Trustee pursuant to paragraph 14 of the Trust Agreement. As such, Mike is a creditor of the Family Trust who did not assert his claim to these amounts until 2016. He is therefore precluded by the two‑year limitation under the Limitations Act, 2002 for any amounts claimed prior to 2014.
102The Beneficiaries take issue with the absence of documentation about what work Mike did on the Property and what maintenance was required, considering he also claims that Harry performed 800 hours of work to bring the Property up to shape.
103Moreover, the Beneficiaries also submit that it is a problem that Mike is seeking to recover an amount as a third-party service provider to the Family Trust who he was a Trustee of. The Trust was in a conflict of interest; transactions with himself are subject to close scrutiny.30 In Omulski Estate, the Court disallowed a claim for services provided by a person in a conflict of interest situation on the basis that there was a lack of any ongoing record of payments, paper trail for the work completed, invoices, or dockets, no notes of what she actually did, and because the claimant’s oral evidence was vague and lacked particularity.31
104Mike submits that he should be reimbursed for his work on the Property as a Trustee on the basis that the Family Trust only ever had some monthly rent payments as liquid assets.He also submits that if he hired external labour to maintain the Property, he would have had to go into his own pocket to pay for the expenses and seek reimbursement later. He should not be faulted for choosing to simply do the required maintenance work himself, rather than go further into debt.
105According to Mike, there is no incongruence between the amount of maintenance work he did on the Property and the fact that Harry did 800 hours of work to bring it up to shape. Work was left to Harry because Mike did not have all the necessary equipment at the time. Mike submits that the trial evidence indicates that Michelle and Marie cut the grass immediately around their homes, but there was no evidence of anyone but him maintaining the remainder of the Property.
106This claim is also disallowed. Some of it is also out of time and statute barred.
4. Legal Fees
107Mike seeks reimbursement for his legal fees as a Trustee. His position is that trustees are entitled to be indemnified for legal costs if the court is satisfied that they have acted for the benefit of the trust and not in substance for their own benefit.32 Also, the need to ensure that estates are properly administered is an operating public policy principle for the indemnification of legal fees in this situation.33 Mike claims that this litigation will ultimately be of benefit to the Family Trust, as it will provide the Trustees and Beneficiaries with certainty and ensure the proper administration of the Family Trust until the distribution date.
108The Beneficiaries submit that entirely redacted invoices with no dockets are of little or no utility in determining whether such legal fees are reasonable costs of the Family Trust. In any event, it appears likely that the legal fees sought pertain to the present litigation; the appropriate time to consider these legal costs is with the costs submissions at the conclusion of this trial.34
109The claim for legal fees is disallowed. Legal costs will be dealt with by this Court as part of the trial process.
Should there be an offsetting of the amount owed with the amount already recovered?
110Mike received cash from the tenants of the two houses on the Property and kept this in an envelope separate from his own funds. The cash was used to pay property taxes, insurance, and other expenses related to the Property. Mike paid bills out of his personal bank account and then reimbursed himself with cash from the envelope. He submits that this system allowed him to keep track of when the expenses of the Property exceeded its income and when he had to take money out of his pocket to pay for the Property expenses.
111It is agreed that Mike received at least $197,360 in income from the Property and that expenses in the amount of at least $161,516.17 were incurred. By Mike’s own calculation,this leaves a difference of $35,843.83. No one is asking that Mike pay back this amount. The Beneficiaries submit, and I agree, that this is a fair amount for any expenses for which Mike is out of pocket. In any event, the problems with documentation, specifically the lack of documentation, cut both ways. He will neither benefit from nor be penalized by his poor documentation.
Do Michelle and Marie owe money to the Family Trust?
112Part of the agreement of Michelle living at 108 Park Avenue was that she would pay $400 and then $500 per month for rent. Up to February 2020 (the time of trial), Michelle admits to missing her monthly payments for 60 months (since March 2015), for a total amount of $30,000. Neither has she paid the water bill for 108 Park Avenue since 2015, for a total amount of $4,156.14. This amount is supported by the Property’s bank account activity and the water bills, which Mike has been paying. The total owing to the Family Trust by Michelle for both rent and unpaid bills is $34,156.14.
113Under the terms of Marie’s agreement with Mike, she must pay $500 per month in rent to live at 128 Park Avenue. Up to February of 2020, Marie has not made monthly payments for 28 months, for a total amount of $14,000.
Analysis
114Michelle owes $34,156.14 and Marie owes $14,000 to the Family Trust. These payments should also include the additional amounts that have accrued since trial and until the date of payment and will continue until Michelle and Marie cease living on the Property. These payments shall be made within four months, failing which they may be incorporated into a default judgment to be signed by me.
