Court File and Parties

COURT FILE NO.: CV-18-798-00ES DATE: 2022-09-09 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Canada Trust Company, Executor and Trustee of the Estate of Sarah McMahon Grafton, Deceased, Applicant/Moving Party and Stewart Graeme Ross, John Gordon Ross, James Grafton Ross and James Henry Ross, Respondents

BEFORE: I.R. Smith J.

COUNSEL: Jeramie Gallichan, counsel for the Applicant/Moving Party Mark A. Radulescu, counsel for the Respondents James Grafton Ross, James Henry Ross and Stewart Graeme Ross Lisa Toner, counsel for the Respondent John Gordon Ross

HEARD: By video conference on April 27, 2022

ENDORSEMENT

Introduction

[1] The estate in this matter has been the subject of litigation for years. The moving party now brings a motion for a final passing of accounts. The history of the matter is set out in judgments from Broad J. (2019 ONSC 1165) and the Court of Appeal (2021 ONCA 161). For the purposes of this endorsement, the following summary of facts will suffice.

The Facts

[2] Canada Trust Company ("CTC") is the trustee for the estate of Sarah McMahon Grafton, who died in 1971. The beneficiaries of Ms. Grafton's will ("the will") were her two daughters, Sarah Margaret Ross ("Margaret") and Mary Elizabeth Grafton ("Mary"). Mary died in 2002, unmarried and without heirs. Margaret died in 2015. Margaret had five children, including the four respondents and a daughter, Sarah Mary Jane Ross ("Jane"), who predeceased Margaret, intestate and without children or spouse, in 1992.

[3] The will granted to Margaret and Mary a life interest in a cottage in Muskoka ("the cottage"). The will required Margaret and Mary, or the survivor of them, to pay taxes, insurance and maintenance costs for the cottage during their life tenancy. When Mary died, Margaret became solely responsible for these costs. In 2011, CTC became aware that there were significant tax arrears and that it could not be determined whether the cottage was insured. The cottage was also said to be in a state of disrepair.

[4] Since Margaret could not afford to remedy these issues, CTC commenced an application to secure the court's permission to sell the cottage. That permission was granted, and the cottage was sold in 2013 for $1,664,144.08. After certain expenses were satisfied, the balance of these proceeds was paid into a trust (the "cottage trust") in which Margaret had a life tenancy interest.

[5] When Margaret died in 2015, CTC sought a legal opinion as to how the cottage trust should be distributed. That opinion, from Gowling WLG ("Gowlings"), recommended that the funds held by the cottage trust be distributed in four equal parts to the four respondents. CTC then proposed to the respondents that they each receive a one-quarter share of the cottage trust.

[6] One of the respondents, John Gordon Ross ("Gordon"), objected to the proposal, claiming that Margaret's estate should be compensated for capital expenditures for repairs to the cottage and objecting to the division of the cottage trust into four equal parts.

[7] In a nutshell, with respect to the cottage trust, Gordon's position was as follows: since there were five siblings including Jane, the cottage trust should be divided into five equal parts; that Margaret was the beneficiary of Jane's estate since Jane died intestate and with no spouse or issue; that Gordon is the sole beneficiary of Margaret's estate (although I am advised that this point is subject to challenge); and that, therefore, Gordon is entitled to his own one-fifth share of the cottage trust and to Jane's one-fifth share. With respect to the cottage repairs, Gordon argues that Margaret's estate should be compensated for over $100,000 that had been spent by Margaret on repairs and that he should receive that compensation as Margaret's sole beneficiary.

[8] Upon learning of Gordon's objections, in 2016 CTC sought a second opinion from Gowlings, which again concluded that the cottage trust should be distributed evenly among the four respondents. The respondents other than Gordon (the "other respondents") agreed and executed releases to this effect. Gordon objected again.

[9] To deal with Gordon's objection, CTC brought an application in 2018 to pass the accounts and served all four respondents and Margaret's estate. Although properly served, Gordon did not participate in the hearing in any way. The accounts were passed for the period January 27, 1994, to December 15, 2015, and Broad J. ordered that CTC bring a motion for an interpretation of the will (the "will interpretation motion"). CTC's costs were fixed at $19,288.60. The other respondents' costs were fixed at $3,413.17. The issue of liability for these costs was reserved to the will interpretation motion.

