Pfisterer Estate v. Hoepfinger-Pfisterer, 2022 ONSC 4117

COURT FILE NO.: CV-21-30184 and CV-21-30395

DATE: 20220714

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

CV-21-00030184

Tom Smith, Estate Trustee With a Will,

In the Estate of Wolfgang Pfisterer (also known as Wolfgang Friedrich Pfisterer), deceased

Applicant

– and –

Doris Hoepfinger-Pfisterer, Rolland

Pfisterer (also known as Roland Pfisterer), Sabine Pfisterer (also known as Sabine Hildenbeutel), and Wilfreed Pfisterer (also known as Wilfried F. Pfisterer)

Respondents

William Sasso, Counsel for the Applicant

Daniel Walker, Counsel for the Respondents

AND BETWEEN:

CV-21-00030395

Doris Hoepfinger-Pfisterer

Applicant

– and –

Thomas Smith, in his capacity as Estate Trustee of the Estate of Wolfgang Pfisterer (aka Wolfgang Friedrich Pfisterer), deceased, and in his personal capacity

Respondent

Daniel Walker, Counsel for the Applicant

William Sasso, Counsel for the Respondent

HEARD: November 17, 2021, February 22, 24, 2022, and April 14, 2022

DUBé J.

A. INTRODUCTION

[1] This is an application brought by Tom Smith (“Mr. Smith” or “Ontario Trustee”), in his capacity as the Ontario Trustee of the Estate of Wolfgang Pfisterer, also known as Wolfgang Friedrich Pfisterer, (“Wolfgang”), against the respondent beneficiaries, and siblings, Doris Hoepfinger-Pfisterer (“Doris”), Rolland Pfisterer, also known as Roland Pfisterer, (“Roland”), Sabine Pfisterer, also known as Sabine Hildenbeutel, (“Sabine”), and Wilfreed Pfisterer, also known as Wilfried F. Pfisterer, (“Wilfred”), collectively to be known as (“the beneficiaries”), for the following relief:

1. An order approving the agreement of purchase and sale (“APS”) dated June 23, 2021, made between the Ontario Trustee and Tri-B Acres Inc. (“Tri-B Acres”), as buyer, for Wolfgang’s Ontario Estate, which consists of five parcels totalling 629.52 acres of property (“Ontario Farmland”) legally described municipally as vacant land situated on the south side on County Road 2, extending between County Road 22 and Strong Road in the Town of Lakeshore (“Lakeshore”);
2. Directing that, upon payment by the buyer of the balance of the purchase price, subject to proper adjustments on closing, all the Ontario Trustee’s and Wolfgang’s Ontario Estate right, title, and interest in the Ontario Farmland shall vest absolutely in the buyer, or as the buyer directs, as registered owner in fee simple, free and clear of all other interests under s. 100 of the Courts of Justice Act, R.S.O. 1990, c. C.43 (“CJA”);
3. Directing the Ontario Trustee to take all steps required to complete the subject transaction; and
4. The costs of this proceeding, plus all applicable taxes.

[2] The respondent, Doris, brings a counter-application and seeks, in part, the following:

1. An Order denying the approval and vesting orders (“the Orders”), and
2. An Order removing Mr. Smith as the Ontario Trustee and replacing him with Angela Casey of Casey and Moss LLP as a succeeding estate Ontario Trustee.

[3] Pursuant to r. 13.01, Tri-B Acres twice brought a motion for an order granting leave to intervene in the applications as an added party. Before I decided that issue, Tri-B Acres withdrew the motions due to concerns that they would unduly delay the application for the Orders.

[4] All parties agreed that the offer for the Ontario Farmland by Tri-B Acres reflected fair market value.

[5] Mr. Smith has undertaken that once I decide whether to approve the sale of the Ontario Farmland, he will immediately step down as Ontario Trustee.

B. BACKGROUND

[6] Wolfgang was a German resident and farmer who purchased large tracts of land in the Windsor-Essex region in 1985, 1986, 1994, and 1995, which are designated agricultural lands. He had a history of farming, real estate, and other investments in both Germany and Canada. Some of Wolfgang’s children and grandchildren are currently farmers.

[7] Wolfgang died in Germany on November 8, 2014. The Certificate of Appointment of the Ontario Estate Trustee with an Ontario Will and Testament (“Ontario Will”), dated September 4, 2012, was issued to Mr. Smith by the Ontario Superior Court of Justice in Windsor, Ontario on June 22, 2015. Doris was named as the alternative Ontario Trustee.

[8] At the time of Wolfgang’s death, the Ontario Estate consisted of (1) liquid assets in cash and joint investment accounts in the name of Wolfgang and Doris (collectively, “Joint Accounts”) totalling $9,709.16 and $1,512,138, respectively, and (2) the Ontario Farmland valued at $4,989,500.

[9] The residual beneficiaries under the Ontario Will are Wolfgang’s four adult children (Doris, Roland, Sabine, and Wilfred), all of whom currently reside in Germany.

[10] Clause 2 of the Ontario Will states that Mr. Smith is named Ontario Trustee “provided that” Mr. Smith “will confer” with Doris “prior to making any decisions with respect to my estate”.

[11] Clause 3(a) of the Ontario Will provides the Ontario Trustee “uncontrolled discretion” in the realization of the Ontario Estate and the power to sell, call in, and convert into money any part of the Ontario Estate, at such time or times, in such manner, and upon such terms, and either for cash or credit, or for part cash or part credit, as the Ontario Trustee may decide upon.

[12] Clause 3(b) of the Ontario Will provides that the Ontario Trustee has the same discretion to pay the Ontario Estate debts, testamentary expenses, and inheritance and succession duties or taxes.

[13] Clause 3(c) of the Ontario Will provides that the Ontario Trustee has “absolute discretion” to pay the residue of the Ontario Estate to the beneficiaries living at the date of distribution in shares per stirpes.

[14] The Ontario Trustee and the beneficiaries have at all times acted with the belief that Wolfgang wanted his children, the beneficiaries, to benefit equally from the Ontario Estate.

[15] After Wolfgang’s death, the beneficiaries commenced litigation over his much larger and more complex estate in Germany, which included farmland, several apartment buildings, a restaurant and catering service, and an aircraft business with several aircrafts. As of September 2020, the Germany court proceedings were largely resolved, and all assets remained within the family.

[16] In 2018/2019, the Ontario Trustee developed a plan for the subdivision and equal distribution of the Ontario Farmland to the beneficiaries. The plan involved the Ontario Trustee retaining experts to value and survey the property as well as legal counsel to assist the Ontario Trustee in obtaining Lakeshore’s approval regarding the subdivision plan. The planning proceeded to the stage where Lakeshore’s administration recommended that Lakeshore Council approve the proposed subdivision before the beneficiaries failed to agree on parcel ownership and equalization payments.

[17] In December 2019, counsel for Doris demanded the return of funds from the Joint Accounts that she had previously transferred to the Estate Trustee.

[18] On January 16, 2020, Doris initiated legal proceedings seeking a declaration in the Ontario Superior Court of Justice, Court File No. CV-20-28611, that the Joint Accounts (“Joint Accounts Application”) were not part of the Ontario Estate and she was solely entitled to the funds. The Ontario Trustee and at least two of the other beneficiaries opposed the application.

[19] In response to the Joint Accounts Application, the Ontario Trustee advised the beneficiaries, by affidavit dated July 28, 2020, that:

But I have been unsuccessful in obtaining the agreement of all the [c]hildren to this subdivision plan which I believe is consistent with Wolfgang’s intentions as expressed in his Ontario Will. In the current circumstances and in the absence of the common agreement of all the [c]hildren to the subdivision plan, I intend to sell [the Ontario Farmland], complete administration of the Ontario Estate and pay the net proceeds equally to the [c]hildren.

[20] On April 22, 2021, the parties agreed to proceed to mediation with respect to outstanding issues regarding the Joint Accounts Application and the Ontario Estate. The mediation occurred on April 22, May 25, and June 10, 2021. Ultimately, mediation failed as no settlement was reached.

