Category: Executors and Trustees
Litigation is a fluid exercise. Often, proceedings are commenced by a party with only limited or rudimentary knowledge of the facts giving rise to a particular cause of action. As additional information is discovered, parties may wish to particularize the details of certain claims, or introduce new claims altogether.
The Rules of Civil Procedure permit a claimant to do so without leave of the Court, but only so long as “pleadings are not closed.” The close of pleadings is a term of art that, in the context of actions, is clearly defined by a plain reading of the Rules. However, in the context of applications, the Rules are not so clear, and guidance from the Court is required. The recent decision in Angeloni v Estate of Francesco Angeloni summarized the relevant authorities on this issue.
This case consisted of an application initially commenced by the alternate attorneys for property (eventually litigation guardians and, ultimately, estate trustees) for Concetta Angeloni, concerning the use of the proceeds of sale of a property by her deceased husband and prior attorney for property, Francesco. At a time when Concetta was incapable of managing her property, Francesco, as her prior attorney for property, severed the joint tenancy in a property previously owned by them, sold the property and, it was later discovered, retained all of the net proceeds of sale personally. In reviewing Concetta’s affairs following Francesco’s death, Concetta’s alternate attorneys for property soon realized that she did not appear to have received any share of the proceeds of sale, nor had Francesco made any provision for her in his Will.
Concetta’s attorneys for property commenced an application for dependant’s support against the Estate. However, only after this application was commenced did they confirm that Francesco had retained the sale proceeds entirely. The litigation guardians quickly amended the application seeking additional relief including an accounting as well as a declaration that Francesco had breached his fiduciary duty to Concetta.
The estate asserted that the relief sought in the amended application was not properly before the Court on the basis that the Notice of Application had not been “properly amended.” The Court disagreed. At the outset, the Court found that although a Notice of Application is not a pleading for the purposes of the Rules in the same vein as a Statement of Claim, the same rules with respect to the amendment of pleadings apply nonetheless.
The Court also noted that although Rule 25.05 defines the “close of pleadings” as being when the last Reply to a defence is served or the time to do so has expired, no equivalent definition in the context of applications is provided – a Reply is a pleading that may only be delivered in an action.
The Court considered the decision of the Court of Appeal in 1100997 Ontario Limited v North Elgin Centre Inc. In that case, the Court held that the affidavit materials filed by the parties, and not the Notice of Application, are to be considered the “pleadings” for the purposes of Rule 25.05, as it is the affidavits that contain the relevant facts in support of the relief sought in the Notice of Application. As such, a supporting affidavit would be considered part of an applicant’s pleadings, while a responding affidavit would be considered part of the respondent’s.
Accordingly, the Court found that at the time the Notice of Application was amended, pleadings had not yet closed as the Estate had not delivered a responding affidavit. In any event, the Court noted that the responding affidavit eventually filed ultimately responded to the claims raised in the amended application and, as such, the Estate could not now take the position that those claims were not properly before the Court.
The Court concluded that the applicants did not require leave of the Court to amend the Notice of Application, that the Notice of Application had been properly amended, and that the additional claims could be (and were) determined by the Court.
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Section 38 of the Trustee Act, except in cases of libel and slander, permits estate trustees to commence actions, on the deceased’s behalf, for all torts or injuries to the person or to the property of the deceased, and vice versa for those seeking to commence actions with respect to a wrong committed by a deceased person, so long as those claims are brought within two years of the deceased’s death.
The discoverability principles under the Limitations Act, 2002 are not applicable to toll the two-year limitation period under section 38(3) of the Trustee Act. The application of this strict two-year limitation period is only mitigated by common law principles such as the doctrine of fraudulent concealment: Giroux Estate v. Trillium Health Centre, 2005 CanLII 1488 (ONCA), Bikur Cholim Jewish Volunteer Services v. Penna Estate, 2009 ONCA 196, and Levesque v. Crampton Estate, 2017 ONCA 455.
Recently, the Court of Appeal has considered limitations defences in three of its estates decisions so far in 2021. One of them was the case of Zachariadis Estate v. Giannopoulos, 2021 ONCA 158, which I blogged about the other day. The other two cases were Beaudoin Estate v. Campbellford Memorial Hospital, 2021 ONCA 57, and Hayward v. Hayward, 2021 ONCA 175.
