



COURT OF APPEAL FOR ONTARIO

CITATION: Brown v. Rigsby, 2016 ONCA 521

DATE: 20160630

DOCKET: C61049

Simmons, Pepall and van Rensburg JJ.A.

BETWEEN

Judy Brown, Brenda Dale and Bruce Shackleton

Applicants (Respondents)

and

Janet Rigsby and Paul Shackleton

Respondents (Appellants)

Ondrej Sabo, for the appellants

Lou-Anne F. Farrell, for the respondents

Heard: February 10, 2016

On appeal from the Order of Justice Lynne C. Leitch of
    the Superior Court of Justice, dated March 30, 2015.

Pepall J.A.:

Background Facts

[1]

This action involves a familial dispute over an estate. The parties to
    this estate action are five of the six children of the deceased mother. The six
    children are the residual beneficiaries under the mothers will. The two
    appellants are the estate trustees of their mothers estate and attorneys
    pursuant to a power of attorney granted to them by their mother.

[2]

In August 2008, the three respondents commenced an application
[1]
against the appellants in which they sought the appellants removal as estate
    trustees, a passing of accounts, and an order that the appellants repay to
    their mothers estate amounts found to have been improperly taken or,
    alternatively, pay damages for breach of fiduciary duty. The sixth child opted
    not to participate in the action but supported the position of the appellants
    throughout.

[3]

The action was settled shortly before the commencement of the trial in
    2014. However, the parties were unable to agree on the costs of the action. They
    agreed that entitlement of the parties to costs was to be determined by the
    court.

Parties Positions Before the Motion Judge

[4]

Before the motion judge, the appellants sought an order of costs of
    $74,299.37 on a substantial indemnity scale, plus HST, to be paid by the
    respondents. The respondents sought costs personally from the appellants in the
    amount of $80,380.63 on a substantial indemnity scale, plus HST. While the
    parties had agreed that entitlement to costs was to be determined by the motion
    judge, no one asked that the estate be burdened with payment of anyones costs.

Motion Judges Reasons

[5]

The motion judge gave extensive reasons for her decision. She found:

·

the application did not relate to a challenge to a will, but
    began with a request that the attorneys pass their accounts and answer
    questions raised by the appellants;

·

the commencement of the application by the respondents was
    reasonable;

·

the appellants did not adequately address the reasonable
    questions of the respondents early in the application;

·

a statement in the affidavit of one of the appellants was untrue:
    that as attorneys, they had not used the power of attorney to manage their
    mothers affairs. The power of attorney was used to sign the mortgage discharges
    in favour of the appellant Shackleton;

·

the reference to the doctors assertion of the mothers capacity
    was unhelpful as he last saw her on March 15, 2007 and the mortgage discharges
    were signed in June 2007;

·

although requested as a priority, the notes of the mothers
    lawyer, which were relevant to the instructions given on the discharge of the
    two mortgages, continued to be outstanding in June 2009;

·

the respondents questions remained unanswered for a considerable
    period of time;

·

undertakings given by the appellants on their cross-examinations
    were not fulfilled and a motion was required;

·

another motion was brought by the respondents to have the
    appellants found in contempt because the order compelling answers to undertakings
    remained unfulfilled; and

·

the answers given were not fully responsive and many were still
    outstanding as of October 2013.

[6]

The motion judge reviewed the parties offers, including one delivered
    by the appellants, which provided that the appellants costs be paid out of the
    estate with the respondents being responsible for their own costs. She also
    reviewed the parties positions on costs and the jurisprudence. With respect to
    the latter, she noted
McDougald Estate v. Gooderham
(2005), 255 D.L.R.
    (4th) 435 (Ont. C.A.), for the proposition that the historical practice of
    ordering an estate to bear the costs of all parties had been replaced by the
    modern approach that reflected the loser pays costs regime applicable in
    civil litigation.

[7]

The motion judge concluded that the settlement of the substantive issues
    in dispute between the parties reflected divided success. She stated that she
    could not conclude that one party was more successful than the other and these
    were not circumstances where a loser should pay. She was satisfied that the
    appropriate order was that each party be responsible for their own costs.

[8]

The appellants successfully sought leave to appeal the costs order,
    which was granted by this court on September 1, 2015.

Grounds of Appeal

[9]

The appellants submit that the motion judge erred in principle in
    finding that, as estate trustees, the appellants were responsible for their own
    costs. They state that they were duty bound to respond to the action and to
    defend the estate and that absent serious misconduct, or self-interested or
    unreasonable conduct, an estate trustee is entitled to costs payable out of the
    estate.

[10]

The appellants acknowledge that no one asked the motion judge for an
    order that costs be paid out of the estate, but they submit that this should
    not be considered fatal. First, the only issue before the motion judge was
    which side was to bear the costs of the action. Secondly, there was no
    evidentiary basis to support the motion judges conclusion that the appellants
    should bear their own costs. Put differently, there was no basis on which the
    motion judge could have concluded that the appellants were guilty of serious misconduct,
    acted in their own self-interest or were unreasonable and that they therefore
    should be denied payment of their costs from the estate.

