The passing of accounts process can provide beneficiaries with an insight into how an estate and/or trust has been administered, with the revelations not always being good. In response to being served with an Application to pass accounts, allegations will often be brought forward by the beneficiaries that, as a result of the actions or inactions of the trustee, the beneficiaries have suffered damages, and they will be looking to the trustee to compensate them for such damages. If such damages go beyond a mere reduction of a trustee’s compensation, the question which often emerges is whether the passing of accounts is the correct forum for the beneficiaries to seek such damages against the trustee, or if a separate proceeding is required.

Section 49(3) of the Estates Act provides the court with the authority to adjudicate issues of negligence and/or breach of trust as part of the passing of accounts process, 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.”

While section 49(3) of the Estates Act does provide the court with the authority to hear such issues as part of the passing of accounts process, section 49(4) of the Estates Act provides the Judge with the discretion to have such issues heard by way of separate trial of an issue, providing:

“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.”

In determining whether such allegations should be directed to a separate trial of an issue, or heard as part of the passing of accounts process, the Ontario Court of Appeal in Simone v. Chiefetz provides the following commentary:

“While there is statutory authority for awarding damages for “misconduct, neglect or default” by a trustee on the passing of accounts (Estates Act, s. 49(3)), it is rare for the court to permit the parties to litigate a substantial claim for damages for breach of a trustee’s duties through the medium of an audit. As Professor Waters states: “… the courts prefer to see beneficiaries bring breach of trust actions for reinstatement of loss to the trust, rather than that a breach allegation be fought out through the medium of a remuneration hearing. [emphasis added]

Simply put, the Court of Appeal states that while section 49(3) of the Estates Act provides the court with the authority to hear such claims as part of the Application to pass accounts, that in the event that the claim being brought forward is a substantial claim, that the court prefers that such issues be directed to a separate trial of an issue in accordance with section 49(4) of the Estates Act.

Thank you for reading.

Stuart Clark