



COURT OF APPEAL FOR ONTARIO

CITATION: Sawdon Estate v. Sawdon, 2014
    ONCA 101

DATE: 20140205

DOCKET: C55964

Hoy A.C.J.O., Gillese and Strathy JJ.A.

BETWEEN

Wayne Robert Sawdon, in his capacity as Trustee
    of the Estate of Arthur O. Sawdon, deceased, and Wayne Robert Sawdon, in his
    own right

Applicant (Respondent/

Appellant by way of cross appeal)

and

Stephen Peter Sawdon

Applicant (Respondent/

Appellant by way of cross appeal)

and

Watch Tower Bible and Tract Society of Canada

Respondent (Appellant/

Respondent by way of cross appeal)

and

Public Guardian and Trustee, in its capacity as
    litigation guardian for James Sawdon, an incapable person

Respondent (Respondent/

Respondent by way of cross appeal)

David Gnam and Sylvain Deschênes, for the appellant

Lorne Silver, Lindsay
    Histrop and Colin Pendrith, for the respondent Wayne Robert Sawdon

Heard: December 20, 2013

On appeal from the judgment of Justice Leonard Ricchetti
    of the Superior Court of Justice, dated July 23, 2012, with reasons reported at
    2012 ONSC 4042.

Gillese
    J.A.:

[1]

An aging father placed several bank accounts into joint names with two
    of his five children.  He told the two children that on his death the funds in
    the bank accounts were to be distributed equally among all of his children.

[2]

When the father died, the question arose:  to whom did the funds in the
    bank accounts belong?  The fathers estate, the two children, or all of his
    children?  This appeal answers that question.  In so doing, it must explore the
    Supreme Court of Canadas decision in
Pecore v. Pecore
, 2007 SCC 17,
    [2007] 1 S.C.R. 795.

[3]

The cross appeal in this case raises an interesting question in respect
    of costs in estate litigation: must the court choose between ordering costs
    against the losing party or from the estate, or can it fashion a costs order
    that blends the two?

OVERVIEW

[4]

Arthur Sawdon died on March 27, 2007. He was survived by his five
    children: Wayne Sawdon, Stephen Sawdon, Brian Sawdon, James Sawdon and Carolyn
    Anding (the Children).  Because a number of these individuals share the same
    last name, for ease of reference I will refer to each of them by their first
    names.

[5]

Between 2004 and 2006, Arthur transferred his seven bank accounts into
    joint accounts, with a right of survivorship, to himself, Wayne and Stephen
    (the Bank Accounts).  At the time of his death, there was approximately
    $1,076,000 in the Bank Accounts.

[6]

Arthurs will, executed in 2006, did not mention the Bank Accounts (the
    Will). It contained a hotchpot clause entitling each of the Children to the
    greater of $100,000 or the largest amount owing on mortgages he held on each of
    Wayne and Stephens homes.  It also provided that the Watch Tower Bible and
    Tract Society of Canada (Watch Tower) would receive the share of any child
    who died without issue, as well as the residue of his estate (the Estate).

[7]

Watch Tower is a registered charity representing the religious community
    of Jehovahs Witnesses in Canada.

[8]

The Will appointed Arthurs son Wayne as the estate trustee (the Estate
    Trustee).

[9]

A dispute emerged between Watch Tower and the Children when the Estate
    Trustee sought to pass accounts. Watch Tower claimed that upon Arthurs death, the
    funds in the Bank Accounts formed part of the Estate by way of resulting trust.
    Wayne and Stephen claimed that their father had instructed them to distribute
    the funds in the Bank Accounts equally among the Children, on his death.

[10]

A
    trial was held to resolve the issue. Wayne and Stephen were the applicants,
    with Wayne acting in his capacity as Estate Trustee as well as in his own
    right. Watch Tower was the respondent.

[11]

By
    judgment dated July 23, 2012 (the Judgment), the trial judge ordered that the
    funds in the Bank Accounts were not part of the Estate.  He relied on
Pecore
for the relevant legal principles and concluded that although gratuitous
    transfers between a parent and an adult child are subject to the presumption of
    resulting trust in favour of the deceased parents estate, that presumption had
    been rebutted.

[12]

By
    order dated April 18, 2013 (the Costs Order), the trial judge ordered Watch
    Tower to pay the Estate Trustees trial costs on a partial indemnity basis.  He
    refused the Estate Trustees request for an order that the Estate indemnify him
    for the balance of his trial costs.  (He also ordered Watch Tower to pay very
    modest costs to the Office of the Public Guardian and Trustee, who had appeared
    at trial to represent the interests of James, one of the Children who had certain
    disabilities.)

[13]

Watch
    Tower appeals.  It contends that the trial judge applied the wrong legal principles
    and that the Estate is entitled to the funds in the Bank Accounts.

[14]

The
    Estate Trustee seeks leave to appeal the Costs Order and, if leave is granted,
    would cross appeal, arguing that he is entitled to indemnification from the
    Estate for his legal costs not recovered from Watch Tower.

