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Guardianship Weekly – Week 19: Costs Treatment in Guardianship& Capacity Litigation

INTRODUCTION

Cost treatment and awards in guardianship, power of attorney, fiduciary accounting and capacity litigation proceedings are, in a word, unpredictable.

While the applicable principles become clearer through decisions of the court, the courts have been given a wide discretion to apply cost principles to fit the particular circumstances of a case. The result has been a range of outcomes that stand well enough on their own but are not always easy to reconcile with one another.

Capacity Related Litigation Versus General Civil Litigation

A discussion about costs in capacity, guardianship, and power of attorney litigation, and fiduciary accounting – which we will refer to collectively as capacity litigation – must begin with a look at what makes this area of litigation unique.

In ordinary civil litigation, the dispute is over the parties’ own respective rights, as between themselves. Once the court decides the case, there is a winner and a loser. The longstanding rule in civil litigation is that the loser, who was wrong and ought not to have brought or defended the claim, pays the winner’s costs.

By contrast, in capacity litigation, the parties’ dispute is not about their own rights, but about the rights of a third party who is not capable of participating personally. It is common for the parties to take the view that they have no personal interest in the matter and are only acting out of duty or altruistic motives; that they are only acting in the best interests of the incapable person. It follows that they would see themselves as being entitled to indemnification for their expenses, either from the incapable person’s assets or by the opposing parties.

The reality is more often than not different from the theory. Parties in capacity litigation may be motivated by self-interest rather than the best interests of the incapable person. There are various different kinds of self-interest. A party might want to avoid liability for past misconduct; take revenge on a family member for a historic perceived injustice; gain control of the incapable person’s assets for personal gain; or claim moral victory in a family power struggle.

Even if a party’s motivations are genuine, they may conduct the litigation in an unreasonable way so that the legal costs are higher than they ought to have been if they had cooperated to reach a speedy resolution.

The development of the modern costs rules in capacity litigation

The dynamics of estate litigation, which has undergone a revolution in its costs rules, are similar to those that animate capacity litigation. The estates rules have been carried over into the law of costs in capacity litigation.

The traditional rule in estate litigation was that all parties’ costs were paid out of the estate. The parties were entitled to come to court for an adjudication of the issues without any risk to themselves, regardless of whether they were successful. This stood in contrast to the usual rule in civil litigation that the successful party’s costs were paid by the loser.

In 2005, the Ontario Court of Appeal in the case of McDougald Estate v Gooderham pushed aside the traditional rule in favour of a more modern approach.[1] The modern approach is as follows: the loser pays the successful party’s costs unless there is an applicable public policy reason for the costs to be paid out of the estate. There are two such public policy reasons. First, where the difficulties or ambiguities that give rise to the litigation are caused by the testator, it is appropriate that the testator, through his or her estate, bear the costs of their resolution.[2] Second, if there are reasonable grounds to question the execution of the will or the testator’s capacity in making it, it is in the public interest to resolve the question without cost to the parties who have raised the issue.[3]

The Court of Appeal summarized this modern approach to costs in estate litigation as follows:

The modern approach to awarding costs, at first instance, in estate litigation recognises the important role that courts play in ensuring that only valid wills executed by competent testators are propounded.  It also recognises the need to restrict unwarranted litigation and protect estates from being depleted by litigation.  Gone 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.[4]

These principles were restated briefly but powerfully in 2009 by Justice D.M. Brown in Bilek v Salter Estate, in an oft-quoted passage:

Parties cannot treat the assets of an estate as a kind of ATM bank machine from which withdrawals automatically flow to fund their litigation.  The “loser pays” principle brings needed discipline to civil litigation by requiring parties to assess their personal exposure to costs before launching down the road of a lawsuit or a motion.  There is no reason why such discipline should be absent from estate litigation.  Quite the contrary.  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.[5]

These principles are now well enshrined in estate litigation, having been revisited and endorsed by the Ontario Court of Appeal as recently as 2014.[6]

Costs of capacity litigation: Fiacco v Lombardi

Not long after Justice Brown decided Salter Estate, he had an opportunity to consider the question of costs in a contested guardianship application in Fiacco v Lombardi.[7] In that case, the court said that the principles in McDougald Estate and Salter Estate – i.e., the importance of imposing discipline on the parties through a loser-pays costs rule – applied, with necessary modifications, to capacity litigation.

