COURT FILE NO.: CV-22-88450-ES
DATE: 2023-09-05
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Ute Santos, Karsten Kurt Luettge and Niels Luettge v. Tracy Coghlan and Virginia Meehan
BEFORE: Associate Justice A. Kaufman
COUNSEL: J.L. Lee Mullowney, for the Applicants
John Paul Zubec, for Respondents
HEARD: June 29, 2023
E N D O R S E M E N T
[1] Hans and Colleen Luettge married in 1987, each having been previously married, with children from previous marriages. In January 2005, they created wills stating that upon either spouse’s death, the surviving partner would inherit the deceased’s estate. After the surviving spouse’s passing, the estate would be equally shared among their seven children.[^1]
[2] Colleen Luettge passed away in August 2011, having transferred many of her assets to Hans before her death.
[3] Hans passed away in May 2021. After his death, Colleen’s children learned of changes to his will. His most recent will from November 2020 departed from the equitable distribution among all seven children. Instead, Hans designated his four children as primary beneficiaries, giving $30,000 each to two of Colleen’s children (the respondents), while excluding their brother Terry from any inheritance.
[4] The applicants initiated an Application for a Certificate of Appointment of Estate Trustee with a Will. The respondents filed a Notice of Objection in response, claiming that Hans lacked the requisite capacity to formulate the 2020 will. Although the applicants initially sought to strike the respondents’ objection, they later abandoned this request. On June 16, 2022, the parties obtained an Order for Directions which deferred the issue of costs.
[5] The respondents now present this further motion for directions, seeking two orders. First, they seek costs related to the applicants’ abandoned application to strike their notice of objection. Second, they seek an order preventing the applicants from using estate assets to cover their legal expenses. For the following reasons, the respondents’ motion is granted.
ISSUE I – Are the respondents entitled to costs for the applicants’ application to strike?
[6] Upon being served with the applicants’ application for a Certificate of Appointment of Estate Trustee with a Will, the respondents submitted a Notice of Objection. Within it, the respondents alleged that Hans lacked the mental capacity to execute his will in November 2020 and that the will was created under suspicious circumstances.
[7] The applicants commenced this application on January 27, 2022. Among their claims, they sought an order to strike the respondents’ Notice of Objection and a declaration affirming the validity of Hans’ November 2020 will. Alternatively, they sought an Order for Directions. A hearing for this application was scheduled for June 14, 2022.
[8] In response to the applicants’ request to strike their objection, the respondents presented evidence supporting their claim that Hans lacked the required testamentary capacity. They submitted affidavits from Tracy Cochlan (sworn May 11, 2022), Virginia Meehan (sworn May 12, 2022), Patrick Cochlan (sworn May 11, 2022), Louis Naaman (sworn May 6, 2022), and Carol Marling (sworn April 29, 2022). These affidavits highlighted Hans’ cognitive decline in the years leading up to his passing.
[9] On April 25, 2022, the respondents extended a Rule 49 offer. The terms of the offer were that the applicants would be allowed to withdraw their request to strike the respondents’ Notice of Objection and to validate Hans’ November 2020 will, with no costs implications. The offer also provided that the parties would consent to a mutually acceptable Order for Directions. Moreover, the respondents’ Rule 49 offer outlined that if the offer was accepted after April 28, 2022, the applicants would pay the costs associated with the respondents’ preparations for the hearing scheduled for June 14, 2022, on a partial indemnity scale.
[10] On June 6, 2022, the respondents’ counsel provided a draft Order for Directions to the applicants’ former counsel and indicated that work on the respondents’ factum would continue until the applicants confirmed that the June 14, 2022 hearing would focus solely on the terms of an Order for Directions. On the same date, the applicants’ counsel responded that the respondents’ counsel could cease further work on the factum.
[11] The parties appeared before Justice Phillips on June 14, 2022, and a consent Order for Directions was issued. The order, among other things, provided that “the remaining relief sought by the Applicants in their Notice of Application is hereby dismissed” and that “the determination of costs relating to this appearance is hereby postponed to a date to be decided upon by any of the parties.”
[12] The respondents claim that they successfully opposed the applicants’ request for an order to strike their objection and validate Hans’ November 2020 will. They seek their costs on a substantial indemnity basis, totaling $21,174.75.
