Readers may be familiar with Professor Oosterhoff’s article on Trustee Indemnity, and his concern, expressed therein, with some decisions of the Ontario Superior Court of Justice that do not accord with the principle of trustee indemnification set out in section 23.1 of the Trustee Act.

A recent decision of the Ontario Court of Appeal suggests that Professor Oosterhoff is right to be concerned; trustees are indemnified from costs reasonably incurred in the administration of a trust. The principle of trustee indemnification may be difficult for some to reconcile with the modern approach to estate litigation, which provides that costs follow the event (the “loser pays” principle). However, the Court of Appeal reminds us once again, as they did in Sawdon Estate v. Sawdon,¹ that the modern approach to costs in estate litigation is tempered by the policy considerations at play in estate litigation; resort to the courts is sometimes necessary in certain circumstances, so the costs of those reasonable proceedings should not necessarily be borne personally by Trustees.

In White v. Gicas,² an Estate Trustee applied for the advice and directions of the Court to clarify ambiguity regarding the quantum of assets within an estate that she was administering pursuant to the Will of Constantine Gicas, deceased (the “Deceased”). The Estate Trustee was of the view that certain assets of the Deceased, namely, shares of two particular holding companies, formed part of the Deceased’s Estate. The Respondent to the application was the trustee of a separate family trust; he argued that the shares were objects of the family trust and did not fall into the Deceased’s Estate.

At the hearing of the application, the judge found that the shares were in fact objects of the family trust, not the Estate, and ordered costs against the Estate Trustee, personally. The judge did not provide reasons on the subject of his costs order.

The Estate Trustee appealed the judge’s decision regarding both the shares and the costs order.

The Court of Appeal upheld the application judge’s decision and reasons with respect to the shares; they formed part of the family trust, not the Estate.

The Court of Appeal also granted leave to appeal the costs order (recall that costs orders are discretionary and leave to appeal is required) for two reasons:

First, the application judge gave no reasons for his costs award. The absence of reasons precludes meaningful appellate review and leaves the appellants without an explanation as to why they were ordered to pay costs personally.

Second, and related to the absence of reasons, we cannot determine whether the application judge applied the proper approach to an award of costs in estate litigation.³

The Court of Appeal then reviewed the modern approach to costs in estate litigation exemplified in McDougald Estate v. Gooderham and Sawdon Estate:⁴

The approach begins from a premise that estate litigation operates subject to the general civil litigation costs regime except in those limited cases in which public policy considerations mandate a different result: Sawdon Estate, at para. 84.

In estate litigation, there are two predominant public policy considerations at play:

i.        The need to give effect to valid wills that reflect the intention of competent testators; and

ii.        The need to ensure that estates are properly administered.

In practical terms, the demise of the testator leaves recourse to the courts as the only viable method of rectifying any difficulties or ambiguities created by the testator and of ensuring that the estate is properly administered: Sawdon Estate, at para. 85.

It logically follows that 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 reasonable costs associated with their resolution. Indeed, to saddle the estate trustees personally with legal costs in such situations might well discourage them from initiating reasonably necessary legal proceedings to ensure due administration of the estate: Sawdon Estate, at para. 86.⁵

The Court of Appeal reasoned that the problems underpinning the Estate were created by the Deceased, insofar as it was unclear whether the shares in question fell within the Estate or the family trust. The Deceased was not available to assist the Estate Administrator in clarifying this issue, for obvious reasons. The Estate Trustee’s application for directions was therefore a reasonable approach to resolving this issue, and the Court of Appeal ordered the costs ordered at trial to be paid out of the Estate, and not by the Estate Trustee, personally.⁶

This is an encouraging decision for the Trustees, but we would remind readers that there are limits to the indemnity of trustee indemnification, both in statute and at common law. Trustees should therefore make sure they are availing themselves of informed legal advice on the subject of costs when considering commencing proceedings.

—
1. Sawdon Estate v. Sawdon, 2014 ONCA 101 (CanLII).
2. White v. Gicas, 2014 ONCA 490 (CanLII).
3. Ibid, paras 68 and 69.
4. McDougald Estate v. Gooderham 2005 CanLII 21091 (ON CA), (2005), 255 D.L.R. (4^th) 435 (Ont. C.A.), at paras. 78-80;
5. Supra note 2, paras 70 – 72.
6. Ibid, para 73.