Can Michelle continue to live on the Property?
115Mike seeks directions as to whether Michelle may continue to reside at 108 Park Avenue. The Beneficiaries submit that the issue has already been decided by the LTB.
116Mike attempted to evict the Bentons from 108 Park Avenue pursuant to the Residential Tenancies Act35 (the “RTA”) because of unpaid rent and bills. Following a hearing in October 2015, the LTB concluded that the RTA did not apply to the arrangement between Mike and the Bentons and so the LTB did not have jurisdiction to hear the matter. The LTB found that the living arrangement was not one of a rental, but rather a family relationship, and “the parties intended the tenants to live in the house during the lifetime of [Mike] … [and that there was] an intention that the tenants would occupy the house until their beneficial interest in the Property was realized.”
117The Beneficiaries submit that the determination by the LTB that Michelle may continue living at 108 Park Avenue for the duration of Mike’s life is final and binding on this Court, and that issue estoppel prevents Mike from challenging this finding.
118Mike submits that issue estoppel does not operate to prevent this Court from determining whether Michelle has an interest in and may continue to reside at 108 Park Avenue for Mike’s life. He submits that the doctrine of issue estoppel requires that the same question has been decided, that the judicial decision which is said to create the estoppel was final, and that the parties to the earlier decision are the same persons as the current parties.36 Even where these conditions are met, the Court must still determine whether, as a matter of discretion, issue estoppel ought to be applied.37
119Mike submits that issue estoppel is not applicable in this case because:
(i) the Trust Agreement was never before the LTB and as such the question raised in this proceeding has not been decided by the LTB;
(ii) the LTB decision was not final on the issue of whether Michelle has a life interest in 108 Park Avenue, as it only decided that the RTA did not apply in the circumstances; and
(iii) the parties are not the same, as none of the contingent Beneficiaries of the Family Trust, other than Michelle, were parties to the LTB proceeding.
120I agree that the LTB did not rule that Michelle can continue residing at 108 Park Avenue for the remainder of Mike’s life as the LTB did not have jurisdiction to grant such relief. The LTB only decided that Michelle’s tenancy at 108 Park Avenue was not governed by the RTA and was therefore not within its jurisdiction. This Court has the jurisdiction to determine the nature of Michelle’s residency and interest in 108 Park Avenue.
121Before considering whether Mike entered into an agreement with Michelle that she may live at 108 Park Avenue for as long as he is alive, there is a dispute as to whether Mike could enter into such an agreement unilaterally without the support of the other Trustees. At trial, there was no evidence that the Trustees unanimously agreed to this lifelong tenancy agreement. At best, Mike may have independently entered an agreement with Michelle that she could live at 108 Park Avenue in return for payment of rent and expenses. This question interestingly incited submissions by the parties opposite to the positions they assumed throughout the trial.
122Although Mike has consistently submitted that he is responsible for the day‑to‑day administration of the Family Trust and that many of the agreements he entered into did not require full knowledge by the other Trustees, but merely their approval, a decision to enter into a tenancy agreement for the entire duration of the Family Trust is not one he could make independently.Meanwhile, the Beneficiaries, who have so far argued that Mike could not enter into unilateral agreements on behalf of the Family Trust without the knowledge and approval of the other Trustees, now submit that Mike could enter into such an agreement with Michelle. Both parties are trying to hold a stick by the middle, but the Beneficiaries have offered an analysis of the situation which I accept.
123Mike did not have the authority to commit the Family Trust to such a lifelong tenancy agreement with Michelle without the unanimous approval of the other two Trustees. However, from all the evidence before me, including the construction of 108 Park Avenue and the lot line adjustment (below), I find that Mike administered the Property as though it continued as his private possession. He held himself out to Michelle as the individual who could enter into agreements that would bind the Family Trust for its entire lifespan, and I agree that Michelle is entitled to rely on this. As such, although Mike did not have the authority to bind the Trust in such an agreement, if I find that one was made then the Trust is bound on the basis of the doctrine of apparent authority.38
124The doctrine of apparent authority stems from principles of agency. Agency is a legal relationship in which one person, known as the agent, represents the interests of another, known as the principal. The agent has authority to affect the principal’s legal position, including vis‑à‑vis third parties. The existence of an agency relationship is a question of fact based on the conduct and language of the parties.
