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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A recent decision of the Superior Court of Justice, Cormpilas v Ioannidis, reaffirmed the importance of clarity of language in asserting legal or equitable claims particularly when such claims are asserted outside of formal litigation proceedings.
The decision concerned the remedies available to co-owners of a property arising as a result of the laissez-faire conduct of the other co-owner. The property in question had been owned by two separated spouses as tenants in common, each of whom devised their respective interests in the property to different parties. The wife, who died in 2012, left her interest in the property to the Applicants, being four of her grandchildren. The husband, who died in November 2017, left his interest to one of his sons, being the Respondent. The Respondent was the uncle of each of the Applicants.
The Respondent had moved into the property with his spouse and family to care for his father several years prior to his father’s passing, although he continued to reside there, rent-free, for a number of years thereafter. The Applicants had made overtures shortly after their grandfather’s passing about wishing to sell the property and threatening to move for partition and sale, but the Respondent remained. The Applicants commenced an application in February 2019 in which they asserted a claim of unjust enrichment against the Respondent arising from his continued sole occupation of the property despite the Applicants’ interest in it. The Applicants sought orders for retroactive payment of occupation rent, or damages in the alternative.
The Court agreed that the Respondent had been unjustly enriched to the detriment of the Applicants and held that an award for payment of occupation rent was an appropriate remedy. However, the Court’s opinion of the period for which such rent would be payable differed from that of the Applicants, primarily owing to the Applicants’ failure to clearly particularize their claim.
The Applicants asserted that they were entitled to payment of occupation rent from November 2017 until the date the Respondent vacated the property, which eventually came in April 2020. The Applicants’ position was based in part on the fact that they had purportedly conveyed to the Respondent, shortly after their grandfather died, that the property should be vacated and sold, or otherwise that the Respondent should buy out the Applicants’ interest. The Respondent did neither. As such, the Applicants claimed they were entitled to occupation rent from date of death onward.
The Court disagreed with the Applicants’ position and awarded occupation rent payable only from the date the Application was issued to the date the property was vacated. The Court declined to go further on the basis that the Applicants had not clearly conveyed their intention to assert a claim for occupation rent against the Respondent as a result of his possession of the property. Although the Applicants referred to a demand letter in which they specifically characterized the Respondent as a tenant, that letter also authorized the Respondent to continue residing there without making reference to an intention to seek payment of occupation rent. In the absence of specific evidence to the contrary, the Court held the notice of application to be the earliest claim by Applicants for payment of occupation rent. The Court was clear that it was not prepared to infer that the Applicants had asserted claim for payment of occupation rent.
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When a claim is being brought by or against an estate or a trust, who are the proper parties?
Rule 9.01 of the Rules of Civil Procedure provides that a proceeding may be brought by or against an executor, administrator or trustee as representing an estate or trust and its beneficiaries without joining the beneficiaries as parties.
There are exceptions to this Rule. Beneficiaries must be included as parties where the claim is:
- to establish or contest the validity of a will
- for the interpretation of a will;
- the removal or replacement of an executor, administrator or trustee;
- against an executor, administrator or trustee for fraud or misconduct; or
- for the administration of an estate or the execution of a trust by the court (ie, under Rule 65).
Where beneficiaries must be named as parties, the failure to do so may be “fatal” to the proceeding. In Blum v. The Queen, 1998 CanLii 425 (TCC), the applicant challenged the validity of a trust. The beneficiaries were not named. Applying similar rules under Alberta’s Queen’s Bench Rules, the court stated “The failure to do so [to name the beneficiaries] is fatal to the wife’s attach on the trust.” It should be noted that under the Alberta rules, beneficiaries to a trust must be named as parties to a proceeding to establish or contest the validity of “a will or trust”. Ontario Rules do not require that the beneficiaries of a trust be named as parties (as opposed to beneficiaries under a Will). However, applying the logic in Blum, it may be advisable to do so. In Blum, the court stated that it would be reluctant to rule on the validity of a trust without the beneficiaries being represented in the proceeding.
Thus, the executor, administrator or trustee is a necessary party to a proceeding by or against an estate or trust. Under Rule 9.01(3), if any executor, administrator or trustee does not consent to be joined as a plaintiff or applicant, they are to be made a defendant or respondent.
The beneficiaries, however, except in the limited exceptions noted, are not necessary parties. However, while certain proceedings may be brought without naming the beneficiaries as parties, there is nothing that prevents them from being named. In Milner Investors Inc. v. Eisen, 2019 ONSC 5911 (CanLII), the court held that while they do not need to be named as parties, “There is nothing that precludes the pleading from naming the beneficiaries as plaintiffs.”
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A recent master motions in the Estate of Robert William Drury Sr., 2019 ONSC 6071, considered the issue of an extension of time to serve a statement of claim.
