Historically, a party’s legal costs for estate litigation were generally paid from the estate, rather than by the parties involved. However, the attitude of the court has changed significantly over the past few years. Any party involved in estate litigation can no longer expect that their costs will be paid out of the estate – instead, the “loser pays” system which operates in civil litigation is the general standard. In particular, in litigation regarding care and capacity of incapable persons, the “loser pays” rationale for ordering costs has become much more prevalent.
In Fiacco v Lombardi, Justice Brown, laid out the factors to be considered for costs claims against the estates of deceased persons, as well as those in capacity litigation involving incapable persons. He has since repeated these remarks in a number of cases, no doubt attempting to ensure that his message, and its implications for litigants, are fully appreciated by estates lawyers (see Chu v Chang, Bennett v. Gotlibowicz).
The parties in Fiacco had been involved in lengthy litigation regarding the ongoing guardianship of their incapable mother. Each of the four parties sought payment of his or her respective legal costs out of their mother’s assets. In rejecting the parties’ requests, Justice Brown aimed to dispel the notion that a court will allow the assets of an incapable person to be used as an “ATM bank machine from which withdrawals automatically flow to fund their litigation”. In doing so, Justice Brown relied on his own criticism of such assumptions in Salter v Salter, where the same issue arose with respect to costs sought out of the assets of an estate. A parent’s assets should not be used to fund such “sibling rivalries”.
As noted in Salter, while estate litigation is specialized, it is still a subset of civil litigation, and the general “loser pays” costs rule applies (subject to limited exceptions, for example, in McDougald Estate v Gooderham). As in other litigation, this principle is required to ensure that parties reasonably assess their own personal exposure to costs prior to engaging in emotionally-charged estate litigation with little chance of success.
As Fiacco illustrates, this principle applies equally to capacity litigation, and cost awards must also reflect the basic purpose of the Substitute Decisions Act: to protect the property of an incapable person and ensure it is managed wisely to support the needs of the incapable person in the future.
So what factors should a court consider when one or more of the parties seek to have their legal costs payable from the incapable person’s assets? According to Justice Brown:
“When faced with a claim for costs against the assets of an incapable person, the court must examine what, if any, benefit the incapable person derived from the legal work which generated the costs.”
In most cases where an application for guardianship is unopposed, the incapable person will have derived a benefit, as presumably their property will now be appropriately managed. In such a case, the only issue would likely be the reasonableness of the legal costs claimed.
However, in the context of contested guardianship and/or attorneyship disputes, there is a “significant risk” that the parties will personalize the dispute and lose sight of the incapable person’s interests. In these circumstances, courts must be vigilant and rigorously analyze whether the litigation which gave rise to the costs claims was initiated and/or defended in the best interests of the incapable person.
In Fiacco, Justice Brown declined to award any costs out of the incapable parent’s assets. Instead, he ordered that the successful parties’ costs be payable personally by the losing parties and issued the following warning to future litigants and members of the bar:
“I must emphasize that it would be a serious mistake for members of the Bar to presume that all parties to contested capacity litigation will have their costs paid by the estate of the incapable person. Such an attitude would misapprehend the principles which must guide the court’s exercise of its discretion on costs.”
When parties lose sight of the purpose of capacity litigation – to protect the best interests of the incapable person – they must be prepared to face the consequences and cannot expect an incapable person to bear the burden of an ill-advised family war.
For questions about these issues or for advice and guidance on other Estate Litigation matters, contact the estate litigation lawyers at Eisen Law in Toronto to find out how we can help. Call us at 416-591-9997 or contact us online.