[21] On May 6, 2021, the Ontario Trustee signed an exclusive agreement with CBRE Real Estate (“CBRE”) to list, market, and sell the property.

[22] On May 19, 2021, the beneficiaries and their lawyers were notified of the listing and were provided with all supporting material.

[23] On June 3, 2021, counsel for the Ontario Trustee, Mr. Sasso, emailed counsel for Doris, Mr. Walker, advising that the Ontario Trustee received but rejected an offer for the sale of the Ontario Farmland. Mr. Walker responded that same day and advised Mr. Sasso that “any” sale of the Ontario Farmland would be opposed.

[24] On June 21, 2021, Doris, through counsel, provided a settlement proposal to the Ontario Trustee for review and comment and requested that it also be circulated among the other beneficiaries.

[25] On June 23, 2021, Tri-B Acres submitted an offer of $13.1 million for the Ontario Farmland with an irrevocable date of June 25, 2021. The APS contained a contractual clause that the Ontario Trustee bring a court application for an “Approval Order”. In other words, the APS is conditional upon the Seller/Ontario Trustee obtaining an order of the Ontario Superior Court of Justice. The order would be to approve the APS with title to be transferred by “Approval Order” and not by Transfer/Deed of Land with the closing date on August 31, 2021 and/or 14 days immediately following the date of the “Approval Order” being obtained. Tri-B Acres paid a deposit of $500,000 of the purchase price.

[26] On June 25, 2021, the terms of the APS were disclosed to the beneficiaries after the Ontario Trustee served them with a request to schedule an urgent court date regarding the approval of the sale of the Ontario Farmland. The name of the buyer of the Ontario Farmland and their lawyer were redacted in the copy of the APS that was provided to the beneficiaries, and Doris and/or her lawyer and/or her representatives were advised not to contact the buyer or their lawyer or in any manner interfere with the APS. Mr. Sasso also advised Doris and her counsel that their settlement proposal of June 21, 2021 was not acceptable.

[27] On July 5, 2021, German counsel for Sabine, Dr. Joachim Distel (“Dr. Distel”), advised the Ontario Trustee that the beneficiaries had reached an agreement in principle on the Ontario Estate and that the Ontario Trustee should not proceed with the sale of the Ontario Farmland.

[28] On July 6, 2021, Mr. Walker emailed and advised Mr. Sasso confirming that the beneficiaries have come to an understanding and that details were being worked out by the involved parties. Mr. Walker further advised that the beneficiaries have voiced their opposition to the sale of the Ontario Farmland and requested that all legal activities and efforts to sell the land stop in the interim.

[29] On July 8, 2021, Mr. Sasso responded to Dr. Distel’s and Mr. Walker’s correspondence and Doris’s proposal, from June 21, 2021, via email to both counsel stating the following:

1. That the Ontario Trustee confirmed that the beneficiaries have agreed that the Ontario Farmland be divided into four parcels detailed in the Ontario Trustee’s proposal of September 5, 2019.
2. That to date, the beneficiaries have not confirmed in writing that they have reached any further or other agreement on the outstanding issues involving the Ontario Estate (i.e. the Joint Accounts Application)
3. That it is unknown whether the beneficiaries have agreed among themselves to fund or authorize the funding for the Ontario Trustee to apply for and obtain Lakeshore’s approval for the subdivision of the Ontario Farmland into the parcels, although it is uncertain whether such approval will happen.
4. That it is unknown whether the beneficiaries have agreed on the value of the parcels and the equalization payments to be made or received by each of them.
5. That it is unknown whether the beneficiaries agreed that they will provide their proportionate share of the capital gains tax funding that is required to be made at the time of the sale of the Ontario Farmland and/or transfer of title to the parcels of the Ontario Estate to the beneficiaries.
6. That it is unknown if the beneficiaries have reached agreement on the Joint Accounts Application and if not, how the remaining beneficiaries intend to fund the legal costs of defending against the application.
7. That it is unknown whether the beneficiaries reached agreement among themselves on the payment of the Ontario Trustee’s fees and expenses (legal, accounting, valuation, surveying, property maintenance etc.) to date and on the future payment of the Ontario Trustee’s fees to the completion of the Ontario Estate.
8. That in the absence of an agreement among the beneficiaries, the Ontario Trustee is faced with significant disputes among the beneficiaries and outstanding financial obligations to be met by the Ontario Estate and that the Ontario Trustee does not have the financial means to meet these Ontario Estate obligations without the disposition of the Ontario Farmland.
9. That in the absence of a global settlement of the Ontario Estate issues, the Ontario Trustee will proceed to formalize the application and supporting application record.

[30] On July 8, 2021, Mr. Walker again emailed Mr. Sasso to advise that the agreement was being formalized in German and English and reminded him that the beneficiaries were united and did not want the Ontario Farmland sold.

[31] On July 9, 2021, The Ontario Trustee issued the Notice of Application. On July 12, 2021, the Ontario Trustee served his application record on all the parties.

[32] On July 15, 2021, the Ontario Trustee received signed copies of the agreement among the beneficiaries of the Ontario Estate (“Beneficiaries Agreement”) stating that they had put aside their differences and were opposed to the sale of the Ontario Farmland and directing the Ontario Trustee to delist the property and advise Tri-B Acres of this development. In the Beneficiaries Agreement, the beneficiaries agreed to provide their proportionate share of tax funding, including the capital gains tax burden, to preserve the assets of the Ontario Estate if it was not sold. If the tax authorities valued the Ontario Farmland collectively on the transfer to the beneficiaries at the same price offered by Tri-B Acres, the capital gains tax burden for the Ontario Estate would be $2,169,558.75. The beneficiaries also agreed “to fund or authorize the funding” to apply for and obtain approval of the subdivision of the Ontario Farmland into four parcels, assuming Lakeshore approves the plan for the Ontario Farmland.

[33] On July 19, 2021, counsel for Tri-B Acres, Mr. Godard, was advised of this development. Tri-B Acres’ position to date is that they are ready, willing, and able to complete the transaction.

[34] On August 30, 2021, Doris registered a Caution against the Ontario Farmland.

[35] On August 31, 2021, Mr. Walker forwarded to Mr. Sasso a formal legal tax opinion report obtained by an accountant retained by Doris, on the capital gains requirement that would result from the beneficiaries taking ownership of the land in four parcels. The report advised that capital gains would not be triggered by a disposition of the Ontario Farmland to the beneficiaries; rather, the transfer would occur on a rollover basis and taxation would be deferred until such time as the individual beneficiaries die or transfer the property.

[36] On September 23, 2021, Doris issued the Notice of Application (counter-application), which was later amended on September 29, 2021.

[37] On October 14, 2021, Carey J. conducted a case conference and ordered, on consent, that the two applications be heard together pursuant to r. 6.01(d) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194.

[38] The applications were subsequently adjourned on an urgent basis for a contested hearing scheduled for November 17, 2021.

C. POSITION OF THE PARTIES

1) The Ontario Trustee’s Position

[39] The Ontario Trustee relies heavily on Walters v. Walters, 2022 ONCA 38 (“Walters”). He asserts that the only issue in this case is whether there was any impropriety, mala fides, lack of good faith, or a failure in the exercise of reasonable prudence on the part of the Ontario Trustee in the exercise of his discretion to sell the Ontario Farmland – knowing what he knew at the time he exercised his discretion or what he could have reasonably known prior to the time the APS was signed on June 23, 2021.

[40] The Ontario Trustee received a monetary offer from Tri-B Acres that was superior to other offers, and it was in the financial interests of the Ontario Estate and the residual beneficiaries to accept the offer. This was especially so because, despite the best efforts of the Ontario Trustee and the approval of the Lakeshore administration, the beneficiaries considered but ultimately failed to agree on the plan proposed in 2019 to subdivide the Ontario Farmland amongst the four beneficiaries.

[41] Further, the Ontario Trustee did not know but later learned that the capital gains tax that he understood would attract immediate payment from the subdivision of the Ontario Farmland, could instead be rolled over or deferred until the death of the beneficiary or until the property was sold. Finally, given the history, the Ontario Trustee could not know that the beneficiaries would be able to resolve their long-standing differences and reach an agreement on the subdivision plan that he had long recommended.

