ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
DANIEL STEPHEN CLAYTON
Applicant
– and –
SHIRLEY VIOLET CLAYTON, KAREN ELIZABETH DAVIES and PATRICIA ANNE LEWINGTON in their capacity as TRUSTEES OF THE CLAYTON FAMILY TRUST
Respondents
Kathleen McDormand and Calvin Hancock, for the Applicant
Douglas D. Buchmayer and Joel Reinhardt, for the Respondents
HEARD: In Writing
Ruling with respect to costs
Introduction
1Gerald Joseph Clayton, the patriarch of the Clayton family, died in June 2002. He is survived by his wife, Shirley Violet Clayton, and their three children, Karen Elizabeth Davies, Patricia Anne Lewington, and the applicant, Daniel Stephen Clayton.1
2The assets in Gerald’s estate totalled more than $8,230,000 (“the Estate”). Those assets were distributed pursuant to two wills: (a) a Primary Will, under which a family trust (“the Family Trust”) was established, and (b) a Secondary Will, under which a trust for Gerald’s widow (“the Wife’s Trust”) was established. The two trusts are collectively referred to as “the Trusts”.
3Upon Shirley’s death, the Wife’s Trust will be collapsed and the undistributed income and capital will be added to the Family Trust; thereafter the Estate is to be distributed equally among Dan, Karen, and Patricia – if they are still living at the time of Shirley’s death. If any one of Dan, Karen, or Patricia predeceases Shirley, then that individual’s share of the Estate is to be distributed to their children and, where applicable, their spouse, as addressed in detail in the Primary Will.
4Gerald appointed Shirley, Karen, and Patricia as the estate trustees under the Primary and Secondary Wills and as trustees of the Trusts (“the Trustees”).
5Dan brought this application for the removal of the Trustees from their respective roles in relation to both the Family Trust and the Wife’s Trust. Dan asked that the Trustees be replaced by the Bank of Montreal (“BMO”).
6In my August 2021 ruling on the application, I found that Dan had met the high threshold for the removal of the Trustees: Clayton v. Clayton et al., 2021 ONSC 5811, 157 O.R. (3d) 439 (“the Ruling”). I found that the Trustees had “engaged in several forms of conduct that is so unreasonable as to amount to conduct in which no honest or fair-dealing trustee would engage”: see the Ruling, at para. 194. I also found that even absent that conclusion, the removal of the Trustees is warranted on the basis of the factors set out by Ricchetti J. in Virk v. Brar Estate, 2014 ONSC 4611, 1 E.T.R. (4th) 241, at para. 48.
7The parties were unable to resolve the issue of costs of the application; therefore, written submissions with respect to costs were delivered. In their respective submissions, the parties address both Dan’s costs and the Trustees’ costs.
8Dan seeks payment of his costs, on the substantial indemnity scale, in the amount of $284,026.02. Dan asks the court to order that the Trustees are personally responsible to pay his costs. Alternatively, Dan requests a blended costs order, with a portion of his costs paid by the Trustees personally and the balance paid from the Estate.
9Dan asks the court to order that the Trustees be personally responsible for their costs of the application.
10Dan also asks that his costs be payable now and that payment of his costs, whether by the Trustees personally or otherwise, be deferred until the winding up of the Family Trust.
11The Trustees make three alternative submissions. First, they ask the court to order that the parties’ respective costs be paid out of the Family Trust and accounted to the children’s individual one-third shares (Karen, Patricia, and Dan) at the final windup of the Family Trust. The Trustees describe this alternative as each party ultimately bearing their own costs.
12Second, and alternatively, the Trustees ask the court to order that Dan be entitled to his costs of the application on the partial indemnity scale (60 per cent of full indemnity). For this alternative, the Trustees ask that Dan’s partial indemnity costs be paid from each of Karen’s and Patricia’s one-third share in, and at the time of the windup of, the Family Trust; the balance of Dan’s costs (40 per cent of full indemnity) would be paid out of the Family Trust. The Trustees do not specify whether the payment of the balance of Dan’s costs would also be deferred and made when the Family Trust is wound up.
13The final element of this second alternative is that the Trustees’ costs of $304,232.14, would be paid out of the Family Trust and allocated against each of Karen’s and Patricia’s respective one-third share. The Trustees do not specify whether the payment of the Trustees’ costs in this manner would also be deferred and made when the Family Trust is wound up.
14The Trustees’ third alternative is for the court to order that Dan be entitled to partial indemnity costs from the Trustees, with Dan to personally bear the balance of his costs outside the Family Trust.
