As in other areas of civil litigation, the general costs principle of “loser pays” applies in estate litigation. The recent costs decision of Toller James Montague Cranston (Estate of), 2021 ONSC 3704, is an interesting example of just how much a loser in estate litigation could have to pay.
In Toller, the Estate Trustee of the estate of Toller Cranston was compelled to bring an application to pass her accounts by the two other beneficiaries of the estate. These beneficiaries (the “Objectors“) raised over 300 objections to various expenses paid by the Estate Trustee personally to administer the estate in Mexico. The Objectors were unsuccessful on all of their objections except for five. They also made allegations of fraud and theft by the Estate Trustee which were ultimately unproven. The Estate Trustee sought costs on a substantial indemnity scale of $390,602.98 inclusive of HST and disbursements, payable by the Objectors personally. The Objectors took the position that the requested amount was not reasonable or proportionate in the circumstances.
In his costs decision, the Honourable Justice Robert Smith relied on the factors set out in Rule 57 of the Rules of Civil Procedure to help determine the appropriate costs award to make. He also relied on the case of Estate of Francoise Poitras v. Canadian Cancer Society, 2021 ONSC 406, for a summary of the legal principles applicable to costs in estate litigation, which include:
- An estate trustee is generally entitled to be indemnified for all reasonably incurred costs in the administration of an estate, including the legal costs of an action reasonably defended, to the extent these costs are not recovered from another person.
- The winning party in estate litigation is usually entitled to reasonable costs from the losing party.
- A court may deny cost recovery by an estate trustee, in whole or in part, if the trustee acted unreasonably or in substance for his or her own benefit, rather than for the benefit of the estate.
- If the estate trustee acted reasonably, the court may require the other party or parties to pay costs or make a blended order requiring the losing party to pay some costs and the estate to pay the balance.
- In fixing costs, the court must determine the fair and reasonable amount that a party should pay in the particular circumstances of the case.
In the case at hand, the Estate Trustee won by a landslide. What is more, given the complexity of the estate and the large number of objections raised, the Estate Trustee was forced to spend a significant amount of time and legal expenses to respond to the 295 meritless objections that had been raised. Justice Smith also found that the Objectors acted unreasonably in refusing to narrow the issues to be decided before the hearing and to then abandon approximately half of their objections at the hearing, after time and expenses had already been incurred on those objections. The Objectors’ unfounded allegations of misconduct by the Estate Trustee also warranted an elevated costs award. For these reasons and more, Justice Smith concluded that the bulk of the Estate Trustee’s legal costs should be paid by the Objectors.
It was ultimately decided that the Objectors would pay costs to the Estate Trustee on a substantial indemnity basis, reduced by an amount to account for the Objectors’ partial success. This resulted in a notably high costs award of $325,000.00, inclusive of disbursements and HST, payable to the Estate Trustee by the Objectors. It was further ordered that the balance of the Estate Trustee’s legal costs be paid to her from the estate.
The Toller decision shows that the court will not shy away from holding a losing party personally liable for significant costs in estate disputes where the court deems such an award to be appropriate in its discretion. To help limit personal liability to costs in the event of a loss, parties should endeavour to act reasonably from the beginning through to the end of the litigation.
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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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Estate litigation can be expensive. Sometimes a court may award costs to be paid personally by a party in an estates matter. Parties should always try to act reasonably throughout the litigation, as anything less may attract such adverse costs consequences. A recent example of this is the case of Dewaele v. Roobroeck, 2021 ONSC 1604.
The underlying application arose from the inability of three siblings to agree on how the estates of their late parents should be administered. The siblings were the sole beneficiaries and co-estate trustees of their parents’ estates. The daughter of the deceased parents brought an application against her two brothers seeking various relief, including an order removing them as co-estate trustees and appointing her as the sole estate trustee. Her application was successful and she sought costs against her brothers. Specifically, the applicant sought an order that her substantial indemnity costs be paid by her brothers and that the balance of her full indemnity costs be paid by the estates.
