Executor’s Obligation to Disclose Documents In Estate Litigation

 Executor’s Obligation to Disclose Documents In Estate Litigation

 

Wang v Christie Estate 2014 BCSC 1574 confirms and discusses what I would have considered to be trite law in that once an executor named as a respondent in a civil wills variation claim is served with the claim, he or she becomes subject to disclose documents obligation imposed on all parties of record under rule 7-1

The  Plaintiff had brought an action alleging he was spouse of deceased and that deceased’s will did not make adequate provision for his maintenance and support .

The  Executor was named as defendant.

The  Master dismissed the plaintiff’s application for an order requiring executor to file and deliver list of documents and the  Plaintiff successfully appealed.

Master’s interpretation and application of Rules of Court was held to be  in error , as since the  Executor  delivered a Response to the  claim, he  became subject to document disclosure obligations imposed on parties of record.

 

The Law

20      But this court has held, in Callender v. Callender Estate (1999), 178 D.L.R. (4th) 269 (B.C. S.C.), that the Rules of Court have the force of statute and legislative effect. It has also held in Smith v. Knudsen (2002), 17 C.P.C. (5th) 169 (B.C. S.C.), that the Rules are subordinate legislation, and subject to other provincial statutes in the event of inconsistency.
21      I see no inconsistency between the Wills Variation Act requirement that an executor be served with notice of a claim and the Supreme Court Civil Rules requirement that an executor be made a party to an action under the Act.
22      The executor relies on Quirico v. Pepper Estate [1999 CarswellBC 2177 (B.C. S.C.)], where, in an action under the Wills Variation Act, Bouck J. said at paras. 15 and 16:
15. An executor should not pick sides between the beneficiaries and use estate funds to finance litigation on their behalf under the Wills Variation Act. It is a matter of indifference to the executor as to how the estate should be divided. He or she need only comply with the terms of the will or any variation of it made by a court.
16. For all these reasons, the law anticipates the executor will remain impartial between the opposing beneficiaries. Where proceedings are taken under the Act, all the executor need do is appear at the trial if required, and deliver to the court the Letters Probate and financial documents showing the value of the estate.
23      This statement of the law was adopted by Wong J. in Ketcham v. Walton, 2012 BCSC 175 (B.C. S.C.) at paras. 10 to 12.
24      The executor’s position is that a requirement to list documents is inconsistent with the impartiality and neutrality required of the position, and places him in the arena with the litigants.
25      Further, to impose an obligation to list documents in a variation proceeding will require an executor to inventory the documents of a deceased, an additional burden, or, if delegated to the estate solicitor, additional expense.
26      It seems to me that the executor is in a position to control that risk, or avoid the burden simply by not filing and delivering a Response to Civil Claim. That is the step, if taken, that triggers the obligation to list documents under Rule 7-1, because that is the step that converts the executor from being a named party as required by Rule 21-6(2) to a “party of record,” as defined in Rule 1-1, and it is as a “party of record,” rather than named defendant or mere party, that the obligation to list documents attaches.
27      The Master did not have the benefit of the fuller exploration of the Supreme Court Civil Rules, and their relationship with the Wills Variation Act, that was provided to me by counsel.
28      That fuller exploration of the rules may have led to the same result, however, as the Master’s reasons suggest that she may well have exercised the discretion conferred on her by Rule 7-1(14)(a) to excuse the executor from compliance with subrule (1).
29      The executor is willing to make the contents of the computer available to the parties: the parties are properly concerned to avoid infringing upon solicitor-client privilege. No one can know if there is anything in the computer to which the privilege might attach until someone examines its contents. I see no reason why counsel for the interested parties cannot examine the computer contents sufficiently to identify any documents that might contain privileged material and set those aside to be considered by counsel for the executor, who may or may not assert privilege.
30      The documents are not inaccessible to the interested parties; they simply have to devise a means of reviewing them with an eye to preservation of any privilege that may attach to an individual document or portion of document: see Bell v. Smith, [1968] S.C.R. 664, 68 D.L.R. (2d) 751 (S.C.C.), for the obligation to protect the privilege: see No. 151 Cathedral Ventures Ltd. v. Gartrell, 2002 BCSC 888 (B.C. Master), for an approach to partial redaction for privilege.
31      The Master’s interpretation and application of the Rules was in error: the executor having delivered a Response to Civil Claim became subject to the document disclosure obligations imposed on parties of record. The executor also became entitled to seek relief under Rule 7-1(14)(a), and because that was not argued before the Master, nor before me, the appropriate order is to remit the matter to the Master for argument on that point, if it is necessary, given my suggestions as to how to deal with the potential privilege issues that might arise if the interested beneficiaries take up the executor’s offer to examine the computer contents.

 

Court Determines Rights Between Two Competing Powers of Attorney Spouse vs Daughter

Powers of Attorney Spouse vs Daughter

 

Sommerville v Sommerville 2014 BCSC 1848 involved a court application wherein the deceased gave both his surviving widow and his daughter separate powers of attorney that could be used individually.

The facts are somewhat complicated given that the husband and wife entered into a marriage agreement whereby they would each maintain separate bank account investments and property, together with separate liabilities.

The problem arose later in life when the male deceased, who had always had a substantially higher income, begin to develop dementia with increasing concurrent monthly expenses.

Legal issues  before the court included should his personal health care expenses be paid firstly from his monthly pensions, .and  which attorney should be the sole attorney responsible for managing his financial affairs and insuring his bills are paid in a timely fashion, along with other family type issues and dynamics.

The court examined the provisions primarily of sections 18, 19 and 20 of the new Power of Attorney act, starting with the duties of attorney as set out in section 19.

 

The duties of an attorney

[32]     An attorney acting under a power of attorney is bound by the duties set out in the instrument. In this case, the Power of Attorney allows both attorneys to act separately to do on Craig’s behalf anything that he can lawfully do by an attorney and to transact business with any financial institution or investment dealer. The Power of Attorney is enduring, as it remains exercisable during periods of mental infirmity, and it is not subject to any conditions.