[13] The applicants contend that a cost order is inappropriate in these circumstances. They contend that their application went beyond striking the respondents’ Notice of Objection. However, in an email dated April 22, 2022, the applicants’ counsel characterizes the “primary relief sought” in the application as “an order striking out the notice of objection.”
[14] The applicants argue that the respondents’ Rule 49 offer does not attract cost consequences because it was not fixed, certain, and capable of calculation. They refer to the term of the offer that required the parties to consent to an Order for Directions agreeable to the parties.
[15] I agree with Mr. Zubec that Orders for Direction are normally the product of negotiations and that it would not have been possible to include every term in the respondents’ offer. Here, the parties were able to agree to the terms of an Order for Directions. In any event, even where an offer does not strictly comply with the requirements of Rule 49, the Court may, in the exercise of its discretion under section 131 of the Courts of Justice Act,[^2] consider any offer to settle made in writing and the factors set out in Rule 57.01(1) of the Rules of Civil Procedure.[^3]
[16] Finally, the applicants argue that, based on the resulting Order of Justice Phillips, it can be inferred that the Offer was in fact accepted. I agree. The applicants agreed to no longer pursue orders striking the respondents’ Notice of Objection or affirming the validity of Hans’ November 2020 will. The applicants also consented to an Order for Directions agreeable to the parties. These terms aligned with the respondents’ offer.
[17] However, the applicants accepted the respondents’ offer after the April 28, 2022 deadline. Per the offer’s terms, if accepted after that date, the applicants would pay the respondents’ partial indemnity costs. Thus, the respondents are entitled to their partial indemnity costs, which are hereby fixed in the amount of $14,000 (all-inclusive), to be paid within 30 days.
[18] I have considered that, as a result of Justice Phillips' Order for Directions, certain documents were produced to the respondents, which included Hans' previous wills. Through this disclosure, the respondents became aware that Hans had created four wills from May 4, 2012, to September 10, 2019. This disclosure caused them to withdraw their allegation that Hans’ 2020 will was drafted under suspicious circumstances and that Hans lacked the capacity to make a valid will. A further Order for Directions was secured on consent from Justice Ryan-Bell on April 5, 2023. The respondents are now relying on the legal doctrines of unjust enrichment and constructive trust.
[19] While the respondents ultimately abandoned their original claims, it does not affect their entitlement to costs. Striking a Notice of Objection is an extraordinary remedy, which required the respondents to put their best foot forward and assemble evidence. The applicants agreed to the respondents’ offer, forgoing their primary relief and consenting to an Order for Directions. According to the terms of the respondents’ offer, the applicants should cover the respondents’ partial indemnity costs.
ISSUE 2 – Are the applicants precluded from paying their litigation costs from estate funds?
[20] Pursuant to Justice Phillips’ Order for Directions, the applicants were appointed as Estate Trustees of the Estate During Litigation under section 28 of the Estates Act, R.S.O. c. E.21. As directed in paragraph 16 of that Order, the applicants provided the respondents with a Statement of Assets and Liabilities of the Estate. Upon review, the respondents discovered that approximately $80,000 had been withdrawn from the Estate for administrative taxes and legal fees.
[21] The respondents argue that the applicants are prohibited from funding their litigation costs from the Estate. They rely on precedent, further discussed below, and on paragraphs 14 and 17 of Justice Phillips’ Order for Directions. The applicants respond that it is well established that an estate trustee has a right to be indemnified from the Estate for legal fees incurred in connection with the Estate. I agree with the applicants that trustees are generally entitled to reimburse themselves for expenses reasonably incurred in connection with the administration of the Estate without obtaining the beneficiaries’ prior consent or a court order. However, I conclude that the Order for Directions precludes them from paying out litigation fees from the Estate in this case.
