Is a Notice of Objection to Accounts subject to a limitation period?

There is a world of a difference between a fiduciary’s duty¹ to maintain his accounts and whether a time limit exists for the beneficiary to request an accounting or to object to the accounts presented. In the context of an attorney for property’s obligation to disclose his accounts and produce his records,² the regulations impose a duty on the attorney to give a copy of the accounts and records to specific people. Those regulations do not place a time limit on the people entitled to demand production. In addition, under the Rules of Civil Procedure, a person with an apparent financial interest may request an accounting of an estate trustee. The Rules don’t articulate a timeline for seeking such an order.³

Is there a time limit? A limitation period? The foregoing will explore the courts’ pronouncements on these issues.

Passing of Accounts and Objections

There is a general legal obligation for an estate trustee (like any trustee) to keep a complete and accurate set of accounts of the assets under the estate trustee’s administration.⁴ Estate trustees must have their administration discharged by either: (i) commencing an Application to Pass Accounts⁵; or (ii) requesting approval of the estate trustee’s administration and informal discharge by the beneficiaries, usually by way of a release.⁶

If a beneficiary takes issue with the accounts or general administration of the estate, he or she may file a Notice of Objection to Accounts⁷. If the objections are not resolved, Rule 74.18(11.5) stipulates that the applicant must serve a consolidation of all the remaining notices of objection to accounts and a Reply to Notice of Objection to Accounts⁸ ten days before the hearing of the matter on a contested basis.

Objecting to Accounts After a Delay – Wall Estate

In light of the above procedure for the passing of accounts, what happens if a beneficiary waits for years to file a Notice of Objection to Accounts? Is the estate trustee obligated to respond to objections from previous accounts to which the beneficiary had arguably provided approval?

In Wall Estate,⁹ the Ontario Superior Court of Justice considered a motion by an estate trustee to strike the Notice of Objection to Accounts of a beneficiary of the estate on the grounds that the objection was statute-barred pursuant to the Limitations Act, 2002 and/or was precluded by the equitable defences of laches and acquiescence.

I. Facts

Marjorie Ann Wall (“Marjorie”) died in 2005, leaving the bulk of her estate to her two children in trust, until they reached the age 60. The will provided that the trustee had absolute discretion to pay funds to these two beneficiaries during their lifetime prior to reaching age 60. At the time of Marjorie’s death, both children were under the age of 60. It was not disputed that the estate trustee paid certain sums to these two beneficiaries over the years. The will further provided that if both these beneficiaries did not reach the age of 60, then the residue of the estate was to be divided among Marjorie’s nieces and nephews (the contingent beneficiaries).

The estate trustee, Ian Paul Shaw, held annual meetings with Marjorie’s children regarding the administration of the estate but there was a question as to whether approval of the accounts had been provided by the beneficiaries at the meetings.

In 2014, one of Marjorie’s children, Elizabeth Wall, brought an application to pass accounts the estate trustee’s accounts for the entire period since Marjorie’s death in 2005. Elizabeth’s brother had died prior to his sixtieth birthday, leaving Elizabeth as the sole vested beneficiary of the estate. As she had not yet turned 60, Elizabeth had a vested interest in the discretionary trust and a contingent interest in the residue of the estate.

In January of 2015, the court granted Elizabeth’s application to pass accounts and ordered a passing of accounts from the date of death to December 31, 2013. Elizabeth filed a Notice of Objection to Accounts in June of 2015.

In January of 2016, the estate trustee brought a motion to strike Elizabeth Wall ’s Notice of Objection to Accounts by reason of the Limitations Act, 2002 or laches or acquiescence, and took the position that he was under no obligation to respond to Elizabeth’s objections to the accounts for the period from the date of Marjorie’s death to December 31, 2012.

II. Arguments of the Parties and Reasons for Decision

On the facts before him, Mr. Justice G.M. Mulligan found that neither the Limitations Act, 2002 or the doctrines of laches or acquiescence applied, and dismissed the estate trustee’s motion to strike the Notice of Objection to Accounts.

a. Limitations Act, 2002

The crux of the analysis as to whether the Limitations Act, 2002 applied to the Notice of Objection to Accounts was whether it should properly be considered a “claim” within the meaning of the Act. The estate trustee argued, on the basis of the obiter statement of Hourigan J.A. in Armitage v. Salvation Army, [2016] O.J. No. 6636, that “it may be that the filing by the beneficiary of a Notice of Objection after an attorney has sought passing of accounts is a claim within the meaning of the Limitations Act, 2002“, that the facts supported a positive determination by the Court that Elizabeth’s Notice of Objection to Accounts constituted a claim. In particular, he argued that Elizabeth was seeking to advance claims against the estate trustee in respect of executor compensation previously paid out. In his submission, since Elizabeth had provided approval of the administration of the estate and estate accounts from 2006-2012 during their annual meetings, her objection fell within the meaning of a claim, i.e. “a claim to remedy an injury, loss, or damage that occurred as a result of an act or omission.”¹⁰ Accordingly, the estate trustee argued that Elizabeth was statute-barred from making objections pertaining to the years that she had already approved. He asserted that he was only responsible for responding to objections for the period beginning in 2013 until his removal in 2016, for which years he appears to have conceded that no approval was obtained from Elizabeth for the accounts or administration of the estate.