[33]   A power of attorney is a type of agency and the relationship between the attorney and the donor is a fiduciary one. This stems not only from the agent-principal relationship but also from the indicators of a fiduciary relationship described in cases such as Frame v Smith, [1987] 2 SCR 99; Egli v Egli, 2004 BCSC 529, aff d 2005 BCCA 627; McMullen v Webber, 2006 BCSC 1656; Houston v Houston, 2012 BCCA 300.

[34]     In Egli, Garson J (as she then was) discussed the attorney’s duty to use the powers granted only for the benefit of the donor:

[82] It is the attorney’s duty to use the power only for the benefit of the donor and not for the attorney’s own profit, benefit or advantage {Chapman). The attorney can only use the power for his or her own benefit when it is done with the full knowledge and consent of the donor (Robertson, Mental Disability and the Law in Canada at 183). I am not aware of any authority that detracts from this principle in circumstances where the benefit is conferred on family members.

[37]     While the duties of a committee and an attorney may be similar, I do not agree that the jurisprudence regarding a committee’s duties under the Patients Property Act are applicable to an attorney’s duties under a power of attorney.

[38]     Prior to the enactment of the Power of Attorney Act in 2011, the duties of an attorney were founded at common law and equity. As stated in Egli, an attorney’s duty is to use the power only for the benefit of the donor, which is consistent with the characterization of the relationship as a fiduciary one.

[39]   An attorney’s duties are now enunciated in s. 19 of the Power of Attorney Act. Section 19 (1) essentially codifies the duties of a fiduciary to act honestly and in good faith, to exercise reasonable care, and to account to the donor, within the authority granted in the power of attorney.

Section 19(2) specifies that an attorney making decisions about the donor’s financial affairs must act in the donor’s best interests, taking into account the donor’s “current wishes, known beliefs and values” and any directions contained in the instrument, and s. 19(3) requires an attorney to give priority “to the extent reasonable” to meeting the personal care and health needs of the donor.

[40]     I would not equate the power of an attorney under s. 20 to make or receive gifts with s. 18 of the Patients Property Act. Section 20 is quite specific. If permitted in the power of attorney, the attorney may only make a gift if all three conditions in subsection (1) are met:

  1. the adult will have sufficient property remaining to meet the personal care and health care needs of the adult and the adult’s dependants, and to satisfy the adult’s other legal obligations, if any,
  2. the adult, when capable, made gifts or loans, or charitable gifts, of that nature, and
  3. the total value of all gifts, loans and charitable gifts in a year is equal to or less than a prescribed value ( currently $5000), and is prepared to use funds from his cash investment account for special expenses such as capital improvements

Section 19(4) of the Power of Attorney Act requires an attorney to keep the donor’s property separate from his or her own property. Under s. 19(5), this does not apply to property that is jointly owned by the donor and the attorney as joint tenants, unless the power of attorney states otherwise. While Craig’s pensions, as assets, are his own property, it is not clear to me that the monthly income from those pensions that he directed to be paid into the joint bank account retains the same character. However, whether those funds are deposited into the joint account or into a separate account for Craig is not the primary issue here.

 

Accordingly the court held  that the pension income of the deceased be deposited in joint account with the stepmother/ widow  him  him him him and used for the husband’s expenses, and any surplus could be used by the stepmother for her own expenses, based on their the evidence that this was an arrangement that the husband had in place both pursuant to the marriage contract, and their marital behavior, before he became mentally incapable.

The court further gave directions as to what roles competing  powers of attorney can do in relation to spouses assets.

Son May Not Inherit For Murdering Mother

murder mom

Re Fenotti Estate 2014 BCSC 1533 reviewed the law and held that a murderer of the deceased, his mother, son may not inherit from her as a result of public policy that prevents a wrong doer from benefiting from his or her own crime.

The personal representative of the deceased’s estate applied to the court for various directions, including whether a surviving son who  murdered his mother can inherit from her estate on an intestacy.

The Court held a clear NO.

 

THE  LAW

 

“As to the first question, the petitioner referred me to the decision of Mr. Justice LoVecchio of the Alberta Court of Queen’s Bench in Re Bowlen (Estate), 2001 ABQB 1014, 207 D.L.R. (4th) 175. In that case, a woman had murdered her parents. Both parents left wills under which the daughter would receive bequests. The personal representative of the estates of the parents applied for advice and directions as to who was entitled to receive the interest that the culpable daughter would have received from the estates.

[10]         In obiter dicta at para. 17 of his reasons, Mr. Justice LoVecchio, relying on earlier decisions in Cleaver v. Mutual Reserve Fund Life Association, [1892] 1 Q.B. 147, 56 J.P. 180 (C.A.), and Garbe v. Alberta (Public Trustee), [1999] 5 W.W.R. 696, 64 Alta. L.R. (3d) 103 (Surr. Ct.), held:

[17]      The rule of public policy which excludes the criminal has also been applied to exclude all claiming under the criminal, unless they have alternative or independent rights. In order to take under these independent or alternative rights, the person exercising the right must have clean hands. [Footnote omitted.]

[11]         His statement as to the existence of a rule of public policy preventing a criminal from benefitting from his or her crime is supported by a line of authority in this province, to which LoVecchio J. did not refer.

[12]         In In re Medaini Estate, [1927] 2 W.W.R. 38, 38 B.C.R. 319 (S.C.), Mr. Justice Murphy heard an application, brought by the administrator de bonis non of the estate of Mary P. Medaini, for directions as to whether, in the case of an intestacy, a murderer is entitled to share in the distribution of the estate of the murdered person.

[13]         Murphy J. held, at 39:

The English Courts have decided that a murderer can take nothing under the will of his victim. The decisions are based upon public policy. I can see no reason why the principle is not applicable to cases of intestacy. The reason assigned in some American decisions for refusing to deprive a murderer of benefits accruing to him under the intestacy of his victim is that to do so would be to contravene the express provisions of the Statutes of Distribution. This reason would be equally valid in the case of a will which also depends upon a statute for its validity. The Wills Act, R.S.B.C., 1924, ch. 274, declares that the will speaks from the death of the testator. The English decisions binding on me have overridden this provision in the case of a murderer. There is nothing which makes the Statutes of Distribution more sacrosanct than the Wills Act. If public policy is a good ground for overriding the latter, it is equally so for acting likewise in regard to the former. I, therefore, hold the murderer takes nothing under the intestacy.

