Tag: Application to Pass Accounts
You would be forgiven for thinking that the entire process for an Application to Pass Accounts is set out in rule 74.18 of the Rules of Civil Procedure as the rule appears to provide a comprehensive step by step guide to how an Application to Pass Accounts is to proceed before the court. Although rule 74.18 likely contains the most cited to and fundamental steps and principles for how an Application to Pass Accounts is to proceed, you would be wise to remember and consider the applicable provisions of section 49 of the Estates Act as they may offer additional insights and tools for a passing of accounts beyond those found in the Rules of Civil Procedure.
Yesterday I blogged in part about section 49(4) of the Estates Act, and the general availability to convert more complex objections that are raised in the Notice of Objection into a separate triable issue thereby potentially opening up more typical litigation processes such as discovery and the calling of witnesses at the eventual hearing of the matter. Although the ability to direct certain complex objections to a separate trial is an important tool under section 49(4) of the Estates Act, it is not the only potential tool or thing to consider under section 49 of the Estates Act when involved in an Application to Pass Accounts.
These additional tools and considerations for an Application to Pass Accounts as found in section 49 of the Estates Act include section 49(3), which provides the court with the ability to consider any “misconduct, neglect, or default” on the part of the executor or trustee in administering the estate or trust within the Application to Pass Accounts itself, and may make any damages award against the executor or trustee for such misconduct within the Application to Pass Accounts itself without a separate proceeding being required. As a result, if, for example, a beneficiary should raise an allegation of negligence in the Notice of Objection against the executor for something such as a complaint that certain real property that was owned by the estate was sold undervalue, the court under section 49(3) of the Estates Act has the power to consider such an allegation and, if ultimately proven true, may order damages against the executor for any loss to the estate within the Application to Pass Accounts process itself. Without section 49(3) the beneficiary may otherwise have been required to commence a new and separate Action against the executor to advance these claims and/or be awarded damages.
Section 49 also contains answers to numerous procedural questions which may come up in an Application to Pass Accounts which otherwise are not mentioned in the Rules of Civil Procedure, including section 49(9) which provides what the executor is to do when an individual has died intestate and you are unable to locate any next of kin to serve, and section 49(10) which provides the court with the ability to appoint an expert to review and opine on the accounts on behalf of the court when the accounts are particularly complex.
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The Application to Pass Accounts serves an important function in the administration of estates and trusts, providing the beneficiaries with the ability to audit the administration of the estate or trust and raise any concerns through their Notice of Objection.
The procedure that is followed for the Application to Pass Accounts is somewhat distinct from any other court process, with the process being governed by rule 74.18 of the Rules of Civil Procedure. These procedural steps include the filing of the “Notice of Objection” and the “Reply” to the Notice of Objection, processes and documents which are distinct to the Application to Pass Accounts. Although the Application to Pass Accounts process differs in certain ways from a more traditional Application, at its core the Application to Pass Accounts is still an “Application” and not an “Action”, with the process designed to be more summary in process as compared to the typical Action.
I have previously blogged about the procedural differences between an “Application” and an “Action”, and how things like Discovery and Affidavits of Documents, as well as calling witnesses to give oral evidence, are generally not available in an Application. The same generally holds true for an Application to Pass Accounts, with there generally being no Discovery process or witnesses called at the eventual hearing for the passing of accounts, with the summary process designed to be adjudicated on the paper record of the documents contemplated under rule 74.18.
Although the simplified and summary process intended for the Application to Pass Accounts may present many benefits to the parties, including allowing the beneficiaries to pose questions and objections to the trustee without having to resort to potentially prolonged and expensive litigation as provided in a typical Action, it could present some challenges if the claims that are being advanced are complex or seek significant damages as the process may not allow for the full record to be adequately explored.
If the claims or issues which are being advanced in an Application to Pass Accounts are complex, such as for example claims that the trustee was negligent or committed a breach of trust, the summary process designed for the typical Application to Pass Accounts may not provide the depth of procedural process that the claims may deserve. Under such circumstances the parties may seek to direct and/or convert the complex objections into a separate triable issue, thereby potentially opening up the procedural processes more typically reserved for an “Action” such as Discovery or the calling of witnesses to the issue.
