Kimberly A. Whaley and Amy Cull
(1) Objections: Failure to File and Setting Aside Unopposed Judgments to Pass Accounts
Marino v. Marino Estate (Trustee of)
What is the appropriate test to apply when a beneficiary of an estate, who failed to file a notice of objection to accounts within the prescribed time, moves to set aside an unopposed judgment passing accounts obtained by the estate trustee?
The case of Marino v. Marino Estate (Trustee of) dealt with this issue. In this case, one of the deceased's sons, Gino, acted as the deceased's attorney for property pursuant to a continuing power of attorney for property for the period from June 18, 2003 until the deceased's death on January 16, 2009. Appointed as such under her will, he then acted as his mother's estate trustee. Gino filed a notice of application to pass accounts, dated January 14, 2010. His notice stated that his accounts covered the period from June 18, 2003, when he acted as his mother's attorney, until January 15, 2009. The notice specified a return date for the application of March 24, 2010.
Since, under Rule 74.18 of the Rules, an objector who is served with a notice of application to pass accounts and wishes to object to the accounts is required to serve and file a notice of objection to accounts at least 20 days before the hearing date of the application, Gino's brother, Biagio, had until March 4, 2010 to file his notice of objection.
Almost a year after the Notice of Application was filed, Biagio retained a lawyer to assist him with reviewing the accounts. Three months later, and ten days after the deadline to object, on March 14, 2010, Biagio's lawyer wrote to Gino's lawyer to request an opportunity for his client to review the accounts, and, if necessary, pose questions and raise any objections he may have with respect to the estate accounts. During the period from March 14, 2010 to March 18, 2010, counsel exchanged correspondence, which indicated a willingness on the part of both counsels' clients to resolve the matter and settle the dispute. However, on or about March 25, 2010, counsel were surprised to learn that on March 13, 2010, Justice Belobaba had granted an unopposed judgement on the passing of accounts.
Although counsel for Biagio sent his notice of objections on April 2, 2010 and although further correspondence ensued with efforts at settlement, these efforts eventually broke down, culminating with a notice by the estate trustee that he was no longer willing to negotiate and planned to distribute the estate at the end of June, in accordance with the terms of the Judgment. In response, Biagio brought this motion to set aside the Judgment, to grant him leave to file a Notice of Objection, and to prohibit Gino from making a final distribution of estate assets without the consent of Biagio or a judgement passing the accounts.
In his analysis of the relevant legal principles, Justice Brown noted that although Rules 74.18(3) and (7) of the Rules entitle a person who has a contingent or vested interest in an estate to file a notice of objection to accounts, the issue that arises is the fact that Rule 74 does not contain an express provision addressing the ability of a person who has failed to file a notice of objection in a timely fashion to move to set aside an unopposed judgment for passing of accounts. However, Brown J. was of the view that, since Rule 74.18(1) requires a passing of accounts to be brought by way of application, the application falls under Rule 14: Rule 14.05(3), which, in turn, triggers the application of Rule 38.11.[1] Brown J. continued as follows:
In the present case the estate trustee served the required notice of application to pass accounts on Biagio, a person with a contingent or vested interest in his mother's estate, but Biagio failed to file a notice of objection to accounts within the prescribed time leading the estate trustee, quite properly, to seek an unopposed judgment: Rule 74.18(9). These circumstances closely resemble the situation where a defendant is served with a statement of claim, but fails to file a statement of defence within the prescribed time, leading to a noting in default and securing of a default judgment. Accordingly, I think it appropriate to apply on this motion to set aside the judgment under Rule 38.11 the principles developed in the jurisprudence for motions to set aside default judgments.[2]
Referring to the Court of Appeal decisions in Peterbilt of Ontario Inc. v. 1565627 Ontario Ltd. (2007), 87 O.R. (3d) 479 (Ont. C.A.) and HSBC Securities (Canada) Inc. v. Firestar Capital Management Corp., 2008 ONCA 894 (Ont. C.A.), Brown J. affirmed the applicability of the principles espoused by the Court of Appeal in situations where a court is faced with a motion to set aside an unopposed judgment.
Thus, as a result of Brown J.'s decision in Marino v. Marino Estate (Trustee of), an objector who has failed to file their objection in time and seeks to set aside an unopposed judgment on the passing may get a second chance to object, provided they are able to demonstrate the following: (i) that the motion was brought without delay after the objector learned of the default judgment; (ii) that the circumstances giving rise to the default were adequately explained; and (iii) that the objector has an arguable objection on the merits, to permit the court to determine whether the interests of justice favour granting the order. As to this last item, Brown J. noted that: "the court should consider the potential prejudice to the moving party if the motion were dismissed, the potential prejudice to the respondent if the motion were allowed, and the effect of any order on the overall integrity of the administration of justice."[3]
Applied to the facts of the case, Brown J. found that although Biagio's motion to set aside the Judgment was not brought forthwith, given that Biagio's counsel's initial email put the estate trustee on notice that a motion to set aside the Judgment might be brought and expressed a willingness to settle the dispute, Brown J. had no hesitation in concluding that the motion was brought without delay.[4] Justice Brown cited Rule 1.04(1) and the principle that the Rules not be interpreted and applied "in a manner that discourages parties from attempting to resolve their disputes through good faith negotiations before resorting to court."[5]
The Court was satisfied by the affidavit evidence produced by counsel for Biagio that indicated that the failure to file a timely notice of objection to the accounts rested solely on Biagio's counsel's shoulders and not Biagio himself and, as such, the Court found that such constituted an adequate explanation of the circumstances giving rise to the default.