[14]         In Baumann v. Nordstrom (1959), 30 W.W.R. 385,[1959] B.C.J. No. 42 (S.C.), Mr. Justice Wilson, as he then was, considered a case where a man was killed by a fire which destroyed his dwelling. He left no will. His widow, an inmate of the provincial mental hospital, had set the fire that killed him. Acting through her committee, she attempted to claim her statutory share of his estate. Her claim was opposed by a daughter of the man from a previous marriage.

[15]         At 386, Wilson J. adverted to two propositions that were accepted by both counsel before him:

1.         That if her crime, whether murder or arson, killed her husband she cannot inherit and the rule is the same on an intestacy as it would be if the property had been willed to her. See In re Sigsworth; Bedford v. Bedford [1935] 1 Ch 89, 104 LJ Ch 46.

2.         That if at the time she set the fire she was insane within the meaning of the M’Naghten rules there was no crime and she may inherit. See In re Pitts; Cox v. Kilsby [1931] 1 Ch 546, 100 LJ Ch 284; and In re Houghton [1915] 2 Ch 173, 84 LJ Ch 726.

[16]         Wilson J. held, at 396, that the defendant wife, when she set the fire, “did not then appreciate the nature and quality of her act or know that it was wrong.” Accordingly, she was entitled to inherit.

[17]         A majority of the British Columbia Court of Appeal, in reasons for judgment reported at 34 W.W.R. 556 and 27 D.L.R. (2d) 634, did not find it necessary to review the finding as to the defendant’s insanity, but allowed the appeal of the matter on the ground that the trial judge was without jurisdiction to determine by way of originating summons, or other civil proceeding, whether or not a person had committed a crime.

[18]         In reasons for judgment reported at [1962] S.C.R. 147 and 37 W.W.R. 16, the Supreme Court of Canada allowed the appeal and dismissed the cross appeal, thereby restoring the decision of the trial judge. Mr. Justice Ritchie, for the majority on the issue, stated at 156 that:

The rule of public policy which precludes a person from benefiting from his or her own crime is an integral part of our system of law, and although some doubts have been raised as to whether this rule overrides the statute law as to the distribution of the estate of an intestate (see In re Houghton, Houghton, v. Houghton [[1915] 2 Ch. 173 at 176]), the better view appears to me to be that it applies to such cases (see In re Pitts, Cox v. Kilsby [[1931] 1 Ch. 546 at 550], Whitelaw v. Wilson [(1934), 62 C.C.C. 172 at 177], and Re Estate of Maud Mason [[1917] 1 W.W.R. 329, 31 D.L.R. 305]). As Fry L.J. in Cleaver v. Mutual Reserve Fund Life Association [[1892] 1 Q.B. 147, 61 L.J.Q.B. 128]… at p. 156 said:

It appears to me that no system of jurisprudence can with reason include amongst the rights which it enforces rights directly resulting to the person asserting them from the crime of that person.

Party Cannot Take Tax Benefit For One Purpose and Deny It For Another

In Rosenthal v Rosenthal, 1986 CarswellOnt 288 (HCJ), it was held that an individual cannot take a position to obtain a tax benefit and then deny that position to obtain a different benefit.

At para 51 of Rosenthal, the court noted that “it is being argued that for the purpose of the Income Tax Act in 1969, the transfer of shares was not a gift, but for the purpose of the Family Law Act in 1986, the transfer of shares was a gift. Such a result should not be condoned by the court on the grounds of public policy alone.”

Further, the husband could not assert for tax purposes that the transfers were not a gift but for division of family property purposes that they were. Thus, the value of these shares form part of the net family property.

The Prudent Investment Standard For Trustees

The Prudent Investment Standard For Trustees

Miles v Vince 2014 BCCA 290 allowed an appeal and removed a  trustee for failure to abide by the Prudent Investor Standard expected of a trustee.

The Trustee had used the funds from an insurance trust for a speculative real estate investment

The Prudent Investor Standard

[52]         The respondent’s legal obligation with respect to the investment of the property of the Insurance Trust is to act as a prudent investor. Section 15.2 of the Trustee Act, R.S.B.C. 1996, c. 464, provides:

In investing trust property, a trustee must exercise the care, skill, diligence and judgment that a prudent investor would exercise in making investments.

[53]         The appellant argues that a prudent investor would not place all of the Insurance Trust’s assets into one investment, but instead, would have a diversified portfolio of investments. The respondent says that she was under no statutory obligation to diversify the investment portfolio or invest the trust funds in any particular manner.

[54]         In Fales v. Canada Permanent Trust Co., [1977] 2 S.C.R. 302, the Supreme Court of Canada held that the primary duty of a trustee is to preserve trust assets. This principle applies despite broad discretionary powers given to the trustee in the trust document. Justice Dickson (as he then was) articulated this standard (at 316):

This standard, of course, may be relaxed or modified up to a point by the terms of a will and, in the present case, there can be no doubt that the co-trustees were given wide latitude. But, however wide the discretionary powers contained in the will, a trustee’s primary duty is preservation of the trust assets, and the enlargement of recognized powers does not relieve him of the duty of using ordinary skill and prudence, nor from the application of common sense. [Emphasis added.]

[55]         This Court applied Fales to underscore the duty of a trustee to preserve trust assets in Froese v. Montreal Trust Co. of Canada (1996), 20 B.C.L.R. (3d) 193, leave to appeal ref’d [1996] S.C.C.A. No. 399.

[56]         In Froese, an employee was a beneficiary of a pension plan for which he was to receive regular benefits. His employer began to make irregular contributions to the plan, and soon ceased to contribute. As a result, the beneficiary’s pension was reduced significantly.

[57]         This Court held that Montreal Trust, as trustee of the plan, had a duty to inform the beneficiary when it became aware regular contributions were not being made. Chief Justice McEachern, for the majority, held (at paras. 57-58):

The trial judge framed the question as whether there was any obligation to volunteer information to the beneficiary. With respect, I think that is far too narrow. In my view, “true” trustees have obligations of prudence to protect not just the corpus of the trust, but also the interest of the beneficiaries from the ongoing operation of the plan.

