Re Logan, Executor of the Estate of Gilbert Blair Laing and Hines et al.
[Indexed as: Laing Estate v. Hines]
41 O.R. (3d) 571
[1998] O.J. No. 4169
Docket No. C24947
Court of Appeal for Ontario
Krever, Doherty and O’Connor JJ.A.
October 20, 1998
Wills and estates — Estate administration — Personal representatives — Compensation — Assessment of executor’s compensation should not be interfered with on appellate review unless audit judge made unreasonable finding of fact, erred in principle or reached manifestly wrong result — Audit judge erring in declining to apply “tariff guidelines” in calculating executor’s compensation — “Fair and reasonable” compensation required by s. 61(1) of Trustee Act cannot be arrived at by reducing assessment to mere product of hours spent multiplied by reasonable hourly rate — Trustee Act, R.S.O. 1990, c. T.23, s. 61.
On an application by an estate executor under s. 61 of the Trustee Act, R.S.O. 1990, c. T.23 for approval of his accounts and compensation, the audit judge declined to apply the “tariff guidelines” (that is, the practice of determining compensation as a percentage of the probate value of the estate) in calculating the executor’s compensation. The Divisional Court allowed the executor’s appeal, holding that the guidelines should be applied. The estate beneficiaries appealed.
Held, the appeal should be dismissed.
An assessment of compensation under s. 61(1) of the Trustee Act should not be interfered with on appeal unless the appellate court determines that the audit judge made an unreasonable finding of fact, erred in principle or reached a manifestly wrong result.
The audit judge should first test a compensation claim using the “tariff” and then confirm the mathematical result against the “five factors” approach set out in Toronto General Trusts Corp. v. Central Ontario Railway. Time spent on the administration of the estate should not be the dominant factor in fixing compensation, nor should compensation be reduced to “punish” a trustee who has not kept adequate records.
Reducing the assessment required by s. 61(1) of the Trustee Act to the mere product of hours spent multiplied by a reasonable hourly rate is inconsistent with the statutory command that the compensation be “fair and reasonable” and that, in addition to time spent, it reflect “the care, pains and trouble” expended in the administration of the estate. In this case, the amount fixed under the tariff guidelines provided fair and reasonable compensation for the executor.
Jeffery Estate (Re) (1990), 39 E.T.R. 173 (Ont. Surr. Ct.), apld Atkinson Estate (Re), [1953] 2 S.C.R. 41, [1953] 3 D.L.R. 497, affg [1952] O.R. 685, [1952] 3 D.L.R. 609 (C.A.); Equity Waste Management of Canada v. Halton Hills (1997), 35 O.R. (3d) 321, 40 M.P.L.R. (2d) 107 (C.A.); Smith (Re), [1953] O.R. 185; Toronto General Trusts Corp. v. Central Ontario Railway (1905), 6 O.W.R. 350 (H.C.), consd
Other cases referred to
Flaska Estate (Re), Ont. C.A., No. C29542, October 20, 1998; Gordon Estate (Re), Ont. C.A., No. C30225, October 20, 1998; Mortimer (Re), [1936] O.R. 438, [1936] 3 D.L.R. 380 (C.A.)
Statutes referred to
Trustee Act, R.S.O. 1990, c. T.23, s. 61 APPEAL from a judgment of the Divisional Court (1996), 11 E.T.R. (2d) 268 (Gen. Div.) allowing an appeal from a decision of an audit judge on an application under s. 61 of the Trustee Act, R.S.O. 1990, c. T.23. D. Larry Todd, for respondent.
Brian A. Schnurr and Wendy L. Griesdorf, for appellants.
BY THE COURT: —
I.
The respondent, the executor of the Estate of Gilbert Blair Laing, brought an application under s. 61 of the Trustee Act, R.S.O. 1990, c. T.23 seeking approval of his accounts and compensation in the amount of $211,968.33. In claiming that amount, the respondent relied on the so-called “tariff guidelines” in use for calculating executor’s compensation. The application was heard by Wright J. who declined to apply those guidelines and held that the respondent was entitled to $75,000. The respondent appealed to the Divisional Court. The majority (Corbett and Adams JJ.) allowed the appeal, held that the guidelines should be applied and fixed compensation at $211,968.33. Steele J., in dissent, would have affirmed the order of Wright J. The reasons of the Divisional Court are reported at (1996), 11 E.T.R. (2d) 268. The appellants obtained leave to appeal to this court.