125Actual authority arises from an express or implied agreement between the agent and principal. It “requires a ‘manifestation of consent’ by the principal to the agent that the agent should act for or represent the principal.”39 In contrast, apparent authority, also known as ostensible authority, refers to the nature of an agency relationship as it appears to third parties. It is concerned with “the appearance of authority, not the existence of it.”40 Where apparent authority exists, the principal may be bound by the agent’s actions if it would appear to a reasonable third party that a relationship of agency exists, even where there is no actual authority to act.41
126To establish apparent authority, the principal must have made some representation - including through omission - that a reasonable person could rely upon to conclude that the agent has authority to act.42 In cases where issues of agency are raised, “it may be necessary to go beyond the four corners of [an] … agreement to understand the identities of the actual contracting parties.”43 It is not enough that the agent purports to act on behalf of the principal.
127As above, where a third party has acted in good faith and in reliance on the apparent authority of an agent, the principal may be bound by the actions of the agent despite the absence of actual authority. In this case, the Family Trust gave the appearance that Mike was an agent with authority to make legal decisions on its behalf. Mike entered into agreements without consulting the other Trustees and treated the Property as if it was his exclusive property to manage and dispose of as he wished. While he purported to act as agent, his decisions were not objected to and the agreements he entered into were honored. The Family Trust either acquiesced to or approved of Mike’s actions, which created the appearance of an agency relationship. In these circumstances, it was entirely reasonable for third parties, including Michelle, to rely on Mike’s apparent authority to make legal decisions for the Family Trust.
128I do not agree with Mike that such a tenancy agreement for the duration of the lifespan of the Family Trust amounts to a variation of the Family Trust that implicates the interests of minor, unborn, or unascertained Beneficiaries. The agreement is for Michelle to remain a tenant for the duration of the Family Trust and does not implicate the distribution of the assets of the Family Trust at the date of Mike’s passing.
129Regarding the existence of an agreement, Mike testified that he never told Michelle she could live at 108 Park Avenue for as long as he was alive. On the other hand,Marie and Michelle both testified that they had always understood that they were permitted to remain in their homes on the Property until their father passed and that Mike told the LTB that they could live there and pay the taxes as long as he was alive. I accept Michelle and Marie’s evidence on this.
130Mike also submits that a life interest in the Property would be incompatible with the Trust Agreement. Michelle does not have a specific interest in 108 Park Avenue, only a beneficial interest in the Family Trust as a whole. Mike submits that this would negatively impact the other Beneficiaries as, if the date of distribution was earlier than Mike’s death, the other Beneficiaries’ interests in the Property would be restricted to the benefit of Michelle until Mike’s death.
131In the alternative, if this Court finds that Mike promised that Michelle could live at 108 Park Avenue for the rest of his life, Mike submits that this promise was subject to conditions which Michelle has breached. Michelle admitted that the conditions of the agreement regarding her living at 108 Park Avenue included her paying $400, then $500 per month, maintaining the house, and paying the heat, hydro, and water bills. According to Mike, the evidence overwhelmingly supports that Michelle has not complied with two terms of her agreement - payments of rent and utilities - and her breach of the agreement terminates the alleged life interest in residing at the Property.
132Mike also submits that Michelle’s alleged life interest does not comply with the Statute of Frauds, which requires that any interest in land be documented in writing in order to be enforced.44 There is no evidence of any written agreement, so any alleged life interest is unenforceable.
133From the evidence I accept, I find that Mike entered into an agreement with Michelle that she could reside at 108 Park Avenue for the remainder of his life subject to her paying rent and expenses. Despite Mike not having authority to enter into such an agreement without the unanimous knowledge and support of the other Trustees, the Family Trust is nevertheless bound by the agreement based on the doctrine of apparent authority. I also do not find that the agreement violated the Statute of Frauds. Michelle does not have an interest in land, but rather an agreement to reside in the house for the length of her father’s life in return for the payment of rent and certain expenses.
134However, I agree with Mike that Michelle has breached her agreement to reside at the Property and that her breach is so serious as to entitle the Family Trust to terminate the agreement.
135The Court of Appeal has set out the following factors for determining whether a breach is a serious breach:
(i) The ratio of the party’s obligation not performed to the obligation as a whole;
(ii) The seriousness of the breach to the innocent party;
(iii) The likelihood of repetition of the breach;
(iv) The seriousness of the consequences of the breach; and
(v) The relationship of the part of the obligation performed to the whole obligation.45
136Mike submits that Michelle’s breach is serious on the basis that:
(i) Michelle has breached two of the three conditions of her occupation;
(ii) As a result of her breaches, the Family Trust’s income has been compromised;
(iii) The likelihood of repetition of the breaches is high, as Michelle has been failing her obligations for years;
(iv) The consequences of the breaches are serious, as the Family Trust has been required to borrow money from Mike to cover the necessary expenses; and
(v) The obligation is indeterminate, but it is likely that Michelle will continue with her breaches.