[42] The Ontario Trustee submits that he exercised his discretion properly and did so in the best interest of the Ontario Estate. He further argues that even when considering his obligation to confer with Doris, there was nothing that he did in the administration of the Ontario Estate, or more specifically with respect to the circumstances surrounding the APS, that approached a level of mala fides.

[43] On the issue of conferring, the Ontario Trustee asserts that the consulting process with Doris was ongoing and that shortly before the APS, the parties were involved in mediation and extensive discussions about many issues involving the Ontario Estate, including the potential sale of the Ontario Farmland. Based on these discussions, Doris, through her counsel, clearly stated on June 3, 2021, that she was opposed to any sale of the Ontario Farmland and would take the appropriate steps if the Ontario Trustee attempted to sell the property. Accordingly, there was no point to further consult or confer with Doris since she would oppose any sale of the Ontario Farmland under any terms.

[44] On the issue of pre-taking compensation, which is a common practice, there is no authority to suggest that this practice is in any way improper or a breach of the Ontario Trustee’s fiduciary duty. With respect to the bad accounting advice, the Ontario Trustee was not expected to second-guess or look behind what appeared to be sound advice from Wolfgang’s former accountant on the capital gains obligations that were believed to attach to the subdivision and/or transfer of Ontario Farmland. The Ontario Trustee submits he exercised due diligence at all times in the administration of the Ontario Estate.

[45] With regard to the issue of the Ontario Trustee being in a potential conflict after the Trustee signed the APS due to the Beneficiaries Agreement. After entering the APS, the Ontario Trustee had a duty under the terms of the APS to proceed in good faith and fairly provide the reasons as to why the court should grant the Orders notwithstanding the beneficiaries’ opposition to the sale. This is not a conflict in the Ontario Trustee’s duty. To the contrary, the Ontario Trustee is performing the obligation imposed after signing the APS to complete the agreement which he believes is in the best interest of the beneficiaries.

[46] During submissions, Mr. Sasso disagreed with what Mr. Walker considers as irrelevant or extraneous factors that the Ontario Trustee relied on when making decisions regarding the Ontario Estate. For instance, the Ontario Estate’s capital gains obligation was not at all an extraneous factor, but one that was central to the Ontario Trustee’s decision on whether to sell the Ontario Farmland. Although at the time the capital gains tax burden was a relevant consideration that was later proven to be wrong advice, the Ontario Trustee still believed, after re-assessing the decision-making process, that the sale was in the best interest of the Ontario Estate. In any event, in the Beneficiaries Agreement the beneficiaries advised that they were able to raise sufficient funding to cover the capital gains tax.

[47] In conclusion, when considering all the circumstances, the Ontario Estate has not acted with mala fides or in a manner akin to mala fides. Accordingly, the court should not interfere with the discretion of the Ontario Trustee to enter into the APS with respect to the Ontario Farmland given what the Ontario Trustee knew at the time. Therefore, the court ought to grant the Orders.

2) The Beneficiaries’ Position

[48] The Ontario Trustee breached his fiduciary duty, loyalty and transparency duties, and good faith duty to the beneficiaries due to the following:

1. The Ontario Trustee has failed to adhere to the specific terms of the Ontario Will, which requires him to confer with Doris prior to any decisions involving the Ontario Estate.
2. The Ontario Trustee took out a mortgage against the Ontario Farmland and then pre-took compensation and incurred debt without court approval, without it being permitted in the Ontario Will, and without the consent of the beneficiaries.
3. The Ontario Trustee relied on inaccurate tax advice and factors to justify the Ontario Farmland sale and continues to act in direct conflict and against the wishes of the beneficiaries, claiming that the sale is in the best interest of the beneficiaries and the Ontario Estate.

[49] The beneficiaries argue that the key question before the court is whether the Ontario Trustee acted with clean hands while exercising his discretion under the Ontario Will. Also relying on Walters (at paras. 36-37, 40-41), the analysis begins with what the Ontario Trustee knew to be the terms in the Ontario Will that restricted his discretion to sell the Ontario Farmland. If the Ontario Trustee wilfully failed to comply with these terms, this would constitute a breach of the Ontario Trustee’s fiduciary obligations. Accordingly, the Ontario Trustee comes to court with hands that are not clean, and therefore his request for equitable relief in the form of the Orders ought to be denied.

[50] The beneficiaries’ position is that the Ontario Trustee breached his fiduciary duty. As a highly paid Ontario Trustee administering a large estate with non-resident beneficiaries involved in litigation, he had a duty to exercise all due diligence when relying on what was later determined to be bad advice, which he sought and received from a third party. Knowing what it now knows, the court cannot simply protect the Ontario Trustee from either Tri-B Acres or the beneficiaries for decisions he made, which ultimately resulted in him signing the APS. Since he is personally liable, condoning the conduct of the Ontario Trustee – including his decision to sell the Ontario Farmland, which was based, in large part, on bad accounting advice – would violate the principles of equity, fairness, and justice. The bad accounting advice that the Ontario Trustee relied on amounts to an extraneous factor that allows the court to intervene especially after the Ontario Trustee represented to the court that based on that advice, his position to sell the Ontario Farmland was fair and reasonable.

[51] Further, the Ontario Trustee placed himself in a conflict of interest by pre-taking compensation from a line of credit/mortgage (“mortgage”) registered against the Ontario Farmland, which resulted in debt that was not discovered until much later. During examinations, the Ontario Trustee admitted that there were no outstanding invoices against the Ontario Estate and that the only financial obligations appeared to have been legal fees. The obligation on the beneficiary to cover capital gains tax in the range of $1,2 million to $2.1 million was particularly burdensome, especially because it was during the height of the pandemic, and it made it more difficult for the beneficiaries to resolve their differences. The court now knows the accounting advice was inaccurate and that the capital gains obligation can be deferred. The Ontario Trustee relied heavily on his responsibility to address the Ontario Estate’s debt obligations to justify the sale of the Ontario Farmland. Walters states that when an Estate Trustee relies on extraneous matters, such as bad accounting advice, the court has the right to step in based on mala fides. Even if s. 100 of the CJA does not apply because the Ontario Trustee committed no fiduciary breaches and came to the court with clean hands, the second stage of the Walters analysis applies. Under these circumstances, the Ontario Trustee’s decision took into consideration extraneous or improper factors, such as relying on the wrong accounting advice as well as non-existent debt obligations, which justifies the court’s intervention and exercise of its discretion.

[52] After considering the pre-taking of compensation, if Doris would have prevailed in the Joint Accounts Application, the Ontario Trustee would have been in a conflict of interest because the Ontario Estate would not have any money to pay her back. Since the mortgage that was registered against the Ontario Estate was used to fund his compensation, it was in the Ontario Trustee’s interest to oppose the Joint Accounts Application, which resulted in a breach of his fiduciary breach. As the Ontario Trustee is financially vested in these proceedings, the court must thoroughly scrutinize his conduct, which ultimately resulted in the decision to sign the APS. For the court to approve the sale under circumstances where the Ontario Trustee chose to sell the Ontario Farmland and pay both legal fees and the debt incurred by paying himself, without consulting Doris, would be an unjust remedy.

[53] With respect to the email sent that Doris would oppose any sale of the Ontario Farmland, there is a difference between opposing a sale and being consulted on an ongoing basis about the process. The terms of the Ontario Will, including the consulting condition, are clear, unambiguous, and contingent on consulting Doris with respect to decisions involving the Ontario Estate. The fact that Doris advised the Ontario Trustee through counsel that the sale is opposed does not extinguish the obligation of the Ontario Trustee in the Ontario Will to continue conferring with Doris on major decisions regarding the Ontario Estate. At no time did Doris advise the Ontario Trustee to stop conferring with her, but he did just that. In fact, the Ontario Trustee acted in secrecy to gain an upper hand regarding the sale of the Ontario Farmland. Before moving forward with the sale of the Ontario Farmland, nothing prevented the Ontario Trustee from conferring with Doris about the offer. If conferred on the offer, Doris could have had an impact on how the Ontario Trustee proceeded with the sale. For instance, Doris could have agreed to withdraw her Joint Accounts Application because the immediate risk of the sale of the Ontario Farmland was too high. By not conferring with Doris, the Ontario Trustee did not act in an honest, fair, and reasonable manner, and thereby committed another breach of his fiduciary duty.