I postulate a simple example. Assume that the Company appoints an investment manager, and that that manager instructs the trustee to invest the corpus, or so much thereof as the plan permits, in the subordinated securities of the company. (This is an extreme example because most plans provide investment rules that must be followed.) Absent such rules, can it seriously be argued that a trustee owes no larger, general duty of prudence respecting the trust which transcends the four corners of the agreement? In this respect, I agree with the comments of Dickson J. (as he then was) in [Fales], although stated in a different context. He said, no matter how wide their discretionary powers:

… a trustee’s primary duty is preservation of the trust assets, and the enlargement of recognized powers does not relieve him of the duty of using ordinary skill and prudence, nor from the application of common sense.

[58]         Section 15.2 of the Trustee Act enacted in statutory form the standard of care for trustees investing trust property. As noted above, it requires an investor to exercise the care, skill, diligence and judgment of a prudent investor.

[59]         The “prudent investor” is also referred to in s. 15.3 of the Trustee Act:

A trustee is not liable for a loss to the trust arising from the investment of trust property if the conduct of the trustee that led to the loss conformed to a plan or strategy for the investment of the trust property, comprising reasonable assessments of risk and return, that a prudent investor would adopt under comparable circumstances.

[60]         Professor Donovan Waters discusses the development of the “prudent investor” standard in Canada in Donovan W.M. Waters et al., Waters’ Law of Trusts in Canada, 4th ed. (Toronto: Thomson Reuters Canada Limited, 2012) at 1006-1009.

[61]         Professor Waters notes (at 1008) that in 1997 the Uniform Law Conference of Canada promulgated the Uniform Trustee Investment Act, 1997, which imposed an obligation for trustees to diversify investments and provided a list of factors which a trustee may consider in making investment decisions.

[62]         He describes the “prudent investor” standard as used in the B.C. Trustee Act, (at 1018):

The reference to the “prudent investor” is intended to bring into the picture the requirements of modern portfolio theory, which teaches that one must first decide what is the level of appropriate level of risk, and then seek to maximize the return within that constraint.

[63]         He points out that diversification is implicit in the prudent investor standard, based on modern portfolio theory (at 1019-1020):

It is true that in some jurisdictions, particularly those retaining the prudent man standard, there is room for argument as to whether the trustee has the duty to diversify. The new prudent investor standard, based on modern portfolio theory, leaves less room for argument; diversity is inherent in modern portfolio theory. Even so, the circumstances of a trust might be inconsistent with diversification. For example, if a trustee expected to hold property only for a few weeks, it might not be prudent to expose the assets to the volatility which inheres in equity investments.

[64]         Unlike other jurisdictions in Canada, B.C.’s Trustee Act does not expressly impose a duty on trustees to diversify investments in accordance with modern portfolio theory (see The Trustee Act, 2009. S.S. 2009, c. T-23.01 s. 26; Trustee Act, R.S.O. 1990, c. T. 23 s. 27(6); Trustee Act, R.S.N.S. 1989, c. 479 s. 3B; Trustee Act, R.S.P.E.I. 1988, c. T-8 s. 3.1).

[65]         As Professor Waters suggests, however, the “prudent investor” standard implicitly brings modern portfolio theory into play, and thus requires the trustee to assess the level of appropriate risk and whether diversification is required.

Is the Loan a Prudent Investment?

[66]         In my opinion, the respondent trustee did not meet the prudent investor standard by investing all of the Insurance Trust’s assets, through the Loan, in the Main Street Properties.

[67]         The respondent says she consulted the Redden Report before embarking on the development of the Main Street Properties, and considered the information on the potential profitability of the development before making the Loan.

[68]         The respondent did not meet her statutory obligations to act as a prudent investor with respect to the assets of the Insurance Trust by relying on the Redden Report to assess the potential profitability of the development of the Main Street Properties. There is no evidence that she assessed the appropriate level of risk for the Insurance Trust, and then sought to maximize the return within that constraint. Rather, it appears she consulted the Redden Report to assess the development potential and required investment to develop the Main Street Properties, and used the funds from the Insurance Trust to meet those requirements.

[69]         The respondent maintains she was under no statutory obligation to diversify any investments made from the Insurance Trust. As Professor Waters points out, however, the link between the prudent investor standard and modern portfolio theory suggests that a trustee must assess whether diversification is required to preserve the trust assets.

[70]         In my view, prudent investment of the assets of the Insurance Trust required the trustee to consider the interests of all of the beneficiaries, including the appellant’s interest as an income beneficiary, in the context of the circumstances of the settlement of the Insurance Trust by Mr. Vince with proceeds of life insurance for the benefit of his wife and children after he knew he was ill. Mr. Vince’s interest in creating social housing, or his interest in the broader development of the Main Street Properties for market housing and commercial space with a component of social housing, which is what the respondent has embarked on, bears little relation to the creation of the Insurance Trust.

[71]         Had Mr. Vince intended that the proceeds of his life insurance be invested solely in the development of the Main Street Properties for the benefit of his children as the Division Date Beneficiaries, it is likely he would have provided for those proceeds to be settled on the Family Trust. I agree with the appellant that the existence of separate trusts indicates that Mr. Vince had separate intentions with respect to the use of the proceeds of the life insurance. It is a reasonable inference from the surrounding circumstances that Mr. Vince intended the life insurance proceeds to be used to support and maintain his widow and children after his death. It appears the chambers judge conflated Mr. Vince’s intention with respect to the Family Trust with that of the Insurance Trust.

[72]         Had the chambers judge correctly assessed Mr. Vince’s intention with respect to the Insurance Trust, he would not have concluded that investing all of its assets in the Loan was a prudent investment. The Loan is an illiquid asset invested in an illiquid real estate development project. It appears the Main Street Properties do not produce sufficient income to pay expenses including property taxes, as the proceeds of the B.C. Housing financing were used for that purpose. No interest or principal has been paid despite the Loan being due and payable, and there is no evidence of when the Loan will be repaid.

[73]         It is obvious that the Loan is in default. For the respondent to say that no demand has been made demonstrates “the difficult situation” for the respondent, recognized by the chambers judge, that arises if the Loan is in default. Only the respondent can make a demand for payment of the Loan, and as she argues, such a demand would put the development of the Main Street Properties at risk, contrary to her various interests as the primary promoter of that project.