As such, Mike submits the Family Trust is entitled to terminate the agreement such that Michelle and her family are no longer permitted to reside at 108 Park Avenue.
137I agree. Michelle’s occupation of 108 Park Avenue was always subject to conditions and she has breached two of them, forcing Mike to dig into his own pockets. The consequences of the breach are significant and there is a strong likelihood that this pattern of behaviour will continue.
138I find that Michelle has breached the agreement entitling her to occupy 108 Park Avenue. Michelle and her family are to vacate the Property within four months. A writ of possession shall issue should they not vacate by the end of the four months.
Should the Trustees be removed and replaced, and the lot line adjustment reversed?
139The Beneficiaries seek the removal of Mike, George, and Richard as Trustees. The Superior Court has both statutory and inherent jurisdiction to remove Trustees.46 The main consideration is the welfare of the Beneficiaries. The party seeking removal must establish that the acts or omissions of the Trustee have endangered trust property, or that there was a want of honesty, capacity, or fidelity.47
140The mere fact of animosity or dissension between a Trustee and Beneficiary is insufficient grounds for a Trustee’s removal. Similarly, general allegations of malice and personal hostility are also insufficient.48 Instead, “It must be demonstrated that it is the animosity which has motivated the Trustee, and that as a result there is a likelihood that the trust cannot be carried out in accordance with the wishes of the deceased as expressed in the will.”49
141Moreover, removal is not intended to punish Trustees for past misconduct, but rather to protect the assets of the trust and the interests of the Beneficiaries. Accordingly, the Trustee’s past conduct is only relevant if it is likely to continue.50
142The Beneficiaries submit that Mike has acted with complete indifference to his fiduciary duties and repeatedly demonstrated that he is willing to use his position as Trustee and his control of the Property to advance his personal interests to the detriment of the Beneficiaries. Specifically, the Beneficiaries point to the following actions:
(i) Taking steps to evict Michelle, a Beneficiary of the Family Trust, at the LTB;
(ii) Unilaterally cutting off the utilities to Michelle’s house;
(iii) Undertaking efforts to revoke the irrevocable Family Trust;
(iv) Registering mortgages in his favour against the Property after being advised that he was not legally permitted to revoke the Trust Agreement; and
(v) Disposing of 1.4 acres of the Property to Harry through Virginia, his wife.
143Mike responds as follows:
(i) Michelle repeatedly failed to pay rent and utilities, leaving the Property without the cashflow required for maintenance. As such, Mike’s conduct to attempt and evict Michelle was for the benefit of the Family Trust.
(ii) Michelle was responsible for paying the utility bills but failed to do so. For Mike to remove his name from the account, he was required to shut off the water. This course of conduct did not have any impact on the Beneficiaries of the Family Trust.
(iii) Mike never undertook efforts to revoke the irrevocable Trust Agreement, he simply inquired about its irrevocability.
(iv) Registration of the mortgages did not negatively impact the Beneficiaries. Mike registered the amounts as they represented entitlement he believed to be owing to him.
(v) In 2013, 1.4 acres of the Property was transferred to Virginia by way of a lot line adjustment at 132 Park Avenue, which land is not part of the Property. Mike submits that this was done in exchange for consideration from Harry in the form of his labour and the use of his equipment to clean up the Property. This work was required by the municipality. Mike submits that there was evidence at trial about the extent of Harry’s work and that the significant amount of work that Harry provided was good and valid consideration for the lot line adjustment.
144The Beneficiaries dispute the wisdom of this transfer and whether it had the welfare of the Beneficiaries in mind. There are no photos, time dockets, or any other documentation proving any of the 800 hours of clean up work Harry purportedly undertook. Further, the Beneficiaries submit that Harry never obtained written agreement from the Family Trust to reflect the reason he was receiving 1.4 acres of land.
145In short, the Beneficiaries submit that Harry and Virginia received 1.4 acres of land, increasing their lot size almost threefold, in exchange for doing work on the very lands they received plus the immediate adjacent lands to their property. The Beneficiaries reject Harry’s evidence that the land was worth $15,000 and counter that the transfer was well below market value, did not benefit the Property, and ought not to have been transferred by the Trustees without reasonable consideration having been paid. Harry was gifted this land because Mike treated the Property as if he still owned it and could dispose of it as he wished, and the other Trustees agreed without consideration of their fiduciary obligations to all the Beneficiaries of the Family Trust.