[54] In conclusion, at the time the APS was signed, the Ontario Trustee’s fiduciary breaches were in place, namely by failing to confer, by pre-taking compensation, and by causing debt to the Estate for his own compensation. Even if the court does not find these breaches, the court can find that the Ontario Trustee relied on irrelevant factors, namely the Ontario Estate debt and erroneous capital tax obligations. The court can thereafter intervene and set aside the Ontario Trustee’s exercise of discretion.

D. THE ISSUES

[55] I have carefully reviewed counsel’s positions and I am satisfied that I can properly dispose of this matter after considering the following issues:

1. Whether the Ontario Trustee unreasonably failed to adhere to the specific terms of the Ontario Will, which required him to confer with Doris prior to making any decisions involving the Ontario Estate, including the sale of the Ontario Farmland.
2. Whether the Ontario Trustee unreasonably registered a mortgage against the Ontario Farmland, pre-took compensation, and incurred debt in the absence of court approval, and without the consent of the beneficiaries or such actions being permitted in the Ontario Will.
3. Whether the Ontario Trustee unreasonably relied on what was later determined to be inaccurate capital gains tax advice to justify the sale of the Ontario Farmland.
4. If so, whether the Ontario Trustee’s reliance on the inaccurate capital gains advice is an extraneous factor justifying the court to intervene and set aside the Ontario Trustee’s exercise of discretion.
5. Whether, after considering all the above circumstances, the court should grant the Orders in respect of the APS, pursuant to s. 100 of the CJA.
6. Whether, after considering all the above circumstances, Mr. Smith should be removed as the Ontario Trustee and replaced by Angela Casey, of Casey and Moss LLP, as succeeding Ontario Trustee for the Estate.

E. ANALYSIS

1) Clause 2: The Conferring Provision

[56] The conferring provision in Clause 2 of the Ontario Will states:

I hereinafter refer to my Executor and Trustee or my Executrix and Trustee for the time being as my “TRUSTEE”, provided that TOM SMITH will confer with DORIS HOEPFINGER-PFISTERER prior to making any decisions with respect to my estate.

[57] The conferring clause is positioned prominently as the second of ten clauses in the Ontario Will. When examining the Ontario Will as a whole, the wording of Clause 2 is plain and unambiguous. It creates a positive obligation on the Ontario Trustee to “confer” with Doris before making “any” decisions with respect to the Estate. In Black’s Law Dictionary, 10th ed. (Minnesota: Thomson Reuters, 2014), the meaning of “confer” is:

2. To bring together for the sake of scrutiny or comparison. 3. To hold a conference; to consult with one another.

[58] Taken literally, the wording of Clause 2 could lead to absurd results. In fact, the Ontario Trustee struggled with interpreting the clause. During examinations, the Ontario Trustee questioned whether he should “be talking to her [Doris] about paying the light bill, paying, like, on every decision that’s made”. I understand the Ontario Trustee’s confusion. As a matter of common sense, I find that with respect to minor or inconsequential decisions, such as changing a light bulb, there is little if any obligation to confer with Doris. However, if the decision is anticipated to have an obvious and significant impact on the Ontario Estate, then the Ontario Trustee must first confer with Doris.

[59] The Ontario Estate consists of a large farm containing three or four rental homes (I will exclude for now the Joint Accounts). The Ontario Trustee is situated in Ontario, whereas Doris and the other beneficiaries reside thousands of kilometres away in Germany. Considering the limited ability of the beneficiaries to oversee the operation of the Ontario Estate from Germany, Clause 2 ensures that the Ontario Trustee contacts the beneficiaries, through Doris, to apprise them of any important decisions that may affect the Ontario Estate.

[60] During examinations, Mr. Cheifetz, counsel for Wolfgang, testified that Clause 2 was drafted in a manner consistent with the wording that Wolfgang provided to him through an interpreter. More specifically, Wolfgang instructed him to include a clause indicating that the Ontario Trustee was to confer with Doris prior to making any decisions regarding the Ontario Estate. When Mr. Cheifetz reviewed the conferring clause with Wolfgang after the Ontario Will was drafted, Wolfgang agreed that the wording was correct. Overall, the evidence clearly demonstrates that the conferring clause captured Wolfgang’s expressed intention that Doris would play an active role insofar as having the opportunity to provide input with respect to decisions involving the Ontario Estate: see Walters, at para. 37.

[61] Clause 3 of the Ontario Will follows the obligation that the Ontario Trustee is to confer with Doris. The Ontario Will sets out under Clause 3(a) the “uncontrolled” discretion of the Ontario Trustee to sell, call in, and convert into money and part of the Ontario Estate, at such time or times, in such manner, and upon such terms, and either for cash or credit, or for part cash or part credit. Clause 3(b) stipulates that the Ontario Trustee is to pay the Ontario Estate debts, testamentary expenses, and inheritance and succession duties or taxes. Finally, Clause 3(c) provides the Ontario Trustee with the “absolute discretion” to pay the residue of the Ontario Estate to the beneficiaries living at the date of distribution in shares per stirpes.

[62] The predominant position of Clause 2 in the Ontario Will confirms that the Ontario Trustee must confer with Doris as a mandatory pre-condition before he exercises his “uncontrolled” or “absolute” discretion with respect to decisions made regarding the administration of the Ontario Estate.

[63] It is clear from the evidence that shortly after Wolfgang’s death, the beneficiaries were engaged in protracted litigation in Germany in relation to his German Estate. While it appeared that issues involved in the German legal proceedings were mostly resolved by September 2020, the process resulted in deep division and shifting loyalties among the beneficiaries. It was not until the Beneficiaries Agreement was signed on July 15, 2021, that the beneficiaries were finally able to resolve their differences and reach a consensus on issues related the Ontario Estate.

[64] In 2018 and 2019, the Ontario Trustee believed that because of the constant infighting between the beneficiaries, it would be in their best interests that the Ontario Farmland be subdivided into four relatively equal sized parcels and that exclusive title to one of the parcels be given to each of them. As a result, the Ontario Trustee spent considerable time and expense valuing and surveying the property to create a plan for the subdivision of the Ontario Farmland. The plan also included payments or adjustments to equalize the value of the individual parcels of land received by each beneficiary. Once the individual parcels were transferred to the four beneficiaries, the Ontario Trustee intended to then take steps to wind up the Ontario Estate.

[65] Ultimately, Lakeshore administration reviewed the plan to subdivide the property and recommended to Lakeshore Council that it be approved. However, because the beneficiaries failed to reach a consensus, the plan was never implemented. According to Roland’s affidavit from September 26, 2021, the failure to implement the plan was due, in part, to unresolved issues regarding the Joint Accounts Application, which I will more fully discuss below. Additionally, and consistent with Roland’s account, the Ontario Trustee stated in his affidavit dated July 22, 2021, that the plan failed because the beneficiaries could not agree on the ownership of each parcel of land and/or the equalization among themselves and/or the payment of capital gains tax that would have been triggered when the land was transferred.

[66] According to the Ontario Trustee’s affidavit from October 22, 2021, on May 13, 2019, Mr. Walker, on behalf of Doris, demanded that the Ontario Trustee return the $1,187,508.48 that she transferred from the Joint Accounts to the Ontario Estate in 2015 to pay for capital gains tax, probate fees, and other related expenses. On January 16, 2020, Doris initiated legal proceedings claiming that the Joint Accounts were not part of the Ontario Estate and that she, to the exclusion of the other beneficiaries, had sole ownership over the funds contained therein based on the right of survivorship.

