A Recent Decision Setting Aside an Unopposed Judgment Passing Accounts - Hull on Estates #224
Listen to: A Recent Decision Setting Aside an Unopposed Judgment Passing Accounts
This week on Hull on Estates, David M. Smith and Rick Bickhram discuss a recent decision out of the Superior Court of Justice, as well a high-level overview of the proceedings in passing of accounts.
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Rick Bickhram: Hello and welcome to Hull on Estates. You are listening to episode 224 on October 5, 2010.
Welcome to Hull on Estates, a series of podcasts for the Canadian legal community dealing with issues and insights surrounding estate planning in Canada. Hosted by the lawyers of Hull & Hull, the podcast will touch on some key considerations when planning estates and wills. Now, here are today’s hosts.
David Smith: Hi and welcome to another episode of Hull on Estates. I’m David Smith.
Rick Bickhram: And I’m Rick Bickhram.
David Smith: If you want to be heard on Hull on Estates, you can participate by leaving us a comment. Email us at hull.lawyers@gmail.com or you can visit our blog at estatelaw.hullandhull.com. Good afternoon, Rick.
Rick Bickhram: Good afternoon, Dave. How are you?
David Smith: I’m doing well, Rick. Rick, today we thought we would podcast on a recent decision out of the Superior Court of Justice that allows us to give our listeners a sort of snapshot understanding of objections in passings of accounts proceedings.
Rick Bickhram: Yeah, that’s an interesting concept and I think it will provide a lot of information for our listeners.
David Smith: Right. And in particular, Rick, let’s just sort of talk about the concept generally before we get into the case. The whole process of passing of accounts for those of our listeners who aren’t familiar is where an attorney under a Power of Attorney for Property or an estate trustee or an executor…those terms we use interchangeably…where one of those persons keeps their accounts and wishes to get the Court to approve those accounts. There’s a procedure called passing of accounts where the estate trustee or attorney under Power of Attorney for Property issues an application, attaches an Affidavit with the accounts attached and circulates them to all persons with a financial interest, who then have an opportunity to scrutinize the accounts, right Rick?
Rick Bickhram: Absolutely. What I…the way I like to think of this is it’s pretty much a formal audit by the Court of the trustee’s or attorney’s administration of the estate.
David Smith: That’s right. And the benefit is two-fold. If you’re advising the estate trustee as a lawyer or the attorney under Power of Attorney for Property, the benefit of passing your accounts is that it provides an absolute protection against any criticism of your actions because the Court has effectively given its stamp of approval to what you’ve done. Conversely, the beneficiaries have a forum within which they can raise objections.
Rick Bickhram: Absolutely. And that’s the whole idea behind passing of the accounts. It’s preparing your accounts, serving it on the beneficiaries of the estate, allowing them…providing them with the opportunity to raise objections which is the proper forum for it. And if there are no objections, then what I understand regularly happens is that a judgment is obtained. And as Dave pointed out, it’s the rubber stamp from the Court saying your accounts are fine.
David Smith: And no criticism, Rick, but I guess more than a rubber stamp, right? We want to say this is the Court giving its sort of golden stamp of approval saying you know, this isn’t just a rubber stamp. And of course judges are kind of reticent to have it considered that way but in fairness, if the accounts are presented before the Court, if there is no objections raised, this actually happens over-the-counter. You don’t even need to appear in open Court if no objections are raised. On the other hand, if objections are raised, they’re filed by a document called a Notice of Objection to Accounts. And Rick, what is that document look like typically?
Rick Bickhram: Well it’s a legal Court document that’s prepared by lawyers or beneficiaries, I guess. And what it does is it explains the concerns that the beneficiaries have with respect to the accounts that were presented to them under the Notice of Application.
David Smith: Right. And, you know, the case we’re gonna get to, Rick, is interesting because obviously when an estate trustee passes their accounts, they cross their fingers and hope that nobody’s gonna object, it goes over-the-counter, they get their judgment. You know, you’re off to the races. And in this case that we’re gonna talk about, the Estate of Asunton Marino. What happened in that case as I understand it in a nutshell is that the estate trustee passed the accounts, got his judgment, thought he was sitting pretty. And then lo and behold, one of the beneficiaries brought a motion to set aside the unopposed judgment passing the accounts, right?
Rick Bickhram: Exactly. That’s exactly it. And in the Marino case, what the Honourable Justice Brown did was consider what the appropriate test was to apply when a beneficiary of the estate who failed to file an objection to the accounts moved to set aside an unopposed judgment. What’s the proper test to apply?
David Smith: Right. And so it’s a case any lawyer hates to be in because we don’t know if the lawyer was at fault here. But, you know, typically the lawyer advises the client that there’s a time frame. Under the Rules, it’s 20 days before the hearing date that you’ve got to serve and file an objection to pass accounts. And so if you don’t do that, and the Court grants judgment and then the client comes to the lawyer acting for the beneficiary and says hey, what happened? How did they get judgment? That’s a day that no lawyer really wants to have to deal with because not only do you face potential questions of professional liability but you also have no certainty that the second chance that you appeal for when you bring a motion to set aside the unopposed judgment passing the accounts is gonna be granted. In this case, I understand Justice Brown gave some rationale or elaborated on the factors the Court should consider when considering whether or not to set aside a judgment passing the accounts, right Rick?