146Further, even if the Court accepts that Mike transferred the property to Harry for 800 hours of service, the Beneficiaries claim there was still a want of capacity by the Trustees as they did not attempt to maximize the value of the assets of the Property.51 The Trustees could not have made the decision to transfer the 1.4 acres in exchange for 800 hours of work prudently; the decision was made in a vacuum and without timely, relevant information as to value.52 Mike acknowledged that he did not obtain an estimate from a third-party for the cost of the clean up work or an appraisal of the value of the 1.4 acres, or request timesheets or any form of evidence proving that Harry actually performed the work.
147The Beneficiaries claim that this behaviour demonstrates that Mike has repeatedly and consistently acted in his own self-interest and without regard for the interests of the Beneficiaries. Further, there is no reason to think that his behavior will change. His removal is therefore necessary to protect the assets of the Family Trust.
148Mike submits that this exchange was fair on the basis of property for sale in the area in 2007 and based on a 2014 appraisal of the Property, which I note was not properly tendered as expert evidence.Moreover, the Property was confronted with a municipal requirement to clean it up and had no liquid assets to hire a third party, nor the necessary heavy equipment. Mike came to a fair agreement with Harry to have the required work completed.
149I do not agree with Mike. There is little doubt in my mind that the municipality required that the Property be cleaned up. I also accept that Harry did in fact labour to clean up the Property. However, those facts alone do not rationalize the actions of a fiduciary in severing irreplaceable real property from the Property and disentitling the Beneficiaries from that land. Although Mike sought compensation at the rate of $16 an hour for his labour, by his own estimate he is compensating Harry at the rate of $18 an hour. This may turn out to be the appropriate rate, but to barter for the cleanup of the Property without even inquiring into the going rate of the work from a third party strikes me as foolish and endangering the Property.
150With respect to the lot line adjustment, Harry can choose either to agree to a reversion of the 1.4 acres back to the Property or to arrange and pay for an appraisal as at the date of the transfer of the land, which amount Harry is to pay to the Family Trust. This may require discussion, including the appropriate real estate appraiser. Counsel can contact me if necessary.
151Over and above the removal of Mike as a Trustee, the Beneficiaries submit that George and Richard should likewise be removed. I do not need to spend much time on this issue as both George and Richard indicated that they will not continue to act if Mike is removed.
152George acknowledged that as of 2013, when the Trustees signed off on the transfer of 1.4 acres to Virginia, he did not know why the land was being transferred and did not know about the consideration for which it was allegedly being exchanged. In other words, George signed off on this transfer as a gift, without contemplating its impact on the Property, whether the consideration (or lack thereof) was reasonable or appropriate, the value of 1.4 acres of land, and why the Family Trust should be gifting property to only one of its Beneficiaries over the interests of the others.
153The Beneficiaries submit that George and Richard completely abdicated their responsibilities.They allowed Mike to deal with the Property as he saw fit, without their input.They did not do anything to protect the welfare of the Beneficiaries and signed off on Mike’s decisions without contemplating their duties. In any event, George and Richard have already confirmed that they will not continue acting as Trustees if Mike is removed. As is set out further below, Mike is removed as a Trustee.
154Mike submits that his imperfections with respect to failure to account, failure to consult, and friction with Beneficiaries are not sufficient for his removal as a Trustee. Although he did not keep detailed records - or sometimes any records - the Trust Agreement provides that Trustees may implement what they determine to be sufficient recordkeeping. On this basis, Mike implemented what he thought was appropriate and is not offside the Trust Agreement.
155Mike also submits that, despite the Beneficiaries’ complaints concerning not being consulted about the amount owing to him from the Property, there was no obligation on the Trustees to consult with the Beneficiaries before taking action.53 On the issue of friction with the Beneficiaries, specifically Michelle, Mike argues that this is not sufficient grounds for removal.54 Moreover, his displeasure with Michelle’s failure to satisfy her financial obligations and the subsequent eviction attempt are reasonable when considering that her actions had been negatively impacting his credit rating.
156I do not agree. Mike’s conduct in failing to utilize a proper recordkeeping system is severe. The lax standard by which he has accounted for the income and assets of the Property has led to numerous issues in this Application, namely disputes about whether these amounts were ever actually incurred. At times during the hearing, Mike agreed that his estimates about how much work and money he expended on maintaining the Property were wrong. These corrections would not have been necessary but for the fact that Mike did not keep any records of the administration of the Property. The Trust Agreement does allow Mike and the other Trustees discretion to utilize the accounting system they deem appropriate. However, Mike fettered his discretion by not using any accounting system whatsoever.