15The issues to be determined are entitlement to costs, the scale on which costs are payable, the quantum of costs payable, and liability for payment of costs. I will review the law with respect to costs in estate litigation before dealing with the parties’ respective claims for costs.
Costs in Estate Litigation – The Law
16The modern approach to costs in estate litigation, and its history, were reviewed in McDougald Estate v. Gooderham (2005), 2005 CanLII 21091 (ON CA), 255 D.L.R. (4th) 435 (Ont. C.A.). From paras. 78-85 of Gillese J.’s decision, the following points emerge:
- When fixing costs in estate litigation, the court is to follow the costs rules that apply to civil litigation (at para. 80);
- In a limited number of circumstances, public policy considerations may arise which support an order that the costs of all parties be paid out of the estate (at paras. 78, 79);
- The public policy considerations include that “it is important that courts give effect to valid wills that reflect the intention of competent testators” (at para. 78). Therefore, if the dispute arises from an ambiguity or omission in the will or from other conduct of the testator, costs may be payable out of the estate (at para. 79); and
- The public policy considerations also include that, where there are reasonable grounds upon which to question the execution of the will or the testator’s capacity, it is in the public interest that such questions be resolved without cost to the party or parties questioning the validity of the will (at para. 78).
17In Salter v. Salter Estate (2009), 2009 CanLII 28403 (ON SC), 50 E.T.R. (3d) 227 (Ont. S.C.), D.M. Brown J. (as he then was) reflected on the implications of the decision in McDougald Estate. At para. 6, he notes that “[t]he ‘loser pays’ principle brings needed discipline to civil litigation by requiring parties to assess their personal exposure to costs before launching down the road of a lawsuit or motion.” In the same paragraph, D.M. Brown J. concludes that there is “an even greater need” to impose the discipline of the loser pays in estate litigation – doing so injects “some modicum of reasonableness” into decisions made by litigants in estate litigation.
18The court has the discretion to take a blended approach and order that the party entitled to their costs recover those costs in part personally from an opposing party, with the remainder paid from the estate: see Sawdon Estate v. Watch Tower Bible and Tract Society of Canada, 2014 ONCA 101, 119 O.R. (3d) 81, at paras. 93-100.
19I will review the law with respect to the scale at which costs may be payable in estate litigation when addressing the parties’ respective claims for costs. I turn first to Dan’s costs.
Dan’s Costs
20In summary, Dan seeks costs on the substantial indemnity scale, totalling $284,026.02. Dan asks that the Trustees personally pay that amount or that a blended costs order be made (with a portion of Dan’s costs paid by the Trustees personally and the balance paid from the Family Trust).
21The Trustees dispute Dan’s entitlement to a costs award against them. They also dispute Dan’s entitlement to costs on the substantial indemnity scale and the quantum of the costs Dan seeks.
22The parties disagree about the extent to which the Trustees should be entitled to rely on Karen’s and Patricia’s respective one-third shares in the Family Trust as a source of funds from which to satisfy an award of costs, if made, against the Trustees personally.
23There are four parts to the analysis of Dan’s request for costs: (a) entitlement; (b) scale; (c) quantum; and (d) method of payment.
a) Entitlement
24Dan’s position is that he is entitled to his costs of the application because he was entirely successful in persuading the court that a consequence of the Trustees’ conduct was “such that there is no course to follow but to remove the Trustees”: see the Ruling, at para. 66.
25The Trustees’ position is that success on the application was mixed; as a result, the parties should each be paid their costs from their respective shares of the Family Trust when it is wound up. As examples of the mixed success on the application, the Trustees point to (a) the dismissal of Dan’s motion to strike Shirley’s responding affidavit sworn in June 2017, and (b) the absence of a finding of bad faith on the Trustees’ part, as alleged by Dan in support of the removal application.
26For the following reasons, I find that Dan is the successful party on the application.
27First, Dan was entirely successful in obtaining the substantive relief he was seeking – an order removing the Trustees from their respective roles for both the Family Trust and the Wife’s Trust.
28Second, Dan’s lack of success on the interim evidentiary motion, related to Shirley’s responding affidavit, does not detract from Dan’s success on the substantive issues on the application: Clayton v. Clayton et al, 2020 ONSC 7592, 63 E.T.R. (4th) 250 (“the evidentiary ruling”). In any event, the costs Dan is seeking do not include his costs on that interim evidentiary motion.
29Third, the Trustees are correct in stating that no findings of bad faith were made in relation to their conduct. At para. 199 of the Ruling, I stated that “[g]iven the conclusions reached with respect to the Trustees’ conduct, it is not necessary for me to address the issue of bad faith; no findings are made in that regard.”