Robert Sr. owned a property where the defendant Shirley lived with her spouse Hugh Drury. When Hugh Drury died, Robert Sr. sought vacant possession of his home. Robert Sr. died on September 8, 2016. Days later there was a fire on the property on September 24th and Shirley was criminally charged with arson.
Almost two years later, the estate trustee for Robert Sr.’s Estate issued a statement of claim for malicious and intentional arson damage, or gross negligence causing loss of enjoyment of life, or damages for loss of property. That claim was issued on September 19, 2018 while Shirley’s criminal proceedings were underway. Pursuant to Rule 14.08(1), Robert Jr. had 6 months to serve the civil claim on Shirley which expired on March 19, 2019. Shirley was not served until June 14, 2019 when Robert Jr. brought a motion for an extension of time.
In applying the test that was set out by the Court of Appeal in Chiarelli v Wiens, 2000 CanLii 3904, the extension of time was ultimately allowed by Master Sugunasiri.
The delay was only three months and the prejudice to Shirley was minor. Robert Jr. explained that he acted on the advice of counsel when the decision was made to serve Shirley after the conclusion of the criminal proceeding. This decision was not personal or contemptuous. As for Shirley, while memories fade over time, the criminal proceeding was found to be an ameliorating factor that preserved her evidence for the civil proceeding.
In reaching this decision, Master Sugunasiri also considered an instance where an extension of time was denied because the delay was caused by the Plaintiff’s decision not to serve the claim until he had enough money to fund the proceeding. In that case, the Court found that the Plaintiff ought to bear the consequences of the risk that he took under the Rules.
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Yesterday I blogged about the Notice of Contestation of Claim, which is a process that in essence provides the Estate Trustee with the ability to require individuals with a potential claim against the estate to commence such a claim within 30 days of being served with the Notice of Contestation of Claim failing which they are deemed to have abandoned the claim such that they can no longer pursue it before the court.
The power given to an Estate Trustee by the Notice of Contestation of Claim coupled with the relatively short timeframe by which the claimant must respond could appear attractive to an Estate Trustee, potentially enticing the Estate Trustee to use such a process to flush out all potential claims at the early stages of the administration of the estate. This is turn raises questions about the kinds of claims that the Notice of Contestation of Claim can be used for, and whether it can be used for all potential claims against an estate or whether the claims against which it can be used are more limited. Could you, for example, serve a possible dependant with a Notice of Contestation of Claim, and in doing so require the alleged dependant to bring their claim for support forward within 30 days failing which they are deemed to have abandoned their claim?
The issue of whether a Notice of Contestation of Claim can be used against a potential dependant of the estate was dealt with by the Ontario Court of Appeal in Omiciuolo v. Pasco, 2008 ONCA 241, wherein the court confirmed that the Notice of Contestation of Claim could not be used in relation to a potential claim for support by a dependant under Part V of the Succession Law Reform Act. In coming to such a decision the Court of Appeal notes that historically the “claim or demand” referenced in sections 44 and 45 of the Estates Act had been interpreted to mean a “claim or demand against the estate by a ‘creditor’ for payment of money on demand“, and that it could not be used for claims such as declaratory relief or a claim for judicial sale or foreclosure.
From the Court of Appeal’s rationale in Omiciuolo v. Pasco it would appear that the “claims” against which a Notice of Contestation of Claim can be used are likely limited to claims of potential creditors of the estate (i.e. claims that the deceased owed an individual money), and that it cannot be used against other more nuanced or equitable claims such as a potential claim from a dependant for support or declaratory relief.
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You are the Estate Trustee of an estate currently involved in a dispute with the deceased’s former business partner. In the context of such a dispute, the former business partner puts forward what you believe to be a reasonable settlement proposal which you are inclined to accept. Before accepting such a proposal however you ask yourself whether you, as Estate Trustee, unilaterally have the authority to settle such a dispute on behalf of the estate, or if you are required to involve the beneficiaries of the estate as part of any settlement?
An Estate Trustee’s authority to settle claims on behalf of the estate is established by section 48(2) of the Trustee Act, which provides:
“A personal representative, or two or more trustees acting together, or a sole acting trustee, where, by the instrument, if any, creating the trust, a sole trustee is authorized to execute the trusts and powers thereof may, if and as they may think fit, accept any composition or any security, real or personal, for any debt or for any property, real or personal, claimed, and may allow any time for payment for any debt, and may compromise, compound, abandon, submit to arbitration or otherwise settle any debt, account, claim or thing whatever relating to the testator’s or intestate’s estate or to the trust, and for any of these purposes may enter into, give, execute, and do such agreements, instruments of composition or arrangement, releases, and other things as seem expedient without being responsible for any loss occasioned by any act or thing done in good faith.” [emphasis added]
While an Estate Trustee has the authority to settle any claim on behalf of the estate without the involvement of the beneficiaries, this does not necessarily mean that the Estate Trustee will be insulated from liability for their decision to have done so. The Trustee Act provides that the Estate Trustee shall not be liable for any loss associated with the settlement so long as the settlement was entered into in “good faith”. To this effect, whether or not the Estate Trustee will later be liable to the beneficiaries for any settlement will turn on whether any such settlement was entered into in “good faith”, with such a determination often being made within the context of a later Application to Pass Accounts. If the court concludes that the settlement was entered into in “good faith”, the Estate Trustee will not be liable to the beneficiaries. If the court concludes that it was not entered into in “good faith”, the Estate Trustee may be liable to the beneficiaries for the settlement.