Rick Bickhram: Absolutely. And what Justice Brown did pretty much was he looked at the facts of this case and he justified using this specific test on the following grounds. He says if someone files a Statement of Claim and no Statement of Defence is provided, what normally happens is a default judgment is provided and that’s analogous to this situation where a Notice of Application to pass accounts is served and if no Notice of Objection is filed, then again you’re gonna have this unopposed judgment to pass your accounts. So Justice Brown appropriately held that the proper test to apply in the situation where somebody’s applying or moving to set aside an unopposed judgment to pass accounts should be the same test that’s used or considered where you’re setting aside a default judgment.
David Smith: Right. And so as I understand it, Rick, the factors that the Court would consider or that Justice Brown said you consider are, first of all, was the motion brought quickly or was there delay in bringing the motion? Secondly, were the circumstances giving rise to the default adequately explained? You know, what’s your excuse for the delay? The third factor is, did the beneficiary have an arguable case, that’s to say, could he or she demonstrate that there were actually some real…there was some real merit to these objections? And fourth…I always like this one…did the interests of justice favour setting aside the judgment? You know, that’s a great pitch to make to a judge because you’re appealing to sort of the highest role of the Court to give everybody a fair hearing. And so in this case, I take it, Rick, that the judge saw fit to set aside the default…or not the default judgment, but what was an unopposed judgment passing accounts.
Rick Bickhram: Absolutely. Going through the legal elements first of all was, was the motion brought without delay? And in that very first element Justice Brown noticed that the parties were engaged in settlement discussions from the date the Notice of Application was brought, which was January ’09 to the date of the hearing, which was subsequently heard September 2010 but the motion was brought in June of 2010. So what Justice Brown did was he said wherever there are settlement negotiations happening, the Court should always encourage the parties to try to settle their differences outside of the Court. So he felt that the motion was appropriately brought without delay. Going to the second element, which was, did the circumstances give rise to the default being adequately explained? And in this scenario, it was the lawyer who just filed an Affidavit and in his Affidavit he pretty much said it was due to my accident or mistake that the Notice of Objection to the accounts on behalf of the objector was not filed in time. And again, Justice Brown thought that was an appropriate explanation. Going to the third element here, which is did the beneficiary have an arguable case? Could he demonstrate he had an arguable objection to the executor’s accounts? And this required a little bit more of a substantive look at the case because what Justice Brown did was he looked at the objections raised by the objector, and then he looked at the accounts. And he thought that well these are valid objections that the estate trustee/attorney should answer. So again, Justice Brown thought that there was merit behind the objections raised. This wasn’t a frivolous case. The fourth element was, did the interest of justice favour setting aside the judgment? And I really liked and appreciated Justice Brown’s comment on this point because his comment pretty much is wherever there is a fiduciary who is in a fiduciary role or fiduciary position, he has a legal duty to account. And he says in the interest of justice, the legal duty to account outweighs any form of prejudice caused by the delay of holding off on granting that judgment.
David Smith: So it’s…you know, in a way it’s a classic case, isn’t it, of substance over process? There’s a very rigid process and procedure under the passing of accounts which says you’ve got to do such and such in a specific period of time. I did find it interesting that he still referred to it as a close case on reflection and towards the end of the decision. I think part of the reason for that is that as he pointed out, you know, judges know that the Rules exist to provide some certainty to executors that once the 20 days are past and once you’ve got a judgment passing your accounts, that that means something in that you can rely upon the deadlines set out in the Rules. So I think His Honour went to great lengths to say look, don’t think that I’m gonna grant this kind of motion in every case. But if there’s a reason to think that the interests of justice…I think ultimately the final point is the key one. On a balancing of all of the factors, do the interests of justice either support or mitigate against granting the relief that was sought? And here, it was pretty clear that Justice Brown saw, you know, did the balancing act that judges do and concluded that it was better that everyone get a full hearing of the matter. I don’t know ultimately if this settled, I mean, as most cases do. It’s interesting to know. But certainly the beneficiaries would have lost leverage in settlement negotiations if the judgment passing the accounts was obtained.
Rick Bickhram: Absolutely. And I think what Justice Brown did in his Order going forward was he held that the parties should attend a mandatory mediation, which we all know is compulsory in Toronto. And maybe, maybe it settled at that point.
David Smith: Right. So I think to sort of wrap up then, the message to all lawyers who practice in this area is one that we should always reflect on, which is, we’ve got to diarize those deadlines for getting in objections to accounts because nobody wants to be dealt with a situation where you’ve got to try and determine or have a Court give you a break in circumstances where the filing of the Notice to Objection is the best way to ensure that the judgment can’t be granted. But all’s well that ends well. And here it looks like the judge made a decision that kept everybody…well at least the beneficiaries who were objecting, happy.
Rick Bickhram: Yes.
David Smith: Well Rick, that was great. It was fun podcasting with you again today.
Rick Bickhram: It was a pleasure, Dave. I look forward to podcasting with you again soon.
David Smith: And, of course, again we look forward to hearing from our listeners. You can send us an email at hull.lawyers@gmail.com and be sure to visit our blog at estatelaw.hullandhull.com. We blog everyday and you’ll get information and more discussion on today’s practice of estate law and observations and issues of interest to anyone who practices in the area of estates and trusts or who just simply has an interest in this area. We hope that you enjoyed this show. I’m David Smith.
Rick Bickhram: And I’m Rick Bickhram. Until next week, so long.
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