30I do not characterize that statement on the issue of bad faith as Dan being unsuccessful and the Trustees being successful. I characterize that outcome as neutral or even as a non-outcome, specifically because it was not necessary to address the issue of bad faith in order to determine the application. That neutral or non-outcome does not detract from Dan’s success on the substantive issues on the application.
31The modern approach to costs in estate litigation dictates that Dan, as the successful party, is entitled to his costs of the application as against the Trustees.
32This is not a case in which public policy considerations would support an order that all of the costs incurred by the parties be paid out of the Estate. The litigation did not arise from an ambiguity or omission in the testamentary documents, or from some other conduct on the testator’s part. Nor did the litigation involve any question about the execution of the testamentary documents or the testator’s capacity. The method by which Dan’s costs shall be paid is addressed in section (d) below.
33I deal next with the scale on which Dan’s costs are to be paid.
b) Scale
▪ The Positions of the Parties
34Dan’s position is that he is entitled to costs on the substantial indemnity scale because of (a) the Trustees’ conduct in the administration of the Estate and Trusts and (b) their conduct as litigants. With respect to the former, Dan relies on findings made in the Ruling. With respect to the latter, Dan submits that the Trustees’ approach to the litigation was unreasonable, caused delays in the proceeding, and resulted in an increase in the costs that Dan incurred to pursue the application.
35The Trustees’ position is that Dan is entitled to costs on the partial indemnity scale. The Trustees submit that their conduct in the administration of the Estate and Trusts does not reach the level required for an award of costs on the substantial indemnity scale. The Trustees submit that there is nothing about their conduct as litigants to justify an award of costs on the substantial indemnity scale.
36In support of his request for costs on the substantial indemnity scale, Dan also relies on the terms of an offer to settle dated March 2020 (“the Offer”). The Offer was served on Dan’s behalf and addresses the resolution of this application and of the passing of accounts application (“the related proceeding”). Dan asks the court to consider the Offer as either a Rule 49 offer or as one of the factors under r. 57.01 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 (“Rules”).
37The Trustees submit that the Offer conflates this proceeding and the related proceeding and, as a result, should not be treated as a Rule 49 offer. Given that conflation and the terms of the Offer that are unrelated to this application, the Trustees’ position is that the Offer is not relevant to the issue of costs in this proceeding.
▪ The Law
38Costs in civil litigation, of which estate litigation is a subset, are normally awarded on a partial indemnity basis. Costs may be awarded on a substantial indemnity basis where the payor party “has engaged in reprehensible, scandalous or outrageous conduct”: see In the Estate of Stefanie Aber, deceased, 2015 ONSC 5123, 12 E.T.R. (4th) 42, at para. 66, citing Young v. Young, 1993 CanLII 34 (SCC), [1993] 4 S.C.R. 3, at p. 134.
39What constitutes “reprehensible, scandalous or outrageous” conduct? At para. 45 of its decision in Clarington v. Blue Circle Canada Inc., 2009 ONCA 722, 100 O.R. (3d) 66, the Court of Appeal emphasized that “a distinction must be made between hard-fought litigation that turns out to have been misguided, on the one hand, and malicious counter-productive conduct, on the other.”
▪ Analysis
40I will deal first with the Trustees’ conduct in the administration of the Estate and the Trusts. At para. 64 of the Ruling, I found that “the Trustees have engaged in unreasonable conduct and acted in a manner in which no honest or fair-dealing trustee would act.” That conduct took the following forms:
- The Trustees, through their representative (an accountant) attempted to secure from Dan a release with respect to the passing of accounts for a period in excess of a decade. The Trustees did so without having presented Dan with the requisite documents (the Ruling, at paras. 78-90);
- After more than a decade in their respective roles, the Trustees’ lacked knowledge about and an understanding of their obligations in the management of the trusts (the Ruling, at paras. 92-103);
- The Trustees attempted to secure free rein over the management of the Family Trust (the Ruling, at paras. 109-112);
- The Trustees attempted to dictate the terms of Dan’s will. (the Ruling, at paras. 113-115); and
- The Trustees made numerous undocumented loans and advances to themselves and to some of Gerald’s grandchildren. Those loans and advances were not secured against the properties purchased with the funds loaned or advanced. Where made to the grandchildren, the loans and advances were not guaranteed in writing by Karen or Patricia (the Ruling, at paras. 129-165).
41In the Ruling, some of the conduct listed above is also relied on in support of the finding that the Trustees’ failed to act impartially and with an even hand towards all beneficiaries of the Family Trust (the Ruling, at paras. 157, 165 and 178).
