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Costs of Estate Litigation: Who Pays the Bill?

A common misconception about estate litigation is that the assets of an estate are used to fund the costs of litigation to all parties involved. This leads many to believe that if an estate holds valuable assets then those persons whom either have a financial interest in the estate or administer it do not need to worry about assessing the potential losses of commencing litigation, as the assets of the estate will cover their legal tab. This misconception is held by estate trustees and disgruntled beneficiaries alike. Although misguided now, this was in fact the historical practice of English courts in estate litigation which was adopted in Canada. Only up until nearly the turn of this century did the courts in Ontario stop automatically looking to the assets of an estate to satisfy the costs of litigation for all parties.

The tides first began to change with respect to costs awards in estate litigation with the decision of the Ontario Court of Appeal in McDougald Estate v. Gooderham.[1] In that decision, Gillese J.A. clarified on behalf of the Ontario Court of Appeal that the “historical approach” to costs awards in estate litigation has been displaced by the “modern approach.”[2]

Her Honour explained that the historical approach developed due to the public policy consideration for English courts to give effect to valid wills that reflect the intention of a competent testator. To do so, the English courts awarded the costs of all parties to be paid out of the estate where the litigation arose from either: (1) an ambiguity or omission in the testator’s will or other conduct of the testator; or (2) there were reasonable grounds upon which to question the will’s validity.[3] Her Honour also noted that it had become “virtually automatic” for Canadian courts of first instance to apply this historical approach in estate litigation.

Gillese J.A. went on to explain that the modern approach correctly allows for courts at first instance to carefully scrutinize the litigation and, unless the court finds that one or more of the public policy considerations applies, to follow the costs rules that apply in civil litigation.[4] Her Honour noted that the modern approach allows the courts to ensure that only valid wills executed by competent testators are propounded and to protect estates from being depleted by unwarranted litigation. Lastly, her Honour affirmed that “[g]one are the days when the costs of all parties are so routinely ordered payable out of the estate that people perceive there is nothing to be lost in pursuing estate litigation [emphasis added].” [5]

Another turning point was Justice Brown’s decision in Salter v Salter Estate.[6] In his decision, Justice Brown scolded parties for treating the assets of an estate “as a kind of ATM bank machine for which withdrawals automatically flow to fund litigation [emphasis added].[7] Justice Brown went on to comment that the historical “loser pays” principle of civil litigation brings needed discipline to the parties and that “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.”[8]

Shortly thereafter, Strathy J., as he was then, held in Zimmerman v McMichael Estate[9] that the following principles were appropriate in determining the issue of costs sought by the objectors to the conduct of the estate trustee’s administration of the estate:

  1. Pursuant to s. 131 of the Courts of Justice Act, the costs of a proceeding are in the discretion of the court and the court may determine by whom and to what extent costs should be paid;
  2. estate litigation, like any form of civil litigation, operates subject to the general civil litigation costs regime;
  3. as a general proposition, the principle that the “loser pays” applies to estate litigation;
  4. in the determination of costs, the court must have regard to the factors set out in Rule 57 of the Rules of Civil Procedure, R.O. 1990, Reg. 194, but, at the end of the day, the court’s responsibility is to make an award that is fair and reasonable, having regard to all the circumstances, including the reasonable expectations of the parties;
  5. the court’s discretion to award costs on a full indemnity basis is preserved by Rule 57.01(4)(d);
  6. full indemnity costs are reserved for those exceptional circumstances where justice can only be done by complete indemnity.

In Sawdon Estate v Watch Tower Bible and Tract Society of Canada[10], Gillese J.A., with Strathy J.A. concurring, plainly combined hers and Strathy J.’s, as he then was, decisions in McDougald Estate and McMichael Estate, respectively, to further clarify the modern approach to costs in estates litigation. The following was stated by the Court of Appeal in Sawdon Estate:

The court is to carefully scrutinize the litigation and, unless it finds that the 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.S.O. 1990, Reg. 194, except in those limited circumstances where public policy considerations apply.

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.[11]

Gillese J.A. also noted in the decision of Sawdon Estate that there was nothing in the jurisprudence that would prevent a court from making a “blended costs” order from both the unsuccessful party and the estate. Her Honour noted that the availability of a blended costs order gives the court the ability to respect the public policy considerations that may be involved and to maintain the discipline of which Just Brown clarified in Salter Estate.[12]

In Sawdon, the Ontario Court of Appeal ordered that a beneficiary, who unsuccessfully objected to the estate trustee’s passing of accounts, was liable to pay the estate trustee partial indemnity costs and that the estate was liable to indemnify  the estate trustee for his costs not recovered from the unsuccessful beneficiary.

Most recently, a blended costs award was made in The Estate of Imgard Burgstaler (disability).[13] This decision was on the costs of a passing of accounts by an attorney for property. In his decision, Shaw J. applied Sawdon Estate by balancing those factors in Rule 57.01 of the Rules of Civil Procedure with the public policy consideration for ensuring that the estate is properly administered. This led Shaw J. to award full indemnity costs to the objectors but by use of a blended payment structure. The attorney for property was to pay partial indemnity costs to the objectors and the difference was to be paid out of the assets of the estate. His Honour acknowledged that this structure is “fair and reasonable” and gave sufficient recognition to the general costs principle of “loser pays” and the “discipline” that the principle is intended to encourage.[14]

To conclude, it is clear that the courts in Ontario have moved away from the historical approach to costs in estate litigation, as previously adopted by the English courts. As stated best by Gillese J.A., “[g]one are the days when the costs of all parties are so routinely ordered payable out of the estate that people perceive there is nothing to be lost in pursuing estate litigation [emphasis added].”[15] That said, the public policy consideration of giving effect to valid wills that reflect the intention of a competent testator is still good law in Ontario. As evidenced in The Estate of Imgard Burgstaler (disability), however, courts of first instance in Ontario will attempt to make a cost award that is fair and reasonable in the circumstances while also giving effect to the discipline that underlies the “loser pays” principle of civil litigation. This has moved the courts away from ordering that all costs of an estate litigation are to be paid from the assets of an estate to either a complete loser pays or blended structure. We continue to watch the difference approaches and to see how the modern approaches and results to the treatment of costs in estate and related litigation throughout Canada.

[1] McDougald Estate v. Gooderham (2005), 255 DLR (4th) 435, (Ont CA) (“McDougald Estate”)

[2] Ibid at para 80

[3] Ibid at para 79

[4] Ibid at para 80

[5] Ibid at para 85

[6] Salter v Salter Estate (2009), 50 ETR (3d) 227 (Ont SC) (“Salter Estate”)

[7] Ibid at para 6

[8] Ibid

[9] Zimmerman v McMichael Estate, 2010 ONSC 3855 (“McMichael Estate”)

[10] Sawdon Estate v Watch Tower Bible and Tract Society of Canada, 2014 ONCA 101 (“Sawdon Estate”)

[11] Ibid at paras 84-85

[12] Ibid at para 97

[13] The Estate of Imgard Burgstaler (disability), 2018 ONSC 4725

[14] Ibid at para 35-36

[15] Supra note 5

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