[15]

For
    the reasons that follow, I would dismiss the appeal and allow the cross appeal.

BACKGROUND

[16]

The
    process of transferring Arthurs bank accounts into joint names with his sons
    Wayne and Stephen began in 2004.

[17]

In
    May 2004, Arthur had a discussion with his wife Hilda on the topic of
    succession. Hilda was in hospital with a terminal illness. In the presence of
    Wayne and James, Hilda asked Arthur to reassure her that any money to be left
    to the children would go to each of them equally. Arthur promised his wife that
    he would honour that commitment.

[18]

That
    same year, Arthur asked his lawyer, Daniel Pole, to prepare a will.  He told
    his lawyer that he was thinking about transferring his bank accounts into joint
    names with two of his sons, Wayne and Stephen.  His lawyer advised him that if,
    on his death, he did not want the funds in the bank accounts to pass directly
    to the other joint bank account holders, he would need a declaration of trust
    to that effect.

[19]

On
    May 17, 2004, Hilda passed away.

[20]

Arthur
    and Hilda had held all their assets, with the exception of one bank account, in
    their joint names with the right of survivorship.  The one bank account not
    held jointly was in Hildas name alone.

[21]

Upon
    Hildas death, all the assets that they held jointly passed to Arthur without
    difficulty through the right of survivorship, without becoming a part of
    Hildas estate, and without the necessity of probate.

[22]

However,
    Arthur experienced difficulty and frustration in getting the contents of the
    one bank account that had been in Hildas sole name.  He ended up needing to
    present the bank with a copy of Hildas will, showing that he was the sole
    beneficiary. He was unhappy with the delay in accessing those funds and with
    having to prove his entitlement to them.

[23]

In
    June 2004, Arthur met with Gladys Fisher, a CIBC account representative,
    because he wanted to transfer one of his CIBC bank accounts into a joint
    account with Wayne and Stephen. Ms. Fisher explained to Arthur that the bank
    offered a joint bank account with a right of survivorship and one without that
    right.  She also explained the risks associated with joint bank accounts,
    including the ability of the other joint account holders to withdraw the funds
    while he was still alive, and the potential risk of seizure by their creditors
    should they become bankrupt or get divorced.

[24]

Arthur
    told Gladys Fisher that, upon his death, he wanted his children to have the
    money without having to go through probate, and that Wayne and Stephen knew
    what to do with the money. He did not want his children to experience the same
    problems he had with Hildas bank account after her death. He then proceeded to
    transfer the bank account into a joint account with a right of survivorship to
    himself, Wayne and Stephen.

[25]

Over
    the next few years, Arthur transferred his other bank accounts at the Royal
    Bank and TD Canada Trust into joint accounts with a right of survivorship for
    himself, Wayne and Stephen.

[26]

The
    transfer of the last two bank accounts into joint names with Wayne and Stephen
    occurred on July 19, 2006, just two weeks after Arthur met with his lawyer Mr.
    Pole to change his 2004 will. One of those accounts held approximately 60% of
    the total monies in the Bank Accounts combined.

[27]

It
    will be recalled that Mr. Pole had previously advised Arthur that the effect of
    transferring his bank accounts into joint accounts with his sons would be that
    the money would pass directly to the joint account holders upon his death,
    bypassing the estate, unless there was a signed declaration of trust.  Arthur
    never instructed his lawyer to prepare a declaration of trust, nor did he ask
    his sons to execute such a declaration.

[28]

Until
    his death, apart from some mortgage payments made by Wayne and Stephen into one
    of the Bank Accounts, Arthur alone deposited and withdrew funds from the Bank
    Accounts.

[29]

Four
    witnesses testified at trial: Daniel Pole; Wayne; Stephen; and Gladys Fisher.

[30]

Daniel
    Pole admitted that he did not know about the Bank Accounts until after Arthurs
    death. However, he also claimed that Arthur expressed the intention to him that
    the money in the Bank Accounts should form part of the Estate.

[31]

It
    emerged at trial that Daniel Pole was an elder with the Jehovahs Witnesses and
    had acted as Watch Towers counsel in the past, and that he did not disclose this
    information to Arthur at the time of executing the Will.

[32]

Wayne
    and Stephen both testified that they had made a commitment to their father
    that, upon his death, the money in the Bank Accounts was not to be theirs
    personally, but was to be for the benefit of the five children equally. Wayne
    further testified that he told Mr. Pole that he would sign a document to the
    effect that he was holding the money in the Bank Accounts in trust for the Children.

[33]

Gladys
    Fisher testified as to her knowledge of Arthurs intentions in transferring his
    money into joint bank accounts with a right of survivorship.  She told the
    court about the information she had given Arthur relating to the operation of a
    right of survivorship, and Arthurs statement to her that he wanted his
    children to have the money on his death without having to go through probate.