The process by which certain objections are directed and/or converted into a separate “triable issue” is governed by section 49(4) of the Estates Act, which provides:
“The judge may order the trial of an issue of any complaint or claim under subsection (3), and in such case the judge shall make all necessary directions as to pleadings, production of documents, discovery and otherwise in connection with the issue.”
Under section 49(4) of the Estates Act the court may direct any objection which fits under section 48(3) of the Estates Act, which includes allegations of breach of trust, to be separately tried before the court, with section 49(4) noting that the judge shall make necessary directions regarding pleadings, Discovery, and the production of documents for the objection.
If an individual wishes to direct an objection to be tried under section 49(4) of the Estates Act such an intention should be raised at the early stages of the Application to Pass Accounts, with an Order being sought which would specifically direct the objection(s) in question to be tried by way of Action. To the extent that such an Order cannot be obtained on consent a Motion may be brought regarding the issue, with the court also being asked to provide direction regarding the procedures to be followed for the triable issue.
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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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When concerns are raised about the conduct of an Attorney for Property, those raising the concerns often seek an Order compelling the Attorney for Property to commence an Application to Pass Accounts pursuant to section 42 of the Substitute Decisions Act. Should such an Application to Pass Accounts be commenced, the objecting party will often make allegations against the Attorney for Property that the incapable person and/or estate has suffered damages as a result of the Attorney for Property’s conduct, often seeking monetary damages against the Attorney for Property in relation to such objections.
An interesting question was recently posed to me in the context of such an Application to Pass Accounts for an Attorney for Property. Can the objecting party pursue damages against the Attorney for Property within the actual Application to Pass Accounts itself, or do they need to commence a separate claim against the Attorney for Property for the recovery of such damages?
The ability to pursue damages against an Estate Trustee within the Application to Pass Accounts process is well established by statute, with section 49(3) of the Estates Act providing:
“The judge, on passing any accounts under this section, has power to inquire into any complaint or claim by any person interested in the taking of the accounts of misconduct, neglect, or default on the part of the executor, administrator or trustee occasioning financial loss to the estate or trust fund, and the judge, on proof of such claim, may order the executor, administrator or trustee, to pay such sum by way of damages or otherwise as the judge considers proper and just to the estate or trust fund, but any order made under this subsection is subject to appeal.” [emphasis added]
Section 49(3) of the Estates Act makes it clear that a separate claim against an Estate Trustee is not necessary to pursue damages for breach of trust when an Application to Pass Accounts has been commenced, and that the Judge may order damages against the Estate Trustee within the actual Application to Pass Accounts itself. Perhaps importantly however, the Estates Act appears to suggest that section 49 only applies to a passing of accounts for an “executor, administrator or trustee under a will“, making no reference to an Attorney for Property. Sections 42(7) and 42(8) of the Substitute Decisions Act also set out the “powers of the court” in an Application to Pass Accounts for an Attorney for Property, with such provisions notably containing no reference to the ability to order damages against the Attorney for Property for any wrongdoing.
As there appears to be no statutory equivalent to section 49(3) of the Estates Act which specifically contemplates that it applies to Attorneys for Property, and the ability to pursue damages within the Application to Pass Accounts itself in other circumstances appears to be derived from statute, the question of whether there is a “legislative gap” as it relates to the ability to pursue damages against an Attorney for Property within an Application to Pass Accounts can at least appear to be raised. If such a “legislative gap” does exist, would this mean that a separate claim would have to be commenced by the objector to pursue such damages even when an Application to Pass Accounts was currently before the court?
