Estate Planning

When are Costs Payable out of a Trust?

By Hull and Hull LLP

In Nolan v. Kerry (Canada) Inc., 2009 SCC 39 the Supreme Court of Canada considered, inter alia, when costs can be awarded out of a trust fund in the context of a pension plan dispute regarding the employer's obligations. The pension plan contained defined benefit ('DB') and defined contribution ('DC') components.   The CA Employees Pension Committee (the 'Committee') sought to have funds paid into the pension fund to the benefit of the DB members only.

In considering when costs are payable out of a trust, the Court noted that there were three categories of cases in the wills and estate context: 1) Where trustees apply to a court to construe the terms of the trust deed so that they may determine the proper administration of the trust; 2) similar cases where beneficiaries of the trust apply rather than the trustees; and 3) where a beneficiary makes a claim which is adverse to other beneficiaries of the trust. In the first two cases costs may rightfully be paid from the trust fund. However, costs will not be paid from the fund in cases that fall under the third category.

The key question was whether the litigation was adversarial or whether it was aimed at the due administration of the trust. Adversarial claims did not qualify for a costs award from the trust fund. In Nolan v. Kerry the litigation was adversarial in nature because it was ultimately about the propriety of the employer's actions and because the Committee sought to have funds paid into the pension fund to the benefit of the DB members only. The employer was successful and there was no reason to penalize it by diminishing the pension fund surplus, thereby reducing its opportunity for contribution holidays.

The Supreme Court of Canada affirmed the decision of the Ontario Court of Appeal in favour of the employer. The Committee was not entitled to its costs out of the pension fund and costs were ordered against it as the unsuccessful party.

Sharon Davis

Full post as published by Toronto Estate Law Blog on September 28, 2010 (boomark / email).