[10] The respondents, including Gordon, were served with notice of the will interpretation motion, which was set for argument in January 2019. In December 2018, Gordon served notice of a motion seeking reimbursement for capital expenditures on the cottage (the "capital repairs motion").

[11] On January 29, 2019, Broad J. dismissed the capital repairs motion in the reasons referred to in para. 1 of this endorsement. Broad J. reaffirmed that the issue of liability for costs on the passing of accounts motion be reserved to the will interpretation motion (see para. 54). CTC claims costs of $30,460.68 from Gordon in connection with the capital repairs motion.

[12] The will interpretation motion was heard in September 2019, and decided by Justice Broad on October 10, 2019. He ruled that the cottage trust be distributed in four equal shares to the respondents. Broad J. deferred both the costs of the passing of accounts motion and the costs of the will interpretation motion to the final passing of accounts. CTC claims $35,552.23 in costs from Gordon for the will interpretation motion.

[13] Gordon appealed the ruling on the will interpretation motion to the Court of Appeal. The other respondents cross-appealed. Both appeals were dismissed. Costs were awarded against Gordon.

[14] In 2016, CTC distributed $200,000 to each of the respondents, leaving $311,127.71 for distribution from the cottage trust.

Orders sought

[15] Now, in an effort to bring the matter to an end, CTC brings this motion seeking various heads of relief.

[16] CTC requests its costs on the original passing of accounts motion, the capital repairs motion, and the will interpretation motion. It asks that they be paid personally by Gordon to the extent that Gordon's one-fourth share of what remains to be distributed from the cottage trust can cover those costs awards, and that any deficit be paid by the cottage trust.

[17] CTC also asks for an order passing the accounts of the cottage trust for the period December 16, 2015, to March 31, 2021; an order that CTC be compensated in the amount of $14,881.15 for its services as estate trustee during that same period; and an order dispensing with the need to obtain releases from the beneficiaries upon distribution of the estate.

[18] CTC further seeks approval of the accounts of Gowlings, which provided legal services to CTC in this matter, and an order directing CTC to pay from the capital of the cottage trust all outstanding amounts owed to Gowlings (which stand at $137,813.22 out of a total amount of $162,144.79, taxes not included).

[19] CTC seeks a declaration that, upon compliance with the terms of the orders sought, that CTC be absolved of its duties in its capacity as trustee for the cottage trust.

[20] Last, CTC seeks its costs of this motion.

Position of the Respondents

[21] The respondents take the position that CTC is entitled to no more compensation given that CTC has had little work to do since the distribution of the bulk of the estate and given that there has been no active management of what remains of the cottage trust. The respondents say that the $14,881.15 claimed by CTC in this regard should not be paid.

[22] The respondents also object to Gowlings fees, which they say are excessive to the point of being staggering. They blame CTC for sending mixed signals about its interpretation of the will, and for not dealing with questions respecting the interpretation of the will sooner and in a way which would have avoided litigation. Here, they point to a 1994 letter from an employee of CTC (a non-lawyer) where it was suggested that Jane's estate "may" have an interest in the cottage. The respondents further criticize CTC for having failed to serve Gordon personally with its motion record for the original passing of accounts motion. The failure to do so is said to have caused confusion and resulted in a situation where the other respondents "were required to fight the motion again after Gordon claimed the motion record had not come to his attention."

[23] The respondents say that a motion for security for costs was in the interests of CTC, but not necessarily those of the estate or its beneficiaries. They also point out that CTC took no position on the appeal to the Court of Appeal and that it was counsel to the other respondents who were successful in that matter. The other respondents point out that that their own legal costs are roughly half of those claimed by CTC.

[24] With respect to costs, CTC and the other respondents say that Gordon should have to pay those costs personally, having been the cause of the litigation in the first place and having lost at every stage. Gordon is of the view that his conduct was reasonable and that the estate should pay for these costs. He should not be liable personally.

Compensation for CTC

[25] As noted above, CTC claims that it is entitled to $14,881.15 in compensation for its administration of this estate for the period December 16, 2015, to March 31, 2021. The amount claimed is calculated based on the tariff percentages normally employed for this purpose (see Re Jeffrey Estate (1990), 39 E.T.R. 173 (Ont. Surr. Ct), at para. 13; Re Aber Estate, 2015 ONSC 5123, at paras. 16 - 17).