II.
There are two questions of law of general importance raised on this appeal:
— What are the principles to be applied in determining “fair and reasonable” compensation under s. 61(1) of the Trustee Act?
— What is the appropriate standard of appellate review of an audit judge’s assessment of what constitutes fair and reasonable compensation?
These two issues were also raised in Re Flaska Estate (Doc. No. C29542) and Re Gordon Estate (Doc. No. C30225). The three appeals were heard together and these reasons reflect submissions made in all the appeals.
The Applicable Principles Section 61(1) of the Trustee Act provides:
61(1) A trustee, guardian or personal representative is entitled to such fair and reasonable allowance for the care, pains and trouble, and the time expended in and about the estate, as may be allowed by a judge of the Ontario Court (General Division).
The language of the statute is, of necessity, broad. Modern judicial efforts to structure the assessment required under s. 61(1) so as to yield results which were fair to the trustee and the beneficiaries and reasonably predictable can be traced as far back as at least Toronto General Trusts Corp. v. Central Ontario Railway (1905), 6 O.W.R. 350 (H.C.), where Teetzel J. said, at p. 354:
From the American and Canadian precedents, based upon statutory provision for compensation to trustees, the following circumstances appear proper to be taken into consideration in fixing the amount of compensation: (1) the magnitude of the trust; (2) the care and responsibility springing therefrom; (3) the time occupied in performing its duties; (4) the skill and ability displayed; (5) the success which has attended its administration.
The five factors set out by Teetzel J. have been recognized as appropriate considerations in determining “fair and reasonable” compensation under s. 61 of the Trustee Act: e.g., see Re Mortimer, [1936] O.R. 438 at p. 441, [1936] 3 D.L.R. 380 (C.A.).
In a further effort to bring predictability to the assessment of a trustee’s compensation, the practice developed of determining the trustee’s compensation as a percentage of the probate value of the estate. These percentages are sometimes referred to as the “tariff guidelines”. These guidelines are not sanctioned by statute or regulation, but were developed by the estates bar and judges of the former Surrogate Court: B. Schnurr, Quantifying Executor’s Compensation, Canadian Bar Association, Continuing Legal Education, November 8, 1991, pp. 5-7. Those guidelines are described in Re Jeffery Estate (1990), 39 E.T.R. 173 at p. 178 (Ont. Surr. Ct.):
There are many later cases which show that, in Ontario at least, a practice has developed of awarding compensation on the basis of 2 1/2 per cent percentages against the four categories of capital receipts, capital disbursements, revenue receipts and revenue disbursements, along with, in appropriate cases, a management fee of 2/5 of 1 per cent per annum on the gross value of the estate . . .
The issue to be determined here is the manner in which the factors identified in Toronto General Trusts v. Central Ontario Railway, supra, and the tariff guidelines are to be meshed so as to yield an amount which is “fair and reasonable” in all the circumstances. Having reviewed the six factums filed in these appeals, considered the oral submissions and examined the relevant authorities, it appears that all parties favour the approach set down by Killeen J. in Re Jeffery Estate, supra, at p. 179:
To me, the case law and common sense dictate that the audit judge should first test the compensation claims using the “percentages” approach and then, as it were, cross-check or confirm the mathematical result against the “five-factors” approach set out in Re Toronto General Trusts and Central Ontario Railway, supra. Usually, counsel will, in argument, set out a factual background against which the five factors can be brought to bear on the case at hand. Additionally, the judge will consider whether an extra allowance should be made for management, based on special circumstances. The result of this testing process should enable the judge to determine whether the claims are excessive or not and, in the result, will enable the judge to make adjustments as required. The process is not scientific but is not intended to be: in the estate context, it is a search for an award which reflects fairness to the executor; in a real sense, the search is for an appropriate quantum meruit award in a uni que setting.
Adams J. and Steele J. (in dissent), in their reasons, clearly followed the approach set out in Re Jeffery Estate. Certain passages in the reasons of Corbett J. (e.g., at pp. 282-83) suggest some departure from that approach. We agree with and adopt the approach taken in Re Jeffery Estate. In our view, it best achieves the appropriate balance between the need to provide predictability while, at the same time, tailoring compensation to the circumstances of each case.