The following is the proper approach to costs in capacity litigation, as set out in Fiacco.

The court may exercise its discretion to order costs payable out of the incapable person’s assets in light of the basic purpose of the Substitute Decisions Act, 1992[8] ( “SDA”), which is to safeguard and properly manage the property of incapable persons in their sole best interests. Therefore, the key question in judging whether costs should be paid from the incapable person’s assets is what benefit the person gained from the litigation, given the costs incurred.

In unopposed guardianship applications, which often arise when a person becomes incapable without having made a power of attorney, the incapable person typically receives a benefit from an application. The benefit is a guardianship order allowing his/ her property to be properly managed. In these cases, the court will usually allow the costs to be paid out of the incapable person’s assets, although with discretion to consider the reasonableness of the amount.

In opposed guardianship applications, the court will be much more circumspect. Capacity disputes often arise because of a conflict between attorneys or where multiple people claim a competing right to manage the incapable person’s property or personal care as a guardian. In Fiacco, the court allowed that bona fide disputes about the wellbeing of the incapable person may well be raised and resolved by the court in the best interests of the incapable person, but that the parties and the court must not be allowed to lose sight of the purpose: the best interests of the incapable person. Justice Brown noted that these cases often degenerate into a battle among family members, some of whom put their own interests ahead of the incapable person’s.

Further Statements of the Principle

In Ziskos v Miksche, the court emphasized the court’s role in protecting the incapable person from unreasonable exposure to costs:

The court has a responsibility to ensure that legal costs incurred on behalf of a vulnerable person are necessary and reasonable and for that person’s benefit, before ordering that such costs be paid by the assets or estates of the vulnerable person.[9]

The court further stated as follows:

…it can no longer be said in estate matters, and in this regard I would include matters under the SDA, that parties and their counsel can reasonably expect all of their costs to be paid for by the assets or in this case now from the estate of Johanna Miksche. The trend for some time now has been to examine the nature of the dispute and the conduct of the parties. Although in most cases it is also possible to consider which party is the “successful” party, that is not as significant a factor in these types of cases provided it can be said that the parties are properly motivated by the best interests of the person under a disability and are acting reasonably.[10]

In Wercholoz v Tonellotto, Justice Glithero said:

In my opinion, this case represents a sad example of the hefty amounts that can be spent by siblings who choose to litigate rather than negotiate their differences in respect of a parent’s wellbeing. In terms of an appropriate costs order, I must be concerned not only with the usual considerations as between the combatants, but also, most importantly, with what is fair from [the grantor of the power of attorney’s] perspective.[11]

The legislative framework for costs awards

The unique approach to costs of capacity litigation, as contrasted with the costs of ordinary civil litigation, is not based on any difference in the underlying legislation. It arises out of reasoned judicial application of the usual statutes and rules applicable to the exercise of the court’s discretion to award costs: the Courts of Justice Act[12] and the Rules of Civil Procedure.[13] It is important to refer to these sources when advising on or making a claim for costs.