[26] None of the respondents disputes the calculation made by CTC. They claim instead that CTC should be entitled to nothing. I disagree. In my view, taking into account the factors described in Re Toronto General Trusts and Central Ontario Railway (1905), 6 O.W.R. 350 (H.C.), the amount claimed for a period of over five years is completely reasonable. During that time, CTC has managed a difficult file which has been the subject of contentious litigation which pitted beneficiaries against each other. The dockets of Gowlings are replete with descriptions of its communications with CTC for the purposes of seeking and providing legal advice and giving instructions. Documents were collected, affidavits were sworn, examinations were attended. CTC reduced the size of the account under management by distributing the bulk of the estate to the respondents. It has managed the residue of the estate in an interest-bearing account since.

[27] In short, the record reveals a trustee that has managed the estate with skill and care in complex circumstances. The amount claimed is entirely reasonable.

[28] CTC will be compensated by the cottage trust in the amount of $14,881.15 for the period December 16, 2015, to March 31, 2021.

Legal Fees

[29] Gowlings has submitted invoices for $162,144.79, of which $137,813.22[^1] remain outstanding. The respondents say that these fees are excessive and that many of them could have been avoided but for the conduct of CTC.

[30] Dealing with the latter argument first, I do not accept any of the criticisms of CTC made by the respondents. First, I do not accept that the letter sent by CTC in 1994 was the cause of the expensive litigation in this case. The letter was expressly contingent and non-committal, noting only possibilities, and taking no position. It was not a legal opinion and was not from a lawyer. When the issue crystallized after Margaret's death in 2015, CTC did the responsible thing and got a legal opinion from reputable counsel. When Gordon objected to the proposal to divide the cottage trust between the four respondents equally, CTC got a second opinion. To bring the matter to a head, CTC launched proceedings in the form of the original passing of accounts motion. This conduct was entirely reasonable and responsible. Moreover, the subsequent litigation confirmed the correctness of the opinions.

[31] Second, there is no evidence before me that Gordon was not properly served with notice of the original passing of accounts motion. Indeed, the affidavit filed by the other respondents does not suggest otherwise. Instead, the other respondents suggest only that confusion could have been avoided had CTC simply arranged for personal service on Gordon. There is no basis in the record before me (which does not include an affidavit from Gordon) to assign any blame to CTC on this matter. Gordon was properly served. No more was necessary.

[32] Last, having reviewed the history of the litigation, I see no step taken by CTC (among the many steps which were taken) that was unwarranted or otherwise unreasonable. The motion for security for costs was a reasonable step given Gordon's failure to pay costs awarded against him. The role played by CTC on the appeal to the Court of Appeal was also reasonable and appropriate. While it is not my task to inspect every line of counsel's invoices (see Re Knight Estate (1999), 30 E.T.R. (2d) 225 (Ont. S.C.J.), at paras. 26 - 27), I have reviewed Gowlings invoices and find them reasonable, especially given that there were years of litigation in this matter.[^2] This was a contentious case in which CTC quite properly sought the assistance of counsel (see Re Miller Estate (1987), 26 E.T.R. 188 (Ont. Surr. Ct.), at paras 7 - 8). It should come as no surprise to anyone that such assistance comes at a price. The positions advanced by CTC were repeatedly upheld by the court and at no time before this motion did any of the respondents object to any step taken by CTC as unnecessary.

[33] The accounts of Gowlings are approved as presented and any outstanding balance will be paid by the cottage trust.

Costs of the motions

[34] Costs of three motions are in issue on this motion. The key issue is whether Gordon should be liable for CTC's costs personally. CTC and the other respondents take the position that he should be personally liable. Gordon says that he acted reasonably and, as such, the costs of these motions should be borne by the estate.

[35] In deciding this issue, I follow the direction of the Court of Appeal in McGrath v. Joy, 2022 ONCA 119, at paras. 91 - 95. There, Gillese J.A., following her own judgment in McDougald Estate v. Gooderham (2005), 2005 CanLII 21091 (ON CA), 255 D.L.R. (4th) 435 (Ont. C.A.), at paras 78 - 80, observed that the costs of reasonable estate litigation brought to resolve issues of public interest (for example, to resolve ambiguities in a will), should be borne by the estate. While the courts have also guarded against the unnecessary depletion of an estate through litigation by awarding costs against unsuccessful litigants using the rules which apply in civil litigation, that approach applies only where none of the public policy considerations are in play.

