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Civil Litigation - Costs - Estates. Pletch v. Pletch Estate
In Pletch v. Pletch Estate (Div Court, 2024) the Divisional Court spelled out new estate costs doctrine ('blended costs'), here where the lower court held that the intestate "had not made adequate provision to support his children and for payment of his debts" under the SLRA [s.72 - 'Value of certain transactions deemed part of estate'].
Here the court explains 'blended costs', and when they might be merited:Guiding Principles for Deciding Blended Costs
[51] As a starting point, Gillese J.A. in Sawdon Estate, at para. 99, described the appropriate situation for blended costs to be where “the losing party's conduct unnecessarily increased the costs of litigation.” In that case, “it should be open to the court to order that party to pay a part of the estate trustee's costs, while at the same time ordering the estate to pay the balance of the estate trustee's costs”: Sawdon Estate, at para. 99.
[52] More recently in McGrath v. Joy, 2022 ONCA 119, 471 D.L.R. (4th) 211, at paras. 94-95, Gillese J.A. expanded upon the circumstances in which a blended costs order would be appropriate by setting out the process to follow to make that determination:The jurisprudence is clear: at first instance, when deciding costs in estate litigation, the court must begin by carefully scrutinizing the litigation to determine whether one or more of the public policy considerations applies. If so, as a general principle, the parties’ reasonable costs are to be paid from the testator’s estate.
It is worthy of note that this approach is not a balancing of the public policy considerations against the rationale for cost rules that ordinarily apply to civil litigation. Rather, it is a sequential analysis, the first step of which is to determine whether one or more of the public policy considerations apply. If so, generally the parties’ reasonable costs should be payable from the estate. A departure from this general principle requires justification on the part of the court. ....
[66] In this case, Kerry-Ann [SS: the estate trustee] had a duty to determine whether one-half of the proceeds from the sale of the matrimonial home were an estate asset or a s. 72 asset. In light of an estate trustee’s obligation to determine the estate assets and call them in, Terry’s criticism of Kerry-Ann for investigating the proper characterization of the matrimonial home proceeds and the LIRA was unfounded.
[67] As estate trustee, Kerry-Ann was a necessary party to these proceedings: Furtney Estate v. Furtney, 2014 ONSC 3774, at para. 33. The right to a trustee to recover legal costs extends to the right of trustees to be indemnified for all costs. This right includes legal costs which have been reasonably incurred and the costs of an action reasonably defended. See Trustee Act, R.S.O. 1990, c. T.23, s. 23.1.
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[73] There are several factors under r. 57.01(1) that justify a costs order against Terry [SS: these were enumerated]. ....
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[76] The estate was a necessary party to this proceeding and Kerry-Ann had no choice but to protect the interests of the estate as estate trustee. Given that the application judge made no finding of misconduct on Kerry-Ann’s part, as estate trustee she should not be left to assume personal responsibility for her litigation costs. This is particularly the case where the applications judge did make findings of misconduct on Terry’s part, which was a significant factor in increasing Kerry-Ann’s costs in this litigation.
[77] Elevated costs are appropriate when a party to the litigation has behaved in a reprehensible or egregious fashion, deserving of sanction: Davies v. Clarington (Municipality), 2009 ONCA 722, 100 O.R. (3d) 66, at paras. 28-29. Terry’s conduct and the positions she took throughout this proceeding, as found by the applications judge, meets this test.
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[79] The public policy reasons behind McGrath support this finding. It is important as a matter of public policy for the law to allow all costs reasonably incurred on behalf of an estate by an estate trustee to be indemnified for litigating issues arising through the fault of the testator or person who died intestate. The expectation of indemnity for costs provides the financial basis for an estate trustee to address those issues and to take whatever steps necessary as a trustee on behalf of the estate. As Gillese J.A. observed in Sawdon Estate, at para. 86, if an estate trustee were required to cover their own legal expenses without a reasonable prospect of recovering those expenses for retaining representation for an estate in litigation, they might decline to accept an appointment or be reluctant to bring necessary legal proceedings to ensure the proper administration of an estate. . Pletch v. Pletch Estate
In Pletch v. Pletch Estate (Div Court, 2024) the Divisional Court spelled out new estate costs doctrine ('blended costs'), here where the lower court held that the intestate "had not made adequate provision to support his children and for payment of his debts" under the SLRA [s.72 - 'Value of certain transactions deemed part of estate'].