[22] The starting point in the analysis is that a trust is not a legal entity capable of suing or being sued. Trustees hold ownership of trust assets and legal actions may be taken in their name. It is firmly established that trustees are personally liable for litigation costs.[^4] The lawyer engaged by an estate trustee represents the trustee, not the Estate itself.[^5]
[23] Estate trustees are entitled to be indemnified for expenses reasonably incurred in connection with the administration of the estate. In Thompson et al v. Lamport et al.[^6] , the majority of the Supreme Court states:
The general principle is undoubted that a trustee is entitled to indemnity for all costs and expenses properly incurred by him in the due administration of the trust: it is on that footing that the trust is accepted. These include solicitor and client costs in all proceedings in which some question or matter in the course of the administration is raised as to which the trustee has acted prudently and properly.[^7]
[24] In Geffen v. Goodman Estate,[^8] the Supreme Court of Canada established that the entitlement to indemnification encompassed litigation expenses. This right extended even when the estate trustee, who was also a beneficiary, pursued personal interests alongside those of the trust:
77 Nor can there be any serious question that the appellants in defending the action were acting, not for their own benefit, but for the good of the trust. For William Geffen, of course, defending the action promoted both his personal interest as well as that of his fellow beneficiaries. While we have not been referred to a case in which trustees seeking indemnification from a trust were also beneficiaries of the trust, I do not consider the co-existing interest of trustee and beneficiary a valid basis for denying costs. Similarly, the fact that the Geffen brothers were acting in the interests of their children, nephews and nieces does not, in my view, cast any doubt upon the propriety of their actions.
[25] The right of indemnification has been codified in section 23.1 of the Trustee Act, R.S.O. 1990, c. T.23. According to this section, a trustee is allowed to use trust assets to cover expenses reasonably related to fulfilling the trust’s responsibilities. However, the Court retains the authority to reject the payment later if it was not reasonably incurred. This section is worded as follows:
23.1(1) A trustee who is of the opinion that an expense would be properly incurred in carrying out the trust may,
(a) pay the expense directly from the trust property; or
(b) pay the expense personally and recover a corresponding amount from the trust property.
(2) The Superior Court of Justice may afterwards disallow the payment or recovery if it is of the opinion that the expense was not properly incurred in carrying out the trust.
[26] In Furtney Estate v. Furtney,[^9] this Court held that an estate trustee does not require the prior consent of the beneficiaries or a court order to have litigation costs paid from estate funds. The Court drew from Professor Oosterhoff’s article titled “Indemnity of Estate Trustees as Applied in Recent Cases,”[^10] which argues against estate trustees being required to personally cover estate costs and later seek reimbursement. Professor Oosterhoff contends that many estate trustees lack the means to pay expenses from their own pocket, and imposing this burden could discourage them from taking on this socially important role.
[27] The respondents rely on Coppel v. Coppel Estate[^11] and DeLorenzo v. Beresh[^12] in which this Court found it impermissible for the estate trustee to pay litigation accounts without the consent of the beneficiaries or a court order. However, I agree with Mitrow J. that these decisions did not consider the Supreme Court’s decisions in Geffen and Thompson Estate or section 23.1 of the Estates Act. These latter authorities hold that consent or prior court order are not required. The passing of accounts acts as the check on the propriety of such expenses.
Terms of the Order for Direction
[28] The respondents assert that the use of estate funds to cover litigation costs was not sanctioned as per Justice Phillips’ Order for Direction. I find this argument compelling.
[29] The Order for Direction explicitly stated that the Estate Trustee “may not distribute or disburse any estate assets, unless such distribution is approved under this Order or agreed upon in writing by the parties involved in this proceeding” (paragraph 17). In paragraph 14(d) of the Order for Directions, the Estate Trustee was granted the authority to perform specific actions in managing the Estate. The content of paragraph 14(d) is as follows:
14 (d) The Estate Trustees During Litigation are authorized to exercise those powers given by law to an administrator, including such powers under the Estates Act, R.S.O. 1990, c. E.21, as amended, and without limiting the generality of the foregoing, the Estate Trustees During Litigation are hereby specifically authorized to do the following:
i. to take all steps required to liquidate and consolidate all of the Estate’s assets into one Estate account that will be located in Ontario;
ii. to pay all debts owed by the Deceased or the Estate, including all debts that arise out of this Order;
iii. to meet all other legal obligations of the Deceased or the Estate, which include filing all tax returns; and
iv. to appoint an agent or agents and seek such assistance from time to time as they may consider necessary, for the purpose of performing their duties.
