Fraudulent Conveyances 2021

In Kootenay Savings Credit Union v Brar 2021 BCSC 2027 the court found that the defendant fraudulently conveyed his property to delay, hinder or defraud  creditors under the Fraudulent Conveyance Act, and set aside the transaction.

Facts
The defendant G. Brar in November 2017 transferred his half-interest in a 10-acre residential farm property in Abbotsford (the “Property”) to the co-defendants – his ex-wife and their adult daughters– for “$1.00 and natural love and affection.”
The declared market value of the Property was $2,000,000.
At the time of the transfer G. Brar was under severe financial and legal pressure.
The plaintiff credit union in 2015 had obtained judgment against him personally for $1,496,637, plus interest and costs.

 

The Law

The FCA consists of two brief sections, which set out the claim and a defence:
Fraudulent conveyance to avoid debt or duty of others
1 If made to delay, hinder or defraud creditors and others of their just and lawful remedies
(a) a disposition of property, by writing or otherwise,
(b) a bond,
(c) a proceeding, or
(d) an order
is void and of no effect against a person or the person’s assignee or personal representative whose rights and obligations are or might be disturbed, hindered, delayed or defrauded, despite a pretence or other matter to the contrary.

2 This Act does not apply to a disposition of property for good consideration and in good faith lawfully transferred to a person who, at the time of the transfer, has no notice or knowledge of collusion or fraud.

Abakhan & Associates Inc. v Braydon Investments Ltd., 2009 BCCA 521 leave to appeal ref’d [2010] SCCA No 26, is the leading case.

In Jasmur Holdings Ltd. v Callaghan, 2019 BCSC 1966 at para 17, Giaschi J summarised its key principles:

a) The FCA is to be construed liberally (para. 62);
b) An intent to put one’s assets beyond the reach of creditors is all that is required to void a transaction (para. 73);
c) A dishonest intent or mala fides is not a necessary element to void a transaction under s.1 of the FCA (para. 65);
d) Intent is a state of mind and a question of fact (para. 74);
e) Intent can be proven by direct evidence of the transferor’s intent as well as by inferences from the transferor’s conduct, the effect of the transfer and other circumstances (para. 80);
f) Where a transfer of property has the effect of delaying, hindering or defeating creditors, the necessary intent is presumed (paras. 58-59 and 75);
g) Inadequate consideration paid for the transferred property may be indicative of fraudulent intent (para.76);
h) It is not necessary to show the transferor was insolvent at the time of the transfer (para. 60);
i) It is not necessary for the applicant to show he/she was a creditor at the time of the transfer; future creditors are also protected (paras. 78 and 87]; and
j) It is no defence that the transfer was also in furtherance of a legitimate business objective (paras. 84-85).

A transaction may be voided as fraudulent absent particular findings of moral blameworthiness on the part of transferor or transferee. Wu emphasises that the only intention required is to move assets out of creditors’ reach:

In Abakhan & Associates Inc. v. Braydon Investments Ltd., 2009 BCCA 521 at para. 73, the court explained that, although the requisite intent in the FCA has often been described as fraudulent intent:
The only intent now necessary to avoid a transaction under the modern version of the [FCA] is the intent to “put one’s assets out of the reach of one’s creditors” (per RBC v. Clarke [2009 BCSC 481 at para 20]). No further dishonest or morally blameworthy intent is required.

Thus, the question is not whether the transferor had dishonest or morally blameworthy intent. Similarly, a sham transfer is not required. As the Court of Appeal said in Chan v. Stanwood, 2002 BCCA 474 at para. 24, there is no “comprehensive definition of fraudulent conveyances – [they] may be as varied as the imagination of a creative debtor allows”.

The effect of a transfer is a key factor when determining fraudulent intention: Cabaniss v. Cabaniss, 2009 BCSC 1478 at para. 53. In this regard, the intent to put assets out of the reach of creditors is persuasively shown where the transfer has the effect of putting assets out of reach of creditors.

In Abakhan, the court held: that  intent is a state of mind and a question of fact.

In addition, the transferor’s intent to put assets out of the reach of creditors need not be their only intent.

The victim of a fraud almost always suffers from a significant knowledge imbalance. The law seeks to counteract this vulnerability by imposing on the defendant an evidentiary duty to rebut prima facie suspicious circumstances, referred to in the jurisprudence as “badges of fraud.” Where one or more badges of fraud exist, the requisite fraudulent intent is presumed. The burden of proof then shifts to the defendant to rebut the presumption of fraudulent intent, by establishing that the transaction was made in good faith and for good consideration, and not with the intention of putting one’s assets out of creditors’ reach.