42In summary, I found that the Trustees (a) engaged in unreasonable conduct, (b) acted in a manner in which no honest or fair-dealing trustee would act, and (c) failed to act impartially and with an even hand towards all beneficiaries. Despite having determined that the Trustees acted in that manner, I find that the Trustees’ conduct in the administration of the Estate and of the Trusts does not constitute “reprehensible, scandalous or outrageous conduct”. In reaching that conclusion, I take into consideration the following factors.
43First, there is no finding that the Trustees acted in bad faith.
44Second, paragraph 6(t) of the Primary Will grants to the Trustees the power, authority, and discretion “To act on the opinion or advice of or information obtained from any barrister, solicitor, accountant [or] financial advisor”. It was reasonable for the Trustees, as they did, to consult with and/or seek advice from an accountant and from a lawyer. I do not fault the Trustees for initially turning to Gerald’s longstanding accountant. Over time, however, the Trustees failed to appreciate that the accountant was in over his depth and that they would be better served by retaining another accountant for matters other than bookkeeping etc. for the Estate and Trusts: see the Ruling, at para. 91.
45Next, I consider the Trustees’ conduct in the litigation. Pursuant to para. 6(v) of the Primary Will, the Trustees were granted the power, authority, and discretion “To constitute and defend proceedings at law and to proceed to the final determination thereof or compromise as [they] shall in their uncontrolled discretion determine to be advisable”.
46The Trustees’ opposition to the request for an order that they be removed from their roles was hard-fought and, given the outcome, arguably misguided. Their opposition to that request was not, however, malicious or counter-productive.
47Turning to specific elements of the Trustees’ conduct during the litigation, at para. 25 of his written submissions, Dan provides examples the Trustees’ conduct which he alleges unnecessarily increased the cost and the complexity of the litigation. For example, Dan submits that the Trustees served voluminous responding affidavit materials after the date by which he was to deliver his reply materials. The responding materials included affidavits from the Trustees’ two accountants and the Trustees’ lawyer with respect to the administration of the Estate and Trusts.
48Even if it could be said that some or all of the Trustees’ conduct upon which Dan relies resulted in increased costs for him, I reject Dan’s submission that his costs were unnecessarily increased because of that conduct.
49Determination of the application required that the court have a fulsome record as to the administration of the Estate and the Trusts over a period of approximately ten years. The failure of the Trustees to meet the deadline for delivery of responding affidavits in hard-fought litigation of this kind is not worthy of sanction by way of costs on the elevated scale. To the extent that the Trustees’ conduct resulted in increased costs to Dan, the increased costs will be addressed when I address the quantum of costs.
50Last, I consider the Offer. The terms of the Offer are set out in a single document which bears two titles of proceeding (the title for this application and the title for the related proceeding). I am not aware of any order made consolidating the two proceedings. The use of the ‘dual’ title of proceeding is inappropriate and does not comply with the Rules with respect to the format of documents. As a result of Dan’s use of the dual title of proceeding, I find that the Offer (a) does not comply with Form 49A, and (b) falls outside the scope of Rule 49.
51There is another reason why the Offer falls outside the scope of Rule 49 – seven of the eight substantive terms relate to matters that are not capable of determination in this proceeding. For example, para. 1 of the Offer calls for Dan to be paid $822,540 from the Family Trust – in full and final settlement of Dan’s interest in the Family Trust. As another example, para. 5 of the Offer calls for Dan to “execute all documents necessary to consent to a judgment passing the Accounts that were submitted in the Application to Pass Accounts.”
52Only one term of the Offer relates to this proceeding – para. 3. That term calls for the parties to execute a consent to an order dismissing this application without costs and for Dan to be responsible to have the order issued, entered, and served on the Trustees. Paragraph 7 of the Offer addresses Dan’s costs of this application and of the related proceeding. That paragraph calls for Dan to be paid costs of approximately $298,000 from the capital of the Family Trust.
53Dan submits that even if the Offer falls outside the scope of Rule 49, it is open to the court to consider the Offer as a factor when exercising its discretion on costs. In that regard, Dan relies on the introductory language of r. 57.01 and the reference to “any offer to settle”.
54I find that the terms of the Offer which relate to this application are so inextricably linked to those which address the related proceeding, that the Offer is not a factor with respect to the scale on which Dan’s costs are to be paid.