The decision on the issue of costs was given by the Honourable Justice Sheard, who held in favour of the applicant. In her written reasons, Justice Sheard provides a concise summary of the law governing the determination of cost awards in estates matters. First, she cites s.131 of the Courts of Justice Act, R.S.O. 1990, c. C.43 as amended, which provides that, subject to the provisions of an Act or rules of court, the court has discretion to determine by whom and to what extent costs should be paid. The factors set out in Rule 57.01 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 guide the court’s exercise of this discretion. The overriding objective in a cost award is that it be fair and reasonable, which is, in part, determined by the reasonable expectations of the parties concerning the quantum of costs.
Justice Sheard further explains that in estate litigation, the general rule is that estate trustees are entitled to be indemnified for costs reasonably incurred in the administration of the estate. However, the “loser pays” costs regime applies to estate matters, and a blended cost award – in which a portion of the costs is paid by the litigants and a portion from the estate – is within the court’s discretion.
In this case, the applicant asked for substantial indemnity costs from her respondent brothers. Justice Sheard affirms at paragraph 19 of her decision that such an award may be made “where the losing party has engaged in behaviour worthy of sanction”. Moreover, elevated costs should only be awarded where “there has been reprehensible, scandalous or outrageous conduct on the part of one of the parties”. Here, the respondents failed in their obligations as estate trustees, deliberately interfered with the applicant’s ability to complete the administration of the estates, and failed to comply with previous court orders made. Justice Sheard found that this conduct was worthy of sanction and can be characterized as reprehensible and outrageous. As such, an elevated costs award was appropriate. Justice Sheard ultimately decided that the applicant was entitled to be fully indemnified for the costs she incurred in respect of the application, with the respondents liable to pay the majority of these costs (and the balance to be paid from the assets of the estates).
This costs decision is an excellent reminder of the importance of acting reasonably in estate litigation. If any party, including an estate trustee, chooses to act unreasonably then they may pay for it in the end.
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In a recent decision from the British Columbia Court of Appeal, Mayer v Mayer Estate, 2020 BCCA 282, the court considered an application to reopen a trial to admit new evidence or to have a mistrial declared (the “post-trial application”). The post-trial application arose as a result of an email between the respondent’s daughter-in-law (who had been assisting the respondent with the litigation) and the respondent’s counsel. The appellant had obtained the email from the deceased’s computer. The deceased and the respondent had shared an email address, and when the appellant connected the computer to the internet some emails were downloaded from the shared account, including the email in question. The appellant took the position that the email that she had obtained impugned the respondent’s credibility by contradicting evidence she had given in the previous proceedings. The post-trial application was dismissed, and the appellant appealed the decision.
The Court of Appeal dealt with the question of the email fairly briefly. The post-trial application judge had concluded that the email was a communication that was subject to solicitor-client privilege. The Court of Appeal appears to have accepted that finding.
The content of the email is not specifically set out in the decision, but appears to have related to the purpose for which the respondent had made certain transfers to the deceased. It appears that, notwithstanding the finding that the email was privileged, the court still considered whether the contents of the email did impact the respondent’s credibility.
The respondent swore affidavit evidence in the original proceedings that she had made two transfers to the deceased to assist him in paying some tax debts. The email apparently indicated that at the time the respondent swore her affidavit, she knew that the deceased did not, in fact, have any tax debt. The post-trial application judge’s analysis stated that it appeared the deceased may have been untruthful with the respondent at the time the transfers were made, and probably used the funds for something other than tax debts, which he did not have. However, the respondent’s evidence in this regard was not a lie, because at the time of the transfer, all she knew was what the deceased had told her, namely that he intended to use the funds to pay his tax debts.
Additionally, the post-trial application judge had already addressed minor inconsistencies of this nature in the respondent’s evidence in his reasons from the original proceeding, noting that they were not consequential and fully explained by the respondent.
The Court of Appeal dismissed the appeal. In making this decision, the Court of Appeal notes that “it is apparent that the appellant is seeking largely to re-argue the case as originally tried before Justice Crossin, particularly as to credibility, which is not open to her.”
The Court of Appeal also awarded the respondent special costs (on a higher scale), based on its conclusion that the very serious allegations made and maintained by the appellant against the respondent constituted “sufficiently reprehensible conduct to merit rebuke in the form of an award of special costs”.