Badges of Fraud

In Balfour v Tarasenko, 2019 BCSC 2212 at para 60 Hori J provides a non-exhaustive list of badges of fraud, itself based on the list provided in Banton v Westcoast Landfill Diversion Corp. et al., 2004 BCCA 293 at para 5:

a) where a transfer of property has the effect of delaying, hindering, or defeating creditors, the necessary intent is presumed;
b) inadequate consideration paid for the transferred property may be indicative of fraudulent intent;
c) a transfer that renders the transferor unable to meet his then existing liabilities or which divests the transferor of all or a substantial portion of his or her assets may be indicative of an intent to defraud creditors;
d) a transfer between related parties in suspicious circumstances may be an indication of an intent to defeat creditors unless the parties present an adequate explanation;
e) the state of the debtor’s financial affairs at the time of the transaction, including his income, assets, and debts, may indicate a specific intention;
f) a transfer of property made in haste may be indicative of a fraudulent intent; and
g) a transfer of property made at a time when a debt or claim against the transferor is in existence or is imminent may be indicative of an intent to defraud creditors.

The badges of fraud inform the analysis under both ss. 1 and 2 of the FCA: Wu at para 88.

Where the defendant transferor alleges that the property in question is held in trust for the defendant transferee, the parties’ conduct and treatment of the property after the alleged trust must be carefully scrutinised: Sangha v Reliance Investment Group Ltd., 2011 BCSC 1324 at para 353.

Where the putative transferor continues to treat the property as their own following the putative trust, it may be evidence of a sham, and thus, in this context, a fraudulent conveyance: Forsyth (Re), 2010 BCSC 1720 at para 24.

Multiple Actions Heard At The Same Time

Li v Liang 2021 BCSC 1856 dealt with the legal procedural issue of whether two family cases involving the same parties should be tried together .

The court reviewed the seven criteria discussed in Merritt v Imasco Enterprises Inc (1992) BCJ 160 and Beazley v ICBC 2004 BCSC 1094 and held that the two claims did not have common claims or disputes that would require them to be either consolidated or tried at the same time. The two actions were not so interwoven as to make separate trials undesirable. There would also be prejudice to the plaintiff that would outweigh any potential benefit.

These applications are common in multi motor vehicle claims for example but I opine could be used in estate litigation situation such as the law as set out in Johnston v Johnston that claims involving both the validity of the will and the wills variation claims should not be heard together as the validity of the will should firstly be determined .

For example It would make procedural sense to have the wills variation claim tried right after the validity claim if the will is found to be valid as it is the same parties and the same evidence. I am not aware if this has been done to date.

THE LAW ( Rule 22-5(8) 

The application seeks to have a civil action consolidated with or tried at the same time as a family law case. It must be considered under Rule 22-5(8) of the Supreme Court Rules.

That rule applies to proceedings, which include a Supreme Court civil action and any other suit, cause or matter.

It provides:

(8) Proceedings may be consolidated at any time by order of the court or may be ordered to be tried at the same time or on the same day.

The matters the court is to consider on an application pursuant to Rule 22-5(8) are set out in cases that considered the previous rule (Rule 5(8)),
which was identical to the present rule. In Merritt v. lmasco Enterprises Inc.,[1992] B.C.J. No. 160

“ I accept that the foundation of an application under R. 5(8) is, indeed, disclosed by the pleadings. The examination of the pleadings will answer the first
question to be addressed: do common claims, disputes and relationships exist between the parties?

But the next question which one must ask is: are they “so interwoven as to make separate trials at different times before different judges
undesirable and fraught with problems and economic expense”? Webster v.Webster (1979), 12 B.C.L.R. 172 at 182, 10 R.F.L. (2d0 148, 101 D.L.R. (3d) 248(C.A.).

That second question cannot, in my respectful view, be determined solely by reference to the pleadings. Reference must also be made to matters disclosed
outside the pleadings:

(1) Will the order sought create a saving in pre-trial procedures, (in particular, pre-trial conferences)?

(2) Will there be a real reduction in the number of trial days taken up by trials being heard at the same time?

(3) What is the potential for a party to be seriously inconvenienced bybeing required to attend a trial in which that party may have only amarginal interest?