[36] In the present case, two issues have dominated the litigation: Gordon's entitlement to reimbursement for capital repairs and the interpretation of the will.

[37] The capital repairs issue was heard and decided by Broad J. He dismissed Gordon's argument because the claim for reimbursement was barred by the Limitations Act, 2002, S.O. 2002, c. 24. Counsel for the other respondents argues, and I agree, that the stale nature of that motion was obvious and that it was doomed to fail from the outset. Moreover, that litigation had nothing to do with any of the public policy considerations enumerated in McDougald Estate, supra. In my view, there is no reason why the estate should have to bear the cost of this ill-fated motion. Gordon will be personally responsible for CTC's costs on this motion.

[38] As for the interpretation of the will, this does raise a matter relating to one of the public policy considerations described in McDougald Estate, supra. There, Gillese J.A. wrote as follows (at para. 78):

... it is important that courts give effect to valid wills that reflect the intention of competent testators. Where the difficulties or ambiguities that give rise to the litigation are caused, in whole or in part, by the testator, it seems appropriate that the testator, through his or her estate, bear the costs of their resolution. If there are reasonable grounds upon which to question the execution of the will or the testator's capacity in making the will, it is again in the public interest that such questions be resolved without cost to those questioning the will's validity.

[39] In this case, given the unexpected death of Jane before the death of her mother, the will required some care to interpret properly. In his judgment for the Court of Appeal, Brown J.A. (see paras. 25 - 27, 49) referred to the "interpretive difficulty" posed by different clauses of the will which were in "conflict", and which rendered Broad J. "unable to ascertain [the testator's] intention solely from the plain meaning of the language used in the Will." Accordingly, Broad J. was required to employ the "armchair rule" to determine that intention. Brown J.A. referred to the conflict within the will as a "patent inconsistency." I note also that CTC was sufficiently concerned about its interpretation of the will that it sought two opinions from Gowlings on the topic. Further, it was Broad J. who ordered the bringing of a will interpretation motion so as to resolve any uncertainty.

[40] In all these circumstances, I am of the view that the will interpretation motion was not unreasonable, that it was litigation in pursuit of one of the policy objectives described in McDougald Estate, and that Gordon should not be personally liable for it even though his position was not adopted by either this court or the Court of Appeal.

[41] The costs of the will interpretation motion will be paid by the cottage trust.

[42] The original passing of accounts motion was necessitated by Gordon's objections, one of which related to the capital repairs. As I have already said, this claim was doomed to fail and had nothing to do with the public policy considerations which justify ordering the estate to pay for litigation. In addition, despite being the catalyst for this motion and despite being properly served, Gordon failed to participate in it. On the other hand, Gordon's other objection related to the interpretation of the will. As I have said, it was reasonable to question the interpretation of the will and Broad J. ordered CTC to bring a motion so that that issue could be aired.

[43] In my view, a blended costs order is appropriate here. Given his failure to participate and his reliance on a claim for capital repairs, Gordon should be personally liable for the costs of this motion on a substantial indemnity basis, which I fix at 80% of CTC's and the other respondents' costs as ordered by Broad J. The balance of those costs will be paid by the estate.

[44] Finally on the issue of costs, those costs to be paid by Gordon personally will be recovered from his one-fourth share of what remains to be distributed from the cottage trust to the extent that his share can cover those costs awards. Any deficit will be paid by the estate.

Other orders

[45] In addition to the orders I have made above, I order as follows:

(a) The accounts of the cottage trust, for the period December 16, 2015, to March 31, 2021, as amended, as filed by CTC, are passed.

(b) The requirement that CTC obtain releases from the beneficiaries is dispensed with.

(c) Upon compliance with the terms of the orders made herein, CTC will be absolved of its duties in its capacity as trustee for the cottage trust.

(d) CTC will have its costs of this motion, which I fix at $22,175.04 all inclusive, which costs will be paid by the cottage trust.

Conclusion

[46] The moving party may prepare a draft judgment in accordance with these reasons.

I.R. Smith J.

[^1]: Both figures exclude taxes.

[^2]: I note that the other respondents, having made an argument inviting me to compare their own legal fees with those of CTC, have not put in evidence their counsel's invoices.