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Passing of Accounts: Executor Compensation and Costs

1. Introduction

Estate of Françoise Poitras v Canadian Cancer Society[1] is a recent case that contains an important and helpful discussion about the calculation of an executor’s compensation and the costs to be paid on an application to pass the executor’s accounts.

Mme Poitras died in 2016 at the age of 101. She had no children or living siblings but was survived by nieces and nephews. The estate was worth approximately $600,000 and owed only a few minor debts.

Mme Poitras left a two-page holograph will, made in 1997. In it she made gifts of $5,000 to each of five charities, and $10,000 to each of her two remaining sisters. If her sisters predeceased her, she directed that the $20,000 be distributed equally among another five charities. She stated in her will that she deliberately did not leave anything to her other family members. However, the will did not dispose of the residue of her estate. This required the executor to apply to the court for directions and in June 2017 the charitable beneficiaries and the eight surviving family members agreed to a settlement, confirmed by an order, whereby they would split the estate; while the executor’s compensation, his legal costs, and the legal costs of the charities would be paid from the estate as a capital disbursement.[2]

What the case does not explain is why the family members would agree to share the residue. It is true that Mme Poitras expressly stated in her will that she was deliberately not leaving anything to her family. However, the will also gave no indication that the charities had any right to the residue; nor did it indicate a general charitable intent as regards the residue. Therefore, on the facts, this seems a straightforward case of a partial intestacy, in which case the rules of Part II of the Succession Law Reform Act[3] would come into play. A testator is fully entitled to disinherit any person by her will, for example, by a statement that she does not want any family members to inherit any portion of her estate. However, such a statement does not prevent the family members from sharing in a partial intestacy, for the statutory intestacy provisions are inviolate. This is a very old rule[4] that has been followed in Canada.[5] Thus, the surviving family members should have been entitled to inherit the residue in accordance with those provisions. Perhaps the surviving family members consented to the order splitting the residue with the charities to avoid possible costly litigation (see para. 40).

In 2018 the named executor died and was succeeded by his son. In July 2019 the executor applied to the court for a passing of accounts. The charities served a notice of objections, and the parties were unable to resolve their differences in a mediation. In August 2020 the executor brought a motion for the determination of the wording of the interim release so that he could make an interim distribution. The charities opposed the motion, but the court granted it on the ground that there was no reason to postpone an interim distribution. The dispute about the wording of the interim release continued and in September 2020 Justice Gomery decided on the wording and incorporated elements proposed by both the executor and the charities. She also set a timetable for adjudicating the executor’s compensation and costs.

2. Compensation

Justice Gomery set out the well-known legal principles governing the compensation of an executor by reference to: (a) section 61 of the Trustee Act,[6] which entitles an executor to a ‘fair and reasonable allowance’; (b) Laing Estate v. Laing Estate, [7] which endorses the accepted compensation of 2.5% of each of capital receipts, capital disbursements, revenue receipts, and revenue disbursements, as well as an annual management fee of 2/5ths of 1% of the gross value of the estate, and (c) the ‘five factors’ mandated by the court in Toronto General Trusts Corp. v. Central Ontario Railway.[8] However, she noted that a management fee is the exception rather than the rule, by reference to Re Archibald Estate.[9]

Justice Gomery concluded that the executor was entitled to be compensated in accordance with the usual formula and that the amount claimed was fair and reasonable, but that he was not entitled to the additional management fee (paras. 25-26). In reaching this conclusion, she noted that the management of the estate was straightforward, but on the other hand she took into account that the administration of the estate was contentious, which required the executor to engage legal counsel and seek directions from the court. She also concluded that the charities’ allegations that the administration of the estate was deficient were unsubstantiated (para. 21), that the application for probate was made promptly, and that, while the application to pass the accounts could have been brought sooner, this delay was relatively minor (paras. 22-23). Justice Gomery also did not fault the executor for the inordinate delay in resolving the dispute over the wording of the interim release but laid the blame for that at the feet of counsel (para. 24).

3. Costs

3.1 Legal Principles

The main focus of the case was the decision on costs. Justice Gomery first outlined the legal principles governing the award of legal costs in estate litigation. She noted first, by reference to Brown v Rigby,[10] that an executor is normally entitled to be indemnified ‘for all reasonably incurred costs in the administration of an estate’, including ‘the legal costs of an action reasonably defended, to the extent these costs are not recovered from another person’. Then, by reference, inter alia, to McDougald Estate v Gooderham,[11] and Sawdon Estate v Watch Tower Bible and Tract Society of Canada,[12] she referred to the modern rule that estate litigation is subject to the general costs regime under which the winning party is normally entitled to reasonable costs from the losing party. Consequently, a court may deny costs in whole or in part to an executor who ‘has acted unreasonably or in substance for his or her own benefit, rather than for the benefit of the estate’.[13] However, if the court concludes that the executor has acted reasonably, it may direct the other party to pay costs. Alternatively, it may make a blended order that requires the losing party to pay some costs and the estate to pay the balance.

