The Costs of Estate Litigation in Ontario

The Costs of Estate Litigation in Ontario

This is the second of my two-part series about the twin decisions of the Ontario Superior Court of Justice in Monteith Estate.

Part I, “When is a Child Not a “child” for Inheritance”, dealt with the decision on the merits. That decision is reported at 2023 ONSC 7246.   Before reading further, I encourage you to read Part I, or at least review the highlighted sections and ‘Key Takeaways’ at the end.

In short, on an application for directions brought by an Estate Trustee, the Court ruled that one of the respondents, Sandra Blair (“Sandra”), was not a “child” of the late George Monteith (“George”) and, therefore, had no right to share in the distribution of the estate of George’s son Sydney, who died intestate. George had never legally adopted Sandra, and so she did not meet the legislative definition of “child” even though he treated Sandra as his daughter.

Therefore, Sandra was not a sister to Sydney for the purposes of s. 47 (4) of the Succession Law Reform Act, R.S.O. 19890, c. S.26 (“SLRA”).

PART II: Decision with respect to costs in Monteith Estate, 2024 ONSC 800.

Heeney J.’s reasons contain an excellent review of the law of costs in estate litigation.

(note: all quotes below are from the decision)

Here, the parties were unable to agree on costs, so the Court heard the submissions of counsel for the various parties on this application, which can be summarized as follows:

  • “The applicant Estate Trustee claims costs on a full indemnity basis in the amount of $11,460.62, payable out of the estate.”
  • “Timothy [a respondent brother of the deceased who is entitled to a distribution of the estate, and who opposed Sandra’s entitlement] seeks his costs on a substantial indemnity basis, in the amount of $11,230.07, payable by Sandra.  In the alternative, he asks the court to make a “blended” costs order, such that Sandra pay his partial indemnity costs, and that the balance of his costs be paid by the estate.”
  • “Notwithstanding the position taken by the applicant that the applicant’s costs should be paid from the estate, Timothy further argues that Sandra should pay those costs on a substantial indemnity basis or, alternatively, that a blended costs order be made, such that Sandra would pay the applicant’s partial indemnity costs, and the estate would pay the balance.”
  • “Sandra agrees with the [Estate Trustee] applicant’s position regarding his costs.  As to the position taken by Timothy, she argues that this litigation was required for the proper administration of the estate, such that the traditional approach in estate litigation is warranted, whereby the costs of the applicant and Timothy should be paid by the estate.  Sandra advances no claim for costs herself.”

Review of the Law

The Court cited Sawdon Estate v. Watch Tower Bible and Tract Society of Canada2014 ONCA 101, in which the Court of Appeal for Ontario reviewed the applicable law:

In Goodman Estate v. Geffen1991 CanLII 69 (SCC), [1991] 2 S.C.R. 353 (S.C.C.), at pp. 390-391, Wilson J., writing for the court on this issue, reiterated the long-standing principle that estate trustees are entitled to be indemnified for all reasonably incurred costs, including legal costs. She quoted with approval the following statement from Dallaway, Re (1981), [1982] 3 All E.R. 118 (Eng. Ch. Div.), at p. 122:

In so far as [an estate trustee] does not recover his costs from any other person, he is entitled to take his costs out of the fund held by him unless the court otherwise orders; and the court can otherwise order only on the ground that he has acted unreasonably, or in substance for his own benefit, rather than for the benefit of the fund.

However, the practice of ordering costs from the estate did not extend solely to estate trustees. Historically in estate litigation, the courts would order the estate to bear the costs of all parties.

The historical approach to costs in estate litigation created the danger that estates would be unreasonably depleted because of unwarranted or needlessly protracted litigation. Consequently, it has been displaced by the modern approach set out by this court in McDougald Estate v. Gooderham (2005), 2005 CanLII 21091 (ON CA), 255 D.L.R. (4th) 435 (Ont. C.A.), at paras. 78-80: the court is to carefully scrutinize the litigation and, unless it finds that 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.R.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. In terms of the latter consideration, because the testator is no longer alive to rectify any difficulties or ambiguities created by his or her actions, it is desirable that the matter be resolved by the courts. Indeed, resort to the courts may be the only method to ensure that the estate is properly administered.

In any event, 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 the cost of their resolution. In such situations, it ought not to fall to the Estate Trustee to pay the costs associated with having the court resolve the problems. As Kruzick J. observed in Penney Estate v. Resetar2011 ONSC 575, 64 E.T.R. (3d) 316 (Ont. S.C.J.), at para. 19, if estate trustees were required to bear their legal costs in such situations, they might decline to accept appointments or be reluctant to bring the necessary legal proceedings to ensure the due administration of the estate.

Accordingly, the judge in Monteith Estate concluded that “the starting point is the general civil litigation costs regime.  Even in estate matters, that generally means that the “loser pays”, as described by Brown J…in Fiacco v Lombardi [2009 CanLII 46170 (ON SC)]….The general principles outlined in r. 57.01 must be taken into account by the court in exercising its discretion to award costs.”