(4) Will there be a real saving in experts’ time and witness fees?

In Beazley v. Insurance Corp. of British Columbia, 2004 BCSC 1091, at paras. 12-13, Madam Justice Kirkpatrick, then a Judge of the Supreme Court
of British Columbia, added the following three factors to the four factors set out Merritt

(5) Is one of the actions at a more advanced stage than the other? . .

.
(6) Will the order result in a delay of the trial of one of the actions and, if so, does any prejudice which a party may suffer as a result of that delay
outweigh the potential benefits which a combined trial might otherwise have?

(7) Is there a substantial risk that separate trials will result in inconsistent
findings on identical issues?

In both Merritt (at para. 19) and Beaziey (at para. 12) the Court indicated that the factors listed above are not intended to be an exhaustivelist, but are to be regarded as some matters to be considered before making an order under the rule. The order should make sense in the overall circumstances of the litigation.

Unjust Enrichment- Joint Mortgage Debt After Death

Parrott-Ericson v Ericson Estate 2006 BCSC 1409 relied upon the law of unjust enrichment to hold that the surviving joint tenant of property with a mortgager takes both the property and the entire mortgage debt as the surviving joint tenant would be unjustly enriched if the estate had to pay one half of the mortgage debt as the petitioner sought.

The surviving spouse of the joint tenancy property brought a petition for an order that the deceased’s estate was liable to the surviving joint tenant to pay one half of the $400,000 mortgage on the property.

The parties were jointly and severally liable under lines of credit secured by way of mortgage is a gift to the strata properties.

After the death the wife took sole title to strata lots and the estate refused to pay one half of the loan.

The court dismissed the petition as the wife’s claim for contribution arose in equity, and was based on unjust enrichment. The wife had by operation of survivorship receive the entire interest in secured the joint and several obligations.

In the circumstances the wife could not equitably be entitled to call in the estate to pay half of the debt.

The mortgage debt in land were clearly connected. The loan was based upon which the property was acquired. No arrangement was made that the estate would be liable for one half of the debt.

As the wife received the land entirely should be unjustly enriched as the estate had to pay one half of the debt.

The children of the deceased had brought a wills variation claim.

The court found that the joint debt was used to acquire the land and the petitioner received the land entirely, and thus would be just unjustly enriched if the estate had to pay one half of the debt .

The court followed the decision of Cunningham Reid v Public Trustee (1944) 1 KB 602 held it is a principle of equity that a joint tenant, it takes the entire benefit of an interest in real property through a survivorship must take the burden associated with the benefit, particularly were in that joint debt has been used to acquire the real property.

In equity the claim to contribution in such circumstances must fail.

Contempt of Court

This is a short summary of the law of contempt of court that is a hundreds of years old power of the judiciary and part of the courts method of upholding it’s dignity and effect.

Most of the summary relates to civil court cases and contempt for them. the most common would probably be family/divorce matters.

I made two contempt of court applications over the years in matrimonial matters and both times the court accepted an apology from the “guilty” party as an end to the matter, while my client wanted them incarcerated and flogged.

It wasn’t worth the time and money.

This is not to say that the courts are lenient as they certainly can and will enforce matters where there is a flagrant contempt of a court order, especially after warnings have been given.

The test summarized by the Supreme Court of Canada in Carey v. Laiken, 2015 SCC 17:

Contempt of court “rest[s] on the power of the court to uphold its dignity and process. The rule of law is directly dependent on the ability of the courts to enforce their process and maintain their dignity and respect”: United Nurses of Alberta v. Alberta (Attorney General), 1992 CanLII 99 (SCC), [1992] 1 S.C.R. 901, at p. 931.

It is well established that the purpose of a contempt order is “first and foremost a declaration that a party has acted in defiance of a court order”: Pro Swing Inc. v. Elta Golf Inc., 2006 SCC 52, [2006] 2 S.C.R. 612, at para. 35, cited in Bell ExpressVu Limited Partnership v. Torroni, 2009 ONCA 85, 94 O.R. (3d) 614, at para. 20.

The common law has developed to recognize two forms of contempt of court: criminal contempt and civil contempt.