▪ Summary
55Dan is entitled to his costs of this proceeding on the partial indemnity scale from the Trustees. The method by which the Trustees shall pay Dan’s partial indemnity costs and whether Dan is entitled to the remainder of his costs from the Family Trust are determined in the section below titled “Method of Payment”. Before dealing with the method of payment, I will deal with the quantum of costs to which Dan is entitled.
c) Quantum
56The full indemnity costs which Dan incurred are $315,681.10. That amount has two components. The first component is for costs incurred to the date on which the hearing of this application was concluded (January 29, 2021). The second component is for costs incurred after that date (“post-hearing costs”). The post-hearing costs are for work done with respect to settling the terms of the order and costs submissions.
57The chart below provides the costs for the two components on the full indemnity scale and as claimed by Dan on the partial indemnity scale.
| Period Covered | Full Indemnity | Partial Indemnity |
|---|---|---|
| To and including the five-day hearing | $ 273,749.25 | $ 169,096.68 |
| Post-hearing | $ 41,931.85 | $ 24,811.22 |
| Total | $ 315,681.10 | $ 193,907.90 |
58By comparison, the full indemnity costs which the Trustees incurred are $304,232.14. In their bill of costs, the Trustees do not distinguish their post-hearing costs, if any were included, from their costs to the conclusion of the hearing. I note, however, from the Trustees’ bill of costs, that the $304,232.14 includes costs for the preparation of a draft order and of a bill of costs.
59Based on the contents of the Trustees’ bill of costs and their submissions on costs, I draw an inference and find that the $304,232.14 does not include costs incurred by the Trustees with respect to either settling the terms of the order or the costs submissions.
60The Trustees’ position is that Dan is not entitled to any post-hearing costs. The Trustees submit that the costs Dan incurred with respect to settling the terms of the order are the result of an unreasonable position, which he took and ultimately abandoned. The Trustees also submit that Dan is not entitled to costs related to the costs submissions.
▪ Costs to and Including the Five-day Hearing
61The Trustees take no issue with the time docketed, the hourly rates charged, or the disbursements incurred. The full indemnity costs that Dan incurred to the conclusion of the five-day hearing are in line with the Trustees’ full indemnity costs.
62This application was commenced in 2016; it was determined by the release of the Ruling five years later in August 2021. The materials on the application were voluminous: see the Ruling, at para. 205. The quality of the written and oral advocacy on behalf of the parties was very high. Advocacy of that quality is not achieved without a diligent and thorough approach to all aspects of counsel’s work.
63The partial indemnity costs Dan seeks for the period to and including the five-day hearing are fair and reasonable. Dan is entitled to partial indemnity costs for that period in the amount of $169,096.68.
▪ The Post-Hearing Period
64Is Dan entitled to costs – whether as claimed or in some lesser amount – for the post-hearing period? I agree with the Trustees that costs for the costs submissions do not form part of the costs of the proceeding. In the concluding section of this ruling, I deal with costs for the costs submissions.
65With respect to settling the terms of the order, Dan submits that the Trustees took positions which were later abandoned. By way of example, Dan refers to (a) terms of the order proposed by the replacement trustee (BMO), to which terms the Trustees objected, and (b) the term of the order which requires the Trustees to pass their accounts.
66I find that it was reasonable for Dan to incur costs related to settling the terms of the order. In making that finding, I consider the following factors:
- The monetary amount involved – an estate of approximately $8,230,000;
- The existence of two trusts to be administered;
- The transfer of Trusteeship for both the Wife’s Trust and the Family Trust;
- The involvement of BMO, a financial institution, in finalizing terms of the order and facilitating the transfer of the administration of the Trusts; and
- The related proceeding.
67Dan’s bill of costs includes a breakdown of the time docketed, by timekeeper, during the post-hearing period. Slightly more than 85 hours of lawyer time was docketed. There is, however, no breakdown as between the work done in settling the terms of the order versus that done to prepare costs submissions.
68It is not my intention to guess at how counsel’s post-hearing time was applied. Instead, I divide the post-hearing fees, on the partial indemnity scale ($24,752.18), equally between settling the terms of the order and preparing costs submissions. The partial indemnity costs claimed for the post-hearing period are $24,811.22. I draw an inference and find that the difference of $59.04 between the costs claimed and fees docketed ($24,811.22 - $24,752.18) represents disbursements.
69I find that for the post-hearing period, Dan is entitled to costs, on the partial indemnity scale, of $12,435.13 (($24,752.18 / 2) + $59.04).
▪ Summary
70Dan is entitled to costs, on the partial indemnity scale, in the amount of $181,530 ($169,096.68 + $12,435.13 = $181,531.81 as rounded to the nearest tens of dollars).