[67] At the time of Wolfgang’s death, funds in the Joint Accounts totalled approximately $1.5 million. This included the funds that she had transferred to Ontario Estate and an additional $324,629.52 that she decided to unilaterally keep without court approval or with the consent of the Ontario Trustee or the other beneficiaries. In fact, the Ontario Trustee and all the beneficiaries, until the Beneficiaries Agreement, opposed Doris’s Joint Accounts Application, although Roland eventually came to support her claim. The Ontario Trustee opposed the application believing that the Ontario Will (1) excluded no property from the Ontario Estate, (2) that no beneficiary receives preferential treatment, and (3) that all were to received equal benefit from the Ontario Estate.

[68] According to her affidavit dated October 4, 2021, Doris understood from a legal opinion drafted and provided to her by Mr. Cheifetz, dated November 14, 2018, that she “had a legal claim to the joint accounts funds”. Mr. Cheifetz reviewed the relevant facts and case law regarding the matter before opining that Doris “may have a claim to the funds from the joint account held with her father…. As there are so many factors involved in this case, as detailed above, we cannot provide you with a clear determination, as it is a matter for the Canadian courts.” Doris subsequently retained Mr. Walker to represent her on the Joint Accounts Application.

[69] Doris certainly had the right to pursue the Joint Accounts Application which, according to Mr. Cheifetz, had some merit and chance of success. However, by doing so, her role to confer with the Ontario Trustee on behalf of herself and her sibling, as her father intended, was now compromised. In the process, she complicated an already difficult situation involving all parties connected to the Ontario Estate. For instance, Doris’s application worsened the already strained relationship that she had, at least initially, with all the beneficiaries including her brother, Wilfred. In a June 1, 2019 letter to the Ontario Trustee, Wilfred confirmed that he was opposed to the Joint Accounts Application and stated that he wished to start “the distribution of the assets in Canada, so that each of us will receive 25 percent of the whole value”. He further acknowledged that the Ontario Trustee had “complete power to do so”, which I understand to refer to his power to divide the Ontario Farmland equally among the beneficiaries.

[70] Not only were the division and conflict between the beneficiaries heighted by the Joint Accounts Application, but it also undermined the relationship that Doris and Roland had with the Ontario Trustee and her ability to meaningfully confer with him. Further, because the Ontario Trustee opposed Doris’s claim, the Ontario Estate presumably incurred significant legal fees and other related expenses, to the detriment of all the beneficiaries. Finally, and importantly, the Ontario Trustee was now in the precarious position of having, at least in theory, to confer with Doris about how the Ontario Estate intended to defend itself against the very claim that she had brought against it. As Mr. Smith explained during examinations, “it would have been very difficult to confer with someone who is trying to bring a judgement against me…. [S]he is after $1.2 million, $1.5 million, plus expenses. How do I confer with somebody over something like that?”

[71] The position asserted by the Ontario Trustee in his affidavit from October 22, 2021, was that if the Joint Accounts Application was successful, the Ontario Estate would be unable to pay Doris the $1,187,508.48 and the Ontario Farmland would have to be sold to satisfy her claim. Even if Doris’s Joint Accounts Application was not successful, the Ontario Trustee believed at the time that the plan to subdivide the land between the beneficiaries would attract capital gains obligations in the approximate amount of $2.1 million, which the Ontario Estate could not cover. Since disagreement between the beneficiaries over payment of capital gains tax were, together with several other factors, the reason why the subdivision plan failed in the first place, there was little if any hope, according to the Ontario Trustee in his affidavit from October 22, 2021, that the beneficiaries were capable of ever reaching an agreement on this or other issues regarding the Ontario Estate. As a result, the Ontario Trustee believed that the only realistic option was to sell the Ontario Farmland.

[72] Against that background, the parties attended mediation on April 22, May 25, and June 10, 2021, in an attempt to resolve the issues related to the Ontario Estate, including the Joint Accounts Application. During the mediation process, the Ontario Trustee entered an exclusive contract with CBRE and listed the Ontario Farmland for sale on May 6, 2021, notifying the beneficiaries of same and providing the supporting materials by way of a mediation brief on May 19, 2021. Mr. Walker argues that the Ontario Trustee entered mediation in bad faith and that his participation in the process was a ruse designed to hide his true intention to sell the Ontario Farmland. I see it another way.

[73] In examinations, the Ontario Trustee stated that he made a good-faith effort during mediation to resolve the differences between the parties, and I accept his evidence on that point. Having good-faith intentions during the mediation process is not inconsistent with the Ontario Trustee’s belief that the process would likely fail and preparing for that eventuality. The Ontario Trustee may have also notified the beneficiaries about listing the Ontario Farmland for sale shortly after mediation began to gain leverage in an attempt to break the deadlock that had developed between the parties, especially him and Doris, or to soften what he believed to be Doris’s hardline position. According to the Ontario Trustee’s affidavit from October 22, 2021, Doris’s position at the time of mediation was that the Ontario Trustee’s compensation ought to be reduced by the value of the Joint Accounts and that he be held personally responsible for all legal fees that she and the Ontario Estate incurred by opposing her claim for exclusive ownership over the Joint Accounts.

[74] On June 21, 2021, Doris circulated a proposal to the Ontario Trustee and the other beneficiaries for review. Two days later, on June 23, 2021, the Ontario Trustee received an offer on the sale of the Ontario Farmland from Tri-B Acres for $13.1 million. The Ontario Trustee decided to accept the offer and subsequently signed an APS. At no point did the Ontario Trustee consult Doris with respect to any of steps taken before the APS was signed. In examinations, the Ontario Trustee stated that nothing prevented him from consulting Doris in this regard.

[75] Mr. Walker argues that Doris’s proposal was not treated seriously, and the Ontario Trustee did not wait to receive feedback from the beneficiaries before signing the APS. I have reviewed Mr. Sasso’s letter, dated July 8, 2021, which responded to Doris’s proposal. After doing so, it appeared obvious that not only did the Ontario Trustee reject Doris’s terms, but the proposal was considered essentially dead upon arrival shortly after it was received. In examinations, the Ontario Trustee explained that the beneficiaries’ inability to agree on the plan to subdivide the Ontario Farmland coupled with Doris’s pending claim – which, if successful, the Ontario Estate could not pay – left him with no choice other than to sell the property and wind up the Ontario Estate.

[76] Mr. Walker asserts that by failing to confer with Doris before the Ontario Trustee decided to sell the Ontario Farmland, the Ontario Trustee wilfully failed to comply with an important term of the Ontario Will and thereby breached his fiduciary duty. Mr. Sasso, on the other hand, reminds me that on June 3, 2021, Mr. Walker sent him an email stating that Doris opposed “any sale” of the Ontario Farmland and would take the appropriate steps if this occurred. Although this email referred to a previous offer on the Ontario Farmland that had been rejected by the Ontario Trustee, Mr. Sasso submits that in relation to any subsequent offers, there was no point conferring again with Doris since she clearly stated that she would oppose any sale.

[77] It could be argued that Doris was the author of her own misfortune and, in large part, the person most responsible for the crisis that resulted in the Ontario Trustee believing that his only option was to sell the Ontario Farmland. Whether this was the case, and I tend to believe it was, I find that the Ontario Trustee failed to perform one simple but critical task before accepting the offer and signing the APS, and that was to confer with Doris. If there was ever a time that the Ontario Trustee was required to confer with Doris, it was before he finalized the $13.1 million sale of a farm that has been in the Pfisterer’s family for over 35 years. Instead, he handled the offer from Tri-B Acres in secrecy and in a manner that was contrary to the specific wishes of Wolfgang as expressed in the Ontario Will. The Ontario Trustee even redacted the name of the buyer and the buyer’s lawyer from the APS before it was finally provided to the beneficiaries.