The distinction, which the parties to this appeal accept, rests on the element of public defiance accompanying criminal contempt: see, e.g., United Nurses, at p. 931; Poje v. Attorney General for British Columbia, 1953 CanLII 34 (SCC), [1953] 1 S.C.R. 516, at p. 522. With civil contempt, where there is no element of public defiance, the matter is generally seen “primarily as coercive rather than punitive”: R. J. Sharpe, Injunctions and Specific Performance (2nd ed. (loose-leaf)), at ¶ 6.100.

However, one purpose of sentencing for civil contempt is punishment for breaching a court order: Chiang (Trustee of) v. Chiang, 2009 ONCA 3, 305 D.L.R. (4th) 655, at para. 117.

Courts sometimes impose substantial fines to match the gravity of the contempt, to deter the contemnor’s continuing conduct and to deter others from comparable conduct: Sharpe, at ¶ 6.100.

Civil contempt has three elements which must be established beyond a reasonable doubt: Prescott-Russell Services for Children and Adults v. G. (N.) (2006), 2006 CanLII 81792 (ON CA), 82 O.R. (3d) 686 (C.A.), at para. 27; College of Optometrists, at para. 71; Bhatnager v. Canada (Minister of Employment and Immigration), 1990 CanLII 120 (SCC), [1990] 2 S.C.R. 217, at pp. 224-25; Jackson v. Honey, 2009 BCCA 112, 267 B.C.A.C. 210, at paras. 12-13;

These three elements, coupled with the heightened standard of proof, help to ensure that the potential penal consequences of a contempt finding ensue only in appropriate cases: Bell ExpressVu, at para. 22; Chiang, at paras. 10-11.

1. The first element is that the order alleged to have been breached “must state clearly and unequivocally what should and should not be done”: Prescott-Russell, at para. 27; Bell ExpressVu, at para. 28, citing with approval Jaskhs Enterprises Inc. v. Indus Corp., 2004 CanLII 32262 (Ont. S.C.J.), at para. 40. This requirement of clarity ensures that a party will not be found in contempt where an order is unclear: Pro Swing, at para. 24; Bell ExpressVu, at para. 22. An order may be found to be unclear if, for example, it is missing an essential detail about where, when or to whom it applies; if it incorporates overly broad language; or if external circumstances have obscured its meaning: Culligan Canada Ltd. v. Fettes, 2010 SKCA 151, 326 D.L.R. (4th) 463, at para. 21.

2. The second element is that the party alleged to have breached the order must have had actual knowledge of it: Bhatnager, at p. 226; College of Optometrists, at para. 71. It may be possible to infer knowledge in the circumstances, or an alleged contemnor may attract liability on the basis of the wilful blindness doctrine (ibid.).

3. The party allegedly in breach must have intentionally done the act that the order prohibits or intentionally failed to do the act that the order compels: Sheppard v. Sheppard (1976), 1976 CanLII 710 (ON CA), 12 O.R. (2d) 4 (C.A.), at p. 8. The meaning of this element is one of the main points in contention on appeal and I will turn to consider it in more detail momentarily.

The contempt power is discretionary and courts have consistently discouraged its routine use to obtain compliance with court orders: see, e.g., Hefkey v. Hefkey, 2013 ONCA 44, 30 R.F.L. (7th) 65, at para. 3. If contempt is found too easily, “a court’s outrage might be treated as just so much bluster that might ultimately cheapen the role and authority of the very judicial power it seeks to protect”: Centre commercial Les Rivières ltée v. Jean Bleu inc., 2012 QCCA 1663, at para. 7. As this Court has affirmed, “contempt of court cannot be reduced to a mere means of enforcing judgments”: Vidéotron Ltée v. Industries Microlec Produits Électroniques Inc., 1992 CanLII 29 (SCC), [1992] 2 S.C.R. 1065, at p. 1078, citing Daigle v. St-Gabriel-de-Brandon (Paroisse), 1991 CanLII 3806 (QC CA), [1991] R.D.J. 249 (Que. C.A.).

Rather, it should be used “cautiously and with great restraint”: TG Industries, at para. 32. It is an enforcement power of last rather than first resort: Hefkey, at para. 3; St. Elizabeth Home Society v. Hamilton (City), 2008 ONCA 182, 89 O.R. (3d) 81, at paras. 41-43; Centre commercial Les Rivières ltée, at para. 64.

Gifts to Witnesses of a Will ( S. 43 WESA)

Wolk v Wolk 2021 BCSC 1881 reviewed the law of witnesses to a will receiving a gift under and the effect of S. 43 (4) of WESA .