71Last, I turn to the method by which Dan is to be paid his costs, including whether he is entitled to the remaining 40 per cent of his costs from the Estate.
d) Method of Payment
▪ Positions of the Parties
72Dan asks the court to order that (a) the Trustees personally pay his costs, as awarded, on the partial indemnity scale, and (b) the balance of his costs be paid from the Estate.
73I calculate the balance as follows. For the period to and including the hearing, the balance of Dan’s costs is $104,652.57 ($273,749.25 - $169,096.68). For the post-hearing period, the balance is $8,530.80 (($41,931.85 / 2) - $12,435.13). The total balance of Dan’s costs is therefore $113,180 ($104,652.57 + $8,530.80 = $113,183.37, rounded to the nearest tens of dollars).
74The Trustees’ primary position is that all the costs incurred by the parties should be paid out of the Family Trust. The Trustees propose that their costs be paid from Karen’s and Patricia’s shares and Dan’s costs from his share – all on the winding up of the Family Trust. Given that I find Dan is entitled to his costs on the partial indemnity scale, the Trustees’ primary position is not relevant.
75The Trustees’ secondary position is that Dan’s costs, as awarded on the partial indemnity scale, should be paid from Karen’s and Patricia’s shares of the Family Trust on the winding up, with the balance of Dan’s costs paid out of the Family Trust. The Trustees’ proposed blended costs order does not include that the payment of the balance be deferred to the winding up of the Family Trust.
76It is important to highlight that the Trustees’ proposed blended costs order includes a term that the Trustees be paid their full indemnity costs from Karen’s and Patricia’s respective shares of the Family Trust. Once again, the Trustees do not propose that this payment be deferred until the winding up of the Family Trust.
77The Trustees’ third alternative position is that Dan (a) be awarded his costs on the partial indemnity scale, payable by the Trustees, and (b) must absorb the balance of his costs personally (i.e., without access to the Family Trust in any way).
▪ Analysis
78The first position put forward by the Trustees would, if followed, see them avoid any liability whatsoever for Dan’s costs. The second position put forward by the Trustees, if accepted, would see two of the Trustees (Karen and Patricia) personally liable to Dan for his partial indemnity costs, but with payment made from their respective shares of the Family Trust and deferred until the winding up of the Family Trust. Only the Trustees’ third position would see the Trustees personally liable to Dan for his partial indemnity costs without any deferral of the payment of those costs.
79In the alternative positions put forward by the Trustees, they refer to using Karen’s and Patricia’s respective one-third shares of the Family Trust to pay Dan’s costs; the Trustees make no mention of Shirley, despite the fact that she is one of the three Trustees to whom the findings made in the Ruling apply. Nor do the Trustees make any reference to a direct contribution from Shirley – including from the Wife’s Trust – to fulfil her obligations with respect to the payment of Dan’s costs.
80Karen and Patricia may wish to keep their mother out of the fray, including with respect to costs of this proceeding; it is their prerogative to do so. The exercise of that prerogative does not, however, dictate whether Shirley is liable, as one of the Trustees to whom the Ruling applies, to personally pay Dan’s costs.
81It was not until 2020 that Shirley commenced an application in which she sought an order permitting her to resign as a Trustee and for Karen and Patricia to continue as Trustees: see Court File No. CV-20-83884. That application was commenced at least six years after the beginning of the Trustees’ conduct on which Dan relied in support of the relief sought and granted in this proceeding.
82Findings have been made in this proceeding with respect to the decline in Shirley’s cognitive abilities. Those findings are set out in para. 13 of the evidentiary ruling and repeated at para. 117 of the Ruling. For ease of reference, I repeat those findings:
- From the Spring of 2018 to the Fall of 2018, Shirley was observed to suffer a decline in her memory of day-to-day events and from minor confusion. As an example of the latter, Shirley was at times confused about how to turn the television on and off and how to adjust its volume;
- The concerns about a decline in Shirley’s memory and cognitive abilities and an increase in Shirley’s level of confusion persisted in the Winter of 2018-19. Further decline in Shirley’s overall cognitive abilities was evident by the Spring of 2019, when Shirley returned to Canada from Florida; and
- By the Fall of 2019, Shirley’s cognitive decline was of concern to Shirley’s family physician of 27 years. He referred Shirley for a geriatric assessment.
83The Trustees’ conduct upon which Dan relied in support of his application occurred well before 2018, when the decline in Shirley’s cognition first became a concern. As stipulated by the testamentary documents, Shirley’s vote in support of a decision was required. A two-to-one vote only carried the day if Shirley’s vote was one of the two. Given Shirley’s involvement in the administration of the Trusts until at least 2016, when this application was commenced, it would not be just for Shirley to avoid personal liability for Dan’s partial indemnity costs.