THE TRIAL DECISION

[34]

The
    trial judge began by quoting extensively from
Pecore
, noting that it is
    the Supreme Courts most recent pronouncement on a survivors entitlement to
    monies in a joint bank account.

[35]

Pecore
established that gratuitous transfers between a parent and an adult child
    are subject to the presumption of resulting trust in favour of the deceased
    parents estate.  As there had been a gratuitous transfer of the Bank Accounts from
    Arthur into his name jointly with Wayne and Stephen, the trial judge then considered
    whether the presumption had been rebutted.  He concluded that it had, saying
    that Arthur intended to make an
inter vivos
gift of the beneficial
    interest in the Bank Accounts when they were opened.

[36]

The
    trial judge made a key factual finding when concluding that the presumption had
    been rebutted, namely, that Arthur had transferred the Bank Accounts into joint
    names, with a right of survivorship, knowing full well how the right of
    survivorship would operate on his death.  This finding was based on three
    pieces of evidence in particular.

[37]

First,
    there was Arthurs firsthand experience with how joint accounts with a right of
    survivorship operated.  It will be recalled that Arthur and Hilda had held all
    their assets in their joint names with the right of survivorship, with the
    exception of one bank account, which was in Hildas name alone. When Hilda
    predeceased Arthur in 2004, he had difficulty in getting the contents of the
    one bank account that had been in Hildas sole name.  This emphasized to Arthur
    the practical way in which joint bank accounts with a right of survivorship
    operated on the death of a joint account holder.

[38]

Second,
    when Arthur told his lawyer that he was thinking about transferring his bank
    accounts into joint names with his sons, Wayne and Stephen, his lawyer advised
    him that if he did not want the funds in the bank accounts to go to the other
    joint bank account holders on his death, he would need a declaration of trust
    to that effect.  It was after he received this legal advice that Arthur made
    the transfers into joint names; he never instructed his lawyer to prepare a
    declaration of trust.

[39]

Third,
    the trial judge accepted Gladys Fishers evidence that she had explained to
    Arthur the option of opening a joint account with or without a right of
    survivorship and the differences between the two types of accounts. 
    Understanding all of this, Arthur told Ms. Fisher that he wanted his Children
    to have his money on his death without having to go through probate and that he
    did not want his bank accounts frozen upon his death.  He did not want his Children
    to have the same problems that he had had with the one bank account that was
    solely in Hildas name when she died.

[40]

The
    trial judge also accepted Wayne and Stephens evidence that their father had made
    it clear to them on numerous occasions that on his death the funds in the Bank
    Accounts were to go to his Children equally.

[41]

The
    trial judge offered two different lines of reasoning for finding that the
    beneficial interest in the Bank Accounts belonged to the Children.  First, he
    was of the view that Arthur made a gift of the beneficial interest in the Bank
    Accounts to the Children, with Wayne and Stephen being used by Arthur to
    facilitate the transfer of that beneficial interest.  Alternatively, he
    reasoned, Arthur made a gift of the legal and beneficial interest to Wayne and
    Stephen, but they were to hold whatever money they ultimately received from the
    Bank Accounts in trust for their siblings.

[42]

In
    either event, the trial judge stated, the result was the same: the Bank
    Accounts did not form part of the Estate.  Instead, the Children held equal
    beneficial interests in the Bank Accounts on Arthurs death.

COSTS OF THE TRIAL

[43]

The
    Estate Trustee incurred actual trial costs of just under $193,000.  He sought
    to recover substantial indemnity costs from Watch Tower on the basis that the
    litigation was unnecessary.  He also asked that the Estate be ordered to
    indemnify him for any of his trial costs that were not recovered from Watch
    Tower.

[44]

Watch
    Tower took the position that partial indemnity costs were appropriate, provided
    that such costs were reasonable.

[45]

The
    trial judge ordered Watch Tower to pay costs to the Estate Trustee, on a partial
    indemnity basis, of $75,000 plus HST and disbursements.  He rejected the Estate
    Trustees request for costs from Watch Tower on a substantial indemnity basis. 
    In his view, this submission failed to recognize that the onus was on the
    Estate Trustee to rebut the presumption of resulting trust in respect of the Bank
    Accounts.

[46]

The
    trial judge also refused to order the Estate to indemnify the Estate Trustee
    for the balance of his trial costs.  He saw the trial as a contest between the Children
    and Watch Tower, with the benefit of the litigation flowing to the Children. 
    In his view, the litigation was of no benefit to the Estate.

THE ISSUES

[47]

The
    appeal raises two issues.  Did the trial judge err:

1. in failing
    to find that the Bank Accounts are held on resulting trust for the Estate; and

2. in
    failing to apply the legal principles applicable to secret trusts?

[48]

If
    leave to appeal the Costs Order is granted, the Estate Trustee raises a single
    issue by way of cross appeal:  did the trial judge err in refusing to order the
    Estate to indemnify him for his trial costs not recovered from Watch Tower?