The Beaudoin Estate is a medical malpractice claim by the Beaudoin Estate and the deceased’s wife, daughter, grandchildren as claimants under the Family Law Act. The claimants alleged that the deceased was negligently diagnosed and treated when he was brought to the hospital’s emergency department which led to a delay in surgery that could have saved his life. Mr. Beaudoin died on January 9, 2015 and the action as commenced on April 27, 2017 by way of a statement of claim. The defendants asserted amongst other things in their statement of defence that the plaintiffs were statue barred pursuant to section 38(3) of the Trustee Act. The plaintiffs then alleged that the hospital had fraudulently concealed their cause of action by failing to provide them with the deceased’s complete medical records when they were requested from the hospital, particularly certain CT imaging that was not provided to them until May, 2017.
The hospital then brought a rule 21.01(1)(a) motion to determine an issue of law raised by the pleadings so as to dispose of the action without trial. It is important to note that, unlike a motion for summary judgment under Rule 20, no evidence is admissible on a motion under r. 21.01(1)(a), except with leave of a judge or on consent of the parties: r. 21.01(2)(a).
The Court of Appeal found that the motion judge erred in deciding the question of fraudulent concealment as a question of law under r. 21.01(2)(a). Motions under r. 21.01(1)(a) are not the proper procedural vehicle for weighing evidence or making findings of fact (para. 30). Similar to limitations issues under the Limitations Act, 2002 and the factual dispute surrounding the discovery of a claim, factual disputes surrounding the fraudulent concealment of a cause of action are more properly determined under a motion for summary judgment under Rule 20. To do so would be unfair to a plaintiff when no evidence is admissible on such a motion except with leave of the court or on consent (para. 34).
In Hayward v. Hayward, the appellants raised as a ground of appeal that the trial judge erred by failing to find that the applicants were statute bared. The Court of Appeal dismissed this ground of appeal on the basis that the defence was not raised by counsel regardless of the fact that the application did not have full pleadings like an action would. The trial judge cannot be criticized for failing to respond to a defence that was not raised by counsel (para. 7).
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Dr. Zachariadis was divorced and estranged from his two daughters. After his divorce, he began a romantic relationship with Ms. Giannopoulos. They were together for almost twenty years as common law spouses until Dr. Zachariadis’ passing. A year before his death, Dr. Zachariadis moved in with Ms. Giannopoulos and they had plans to marry. Dr. Zachariadis transferred his medical practice to Ms. Giannopoulos’ son Aris, and he gave Ms. Giannopoulos a bank draft for $700,000.00 which she deposited into her own bank account. He died within six months of that bank draft.
Dr. Zachariadis did not have a relationship with his daughters from his first marriage. He was not invited to their weddings and he has never met his grandchildren. Dr. Zachariadis died without a Will and his daughters became the estate trustees and beneficiaries of this Estate. More than two years after Dr. Zachariadis’ passing, the daughters commenced an action against Ms. Giannopoulos to recover the payment of $700,000.00 to her on the basis of breach of trust, fraud at equity, conversion and unjust enrichment. The action was dismissed on a motion of summary judgment by Justice Koehnen. The appeal of Justice Koehnen’s decision, 2019 ONSC 6505, and his Honour’s costs order, 2020 ONSC 588, were also dismissed by the Court of Appeal, 2021 ONCA 158.
On the motion for summary judgment, Justice Koehnen found that the daughters were statute barred by section 38(3) of the Trustee Act in failing to commence their claims within two years of Dr. Zachariadis’ death. The daughters failed to make out any fraudulent concealment on Ms. Giannopoulos’ part that would toll the operation of section 38(3). Rather, Justice Koehnen found that there was no positive obligation on Ms. Giannopoulos’ part to tell the daughters about the payment, and he found that the payment was a gift in any event. All of which were upheld by the Court of Appeal.
The Court of Appeal also found that there was no basis to interfere with Justice Koehnen’s costs order. The Estate and the daughters, in their personal capacities, were ordered to pay Giannopoulos costs of $199,602.46 on a substantial indemnity scale. The allegations of fraud in the underlying claim were unsupported and pursued to the end. Justice Koehnen noted that the daughters could have pursued their claims on the basis of constructive trust and resulting trust without going so far as alleging fraud. The daughters were also found to have taken unnecessarily aggressive steps and to have lengthened the proceeding due to their lack of cooperation with Ms. Giannopoulos’ counsel while Ms. Giannopoulos’ offers to settle were weighed against them. Issue was also taken with the length of the daughters’ materials which were noted to be in violation of the page limits and other formatting requirements for facta. Lastly, Justice Koehnen rejected the daughters’ argument that they were only pursuing the claim to ensure the due administration of the Estate and out of their concern that the Estate would have sufficient funds to pay its CRA liability. Interestingly enough, Justice Koehnen commented that, if that were the case, the daughters could have simply turned over the claim for CRA to pursue.