[74]         Further, all of the security on the Loan was subject to the priority of the first mortgage and other security granted to B.C. Housing, including the priority agreement and option to purchase. If the option to purchase was exercised the Loan would have no value. To say that the priority agreement did not have that effect because the conditions under which it might be exercised had not occurred and were “highly speculative” simply ignores the terms of the Loan.

[75]         While the respondent in this case was under no express statutory duty to diversify the investment portfolio of the Insurance Trust, she nonetheless had a duty to act as a prudent investor. For the reasons above, I conclude her investment strategy in this particular case did not meet this standard.

[76]         The investment of the Insurance Trust’s assets into a single, illiquid set of properties has put the Insurance Trust’s assets at risk. The respondent has wide discretionary powers under the terms of the trust, but the respondent failed to undertake an appropriate risk assessment, in the context of the settlor’s intention with respect to the Insurance Trust, before investing all of the Insurance Trust’s assets in the Loan.

[77]         The respondent’s handling of the Insurance Trust assets also breached her duty of impartiality between the capital and income beneficiaries of that trust. The respondent justifies the investment of the assets of the Insurance Trust in the development of the Main Street Properties on the basis that her goal was to maximize the capital growth of the trust property for the benefit of the capital beneficiaries of both trusts. She dismisses her obligation to the income beneficiaries of the Insurance Trust, including the appellant, on the ground that the appellant did not provide financial information as to her needs as requested by the respondent, stating in her factum (R.F. at para. 84):

The extent of the respondent’s duty of even-handedness towards a beneficiary whose interest in the trust is merely discretionary cannot possibly be extended beyond a duty on the part of the trustee to make reasonable enquiries into the financial needs for the discretionary income beneficiaries. The respondent has done this.

[78]         The respondent has provided no authority for, in effect, ignoring the income beneficiaries in investing the trust property, and I find her argument unpersuasive. As noted by Professor Waters (at 1025):

With regard to the trust fund the income beneficiary is looking for the best yield obtainable, while traditionally the capital beneficiary is concerned with the safety of the fund. However, high yield usually means high risk, low yield low risk, and here is the inherent conflict between the interests of these two types of beneficiary. It is the duty of the trustees so to manage the fund that they do the best possible for both, and this means holding an even balance between yield and risk. Unless, and to the extent only that, the trust instrument requires or permits them to do otherwise, they must ensure that the assets originally received into the trust are put into a form which brings about this balance, and that the assets they subsequently acquire, again in the exercise of their power of investment, have the same result.

[79]         In this case, the respondent failed to undertake an investment strategy that balanced the interests of the capital and income beneficiaries of the Insurance Trust. As a result, I find she breached her duty to remain impartial between these beneficiaries.

The Meaning of “All Remaining Cash” In a Will

Jones v BC Public Trustee (1982) 5 WWR 543, dealt with the interpretation of the words ” all remaining cash after expenses” in the deceased’s will.

The deceased left a home made will, where after several specific bequests, he provided that ” all remaining cash after expenses” was to be evenly divided between 3 named beneficiaries.

The administrator applied to the court for an interpretation of the said words “all remaining cash after expenses”

The Court noted that the testator did not have much cash and determined that the clause was a residuary disposition so that all property was to be sold, the debts paid and the balance divided.

The Court stated:

The Meaning of “All Remaining Cash”

5        The answer to the first question turns on the meaning in the context of this will of the phrase “all remaining cash after expenses” — does “cash” in this context mean only actual currency and coinage, does it mean currency, coinage and gold bars, or does it mean all that remains of the testator’s estate after all (valid) specific bequests have been made?

6        Perrin v. Morgan, [1943] A.C. 399, [1943] 1 All E.R. 187 (H.L.), probably the leading modern authority on the construction of wills, was concerned with the meaning of the word “moneys” in the phrase “all moneys of which I die possessed shall be shared by my nieces and nephews now living”. The majority in the House of Lords adopted a meamng for the word suited to its particular context, rejecting earlier authorities favouring universal application of a restricted legal meaning. The phrase was held to pass the whole personal estate.

“Cash” in the present case may bear any meaning which that word is capable of bearing in ordinary usage, the context of the will as a whole being the key to the meaning which should be applied to it in this case. 1 would note, however, that the word has been held to include moneys on deposit in a bank in Re Richardson (1930), 39 O.W.N. 208 (H.C.), and to encompass a bequest to the testator in Re Parker; Hoover v. Hoover, [1950] 2 W.W.R. 1026 (Alta. T.D.).

8        In the context of the present will, I have come to the conclusion that the meaning of the clause in question is that all property not specifically bequeathed is to be sold, that debts and estate costs are to be paid out of the money so derived, and that the balance remaining of that money should be divided among the three named beneficiaries. I say that because it does not appear that the deceased had, or expected to have, a significant amount of ordinary paper and coin currency, and the clause can most logically be explained by assuming that he believed that he would have personal property other than that specifically disposed of, and that he intended that it be converted into a cash fund from which his debts and funeral and other expenses could be paid, leaving thereafter some “cash” balance.

The Resealing of a Grant of Probate From Another Jurisdiction

resealing probate

Property of the deceased in each jurisdiction he or she owned assets will require a resealing of the grant of probate.

When the deceased person owns assets requiring probate in more than one jurisdiction, it is necessary for the executor to obtain a grant of probate in one area where the deceased owned assets, and then have the same grant resealed in each other jurisdiction where the deceased owned assets.

In British Columbia the statute known as the Probate Recognition Act, RSBC 1996  allows for such resealing of the grant from another jurisdiction,  in British Columbia .

The law is clear that without the receiving of the grant of probate in British Columbia, an executor who has been granted probate by a foreign court , including another province, has no status to deal with assets within British Columbia  Re Fisher 57 WWR 552 (BCSC)

In determining whether to resealed grant of probate, a court is entitled to satisfy itself that the original will and grant of probate was, as a matter of form, made in accordance with the laws of the originating jurisdiction .as a practical matter however, the resealing court does not undertake the kind of in-depth inquiry that is made when the court considers proof in solemn form  Plantz v Plantz (1995) 7 WWR 205

The resealing process is largely and administrative step required to facilitate the execution of a will based in a foreign jurisdiction and subject to the laws of that jurisdiction.