Although scenarios may exist where new evidence could have such an impact on credibility that it would warrant reopening a trial, one should be careful to fully assess the nature and strength of such evidence. The award of special costs also serves as further caution that serious allegations such as fraud and perjury should be made very selectively, when they are appropriate and fully supported by the evidence.
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Estate litigation exists in a somewhat unique corner of the litigation world for as a Will can potentially have numerous beneficiaries, each of whom could receive differing amounts from the estate, the potential individuals who could be impacted by any court decision can often extend beyond the parties actively participating in the litigation. As estate litigation can be both emotionally and financially expensive, if you are a beneficiary who only was to receive a relatively modest bequest of say $5,000, you may question whether it can be financially justified for you to retain a lawyer to actively participate in the litigation or whether you should just throw your hands up and not participate. Although the final decision of whether to participate will be case specific to the beneficiary in question, there may be a third option other than actively participating or simply not responding, being that you can formally “submit” your rights to the court.
The concept of “submitting” your rights to the court is in effect a formal declaration to the court that you will not be actively participating in the litigation but that you would still like to be provided with notice of certain steps. By formally submitting your rights to the court the plaintiff is required to provide you with written notice of the time and place of the trial, as well as a copy of the eventual Judgment. You are also personally insulated from any costs award that may be made in the proceeding (other than incidentally as a beneficiary of the estate should costs be awarded out of the estate).
The potentially most attractive incentive to formally submitting your rights to the court however may be that in the event any settlement is reached amongst the other parties that no Judgment may be issued implementing the settlement unless the court is provided with your consent to the settlement or an affidavit confirming that you had been provided with a copy of settlement and had not served and filed a “Rejection of Settlement“. Such a requirement could provide you with the opportunity to object to any settlement before it is implemented, potentially sidelining any settlement that you believe unfairly impacted your interest in the estate.
The process by which an individual can “submit” their rights to the court is governed by rule 75.07.1 of the Rules of Civil Procedure, with the individual submitting their rights to the court being required to serve and file a “Statement of Submission of Rights to the Court“.
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My last blog discussed recent steps taken by the legislature to modernize the administrative side of the practice of law in Ontario. The practical side has also seen a number of developments that have emerged as a direct result of the ongoing pandemic. Some of these efforts have been spearheaded by the courts directly, while others, such as the Estate Arbitration and Litigation Management initiative, have been developed by members of the Bar an in effort to continue moving matters towards a resolution despite limited court access.
A recent decision of the Superior Court of Justice provides some important commentary on the judiciary’s expectations of parties and counsel to adapt to the current reality using these tools and others so that files can continue to progress.
In Arconti v Smith, Justice Myers grappled with the competing views of the parties as to whether an examination for discovery ought to proceed by way of a videoconference. The defendant, who was to submit to examination, proposed that the examination proceed by way of videoconference given the social distancing guidelines in place.
The plaintiff objected on several grounds. Among other objections, the plaintiff argued that the defendant and their counsel ought to be in each other’s presence to ensure the process proceeded smoothly. Alternatively, the plaintiff argued that the fact of conducting an examination remotely would “[deprive] the occasion of solemnity” and would otherwise make it more difficult to assess the defendant’s demeanour as a witness. The plaintiff argued that the examination ought to be deferred until social distancing guidelines were lifted.
Justice Myers’ initial response to the plaintiff’s position was simple, yet persuasive: “It’s 2020.” He held that the parties have technological tools at their disposal to conduct examinations and other litigation steps remotely, and that the use of such tools was especially salient in the context of the social distancing guidelines. Although Justice Myers advised that the concerns raised by the plaintiff might be relevant in different circumstances, they were not at issue there.
Ultimately, Justice Myers held that the use of readily available technology should be part of the skillset required both of litigators and the courts, and that the need to use such tools was merely amplified, not created, by the pandemic. The plaintiff was ordered either to conduct the examination of the defendant by videoconference, or to waive their entitlement to conduct the examination altogether.
This decision provides a glimpse into the court’s expectations of litigants and counsel to move matters forward in spite of the social distancing guidelines and court closures. While the current directives and legislation cannot be used to compel a party to perform a particular litigation step by audiovisual means, one may read Arconti as suggesting that the courts will nonetheless expect the parties to consider the entirety of their skillset to move matters along so that they do not languish in litigation purgatory as a result of social distancing guidelines.