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In the recent decision of Carroll v Toronto-Dominion Bank, 2021 ONCA 38, the Ontario Court of Appeal dismissed the appeal of an applicant for lack of standing to bring the application, notwithstanding that the application related to an alleged breach of trust. Standing is required to sue for breaches of trust.
In this matter, the applicant, Marion Carroll, was formerly employed by Toronto-Dominion Bank (“TD Bank”), as a manager who was responsible for the compliance of a group of TD Bank’s subsidiaries relating to the management of mutual funds. Among other things, Ms. Carroll claimed to have exposed regulatory non-compliance and breaches of mutual funds trusts by TD Bank’s subsidiaries. In 2019, Ms. Carroll issued an application against TD Bank with respect to its role as Trustee of designated mutual funds.
The motion’s judge dismissed the application pursuant to Rule 21.01 of the Rules of Civil Procedure, finding that Ms. Carroll lacked standing to bring the application. Ms. Carroll appealed that ruling to the Ontario Court of Appeal.
While the Ontario Court of Appeal addressed other issues within this appeal, the focus of this article will be to highlight the Court’s finding that standing is required to sue for breaches of trust.
Ms. Carroll’s position was that once a court is informed of allegations of a potential breach of trust, the inherent jurisdiction of courts to administer trusts makes standing “subordinate, and largely irrelevant, where allegations of fraudulent or improper misconduct are made against a trustee,” thereby obliging the courts to resolve the litigation. Ms. Carroll also furthered the position that the courts of equity have removed the requirement of standing to protect the interests of incapacitated beneficiaries who cannot effectively sue to enforce trust obligations.
The Court rejected Ms. Carroll’s position stating that the claim that standing is subordinate or irrelevant “misconceives the true nature of the inherent jurisdiction of courts to supervise or administer trusts and is contrary to basic trust principles.” Although, the courts have previously extended access to the court’s inherent jurisdiction to creditors or contingent beneficiaries, the Court noted that the implications of Ms. Carroll’s position would result in strangers being able to enforce trust benefits that beneficiaries are entitled to, even if the beneficiaries choose not to enforce them, and that this would be contrary to the essential character of a trust.
The Courts are able to assist those with an interest in trusts by enforcing and compelling the performance of those trusts. Specifically, the Court noted that:
“the inherent jurisdiction to supervise and administer trusts exists to assist the parties to the trust relationship or those who are interested in the trusts. As such, the inherent jurisdiction of courts to supervise and administer trusts is not inconsistent with the imposition of standing requirements. To the contrary, it is entirely in keeping with the role inherent jurisdiction performs to ensure that those who seek to invoke the inherent jurisdiction to supervise or administer trusts have an interest in the trusts they seek to enforce.”
The Court of Appeal also discussed the following issues within this decision:
- Did the motion judge err by applying the wrong standing test?
- Did the motion judge err by finding that Ms. Carroll had not pleaded facts establishing a prima facie case of standing?
- Did the motion judge err by failing to consider all aspects of the relief sought when determining Ms. Carroll’s standing?
The Court concluded that the motion judge made none of the above-noted errors and dismissed the appeal.
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As Ian Hull and Daniel Enright of our office blogged last week, as of April 1, 2021, small estates in Ontario will be defined as those worth $150,000.00, instead of the $50,000.00 figure we are all used to.
The Ontario Attorney General, Doug Downey, advised that the process of applying to manage an estate in Ontario was the same, whether it is worth $10,000.00 or $10 million, which often deters people from claiming smaller estates.
As a result of this change, more estates will be able to access a simplified probate process, though the amount of probate fees payable will not change.
Although these changes are welcome, some consider that there are still a number of other issues outstanding, such as:
- Due to real estate values, estates in Toronto could be considered small, whereas that would not be the case in other parts of the province (e.g. a $500,000.00 estate in Toronto could be considered small); and
- The probate process itself could be simplified, as many financial institutions take the position that assets cannot be managed until such time as probate is obtained (which in turn can often cost an estate, as asset values fluctuate).
A recent article discussing the above-noted points can be found here.
It will certainly be interesting to see if the new changes will make a difference, and whether more changes are coming, in light of the concerns expressed by various members of the legal profession.