Things such as the mental capacity of the deceased and his legal obligations with respect to the estate are governed by the originating jurisdiction

In the decision George estate, Re (1945 ) 3 WWR 520 ( Sask KB),  the court stated that ” resealing of letters probate merely gives legal recognition in Saskatchewan to the original grant and authorizes the grantee to carry out in that province the powers conferred by the original Grant. There can be no alteration in the terms of the grant and no change in the executor or administrator named therein.”

Accordingly a court in British Columbia on resealing application , cannot remove the executor or alter the terms of the grant of probate made in a foreign jurisdiction, such as another province.

Bequest to Non Existent Charity Saved By Cy-Pres Doctrine

Sounds like

 

In Re McGregor Estate 2014 BCSC 896, the deceased left a bequest to “Auxiliary to Woodlands”, a charitable organization that no longer existed at the time of death, but was saved from lapsing as a bequest of the estate by the application of the doctrine of Cy-Pres.

Generally speaking when a gift is left to an institution which later ceases to exist, the gift either lapses and fails to be distributed on an intestacy,  or comes under the Cy- Pres doctrine. This doctrine applies to save the gift with the court can infer that the testator intended to devote that property to a general charitable and purpose, as was found by the court in this case.

A complicating factor was that the will provided for no gift over in the event of the failure of the bequest to the auxiliary to Woodlands, which was a former charitable association that provided “extracurricular services” to mentally disabled residents about school.

At the time of the making of the will, the son of the deceased was a resident of that school, but auxiliary services ceased to exist by the date of the deceased death in 1995 .

The executor brought a court application to have the will interpreted, and the court found that the will indicated a general charitable intent in favor of institutions dedicated to the improvement of the lives of the mentally disabled .

The cour applied the Cy–Pres-doctrine, and ordered that the gift be redirected to another society, which was a charitable organization providing extracurricular social support services to mentally disabled persons, and where the deceased son resided until his death in 2013.

 

Cy-Pres Doctrine law

19]    It sometimes happens, as in this case, that testators leave a legacy to an institution which later ceases to exist. When that happens, the gift either lapses and falls to be distributed on an intestacy, or comes under the cy-pres doctrine. The doctrine of cy-pres applies to save the gift where the court can infer that the testator intended to devote that property to a general charitable purpose: see Re Estate of Robert Hugh Buchanan (1996), 11 E.T.R. (2d) 8 (B.C.S.C), affirmed (1997), 44 B.C.L.R. (3d) 283 (C.A.), which the Court followed in McGregor.

[20]    Cy-pres means “as near as” possible; according to the Court of Appeal in Buchanan Estate, in cases where a charitable gift or bequest has become impossible or impracticable, it allows the court to apply the property to some other charitable purpose as nearly as possible resembling the original purpose.

The case of Buchanan Estate is factually quite similar to this matter. There, the testator left an estate of approximately $1.1 million. The residue of the estate was to go to the Loyal Protestant Home for Children. Unfortunately, there was no legal entity with that name, although there was a

Loyal Protestant Association in New Westminster, which had operated a residential care home for orphans and underprivileged children during the deceased’s lifetime. Further, prior to the deceased passing, the association had ceased to operate the home and its charitable activities had shifted away from that particular purpose. The association instead was involved in distributing funds to other altruistic and charitable associations.

[25]    Justice Hogarth indicated that there was no difficulty with the failure to appropriately name the legal entity operating the institution. However, he held that where the gift was given “with the obvious intent of benefiting the particular function that… the Home was performing at the time the will was made”, it could not go to the association where it no longer carried on the activities that the testator intended to assist; that is to say, “basic care for orphans and other underprivileged children”.

[26]    Discussing whether the will showed a general charitable intention, Hogarth J. noted that such an intention appeared where the donor’s paramount intention with the gift is to effect some charitable purpose. He indicated that the court should examine the testator’s gift and what would be involved in the testator’s plan or project. The gift must be examined to determine whether or not the “specific formulation of the purpose of the bequest is … exhaustive of the intention of the testator” (quoting Weninger Estate v. Canadian Diabetes Assn. (1993), 2 E.T.R. (2d) 24 at 33 (Ont. G.D.)).

[27]    Hogarth J. accepted that Mr. Buchanan’s intent was to help fulfil the objects of the Loyal Protestant Home for Children; in other words, to better the lives of indigent children. “The question becomes, then, whether this intention was so specific as to limit it to the children of the non-existent Loyal Protestant Home for Children in New Westminster”, he said.

[28]    In my view, the same question is raised here. It appears that Ms. McGregor’s intent was to help fulfil the objects of the Auxiliary for Woodlands. She wished to support their efforts to improve the lives of the mentally challenged by providing opportunities for activities or services that would not otherwise be available. The question is whether the gift was specific to the residents of Woodlands who were benefited by the work of the Auxiliary.

[29]    In Buchanan Estate, Hogarth J. concluded that there was a general charitable intent, despite the fact that the will specifically named one institution. In doing so, he relied particularly on two points: first, the gift was a residuary bequest made to a charitable institution with no gift over on its failure; second, the will otherwise contained bequests to some, although not all, of the testator’s next of kin. The criteria in other decisions, he concluded, exhibited a common theme:

A general charitable intention will be evidenced in part when the gift consists of the residue of the estate and there is no obvious consideration of what happens to the gift should it lapse. The underlying assumption is that the testator did not make preparations in the event of a lapse, because he had planned that the money would go forward to his general charitable purpose.

How Courts Interpret Unclear Wills

unclear willHow Courts Interpret Unclear Wills?

Whether a will is prepared by a lawyer or a layman, it is often the case that the will or a portion thereof is unclear as to its intention or meaning, and when that is the case is referred to the Supreme Court of British Columbia to interpret the will or portion thereof that needs interpretation.

The   recent decision of Re Ali Estate 2014 BCSC 340,  involved in interpretation of the words” my interest in the company “.

The deceased owned shares of the company operated with his brother, and left an estate valued at $9 million including the company worth approximately 1/2 that amount .

The testator was owed a  shareholders loan as well as a debt  from  the company under a promissory note.

In his will the testator left 70% of my interest in the company to his brother.