[49]

Pecore
provides the legal framework for resolving the appeal.  Thus, before
    turning to the issues, it is necessary to carefully consider that decision.

PECORE

The Facts

[50]

In
Pecore
, an aging father gratuitously placed the bulk of his assets
    (mutual funds, bank accounts and income trusts) into joint accounts with one of
    his three children, Paula.  Paula made no deposits into the accounts.  Some of
    the financial institution documents creating the joint accounts specifically
    confirmed Paulas right of survivorship.

[51]

The
    fathers accountant advised him that transfers to Paula would trigger a capital
    gain and that tax on the gain would be due as of the year of disposition.  As a
    result, the father wrote letters to the financial institutions stating that he
    was the 100% owner of the assets and that they were not being gifted to Paula.

[52]

Paulas
    father continued to use and control the accounts after they were transferred
    into joint names.  He declared and paid all the taxes on income from the
    assets.  Paula made some withdrawals but was required to notify her father
    before doing so.

[53]

There
    was no mention of the accounts in the fathers will.  In his will, he left the
    residue of his estate to be divided equally between Paula and her husband, Michael.

[54]

After
    her father died, Paula took the remaining funds in the accounts.  Later, in
    divorce proceedings, Michael challenged Paulas entitlement to the funds.

[55]

The
    trial judge concluded that Paulas father intended to make a gift of the joint
    accounts to her.  On appeal, this court upheld the trial decision.  A further
    appeal to the Supreme Court was dismissed.

The Legal Framework

[56]

Justice
    Rothstein, writing for the majority in
Pecore
, cleared away much of the
    confusion that has beset the common law presumptions of resulting trust and
    advancement.  He stated that the presumptions continue to play a role in
    resolving disputes over gratuitous transfers, with the presumption of resulting
    trust being the general rule for gratuitous transfers (paras. 23  24). He made
    it clear that the presumption of resulting trust applies to gratuitous transfers
    made from a parent to an adult child, whereas the presumption of advancement is
    the starting point when the gratuitous transfer is from a parent to a minor
    child (paras. 38-40).

[57]

In
    either case, the relevant presumption can be rebutted by evidence of the
    transferors contrary intention on a balance of probabilities (para. 43).  The
    trial judge must begin the inquiry with the applicable presumption and then weigh
    all of the evidence in an attempt to ascertain, on a balance of probabilities,
    the transferors actual intention at the time of transfer (para. 44).

[58]

Justice
    Rothstein explained that the court may consider the following types of evidence
    when determining the transferors actual intention:

-

Evidence
    of the transferors intention subsequent to the transfer (paras. 56 - 59)

-

The
    wording of the bank/financial institution documents (paras. 60 - 61);

-

Control
    and use of the funds in the accounts (paras. 62 - 66);

-

The
    terms of any power of attorney granted to the transferee (paras. 67 - 68); and

-

The
    tax treatment of the accounts (paras. 69 - 70).

[59]

Justice
    Rothstein concluded, based on the trial judges findings of fact, that the
    presumption of resulting trust had been rebutted because, at the time the joint
    accounts were opened, Paulas father intended to make a gift to her of the
    right of survivorship.

THE APPEAL

1.

Are the
    Bank Accounts Held on Resulting Trust for the Estate?


[60]

After
    a thorough summary of the relevant trial evidence, the trial judge set out his
    credibility findings.  He accepted the evidence of Wayne and Ms. Fisher, saying
    that it was credible and reliable.  He accepted most of Stephens evidence,
    noting that significant portions were consistent with Waynes evidence and the
    documentation that Arthur had signed.  He rejected the evidence of Mr. Pole,
    Watch Towers sole witness, in its entirety, giving lengthy and compelling reasons
    for finding it neither credible nor reliable.

[61]

The
    trial judge then quoted the governing legal principles set out in
Pecore
. 
    He noted that as Arthur had made a gratuitous transfer of the Bank Accounts
    into joint names with Wayne and Stephen, the presumption of resulting trust
    arose.  He went on to determine, as he was obliged to, whether that presumption
    had been rebutted by evidence of Arthurs actual intention at the time of the
    transfers.

[62]

The
    trial judge made clear findings of fact about Arthurs intention at the time he
    opened the Bank Accounts.  He carefully examined the types of evidence that
Pecore
indicated could be considered in determining Arthurs actual intention,
    including direct evidence at the time the Bank Accounts were opened, the
    wording of the bank documents, control and use of the funds, the terms of the
    power of attorney that Arthur had granted to Wayne, and the tax treatment of
    the Bank Accounts.

[63]

The
    trial judges findings of fact are thoughtful, detailed and fully available on
    the record.

[64]

The
    trial judge then concluded that the presumption of resulting trust had been
    rebutted and that the Children were the beneficial owners of the Bank Accounts.