Working from basic principles, calculation of a limitation period starts when the person with a claim first knew or ought to have known that the injury, loss or damage had occurred.¹¹ While this is not articulated in the judgment (or in the estate trustee’s factum), it appears that the estate trustee’s basic argument was that the limitation period began running in 2013, when he presented the annual accounts to the beneficiary. Arguably, if she had a problem, she knew or ought to have known about it when the accounts were presented in 2013. The estate trustee argued that she read the accounts and signed them, evidencing her approval.¹²

Justice Mulligan was not persuaded that Armitage supported the estate trustee’s arguments. To the contrary, His Honour took note instead of Hourigan J.A.’s finding that the attorney for property’s claim for compensation in an application to pass accounts in that case did not constitute a claim pursuant to the Limitations Act, 2002. Accordingly, Justice Mulligan held that “in my view, if the passing of accounts does not constitute a claim, I am not satisfied that a Notice of Objection is a claim.”¹³ His Honour differentiated a Notice of Objection from a claim on the basis that the purpose of a Notice of Objection is to provide answers to a beneficiary’s questions about the administration of the estate, which then may assist the beneficiary in consenting to the accounts without a formal hearing, or, if a formal hearing is required, assist the Court in determining whether the administration of the estate and compensation sought was appropriate.

In addition, Justice Mulligan found that another factor weighing against a finding that the Notice of Objection to Accounts should be considered a claim was that no direct benefit would pass to Elizabeth if her objections were successful, given that Elizabeth was only a contingent beneficiary of the residue of the estate. Elizabeth only stood to gain if she reached the age of 60, at which point the discretionary trust would be collapsed and she would become the beneficiary of the entire estate.

b. Laches/ Acquiescence

The estate trustee also argued that Elizabeth had approved of the administration of the estate and therefore was precluded from objecting to the accounts due to the principles of laches or acquiescence, meaning “unreasonable delay in pursuing a right or claim – almost always an equitable one – in a way that prejudices the party against whom relief is sought.”¹⁴ However, the Court made several factual findings which were unsupportive of this argument, namely:¹⁵

Shaw was a sophisticated estate trustee who had been Marjorie Wall’s solicitor for 20 years;

The annual meetings were conducted in his office. Elizabeth Wall was not provided any advance copies to review before the meeting;

This is an ongoing estate to be administered until Elizabeth reaches age 60 or passes away prior to that date;

Shaw did not send copies by mail to Ms. Wall after these meetings;

Shaw did not follow best practice for an estate trustee. He did not obtain formal releases, nor did he seek to pass accounts for the many years under his administration until required to do so by court order;

Shaw was aware of Elizabeth Wall’s personal issues and was aware that he had absolute discretion with respect to payments to her. The imbalance of power was obvious; Elizabeth Wall did not receive independent legal advice throughout his period of administration, until she commenced this application;

Although there is a dispute as to whether or not Mr. Shaw advised her to get independent legal advice, such a recommendation, if it was given, was not documented in any correspondence from him to Elizabeth Wall;

Shaw knew, or ought to have known, that if Elizabeth Wall did not survive past age 60, the discretionary trust would come to an end and his obligation to pass accounts to her would cease.

On the basis of these facts, Justice Mulligan dismissed the estate trustee’s laches and acquiescence arguments. The estate trustee’s motion to strike Elizabeth’s Notice of Objection to Accounts was dismissed and the estate trustee was ordered to address the objections throughout his period of administration in connection with his passing of accounts application.

III. Key Takeaways

The question of whether a Notice of Objection to Accounts may be dismissed for delay by reason of the Limitations Act, 2002 or laches or acquiescence, remains fact-dependent. While Justice Mulligan’s analysis in Wall Estate suggests that a Notice of Objection to Accounts is fundamentally distinct from a “claim” within the meaning of the Limitations Act, 2002, His Honour appears to have left open the possibility that a Notice of Objection to Accounts could rise to the level of claim in cases where successful objections would result in an immediate, rather than contingent benefit to the objector.

This case is also instructive on the obligations of an estate trustee in administering an estate. If the estate’s accounts are not passed, there may be adverse consequences to estate trustees who do not follow best practices i.e. providing the beneficiary with the opportunity to review the accounts in a substantive manner, informing the beneficiary of his or her right to seek independent legal advice, and obtaining a formal release from the beneficiary for the passing of accounts.