Here the appeal court allows that the estate trustee was entitled to a costs award:[5] Kerry-Ann is the estate trustee of Darrell’s estate (the “estate”) and was Darrell’s sister. Kerry-Ann was not awarded any costs for the legal expense she incurred to have the estate represented in the application.
[6] The application judge awarded costs to Darrell’s brother, Jeffrey Pletch (“Jeffrey”), in the amount of $50,000, and to his daughter Julia, in the amount of $25,000, payable by Terry. He then held that no other legal costs shall be paid out of the estate, without reference to the costs claimed by Kerry-Ann on behalf of the estate.
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References to Costs in the Main Reasons
[21] In his reasons for judgment, the application judge commended Kerry-Ann for her decision not to seek compensation for administering the estate. When Kerry-Ann asked about indemnification for her costs, including the litigation costs she funded on behalf of the estate, the applications judge stated at paragraph 71 of his decision that he would not be dealing with costs at that time. The applications judge stated later in his reasons, at paragraph 113, that “no other legal costs shall be paid out of the estate.”
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1. Did the Application Judge Err in Not Awarding Costs to Kerry-Ann?
Governing Principles
[28] As the general rule, an estate trustee is entitled to be fully indemnified for her legal costs from the estate, including litigation costs, provided the estate trustee is acting in good faith and those litigation costs are reasonably incurred. In Geffen v. Goodman Estate, 1991 CanLII 69 (SCC), [1991] 2 S.C.R. 353, at 390-391, the Supreme Court of Canada recognized that those legal costs include the costs of an action that has been reasonably defended.
[29] The entitlement of an estate trustee to costs has evolved over time, from an expectation that those costs be paid exclusively from the estate, to a loser pay regime routinely applied in other civil proceedings, and now to a model where liability for costs may be allocated between an adverse party and the estate in a “blended costs order.” The Ontario Court of Appeal in Sawdon Estate v. Watch Tower Bible and Tract Society of Canada, 2014 ONCA 101, 119 O.R. (3d) 81, at para. 82, confirmed the governing 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.
[30] Justice Gillese in Sawdon Estate, at para. 86, held that “it is appropriate that the testator, through his or her estate, bear the cost of their resolution… it ought not to fall to the estate trustee to pay the costs associated with having the court resolve the problems.” At para. 86, Gillese J.A. then went on to caution that “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.”
[31] Following her reasons in Sawdon Estate, Gillese J.A. later held in Neuberger Estate v. York, 2016 ONCA 303, 131 O.R. (3d) 143, at para. 24, that public policy considerations in estate litigation may dictate that an estate trustee’s costs should be paid from the estate. These public policy considerations include the need to incur costs: “(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”: Neuberger Estate, at para. 24.
[32] In Brown v. Rigsby, 2016 ONCA 521, 350 O.A.C. 236, at para. 12, the Ontario Court of Appeal reaffirmed the general rule that estate trustees are entitled to be “fully indemnified” by the estate for their reasonable costs incurred, to the extent they are not recovered from another person or party. Referring to Geffen, as well as Sawdon Estate and Neuberger Estate as authorities, Pepall J.A., at para. 14, summarized the principles that apply to an estate trustee’s ability to recover legal costs from an estate as follows:a. an estate trustee is entitled to indemnification from the estate for all reasonably incurred legal costs;
b. 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
c. 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. ....