[65]

It
    will be recalled that the trial judge offered two different lines of reasoning
    for finding that the beneficial interest in the Bank Accounts belonged to the
    Children.  The first is that Arthur made a gift of the beneficial interest in
    the Bank Accounts to the Children, with Wayne and Stephen being used by Arthur
    to facilitate the transfer of that beneficial interest.  Alternatively, he
    reasoned, Arthur made a gift of the legal and beneficial interest to Wayne and
    Stephen, but they were to hold whatever money they ultimately received from the
    Bank Accounts in trust for their siblings.

[66]

In
    my view, the trial judge correctly concluded that the Children are beneficially
    entitled to the funds in the Bank Accounts.

[67]

However,
    I arrive at that conclusion on a different legal analysis.  When Arthur
    transferred the Bank Accounts into joint names with Wayne and Stephen, he
    created a trust.  Legal title to the Bank Accounts vested in Arthur, Wayne and
    Stephen jointly, immediately upon transfer into their joint names.  Based on
    the trial judges unassailable findings of fact, when Arthur, Wayne and Stephen
    jointly became the legal owners of the Bank Accounts, they did so on the
    understanding that on Arthurs death, they were to distribute the contents of
    the Bank Accounts to the Children in equal shares.  In legal terms, when the
    Bank Accounts were opened Arthur made an immediate
inter vivos
gift of
    the beneficial right of survivorship to the Children.  Thus, from the time that
    the Bank Accounts were opened, those holding the legal title to the Bank Accounts
    held the beneficial right of survivorship in trust for the Children in equal
    shares.

[68]

This
    analysis differs from that of the trial judge in two significant respects.

[69]

First,
    the language used by the trial judge suggests that beneficial entitlement to
    the Bank Accounts lay with the Children from the time the Bank Accounts were
    created.  If by that the trial judge meant that the Children were entitled to
    the beneficial right of survivorship from the time that the Bank Accounts were
    opened, I agree.  However, if he was suggesting that the Children were
    beneficially entitled to the contents of the Bank Accounts from the time the
    accounts were opened, I would respectfully disagree.  The question of
    beneficial entitlement on Arthurs death is a question of who owns the right of
    survivorship, whereas the question of beneficial ownership generally would
    encompass the period from the time that the Bank Accounts were opened.  As I
    have explained, on the trial judges findings of fact, Arthurs intention and
    instructions related only to the former, namely, beneficial entitlement on his
    death.

[70]

Second,
    the trial judge founded the Childrens entitlement on the alternative bases of gift
    or trust.  With respect, one cannot find that a gift of the beneficial right of
    survivorship has been made and, at the same time, find that the recipient holds
    it in trust for others.  Where the legal title holder of property is obliged to
    hold the property for the benefit of another, a trust has been created.  In
    short, once the trial judge found that Wayne and Stephen were obliged to hold
    the beneficial right of survivorship for the Children in equal shares, he found
    that a trust had been created, and gift analysis (vis-à-vis Wayne and Stephen)
    was no longer available.

[71]

It
    may be that some of the confusion around the gift/trust analysis stems from
Pecore
because
Pecore
says nothing about trusts, as distinguished from
    resulting trusts.  Two points can be made in this regard, however.  First, the
    possibility of a trust did not arise in
Pecore
, where the ownership
    choices were the estate or Paula, the former on the basis of a resulting trust
    and the latter based on a gift.  Second, the power of an owner to dispose of
    his or her ownership rights by means of a trust is fundamental.  If
Pecore
were
    to be read as having taken away that right, it dramatically changed property
    and trust law and it did so without explanation.  In my view, there is nothing
    in the reasoning in
Pecore
to support such a radical change in the law.

[72]

I
    hasten to reiterate that the legal analysis I offer in no way detracts from the
    correctness of the trial judges conclusion that on Arthurs death, the
    Children became entitled to the monies in the Bank Accounts in equal shares.  In
    my view, that conclusion is not only correct in light of the trial judges findings,
    it is inescapable.

2.

Do the
    Legal Principles Relating to Secret Trusts Apply?

[73]

Watch
    Tower says that Arthur created a secret trust when he asked Wayne and Stephen
    to distribute the funds in the Bank Accounts to the Children equally, upon his
    death.  Thus, Watch Tower submits, the trial judge erred by failing to apply
    the legal principles relating to secret trusts. Based on this premise, it
    argues that: (1) the secret trust fails for lack of certainty of objects and the
    funds in the Bank Accounts must revert to the Estate, or (2) the beneficiaries
    of the secret trust are the beneficiaries of Arthurs 2006 will.

[74]

This
    is a new issue, raised for the first time on appeal.  Accordingly, I would
    decline to entertain it.

[75]

It
    is trite law that appellate courts are not to entertain new issues except in
    very limited circumstances:
Perez (Litigation Guardian of) v. Salvation
    Army in Canada
(1998), 42 O.R. (3d) 229, at p. 233.  As Watch Tower raises
    the secret trust issue for the first time before this court and none of the
    exceptional circumstances exist, it would be improper to decide the issue.  To
    do so would be unfair to the Respondents, who may very well have adduced
    different evidence had they known that such an issue was before the court.  Moreover,
    there is an obligation to raise the issue before the trial judge to allow for
    an appealable issue:  see
Clark v. BMO Nesbitt Burns Inc.,
2008 ONCA 663,
    300 D.L.R. (4th) 313, at para. 54.