In order to reduce any concern that the beneficiaries may later take issue with any settlement, many Estate Trustees will reach out to the beneficiaries to seek their prior approval. While such a route is often the safest option for the Estate Trustee to take, it is not necessarily mandatory, and the Estate Trustee may unilaterally enter into any settlement on behalf of the estate so long as they are prepared to justify any such settlement to the beneficiaries on a subsequent passing of accounts.
This week on Hull on Estates, Paul Trudelle and Nadia Harasymowycz discuss whether or not estates can pursue charter claims. Specifically, they discuss Grant v. Winnipeg Regional Health Authority and a blog post written by Diane Vieira titled, "An Estate Cannot Pursue Charter Claims."
Please leave us a comment or send us an email at email@example.com if you have any questions.
Click here for more information on Nadia Harasymowycz.
Estate Trustees have the authority to settle claims against the estate. Claims may be asserted by a creditor, often in response to an Advertisement for Creditors.
An Advertisement for Creditors typically runs for three consecutive weeks in a daily newspaper in the area where the deceased lived and worked at the time of death. The date by which all claims must be submitted to the estate solicitor is usually one month after the first date that the advertisement is published whereafter, once the time period for filing claims has expired, the newspaper will provide an Affidavit of Proof of Publication.
While there is no statutory requirement to advertise for creditors, there are several reasons why it is prudent practice:
- to confirm that there are no outstanding creditors (especially if the deceased carried on an active business) and thereby eliminate liability with respect to such a claim if it arises after the estate has been distributed;
- if the estate trustee wants to pass his accounts it is usually required on the first passing of accounts; or
- on an intestacy, if the estate trustee wants to distribute the estate prior to the expiration of one year after the death of the intestate.
David Morgan Smith – Click here for more information on David Smith.
A claim of devastavit may be made against an estate trustee where mismanagement of estate assets is suspected. Black’s Law Dictionary (seventh edition) provides the following definition for devastavit:
A personal representative’s failure to administer a decedent’s estate promptly and properly, especially by spending extravagantly or misapplying assets. A personal representative who commits waste in this way becomes personally liable to those having claims on the assets, such as creditors and beneficiaries.
In the case of Commander Leasing Corp. v. Aiyede, 16 E.T.R. 183 (1984), an estate trustee distributed an estate even though there was an outstanding claim by a company, Commander Leasing, as a creditor of the estate. The estate trustee did not plead that there were no (“plene administravit”) or insufficient (“plene administravit praetor”) assets in the estate to satisfy the company’s claim. Instead, she stated at her discovery that all of the assets had been distributed.
The effect of the estate trustee’s failure to plead plene administravit or plene administravit praeter was that she must be taken to have admitted that there were assets to satisfy the judgment. The Court ultimately held that in distributing the estate, the estate trustee acted in clear disregard of the company’s outstanding claim as a creditor. Her conduct constituted a devastavit for which she was personally liable to the company creditor.
Have a great day!
Bianca La Neve
I recently read an article regarding the most common claims against lawyers, which is authored by Dan Pinnington who is the director of practicePro, LawPro’s risk and practice management program (click here for the article). I found it particularly interesting that only a small portion of LawPro claims account for a lawyer’s inability to know or apply the substantive law.
The most common claim involves communication between lawyer and client. Dan breaks down the type of communication errors into three categories. According to the article, the most common communication related error, is the failure to follow the client’s instructions. The second type of communication error is the lawyer doing work or taking steps on a matter, but failing to obtain the client’s consent or to inform the client. The third type of communication error involves the failure to explain to the client simple administrative things (i.e. timing of steps on the matter, fees and disbursement). Dan states that you can reduce your exposure to this type of claim by managing your client’s expectations from the very start of the matter and actively communicating with the client at all stages of the matter.
The second most common claim is missed deadlines and time management related errors. The most common time-related error is a failure to know or to ascertain a deadline (i.e. limitation period). There is a concern that procrastination-related errors are on an upwards trend. Dan states that these types of errors are easily preventable with better time management skills and the proper use of tickler systems.
The third most common error is the inadequate investigation or discovery of facts. To avoid these types of claims lawyers have to “dig deeper”, take the time to read between the lines so that all of the appropriate issues and concerns associated with the subject matter can be identified.
I hope my final blog will assist all of us in our practise.