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In recent months, an Ontario Superior Court of Justice province-wide Notice to the Profession has permitted the filing of applications for a Certificate of Appointment of Estate Trustee with a Will or a Certificate of Appointment of Estate Trustee Without a Will (“probate applications”) by email. Since then, the Rules of Civil Procedure were updated, effective January 1, 2021 to permit for the service of most court materials by email (among other updates).
Most recently, as of January 8, 2021, the Rules of Civil Procedure were further updated to provide for the options of serving notice of probate applications by email, courier, or personal service. Amended sub-rules 74.04(7) and 74.05(5) now read as follows:
Notice under this rule shall be served on all persons, including charities, the Children’s Lawyer and the Public Guardian and Trustee, and, unless the court specifies another method of service, may be served by,
(a) personal service;
(b) e-mail, to the last e-mail address for service provided by the person or, if no such e-mail address has been provided, to the person’s last known e-mail address; or
(c) mail or courier, to the person’s last known address.
Previously, the Rules of Civil Procedure required the Notice of Application in respect of a probate application to be served by regular lettermail.
Forms 74.06 and 74.16 (Affidavits of Service in respect of probate applications) have also now been updated to refer to these new manners of service of the Notice of Application in respect of a probate application. The revised forms are available here.
This further development in the modernization of estates law procedures is welcome and can be expected to better enable lawyers to assist clients in serving and filing probate applications more efficiently while working remotely during the pandemic and beyond.
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Yesterday, I blogged on Public Guardian and Trustee v. Cherneyko et al, 2021 ONSC 107. Today’s blog will focus on some of the breaches of fiduciary duty that were found by the Court. For those who have not read yesterday’s blog, this is a case that involves Jean, a 90 year old woman, and Tina, the attorney for property, who was purportedly given a gift of $250,000.00 just days before Jean was hospitalized for acute delirium and progressive cognitive decline.
While the purported gift of $250,000.00 to Tina was found to be invalid, the Court went on to find that Tina was in breach of her fiduciary duty to Jean by accepting the money. Tina was in breach because she knew that Jean was exhibiting signs of cognitive decline when they went to the bank. In the Court’s view,
“a person acting in a fiduciary capacity for a person actively demonstrating moments of irrationality should be very cautious about any big financial moves that person claims they want to make in and around such periods of demonstrated incapacity. Even if Jean was clearly acting in a competent manner during the few hours she attended the CIBC with Tina on August 27, 2019, I agree with the submissions of the PGT it is no answer to an accusation of breach of duty to assert that an attorney was simply acting in accordance with the wishes of the grantor of the attorney. Tina should have proceeded with caution at that time. I find she did not exercise the appropriate degree of caution and good judgment given the circumstances about which she knew.” (para 42)
The Court also reiterated Justice Penny’s comments in Ontario (Public Guardian and Trustee) v. Harkins,  O.J. No. 3313, that a fiduciary’s first duty is to see to the best interest of the person regardless of what their stated wishes may be. The Court was very critical of how a $250,000.00 gift to Tina could possibly benefit Jean, and expressed disapproval on how there was no evidence of any effort on Tina’s part in considering whether this money would better serve Jean if it was applied towards Jean’s in-home care instead of admitting Jean to a long term care home.
Of relevance to the unique circumstances that surround the care of others during Covid-19, the Court commented that,
“since March 2020 more than at any time in the past, any genuinely concerned person charged with caring for an elderly person in long term care would have at least considered the issue of taking whatever steps could be taken to remove the person from this situation if it was in any way possible.” (para. 47)
Instead, Tina allowed her adult son to move into Jean’s home, and she was found to be actively misusing Jean’s assets for her own and her family’s benefit which were additional breaches of her duties as fiduciary. The Court also disapproved of how Tina did not take any steps to sell Jean’s house in order to maximize or preserve its value which, reading between the lines, seem to be a concern for the uncertainty in today’s markets.
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Broadly speaking, a trustee cannot personally profit from his or her role as a trustee. “Profit” can mean a variety of things. One way in which a trustee could potentially profit from a trust is through the purchase of trust property.
A trustee may not purchase trust assets unless there is an express power in the Will or trust instrument allowing a trustee to do so, or if the purchase is approved by the court. Even where a trustee has the express power to purchase trust assets, he or she must still act in accordance with his or her fiduciary obligations to the beneficiaries of the trust or estate. Additionally, a trustee who has been authorized to purchase trust assets would be well-advised to obtain consents and releases from the beneficiaries, or to consider seeking court approval in any event, given that such a situation is ripe for claims that the trustee breached his or her fiduciary duty.
