- 2 - litigation, or an order requiring Ann Capponi to post a bond pursuant to Rule 74.11, an order that the Estate Trustee be entitled to sell assets

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1 COURT FILE NO.: CV DATE: ONTARIO SUPERIOR COURT OF JUSTICE B E T W E E N: HSBC BANK CANADA Applicant - and - ANN CAPPONI, Estate Trustee of the Estate of Ronald Joseph Capponi Janet E. Mills, for the Applicant Douglas J. Spiller, on behalf of the Capponi Estate Respondents HEARD: August 16, CanLII (ON SC REASONS FOR JUDGMENT DALEY J. Nature of Application and Motion By the Respondent [1] The applicant HSBC Bank Canada ( HSBC brought an application for various forms of relief including removal of Ann Capponi as Estate Trustee of the estate of Ronald Joseph Capponi, the appointment of an estate trustee during

2 - 2 - litigation, or an order requiring Ann Capponi to post a bond pursuant to Rule 74.11, an order that the Estate Trustee be entitled to sell assets of the estate without making any distribution pending further order of the Court, and lastly, an order pursuant to Rule 74.15(d ordering the estate trustee to file with the Court a statement of the nature and value of the assets of the Estate including an accounting of the assets and liabilities CanLII (ON SC [2] The respondent, Ann Capponi, Estate Trustee of her deceased husband, Ronald Joseph Capponi brought a motion returnable on the date of HSBC s application for an order staying or dismissing the bank s application. The motion was brought on various grounds but principally on the basis that the bank s application was improperly constituted under Rules 74 and 75 of the Rules of Civil Procedure. Factual Background [3] On December 29, 2004 Ronald Joseph Capponi executed a guarantee in favour of HSBC with respect to the indebtedness of two corporations in which he had an interest, namely, Estebe Plastics Ltd. and Teo Corp. The guarantee was limited to the amount of $1,250, with interest. Subsequently by letter of agreement the amount of the guarantee was reduced to $1,000,

3 - 3 - [4] Ronald Joseph Capponi died on February 15, [5] A Certificate of Appointment naming the deceased s wife, Ann Capponi, as estate trustee was issued on June 14, [6] On November 10, 2006 HSBC made a demand for payment upon the estate of Ronald Joseph Capponi calling for payment of the sum of 2007 CanLII (ON SC $1,000, pursuant to the guarantee. [7] On December 1, 2006 an action was instituted by HSBC in the Superior Court of Justice, at Toronto, against the estate of Ronald Joseph Capponi seeking payment pursuant to the said guarantee. It is of note that the existence of this action is not referenced in any of the material filed in the application brought by HSBC but was raised in the respondent s material. A Statement of Defence and counterclaim was filed in that action on behalf of the estate on or about December 29, [8] In its application, HSBC offers evidence that a residential property was purchased by Ann Capponi in May of 2003 at a value of approximately $700,000.00, and the property was registered in her name. It is asserted by the bank that the deceased s estate may have a viable trust claim as against that residential property held in the name of Ann Capponi and as such the bank takes the position that Ann Capponi is unlikely to pursue that claim, as estate trustee

4 - 4 - as she is the registered owner of the residential property. In the result it is asserted by HSBC that Ann Capponi is in a conflict of interest and can no longer act as estate trustee of the estate of Ronald Joseph Capponi. [9] It is the position of the respondent, Ann Capponi, in her preliminary motion that HSBC cannot proceed with its application as the relief sought by the bank constitutes an attempt to secure assets, in advance of judgment, by use of Rules 2007 CanLII (ON SC 74 and 75 of the Rules of Civil Procedure. Analysis [10] The relief sought in the application by HSBC is entirely within the procedural scheme established in Rules 74 and 75. [11] In the application HSBC is seeking the following relief: (a (b (c (d Order removing Ann Capponi as Estate Trustee of the Estate of Ronald Joseph Capponi 75.04; the alternative to (a above, an Order appointing an Estate Trustee during litigation pursuant to Rule 74.10; the alternative to (a above, an Order that Ann Capponi post a bond in the form required by Rule 74.11, an amount equal to the value of the assets of the estate at the date of probate or in the amount of $1,000,000.00, which ever is greater; an Order that the Estate Trustee of the Estate of Ronald Joseph Capponi has the authority to sell assets of the estate

5 - 5 - (e and do all things necessary in respect for the administration of the estate while preserving the estate pending resolution of all matters before the court and shall not make any distribution or capital disbursements from the estate without further Order of the court; an Order that the Estate Trustee file with the court and provide to the plaintiff a statement of the nature and value, at the date of death, of each of the assets of the estate and an accounting of the assets and liabilities of the estate to the present date pursuant to Rule 74.15(d CanLII (ON SC [12] Rule 74 came into force on January 1, 1995 following the work of the Haley Committee. [13] Subsequently, Justice Haley, in the decision of Belz v. Mernick Estate 1 considered the purpose, scope and limitations of Rules 74 and 75 of the Rules of Civil Procedure. [14] In Belz, a judgment had been obtained by a creditor against the residuary beneficiary under a will. The judgment creditor instituted proceedings under Rules 74 and 75 for directions regarding the procedure for ascertaining entitlement of the residuary beneficiary under the will and for directions requiring the executors of the estate to file information with the court. 1 Belz v. Mernick Estate (2000, 42 C.P.C. (4 th 357.