[78] While I appreciate that the Ontario Trustee may have honestly believed, based on legal advice, that he did not have to confer with Doris before signing the APS, the plain wording of Clause 2 in the Ontario Will leaves no doubt that despite what any lawyer says, the Ontario Trustee has a positive and ongoing obligation to confer with Doris before making any decision with respect to the Ontario Estate: see Henderson v. Henderson [1922] O.J. No. 160 (H.C.). In examinations, the Ontario Trustee explained that while he continually reviewed the Ontario Will and understood that Wolfgang intended that he confer with Doris pursuant to Clause 2 before making estate decisions, Mr. Cheifetz advised him that because he has exclusive decision-making authority, including the right to sell the Ontario Farmland, he could ignore that provision. Mr. Cheifetz’s testimony, however, appeared to somewhat contradict the Ontario Trustee on this point. When cross-examined, Mr. Cheifetz agreed that, under the circumstances, the Ontario Trustee “should” have “communicated” with Doris about both selling the Ontario Farmland and signing the APS.

[79] In any event, even if I find that the Ontario Trustee ignored Clause 2 after he relied on Mr. Cheifetz’s advice, a lawyer that he knew had drafted the will, he simply had no reasonable justification to disregard the plain and unambiguous meaning of this provision and not confer with Doris before accepting an offer from a prospective buyer and signing an APS. Without first conferring with Doris, the Ontario Trustee had in effect no discretion, let alone uncontrolled discretion, to accept the offer from Tri-B Acres and sign the APS.

[80] The Ontario Trustee deposed that he had little choice but to sign the APS and sell the Ontario Farmland, without consulting Doris. However, by not consulting Doris, he eliminated any possibility, however remote, that the beneficiaries could have put together a plan in a timely manner to address the issues that justified the sale of the Ontario Farmland. If Doris had been advised that the Ontario Trustee, in his “uncontrolled” discretion, was about to accept a superior offer of $13.1 million offer and sell the Ontario Farmland, that may have been enough, and ultimately was, to cause the beneficiaries to settle their differences and work together to keep the property in the family. At this point, Doris may have undertaken to abandon the Joint Accounts Application or, according to her affidavit from November 4, 2014, the beneficiaries may have even purchased the property themselves rather than selling it to Tri-B Acres. At the very least, if the sale could not be stopped, the beneficiaries may have suggested possible terms or conditions in the APS that, in some respect, enhanced or protected their interests. Instead, by disregarding the terms of the Ontario Will, the Ontario Trustee treated Wolfgang’s children, the residual beneficiaries, as underserving outsiders with no rights or voice in relation to the sale of their family farm.

[81] Accordingly, I find that, under the circumstances, by accepting an offer from Tri-B Acres for the sale of the Ontario Farmland and then signing the APS without first conferring with Doris, the Ontario Trustee failed to comply with the terms of the trust instrument and thereby committed a breach of trust: see Merrill Petroleums Ltd. v. Seaboard Oil Co. (1957), 1957 CanLII 631 (AB KB), 22 W.W.R. 529 at p. 557 (Alta. T.D.), affirmed (1958), 1958 CanLII 499 (AB CA), 25 W.W.R. 236 (Alta. C.A.) (“Merrill Petroleums Ltd.”).

2) Registering the Mortgage/Pre-Taking Compensation

[82] The unchallenged evidence of Doris is that between April 29 and May 7, 2015, she attended a meeting with Mr. Cheifetz and an accountant, Nathan Leno (“Mr. Leno”), and was advised that the Ontario Estate had capital gains, probate fees, and other obligations in the amount of approximately $1.2 million. At this time, Mr. Cheifetz requested that Doris transfer money from the Joint Accounts to cover these expenses, since she was told the funds belonged to the Ontario Estate. Doris subsequently transferred $1,187,508.48 to the Ontario Trustee, which represented the funds available in one of the Joint Accounts. Shortly thereafter, Mr. Cheifetz advised Doris that Mr. Leno discovered that the capital gains obligations were significantly less than anticipated and that approximately $389,000 remained from the funds transferred by Doris to cover the Ontario Estate’s ongoing expenses. Doris was also aware that in addition to these funds, the Ontario Farmland was generating rental income of between $120,000 and $150,000 per year.

[83] In a letter sent to Doris and the other beneficiaries, dated December 30, 2015, the Ontario Trustee indicated that he had enclosed a form to be signed and returned that would approve, among other things, the executor compensation from November 8, 2014 to November 7, 2015. While I have no evidence if this form was ever signed and returned, the letter clearly stated that the Ontario Trustee’s compensation payment schedule would be $64,000, presumably for the following two years, and then $64,190.87 for the third year.

[84] Doris deposed, in her October 4, 2021, affidavit that the Ontario Trustee was only “proposing” to pay himself $192,190.87 over the three years. Sabine and Roland, according to their affidavits from September 26, 2015, were also aware of the Ontario Trustee’s position regarding his compensation as set out in his letter. As with Doris, Sabine also believed that the Ontario Trustee’s schedule regarding compensation was only a proposal. In any event, whether the language in the letter is consistent with a proposal or not, I have no evidence that the beneficiaries opposed what the Ontario Trustee clearly expected to be paid over those three years.

[85] In his affidavit from October 22, 2021, the Ontario Trustee explained that Mr. Cheifetz provided the formula for calculating his compensation and advised that it was based on the recognized standard rate for estate trustees in Ontario. In her affidavit from September 29, 2021, Doris stated that once the Ontario Trustee completed the three-year compensation schedule set out in his letter of December 30, 2015, he then pre-took compensation without conferring with her or seeking the prior approval of the beneficiaries in the amount of at least $50,000 per year.

[86] In examinations, the Ontario Trustee acknowledged that the Ontario Will did not authorize the pre-taking of compensation and agreed that before doing so, he did not seek court approval. The Ontario Trustee explained that Mr. Cheifetz advised him that he could pre-take compensation without conferring with Doris and without court approval with the understanding that he could apply for that approval in conjunction with his application to wind up the Ontario Estate. If done that way, the Ontario Estate would not incur unnecessary legal and accounting costs that are associated with periodic court applications required to approve the trustee’s fees. During examinations, Mr. Cheifetz stated that he generally does not include trustee compensation language in a will since this would normally take place with court or beneficiary approval. Mr. Cheifetz also deposed that in this case, he believed that it was appropriate for the Ontario Trustee to pre-take compensation.

[87] The Ontario Trustee stated, in his affidavit from October 22, 2021, that he understood that Mr. Cheifetz had advised the beneficiaries regarding the Ontario Trustee’s pre-taking and calculation of his compensation based on the usual formula for compensation for trustees in Ontario, which ultimately would be subject to court approval. This is confirmed by Mr. Cheifetz’s affidavit dated October 22, 2021. Mr. Cheifetz further deposed that he did not recall the beneficiaries being opposed to the Ontario Trustee’s rate of compensation. According to his October 22, 2021 affidavit, the Ontario Trustee advised the beneficiaries of his compensation “throughout” and that any adjustments to same would take place at the time of court approval. I have no evidence that confirms whether Doris or the other beneficiaries were aware or consented to the Ontario Trustee pre-taking his compensation beyond the three-year period referred to in his letter from December 30, 2015. However, I would be surprised if they believed that he would not continue to compensate himself in the same manner, albeit at lower annual rate, that as he had done in the past.

[88] On November 10, 2017, the Ontario Trustee took out a $500,000 mortgage registered against the Ontario Farmland. This was approximately three years after Wolfgang died and before any expenses were incurred by the Ontario Estate on the plan to subdivide the Ontario Farmland among the beneficiaries or to defend itself against the Joint Accounts Application. The mortgage had an interest rate of five percent and incurred monthly administrative fees. In some instances, the Ontario Trustee used the mortgage to compensate himself. The Ontario Trustee did not confer with Doris or the other beneficiaries before registering the mortgage. In fact, it was not until June 3, 2021 that Doris discovered the mortgage when she registered a Notice against the Ontario Farmland. According to Doris’s October 4, 2021 affidavit, the mortgage had a balance owing of $173,000 in December 2019. According to the Ontario Trustee, at the time of his examinations on November 1, 2021, the balance was approximately $85,000.

