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Herold Estate v. Curve Lake First Nation: Cost Consequences for Estate Trustee Self-Dealing With Estate Property

In the recent decision of Herold Estate v. Curve Lake First Nation,[1] (“Herold Estate”) the Ontario Court of Appeal found an estate trustee personally liable for the costs of an application due to his self-dealing with estate property.

Background

Herold Estate follows the decisions of the Ontario Court of Appeal in Estate of William Albin Herold, deceased v. Attorney General of Canada, et. al.[2]

The Estate of William Albin Herold (the “Estate”) commenced an application asserting that it owned three islands in the Trent-Severn Waterway. The appointed Estate Trustee of the Estate was Jeffrey Herold (“Mr. Herold”).  A dispute arose between the Estate and the Curve Lake First Nation (the “First Nations”). The Estate was the owner of property neighbouring the islands (“Lot 35”), and its position was that the islands were intended to be an extension of this property when it was conveyed by the Crown in 1868. The First Nations did not dispute ownership of Lot 35, but that it did not include ownership of the three islands. The Estate succeeded in the Ontario Superior Court, and the First Nations appealed.

At the Ontario Court of Appeal, the court found in favour of the First Nations, finding that neither the Estate’s predecessor in title as part of the 1868 conveyance, nor, the Estate had acquired ownership of the islands. Accordingly, the Court of Appeal issued a costs order against the Estate in the amount of $190,000 (the “Costs Decision”).

Unbeknownst to the court and the First Nations, at the time the original application was commenced, Mr. Herold had transferred title to Lot 35 from the Estate to himself in his capacity as Estate Trustee. The transfer occurred more than four years before the litigation was decided and the ownership of Lot 35 was never disclosed by the Estate during the litigation.

Decision

Following the Costs Decision, the Estate was without the means to pay the First Nations. As such, they sought an order to vary Costs Decision such that Mr. Herold be jointly and severally liable to pay the cost award against the Estate. This was granted, with the Court of Appeal stating that:

It would be contrary to the interests of justice to allow Mr. Herold to use the principle of finality to escape the costs consequences of the litigation because he carried it on in the name of the Estate, of which he was the sole representative, without disclosing the transfer of ownership that meant he personally was the real litigant. This unusual circumstance warrants a departure from the principle of finality.[3]

The Court of Appeal found that Mr. Herold could not avoid personal cost exposure because he litigated in the name of the Estate. While he was not personally named as a party, he alone commenced and litigated the application, even after the transfer of Lot 35.

Courts have statutory jurisdiction to determine “by whom” the “costs of and incidental to a proceeding” shall be paid under s. 131(1) of the Courts of Justice Act.[4] This includes jurisdiction to order a non-party to pay costs, provided that the “person of straw” test is met. This test is satisfied when:

  • the non-party had status to bring the action;
  • (ii) the named party was not the true litigant; and
  • (iii) the named party was a “person of straw” put forward to protect the true litigant from liability for costs.[5]

The Court of Appeal found each of these elements present in this matter. First, Mr. Herold had status to bring the action, and was required to continue it given his ownership of Lot 35. Second, the named party, the Estate, was not the true litigant following the transfer and third, the Estate was put forward to fight the litigation to protect Mr. Herold from cost liabilities.

Concluding Comments

The Court of Appeal granted the First Nations’ appeal and varied the Costs Decision such that their costs be payable by the Estate and Mr. Herold, jointly and severally. It stated that Given Mr. Herold’s close connection to the Estate, the litigation and the transfer, “it would be unjust for him to be free of the cost consequences of the litigation”.[6]

This case provides a reminder that an estate trustee should not transfer or otherwise deal with estate property that is the subject of a dispute while litigation is ongoing. Moreover, an estate trustee may be exposed to personal cost consequences when it commences and continues litigation on behalf of an estate to avoid personal cost liabilities. When it does occur, the court does take this lightly and as this case demonstrates, is prepared to make cost orders against the infringing estate trustee personally.

[1] Herold Estate v. Curve Lake First Nation, 2024 ONCA 299

[2] Estate of William Albin Herold, deceased v. Attorney General of Canada, et. al., 2021 ONCA 883.

[3] Supra note 1, at para 7.

[4] Courts of Justice Act, R.S.O. 1990, c. C.43

[5] 1318847 Ontario Ltd. v. Laval Tool & Mould Ltd., 2017 ONCA 184, 134 O.R. (3d) 641, at paras. 22-23, 59.

[6] Supra note 1, at para 30.

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