84Upon Shirley’s death, the assets in the Wife’s Trust are to be collapsed into the Family Trust. The net effect of that collapse is that each of Karen, Patricia, and Dan (or as otherwise provided in the event one of them predeceases Shirley) will be entitled to one-third of the value of the Wife’s Trust at the date of Shirley’s death.
85Permitting the Trustees to pay any portion of Dan’s partial indemnity costs from one or both of the Wife’s Trust and the Family Trust, would effectively amount to an order that Dan is responsible for one-third of his partial indemnity costs. Based on the findings made in the Ruling as to the Trustees’ conduct, that would not be a just result. Given the numerous ways in which the Trustees’ conduct was found to be unreasonable and conduct in which no honest or fair dealing trustee would have engaged, it is just to hold them personally liable to Dan for his partial indemnity costs.
86There is no evidence to suggest that the Trustees will have any difficulty in personally paying Dan’s partial indemnity costs. For example, the Trustees do not dispute that they made loans and advances totalling more than $3,000,000 to each of Karen, Patricia, and their respective children: the Ruling, at para. 129. The loans made to Gerald’s and Shirley’s grandchildren include (a) $840,470 to Karen’s children and (b) $575,500 to Patricia’s children: the Ruling, at para. 137.
87One of the reasons why the Trustees chose not to require mortgages from any of Karen’s or Patricia’s children is because Karen, Patricia and their respective husbands verbally agreed to guarantee the repayment to the Family Trust of the loans to the grandchildren: the Ruling at paras. 143-144. Based on the willingness of both Karen and Patricia, together with their respective spouses, to personally guarantee six-figure sums of that size, I draw an inference and find that Karen and Patricia each have the means to personally pay their respective shares of the Trustees’ personal liability to Dan for his partial indemnity costs.
88I also take into consideration the loans made by the Family Trust to each of Karen ($838,360) and Patricia ($968,000): the Ruling, at paras. 158-159. Some of those loans were put towards the purchase of properties. For example, a $460,360 loan was made to Karen to purchase property at Mont-Tremblant, Quebec: the Ruling, at para. 158. As another example, $488,950 was loaned to Patricia for the purchase of an investment property: the Ruling, at para. 159.
89One of the reasons why the Trustees did not obtain mortgages from Karen, Patricia, and their respective spouses was “because of the financial health of the respective families”: the Ruling, at para. 160, citing Q. 348 from the transcript of Karen’s cross-examination. Based on the amounts loaned to each of Karen and Patricia, the application of some of the monies loaned towards the purchase of real property, and the representations made by Karen with respect to the financial health, respectively, of her family and Patricia’s, I draw an inference and find that Karen and Patricia each have the means to personally pay their respective shares of the Trustees’ personal liability to Dan for his partial indemnity costs.
90It appears that Karen and Patricia each also have the means to collectively pay Shirley’s share of the Trustees’ personal liability to Dan for his partial indemnity costs. How the $181,530 is divided between the Trustees is of no consequence to this court or to Dan. It is entirely up to the Trustees to decide how they will each contribute towards payment of Dan’s partial indemnity costs. There is nothing to prevent Karen and Patricia from covering Shirley’s one-third share of the Trustees’ collective liability to Dan for his partial indemnity costs.
91The Trustees ask to pay Dan’s costs out of Karen’s and Patricia’s respective one-third shares of the Family Trust and that the payment of Dan’s costs be suspended until the winding of the Family Trust. For several reasons, it would not be reasonable to defer the payment of Dan’s costs.
92First, as discussed in the preceding paragraphs, the Trustees – Karen and Patricia at a minimum – have the means to pay Dan’s costs without resorting to their respective shares of the Family Trust.
93Second, it is not possible to predict when the Family Trust will be wound up. The parties are already involved in this proceeding and the related proceeding. There may yet be additional proceedings commenced.
94Third, one or more of Karen, Patricia, and Dan may not be alive when the Family Trust is wound up. Any costs order which reduces the value of the Family Trust may affect the rights of individuals other than Karen, Patricia, and Dan.
▪ Summary
95The Trustees shall personally pay Dan’s partial indemnity costs. The order made at the conclusion of this ruling requires that the Trustees do so within 60 days of the date of this ruling.
96For all of the reasons outlined above, I find that it would not be just to require Dan to personally fund the balance of his costs; nor would it be just to require him to wait for that balance to be paid. The order made at the conclusion of this ruling requires that the balance of Dan’s costs be paid from the Family Trust (i.e., without allocation to a particular potential beneficiary’s share of the Family Trust) and within 60 days of the date of this ruling.