R. 57.01 and the general civil litigation costs regime

R. 57.01 (1) of the Rules of Civil Procedure provides that:

In exercising its discretion under section 131 of the Courts of Justice Act to award costs, the court may consider, in addition to the result in the proceeding and any offer to settle or to contribute made in writing,

(0.a) the principle of indemnity, including, where applicable, the experience of the lawyer for the party entitled to the costs as well as the rates charged and the hours spent by that lawyer;

(0.b) the amount of costs that an unsuccessful party could reasonably expect to pay in relation to the step in the proceeding for which costs are being fixed;

(a) the amount claimed and the amount recovered in the proceeding;

(b) the apportionment of liability;

(c) the complexity of the proceeding;

(d) the importance of the issues;

(e) the conduct of any party that tended to shorten or to lengthen unnecessarily the duration of the proceeding;

(f) whether any step in the proceeding was,

(i) improper, vexatious or unnecessary, or

(ii) taken through negligence, mistake or excessive caution;

(g) a party’s denial of or refusal to admit anything that should have been admitted;

(h) whether it is appropriate to award any costs or more than one set of costs where a party,

(i) commenced separate proceedings for claims that should have been made in one proceeding, or

(ii) in defending a proceeding separated unnecessarily from another party in the same interest or defended by a different lawyer;

(h.1)  whether a party unreasonably objected to proceeding by telephone conference or video conference under rule 1.08; and

(i) any other matter relevant to the question of costs…

Partial v. Substantial Indemnity

  1. 57 (1) also provides that the court may award costs on a partial, substantial and full indemnity basis. Partial indemnity is the usual default when costs are awarded, but they are not defined. Generally speaking, they are roughly 40-60% of a party’s actual legal fees and disbursements, or, as I used to tell clients when I was a litigator, “roughly half the bill”.

Substantial indemnity costs, which are awarded less frequently, are also not defined. Simply speaking, they more than partial (so, greater than 60%), but less than full indemnity (100%)

As set out in Monteith Estate, “[s]ubstantial indemnity costs are normally only resorted to where the court wishes to express its disapproval of the “especially egregious” conduct of a party to the litigation:  see Net Connect Installation Inc. v. Mobile Zone Inc. (2017), 140 O.R. (3d) 77, 2017 ONCA 766 (C.A.).

However, one must always consider the impact of R. 49, which provides for costs consequences for failing to accept an opposing party’s offer to settle.  In certain circumstances, this can result in an order of substantial indemnity costs from a certain point in a proceeding.

Application of the Law to Monteith Estate

Returning to Monteith Estate, the Court, in determining whether public policy considerations apply so as to displace the civil litigation default regime, separately considered the claims of the applicant Estate Trustee and Timothy.

It is important to note that there is no mention of the parties having made offers to settle prior to the hearing on the merits.

Estate Trustee’s claim for costs

  • There was no valid will and the deceased “did not create any “difficulties or ambiguities” by his actions…However, the applicant felt the need to commence this application in order to obtain the directions of the court before distributing the residue because the law was not sufficiently clear.”
  • “This supports a conclusion that the applicant’s costs arose out of “the need to ensure that estates are properly administered”.  This, in turn, supports a conclusion that public policy considerations apply, such that the costs of the applicant should be borne by the estate.”
  • “…considerations of fairness to Sandra point to the same conclusion.” Throughout the litigation, the Estate Trustee, while seeking an order that Sandra was not entitled to share in the Estate, did not seek costs against Sandra, only from the Estate. So, it would be “fundamentally unfair to override the consistent position of the applicant, and to ignore the reasonable expectations of Sandra, and make an order that she pay the applicant’s costs as Timothy requests.”
  • The Estate Trustee’s claim for costs is reasonable, and no party argued otherwise, so the Estate was ordered to pay the full amount of $11, 460.62 on a full indemnity basis.

Timothy’s claim for costs

  • Timothy’s “involvement was to protect his own entitlement to 50% of the residue, which he would have had to share with Sandra had her claim been successful. He was strongly of the view that a simple reading of the applicable legislation demonstrated that there was no merit to Sandra’s positio”
  • “Sandra was on notice that he would be seeking [substantial indemnity] costs against her if she lost, and she did, indeed, lose.”
  • “There are no public policy considerations that are engaged in the litigation as between Timothy and Sandra. Thus, there is no reason why the normal rules governing costs in civil litigation should not apply.”
  • “The first rule, of course, is that costs normally follow the event…The court accepted his arguments completely.  He was, therefore, totally successful, and is presumptively entitled to his costs.”
  • Sandra “is of advanced years and limited funds. While impecuniosity may be considered by the court in exercising its discretion as to costs, Sandra provides no evidence to support it.”
  • “The issues were obviously important, since administration of the estate could not be completed, and Timothy could not receive his share, until Sandra’s entitlement, or lack thereof, was determined.
  • The Court rejected Timothy’s argument that Sandra’s position was “improper, vexatious or unnecessary” and that she denied, or refused to admit, something that should have been admitted since there was no real dispute on the facts.” According to the judge: “Litigants find themselves on the losing side of questions of law all the time.  That does not mean that posing the question itself was vexatious…[It] may well be because the statutory provisions are so clear…no one has ever bothered to litigate the claim that Sandra has raised.  However, the lack of any binding precedent does militate against a conclusion that her case was entirely frivolous.”