3.2 The Executor

Justice Gomery took the view that the executor’s reasonable costs should be paid in part by the estate and in part by the charities. She took into account the criticisms expressed by the individual beneficiaries, as well as the fact that some of the delay was caused by events outside the control of the parties (the death of the executor and his replacement, and the partial shutdown of the courts due to COVID-19). She noted that while the executor’s lawyers were not blameless, she determined that ‘most of the delay was attributable to the conduct of counsel for’ the charities (para. 43). Justice Gomery outlined the failings of the charities’ counsel as follows (para. 56):

  • They failed to produce a draft interim release for nine months after agreeing to a consent order requiring them to do so;
  • They twice proposed draft releases which were accepted by opposing counsel, but then changed their minds or received instructions from their own clients that the wording was inadequate;
  • They failed to respond to a request to provide dates for the hearing of a motion to resolve the issue in May or June 2018;
  • They did not promptly provide signed consents for the appointment of a new [executor];
  • They did not provide a further draft release within the deadline set out in their written undertaking in December 2019 and, when they did so, it was for a final, rather than an interim distribution; and
  • They resisted the [executors’] request in June 2020 to set a motion date to resolve the issue that had been ongoing for the preceding three years, because they did not agree with his approach.

Justice Gomery found that the executor was responsible for some of the delay, but the main obstacle to the resolution of the estate was the dispute over the wording of the interim release, which could easily have been settled, and the failure to resolve this issue was largely attributable to conduct of the solicitors for the charities (para. 57).

The charities had made a settlement offer in April 2020. But it was not a formal rule 49 offer. In any event, Justice Gomery held that the offer would not lead to a better result for the estate, since it required the estate to pay the charities’ legal costs and in her view they were not entitled recover them.

Justice Gomery held that the executor was entitled to be reimbursed for his reasonable legal costs incurred after the June 2017 settlement. There was no evidence showing that he mishandled the litigation. Nor were there policy considerations that required him to absorb his own legal costs.

As regards the charities, they did not have to bear the executor’s costs incurred in consequence of the problems caused by Mme Poitras’ will and the settlement in 2017. However, apart from that, the executor was the successful party for the most part. Moreover, the court found that the conduct of the charities caused the significant delays in the litigation, which increased the costs of all the parties.

The lawyer for the executor did not submit a bill of costs for the entire period of the executorship, but only for the period following the June 2017 settlement. The law firm did submit an invoice to the estate for $25,729 and the estate paid it. Justice Gomery pointed out that this procedure reflected a misapprehension about the court’s role in determining the reasonableness of the costs. It is true that the 2017 settlement stated that the costs and the compensation claim, as well as the costs of the charities, were to be paid from the capital of the estate and not from the residue. However, this did not permit the trustees or the charities to charge whatever they wanted for legal costs, for the reasonableness of the costs remains subject to the court’s review. Nonetheless, Justice Gomery concluded that the total amount was reasonable in the circumstances (paras. 72-76).

The executor claimed an amount of $59,530 in legal costs from 29 September on. Justice Gomery described the deficiencies in the bill of costs in detail. However, she found that, in the circumstances, the total amount was reasonable. She directed that the charities pay 60% of the total and that the estate should pay the balance (para. 87.

3.3 The Charities

Justice Gomery agreed that the charities should be fully reimbursed for their legal costs in connection with the 2017 settlement and that the amount claimed by them for that, $25,957, was reasonable. The charities also sought reimbursement, on a partial indemnity basis, of the balance of their legal costs, that is, 60% of $36,410, and they claimed that this amount should be paid by the executor or should be shared by the executor and the estate. Their bill of costs was also defective, but Justice Gomery concluded that the amount claimed was not unreasonable.  However, in light of her findings and the principles that govern estate litigation, she held that the charities were not entitled to recover any further costs from the executor or the estate.

3.4 The Individual Beneficiaries

Finally, the individual beneficiaries, although not currently represented by legal counsel sought reimbursement of expenses in the amount of $2,939 for travel and hotel costs to attend the settlement negotiations in 2017. Neither the executor nor the charities objected, and Justice Gomery endorsed the claim, since the costs were incurred because of the problems with Mme Poitras’ will.

4. Conclusion

Accordingly, Justice Gomery granted the application to pass the accounts, subject to the adjustment for costs.

[1]    2021 ONSC 406, 67 ETR 4th 140.

[2]    In fact, only nine charities consented. The tenth was not represented by the law firm of the others and did not file a notice of objection to the application to pass accounts. Hence it was entitled to share in the residue under the order but was not liable for any of the costs awarded in the case.

[3]    RSO 1990, c. S.26.

[4]    See, e.g., Pickering v Lord Stamford (1797) 3 Ves Jr 492, 30 ER 1121; Johnson v Johnson (1841) 4 Beav 318, 49 ER 361; and Fitch v Weber (1848) 6 Hare 145, 67 ER 1117.

[5]    See, e.g., Bateman v Bateman [1941] 3 DLR 762 (note), 16 MPR 80 (NB Ch); and Re Snider 1974 CarswellOnt 197, 3 OR 2d 541 (HC); Re Vaudrey 2019 ONSC 7551; and see Eissmann v Kuntz 2018 ONSC 541.

[6]    RSO 1990, c T.23.

[7]    (1998) 41 OR 3d 571 (CA).

[8]    (1905) 6 OWR 350 (HC).

[9]    2007 CarswellOnt 3827 (SCJ).

[10]   2016 ONCA 521, para 11.

[11]   (2005), 255 DLR 4th 435 (Ont CA).

[12]   2014 ONCA 101.

[13]   Goodman Estate v Geffen, [1991] 2 SCR 353 at 391.

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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