[30] While the list of authorized actions is non-exhaustive, the actions themselves all relate to the management of the Estate, as opposed to the litigation concerning claims against the Estate. Moreover, as previously highlighted, the applicants’ legal counsel act on behalf of the estate trustee, not the Estate itself. Litigation expenses cannot be categorized as debts or legal obligations of the Estate. Lastly, while subparagraph 14(d) grants the trustee certain responsibilities linked to Estate administration, it does not address whether such actions can be funded from the Estate’s assets. Thus, it cannot be concluded that subparagraph 14(d) permits the trustee to distribute or disburse Estate assets for legal fees, in line with paragraph 17.
[31] Should I be mistaken in this assessment, my perspective is that it is preferable for the parties to cover their own expenses until the litigation concludes.
[32] Rule 75.06(3) confers the court with broad case management authority over estate litigation matters, which includes ensuring fairness throughout the proceedings.[^13]
[33] It is important to consider that Colleen Luettge and her Estate transferred over 1M$ of her assets to Hans. It seems that, before her passing, Colleen intended her assets to be shared between her and Hans’ children after Hans passed away. While the applicants are not responsible for Hans’ change of heart, they now benefit from substantial resources from which to finance their litigation against the respondents. The merits of the respondents’ claims are yet to be determined.
[34] When a conflict arises between estate trustees involved in litigation and other parties within the litigation, the Court should maintain a level playing field.[^14] Thus, I conclude that equity calls for each party to cover their respective litigation costs until the litigation concludes. Accordingly, I order the applicants to reimburse the Estate for the legal expenses funded by the Estate up to this point, within the next 30 days.
COSTS
[35] The respondents were successful in this motion and are presumptively entitled to costs. Both parties submitted cost outlines.
[36] The respondents claim $47,189.80 for their partial indemnity costs, while the applicants’ calculate their partial indemnity costs at $27,170.99.
[37] I have considered the criteria enumerated in Rule 57.01. These factors include the principle of indemnification, the reasonable expectations of the parties, the complexity of the proceeding, the importance of the proceeding, and the conduct of the parties in litigation.
[38] The matter in question held substantial importance for both parties and was moderately complex. Neither party displayed improper or excessive behavior, although the applicants did not comply with my timetable from May 25, 2023, and only furnished their responding affidavit shortly before the hearing. Typically, delayed submission of motion materials warrants a cost penalty.
[39] Nevertheless, I am of the opinion that the respondents' claimed costs are excessive in this case. A total of 257 hours have been logged by six distinct timekeepers. While the involvement of junior counsel is advisable, numerous timekeepers suggest redundancy and inefficiency. Furthermore, certain claimed work pertains to communications with opposing counsel and a mediator, and some appears to relate to the litigation at large rather than this specific motion. Lastly, a few of the issues raised in this motion were resolved prior to the hearing and were not debated.
[40] Having regard to all applicable factors, I am of the view that a costs award in the amount of $19,000 is fair and reasonable.
DISPOSITION
[41] This Court orders that:
The applicants shall pay the respondents’ costs of the hearing before Justice Phillips, fixed in the amount of $14,000, payable within 30 days.
The applicants are prohibited from paying any further legal fees in relation to this proceeding out of the Estate.
The applicants shall reimburse the Estate for any legal fees incurred in this proceeding that have been paid out of the Estate within the next 45 days.
The respondents are entitled to costs of this motion, fixed in the amount of $19,000 all-inclusive, payable within 30 days.
Alexandre Kaufman
Associate Justice A. Kaufman
DATE: September 5, 2023
[^1]: The applicants correctly note that Colleen gifted the contents of five (5) bank accounts to her children in her will. [^2]: R.S.O. 1990, c. C.43. [^3]: R.R.O. 1990, Reg. 194. [^4]: Martyn v Taylor, 2003 43893 (ON SC) at para 68. [^5]: DeLorenzo v Beresh, 2010 ONSC 5655 at para 15. [^6]: 1945 2 (SCC), [1945] SCR 343. [^7]: Ibid at p. 356. [^8]: 1991 69 (SCC), [1991] 2 SCR 353. [^9]: 2014 ONSC 3774 (Ont. S.C.J.). [^10]: Albert H. Oosterhoff, “Indemnity of Estate Trustees as Applied in Recent Cases” (2013) 41 The Advocates’ Quarterly 123. [^11]: [2001] O.J. No. 5246 (Ont. S.C.J.). [^12]: 2010 ONSC 5655 (Ont. S.C.J.). [^13]: Class v Smith, 2018 ONSC 623 at paras 38-40. [^14]: Ibid.