97I turn then to the Trustees’ costs.
The Trustees’ Costs
a) The Position of the Parties
98The Trustees ask the court to order that their full indemnity costs of $304,232.14 be paid out of the Family Trust and accounted to Karen and Patricia’s respective one-third shares in that trust. Dan seeks an order that the Trustees are personally responsible for their costs, outside the Family Trust.
b) Analysis
99The general rules governing an estate trustee’s ability to recover legal costs from an estate are set out in para. 14 of the Court of Appeal decision in Brown v. Rigsby, 2016 ONCA 521, 20 E.T.R. (4th) 171:
- an estate trustee is entitled to indemnification from the estate for all reasonably incurred legal costs;
- if an estate trustee acts unreasonably or in his or her own self-interest, he or she is not entitled to indemnification from the estate; and
- if an estate trustee recovers a portion of his or her costs from another person or party, he or she is entitled to indemnification from the estate for the remaining reasonably incurred costs.
100In the Ruling, I found that the Trustees conducted themselves in a manner that was unreasonable and in which no honest and fair-dealing trustee would engage. That finding was not restricted to a single, let alone a single and minor, component of the Trustees’ conduct. That finding was made repeatedly and with respect to significant components of the Trustees’ conduct. I also found that the Trustees did not fulfil their obligations with an even hand.
101The Trustees’ conduct falls within the scope of the second general rule quoted in para. 99, above. A finding of bad faith conduct was not made; such a finding is not required to support an order that the Trustees personally pay their costs of this proceeding. In summary, the Trustees are not entitled to indemnification for their costs from either the Wife’s Trust or the Family Trust.
Summary
102The parties’ respective costs of the proceedings shall be paid as follows:
- The Trustees shall, within 60 days of the date of this ruling, personally pay Dan his costs of this application and of the post-hearing period, on the partial indemnity scale, in the amount of $181,530.
- The balance of Dan’s costs in the amount $113,180 shall, within 60 days of the date of this ruling, be paid from the Family Trust generally (i.e., without allocation to a particular potential beneficiary’s share of the Family Trust).
- The Trustees shall bear their own costs of the proceeding outside of either the Wife’s Trust or the Family Trust.
The Costs Portion of the Proceeding
103The following points summarize the outcomes of the issues determined with respect to costs:
- Dan sought recovery from the Trustees personally of his costs on a substantial indemnity basis. He was not successful in that regard, with the Trustees ordered to personally pay Dan his costs on the partial indemnity scale;
- The Trustees asked the court to order that Dan pay the balance of his costs personally, outside the scope of the Family Trust. Dan is entitled to recover the balance of his costs from the Family Trust;
- The Trustees asked that payment of Dan’s costs be deferred until the winding up of the Family Trust. All costs to which Dan is entitled are payable within 60 days of the date of this ruling; and
- The Trustees were unsuccessful in obtaining an order that their costs be paid out of the Family Trust and are, instead, personally responsible for their costs.
104Despite the fact that Dan did not recover his costs from the Trustees personally on the substantial indemnity scale, his success on the issue of costs is demonstrated by the recovery of a blended costs order and the order made for the Trustees to bear their own costs outside the scope of either the Wife’s Trust or the Family Trust.
105The full indemnity costs for the post-hearing period are $41,931.85. Subtracting from that amount the $59.04 for disbursements (see para. 68, above) leaves full indemnity costs for the post-hearing period of $41,872.81. As determined in para. 68, above, 50 per cent of that amount ($20,936.41) is allocated to work done on the costs submissions.
106I find it just and reasonable for Dan to recover his costs of the costs submissions on the partial indemnity scale. I fix those costs at $12,000. Once again, those costs are to be paid by the Trustees personally, outside the scope of either the Wife’s Trust or the Family Trust, and within 60 days of the date of this ruling.
Commentary
107As I did at the conclusion of the hearing and in the Ruling, I thank all counsel for the quality of their advocacy, including their written submissions, and the efficiency and effectiveness with which they addressed the issues determined in this ruling.
Madam Justice Sylvia Corthorn
Released: September 2, 2022
COURT FILE NO.: CV-16-68173
DATE: 2022/09/02
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
DANIEL STEPHEN CLAYTON
Applicant
– and –
SHIRLEY VIOLET CLAYTON, KAREN ELIZABETH DAVIES and PATRICIA ANNE LEWINGTON in their capacity as TRUSTEES OF THE CLAYTON FAMILY TRUST
Respondents
ruling with respect to costs
Madam Justice Sylvia Corthorn
Released: September 2, 2022