A gift to a signatory witness is automatically void by statute, but the court may declare such a gift valid on application. The present application seeks a declaration that the gift of the estate to Michael and Lynda take effect.

Section 43 of WESA includes the following:

(1) Unless a court otherwise declares under subsection (4), a gift in a will is void if it is to
(a) a witness to the will-maker’s signature or to the spouse of that witness,
. . .
(3) If a gift is void under subsection (1), the remainder of the will is not affected.

(4) On application, the court may declare that a gift to a person referred to in subsection (1) is not void and is to take effect, if the court is satisfied that the will-maker intended to make the gift to the person even though the person or his or her spouse was a witness to the will.

(5) Extrinsic evidence is admissible for the purposes of establishing the will-maker’s intention under subsection (4).

Absent a declaration of validity under s. 43(4), there will be a partial intestacy under s. 25 of WESA. Here, a partial intestacy would lead to Dawson’s entire estate being distributed in accordance with s. 23 of WESA. Section 23 governs distribution where a deceased dies intestate and without a spouse, but with a “descendant” as defined by WESA.

Section 43(4) is centrally concerned with testamentary intent: Bach Estate, 2017 BCSC 548 at para. 54.

The Court found that the deceased wanted the witnesses to receive the bequests as a gift and allowed such under Rule 43(4)

Limitation of Actions- New Rules

The Supreme Court of Canada in Grant Thornton LLP v New Brunswick 2021 SCC 31 provided new guidelines for when a plaintiff discovers or should have discovered that a claim has arisen, thus starting the limitation clock.

The SCC upheld the trial judge who dismissed a substantial claim for an auditor’s negligence on the basis that the Province had actual or constructive knowledge of the material facts when if received the draft auditor’s report in 2011.

In June 2014 the Province commenced an action for negligence seeking damages but the court held it was filed out of time as per the Limitation of Actions Act( LAA). The draft report was sufficient to draw a plausible inference that the auditor had been negligent.

Since the province did not bring its claim until June 23, 2014, more than the limitation period for negligence of two years , its claim was therefore statute-barred.

 

THE LAW

The standard to be applied in determining whether a plaintiff has the requisite degree of knowledge to discover a claim under s. 5(2) of the LAA, thereby triggering the two-year limitation period in s. 5(1)(a), is whether the plaintiff has knowledge, actual or constructive, of the material facts upon which a plausible inference of liability on the defendant’s part can be drawn.

This was sufficient to draw a plausible inference that the auditor had been negligent. Since the province did not bring its claim until June 23, 2014, more than two years later, its claim is therefore statute-barred.

In order to properly set the standard, two distinct inquiries are required.

1) The first inquiry asks whether, in determining if a statutory limitation period has been triggered, the plaintiff’s state of knowledge is to be assessed in the same manner as the common law rule of discoverability. Under that rule, a cause of action arises for purposes of a limitation period when the material facts on which it is based have been discovered or ought to have been discovered by the plaintiff by the exercise of reasonable diligence.

The common law rule of discoverability does not apply to every statutory limitation period. Rather, it is an interpretive tool for construing limitations statutes and, as such, it can be ousted by clear legislative language. Assessing whether a legislature has codified, limited or ousted the common law rule is a matter of statutory interpretation. Section 5(1)(a) and (2) of the LAA does not contain any language ousting or limiting the common law rule; rather, it codifies it. This interpretation is supported by the words of s. 5, read in their entire context and in their grammatical and ordinary sense harmoniously with the LAA’s scheme and object, and the intention of the legislature.

Accordingly, as established by the rule of discoverability and the LAA, the limitation period is triggered when the plaintiff discovers or ought to have discovered, through the exercise of reasonable diligence, the material facts on which the claim is based.

2. The second inquiry relates to the particular degree of knowledge required to discover a claim.

A claim is discovered when a plaintiff has knowledge, actual or constructive, of the material facts upon which a plausible inference of liability on the defendant’s part can be drawn. This approach remains faithful to the common law rule of discoverability, which recognizes that it is unfair to deprive a plaintiff from bringing a claim before it can reasonably be expected to know the claim exists. It also accords with s. 5 of the LAA, promotes consistency and ensures that the degree of knowledge needed to discover a claim is more than mere suspicion or speculation. At the same time, it ensures the standard does not rise so high as to require certainty of liability or perfect knowledge. A plausible inference of liability is enough; it strikes the equitable balance of interests that the common law rule of discoverability seeks to achieve.