[47] The governing principles summarized in Brown, at para. 14, make it clear that an estate trustee is entitled to indemnification for her litigation costs unless the court orders otherwise. The court can order otherwise only where it finds that she has acted unreasonably or that she acted for her own benefit. The applications judge did not make any of those findings to order otherwise. He therefore erred in law in disentitling Kerry-Ann to be indemnified by holding “no other legal costs shall be paid out of the estate.” In doing so, the application judge made a costs order that is plainly wrong and must be set aside. . Shannon v. Hrabovsky
In Shannon v. Hrabovsky (Ont CA, 2024) the Court of Appeal awarded costs against this estates litigation party, rather than from the estate itself:[5] We are also satisfied that this is an appropriate case to order that the appellants pay costs personally, rather than awarding costs payable by the estate. The appellants both stood to benefit financially if the 2007 will disinheriting the respondent was upheld, whereas the respondent is the largest beneficiary under the 2006 will. In our view, the appellants’ appeal was entirely devoid of merit and was brought primarily for their own benefit rather than for the benefit of the estate. If costs were ordered payable by the estate, this would effectively shift a substantial part of the costs of this appeal to the respondent. In these circumstances, we find it appropriate to order that the appellants pay costs personally: see Geffen v. Goodman Estate, 1991 CanLII 69 (SCC), [1991] 2 S.C.R. 353, at pp. 390-91; Sawdon Estate v. Sawdon, 2014 ONCA 101, 119 O.R. (3d) 81, at para. 82; Westover Estate v. Jolicouer, 2024 ONCA 81, at para. 14. . Westover Estate v. Jolicouer
In Westover Estate v. Jolicouer (Ont CA, 2023) the Court of Appeal considered an appeal of an estates cost award:[11] While we allow leave to appeal, we dismiss the costs appeal. Costs awards should only be set aside on appeal where there is an error in principle or the costs award is plainly wrong: Hamilton v. Open Window Bakery Ltd., 2004 SCC 9, [2004] 1 S.C.R. 303, at para. 27; Sawdon Estate v. Sawdon, 2014 ONCA 101, 119 O.R. (3d) 81, at para. 77. For the reasons that follow, although costs against an estate trustee personally are generally rare, we conclude that the trial judge made no error in ordering them in the circumstances of this case.
[12] It is now well-established that estate litigation, like all civil litigation, is subject to the general civil litigation costs regime. The historical approach in estate proceedings that all parties’ costs are paid out of the estate has been displaced by the modern approach to fixing costs in estate litigation that seeks to ensure estates are not depleted through the costs of unnecessary litigation and the assets of an estate are not treated “as a kind of ATM bank machine from which withdrawals automatically flow to fund their litigation”: Salter v. Salter Estate (2009), 2009 CanLII 28403 (ON SC), 50 E.T.R. (3d) 227 (Ont. S.C.), at para. 6; Johnson v. Johnson Estate, 2022 ONCA 682, 81 E.T.R. (4th) 7, at para. 21, leave to appeal to S.C.C. refused, 40477 (April 6, 2023); Sawdon, at para. 96; McDougald Estate v. Gooderham (2005), 2005 CanLII 21091 (ON CA), 255 D.L.R. (4th) 435 (Ont. C.A.), at paras. 75-80. The same rules that govern costs in civil litigation at the appeal level apply in estate litigation: McDougald Estate, at para. 91; Sawdon, at para. 101.
[13] Exceptions to the general approach may arise in limited cases where public policy considerations apply and mandate a different result: McDougald, at paras. 75-85; Johnson, at para. 21; Neuberger Estate v. York, 2016 ONCA 303, 131 O.R. (3d) 143, at para. 24, leave to appeal refused, [2016] S.C.C.A. No. 207; White v. Gicas, 2014 ONCA 490, 98 E.T.R. (3d) 197, at para. 70. Public policy considerations include the need to give effect to valid wills that reflect the intention of competent testators as well as the proper administration of estates: Sawdon, at para. 85; Gicas, at paras. 71-72.
[14] Estate trustees are generally “entitled to be indemnified for all reasonably incurred costs in the administration of an estate”: Brown v. Rigsby, 2016 ONCA 521, 350 O.A.C. 236, at para. 11. Saddling estate trustees personally with legal costs where litigation was caused by the testator might well discourage them from initiating reasonably necessary legal proceedings to ensure the due administration of an estate: Sawdon, at para. 86; Gicas, at para. 72. However, this is not an absolute rule. A court may order otherwise if an estate trustee has acted unreasonably or in substance for their own benefit, rather than for the benefit of the estate: Geffen v. Goodman Estate, 1991 CanLII 69 (SCC), [1991] 2 S.C.R. 353, at p. 391; Sawdon, at para. 82. That is the case here.