On an application to  interpret the meaning of that clause, the court found on the proper interpretation of the will as a whole and in light of the circumstances known to the will maker  at the date of the will, that the testator intended the shareholders loan and the promissory note to be included in the bequest of his interest in the company.

THE  LAW Re INTERPRETATION OF WILLS

The general principles which govern the disposition of this matter are not controversial. In Thiemer Estate, 2012 BCSC 629, I summarized the governing principles as follows:

[45]      In construing a will, the objective of the court is to ascertain the intention of the testator as expressed in his or her will when it is read as a whole in light of any properly admissible extrinsic evidence: Rondel v. Robinson Estate, 2011 ONCA 493, at paras. 23-24; Theobald on Wills, 15th ed. (London: Sweet and Maxwell, 1993) at 199. It is a cardinal principle of interpretation that the testator’s intention is to be gathered from the will as a whole and not solely from those provisions which have given rise to the controversy: Perrin v. Morgan, [1943] A.C. 399 at 406 (H.L.); Re: Burke (1960), 20 D.L.R. (2d) 396 at 398-399 (Ont. C.A.).

[46]      Another fundamental tenet affirmed by an established line of authorities is that the court is to ascertain the expressed intention of the testator – the meaning of the written words used in the particular case – as opposed to what the testator may have meant to do when he or she made the will: Perrin at 406.

[47]      Earlier lines of authority endorsed an objective approach to will interpretation. However, modern jurisprudence recognizes that a strict literal approach can defeat the intention of the testator, thereby leading to unjust results: Law Reform Commission of British Columbia, Report on Interpretation of Wills, LRC 58 (Victoria, MAG, 1982) at 6. The liberal interpretive approach finds its roots in the seminal decision of the House of Lords in Perrin.

[48]      In keeping with contemporary judicial thinking, the courts of this province have favoured the subjective approach to interpreting wills, wherein the objective is to ascertain the actual meaning the testator ascribed to the words he or she used in the will. In determining the testator’s intention the courts have endorsed the analytical approach commonly described as the “armchair rule”. The rule requires that the court put itself in the position of the testator at the point in time when he or she made the will, and from that vantage point construe the language in the will in light of the surrounding facts and circumstances known to the testator.

[49]      In Re: Burke, the Ontario Court of Appeal articulated the guiding principles which were cited with approval by our Court of Appeal in Davis Estate v. Thomas (1990) 40 E.T.R. 107 (B.C.C.A.) and Smith v. Smith Estate, 2010 BCCA 106, at paras. 18 and 28 respectively:

… Each Judge must endeavour to place himself in the position of the testator at the time when the last will and testament was made. He should concentrate his thoughts on the circumstances which then existed and which might reasonably be expected to influence the testator in the disposition of his property. He must give due weight to those circumstances in so far as they bear on the intention of the testator. He should then study the whole contents of the will and, after full consideration of all the provisions and language used therein, try to find what intention was in the mind of the testator. When an opinion has been formed as to that intention, the Court should strive to give effect to it and should do so unless there is some rule or principle of law that prohibits it from doing so.

 

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[51]      Since the meaning of words in wills can differ so much according to the context and circumstances in which they are used, previously decided cases are of limited assistance except in so far as they may express general principles of construction. This notion has repeatedly been embraced by Canadian courts: Kaptyn Estate (Re) at para. 32; Perrin at 406; Re: Burke at 398.

The court will also in its interpretation of the will, look to the ordinary meaning of words as per a reputable dictionary.

The Canadian Oxford Dictionary, 2d ed., defines interest as:

…

5 (a)     “A financial stake (in an undertaking, etc.)”.

(b)        “A legal concern, title or right (in property)”.

[32]         The Dictionary of Canadian Law, 2d ed. defines interest as:

Something which a person has in a thing when that person has advantages, duties, liabilities, losses or rights connected with it, whether ascertained or potential, present or future”

[33]         The ordinary meaning of “interest” is expansive and in my view the ordinary meaning of an “interest” in a company is not limited to shareholdings in that company. It follows that in gifting his “interest in the Company”, the Deceased intended to dispose of more than his shares in the Company. It is reasonable to conclude that in the context of the Will, the Deceased intended to bequeath the entirety of his financial stake in the Company, including any indebtedness owing to him by the Company, be it a shareholder’s loan or other debt evinced by a promissory note.

[34]         Recourse to the armchair rule and consideration of the circumstances known to the Deceased at the time he made the Will also support the conclusion that he intended that the Shareholder’s Loan and Promissory Note were to be included in the subject bequest.

 

Special Costs- What Are They?

special costs-order in court

 

Special costs , in a nutshell means that the losing party pays all the  legal fees of the winning party, and are being awarded on an increasingly frequent basis for reprehensible behavior.

The general public by and large for many decades already thought that was the law, but in fact, it is a relatively new development, especially in estate litigation.

As a matter of trial practice ,  awards of  special costs are actually rare, and the award of costs, while discretionary and based on a number of factors, rarely consists of payment of the entire winning parties costs, but only a significant portion thereof.

There are several other blogs on this website on situation where special costs and other types of court awarded costs are discussed in detail, including:

November 19, 2013

September 1, 2013

August 18, 2013

April 14,2013

May 24, 2012

May 23, 2012

 

I have recently been blogging about the Panghali case where the ten year old girl was awarded $500,000 damages against the murderer of her mother, pursuant to the Family Compensation Act.

 

Generally speaking there must be ” reprehensible conduct” of the party at fault, and the Court refused to award special cots against the murderer, as his reprehensible conduct was not directly related to the course of the litigation.

 

The Court explains its rationale for refusing the winning party special costs against the losing party as follows:

 

The plaintiffs claim special costs. They say that such costs are available where the conduct giving rise to the liability is reprehensible and criminal in nature. They cite Wiebe v. Gunderson et al, 2003 BCSC 1931, for that principle.

[97]         The defendant responds that the “motivation” of the plaintiffs in seeking special costs is based on the defendant’s criminal conduct and that somehow it is really a claim for punitive damages. Therefore, relying on B. (P.) v. B. (W.) (1992), 11 O.R. (3d) 161 (Gen. Div.) at para. 21, he submits he has already been sanctioned and punished and that “to award punitive damages in a civil lawsuit would amount to double jeopardy”.