157Moreover, Mike’s failure to consult with the other Trustees is significant. After setting up the Family Trust, Mike continued to manage the Property as though it was his own private asset and not one he disposed to the interests of the Beneficiaries of the Family Trust. His failure to consult with the other Trustees falls short of adequately protecting the interests of the Beneficiaries, particularly considering his animosity/friction towards some.
158Friction with a Beneficiary on its own may not be sufficient for the removal of a trustee. However, when compounded with the other factors in this case, friction produces a viable question about Mike’s ability to continue acting as a fiduciary in the best interests of all of the Beneficiaries.
159Mike submits that his conduct in administering the Property has not been to the detriment of the Beneficiaries such that their welfare is threatened. He has not misappropriated assets. Any reimbursements to himself with cash he collected for the Property were for legitimate expenses. Additionally, the lot line adjustment is not misappropriation because it was done in exchange for consideration, being Harry’s clean up work, which the Property was not in a position to pay for.
160Mike submits that it is immaterial that he did not understand the difference between whether the Family Trust was revocable or irrevocable, and that the Property has not suffered any consequence from this misunderstanding. I agree with him on this point.
161I do not have evidence of the value of the lot line adjustment or whether Harry’s labour was a fair exchange for this parcel of land. However, no attempt to maximize value for the land severed was undertaken by Mike or the other Trustees. This imperiled the Family Trust as it reduced the value of the Property, which is to be secured for the Beneficiaries.
162Mike submits that his conduct was to the benefit of the Family Trust’s Beneficiaries. For example, he made arrangements with a farmer to work on the Property for a discount on taxes. He also administered the Property to provide two of its Beneficiaries with homes for over 20 years and has attempted to increase the income of the Property by, for example, negotiating with Rogers for the installation of a tower on the property.
163Based on all the evidence, Mike, George, and Richard are removed as Trustees. At the trial, there was no proposal as to who would act as the new Trustee if they were removed. It certainly cannot be any combination of Mike’s children. Mike submits that the Court of Appeal has held that the “removal of a sole trustee without appointment of a replacement is an extreme remedy and will be inappropriate in most cases. It will only be available when no other option is realistically available.”55 There is no realistic option available at this point.
164I agree with Mike that the Family Trust involves the management of a large rural property, which is not simple. A professional third party trustee is required.56 The parties shall have 60 days from the date of this decision to agree on such a trustee. Failing an agreement, the parties can make submissions, following which I will make the appointment.
Is Mike personally liable to the Trust for the value of the lot line adjustment?
165Finally, the Beneficiaries seek to make Mike liable for the fair market value of the Property land transferred to Harry. I agree that Mike was not enriched personally by the transfer, however, he favoured one child over five others. The other Trustees knew nothing about the transfer. Mike is personally responsible for the amount however, I have already indicated that Harry is to either have the 1.4 acres reverted to the Trust or pay the market value of the land to the Trust which relieves Mike of that obligation.
Conclusions
166In summary, I find that Mike did not intend the transfer of the Property to be a gift, but also that he failed to bring his claim before the end of the relevant limitation period. Nor did he secure a written acknowledgment of this debt that would allow him to rely on a continuing contract that extends the limitation period. Additionally, Mike has not adduced any evidence that the transfer of the Property to the Family Trust was a transaction akin to an Estate Freeze and accordingly he did not retain any interest in the Property when it was transferred.
167I also find that Mike cannot be compensated for the construction costs of 108 Park Avenue, mileage, meals, and maintenance related to the administration of the Family Trust. In general, Mike has failed to record or account for any of these expenses. More specifically, I find that he never intended to be repaid for the construction costs, which were instead to be a gift to his children. Even were that not the case, he has brought this claim outside the statutory limitation period. I find that his claims for mileage are exaggerated and, in some cases, unrelated to the Family Trust, that he has not produced any contemporaneous evidence that he incurred meal costs in respect of the Family Trust, and that his claim for maintenance costs is disallowed. Some of the expenses claimed under those headings were also brought out of time.
168As a result of these findings the title to the Property has to be rectified by removing the two mortgages registered in Mike’s favour.
169As a result of their failure to make certain payments as a condition of their residency on the Property, Michelle owes $34,156.14 and Marie owes $14,000 to the Family Trust. These payments shall be made within four months and include amounts that have accrued until the date of payment. Additionally, due to Michelle’s breach of the conditions of her occupation of 108 Park Avenue, she and her family are to vacate the Property within four months of this judgment.
170As for the lot line adjustment and transfer of 1.4 acres of the Property to Harry through his wife, Virginia, Harry must either revert the land to the Property or have the land retroactively appraised and pay such amount to the Family Trust.