When I have raised the question to other estate practitioners, some have suggested that while there may be no statutory authority to order such damages against the Attorney for Property within the Application to Pass Accounts, the court may have inherent jurisdiction to order such damages by way of a “surcharge order” in the Application to Pass Accounts. Some have also suggested that as section 42(6) of the Substitute Decisions Act contemplates that the procedure to be utilized on passing an Attorney’s accounts is to be the same as that as an executor’s accounts, that this should be read as evidence to show that section 49(3) of the Estates Act would apply to the passing of an Attorney for Property’s accounts. In response to this, I would suggest that it is at least questionable if section 49(3) of the Estates Act is “procedural” in nature, and, even if it is found to be procedural, whether the “powers of the court” provisions of sections 42(7) and 42(8) of the Substitute Decisions Act, which notably does not include the power to award damages against the Attorney for Property for wrongdoing, would trump section 49(3) of the Estates Act in any event.
I am aware of no decision which specifically addresses the issue of whether there is a “legislative gap” when it comes to whether damages can be sought against an Attorney for Property within the Application to Pass Accounts itself. While the issue may simply be academic at this time, it is not unforeseeable that someone could attempt to argue that an objector cannot seek damages against the Attorney for Property within the Application to Pass Accounts itself, and that a separate claim is required. If such an argument is successfully raised, and the length of time between the alleged wrong and the separate claim being commenced was such that the limitation period may have expired, it is not unforeseeable that the Attorney for Property may attempt to argue that the separate claim must now be dismissed as a result of the expiry of the limitation period.
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You are the Estate Trustee of an estate in which the testator left a substantial portion of the residue to certain specifically named charities. The charities who are named as beneficiaries are well established large charitable organizations whom you have corresponded with directly. Such charities have retained counsel to represent them concerning their interests in the estate, and such counsel have in turn requested that you commence an Application to Pass Accounts regarding your administration of the estate.
In preparing the Application to Pass Accounts you turn your mind to who you should serve with the Application. Rule 74.18(3) of the Rules of Civil Procedure provides that an Application to Pass Accounts shall be served on “each person who has a contingent or vested interest in the estate“.
Although you are aware of the general supervisory role that the Office of the Public Guardian and Trustee (the “PGT”) has over charities in the Province of Ontario, as the charities in this instance are well established and represented by counsel, you question whether you need to serve the PGT in addition to the charities with the Application to Pass Accounts. It is, after all, the charities themselves who have a “contingent or vested interest in the estate“, and as the PGT and the charities would be representing the same financial interest you question whether it is necessary.
The requirement to serve the PGT with any Application to Pass Accounts where a charitable bequest is involved is established by section 49(8) of the Estates Act, which provides:
“Where by the terms of a will or other instrument in writing under which such an executor, administrator or trustee acts, real or personal property or any right or interest therein, or proceeds therefrom have heretofore been given, or are hereafter to be vested in any person, executor, administrator or trustee for any religious, educational, charitable or other purpose, or are to be applied by them to or for any such purpose, notice of taking the accounts shall be served upon the Public Guardian and Trustee.” [emphasis added]
The requirement to serve the PGT with any Application to Pass Accounts when a charitable bequest is involved as established by section 49(8) of the Estates Act exists in addition to the general requirement to serve all individuals with a “contingent or vested interest” as established by rule 74.18(3). To this respect, when a Will leaves a bequest to a specifically named charity, the Application to Pass Accounts must be served upon the specifically named charity as well as the PGT. Although from a practical standpoint the PGT’s active participation in an Application to Pass Accounts where a charity is representing itself is unlikely, with the PGT deferring to the charity to protect their own interest, the service requirements remain nonetheless, and both entities could in theory participate in the Application to Pass Accounts, and both could in theory file separate Notices of Objection to Accounts.
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Although beneficiaries have a right to compel an accounting from an Estate Trustee, it is not always advisable to do so. The decision of Pochopsky Estate provides an example of such a situation.
Here, practically all of the deceased’s assets passed outside of the estate. Although, there was some concern as to whether a joint account held between the deceased and his sister was an estate asset, subsequent evidence was given to the Estate Trustee, including an affidavit from the bank, indicating that the account was not an estate asset. Accordingly, the Estate Trustee, a friend of the deceased, concluded that there was no money that passed through the estate.