[76]

In
    any event, without deciding the matter, it seems to me that the secret trusts argument
    is doomed to fail.  Even if the secret trusts doctrine could apply to a situation
    such as this, where a parent makes an
inter vivos
gratuitous transfer to
    an adult child, there can be no problem with the certainty of objects
    requirement because, on the findings of the trial judge, the objects of the
    secret trust are indisputably the Children.

THE CROSS APPEAL

1.

Should
    Leave to Appeal the Costs Order be Granted?

[77]

Leave
    to appeal a costs order requires strong grounds upon which an appellate court could
    find that the trial judge erred in the exercise of his or her discretion:  see
Brad-Jay
    Investments Ltd. v. Szijjarto
(2006), 218 O.A.C. 315 (C.A.), at para. 21,
    leave to appeal to S.C.C. refused, 31879 (June 21, 2007).  An appellate court
    should set aside a costs award only if the trial judge has made an error in
    principle or if the costs award is plainly wrong: see
Hamilton v
.
Open Window Bakery Ltd.
(2003), 2004 SCC 9, [2004] 1 S.C.R. 303, at para.
    27.



[78]

Watch
    Tower submits that leave to appeal the Costs Order ought not to be granted.  It
    says that the trial judge made no error in principle in following the modern
    approach to awarding costs in estate litigation, namely, by applying the usual
    costs rules in civil litigation and awarding reasonable partial indemnity costs
    to the successful party.

[79]

As
    I will explain, in my view, the trial judge erred in principle in refusing to
    declare that the Estate Trustee is entitled to be indemnified for his trial
    costs not recovered from Watch Tower.  Accordingly, I would grant leave to
    appeal the Costs Order.

2.

Should
    the Estate Trustee be Indemnified?

[80]

The
    Estate Trustee submits that two errors underpin the trial judges refusal to order
    that the Estate indemnify him.  The first alleged error is the trial judges
    finding that the litigation was of no benefit to the Estate.  The second is the
    trial judges failure to take into consideration the Estate Trustees
    obligation to ascertain the assets of the Estate as a necessary precondition to
    properly administering it.

[81]

I
    would accept this submission.  In my view, an application of the governing
    principles makes it clear that the Estate Trustee is entitled to be indemnified
    for his trial costs.  As I will explain, the Costs Order requiring Watch Tower
    to pay part of those costs does not derogate from that entitlement.

a.

The
    Governing Principles

[82]

In
Geffen v. Goodman Estate
,

[1991] 2 S.C.R. 353, at pp. 390-391,
    Wilson J., writing for the court on this issue, reiterated the long-standing
    principle that estate trustees are entitled to be indemnified for all
    reasonably incurred costs, including legal costs.  She quoted with approval the
    following statement from
Re Dallaway
, [1982] 3 All E.R. 118, at p. 122:

In so far as [an estate trustee] does not recover his costs
    from any other person, he is entitled to take his costs out of the fund held by
    him unless the court otherwise orders; and the court can otherwise order only
    on the ground that he has acted unreasonably, or in substance for his own
    benefit, rather than for the benefit of the fund.

[83]

However,
    the practice of ordering costs from the estate did not extend solely to estate trustees. 
    Historically in estate litigation, the courts would order the estate to bear
    the costs of all parties.

[84]

The
    historical approach to costs in estate litigation created the danger that estates
    would be unreasonably depleted because of unwarranted or needlessly protracted
    litigation.  Consequently, it has been displaced by the modern approach set out
    by this court in
McDougald Estate v. Gooderham

(2005), 255
    D.L.R. (4th) 435, (Ont. C.A.), at paras. 78-80: the court is to carefully
    scrutinize the litigation and, unless it finds that one or more of the relevant
    public policy considerations apply, it shall follow the costs rules that apply
    in civil litigation.  That is, the starting point is that estate litigation,
    like any other form of civil litigation, operates subject to the general civil
    litigation costs regime established by section 131 of the
Courts of Justice
    Act
, R.S.O. 1990, c. C.43, and Rule 57 of the
Rules of Civil Procedure
,
    R.R.O. 1990, Reg. 194, except in those limited circumstances where public
    policy considerations apply.

[85]

The
    public policy considerations at play in estate litigation are primarily of two
    sorts: (1) the need to give effect to valid wills that reflect the intention of
    competent testators; and (2) the need to ensure that estates are properly
    administered.  In terms of the latter consideration, because the testator
[1]
is no longer alive to rectify any difficulties or ambiguities created by his or
    her actions, it is desirable that the matter be resolved by the courts. 
    Indeed, resort to the courts may be the only method to ensure that the estate is
    properly administered.

