When is a Passing of Accounts Final
It is widely assumed, and accepted for that matter, that a formal passing of accounts affords full protection to an estate trustee. The familiar mantra is that those with a financial interest in an estate are not only required to object to the accounts proffered, but must concurrently raise any other issue regarding the overall competency of the estate trustee (succinctly summed by the phrase “you snooze you lose”). However, I recently came across an Ontario Court of Appeal (“C.A.”) case that challenges that proposition.
By way of background, section 49(2) of the Estates Act states: “The judge, on passing the accounts of an executor… has jurisdiction to enter into and make full inquiry and accounting of … the whole property that the deceased was possessed of… [including] its administration and disbursement”. Section 49(3) authorizes a judge to order the estate trustee to pay damages if the estate trustee occasioned financial loss to the estate through misconduct, neglect, or default. It is worth noting that the language is permissive, not mandatory, seemingly providing a beneficiary with the opportunity to make a later complaint.
In Simone Estate v. Cheifetz, www.canlii.org/en/on/onca/doc/2005/2005canlii36155/2005canlii36155.html,Stephen Cheifetz was a Windsor lawyer who was named as one of three executors of the respective estates of a husband and wife (his clients) who died tragically in a plane crash. Mr. Cheifetz eventually resigned as estate trustee and was ordered to pass his accounts. His compensation was challenged and Mr. Cheifetz was ultimately ordered to repay monies taken as compensation. The successor estate trustee then brought an action against Mr. Cheifetz for damages for breach of fiduciary duty/breach of trust.
Somewhat complicating the matter was the fact that the decision arose out of a rule 20 and rule 21 motion. However, to cut to the chase, the C.A. held that on the earlier passing of accounts the court was concerned with the proper compensation to be paid to Mr. Cheifetz as estate trustee. Conversely, in the action for damages for breach of trust, the court would be concerned with issues of a very different nature. While aspects of Mr. Cheifetz’s conduct considered on the passing of accounts might be considered in the action for damages, it would be for a different purpose and different legal considerations would apply.
The C.A. went on to point out the undesirability of litigating the issue of breach of fiduciary duty/breach of trust on a passing of accounts (apparently disregarding the fact that a section 49 claim could be carved out as a trial of an issue). In the end, the action for damages stood and Mr. Cheifetz was permitted to litigate issues pertaining to his alleged breach even if such issues had been raised on the passing of accounts.
For a more fulsome discussion of this case, please see this week’s Podcast. Enjoy and keep reading.