The residuary beneficiaries nevertheless requested that the Estate Trustee proceed against the sister for the joint account and obtain a Certificate of Appointment. In addition, a formal passing of accounts was sought.
The Estate Trustee thought none of these steps were appropriate given the size of the Estate, and indicated that if forced to formally pass his accounts, he would seek his costs from the residuary beneficiaries.
The residuary beneficiaries obtained an ex-parte Order for the Estate Trustee to pass his accounts. Although not mentioned in the decision, for an interesting read on the appropriateness of ex-parte motions, Justice Brown’s decision in Ignagni Estate (Re), is a good one.
On the passing, the Court found that the objections raised by the residuary beneficiaries were ‘ill-founded’, and that they fell into a pattern of aggressively criticizing the Estate Trustee no matter what he did. Given the size of the estate, the Court ordered that the residuary beneficiaries personally pay the costs of the Estate Trustee in the amount of $17,445.60, and that no costs would be payable to these beneficiaries.
Please consider these other interesting Passing of Accounts related blogs:
Today on Hull on Estates, David M. Smith and Stuart Clark discuss limitation periods and Applications to Pass Accounts, and whether there could be a scenario whereby certain objections raised within an Application to Pass Accounts could be statute barred as a result of the expiry of any limitation period.
Should you have any questions, please email us at email@example.com or leave a comment on our blog.
The Application to Pass Accounts often serves an important function in the administration of an estate, allowing for an open and honest accounting to the beneficiaries of what has transpired, and providing a mechanism by which the Estate Trustee may be paid compensation. In the event that any of the beneficiaries should have any issue with the accounts, or generally with the administration of the estate, they may file a Notice of Objection to Accounts in accordance with rule 74.18(7) of the Rules of Civil Procedure, and the matter may proceed before the court on a contested basis, ultimately allowing the court to determine the validity of the objections should the parties be unable to resolve them personally.
In the past, parties could often find themselves at a stalemate following the service of a Notice of Objection to Accounts, as the Rules of Civil Procedure did not require the Applicant to provide the Objector with any formal response to the objections which had been raised. In order to get around such a potential issue, counsel would often attempt to create a system outside of the Rules, whereby the Applicant would provide the Objector with a reply to the objections which had been raised, with such a reply typically taking the form of a letter to the Objector’s counsel addressing each objection numerically in the order in which they were raised. Such a letter informally came to be known as a “Reply to Notice of Objection to Accounts”, and the timeframe for it being provided to the Objector was often set out in any Order Giving Directions dictating how the Application to Pass Accounts was to proceed.
Although the informal “Reply to Notice of Objection to Accounts” served an important function, it continued to have limitations, for as it was not a formal court document which was to be before the court its impact could be limited. Such a limitation no longer appears to be a concern however, for with the recent changes to the Rules of Civil Procedure which took effect on January 1, 2016, the “Reply to Notice of Objection to Accounts” has become formalized within the Rules of Civil Procedure in the form of the new Form 74.49.4.
Rule 74.18(11.5) of the revised Rules of Civil Procedure provides that at least 10 days prior to the hearing date of the Application to Pass Accounts, the Applicant shall serve upon all people listed under rule 74.18(11.6) a consolidation of all remaining objections in the Notice of Objection to Accounts, as well as a Reply to Notice of Objection to Accounts in the form of Form 74.49.4.
Although rule 74.18(11.5) provides little guidance with respect to what is to be contained in the “Reply to Notice of Objection to Accounts”, and the revised Rules have yet to be fully explored before the court, from a review of the draft Form 74.49.4 which has been provided with the Rules, it appears that such a reply will not be too dissimilar from what was previously informally provided. While the Reply to Notice of Objection to Accounts will no longer take the form of a letter to counsel as it did previously, the content of the Reply to Notice of Objection to Accounts appears to remain substantially unchanged, insofar as it will continue to have the Applicant answer each objection numerically in the order in which they were provided for in the Notice of Objection to Accounts.