Analysis

(a)

Legal Fees of Estate Trustees

[11]

Estate trustees are entitled to be indemnified for all reasonably
    incurred costs in the administration of an estate. This includes the legal
    costs of an action reasonably defended, to the extent these costs are not
    recovered from another person. However, a court may order otherwise if an
    estate trustee has acted unreasonably or in substance for his or her own
    benefit, rather than for the benefit of the estate:
Geffen v.
Goodman
    Estate
,
[1991] 2
    S.C.R. 353, at 391. The principles described in
Geffen
were not
    displaced by this courts decision in
McDougald Estate
.

[12]

In
Sawdon Estate v. Watch Tower Bible and Tract Society of Canada
,
    2014 ONCA 101, 119 O.R. (3d) 81, at para. 82, this court reiterated the
    principle that estate trustees are entitled to be fully indemnified by the
    estate for their reasonably incurred legal costs to the extent they are not
    recovered from any other person. That is the general rule.

[13]

Most recently, in
Neuberger Estate v. York
, 2016 ONCA 303, [2016]
    O.J. No. 2151, Gillese J.A. addressed the costs of parties engaged in estates
    litigation.  At paras. 24 and 25, she wrote:

In estates litigation in Ontario, the historical approach to
    costs has been displaced in favour of one in which
the costs rules in civil litigation apply both at first instance and on
    appeal, unless the court finds that one or more of the relevant public policy
    considerations dictate that costs (or some portion thereof) should be paid out
    of the assets of the estate
:
McDougald Estate v. Gooderham
(2005), 255 D.L.R. (4th) 435 (Ont. C.A.), at para. 80; see also
Sawdon
    Estate v. Sawdon
, 2014 ONCA 101, 370 D.L.R. (4th) 686, at para. 101. The
    public policy considerations at play in estate litigation are primarily of two
    sorts: (1) where the difficulties or ambiguities that give rise to the
    litigation are caused, in whole or in part, by the testator; and (2) the need
    to ensure that estates are properly administered.

Blended costs awards, in which a portion of costs is payable by
    the losing party and the balance is payable out of the estate, are available at
    first instance and on appeal, in the discretion of the court, where one or more
    of the relevant public policy considerations are found to be engaged:
Sawdon
,
    at paras. 93-100 and 107.

[14]

In summary, subject to the discretion of the court, the general rules
    governing an estate trustees ability to recover legal costs from an estate are
    as follows:

-

an estate
    trustee is entitled to indemnification from the estate for all reasonably
    incurred legal costs;

-

if an estate
    trustee acts unreasonably or in his or her own self-interest, he or she is not
    entitled to indemnification from the estate; and

-

if an estate
    trustee recovers a portion of his or her costs from another person or party, he
    or she is entitled to indemnification from the estate for the remaining  reasonably
    incurred costs.

(b)

Standard of Review for Cost Awards

[15]

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.
, 2004 SCC 9, [2004] 1 S.C.R. 303,
    at para. 27.

(c)

Merits of Appeal

[16]

On their face, the motion judges reasons appear to conflate the issues
    of trustee indemnification and the civil litigation costs regime. She did not
    engage in an analysis of whether the appellants conduct rose to the level of
    unreasonableness or self-interest that would justify denying them
    indemnification for the legal costs associated with defending the action.

[17]

That said, the parties agreed that the issue of a trustees ability to
    obtain indemnification from the estate was not advanced before the motion
    judge. This explains the motion judges failure to focus on the issue of
    indemnification.

[18]

However, I would deny the appellants indemnification from the estate on
    the grounds of both unreasonableness and self-interest. In large measure, the
    parties dispute centred on a need for the appellants to make disclosure. Their
    failure to be forthcoming resulted in elevated costs for all parties. Although
    prior cost awards addressed some of the appellants conduct, as illustrated by
    the motion judges findings, the appellants behaviour is fairly characterized
    as unreasonable.

[19]

Moreover, the conduct under scrutiny, and the appellants failure to
    exhibit timely candour, related for the most part to conduct that pointed to an
    aggrandizement of their personal holdings at the expense of the estate and the
    other residual beneficiaries. In substance, their dilatory conduct served to
    protect their own interests, not those of the estate.

[20]

For these reasons, I agree with the motion judges conclusion. The
    appellants are not entitled to recovery of their costs from the estate in this
    case.

Disposition

[21]

Accordingly, I would dismiss the appeal. As agreed, I would order the
    appellants to pay the respondents costs fixed in the amount of $5,000 on a
    partial indemnity scale, inclusive of disbursements and HST.

Released:

JUN 30 2016                                     S.E.
    Pepall J.A.

JS                                                     I
    agree Janet Simmons J.A.

I
    agree K. van Rensburg J.A.





[1]
The application was subsequently converted into an action.