The court should only approve the sale of trust property to a trustee where the sale is clearly to the advantage of the beneficiaries. Demonstrating that a sale is clearly advantageous to the beneficiaries can be difficult, as it is not enough to just show that the purchase price is fair. For instance, even if a trustee has offered a fair price, if there is another purchaser who is willing to purchase the asset for a greater price, the trustee’s purchase will not be to the advantage of the beneficiaries.
The problem with a trustee purchasing trust assets is that in doing so, he or she is practically putting him or herself in an irreconcilable conflict of interest: the trustee has a duty to maximize the value of the trust assets for the beneficiaries, but in his or her personal capacity, will want to minimize the price paid for an asset. A trustee seeking to purchase trust property will need to ensure that he or she has taken sufficient steps to satisfy the court that he or she has maximized the value of the asset.
In Re Ballard Estate, (1993) 20 O.R. (3d) 189, a trustee, S, obtained certain option rights to purchase trust property. The trustees obtained two valuations of the property in question, and S and the other trustees negotiated a purchase price for the property in question at the upper end of the range of values pursuant to the valuations. However, the property was not offered for sale on the open market, and the trustees did not take steps to identify other potential purchasers. The court found that the trustees could have done more to ensure the maximum value was obtained for the asset, stating that the trustees should have taken “all reasonable positive steps to ferret out the best price”. Trustees cannot avoid their obligation to maximize the value of the assets by taking a passive stance and hoping that other potential purchasers will find them.
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A testator appointed you as Estate Trustee of an Estate and a beneficiary filed a Notice of Objection to your appointment. What to do?
Typically, a Notice of Objection to an appointment of an Estate Trustee means that their authority is challenged such that before the administration of the Estate can be addressed, the Notice of Objection must be resolved, first and foremost.
Whereas in the case of a Notice of Objection, the party having filed it, is likely to commence a court proceeding to substantiate his or her claims, that is not always the case. As such, there are a couple of things that an Estate Trustee can do to force the Objector to move forward, in order to ultimately address the resolution of the objection.
- File a Notice to Objector
In accordance with Rule 75.03(4), an Estate Trustee can serve a Notice to Objector and file it with proof of service with the Court.
If the Objector does not serve and file a Notice of Appearance within 20 days of being served with a Notice to Objector, the Estate Trustee’s Application for a Certificate of Appointment is to proceed as if the Notice of Objection had not been filed.
If a Notice of Appearance is served on the Estate Trustee, they have 30 days to bring a motion for directions before the Court and if they do not do so, the Objector may seek directions, as well.
Essentially, the effect of a Notice to Objector is forcing the Objector to commence a claim or else abandon his or her objections.
- Commence an Application or Motion to propound the testator’s Will
Another option that exists for an Estate Trustee is simply skipping the steps that would follow the service of a Notice to Objector and seeking the directions of the Court, in accordance with Rules 14.05 and 75.06 of the Rules of Civil Procedure.
In this case, the Estate Trustee becomes the party commencing a court proceeding such that the costs associated with such a step ought to be considered, before proceeding. It is important to note, however, that proceeding with the first option will not necessarily save on legal costs to be incurred, if the Objector ultimately proceeds with a claim.
The option that is selected by an Estate Trustee will depend on the circumstances of each individual case such that it is important to consult with a lawyer as to which option is best.
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With so much taking place around us now, I forced myself to choose a topic for today’s blog that, although still estates related (this being, after all, an estates blog), allows me to think about something beautiful. I landed on art.
Full disclosure: I have blogged about art and estates before. See here and here for some shameless self-promotion. Without wanting to revisit these topics, I did some searching and was intrigued by this Financial Times article about the Art Loss Register (ALR).
The ALR is the world’s largest private database for lost and stolen art, antiques, and collectibles. Their services are essentially twofold. First, the ALR assists to deter the theft of art by promoting the registration of all items of valuable possession on its database and also the expansion of checking searches. Second, by operating a due diligence service to sellers of art, the ALR operates a recovery service to return works of art to their rightful owners. In addition, the ALR has expanded to negotiate compensation to the victims of art theft and the legitimising of current ownership.
In addition to art dealers, insurers, and museums, the ALR also assists private individuals including beneficiaries and trustees. A trustee who is intending to liquidate art may wish to rely on the ALR to prove title and authenticity, thereby potentially increasing value and mitigating risk of fraud.
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