Feinstein v. Freedman et al.,

• Jurisdiction: Ontario
• Judge: Laskin, van Rensburg and Hourigan, JJ.A.
• Neutral Citation: 2014 ONCA 205
• Citation: 2014 ONCA 205,(2014), 318 O.A.C. 85 (CA),318 OAC 85,(2014), 318 OAC 85 (CA),318 O.A.C. 85
• Date: 27 January 2014
• Court: Court of Appeal (Ontario)

Feinstein v. Freedman (2014), 318 O.A.C. 85 (CA)

MLB headnote and full text

Temp. Cite: [2014] O.A.C. TBEd. MR.043

Application under ss. 3, 5, 16 and 37 of the Trustee Act, R.S.O., 1990, c. T-23 and Rules 10.01, 14.05(3)(a), (b), (c), (d) and (h) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194;

Abraham Feinstein (applicant/respondent) v. Jacob Freedman, Jonathan Freedman, Rose-Anne Freedman-Prizant, Josh Freedman, Michael Freedman, Shira Leah Ben-Choreen Schneck, Rachel Freedman, Joshua Freedman, Eli Freedman, Tal-Or Ben-Choreen, Elishua Ben-Choreen, Joshua Prizant, Sarah Idit Prizant, Samuel Prizant, Joshua Freedman, Adam Freedman, Liat Ben-Choreen and Riva Freedman Rotenberg (respondents/respondents)

(C56955)

Application under s. 5 of the Trustee Act, R.S.O., 1990, c. T-23 and Rules 14.05, 16 and 17.02(c) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194.

The Children's Lawyer, as litigation guardian for Joshua Freedman, Adam Freedman, Samuel Prizant, Asher Freedman, Netta Grace Schneck, Nili Sarit Schneck and Ora Tmemah Aviner (applicant/appellant) v. Jacob Freedman, Rose-Anne Freedman-Prizant, Josh Freedman, Jonathan Freedman, Michael Freedman, Shira Leah Ben-Choreen Schneck, Rachel Freedman Aviner, Joshua Freedman, Eli Freedman, Joshua Prizant, Sarah Idit Prizant, Liat Ben-Choreen, Tal-Or Ben-Choreen, Elishua Ben-Choreen, Riva Freedman Rotenberg and Abraham Feinstein (respondents/respondents)

(C56958; 2014 ONCA 205)

Indexed As: Feinstein v. Freedman et al.

Ontario Court of Appeal

Laskin, van Rensburg and Hourigan, JJ.A.

March 12, 2014.

Summary:

The River Freedman Trust (RFT) was an inter vivos income trust established by the late Freedman in favour of his surviving wife (Riva) pursuant to a trust agreement. The RFT's only assets was its holding of preferred shares in Freedman Holdings Inc. (FHI). The preferred shares constituted the majority of FHI's voting shares. Consequently, whoever controlled RFT controlled FHI. Pursuant to the trustee agreement, Riva was entitled to the income from the preferred shares on a discretionary basis. Freedman's four children were income beneficiaries under a testamentary trust, the Jarvis Freedman Insurance Trust (JFIT), which derived its income from FHI. The JFIT held all the of FHI's common shares and was a minority shareholder of FHI. The children were entitled to receive the net income of FHI, saved for the income accruing to the RFT. The children were the trustees of the RFT, the executors of Freedman's estate and the directors of FHI. The capital of both RFT and the JFIT was to flow to Freedman's grandchildren in 2035. In 2008, Ben-Choreen, supported by Jonathan Freedman and the Office of the Children's Lawyer (the OCL), applied for the appointment of an institutional trustee for the RFT, alleging that the children were in a conflict of interest and that they could no longer effectively work together to properly administer the RFT.

The Ontario Superior Court found that the children could act as executors of the estate, director of FHI, and trustees of the RFT and that there was no disqualifying conflict of interest. However the court removed them as trustees because their acrimonious relationship was having an adverse impact on the operation of FHI. The court appointed Feinstein as the independent trustee of the RFT. In 2012, Feinstein expressed his desire to retire as trustee. The trustee agreement provided for the trustee's resignation and the appointment of a replacement trustee by the executors of the Freedman's estate. However, the parties raised issues as to appropriate procedure governing Feinstein's resignation and the appointment of his successor. Feinstein applied for directions. The OCL, supported by Jonathan Freedman and his adult children (Tal-or Ben-Choreen, Elishua Ben-Choreen, and Liat Ben-Choreen (collectively, the "Ben-Choreen appellants)) cross-applied to disqualify the children from appointing a replacement trustee and sought an order under s. 5 of the Trustee Act appointing an institutional trustee to replace Feinstein. Three of Freedman's children and Riva took the position that the appointment mechanism in the RFT trust agreement should govern. They also advised the court that they intended to appoint themselves as trustees.

