In Brown, Dale and Shackleton v. Rigsby and Shackleton, which we have previously blogged about here, attorney and estate accounting litigation was settled save for the issue of costs, which issue was argued in the first instance by way of motion, with each party seeking substantial indemnity relief against the opposing side personally (the beneficiary applicants sought costs of approx.. $75,000.00, and the estate trustee respondents sought costs of approx. $80,000.00). No one sought costs out of the estate assets, presumably because all of the parties were residuary beneficiaries of the estate and wished to avoid their interest being diluted by any such cost award.

The Court applied the modern "loser pays" approach to costs, but nonetheless viewed the settlement as amounting to "divided success" such that each party was ordered to personally absorb their own costs. The estate trustees appealed the decision, submitting that the motion judge erred in principle in finding that, as estate trustees, the appellants were responsible for their own costs. They assert that they were duty bound to respond to the lawsuit and, absent serious misconduct or self-interested or unreasonable conduct, an estate trustee is entitled to costs payable out of the estate.

The Court of Appeal reviewed the applicable general cost principles, citing that, subject to the discretion of the court:

  • an estate trustee is entitled to indemnification from the estate for reasonably-incurred legal fees;
  • if an estate trustee acts in a self-interested or unreasonable manner, the entitlement of indemnification is lost; and
  • if an estate trustee recovers a portion of his or her costs from another person or party, he or she is entitled to indemnification from the estate for the remaining reasonably-incurred costs.

Although the Court of Appeal and the appellants appeared to agree on the legal principles, the appellants lost the appeal. The estate trustees were criticized for not making timely disclosure to the beneficiaries, which in large part was the focus of the dispute. Such conduct elevated the costs for all parties. The Court found that the motion judge fairly characterized the appellants' behaviour as unreasonable, and viewed their conduct as serving to protect their own interests over that of the estate and the other residual beneficiaries.

This case is a sobering reminder to estate trustees, particularly in cases where they are also beneficiaries of the estate, of the importance of fulfilling their fiduciary duty to act in the best interest of the beneficiaries as well as to be transparent in the administration. The consequences otherwise can be dire.

Thanks for reading.

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