As a result, the judge ordered Sandra to pay Timothy costs on a partial indemnity basis in the sum of $7,300.00, which represented 65% of his substantial indemnity costs of $11,230.07–although the court later refers to this higher amount as his full indemnity costs. As well, Timothy did not provide the Court with the amount of his costs on a partial indemnity basis. So, we don’t actually know what Timothy’s legal costs were on a 100% basis.

With respect to the remaining amount of Timothy’s costs, $3,930.07, the judge ordered that it be paid by the Estate on a “full indemnity basis”: “Timothy’s defence of Sandra’s claim enured not only to his own benefit, but to the benefit of [the remaining respondents and beneficiaries] Julie and Amy as well, since they would have been splitting one-third of the residue between themselves instead of one-half had she been successful.  They did not retain counsel and participate in this litigation, but essentially left it to Timothy to defend against Sandra’s claim.”

Key Takeaways

  • In Ontario, the historical approach to costs in estate litigation, whereby the courts would order the estate to bear the costs of all parties, was replaced the civil litigation approach found in R. 57.01 (and elsewhere) of the Rules of Civil Procedure – unless a public policy reason applies.
  • The public policy considerations are primarily: (1) the need to give effect to valid wills, and (2) the need to ensure that estates are properly administered. Resort to the courts may be the only method to ensure that the estate is properly administered because the testator is no longer alive to rectify any difficulties or ambiguities created by his or her actions.
  • Even where there was no valid will and the deceased did not create any difficulties or ambiguities, the court may order that the estate pay the costs of the estate trustee if they felt the need to commence litigation in order to obtain the directions of the court before a distribution because the law was not sufficiently clear.
  • The same policy considerations do not arise where participation of a party in the litigation is not necessary for the proper administration of justice, such as to protect one’s own entitlement to the estate.
  • That said, where the partial indemnity costs are ordered in favour of a successful party as against the unsuccessful party, the court may order the balance of the successful party’s costs (the portion their opponent was not ordered to pay) to be paid by the estate on a full indemnity basis if that party’s participation in the litigation benefitted other residual beneficiaries who did not take part.
  • Substantial indemnity costs against a party are normally only resorted to where the court wishes to express its disapproval of the party’s especially egregious conduct in the litigation. However, 1) failing to accept an offer to settle can also give rise to substantial indemnity costs, and 2) being on the losing side of a question of law, where there was no real dispute on the facts and there was no case law on point, should not give rise to substantial indemnity costs.
  • The court may consider a party’s impecuniosity in exercising its discretion to award costs against that person, but only if there is actual evidence supporting impecuniosity.
  • While Part 1 of this series demonstrated why everyone should have a valid will: to ensure that the distribution of your estate is in accordance with your actual wishes as opposed to the default “will” the government “wrote” for you. Part 2 shows how the bank accounts of your estate and beneficiaries can be easily depleted by litigation when you die intestate, or you die with a will that is open to challenge.
  • Personally, I thought both the Court and the Estate Trustee were quite generous to Sandra when it came to costs. She could have been required to pay a far greater amount of costs from her own pocket. In my view, the law was sufficiently clear based on a plain reading of the governing legislation. While I can sympathize with Sandra, especially considering my own grandmother’s misfortune (see Part 1 in this regard), there was nothing a court could do about it.

Finally, here are some other important points about costs in estate disputes:

  • Where mandatory mediation applies under R. 75.1 (Toronto, Ottawa, Essex County/Windsor), a court on a motion for directions respecting the conduct of a mediation may direct how the cost of the mediation is to be apportioned among the designated parties.
  • In the arbitration of estate disputes (including med-arb), the arbitrator may not be bound by the law of costs with respect to estate litigation in the Superior Court. The parties in arbitration may have adopted other procedural rules governing the arbitration, including when and how costs will be awarded. Under those rules, the concepts discussed above typically won’t apply.

If you are a lawyer or paralegal looking to appoint a mediator or arbitrator for your estate dispute, I am a former estate litigator and wills and estates solicitor. Today, I mediate and arbitrate most civil and estates disputes.

This blog is for educational purposes only and is not intended as legal or other professional advice.

Approximate Reading Time: 12 minutes

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