The court’s authority to make a costs award is derived from section 131 of the Courts of Justice Act, which provides:

Subject to the provisions of an Act or rules of court, the costs of and incidental to a proceeding or a step in a proceeding are in the discretion of the court, and the court may determine by whom and to what extent the costs shall be paid.[14]

This provision is subject to applicable rules, which, in capacity litigation, means Rule 57 of the Rules of Civil Procedure. Under this rule, the court is authorized to consider various factors in exercising the discretion to award costs. These factors include:

  • the principle of indemnity;
  • the degree of success of each party;
  • the amount claimed and recovered;
  • the importance of the issues;
  • the complexity of the issues; and
  • any step taken by the parties that tended to lengthen or shorten the proceedings.[15]

The court’s overarching goal in making a costs award is to fix costs “in an amount that is fair and reasonable for an unsuccessful party to pay in the particular circumstances, rather than an amount fixed by actual costs incurred by the successful litigant.”[16]

In ordinary civil litigation, costs are typically awarded to the successful party on a partial indemnity basis. There are two circumstances in which a party may be entitled to a higher scale of costs; i.e., costs on a substantial indemnity or full indemnity basis.[17] First, elevated costs are available to a party who has made an offer to settle pursuant to Rule 49 of the Rules of Civil Procedure. Second, a party who has acted in a reprehensible manner in the litigation may be punished by an award of elevated costs.[18]

A full discussion of the law of costs of litigation is beyond the scope of this chapter, but reference may be had to various helpful texts on this topic.[19]

Application of the principles

The following are some examples of recent Ontario cases in which the court has been asked to make costs orders in capacity litigation. This is not an exhaustive review of the cases, but it is nonetheless enough to see that judicial discretion plays an enormous role in the outcome of a case.

Scalia v Scalia

In the 2015 case of Scalia v Scalia,[20] about an incapable older man, a dispute erupted between his wife and his son from his previous marriage.

The son developed suspicions that his stepmother was misappropriating the husband’s property. He demanded an accounting, but did not receive what he considered to be an adequate response. The son then took matters into his own hands. He moved funds out of his father’s and stepmother’s joint account and put them beyond her reach. He redirected some of his father’s income, which had previously been paid into the joint account and was available to the stepmother to support herself. Then he commenced an application.

The son asked for financial disclosure and an accounting from the stepmother and orders dealing with various assets. His application was dismissed, and the court was critical of his unilateral steps to control his father’s assets before commencing the litigation. However, the court found that the application itself was not brought in bad faith, nor was it unreasonable. The court ordered that the stepmother’s costs be paid on a partial indemnity basis, but out of the husband’s assets rather than the son’s.

The stepmother responded with her own claim to remove the son as attorney for property, set aside her marriage contract with her husband, and for orders for interim support and dealing with assets, among others. She was partly successful in her own application. She was awarded support and granted orders allowing her to deal with the husband’s assets. In this application, the judge ordered the son to pay the stepmother’s substantial indemnity costs in the amount of $13,500 personally.

The son appealed the court’s order that he personally pay substantial indemnity costs in his stepmother’s application. Although the Court of Appeal agreed with some of his arguments, the costs award was upheld.

The Court of Appeal reviewed the application judge’s approach. The application judge found that the son had not performed his fiduciary duties honestly, diligently, and in good faith as required under s 32 of the SDA. The son had demonstrated bad faith by unilaterally withdrawing funds from the joint account and holding back support for his stepmother. He had unilaterally moved his father into a long-term care facility against his father’s expressed wishes, and then told his irate father that it had been his stepmother’s choice. The application judge also found that the son’s conduct in the litigation created an adversarial proceeding that split the family. He concluded that the son’s conduct was “reprehensible.”

The Court of Appeal reviewed the evidence and found that the son had not in fact completely cut off the stepmother’s support, was not acting unreasonably when he acted to preserve his father’s assets for the father’s benefit in light of his mounting healthcare costs, and did not cut off his stepmother’s visits. The court reversed the application judge’s finding of bad faith on the basis that the son did not intend to inflict harm or deceive, which are the hallmarks of bad faith.

However, the court upheld the application judge’s finding that the son had taken steps in the litigation that were of no benefit to his father and refused to accept reasonable offers to settle. The Court of Appeal considered the rule in McDougald Estate and found that neither exception applied. In the result, the court upheld the costs award against the son.