6 - 6 - [15] The motion by the judgment creditor was dismissed without prejudice to the rights of the judgment creditor to seek enforcement of the judgment through other means. [16] Justice Haley indicated in her reasons: Access to both Rule and to Rule is limited to persons either appearing to have or having a financial interest in the estate CanLII (ON SC [17] Justice Haley went on to state further: While it is true that the applicant as a judgment creditor may have a "financial interest" in the estate of Belle Mernick I think that interest can be more precisely expressed as an interest in the beneficial interest which Stephen Mernick has in the estate of Belle Mernick. It is a derivative interest arising out of the judgment debt but is not an interest in the estate in any sense similar to the "financial interest" referred to in rule (1. When one examines the structure of Rule 74 and 75 which pertain to estates one sees that Rule 74 is concerned with application for probate of wills and estate administration where there is no will and to that end provides for a person having, or appearing to have, a financial interest in a estate to, inter alia, oblige an executor to probate or renounce probate of a will, produce information about estate assets and to account. There is nothing which allows the court to interfere and make directions about the administration of the estate until there is a passing of accounts. Rule 75 is directed at attacks on the validity of a will or a probate document put forward as a last will. It does not deal with the administration of the estate by the estate trustee. The issues which are referred to under rule relate to issues concerning the validity of the will and not to determination of financial interests under the will. As Mr. Schnurr points out to construe the kind of financial interest which the applicant has in Stephen Mernick's share of the Mernick Estate to find the applicant is a person with a financial interest in the estate for the purposes of Rules 74 and 75 would introduce complexities, if not chaos, in the estate procedures never envisaged by those rules. He asks would a judgment creditor in the situation of the applicant have to be served with a Notice of Application for a Certificate of Appointment? with a motion giving directions regarding the validity of a will in order that he be bound by the judgment making that determination? How would the estate trustee ascertain who should be served? He points out that the judgment debtor in the applicant's situation is not a creditor of the estate in the sense of a creditor who is given rights under the Estates Act to apply for probate in certain circumstances. The applicant is a creditor of a beneficiary and is not entitled to the rights accorded a cestui que trust to whom the estate trustee is in a fiduciary position.

7 - 7 - [18] While the applicant bank may have a more direct relationship to the estate of Ronald Joseph Capponi, than the claimant in the Belz decision did to the estate in issue in that matter, I am of the view that the comments of Justice Haley have equal application to the facts of this case. [19] I was advised by counsel that the administration of the Estate of Ronald 2007 CanLII (ON SC Joseph Capponi is still under way and no passing of accounts has occurred. I was further advised by counsel that HSBC has not attempted to utilize Rules 74 or 75 within the estate administration process currently under way with respect to the Estate of Ronald Joseph Capponi. [20] The bank has asserted its claim in a separate action in which a defence and counterclaim has been filed by the estate disputing liability to pay under the guarantee. As well, the estate has counterclaimed for damages relating to alleged mismanagement by the HSBC and its receiver, of the corporations, in respect of which the guarantee was executed. [21] While HSBC may, in a broad sense, have a financial interest in the estate, that interest has not crystallized and it is not one which is within the scope of Rules 74 or 75 as discussed in the Belz decision. Further, HSBC s entitlement to payment under the terms of the guarantee remains in dispute.

8 - 8 - [22] The Belz decision was subsequently applied in L.A.W. v. Children s Aid Society of the District of Rainy River, 2 Platana J. In that case the Children s Aid Society relied upon Rule and claimed to have a contingent interest in the estate of a minor who died while represented by the Society as his guardian. The court concluded that the Society had no standing under Rule for the reasons set forth in Belz CanLII (ON SC Conclusion [23] In the result, I am of the view that it is not open to the applicant HSBC to make use of Rules 74 and 75 with a view to seeking the relief claimed. It has no standing to do so by way of this application. Further, for the reasons expressed in Belz, Rule 74 and 75 were not intended to be used by creditors to secure recovery of assets within an estate and moreover these Rules do not allow parties in HSBC s circumstances to secure the assets of a deceased s estate in advance of obtaining a judgment on the guarantee. These Rules are procedural in nature only and do not give HSBC any additional substantive rights nor standing to proceed with the application it has brought. 2 L.A.W. v. Children s Aid Society of the District of Rainy River, [2005] O.J. No

9 - 9 - [24] The application of HSBC is therefore dismissed, without prejudice to its right to pursue the action it has brought against the Estate and any other remedy available to it at law or pursuant to the Rules of Civil Procedure. [25] Counsel for the Estate shall deliver submissions on costs within 10 days, followed by submissions on behalf of HSBC within 10 days thereafter. Submissions are to be limited to three pages in addition to any Costs Outline CanLII (ON SC DALEY J. Released: September 10, 2007

10 COURT FILE NO.: CV DATE: ONTARIO SUPERIOR COURT OF JUSTICE B E T W E E N: HSBC BANK CANADA 2007 CanLII (ON SC Applicant - and ANN CAPPONI, Estate Trustee of the Estate of Ronald Joseph Capponi Respondents REASONS FOR JUDGMENT DALEY J. Released: September 10, 2007