Category: Passing of Accounts
In Baca v. Tiberi, the court awarded substantial costs as against an attorney for property/estate trustee for maladministration of her mother’s property while she was alive, and of her estate following her death.
The litigation was settled prior to a court determination. However, under the settlement, the parties submitted the question of costs to the court.
In Baca, the court found that there was serious misappropriation by the attorney and estate trustee. The attorney added her name to her mother’s bank accounts and took out money for her own expenses. She caused her mother to incur tens of thousands of dollars of debt for the benefit of the attorney, her husband and sister. She moved into her mother’s home with her family and did not pay rent. She transferred title to the home to herself and her mother jointly. After the mother’s death, she transferred the home to herself and her husband. She mortgaged the home to pay her own debts.
At the costs hearing, the court asked the parties whether the attorney’s lawyer might have personal liability for costs. The attorney waived solicitor-client privilege and the lawyer was subjected to examination and made submissions.
The court awarded costs against the attorney and the lawyer on a “full indemnity” basis, after a reduction of $50,000 for excessive time spent, in the amount of $301,941.41, plus HST and disbursements. (The estate had a total value of approximately $1m.) The attorney and the lawyer were jointly and severally liable for costs. As between themselves, the attorney was to be liable for 75% of the costs, and the lawyer was liable for 25%.
In its ruling, the court was critical of the lawyer’s conduct. The court found that the lawyer pursued a goal that was unattainable. Further, the lawyer misrepresented facts to the court. In pleadings, the lawyer (not the client, per the court) denied assertions that were, to her knowledge, true. Further, the pleadings contained assertions that were known to be false. The lawyer allowed a misleading affidavit to be sworn by her client. The lawyer also failed to ensure that certain funds were held in trust in accordance with a court order. At a later hearing, the lawyer advised the court that the funds were held in trust when they were not.
The court found the lawyer liable, partially, on the basis that she knew of her client’s misconduct yet advised or acted on instructions to take untenable legal positions. She also took legal steps that costed her client and the other side hundreds of thousands of dollars, yet the steps did nothing to avoid “the only inevitable conclusion possible”: that her client would have to make the estate whole. There was no evidence that the client was ever advised of the situation.
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Building on this idea of judicial discretion is the recent case of Dobis v Dobis recently heard and decided by the Ontario Superior Court of Justice, whereby the court ordered a passing of accounts by a party who was deemed to have misappropriated funds from an estate asset.
Elizabeth commenced an application in her role as the estate trustee of her late husband’s estate. She sought, among other things, certain orders that would allow her to gain and maintain possession and control over one of the estate assets, a four unit rental property. She also sought an order requiring her son, Mark, to pass his accounts in respect of funds she alleged were misappropriated from the rental property.
Mark resided in one of the units of the rental property with his spouse, and alleged that it was his father’s intention that he maintain a life interest in the property. During the lifetime of the deceased, Mark acted as a manager/superintendent of the rental property in exchange for reduced rent. He also collected rent from one of the tenants and deposited the funds into a bank account owned jointly by his parents. Following his father’s death, Mark began diverting rent from the rental property to himself rather than depositing it in the joint account.
Despite requests from Elizabeth, Mark failed to properly account for the rental income. The accounting that was provided to Elizabeth was not supported by vouchers, and contained no detail of the expenses incurred. Elizabeth submitted that Mark had no legal or beneficial interest in the property, that he was holding the property hostage while unlawfully benefiting personally from the funds generated by the property, and that he failed to account for those funds.
In arriving at its decision, the court relied on the 2016 Ontario Superior Court decision in Net Connect Installations Inc. v. Mobile Zone Inc., which held that a court has jurisdiction to order an accounting where a party is deemed to have misappropriated funds.
Ultimately, Mark was compelled to pass his accounts for all monies received by him in connection with his management of the property. All this to say, watch what you do, because you may be held accountable.
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The recent Ontario Court of Appeal decision in Dzelme v Dzelme acts as a helpful reminder that even if an attorney has standing to seek a passing of accounts, the Court may still refuse to grant the passing.
John was named as the attorney for personal care for his father, Ritvers, and sought an accounting of Ritver’s financial affairs from his brother Arnis (Ritvers’ other son) who was the attorney for property. Both John and Arnis agreed that John, given that he was an attorney for personal care, could apply under section 42(4)(1) of the Substitute Decisions Act for a passing of accounts without leave. Nonetheless, the Court of Appeal identified that even if a person has standing to apply for an accounting, it remains the discretion of the Court to order a passing of accounts.