171Mike is not required to pay back any of the $35,843.83 difference between the income he received for the Property and the expenses incurred. Although he is personally liable for the value of the lot line adjustment, I have put that responsibility on Harry.
172Finally, Mike, George, and Richard are removed as Trustees and shall be replaced by a professional third-party trustee within 60 days.
173With respect to the passing of accounts, trustees are required to pass their accounts when required to do so. Mike, Richard and George must pass their accounts. I am not certain as to how counsel want to proceed with the passing of the accounts. Obviously my findings set out above will be reflected in the accounts. I am happy to have a telephone conference to discuss any issues with counsel in due course. Costs will have to be dealt with as well.
J.E. Ferguson J.
Released: November 16, 2020
COURT FILE NO.: CV-17-8004-00ES and CV-17-8014-00ES
DATE: 20201116
ONTARIO
SUPERIOR COURT OF JUSTICE
IN THE MATTER OF THE GRAHAM
FAMILY TRUST
BETWEEN:
MICHAEL LLOYD GRAHAM personally and in his capacity as Trustee for the Graham Family Trust
Applicant
– and –
MICHELLE BENTON, DAVID BENTON, GEORGE H. SMITH in his capacity as Trustee for the Graham Family Trust, RICHARD SHIELDS in his capacity as Trustee for the Graham Family Trust, HARRY GRAHAM, DALTON GRAHAM, SANDRA LEE GRAHAM, MARIE HUTCHINSON, KAREN PILLON, MELISSA GRAHAM, SHANNON NEDDO, NICOLE GRAHAM, STEPHEN HUTCHINSON, GRAHAM HUTCHINSON, SHANE HUTCHINSON, MATTHEW PILLON, SARAH BENTON, VICTORIA BENTON, DAVID BENTON, MICHAEL A. GRAHAM, ROBERT J. GRAHAM, THE OFFICE OF THE CHILDREN’S LAWYER on behalf of the minors HADLEY MAE HUTCHINSON and GWENDOLYN HUTCHINSON, and all unborn and unascertained Beneficiaries of the Graham Family Trust
Respondents
REASONS FOR DECISION
J.E. Ferguson J.
Released: November 16, 2020
Footnotes
- Pecore v. Pecore, 2007 SCC 17, [2007] 1 S.C.R. 795.
- Land Transfer Tax Act, R.S.O. 1990 c. L.6.
- Greco v. Frano, 2015 ONSC 7217, [2015] O.J. No. 6110 at para. 37 (“Greco”).
- Limitations Act, 2002, S.O. 2002, c. 24, sched. B, s. 5(3).
- Ibid s. 5(4).
- Ibid s. 24(2).
- Hare v. Hare (2006), 2006 41650 (ON CA), 83 O.R. (3d) 766 (C.A.) at para. 11; Greco at paras. 35‑36.
- Limitations Act, R.S.O. 1990, c. L. 15, s. 45(1)(g).
- Ibid s. 51(1).
- Burns v. McMillan, 2012 ONSC 6910, [2012] O.J. No. 5751 at paras. 75-77; Heerkens v. Lindsay Agricultural Society, 2017 ONSC 240, [2017] O.J. No. 104 at para. 100; West York International Inc. v. Importanne Marketing Inc., 2012 ONSC 6476, [2012] O.J. No. 5395 at paras. 90-96; Roth v. Insalaco, 2014 ONCA 472 at para. 5.
- Johnson v. Johnson, 2012 SKCA 87, 399 Sask. R. 196 at para. 37; Nikel Investments Ltd. v. Gallaher, 2012 ABQB 276, 538 A.R. 373 at paras. 26-27.
- Kalczynski Estate (Re), 2010 ONSC 6081, [2010] O.J. No. 4662 at para. 8 (“Kalczynski”).
- Donovan W.M. Waters, Mark Gillen & Lionel Smith, Waters’ Law of Trusts in Canada, 4th ed. (Toronto: Carswell, 2012) at 478 (“Waters’ Law of Trusts in Canada”); Moore v. Sweet, 2018 SCC 52, [2018] 3 S.C.R. 303 at para. 32‑33 (“Moore”).
- Moore at paras. 32-33.
- Waters’ Law of Trust in Canada at 503.
- Moore.
- Christmas Estate v. Tuck, [1995] O.J. No. 3836 (C.J.) (“Christmas Estate”).
- Martin v. Goldfarb (1999), 1998 4150 (ON CA), 41 O.R. (3d) 161 (C.A.) at para. 74 (“Martin”), citing Toronto Transit Commission v. Aqua Taxi Ltd. (1956), 1956 443 (ON SC), [1957] O.W.N. 65 (H.C.).