The Ontario Superior Court, in a decision reported at [2013] O.T.C. Uned. 1616, dismissed OCL's cross-application and ruled that, upon Feinstein's resignation, the children could appoint replacement trustees, including themselves. The parties were unable to reach an agreement on costs and submitted the matter for determination.

The Ontario Superior Court, in a decision reported at [2013] O.T.C. Uned. 4420, awarded costs to the parties, inclusive of HST and disbursement, payable out of the estate. Two appeals were commenced from the order dismissing OCL's cross-application and ruling that the children could appoint replacement trustees. Several motions for leave to appeal the costs decision were commenced. Before the court had issued and entered its orders, the Ben-Choreen appellants moved to admit FHI's 2012 non-consolidated financial statements as fresh evidence in support of their application for the appointment of an independent trustee.

The Ontario Superior Court dismissed the motion to introduce fresh evidence.

The Ontario Court of Appeal dismissed the appeal and motions for leave to appeal.

Courts - Topic 2188

Jurisdiction - Loss or termination of jurisdiction upon fulfilling function (functus officio) - Civil trials - An application judge issued directions respecting the appointment of replacement trustees for an inter vivos income trust and dismissed a cross-application for the appointment of an independent trustee - Several weeks later, after notices of appeal had been filed, the cross-applicants moved to admit fresh evidence in support of the cross-application - The application judge ruled that she lacked jurisdiction to entertain the motion - The cross-applicants appealed - The Ontario Court of Appeal held that as the application judge's orders had not been issued and entered, she was not functus officio - Consequently, she erred in concluding that she lacked jurisdiction - However, the court dismissed the motion where it was satisfied that the proposed fresh evidence, when taken with the other evidence, could not reasonably be expected to have affected the result - See paragraphs 43 to 47.

Courts - Topic 2189

Jurisdiction - Loss or termination of jurisdiction upon fulfilling function (functus officio) - Orders - [See Courts - Topic 2188 ].

Executors and Administrators - Topic 5548

Actions by and against representatives - Costs - Where payable out of estate - The River Freedman Trust (RFT) was an inter vivos income trust established by the late Freedman in favour of his surviving wife (Riva) pursuant to a trust agreement - The RFT's only assets were preferred shares in Freedman Holdings Inc. (FHI) which constituted the majority of the voting shares - Freedman's four children were income beneficiaries under a testamentary trust, the Jarvis Freedman Insurance Trust (JFIT), which also derived its income from FHI - The children were the trustees of the RFT, the executors of Freedman's estate and the directors of FHI - The capital of both RFT and the JFIT was to flow to Freedman's grandchildren in 2035 - In 2008, an application judge removed the children as trustees of the RFT because their acrimonious relationship was having an adverse impact on FHI's operation - The court appointed Feinstein as the replacement trustee - In 2012, Feinstein expressed his desire to retire as trustee and applied for directions - The Office of the Children's Lawyer (OCL) cross-applied to disqualify the children, as the estate executors, from appointing replacement trustees as they were entitled to do under the trust RFT agreement, and sought an order appointing an institutional trustee - The application judge ruled that, upon Feinstein's resignation, the children could appoint replacement trustees, including themselves - The judge fixed the parties' costs and ordered that they be paid out of the estate - The Ontario Court of Appeal denied leave to appeal the costs decision - The awarding and fixing of costs was highly discretionary and was afforded significant deference - Leave to appeal was granted sparingly and only where there were strong grounds to believe that the lower court had erred - There had been considerable uncertainty regarding how a new trustee(s) would be appointed because of the 2008 order - There was no error in the judge's finding that the litigation enured to the estate's benefit and her consequential costs order - See paragraphs 48 to 55.

Practice - Topic 3588

Evidence - General principles - Leave to offer further evidence after judgment - [See Courts - Topic 2188 ].

Practice - Topic 7032.1

Costs - Party and party costs - Entitlement to - Estate matters - [See Executors and Administrators - Topic 5548 ].

Practice - Topic 7381

Costs - Costs in trust proceedings - General - [See Executors and Administrators - Topic 5548 ].