[86]

In
    any event, where the problems giving rise to the litigation were caused by the
    testator, it is appropriate that the testator, through his or her estate, bear
    the cost of their resolution.  In such situations, it ought not to fall to the
    Estate Trustee to pay the costs associated with having the court resolve the
    problems.  As Kruzick J. observed in
Penney Estate v. Resetar
, 2011
    ONSC 575, 64 E.T.R. (3d) 316, at para. 19, if estate trustees were required to
    bear their legal costs in such situations, they might decline to accept
    appointments or be reluctant to bring the necessary legal proceedings to ensure
    the due administration of the estate.

b.

Applying the
    Principles to the Present Case

[87]

In
    my view, the second public policy consideration  the need for the proper
    administration of the Estate  underlies the present proceedings. 
    Consequently, as the Estate Trustee acted reasonably throughout and for the
    benefit of the Estate, he is entitled to be indemnified from the Estate for his
    trial costs not recovered from Watch Tower.

[88]

One
    of an estate trustees duties is to call in the assets of the estate.  Thus, in
    the present case, the Estate Trustee was obliged to determine whether the Bank Accounts
    were held by way of resulting trust for the Estate.  While it is true that the
    Estate Trustee was one of the joint owners of the Bank Accounts and also a
    beneficiary of the Estate, his multiple roles do not change the fact that his
    obligation as Estate Trustee was to determine the Estate assets and call them
    in.  Accordingly, the trial judge erred in finding that the litigation was for
    the Estate Trustees personal benefit.

[89]

Moreover,
    the difficulties and problems arising from the Bank Accounts were caused by
    Arthur, who transferred the Bank Accounts into his name jointly with Wayne and
    Stephen without clearly spelling out, by will or otherwise, what he intended by
    those transfers.  As we have seen, it was not clear whether Arthur intended to make
    a beneficial gift of the right of survivorship in the Bank Accounts to Wayne
    and Stephen; to have them hold the funds in the Bank Accounts on resulting
    trust for the Estate; or, on Arthurs death, to have them hold the funds in the
    Bank Accounts on trust for the Children.  Because these problems were caused by
    Arthur, it is appropriate that he  through his estate  bears the cost of
    their resolution.

[90]

Furthermore,
    in this case, the Estate Trustee had personal knowledge of Arthurs intentions. 
    As Estate Trustee, he had no choice but to take a position consistent with
    those intentions.  He could not stand by as Watch Tower adduced evidence
    concerning Arthurs intentions that did not accord with his understanding of those
    intentions.  His fiduciary duty, as Estate Trustee, compelled him to participate
    in these proceedings to ensure that the court had the best evidence on which to
    determine Arthurs intentions in respect of the Bank Accounts.  From this
    perspective, the Estate Trustees involvement engages both of the public policy
    considerations.

[91]

The
    trial judge also erred in finding that the litigation was of no benefit to the
    Estate.  The Estate benefits from being properly administered and proper
    administration required the courts determination as to the ownership of the
    monies in the Bank Accounts on Arthurs death.

[92]

It
    will be apparent from these reasons that I do not accept Watch Towers
    submission that the public policy considerations apply only to situations where
    a will is challenged or its interpretation is in issue, and not to other estate
    litigation matters.  This submission fails to take into account the public
    policy consideration in favour of the due administration of estates.

c.

The
    Costs Order Combined with Indemnification

[93]

The
    costs award that would result from allowing the cross appeal is somewhat
    unusual.  Rather than ordering costs from the Estate or from Watch Tower, the
    costs award would be a blend of the two, with Watch Tower being liable to pay
    the Estate Trustees partial indemnity costs and the Estate being obliged to
    indemnify the Estate Trustee for his costs not recovered from Watch Tower.  Is
    there a problem with a blended costs order of this sort?  My answer to this
    question is no.

[94]

There
    is some case law that suggests that the awarding of costs in estate litigation
    is a binary matter: either costs are payable according to the usual rules
    governing civil litigation, or from the estate, but not both.  See, for
    example,
Reid Estate v. Reid Estate
,

2010 ONSC 3800, 59 E.T.R.
    (3d) 312, at para. 3.  And, I acknowledge, the parties and the courts often
    operate on the assumption that costs are to be awarded on an either/or basis.

[95]

However,
    I see nothing in the jurisprudence that would prevent a court from making such
    a blended costs order.  On the contrary, the passage quoted from
Geffen v.
    Goodman Estate
, set out earlier in these reasons, contemplates this very
    thing.  It will be recalled that in the quotation, Wilson J. affirmed the following:

In so far as [an estate trustee]
    does not recover his costs from any other person, he is entitled to take his
    costs out of the fund
[Emphasis added.]