The Public Guardian and Trustee v Dodson

When Edmund Sobies died, he left behind his wife Stella. Stella was incapable of managing her property, did not have a continuing power of attorney for property, and the Public Guardian and Trustee (“PGT”) was appointed as her statutory guardian pursuant to the SDA.

Stella’s sister Jennie unsuccessfully applied to the PGT for a Certificate of Statutory Guardianship for Stella (i.e., to replace the PGT as guardian). The PGT refused to grant the certificate and, in Public Guardian and Trustee v Dodson,[21] commenced a court application to confirm its refusal, as required by the SDA.

The PGT’s evidence was that Jennie did not understand the role of a guardian of property, repeatedly made allegations not grounded in fact and could not objectively manage Stella’s property because she was fixated on attacking Stella’s late husband’s will. The court agreed.

The PGT sought costs in the amount of $5,942.50. It asked the court to order that Jennie pay $1,000 of these costs and that the balance be paid from Stella’s assets.

The court held that the PGT was entitled to its costs as it was discharging its statutory burden. The modern approach to estate litigation applies, and costs will typically follow the result. However, Stella obtained a benefit by the confirmation of the PGT as her statutory guardian, so it was reasonable for her estate to pay for a portion of the costs. However, Jennie ought to be responsible to pay the additional and unnecessary costs caused by her position.

The court called the $1,000 amount sought by the PGT “exceedingly generous” to Jennie and ordered that she pay it, stating, “The message needs to be sent to Jennie Dodson that there are financial consequences to her unjustified behavior.”

Lisowick v Alvestad

Even if parties manage to settle all of the substantive issues in a guardianship dispute, they may disagree about who should bear the costs. This was the situation in Lisowick v Alvestad.[22]

The case involved competing applications by the two daughters of the incapable person, both named attorneys for property and personal care, each of which asked for an order to be appointed as the sole guardian of property and personal care.

In the course of the litigation, a capacity assessor found the father capable of granting a new power of attorney (“POA”). He proceeded to grant a new POA to just one of his two daughters. Ultimately, that newly-named attorney served an offer to settle to solidify the new arrangements and end the litigation. By accepting the offer, the other sister essentially capitulated.

Despite the settlement, the issue of costs remained outstanding. Each sister claimed costs from the other, the amounts being $76,897.50 and $93,683.31 (the larger amount being claimed by the successful sister).

The court found that the terms of the settlement essentially repudiated the original position of the sister who ultimately agreed to be removed. This disentitled her from receiving any costs.

With respect to the “successful” sister, the court reviewed the Rule 57 factors and found the quantum of costs sought to be somewhat excessive, reducing the amount that it was prepared to order to $50,000.

The interesting question in this case is who would pay the successful sister’s costs: the unsuccessful party or the alleged incapable person? In a perhaps surprising turn, the court reviewed the principles in Fiacco and similar cases, but declined to order that the loser pay any costs. This was so even though the losing sister had continued the litigation well beyond the point where the father had made new powers of attorney in favour of the successful sister. The court reasoned as follows at paras 28-30:

As noted by Brown J. in Fiacco, the paramount consideration in the exercise of the court’s discretion in cost claims arising from capacity litigation is the protection of the property of the individual whose capacity is being challenged. The property of such persons must not be significantly depleted by cost awards which undermine its ability to generate income for the care of the incapable person.

On the other hand, the quantum of costs awarded must not be tantamount to a judicial licence for siblings to opt for litigation in contested guardianship cases rather than resolving their differences in a manner that reflects the best interests of the incapable relative. The fact that a parent or relative has a sizeable estate, therefore increasing the chances of costs recovery, should not be construed as an incentive to commence litigation in these types of cases.