Trusts - Topic 5962

The trustee - Appointment - Replacement trustees - The River Freedman Trust (RFT) was an inter vivos income trust established by the late Freedman in favour of his surviving wife (Riva) pursuant to a trust agreement - The RFT's only assets were preferred shares in Freedman Holdings Inc. (FHI) which constituted the majority of the voting shares - Freedman's four children were income beneficiaries under a testamentary trust, the Jarvis Freedman Insurance Trust (JFIT), which also derived its income from FHI - The children were the trustees of the RFT, the executors of Freedman's estate and the directors of FHI - The capital of both RFT and the JFIT was to flow to Freedman's grandchildren in 2035 - In 2008, an application judge removed the children as trustees of the RFT because their acrimonious relationship was having an adverse impact on FHI's operation - The court appointed Feinstein as the replacement trustee - In 2012, Feinstein expressed his desire to retire as trustee and applied for directions - The Office of the Children's Lawyer cross-applied to disqualify the children from appointing replacement trustees as they were entitled to do under the RFT trust agreement and sought an order appointing an institutional trustee (Trustee Act, s. 5) - The children intended to appoint themselves as trustees - The applications judge ruled that, upon Feinstein's resignation, the children could appoint replacement trustees, including themselves - The Ontario Court of Appeal dismissed two appeals - The gravamen of the complaint was that the children had persistently taken dividends in excess of FHI's net income contrary to the RFT trust agreement - However, the dividends were declared in their capacity as directors of FHI, not as trustees, and complied with the standards set by the Ontario Business Corporations Act - Absent a proven allegation of a breach of trust, the application judge correctly focussed her analysis of the children's conduct on the overall impact on the interests of the capital beneficiaries - She noted that there had been no significant erosion of capital and that the FHI had been turned around and was now fiscally sound with growing capital and significant net income - While the dividends in certain years exceeded net income, the cumulative dividends had not - It was open to her to conclude that intervention was not required - See paragraphs 31 to 42.

Trusts - Topic 5966

The trustee - Appointment - By court - When required - [See Trusts - Topic 5962 ].

Cases Noticed:

Merry Estate, Re, [2002] O.T.C. 921; 62 O.R.(3d) 427 (Sup. Ct.), refd to. [para. 32].

Meredith v. Plaxton - see Merry Estate, Re.

Consiglio Trusts (No. 1), Re, [1973] 3 O.R. 326 (C.A.), refd to. [para. 32].

St. Joseph's Health Centre v. Swatowski Estate, [2007] O.T.C. Uned. O94 (Sup. Ct.), refd to. [para. 32].

Byers v. Pentex Print Masters Industries Inc. et al. (2003), 167 O.A.C. 159; 62 O.R.(3d) 647 (C.A.), refd to. [para. 43].

R. v. Palmer, [1980] 1 S.C.R. 759; 30 N.R. 181, refd to. [para. 45].

McDougald Estate, Re (2005), 199 O.A.C. 203 (C.A.), refd to. [para. 51].

Vance Estate v. Vance Estate et al., [2010] O.T.C. Uned. 4944; 2010 ONSC 4944, refd to. [para. 51].

McNaughton Automotive Ltd. v. Co-Operators General Insurance Co. (2008), 250 O.A.C. 352; 95 O.R.(3d) 365; 2008 ONCA 597, refd to. [para. 52].

Counsel:

Joseph Y. Obagi, for the appellants, Liat Ben-Choreen, Tal-Or Ben-Choreen and Elishua Ben-Choreen;

Clare E. Burns and Bianca La Neve, for the appellant, the Office of the Children's Lawyer as litigation guardian for Joshua Freedman, Adam Freedman, Samuel Prizant, Asher Freedman, Netta Grace Schneck, Nili Sarit Schneck and Ora Tmemah Aviner;

Catherine Francis and Mark Freake, for the respondents, Jacob Freedman, Rose-Anne Freedman-Prizant and Josh Freedman;

Gregory M. Sidlofsky, for the respondents, Michael Freedman, Shira Schneck, Rachel Freedman, Joshua Freedman, Eli Freedman, Joshua Prizant and Sarah Prizant;

Peter G. Hagen, for the respondent, Abraham Feinstein;

Kenneth Radnoff, Q.C., for the respondent, Riva Freedman Rotenberg;

Jaye Hooper, for the respondent, Jonathan Freedman.

These motions and appeals were heard on January 27, 2014, by Laskin, van Rensburg and Hourigan, JJ.A, of the Ontario Court of Appeal. Hourigan, J.A., released the following reasons for judgment for the court on March 12, 2014.