[96]

Moreover,
    the modern approach to costs in estate litigation, which seeks to ensure that
    estates are not depleted through the costs of unnecessary litigation, supports the
    availability of a blended approach.  As D. M. Brown J. noted in
Salter v.
    Salter Estate
(2009), 50 E.T.R. (3d) 227 (Ont. S.C.), at para. 6:

Parties cannot treat the assets of an estate as a kind of ATM
    bank machine from which withdrawals automatically flow to fund their
    litigation.  The loser pays principle brings needed discipline to civil
    litigation by requiring parties to assess their personal exposure to costs
    before launching down the road of a lawsuit or a motion.  There is no reason
    why such discipline should be absent from estate litigation.  Quite the
    contrary.  Given the charged emotional dynamics of most pieces of estates
    litigation, an even greater need exists to impose the discipline of the general
    costs principle of loser pays in order to inject some modicum of
    reasonableness into decisions about whether to litigate estate-related
    disputes.

[97]

The
    availability of a blended costs order gives the court the ability to both
    respect the public policy considerations that may be involved and maintain the
    discipline of which Brown J. spoke.

[98]

A
    simple example illustrates this point.  Suppose an estate trustee faces a
    situation similar to that in the present case:  the court must determine
    whether a joint bank account is held by way of resulting trust for the estate. 
    At trial, the responding party loses, although it had a reasonable basis for
    opposing the estate trustee.

[99]

In
    such a situation, the court may begin with the premise that both parties are
    entitled to their costs from the estate because of the public policy
    consideration in favour of the due administration of estates.  However, as in
    any type of civil litigation, the court must consider the parties conduct and
    the costs they are claiming.  If the court were to find that the losing partys
    conduct unnecessarily increased the costs of litigation, it should be open to
    the court to order that party to pay a part of the estate trustees costs,
    while at the same time ordering the estate to pay the balance of the estate
    trustees costs.  Put another way, the estate ought only to bear the costs
    reasonably associated with ensuring that it is duly administered.  Accordingly,
    in my view, the modern approach to costs in estate litigation supports the
    availability of blended costs orders.

[100]

Finally, given the
    discretionary nature of costs orders, there would have to be a compelling reason
    for me to conclude that the courts lack the power to make blended costs orders. 
    I see none.

COSTS OF THE APPEAL AND CROSS APPEAL

[101]

In
McDougald
    Estate
, at para. 91, this court briefly considered the principles that
    govern costs awards in estate litigation at the appellate level.  It noted that
    the limited jurisprudence on point was to the effect that at the appellate
    level, costs are normally awarded against an unsuccessful appellant.  Thus, it
    appears, the usual rules apply with the unsuccessful party being liable for
    costs on a partial indemnity basis.  On that basis, given that the Estate
    Trustee was fully successful on the appeal and cross appeal, it is entitled to
    its costs from Watch Tower, on a partial indemnity basis.

[102]

A similar question
    to that discussed above arises: is this courts jurisdiction limited to its
    normal practice in respect of costs or can it make a blended order and declare
    that the Estate Trustee is entitled to be indemnified for the balance of its
    costs of the appeal and cross appeal from the Estate?  If so, ought it to make
    such an order?

[103]

The parties
    disagree on this issue.

[104]

Watch Tower
    contends that this court lacks the jurisdiction to make such an order.  It does
    not deny that the Estate Trustee is ultimately entitled to be indemnified by the
    Estate for the costs of the appeal and cross appeal, but maintains that to
    obtain such an indemnification, the estate trustee must return to the Superior
    Court of Justice and assert that claim on a passing of accounts.

[105]

The Estate
    Trustee, on the other hand, has provided cases in which this court has ordered
    that full costs be paid from the estate: see
The Canada Trust Company v.
    Browne
, 2012 ONCA 862, 82 E.T.R. (3d) 165
    and
Michaels v. Bogun Estate
,
    2006 CanLII 718 (Ont. C.A.)
.

[106]

I note, however,
    that the court has not been provided with any cases in which costs have been
    awarded on a blended basis at the appeal level, with partial indemnity costs
    being paid by the losing party and the balance of the costs being paid by the
    estate.

[107]

For similar
    reasons to those given above in respect of the first instance courts power to
    make blended costs orders, in my view, such costs orders can be made on
    appeal.

DISPOSITION

[108]

Accordingly, I
    would dismiss the appeal, grant leave to appeal the Costs Order, and allow the
    cross appeal.  I would amend the Costs Order by adding an order declaring that
    the Estate Trustee is entitled to be indemnified from the Estate for the
    balance of his trial costs not recovered from Watch Tower.

[109]

I would award the
    Estate Trustee costs of the appeal and cross appeal on a partial indemnity
    basis from Watch Tower, fixed at $30,000, all-inclusive.  I would also declare that
    the Estate Trustee is entitled to be indemnified by the Estate for the balance
    of his costs of the appeal and cross appeal not recovered from Watch Tower, in
    accordance with his Bill of Costs.

Released: February 5, 2014 (A.H.)

E.E. Gillese J.A.

I agree. Alexandra Hoy A.C.J.O.

I agree. G.R. Strathy J.A.





[1]
I will follow the modern practice of using the term testator to refer to both
    males and females who die leaving a will.


