On October 4, 2018, the Supreme Court of Canada denied leave to appeal in Sweetnam v. Lesage, a case demonstrating that estate trustees may suffer serious costs sanctions for taking an unreasonably adversarial position in litigation. Sweetnam also serves as a reminder that in estate litigation, just as in any other kind of litigation, settlement offers may have significant costs consequences.
The litigation principally involved a will challenge, originally decided in a trial on the merits by Gray J. in 2016. The lengthy decision (2016 ONSC 4058) struck down the last-executed Wills of the testator, Martin Williamson. The testator executed the two impugned Wills in short succession after he had suffered a significant seizure and was diagnosed with brain cancer. He died a few months later in December 2010. The trial judge found that the testator lacked testamentary capacity. Both impugned Wills were declared invalid. As this left the testator with no valid Will, his entire estate (worth approximately $7.5 million, subject to potential dependant support claims) passed on an intestacy to his daughter, the plaintiff Star Sweetnam.
Costs Decision
The case attracted attention in the estates bar when the costs decision (2016 ONSC 5110) was released. The plaintiff sought substantial indemnity costs against the two estate trustees. The estate trustees, one of whom had been more involved in defending the action than the other, sought indemnification of their own costs from the estate.
In deciding costs, the trial judge considered the following factors and arguments.
For the plaintiff Star:
- The plaintiff was successful in declaring the Wills invalid;
- Accordingly, she was entitled to receive the entirety of the estate on an intestacy;
- The plaintiff had made two offers to settle for substantially less than she achieved at trial;
- Because the plaintiff was entitled to the full amount of the estate, a costs order permitting the estate trustees to reimburse themselves from the estate would result in the plaintiff paying the estate trustees’ costs;
- Since McDougald Estate v. Gooderham, (2005) 255 D.L.R. (4th) 435 (Ont. C.A.), the “loser pays” principle of civil litigation has applied to estate litigation.
For the estate trustees:
- A Will challenge is an inquisitorial process, not a strictly adversarial one, and as proponents of the last Will the estate trustees had a duty to place all relevant evidence before the court;
- An estate trustee has no choice but to take a position consistent with the testator’s expressed intentions, and should not be penalized for so doing;
- One of the two estate trustees, Dooley, argued that he had been added to the litigation as a defendant only as a result of allegations of undue influence which were rejected at trial. Dooley argued that he had not truly been a propounder of the last Will in the same manner as his co-estate trustee, Lesage, whose counsel took the lead in defending the litigation;
- As a general principle, estate trustees are entitled to be indemnified for all reasonably incurred costs, including litigation costs, that cannot be recovered from another party (Brown v. Rigsby, 2016 ONCA 521).
In accordance with the loser-pays principle, the Court awarded the plaintiff her costs against the estate trustees, less a discount representing time spent on certain unsuccessful aspects of her claim, for a total of $311,679.56.
The Court was then obliged to decide whether to indemnify the estate trustees from the estate, both with respect to the costs ordered against them, and with respect to their own costs. The Court declined to award any costs to the estate trustees. If they were indemnified from the estate it would mean that the successful plaintiff would effectively be paying the unsuccessful estate trustees’ costs. This reasoning was reinforced by the Court’s conclusion that it was unreasonable of the estate trustees to reject both offers to settle in all the circumstances.
The Court found that the estate trustees had engaged in “hard-fought litigation.” Far from merely placing the evidence before the court in a disinterested way, Lesage in particular had conducted proceedings in “a very adversarial manner,” such as by hiring private investigators to probe the plaintiff’s activities. Lesage had incurred very substantial costs, in excess of $640,000. Having taken such an approach, Lesage “should not be surprised to be treated like an ordinary litigant who loses.” Although Lesage received the bulk of the Court’s criticism, Dooley, who sought reimbursement of approximately $105,000 in costs, could not distinguish himself from Lesage. The two estate trustees had jointly applied for a certificate of appointment. He had never renounced his appointment. He, too, had propounded the last Will.
Unsuccessful Appeals
Lesage brought an appeal to the Ontario Court of Appeal on the merits. Both estate trustees sought leave to appeal the costs award. The appellate decision (2017 ONCA 991) rejected the appeal on the merits and denied leave to appeal costs. The Court cited Brown v. Rigsby for the proposition that no costs will be awarded to an estate trustee who “has acted unreasonably or in substance for his or her own benefit, rather than for the benefit of the estate.” The Court relied on the trial judge’s findings that the estate trustees had been adversarial and behaved unreasonably in the litigation, both with respect to their rejection of the settlement offers and conduct such as hiring a private investigator. The Court found no reason to interfere with the trial judge’s exercise of discretion. The Supreme Court of Canada denied leave to appeal without giving reasons (2018 CanLII 92079).
Lessons for Estate Trustees
The “new” costs regime established by the McDougald Estate case is now 13 years old. That decision displaced the “traditional rule” that an estate bears the costs of all parties. The ordinary costs rules of civil litigation apply, unless the litigation can be said, on careful scrutiny, to be justifiable under grounds of public policy.
In Sweetnam, the estate trustees unsuccessfully tried to minimize the impact of the rejected offers to settle by arguing that such offers should be treated differently in estate litigation than in ordinary litigation. In effect, the estate trustees submitted that despite McDougald Estate, there are still qualitative differences between estate litigation and other civil litigation. The Court rejected this argument. The Court did not explicitly refer to Rule 49.10(1) in awarding substantial indemnity costs, but the rejection of the offers was a major factor in the costs award. It was the chief reason why the estate trustees were found to have behaved unreasonably and therefore were not entitled to reimbursement of their own costs.
An estate trustee is subject to dual pressures when a settlement offer is made during a Will challenge. Accepting a settlement offer may lead the beneficiaries to complain that it was improvident, and raise the spectre of fresh litigation. Rejecting an offer may, as in Sweetnam, ultimately be found to be unreasonable and lead to personal exposure to costs. Still, an estate trustee can expect some deference to his or her decision-making as long as it can be justified to the Court. In Sweetnam the estate trustees, to their substantial detriment, provided no explanation at all for rejecting the first settlement offer which had sought only “a fraction” of the estate.
Sweetnam is a reminder that if a court finds that estate trustees have shown excessive zeal in defending a Will challenge, they may be exposed to personal liability for costs. It is also a warning that estate trustees must tread carefully in considering the costs consequences of offers to settle.
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