It may be suggested that in as much as Ms. Rivera is seeking costs against Ms. Lisowick rather than against Mr. Alvestad’s property, that the court should not be guided by the legal principles set out in Fiacco, Wercholoz and Ziskos. However misguided Ms. Lisowick may have been in initiating the guardianship application, she did so on behalf of Mr. Alvestad and her scrupulous desire to ensure his personal wellbeing and to protect his property. Furthermore, she brought the application in her capacity as Mr. Alvestad’s Attorney for Personal Care and for Property. To that extent, any costs awarded in this case should be paid from Mr. Alvestad’s property, rather than against Ms. Lisowick.[23]

This case highlights a different approach to judicial discretion. While some courts have used costs to punish parties for succumbing to their emotions and baser instincts, others have found that strong emotions are natural in family litigation and are a mitigating, rather than aggravating, factor for bad behavior.

Kulyski v Kulyski Estate

The case of Kulyski v Kulyski Estate,[24] which began as capacity litigation and continued as estate litigation after the woman who was the unfortunate subject of the case died, contains a thorough practical application of the costs rules.

This was a dispute between two siblings on the one side and their sister on the other side over the validity of their mother’s powers of attorney and wills. It also involved an accounting of the sister’s dealings with the mother’s assets, and a claim by the sister for quantum meruit compensation for her alleged care services for her mother.

The dispute was touched off when the sister took her allegedly incapable mother to a lawyer, where the mother revoked her previous powers of attorney and will and made new ones favouring the sister.

Almost three years of protracted and procedurally dense guardianship litigation followed, with no resolution by the time the mother died. On the eve of the trial some months after death, the sister withdrew her intention to probate the new will that favoured her and to prove the validity of the new powers of attorney. Other issues were resolved on consent between the parties. The trial went ahead only on the issue of the sister’s quantum meruit claim, in which she was mostly unsuccessful, receiving judgment only for about $6,000.

In the court’s costs decision, Justice Greer reviewed the parties’ offers to settle, and found that the siblings had served the offer with terms that matched most closely with the eventual result.

The court heavily criticized the sister for her conduct. It found that she disregarded and even tried to hide evidence that demonstrated that she had little chance to succeed, but proceeded anyways. She never proposed a realistic plan for resolution of the case. Her conduct was “intransigent” and dragged the proceedings out for nearly four years. She did not admit taking various funds which she was found to have taken. She did not acknowledge her role in the deceased’s execution of new wills and POAs. She breached a court order to apply to pass her accounts and ultimately did not provide proper accounts.

The judge reviewed the principles in McDougald, Fiacco, Bilek, and other cases stating the relevant principles. She found that the litigation did not benefit the mother at all. Instead, this was, “one of those Estate cases that revolved around the family of the incapable person being unable to rationally deal with the sale of the house.” The court explained that, “the house should have been sold in 2011 to allow Stella to use the benefit of that money for a placement in a proper retirement residence. Instead, Patricia chose to oppose this for 3 more years.”

For these reasons, the court attributed the failure to the sister almost exclusively.

The sister’s own costs were $144,681, and she was awarded none of them. The siblings claimed full indemnity costs in the amount of $243,000. The court fixed their costs in the amount of $136,563, payable by the sister and to be deducted from her share of the estate.

In contrast to Lisowick, supra, the court in Kulyski gave no indication that the sister’s emotionally-driven conduct was grounds to excuse her unreasonable positions and bad litigation behaviour.

Blair v Reijers

Blair v Reijers[25] is an example of a case in which the court determined not only that one of the parties to the capacity litigation ought to pay costs personally, but that the costs ought to be fixed on a substantial indemnity basis on the grounds that the party’s conduct was “scandalous.”

The scandalous conduct included: not serving necessary parties before seeking court orders; dismissing her counsel on the eve of court hearings; failing to obey court orders; and removing her mother’s belongings from her home without authority and refusing to return them. There were also allegations of elder abuse made against her by the mother, who was the subject of these proceedings.