[98]         With respect there are difficulties with both these statements of law. To begin, in Whiten v. Pilot Insurance Co., 2002 SCC 18 at para. 69, the Supreme Court of Canada clearly states that punitive damages may be awarded even where the defendant has already been punished by a criminal court for an offence arising out of substantially the same facts. It is simply another factor to consider in determining whether punitive damages are necessary in the circumstances. There is no “double jeopardy” defence and, as such, no argument that special costs are barred by analogy.

[99]         As to the availability of special costs for pre-litigation criminal conduct, I am not convinced that the law is as clear as the plaintiff suggests. In fairness, the plaintiff did acknowledge that there are no cases that directly address similar circumstances. As such, the question of whether special costs are available in a Family Compensation Act claim where the conduct causing death is criminal in nature (and has received a criminal sanction) is, at least in British Columbia, to some extent one of first impression.

[100]     The plaintiff is correct to say that special costs are awarded where there has been reprehensible conduct on the part of one of the parties. Reprehensible conduct includes “scandalous or outrageous conduct … [and] milder forms of misconduct deserving of reproof or rebuke” (Garcia v. Crestbrook Forest Industries Ltd. (1994), 119 D.L.R. (4th) 740 at para. 17 (B.C.C.A.)).

[101]     The purpose of special costs is to chastise or punish a litigant, and to allow the court to disassociate itself from the litigant’s misconduct: Mayer v. Osborne Contracting Ltd., 2011 BCSC 914 at paras. 8, 10.

[102]     Generally speaking, special costs are only available for misconduct in the course of the litigation itself. However, in exceptional circumstances, special costs can be awarded where pre-litigation conduct warrants rebuke: Dockside Brewing Co. Ltd. v. Strata Plan LMS 3837, 2007 BCCA 183 at para. 90. To attract an award of special costs, the pre-litigation conduct must give rise to a compensable legal wrong: Evergreen Building Ltd. v. IBI Leaseholds Ltd., 2009 BCCA 275 at para. 33.

[103]     As noted in Elsen v. Elsen, 2011 BCSC 1011 at para. 14, such awards will be “quite rare.” The case law establishes two generally accepted exceptions where special costs may be awarded for reprehensible conduct prior to litigation (see Golden Capital Sec. Ltd. v. Holmes et al., 2003 BCSC 1265 at para. 166). The first was identified in Verleg v. Angeloni (1993), 20 C.P.C. (3d) 132 (B.C.S.C.), where the court said that one exception involved misconduct giving rise to litigation in the nature of fraud or unconscionability (at para. 10). That is the exception relied on in Wiebe. It is not applicable here.

[104]     The second exception is identified in Sun Life Assurance Co. v. Ritchie, 2000 BCCA 231 at para. 54:

[54]      … However, there may arise circumstances where special costs may be awarded because of the reprehensible conduct giving rise to the litigation, particularly where the fruits of the litigation do not provide any appropriate compensation in relation to the reprehensible conduct. … [Emphasis added]

[105]     A number of cases have commented on the Sun Life exception. In Golden Capital the court said that the special costs were suitable where such an order would be “the only method in which the court can demonstrate its disapproval for the misconduct” (para. 167).

[106]     In most cases, reprehensible conduct giving rise to the cause of action can be addressed by an award of punitive damages, rather than special costs: D.H. v. L.J.H., [1997] B.C.J. No. 2724 at para. 26 (S.C.). Where the plaintiff receives punitive damages, the fruits of the litigation clearly provide compensation for the reprehensible conduct, and special costs should not be awarded. Awarding both for the same conduct would comprise double compensation: McPhillips v. British Columbia Ferry Corp. (1993), 16 C.P.C. (3d) 284 at para. 18 (B.C.S.C.). In a number of decisions the court has refused to award special costs on the basis that punitive damages have already fulfilled that function: see P.B. v. R.V.E., 2008 BCSC 613 at para. 27; and Manavi v. McDonald, [1993] B.C.J. No. 463 (S.C.) at para. 23.

[107]     There are others where the court has found that the fruits of the litigation are sufficient even absent a punitive damages award. In Owners, Strata Plan KAS 3267 v. Smith, 2011 BCSC 387 at para. 27, the court noted that the defendant’s pre-litigation conduct was reprehensible, but pointed out that it gave rise to the (successful) claim for a damages award:

[27]      … In my view, the fruits of this litigation, being judgment for money owing, will provide full compensation of the corporation’s loss. This is not one of those unusual circumstances were reprehensible pre-litigation conduct gives rise to a need to add special costs to the claimant’s recovery in order to redress something lacking in the main award. …

[108]     In Elsen and Adtronics Signs Ltd. et al. v. Sicon Group Inc., et al. (re costs), 2005 BCSC 440 at para. 23, the misconduct complained of had given rise to the cause of action and the resultant award of damages and had therefore been adequately addressed.

[109]     One of the difficulties in this case is that punitive damages are not available in a claim under the FCA: see Allan Estate v. Co-operators Life Insurance Co., 1999 BCCA 35 at para. 71. The FCA is not punitive in nature (see Duncan, para. 48). It is only meant to provide financial recompense for pecuniary losses flowing from the death itself, rather than providing a sanction for the wrongdoer’s role in the death.

[110]     I agree with the plaintiffs that Mr. Panghali’s conduct was reprehensible. Indeed it is difficult to envision more reprehensible conduct than that of the defendant in murdering his wife and their child’s mother and burning her body in an effort to escape detection. However, in the circumstances I do not think that this is a proper basis for an award of special costs. First, the court has already demonstrated its disapproval of that misconduct in the criminal proceedings. Mr. Panghali is serving a life sentence for the murder. Second, I have some concerns about awarding special costs with the goal of punishing the conduct giving rise to the cause of action when the statutory basis for the cause does not permit an award of punitive damages. If special costs were claimed for misconduct in the course of the litigation itself the situation would be different; but in these circumstances such an award would essentially do indirectly what the court cannot do directly.

[111]     Finally, following Adtronics and Strata Plan KAS, I find that the award of damages in this matter, which flows directly from the conduct complained of, provides full compensation for the pecuniary loss. As a result I decline to award special costs. The plaintiffs have otherwise been successful and will receive costs at Scale B.