The Standard of Appellate Review
The fixing of compensation under s. 61(1) of the Trustee Act is far from an exact science. As Adams J. observed, at p. 284, it “is an issue over which reasonable minds may differ.” Appellate review of that assessment must be restrained so that it does not become merely the substitution of one reasonable assessment for another reasonable assessment. In Re Smith, [1953] O.R. 185 at p. 189 (C.A.), Pickup C.J.O. observed:
. . . but the Court of Appeal should interfere if there is any error in principle, or if, in its opinion, the amount allowed is grossly insufficient or excessive.
In addition to appellate review to determine compliance with the applicable principles and to ensure that the result is not grossly insufficient or excessive, an appellate court may review findings of fact upon which an assessment under s. 61(1) of the Trustee Act is based. It will interfere with those findings only where they can be said to be unreasonable: Equity Waste Management of Canada v. Halton Hills (1997), 35 O.R. (3d) 321 at pp. 335-36, 40 M.P.L.R. (2d) 107 (C.A.). If an appellate court determines that the audit judge has made an unreasonable finding of fact, erred in principle, or reached a manifestly wrong result, it should, if possible, go on to determine the appropriate compensation. In doing so, the appellate court will accept any findings of fact made by the assessment judge which the appellate court has not found to be unreasonable. On occasion when the appellate court finds reversible error, it will be necessary to order a new hearing.
In his written submissions, Mr. Mercer, counsel for the appellant in Re Flaska Estate, supra, suggested that the Supreme Court of Canada had sanctioned a broader ambit of review in Re Atkinson Estate, [1953] 2 S.C.R. 41, [1953] 3 D.L.R. 497. It is true that Kerwin J., for the majority, at p. 44, rejected as unsound the contention that the Court of Appeal could interfere with the decision of the Surrogate Court judge only if it found that he had erred in principle. In Atkinson, however, the Court of Appeal had directed a reference to the master when the case first came before that court ([1952] O.R. 685 at p. 692, [1952] 3 D.L.R. 609). The master had heard several days of evidence and, as required, returned that evidence, the exhibits and his report to the Court of Appeal, The court then determined the matter based on that expanded record. In those circumstances, the court could hardly be limited to an examination of the record before the Surrogate Court judge. Re Atkinson is, however, the exception and should not be confused with the rule as described in Re Smith, supra.
III.
Did the Divisional Court err in holding that Wright J. erred in principle? The Divisional Court was divided on this question. Corbett J. and Adams J. found error in principle. Steele J. could find none. It is apparent from the reasons of Wright J. that he was primarily concerned with the respondent’s inability to provide even a relatively accurate estimate of the time spent on the administration of the estate. Wright J. was also concerned about the absence of any documentation evidencing the time spent in the administration of the estate. He focused on these inadequacies in allowing the respondent only about 35 per cent of the amount he would have been entitled to under the tariff guidelines. In fixing the respondent’s compensation, it appears that Wright J. was motivated, in part, by a desire to encourage trustees in large estates to keep detailed records of time spent on the administration of the estate.
There can be no doubt that time spent is one of the relevant factors in fixing compensation. Nor could one argue with the proposition that trustees of large estates would be well advised to thoroughly document their time spent on work related to the estate. We cannot, however, agree that time spent on the administration of the estate can be the dominant consideration in fixing compensation, or that compensation should be reduced to “punish” a trustee who has not kept adequate records. The time spent by the trustee on the estate is but one factor and cannot become the ultimate measuring stick against which compensation is determined any more than any one of the other relevant factors can be given a dominant position. Reducing the assessment required by s. 61(1) of the Trustee Act to the mere product of hours spent multiplied by a reasonable hourly rate is inconsistent with the statutory command that the compensation be “fair and reasonable”, and that, in addition to time spent, it reflect “the care , pains and trouble” expended in the administration of the estate.
We agree with Adams J., at p. 285, when he said:
. . . Wright J. erred in principle in attributing the overriding significance he did to the manner in which the Executor accounted for his time. This was a large, complex estate and even allowing for the deficiencies in the respondent’s accounting for his time, he clearly spent a great deal of time on the administration of this estate. The skill and ability shown by the respondent met or exceeded any reasonable standard of competence. Applying the approach described by Killeen J. in Re Jeffery Estate, supra, at p. 179, we conclude, as did the majority of the Divisional Court, that the amount fixed under the tariff guidelines provided “fair and reasonable” compensation for the respondent.
IV.
We affirm the order of the Divisional Court and dismiss the appeal with costs.
Appeal dismissed.