Cordeiro v Sebastiao

Capacity litigation can be highly emotional. In the case of Cordeiro v Sebastiao,[26] the unsuccessful party – an attorney for property who was removed for helping himself to over $100,000 of his mother’s funds – tried to appeal to the court’s sympathy for his own difficult circumstances. He argued that:

any question of guardianship over a parent is a highly sensitive and emotional one for the parties. As such, [the unsuccessful party] ought not to be punished unduly for exercising his procedural right to respond to the application or for exhibiting emotion that may have hampered his ability to act in a timely way.

However, the court found that he had only himself to blame, with no evidence before the court that his conduct was rooted in emotional causes. He unnecessarily lengthened and aggravated the pace of the proceedings, and was in default of discharging some of his court-ordered obligations.

The court fixed costs payable at first instance out of the assets of the incapable person, but to be fully reimbursed by the unsuccessful party.

This case is a reminder of the impact that court-appointed Section 3 counsel can have in protecting the rights of a person whose capacity is at issue under the SDA. In this case, the incapable party was represented by counsel, who made a compelling argument on her behalf that she, as an innocent party, should not have to bear the costs herself.

This case explicitly addresses the effect of a party’s entreaty to emotional distress as a mitigating factor in awarding costs. The court did not give effect to the argument, but apparently only because there did not appear to be any evidentiary basis for the losing party’s argument that he was suffering from emotional distress.

Concluding Comments

The principles applicable to costs in capacity litigation are easy to state, but outcomes are difficult to predict in practice. Nonetheless, there are some practical lessons.

Parties should be mindful to always temper their emotions and measure their conduct against the objective best interests of the incapable person. Cooperation and settlement proposals are key to considering and minimizing adverse cost consequences, because the court is generally more likely to make a costs award from the incapable person’s assets on a motion to approve a settlement than after trial in unseemly and acrimonious litigation. If cooperation and settlement do fail, the parties must be prepared to show the court, clearly and concisely, what steps they took to encourage cooperation and reasonable settlement.

[1]             McDougald Estate v Gooderham, 2005 CanLII 21091 (Ont. CA).

[2]             Ibid at paras 78-80.

[3]             Ibid.

[4]             Ibid at para 95.

[5]             Bilek v Salter Estate (sub nom Salter v Salter Estate), 2009 CanLII 28403 (Ont. SC) at para 5.

[6]             Feinstein v Freedman, 2014 ONCA 205.

[7]             Fiacco v Lombardi, 2009 CanLII 46170 (ON SC).

[8]             Substitute Decisions Act, 1992, SO 1992, c 30.

[9]             Ziskos v Miksche, 2007 CanLII 46711 (Ont. SC) at para. 75

[10]           Ibid at para 56.

[11]           Wercholoz and Tonellotto, 2013 ONSC 1106 at para 37.

[12]           Courts of Justice Act, RSO 1990, c C.43.

[13]           Rules of Civil Procedure, RRO 1990, Reg 194.

[14]           Courts of Justice Act, supra note 12, s 131.

[15]           Rules of Civil Procedure, supra note 13, r 57.01.

[16]           Boucher v Public Accountants Council for the Province of Ontario, 2004 CanLII 14579 at para 26, 71 OR (3rd) 291 (CA).

[17]           Clarington (Municipality) v Blue Circle Canada Inc (sub nom Davies v Clarington (Municipality)), 2009 ONCA 722, 100 OR (3d) 66.

[18]           Ibid at para 28.

[19]           See in particular M. Orkin, The Law of Costs, 2nd ed, (Aurora, ON: Canada Law Book, 2015), looseleaf.

[20]           2015 ONCA 492; 2015 CarswellOnt 9780.

[21]           2015 ONSC 1927; costs decision at 2015 ONSC 2810.

[22]           2015 ONSC 257.

[23]           Ibid at paras. 28-30.

[24]           2014 ONSC 3615.

[25]           2013 ONSC 6021.

[26]           2012 ONSC 2291.

This paper is intended for the purposes of providing information only and is to be used only for the purposes of guidance. This paper is not intended to be relied upon as the giving of legal advice and does not purport to be exhaustive.

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