In deciding whether to order the passing, the superior court judge made the following findings of fact: (i) both the father and mother were capable when they executed written instructions to Arnis not to produce any financial information about his affairs to John; (ii) the mother maintained this position in response to John’s motion; (iii) a capacity assessment found that the mother was capable of making her own decisions; (iv) a third brother corroborated Arnis’ evidence that he was abiding by his parent’s wishes; (v) the application judge did not doubt that Arnis was following his mother’s wishes; and, (vi) there was no reason to suspect that Arnis was acting improperly with respect to certain transactions.
On this basis, the Court of Appeal upheld the application judge’s dismissal of John’s request for an order that Arnis pass his accounts of Ritver’s property.
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In Daniel Estate (Re), 2019 ONSC 2790 (CanLII), the applicants applied to have their estate trustee and attorneyship accounts passed. As stated by the judge hearing the application, “Unlike many applications to pass accounts, this is a “good news” story.”
The applicants were the friends and former neighbours of a high net worth, elderly couple, Isabel and Wayne. For over 20 years, the applicants provided extensive personal assistance to the elderly couple. “In many ways, [the applicants] acted like loyal and dutiful family members.” In addition to completing simple neighbourly tasks, the applicants helped the couple in many other ways. They eventually became the attorneys for property and personal care for the couple. When Wayne died, the applicants took on the role of acting as his Estate Trustee.
The application to pass accounts was supported by an affidavit from Isabel, who indicated that she was content with the claim for compensation being made by the applicants. The application materials also included an accounting analysis prepared by a Chartered Accountant, who reviewed the accounts in detail, and also an analysis by a Certified Case Manager and Certified Canadian Life Care Planner, who assessed the value of the personal services provided by the applicants.
In the end, the court awarded the applicants compensation for administering Wayne’s estate of $129,775; compensation for acting as attorneys for property of $435,772.36 and compensation for acting as attorneys for personal care, for a total of $757,659.
With respect to costs, the court awarded the applicants their costs of $125,021 for the unopposed passing of accounts. According the judge, “While this amount seems at first blush high, I note the accounting report alone was worth $45,000. In my view of the detailed, thorough and helpful material filed and in view of the hours it took to assemble, digest and present the financial information provided, I find that the fees and disbursements claimed are reasonable.”
The court appears to have been impressed by the extent and quality of the assistance provided by the applicants to Isabel and Wayne. Further, the court appears to have been impressed with the detailed and extensive materials put before the court in order to justify the claims on the passing.
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When is it appropriate for a court to reduce estate trustee compensation? The Supreme Court of Nova Scotia addressed this issue in Atlantic Jewish Foundation v Leventhal Estate (“AJF”).
Before getting into the AJF decision, it is worthwhile to include the caveat that determination of estate trustee compensation in Ontario (a summary of which can be found in my paper here) differs somewhat as compared to Nova Scotia. Nonetheless, both provinces use 5% of the value of the estate, subject to the discretion of the court, as the starting point in determining the quantum of compensation. As such, AJF remains informative in Ontario.
The deceased left a Will naming his friend, who was also a lawyer, as his Estate Trustee. AJF was named as the residuary beneficiary. The Will was silent as to estate trustee compensation. As the estate was valued at over $15 million, the Estate Trustee sought compensation in the approximate amount of $896,000, being 5% of the gross adjusted value of the estate. AJF maintained that the amount was excessive and proposed compensation in the amount of $300,000.
In determining how much compensation the Estate Trustee should be entitled to, and applying an approach similar to Ontario’s ‘five factors’, the court made the following observations: the level of responsibility is often greater for higher value estates; the increasing level of responsibility does not necessarily rise in direct proportion to the size of the estate; the Estate Trustee arranged and supervised the funeral and burial, which was mainly handled by telephone; the Estate Trustee acted promptly in selling the house; many of the assets were already in the form of cash, and the Estate Trustee knew the banks the deceased used; the Estate Trustee was diligent, wise and prudent and had to be a hands-on executor; the Estate Trustee made no mistakes; a large part of the estate was made up of investments that were readily converted into cash for distribution; and, the estate was larger rather than complex.
The court noted that 5% should be reserved for estates where there are complicating features that require more than wise and careful planning to maximize the value of the estate. Therefore, the court awarded compensation in the amount of $450,000, being slightly more than 50% of the maximum amount that could be awarded. A larger amount of compensation would have the effect of reading into the Will a bequest to the Estate Trustee that the deceased did not intend to make.
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Applications to pass accounts are unique as civil proceedings go. The nature of the inquiries being made by the Court, the relief that a judge is empowered to grant, and the procedural considerations that apply are all features that distinguish applications to pass accounts from other civil applications. Procedural considerations in particular have garnered some notoriety recently as a result of several notable decisions released in the past few years. The recent decision of the Court of Appeal for Ontario (then sitting as the Divisional Court) in Wall v Shaw, 2018 ONCA 929, provides some clarity to a few of the loose ends.