[89] Mr. Walker argues that in the absence of authorization in the Ontario Will or the approval of the beneficiaries, the Ontario Trustee breached his fiduciary duty when he periodically pre-took compensation, which totaled approximately $304,000 as of May 2021. Mr. Sasso argues that, on the contrary, the beneficiaries were aware of and did not oppose the Ontario Trustee’s periodic pre-taking of compensation, subject to final court approval. As previously indicated, I have no evidence that confirms whether Doris or the other beneficiaries were aware or consented to the Ontario Trustee pre-taking his compensation beyond the three-year period outlined in his letter of December 30, 2015. Accordingly, if the Ontario Trustee believed that the beneficiaries knew or ought to have known that he was regularly pre-taking a significant amount of compensation, without any oversight, based on the letter he sent to them back on December 30, 2015, then I find that belief unreasonable.

[90] On the issue of a trustee pre-taking compensation, the Court of Appeal for Ontario in Wall v. Shaw, 2018 ONCA 929 (“Shaw”), reconstituted as a panel of the Divisional Court when hearing the appeal, stated, at paras. 43-44:

Pre-taking of compensation refers to an estate trustee taking compensation out of estate assets prior to passing his accounts. The general rule is that an estate trustee may pre-take compensation only (i) upon agreement of all persons with a vested or contingent interest (if they are sui juris), (ii) where approved by the court, or (iii) where the will so provides: Probate Practice, at p. 568.

Although the practice of pre-taking compensation is common, an estate trustee that does so outside of those three circumstances risks liability for breach of trust: Probate Practice, at pp. 568-571; Re Knoch (1982), 12 E.T.R. 162 (Ont. Surr. Ct.), at p. 174. On a passing of accounts, the estate trustee risks court approval of a reduced amount of compensation and an order requiring repayment of the difference to the estate: Probate Practice, at p. 569; Re Pilo Estate, [1998] O.J. No. 4521 (Ont. Ct. J. (Gen. Div.)), at paras. 56-57.

[91] It was suggested during Mr. Cheifetz’s cross-examination that a trustee’s pre-taking of compensation is a common practice. That may be so, but as noted above, outside the three circumstances listed in Shaw, it is a practice loaded with risk. The risk is further heightened, and the estate trustee is exposed to liability for breach of trust if, at any time, a contentious issue arises between the estate trustee and those having a vested or contingent interest in the estate. On this point, is the case of Bilek v. Salter Estate, [2009] O.J. No. 981 (S.C.), where Brown J. explains, at para. 39:

Although the absolute prohibition against pre-taking of compensation by an estate trustee set out in Re Knoch (1982), 12 E.T.R. 162 (Ont. Surr. Ct.) was relaxed, to a degree, in Re William George King Trust (1994), 1994 CanLII 7497 (ON SC), 2 E.T.R. (2d) 123 (Ont. Gen. Div.), in a highly contentious estate, such as the present one, it is improper for an estate trustee to pre-take compensation without authorization from all affected parties.

[92] In this case, I find that not only did the Ontario Trustee fail to comply with the three prerequisites in Shaw, but more importantly, he disregarded the wishes of Wolfgang, as expressed in the Ontario Will, by failing to confer with Doris on each occasion he pre-took at least $50,000 in compensation per year. Putting aside what, if any, obligation the Ontario Trustee had each time he withdrew compensation during that initial three-year period, in the last several years, his periodic pre-taking of a significant amount in compensation were major decisions that impacted the Ontario Estate and triggered the Ontario Trustee’s obligation under Clause 2 of the Ontario Will to confer with Doris. Further, not only am I concerned that the Ontario Trustee pre-took his compensation, but funding this, at least in part, on a $500,000 mortgage that was registered on November 10, 2017 against the Ontario Farmland, is especially troubling. While I make no findings as to whether the expenses incurred by the Ontario Trustee or his rate of compensation were fair and reasonable, I have significant concerns regarding the secrecy that surrounded the mortgage being registered against the Ontario Farmland. In contravention of the conferring provision in the Ontario Will, Doris and the other beneficiaries were unaware that the Ontario Estate had been covering interest payments and other related fees from debt that the Ontario Trustee had incurred on the mortgage while he administered the Ontario Estate.

[93] Accordingly, I find that, under the circumstances, by pre-taking compensation and registering a mortgage against the Ontario Farmland and then incurring debt, all without complying with the conferring provision in the trust instrument, the Ontario Trustee committed a further breach of trust: see Merrill Petroleums Ltd.

3) Inaccurate Capital Gains Representations

[94] Mr. Cheifetz reviewed a letter dated February 13, 2019, which was sent by the Ontario Trustee to the beneficiaries detailing the capital gains tax implications of approximately $1.2 million for the subdivision plan. Due to the significant amount of funds that needed to be raised, the beneficiaries were, as of that date, unable to agree on how to cover this tax obligation. In her affidavit, dated October 4, 2021, Doris explained that it was not feasible for the beneficiaries to provide the Ontario Trustee with the funds required for capital gains because the money had been tied up in the German court proceedings. Later, the release of the necessary funds for capital gains were delayed even further because of the pandemic.

[95] The Ontario Trustee initially advised the beneficiaries that because the Ontario Farmland was appraised at approximately $8 million to $10 million, the capital gains tax obligation would be at least $1.2 million. However, once the $13.1 million offer from Tri-B Acres was received, the potential capital gains burden increased to $2,169,558.75. When the failed subdivision plan clearly demonstrated that the beneficiaries were unable to work together to raise the funds to cover the capital gains tax, the Ontario Trustee believed that the Ontario Farmland needed to be sold.

[96] In her October 4, 2021 affidavit, Doris stated that due to the “often changing amounts”, she decided to retain another accountant to review the capital gains obligations. It appears that she is referring to the time in April/May 2015 when, after she transferred $1,187,508.48 to the Ontario Trustee to pay the capital gains tax, Mr. Cheifetz then revised that amount downwards to $724,001.57. The often-changing amounts could also include the increased capital gains obligation that resulted from Tri-B Acres’ $13.1 million offer for the Ontario Farmland. In any event, after consulting with her own accountant, Doris was advised on July 31, 2021 that the advice Mr. Leno provided – regarding the subdivision and transfer of the Ontario Farmland to the beneficiaries triggering an immediate payment of capital gains – was incorrect. Instead, Doris discovered that the capital gains tax could be rolled over or deferred until the death of the beneficiaries or the sale of the property. In September 2021, the Ontario Trustee’s accountant confirmed that they had overlooked the exemption provided to non-residents in the Income Tax Act, R.S.C., 1985, c. 1 (5th Supp.), and agreed that the beneficiaries could defer the capital gains tax from subdivision of the Ontario Farmland to a future date.

[97] In her affidavit of September 29, 2021, Doris claimed that the Ontario Trustee justified the sale of the Ontario Farmland based on his belief that the Ontario Estate had insufficient funds to meet the capital gains tax obligation if the property was subdivided and transferred to the beneficiaries. However, Doris’s assertion is only partially correct. While the Ontario Estate certainly did not have the funds to cover the capital gains obligations for the subdivision plan – perhaps in part due to the debt incurred by the pre-taking of compensation – it is equally clear that another reason the Ontario Trustee decided to sell the Ontario Farmland was because the Ontario Estate could potentially be held liable for approximately $1.2 million if Doris succeeded in her Joint Accounts Application. Although the Beneficiaries Agreement ultimately addressed and resolved each of the Ontario Trustee’s reasons for selling the Ontario Farmland, by that time, the Ontario Trustee had already signed the APS and thereafter owed Tri-B Acres a good faith contractual performance obligation to follow through with the terms of the agreement: see Dynamic Transport Ltd. v. O.K. Detailing Ltd., 1978 CanLII 215 (SCC), [1978] 2 S.C.R. 1072, at pp. 6-7.

[98] Mr. Walker argues that there is no compelling reason why the Ontario Trustee did not (1) retain legal tax counsel; (2) contact the Customer Service Line at the Canada Revenue Agency (“CRA”) and request to speak to a representative at the Estate and Trusts Department; or (3) seek a formal tax opinion from the CRA on this matter. He further submits that if this mistake was discovered earlier, the initial subdivision plan may have succeeded and/or the eventual sale of the Ontario Farmland to Tri-B Acres would not have materialized. On this issue, even after considering the substantial value of the land and the significant amount of capital gains tax required by the beneficiaries to pay, I find that the Ontario Trustee acted with due diligence in the administration of the Ontario Estate.