Once social distancing guidelines have been lifted, it will likely be some time before the courts have dealt with the matters that were adjourned between March and June and are in a position to hear new matters. Parties who are willing to use the tools at their disposal to move matters forward and avoid contributing to this delay may find themselves commended by the judiciary. Those who are resistant to adapt, on the other hand, may expose themselves to commentary from a judge, or possibly cost consequences for their client, depending on the circumstances.
If you are interested in learning more about litigation procedure and estate planning best practices in the time of COVID-19, please consult our information guide.
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With the loser-pays costs model firmly entrenched in civil litigation, and, for some time now, also consistently applied in most estate litigation cases, it behooves counsel to give early and ongoing consideration to putting forward an offer to settle under Rule 49 of the Rules of Civil Procedure with the objective of obtaining a more favourable costs outcome.
In order to get the benefit of the cost consequences under the Rule, such an offer (i) must be made at least seven days before the hearing, (ii) cannot be withdrawn and cannot expire before the commencement of the hearing, (iii) must not be accepted by the opposing side, and (iv) the offeror must meet or beat the offer at the hearing. However, even if this criteria is met, the court has the discretion to depart from the cost presumptions under the Rule.
Taking into account the court’s discretion, and given what feels like the release of more and more decisions where cost awards seem to bear little reflection to the costs incurred or the Rule 49 offers made, I wonder whether making a Rule 49 offer actually provides the expected benefit of a better costs outcome for the offeror.
In reading a recent article on the issue, I am reminded that there is some predictability in place. The authors review some relevant authorities, including Niagara Structural Steel (St. Catharines) Ltd. v. W.D. LaFlamme Ltd. and Barresi v. Jones Lang Lasalle Real Estate Services Inc., two Court of Appeal cases where it was held that the courts of first instance erred in resorting to the exception in Rule 49, and where the Court of Appeal reasoned as follows:
- the purpose of the Rule is to be an incentive to encourage settlement;
- a judge’s discretion to depart from the costs presumption under the Rule is not unfettered, and should not be exercised in such a widespread manner so as to render the general rule ineffectual; and
- a judge should only depart from the Rule “where the interests of justice require a departure”, after giving weight to the policy of the Rule, the importance of predictability and the even application of the Rule.
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One way that dispositions such as a gift during one’s lifetime, or a Will, may be challenged is on the basis of undue influence. However, allegations of undue influence are often difficult to prove. Additionally, due to the nature of these types of allegations, which often call into question the character of the alleged influencer, they are taken seriously by the court. As a result, parties should be cautious in alleging undue influence, and should be virtually certain that they will be able to back up their claims.
A recent example of this was in the costs decision of Nimchick v Nimchick, 2019 ONSC 6653. A mother and daughter had claimed that their son/brother (“B”) had devised a plan to financially exploit his mother for the benefit of himself, his spouse, and his son, (“J”). The circumstances leading to this allegation involved the mother adding J’s name to a bank account belonging to the mother, for the purpose of paying for J’s student loans, with any excess going to B. The trial judge dismissed the mother and daughter’s claim, finding that the mother intended to gift the money to B and J, and that B had not exerted undue influence over his mother.
The defendants, who were wholly successful, sought their substantial indemnity costs, in the amount of approximately $147,000.00. The court noted that the defendants’ partial indemnity costs of the action were approximately $100,000.00.
In making its determination as to costs, the court considered the circumstances in which elevated costs are warranted, including where the unsuccessful party has engaged in reprehensible, scandalous, or outrageous behaviour that is worthy of sanction. The court found that the mother and daughter’s behaviour had been of this nature. This conclusion seemed to have largely been based on the court’s finding that the mother and daughter advanced baseless allegations of wrongdoing and failed to prove their claims of civil fraud and deceit. Overall, the court preferred B’s evidence to the evidence from the mother and daughter.