In Wall, the Deceased died leaving a Will naming the appellant as estate trustee and which created two testamentary trusts for the benefit of her two children. The Deceased’s nieces and nephews were also named as contingent beneficiaries in the event that both children died before vesting in the trust property.
The estate trustee acted for more than 10 years, but never formally passed his accounts. Instead, the estate trustee held frequent informal meetings with the Deceased’s children to review the administration of the estate and to discuss the estate trustee’s compensation.
A dispute between the Deceased’s daughter and the estate trustee relating to the latter’s compensation eventually led the daughter to bring an application seeking an order compelling the estate trustee to pass his accounts.
The estate trustee subsequently commenced an application to pass accounts in March 2015. In June 2015, the Deceased’s daughter filed a notice of objection to the accounts, followed in January 2016 by a notice of objection delivered by two of the Deceased’s nieces.
In response, the estate trustee brought a motion seeking to strike out the objections of the daughter on several grounds. Notably, the estate trustee took the position that the daughter’s approval of the accounts at the informal meetings constituted acquiescence of the estate trustee’s conduct. In the alternative, the estate trustee argued that the daughter’s objections were now statute-barred pursuant to sections 4 and 5 of Ontario’s Limitations Act or barred by the doctrine of laches.
The estate trustee was unsuccessful at first instance on all three grounds, but only chose to appeal the first ground. Specifically, the estate trustee argued on appeal that the judge at first instance had erred in refusing to apply the two-year limitation period under section 4 of the Limitations Act. The appeal was dismissed, and the reasons on appeal provide some procedural clarity in respect of the interplay between limitation periods and passings of accounts.
Section 4 of the Limitations Act generally provides that a “proceeding” cannot be commenced in respect of a “claim” if more than two years have elapsed since the date the claim was discovered. The Court of Appeal took issue with each of the quoted terms.
Notably, the held that a notice of objection does not commence a “proceeding” for the purposes of section 4 of the Limitations Act. Rather, a notice of objection ought to be viewed as a response to a proceeding that has already been commenced, being the application to pass accounts. The Court also pointed to its prior ruling in Armitage v The Salvation Army, in which it was held that an application to pass accounts was not a “claim” pursuant to section 4 of the Limitations Act. Accordingly, it followed that a responding objection raised in that application could also not constitute a claim.
Finally, the Court highlighted an important distinction between applications to pass accounts and other civil applications. Unlike a traditional civil claim, the Court in an application to pass accounts is not tasked with awarding judgment in favour of one party or the other. The purpose of an application to pass accounts to is initiate a “judicial inquiry” into the management of an estate and, if appropriate, provide redress to the estate, rather than to the beneficiaries personally.
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Canada is currently in the midst of a postal strike. Although the strike is currently “rotating” in nature, with different communities being subject to the strike on different days, it is possible that the strike could become country wide should negotiations remain unsuccessful. Although concern may immediately turn to the potential impact of a full strike upon online holiday shopping, a full national strike could also have an impact upon the legal world in relation to the service of documents.
Canada Post remains a vital service to the legal community, amongst other things remaining one of the official means of service upon a lawyer of record pursuant to rule 16.05 of the Rules of Civil Procedure. Although there are alternate service mechanisms available to serve documents upon a lawyer of record should the strike become national, such as potentially using a courier, there are certain documents which the Rules of Civil Procedure provide may only be served by mail.
Rule 74.18(3) of the Rules of Civil Procedure contemplates that an Application to Pass Accounts is to be served by regular lettermail, providing:
“The applicant shall serve the notice of application and a copy of a draft of the judgment sought on each person who has a contingent or vested interest in the estate by regular lettermail.” [emphasis added]
Although such a rule typically assists the Applicant in serving the Application to Pass Accounts in a streamlined and cost effective manner, as otherwise personal service of the Application to Pass Accounts would be required pursuant to rule 16.01 as an “originating process”, the rule does not contemplate what is to occur in the circumstance that service by regular lettermail is not possible (i.e. in a full work stoppage). In such circumstances, how can the Applicant ensure that the Application to Pass Accounts is properly served as required by the Rules of Civil Procedure?
From a common sense standpoint there are likely alternatives readily available to serve the Application materials other than by regular lettermail, including potentially by courier or by personal service. From a strict reading of rule 74.18(3) however, service of the Application to Pass Accounts by any means other than “regular lettermail” is not proper service, such that it is possible that a beneficiary may argue that they have not been properly served should you serve them by any other means. Should this occur, it is possible that an Order validating service and/or substituting service for alternative means under rule 16.04 may be required.
Thankfully at present the strike is only “rotating” in nature, such that we can continue to mail out documents such as Applications to Pass Accounts to be served in accordance with the Rules of Civil Procedure (subject to any potential daily interruptions should your community be striking on a particular day). Should circumstances change however, and there is a full work stoppage, it is possible Orders may have to be sought validating and/or substituting service for service in a manner other than by regular lettermail for those items such as Applications to Pass Accounts which the Rules provide may only be served by mail.