- Martin at para. 75.
- Matiowski v. Lake of the Woods Business Incentive Corp., 2008 CarswellOnt 6213 (S.C.) at para. 34.
- Christmas Estate at para. 16.
- Craig Estate v. Craig Estate (Trustee of), [2007] O.J. No. 284 (S.C.) at para. 76.
- Trustee Act, R.S.O. 1990, c. T.23, s. 23.1.
- Ibid s. 23.1(2).
- Irwin v. Ruberry, 2015 ONSC 1821, [2015] O.J. No. 1534 at para. 43 (“Irwin”), citing Widdifield on Executors & Trustees, 6th ed. (Toronto: Carswell, 2013), 4.1.
- Waters’ Law of Trusts in Canada, 22.I A.1.
- Irwin.
- Frye Estate, Re, 1992 CarswellOnt 1888 (Gen. Div.) at para. 19.
- Omulski Estate v. Omulski Estate, 2014 ONSC 6370, [2014] O.J. No. 6278 at para. 64 (“Omulski Estate”).
- Kalczynski at para. 8; Lanthier v. Dufresne Estate, 2002 CarswellOnt 3050 (S.C.); Omulski Estate.
- Omulski Estate at paras. 60, 61, and 64.
- Trustee Act, s. 23.1; Goodman Estate v. Geffen, 1991 69 (SCC), [1991] 2 S.C.R. 353 at para. 75.
- Sawdon Estate v. Watch Tower Bible and Tract Society of Canada, 2014 ONCA 101, 119 O.R. (3d) 81 at paras. 84‑85.
- See Vano Estate, Re, 2012 ONSC 262, [2012] O.J. No. 79 at para. 26.
- Residential Tenancies Act, 2006, S.O. 2006, c. 17.
- Angle v. Minister of national Revenue, 1974 168 (SCC), [1975] 2 S.C.R. 248 at 254.
- Danyluk v. Ainsworth Technologies Inc., 2001 SCC 44, [2001] S.C.R. 460 at para. 33.
- Nuspel v. Foo, 1949 CarswellOnt 235 (S.C.), at paras. 9-12; In Willloughby Residential Development Corp v. Bradley, 2002 BCCA 321, [2002] B.C.J. 1103.
- Hav-a-Kar Leasing Ltd. v. Vekselshtein, 2012 ONCA 826, 225 A.C.W.S. (2d) 237 at para. 42 (“Hav-a-Kar”).
- Tan C.H., “Unauthorised Agency in English Law” in D. Busch & L.J. Macgregor, eds., The Unauthorised Agent: Perspectives from European and Comparative Law (Cambridge, UK: Cambridge University Press, 2009) 185 at 188.
- Hav-a-Kar at para. 42.
- Ibid.
- Aviva Insurance Company v. Wawanesa Mutual Insurance Company, 2019 ONCA 704, [2019] O.J. No. 4559 at para. 29.
- Statute of Frauds, R.S.O. 1990, c. S. 19, ss. 1, 4.
- 968703 Ontario Ltd. v. Vernon, 2002 35158 (ON CA), 58 O.R. (3d) 215 (C.A.) at para. 16.
- Trustee Act, s. 37; St. Joseph's Health Centre v. Dzwiekowski, 2007 51347 (Ont. S.C.) at para. 25 (“St. Joseph’s”).
- Letterstedt v. Broers (1884), (1883-84) L.R. 9 App. Cas. 371; Crawford v. Jardine, 1997 CarswellOnt 4962 (Gen. Div.) at para. 18 (“Crawford”).
- Crawford at para. 20.
- Ibid at para. 20.
- St. Joseph's at para. 29.
- Ontario (Attorney General) v. Ballard Estate (1999), 1994 7305 (ON SC), 20 O.R. (3d) 189 (Gen. Div.) at paras. 46-47 (“Ballard”).
- Ballard at paras. 46-47.
- Conroy v. Stokes, 1952 227 (BC CA), [1952] 4 D.L.R. 124 (B.C.C.A.) at para. 11 (“Conroy”).
- Crawford at para. 20; Conroy at paras. 3, 10.
- Evans v. Gonder, 2010 ONCA 172, [2010] O.J. No. 884 at para. 68.
- B. Schnurr, ed., Estate Litigation, 2nd ed. (Toronto: Carswell, 1994), at 13.6.
- Ryan v. Moore, 2005 SCC 38 , [2005] 2 S.C.R. 53 at para. 76.