The court ultimately awarded costs to the defendants in the amount of $100,000.00. This amounted to the defendants’ partial indemnity costs, according to a note included in the decision. Accordingly, it does not appear that the award against the plaintiffs was necessarily on an elevated scale. The costs awarded were, however, $15,000.00 more than the amount submitted by the plaintiffs as being appropriate.
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Competing applications about the ownership of a home were before the Court in Marley v. Salga, 2019 ONSC 3527. On the death, the home was jointly owned between the deceased (Salga) and his wife (Marley). Notwithstanding the registered, legal ownership of the property, Salga’s Will gave Marley a lifetime right to occupy and use Salga’s one-half interest in the property and thereafter directed that the house be sold for the benefit of the residuary beneficiaries.
This led the residuary beneficiaries to commence an Application for a declaration that the Estate is entitled to an undivided one-half interest in the home and for an order requiring the Estate Trustee (Klassen) to sell the home right away (the “Salga Application“). Thereafter, Marley commenced her own Application for a declaration that she was the sole legal and beneficial owner of the property, or, alternatively, that her interest in the property is greater than 50% (the “Marley Application“).
Ultimately, Justice Reid found that ownership of the property was severed by the deceased in the course of his dealings but denied the Salga Applicants’ request that the property be sold before the termination of Marley’s interest under the Will. The Marley Application was also denied. Our blog on this decision can be found here.
The parties were unable to agree to the issue of costs. Justice Reid, 2019 ONSC 6050, followed the traditional approach to costs in estate matters and the costs of both applications, on a partial indemnity scale, were ordered from the Estate. In reaching this conclusion, Justice Reid considered and found the following:
- The Marley Application was in essence a response to the Salga Application and the costs of both proceedings were treated as one;
- Both parties were found to be partially successful: the Salga Applicants were successful in obtaining a declaration that 50% of the home belongs to the Estate and the Marley Applicant was successful in preventing an immediate sale of the home;
- Consideration was given to the fact that an award of costs from the Estate meant that the Salga Applicants (as the residuary beneficiaries) would be effectively bearing their own costs as well as Marley’s costs. However, that was not enough to outweigh the deceased’s responsibility to act unambiguously by severing his interest on title during his lifetime.
- Costs against the Estate in this case “places the responsibility for the litigation squarely on [the deceased] where it belongs“.
This costs decision is also an informative read for the costs of an estate trustee as a respondent in both proceedings and how costs should be paid from an estate where there is no liquidity.
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The monetary jurisdiction of Ontario’s Small Claims Court is set to increase on January 1, 2020. The jurisdiction of the Court will increase from $25,000 to $35,000.
The current limit of $25,000 was in place since 2010. Prior to that, the limit was $10,000.
In a press release from the Ministry of the Attorney General, the change is said to “make it faster, easier and more affordable for people and businesses to resolve their disputes in front of a judge.”
Claims over $35,000 would need to be brought in the Superior Court of Justice. As noted by the Ministry of the Attorney General, claims in the Superior Court of Justice can take years to resolve, and can involve expensive legal representation. Claims in the Small Claims court, however, can be resolved in less than a year, and litigants are not required to hire lawyers or other legal help.
The Ministry also stated that the change should have the effect of reducing wait times in the Superior Court of Justice, as many claims that would otherwise have been brought in the Superior Court of Justice could now be brought in the Small Claims Court.
Another change is that the minimum amount of a claim that may be appealed to the Divisional Court is increased from $2,500 to $3,500.
As to transition, litigants who started a claim in the Superior Court of Justice for an amount between $25,000 and $35,000 can move to have their claim transferred to the Small Claims Court.
There are costs consequences if a proceeding is brought in the wrong court. Under Rule 57.05 of the Rules of Civil Procedure, if a plaintiff recovers an amount within the jurisdiction of the Small Claims Court, the court may order that the Plaintiff shall not recover any costs. If a Plaintiff recovers default judgment that is within the monetary jurisdiction of the Small Claims Court, costs shall be assessed in accordance with the Small Claims Court’s tariff.
Costs in the Small Claims Court are limited under its rules, and are subject to a limit under the Courts of Justice Act, s. 29, to 15% of the amount of claimed or the property sought to be recovered, subject to the court’s right to award higher costs to penalize a party or the party’s representative for unreasonable behavior.
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