Although a number of the objections raised by Biagio centered on the dealings by Gino while acting as their late mother's attorney for property, including the compensation taken by him during this time, the Court found that Biagio had in fact demonstrated arguable objections to the accounts of Gino, in his capacity as a fiduciary.
In applying the third part of the three-pronged test, Justice Brown found that this was a "close case."[6] The two primary competing factors were the need to ensure that fiduciaries fully account for their management of property, on the one hand, and the failure of the beneficiary to raise his objections in a timely manner which, in turn, causes delay that could adversely impact the other beneficiaries, on the other hand.
In the result, the Court concluded that it should act to ensure that a fiduciary fully accounts for his activities. As Biagio raised arguable objections to Gino's accounts, Justice Brown opined that they should be considered. Consequently, he granted Biagio's motion and set aside the Judgment, on terms.[7] He further held that no further steps should be taken in the application to pass accounts until the parties attended at a mandatory mediation.[8]
Noting that Rule 49 offers had been delivered for the motion, the Court reserved his decision on the issue of costs until he received written submissions from the parties, in accordance with the deadlines he provided therein.
Interestingly, although the Court reserved its decision on costs until written submissions were provided, Biagio was ordered "to pay all the mediator's costs."[9]
(2) Appeals and Costs of Unsuccessful Appeals
Penney Estate v. Resetar
In Penney Estate v. Resetar, Tracey Marie Resetar ("Ms. Foster") sought leave to appeal an order to pass accounts. The Estate Trustee During Litigation (the "ETDL") and the Office of the Children's Office (the "OCL") were successful in having Ms. Foster's motion for leave dismissed.
In their written submissions on costs, both the ETDL and the OCL contended that they had no alternative but to respond to the motion for leave. The ETDL sought partial indemnity costs, and had agreed to act in the matter at a reduced hourly rate, which reduction was reflected in the bills as filed. The OCL sought full indemnity costs. Both submitted that their costs were fair and reasonable. Counsel submitted that if there is no payment or shortfall, costs should be paid out of the estate on a full indemnity basis. No submissions or material was provided from Ms. Foster on the issue of the costs sought.
In reaching its decision, the Court reviewed its jurisdiction to order costs, as found in section 131(1) of the Courts of Justice Act,[10] the factors to be considered as set out in Rule 57.01(1) of the Rules. The Court also reviewed the principle espoused in McDougald Estate v. Gooderham;[11] namely, "[u]nless the matter fits with the two enumerated exceptions: (a) the litigation arose as a result of the actions of the testator; or (b) the litigation was reasonably necessary to ensure the proper administration of the estate, the unsuccessful party pays."[12]
The Court found that neither of the estate-related exceptions applies, since the motion for leave to appeal the order for the passing of accounts was not necessitated by the actions of the testator and nor to ensure the proper administration of the Estate.[13] As such, the rules of civil litigation were found to apply.
The Court noted that both the ETDL and the OCL were successful on the motion, and that the reply to the motion for leave was appropriate and necessary to fully respond to the motion. The Court was satisfied that the partial indemnity costs as set out in the Bill of Costs were calculated according to the suggested rates found in the "information for the Profession," as set out in the introduction to Rule 57 of the Rules.
The Court referred to Rule 57, Jung v. Lee Estate,[14] and applied the reasoning in The Estate of John Johannes Kaptyn,[15] wherein Justice Lederer awarded costs on a full indemnity basis, stating:
This is an Estate matter. As a general rule and in this case in particular, problems with a Will can be said to arise from the actions, omissions, instructions and decisions of the Testator. The Trustees are to put in place by the Will to represent the Estate. They are not here out of choice, hence, it is reasonable that they are not to be "out-of-pocket". They should be paid on a full indemnity scale. Here, Jonathan and Jason carried the weight of supporting the Will. They too should be paid on a full indemnity scale.[16]
In the end, the Court held that the ETDL and the OCL were entitled to their costs on a full indemnity basis, stating:
If estate trustees or estate trustees during litigation are expected to bear their own costs during the course of litigation, not only would they refuse to be appointed, estate trustees and estate trustees would also be reluctant to bring proceedings to advance the due administration of the estate and protect the interest of the beneficiaries.[17]
Footnotes:
[1] Rule 38.11 provides as follows: "38.11(1) A party or other person who is affected by a judgment on an application made without notice or who fails to appear at the hearing of an application through accident, mistake or insufficient notice may move to set aside or vary the judgment, by a notice of motion that is served forthwith after the judgment comes to the person's attention and names the first available hearing date that is at least three days after service of the notice of motion. [...] (3) On a motion under subrule (1), the judgment may be set aside or varied on such terms as are just.
[2] Supra note 6 at par. 21.
[3] Ibid. at paras. 22 & 23.
[4] Ibid. at paras. 24 & 25.
[6] Supra note 6 at par. 41.
[10] Courts of Justice Act, R.S.O. 1990, c. C.43.
[11] McDougald Estate v. Gooderham (2005), 255 D.L.R. (4th) 435 (Ont. C.A.).
[12] Supra note 15 at par. 13.
[14] Jung v. Lee Estate, 2007 CarswellBC 2904 (B.C. S.C.).
[15] December 4, 2008, unreported.
[17] Supra note 15 at par. 19.