[99] I am satisfied that there was nothing about the capital gains implications regarding the various plans considered by the beneficiaries, including the plan to subdivide the Ontario Farmland, that would have caused the Ontario Trustee to second-guess or look behind Mr. Leno’s representations. The Ontario Trustee had no experience in accounting, or similar fields, and had limited prior experience managing estates. Not only was he entitled to rely on what he believed to be sound advice from Mr. Leno, who was Wolfgang’s accountant, but he was required to do so before conferring with Doris or the beneficiaries about the capital gains implications associated with estate planning. As Doris deposed, for over four years no one intimately involved in the Ontario Estate, including Mr. Sasso and Mr. Cheifetz, questioned Mr. Leno’s representations regarding the capital gains tax even though the tax obligation played such a critical role in the failure of the beneficiaries to agree on a plan to subdivide the Ontario Farmland.

[100] As with the Ontario Trustee, for over two years Doris and her counsel also relied on Mr. Leno’s representations, without question, before finally seeking a second opinion as they prepared to mount a legal challenge to the sale of the Ontario Estate. Accordingly, after a team of experienced lawyers on both sides of this case failed, at least for the initial period, to inquire further about the potential capital gains obligations of the Ontario Estate, I find it unreasonable to expect that the Ontario Trustee would have taken those steps.

4) Extraneous Considerations

[101] Since I have already found that the Ontario Trustee was in breach of trust, I need not decide whether his reliance on what was later determined to be bad accounting advice during the decision-making process regarding the sale of the Ontario Farmland constituted an extraneous factor under Walters, thereby justifying court intervention. I will explain further in my reasons under “equitable relief”.

5) Section 100 of the CJA and Equitable Relief

[102] Section 100 of the CJA provides that “[a] court may by order vest in any person an interest in real or personal property that the court has authority to order be disposed of, encumbered or conveyed.”

[103] A vesting order is a power, rooted in equity, designed to “vest property from one party to another in order to implement the order of the court.”: see Third Eye Capital Corporation v. Resources Dianor Inc./Dianor Resources Inc., 2019 ONCA 508, at para. 34.

[104] An order under s. 100 of the CJA is discretionary. In the context of family court proceedings, the Court of Appeal for Ontario, in Lynch v. Segal (2006), 2006 CanLII 42240 (ON CA), 82 O.R. (3d) 641, found that it was incumbent on a party seeking a vesting order to persuade the presiding judge that such an order, in all the circumstances, ought to be granted. As stated by Blair J.A., at para. 32:

The court has a broad discretion, and whether such an order will or will not be granted will depend upon the circumstances of the particular case. I agree with the appellants that the onus is on the person seeking such an order to establish that it is appropriate.

[105] As with any equitable relief, the applicant must come to court with clean hands.

[106] I find that the Ontario Trustee has not come to court with sufficiently clean hands to qualify for equitable relief. The principle of clean hands was dealt with in 2324702 Ontario v. 1305 Dundas, 2019 ONSC 1885, at para. 21:

As stated in Maximum Ventures Inc. v. de Graaf, 2008 BCSC 199, at para. 29, “the clean hands doctrine does not concern itself with a party’s conduct generally. It is concerned with bad conduct in the transaction which is before the court”. In Sherwood Dash Inc. v. Woodview Products Inc., [2005] O.T.C. 1061 (Ont. S.C.J.), Perell J. stated, at para. 52:

As commentators and judges have noted, the metaphor that a claimant for equitable relief must have clean hands must be put into context. Judges of the courts of equity do not deny relief because the claimant is a villain or wrongdoer; rather, the judges deny relief when the claimant's wrongdoing taints the appropriateness of the remedy being sought from the court. In Argyll v. Argyll, [1967] Ch. 302, Ungoed-Thomas, J. described the principle nicely at pp. 331-2, when he said: “A person coming to Equity for relief ... must come with clean hands; but the cleanliness required is to be judged in relation to the relief sought.”

[107] While I do not claim to know much, if anything, about the inter-familial relationship among the beneficiaries, what little I have gleaned from the evidence is that Doris’s risky manoeuvring for a piece larger than her equitable share of the Ontario Estate, whether having merit or not, created further discord among her already deeply divided siblings and nearly resulted in the sale of the Ontario Farmland. In the Ontario Will, Wolfgang clearly chose Doris to act on behalf of all the beneficiaries, equally, and assist the Ontario Trustee to better administer the Ontario Estate in a manner consistent with their collective best interests. However, by pursuing her own interests over that of the other beneficiaries, Doris severely compromised her position as a spokesperson under the Ontario Will and her ability to have any meaningful influence on decisions made by the Ontario Trustee.

[108] As a result, the Ontario Trustee was left in the very difficult position of attempting to discern the best interest of a fractured group that often-provided conflicting instructions on issues confronting the Ontario Estate. Finally, the Ontario Trustee had reason to believe at the time that the Ontario Estate would have insufficient funds to pay if the Joint Accounts Application was successful. Within that context, the Ontario Trustee believed, perhaps correctly, that he had reached the point where he had no alternative but to sell the Ontario Farmland.

[109] When a superior offer from Tri-B Acres was eventually accepted, the Ontario Trustee set about to delay the disclosure of the APS and redact the name of the seller to prevent Doris or the other beneficiaries from attempting to interfere with the sale of the Ontario Farmland. The Ontario Will certainly provided the Ontario Trustee with the discretion, if exercised properly, to sell the Ontario Farmland, even if opposed by the beneficiaries, however what the Ontario Trustee failed to realize was that he had no discretion – let alone uncontrolled discretion – to sell the property under the Ontario Will, unless and until he first conferred with Doris. Instead of conferring with Doris in accordance with the wishes of Wolfgang, the Ontario Trustee acted in secrecy and excluded Doris and the other beneficiaries from involvement in the sale of the Ontario Farmland, which is exactly what the conferring provision was designed to prevent.

[110] The Ontario Trustee’s failure to comply with this simple but crucial term before making decisions, including the single most important decision that he could make regarding the Ontario Estate, was unreasonable, inexcusable, and fatal to his claim for equitable relief. In the final analysis, the Ontario Trustee disregarded the one and only task he was obliged to perform before his discretion to sell the Ontario Farmland under the Ontario Will became virtually absolute. While this alone is enough to deny the sought-after relief, when coupled with the circumstances that surrounded the pre-taking of compensation and the incurring of debt, without accounting, on a sizeable mortgage registered against the Ontario Farmland – all done without conferring with Doris – the case against equitable relief becomes even more compelling.

[111] Accordingly, the Ontario Trustee has failed to satisfy me that he has sufficiently clean hands to deserve equitable relief under s. 100 of the CJA, and I decline to grant him that relief.

F. CONCLUSION

[112] The application by the Ontario Trustee, Tom Smith, is dismissed.

[113] The counter-application by Doris Hoepfinger-Pfisterer is, in part, granted. I make the following orders:

1. Denying the approval of the Agreement of Purchase and Sale, dated June 23, 2021, between the Ontario Trustee of Wolfgang Pfisterer, (aka Wolfgang Friedrich Pfisterer) deceased, as seller, and Tri-B Acres Inc. as the buyer, of the Ontario Farmland, and that all the seller’s right, title and interest in and to the Ontario Farmland shall remain vested in the seller.
2. On consent, removing the Ontario Trustee, Tom Smith, forthwith and appointing Angela Casey, of Casey and Moss LLP, as succeeding Estate Trustee of the Estate of Wolfgang Pfisterer( aka Wolfgang Friedrich Pfisterer) deceased, without security of bond with all terms as per paragraph 1 (j) to (m) of the applicant’s (on the counter-application) Amended Notice of Application.

[114] I will entertain submissions on the question of costs as well as any other issues on the next court date, which shall be scheduled by the Trial Co-Ordinator before me within 45 days or as soon thereafter as is practicable from the date of this ruling.

“Electronically signed and released by Dubé J.”

Brian D. Dubé Justice

Released: July 14, 2022