In estate litigation, solicitor-client costs are typically reserved for cases where a party engages in reprehensible, scandalous or outrageous conduct. While rare, such costs are occasionally merited during estate administration, as demonstrated by the Manitoba Court of Appeal’s decision in Re Parkinson Estate, 2024 MBCA 52. In this case, the court recognized that using estate distributions to leverage approval of executor compensation constituted a breach of fiduciary duty serious enough to merit solicitor-client costs, even though the executor’s misconduct pre-dated the litigation.
Background
The deceased in this case, a successful lawyer, left his estate, valued at over $4 million, to his children. The estate was complicated because the deceased had dealt with income tax payable on the income earned through his law practice using two corporations, plus a family trust.
The deceased’s will appointed a friend who was also a practicing lawyer to serve as executor of the estate, but did not address executor compensation. At the outset of the estate administration, the executor advised the beneficiaries that he would keep a record of his time for the calculation of his fees as executor, but that he would not charge his standard rate of $345 per hour. He also explained that, when the court awards executor compensation, it is typically not based on an hourly rate and instead is restricted to a maximum of five percent of the total value of the estate.
Between 2012 and 2014, the beneficiaries received interim distributions totaling approximately $2 million, and approved more than $45,000 in interim executor compensation. However, the estate administration then slowed significantly. In 2016, the executor advised the beneficiaries that he wanted to start charging $300 per hour for his services, and that he expected his fee for administering the estate to be $258,200 in total. Less than a year later, the executor advised that he wanted to increase his fee to $266,216, and also told the beneficiaries that he had $1.4 million available for distribution, and would distribute it to them if they all executed a release.
Because the beneficiaries did not sign the release, the executor refused to make any estate distributions, resulting in a deadlock until 2020, when the executor was removed under a consent order. At that time, a trust company was appointed to administer the remaining 40% of the estate.
Application to Pass Accounts
When the former executor applied to pass the estate’s accounts, the presiding associate judge set the executor’s compensation at $115,000 for his partial administration of the estate, and also ordered the former executor to pay over $110,000 in solicitor-client costs.
The former executor appealed to the Court of King’s Bench, but his appeal was dismissed. He then appealed to the Manitoba Court of Appeal, challenging both the amount of compensation awarded to him and the solicitor-client costs award.
Executor Sought to Charge Inappropriate Hourly Rate
With respect to executor compensation, the Court of Appeal confirmed that the associate judge did not err in concluding that an hourly rate between $245 to $300 was not appropriate. In this case, executor compensation was governed by the Trustee Act, under which an executor is entitled to a “fair and reasonable allowance.” The Court of Appeal affirmed that the associate judge did not err in setting executor compensation for the partial administration of the estate at $115,000.
Solicitor-Client Costs Award Upheld
The more significant aspect of the court’s decision in Parkinson Estate focuses on when solicitor-client costs can be awarded against the executor of an estate. Writing on behalf of the panel, Justice Mainella emphasized that appellate courts owe substantial deference to costs awards absent an error in principle or plainly wrong result.
With respect to estate litigation specifically, the Court of Appeal confirmed that solicitor-client costs may be awarded if one of the parties engages in “reprehensible, scandalous or outrageous conduct,” or if the trustee engages in “egregious maladministration of an estate.” Applying these principles, Justice Mainella confirmed that the executor’s insistence on the completion of signed releases approving his compensation before he would distribute estate funds amounted to a serious breach of fiduciary duty and warranted solicitor-client costs. An executor does not have the right to require a beneficiary to sign a release before making a distribution – in fact, such conduct gives rise to a conflict of interest. Moreover, in deadlocking the distribution of the estate, the executor failed to display the disinterested judgment required to fulfill his duties as executor. Justice Mainella concluded that “[t]his ‘power play’ was a clear breach of [the executor’s] fiduciary duty,” and it was exacerbated by the fact that the executor was “an experienced lawyer, who knew better.”
Since there was no valid reason for the executor to hold back the $1.4 million from being distributed, the court accepted that requiring the estate or the beneficiaries to bear the costs of the litigation would have been unjust. Justice Mainella also observed that upholding the solicitor-client costs award would send an important message to trustees – intentionally deadlocking the distribution of trust property to improve one’s bargaining position as to remuneration is “a dangerous game” deserving of “reproof and rebuke by the courts.”
In upholding the costs award, Justice Mainella also confirmed that solicitor-client costs may be based on pre-litigation conduct if an executor engages in reprehensible conduct during estate administration. Moreover, the court further noted that recognizing pre-litigation misconduct as a basis for solicitor-client costs also aligns estates law with broader costs jurisprudence.
Conclusion
The Manitoba Court of Appeal’s decision in Re Parkinson Estate demonstrates how the courts may closely scrutinize the conduct of estate trustees who place their personal financial interests ahead of their fiduciary obligations. While solicitor-client costs remain the exception, this case confirms that estate trustees who improperly leverage estate distributions to secure approval of their compensation risk exposure to substantial costs consequences.
The case is also notable for affirming that pre-litigation conduct may justify solicitor-client costs. Where a trustee’s misconduct during the administration of an estate causes unnecessary litigation, the court may order full indemnity costs to ensure that neither the estate nor the beneficiaries bear the financial burden of the trustee’s wrongdoing.
For estate trustees and their counsel, the practical lesson is clear: disputes over compensation should not be addressed through strategic delay or by withholding distributions owed to beneficiaries. Not only does such conduct constitute a breach of fiduciary duty, but it may attract serious costs consequences.
Thank you for reading, and have a great week!
Suzana.