[15] The trial judge made explicit findings that the appellant unduly influenced her father to make the claims he made in the action. The trial judge also found that the appellant’s continuation of the action was primarily to benefit herself and her father’s other beneficiaries, rather than her father, who died shortly after the litigation was commenced, or his estate. The only basis for the action impugning the property transfers were the clearly unsubstantiated allegations of fraud and conspiracy. As a result, the trial judge found that the appellant’s testimony to further the action and the unsubstantiated allegations of fraud and conspiracy was self-serving.
[16] Further, the appellant’s continuation of the action was not reasonable. While her father commenced the action, he died a little over a year after starting it. It was the appellant who continued it and pursues the claim on appeal, more than five years after her father’s death. Litigation is very expensive. Fraud and conspiracy allegations are notoriously difficult to prove and, if unsubstantiated, can result in a higher level of costs awarded to the successful party, as was the case here: Unisys Canada Inc. v. York Three Associates Inc. (2001), 2001 CanLII 7276 (ON CA), 44 R.P.R. (3d) 138 (Ont. C.A.), at para. 15. The appellant cannot rely on her role as estate trustee as licence to engage unreasonably in estate-funded litigation that was of no real benefit to the estate nor to its proper administration, and had no genuine prospect of success: McDougald, at paras. 81-82. The appellant did not take reasonable steps to ascertain whether the litigation should be continued after her father’s death. The trial judge properly accounted for the portion of the costs attributable to the appellant’s unreasonable decision to continue the litigation: see, e.g. Avdeeva v. Khousehabeh, 2023 ONSC 6402, 90 E.T.R. (4th) 165, at paras. 44-56.
[17] To properly administer her father’s estate, the appellant was obliged to review her father’s bank accounts and documents. A simple review of Mr. Westover’s bank records and real estate documents would have revealed the transfers and their transparent circumstances. Moreover, as evidenced by his lawyer’s notes, the fact that Mr. Westover did not blame Ms. Westover-Morriseau but described the transfers as a “misunderstanding” belied any allegation of fraud and conspiracy. It does not appear that the appellant took any steps to investigate the allegations of fraud and conspiracy. Rather, as also found by the trial judge, the appellant had done little to administer the estate and had enjoyed living rent-free in Mr. Westover’s home for several years. She pursued litigation that chiefly benefitted her because of her free living arrangements and the possibility of enhancing her portion of the estate.
[18] The trial judge’s findings were open to him to make. They supported an award against the appellant personally because she had acted unreasonably and substantially for her own benefit in encouraging her father to start the action and in her continuing the action on the basis of the clearly unsubstantiated allegations of fraud and conspiracy against her siblings. . Cain v Harnett
In Cain v Harnett (Div Court, 2023) the Divisional Court commented on costs reimbursement, including legal cost awards, for estate trustees:[7] In Sawdon Estate v. Watch Tower Bible and Tract Society of Canada, 2014 ONCA 101, at para. 82, the Court of Appeal confirmed that estates trustees are entitled to be indemnified for all reasonably incurred costs, including legal costs. The Court of Appeal further held that courts have the authority to make “blended” costs orders, including on appeal. A blended costs order is appropriate if the losing party’s conduct unnecessarily increased the costs of litigation, but some costs were necessarily incurred to ensure that the estate is properly administered. . Di Nunzio v. Di Nunzio
In Di Nunzio v. Di Nunzio (Ont CA, 2022) the Court of Appeal cited a change in the law of costs, as it relates to estate litigation:[9] In McDougald Estate v. Gooderham (2005), 2005 CanLII 21091 (ON CA), 255 D.L.R. (4th) 435 (Ont. C.A.), at paras. 78-80, this court explained that the traditional approach in estate litigation that the costs of all parties are ordered payable out of the estate has been displaced by the modern approach of fixing costs in accordance with civil costs rules, unless the court finds that there are public policy considerations. Public policy considerations include where the dispute arises from an ambiguity or omission in the testator’s will or other conduct of the testator, or there are reasonable grounds upon which to question the will’s validity. The modern approach balances the need of the court’s oversight to ensure that only valid wills executed by competent testators are propounded with the need to restrict unwarranted litigation and protect estates from being depleted by litigation: at para. 85.
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