Ontario Superior Court orders punitive costs to deter estate trustees from breaking fiduciary duty

The trustee refused to comply with three court orders

Ontario Superior Court orders punitive costs to deter estate trustees from breaking fiduciary duty

The Ontario Court of Superior of Justice has awarded punitive damages against an estate trustee who breached her fiduciary duties by failing to comply with court orders multiple times.

In Queripel v Shaddock, 2023 ONSC 3114, Betty Shaddock has three children, Lorali, Clifford, and Robert. When Betty died in 2002, she left a will which set aside a residence fund for Robert. Lorali was appointed as one of the trustees of her mother's estate. The estate trustees purchased a property at 3233 Eglington Avenue East as a residence for Robert, who lived there until his death. The will required that upon Robert's death, his residence was to be sold and the funds distributed equally to Betty's grandchildren.

Lorali has not communicated with Betty's grandchildren. The heirs discovered that Robert's residence had title liens registered against it for default in payment of common expenses. The heirs wrote to Lorali, asking for an accounting, an explanation concerning the registration of the liens, occupation rent, damages, and legal fees, and that Lorali agrees to be removed as estate trustees. A judge issued an order requiring Lorali to pass the accounts, but she failed to comply with this order.

The heirs brought a motion seeking to remove Lorali as estate trustee, which the court granted. The heirs brought an action seeking payment of damages caused by Lorali while acting as estate trustee. They also asked the Ontario Superior Court of Justice to require Lorali to pay punitive damages for failing to comply with court orders.

The court noted that Lorali breached three court orders. She failed to pass accounts, transfer estate assets to the new trustee, and produce an informal accounting. The court further noted that as estate trustee, she failed to follow the will's instruction that the residential property be sold following Robert's death. Instead, she lived in the residence without compensating the estate. She also defaulted in the payment of realty taxes. The heirs requested that Loreli pay punitive damages of $100,000.

The court explained that as estate trustee, Loreli was "a fiduciary with fiduciary obligations toward the estate and the beneficiaries." She has complete discretion to manage the estate in accordance with her fiduciary obligations.

Despite three court orders, the court found that Lorali breached her fiduciary duties for failing to provide an accounting of the estate's assets. The court also faulted her for failing to sell Robert's residence after his death as required by the terms of the will. The court further noted that Lorali's failure to maintain estate assets resulted in a lien on the property.

The court emphasized that it must send a message regarding its "abhorrence of  Lorali's conduct while she was an estate trustee." The court stressed that punitive damages must be sufficient to reflect deterrence in similar cases.

The court noted that she remained in breach of three court orders. The court also discovered that the documents sought by the other heirs for the last two years have been in Lorali's possession. She simply did not get around to producing them.

The court wrote in its decision, "Lorali's conduct in this matter cannot be considered as anything other than egregious, abhorrent and dismissive of Court authority."

The court said that an award of punitive damages would communicate to the estate trustees that breaches of fiduciary duty and a continuing failure to account or communicate with beneficiaries will be considered conduct that should be the subject of deterrence.

The court ultimately ordered Lorali to pay punitive costs.

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