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In the Estate of Divina Damm the Court answers the following question – what form of accounts must a guardian of property use when filing an application to pass accounts?
The facts in Re Damm Estate are not remarkable. A guardian of property commenced an application to pass accounts in accordance with Rule 74.18 of the Rules of Civil Procedure seeking court approval of her accounts. No objections arose with respect to the accounts, such that the guardian proceeded to file the application ‘over the counter’ as an unopposed application to pass accounts.
Notwithstanding that there were no objections, the Court refused to approve the accounts. The Court was concerned with the lack of detail and itemization in the entries, as well as the failure to comply with Rule 74.17. The judge tried to “…link all numbers listed in the draft judgment with information presented in the accounts but [was] unable to do so – because the accounts are not in proper form”.
Interestingly, the judge considered whether smaller estates should be permitted to file accounts in a simple format, but noted that it was for the Legislature and the Rules Committee to consider.
Accordingly, the Court directed the guardian to re-serve and re-file the accounts prepared in compliance with Rule 74.17.
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A recent decision from the Royal Court of Jersey was recently discussed here with respect to a beneficiary’s right to disclosure from a trust. This blog by lawyers from Ogier is an insightful read on this particular area of trust law.
According to the authors at Ogier, M v W Limited and Others was a case that considered a beneficiary’s broad request for documents, such as copies of all trust instruments, latest accounts, financial statements for the corporations owned by the trust, and details about all past distributions from the trust. While Court’s decision was grounded in an interpretation of the relevant Jersey legislation, some of its commentary remains instructive for those of us who practice outside of Jersey.
In M v W Limited and Others, the nature and immediacy of the beneficiary’s interest is salient to the inquiry. For example, a contingent beneficiary may not be entitled to as much disclosure as a beneficiary who is entitled to the assets of the trust at that point in time. By extension, it is also relevant to consider whether the disclosure at issue would negatively affect another class of beneficiaries as well as the proportionality of the request.
As for the law in Canada, I have blogged on a recent Supreme Court of Canada decision about a trustee’s duty to disclose the existence of a trust to the beneficiaries. Justice Brown for the majority in Valard Construction Ltd. v. Bird Construction Co., 2018 SCC 8, has stated the following at paragraph 19,
“In general, wherever “it could be said to be to the unreasonable disadvantage of the beneficiary not to be informed” of the trust’s existence,  the trustee’s fiduciary duty includes an obligation to disclose the existence of the trust.”
This notion of whether a beneficiary would be unreasonably disadvantaged by the non-disclosure is important to keep in mind because the right to disclosure is grounded in a beneficiary right to hold trustees accountable and to enforce the terms of the trust.
Practically speaking, issues of disclosure often leads to a request for the trustee to commence an application to pass accounts. While the trustee will have the benefit of a court order approving his/her administration for that period (if and when Judgment is obtained), an application to pass accounts must be served on all beneficiaries with a contingent or vested interest pursuant to Rule 74.18 of the Ontario Rules of Civil Procedure. In turn, these beneficiaries will have the right to object to the trustee’s accounts and seek relevant disclosure from the trustee in the course of this process.
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The Estate of Irmgard Burgstaler (disability), 2018 ONSC 472, was a costs decision that arose from an application to pass attorney accounts. Erwin was named as the attorney for property for his mother, Irmgard. Erwin was ordered to pass his accounts and his siblings, Barbara and Peter, objected.
A four-day hearing took place. Erwin was self-represented and his accounts were not in court format pursuant to Rule 74.17 of the Rules of Civil Procedure. Extensive written submissions were also filed by both sides.
Erwin was found to have breached his fiduciary duty to Irmgard when $82,000.00 was taken from Irmgard and applied towards the purchase of a home in Erwin’s name. Erwin also took approximately $44,000.00 from his mother’s accounts to pay his legal fees in the proceeding at issue and the Court found that this expense was not for Irmgard’s benefit. Certain other expenses were ordered to be repay to Irmgard as well as the repayment of $5,000.00 from the sale of Irmgard’s trailer.
Given their success, the Objectors sought full indemnity on a blended basis from Erwin (15%) and the Estate (85%). In reviewing the jurisprudence on costs in estate matters, Justice Shaw found that this case fell within the public policy exemption for due administration of estates and allowed the Objectors’ claim for full indemnity.
That said, Justice Shaw disagreed with the Objectors’ proposed 15/85 split on the basis of the “losers pay” principle in general civil costs. Justice Shaw ordered Erwin to pay the Objectors’ costs on a partial indemnity scale while the Estate was ordered pay the full remaining balance. In this case, partial indemnity appears to be close to 70% of the total claimed based on the fixed amounts that were ordered.
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