The material facts that must be actually or constructively known are generally set out in the limitation statute. In the LAA, they are listed in s. 5(2)(a) to (c).

A claim is discovered when the plaintiff has actual or constructive knowledge that: (a) the injury, loss or damage occurred; (b) the injury loss or damage was caused by or contributed to by an act or omission; and (c) the act or omission was that of the defendant. This list is cumulative. In assessing the plaintiff’s state of knowledge, both direct and circumstantial evidence can be used. A plaintiff will have constructive knowledge when the evidence shows that the plaintiff ought to have discovered the material facts by exercising reasonable diligence. Finally, the governing standard requires the plaintiff to be able to draw a plausible inference of liability on the part of the defendant from the material facts that are actually or constructively known. This means that in a negligence claim, a plaintiff does not need knowledge that the defendant owed it a duty of care or that the defendant’s act or omission breached the applicable standard of care. All that is required is actual or constructive knowledge of the material facts from which a plausible inference can be made that the defendant acted negligently.

In the instant case, the province had actual or constructive knowledge of the material facts — namely, that a loss occurred and that the loss was caused or contributed to by an act or omission of the auditor — when it received the draft report from the other firm on February 4, 2011.

Wills Variation ( S 60 WESA) Is Discretionary

Kish v Sobchak 2016 BCC65 discussed how the claim of wills variation is discretionary top the trial judge and how the appeal court should deal with such.

The entire jurisdiction of the trial judge under this statute is discretionary in character. The relief which may be granted under it is completely dependent on his opinion, first, as to whether adequate provision for proper maintenance and support has been provided for the spouse and children under the will, and second, if adequate provision is not thought to be made, as to what provision should be made.

 

. This being so, that Court has the power and the duty to review the circumstances and reach its own conclusion as to the discretion properly to be exercised.

 

According to my definition, an issue falls within a judge’s discretion if, being governed by no rule of law, its resolution depends on the individual judge’s assessment (within such boundaries as have been laid down) of what it is fair and just to do in the particular case. He has no discretion in making his findings of fact. He has no discretion in his rulings on the law. But when, having made any necessary finding of fact and necessary ruling of law, he has to choose between different courses of action, orders, penalties or remedies he then exercises a discretion. It is only when he reaches the stage of asking himself what is the fair and just thing to do or order in the instant case that embarks on the exercise of a discretion.

The standard of review applicable in Canada to the exercise of judicial discretion is found in Friends of the Oldman River Society v. Canada (Minister of Transport) [1992] 1 S.C.R. 3. There La Forest J. wrote for the majority:

Stone J.A. cited Polylok Corp. v. Montreal Fast Print (1975) Ltd., [1984] 1 F.C. 713 (C.A.), which in turn approved of the following statement of Viscount Simon L.C. in Charles Osenton & Co. v. Johnston, [1942] A.C. 130, at p. 138:

The law as to the reversal by a court of appeal of an order made by the judge below in the exercise of his discretion is well-established, and any difficulty that arises is due only to the application of well-settled principles in an individual case. The appellate tribunal is not at liberty merely to substitute its own exercise of discretion for the discretion already exercised by the judge. In other words, appellate authorities ought not to reverse the order merely because they would themselves have exercised the original discretion, had it attached to them, in a different way. But if the appellate tribunal reaches the clear conclusion that there has been a wrongful exercise of discretion in that no weight, or no sufficient weight, has been given to relevant considerations such as those urged before us by the appellant, then the reversal of the order on appeal may be justified.

That was essentially the standard adopted by this Court in Harelkin v. University of Regina, [1979] 2 S.C.R. 561, where Beetz J. said, at p. 588:

Second, in declining to evaluate, difficult as it may have been, whether or not the failure to render natural justice could be cured in the appeal, the learned trial judge refused to take into consideration a major element for the determination of the case, thereby failing to exercise his discretion on relevant grounds and giving no choice to the Court of Appeal but to intervene. [At 76-7; emphasis by underlining added.]

This standard was affirmed and supplemented more recently in Penner v. Niagara (Regional Police Services Board) 2013 SCC 19, where the Court stated:

A discretionary decision of a lower court will be reversible where that court misdirected itself or came to a decision that is so clearly wrong that it amounts to an injustice: Elsom v. Elsom, [1989] 1 S.C.R. 1367, at p. 1375. Reversing a lower court’s discretionary decision is also appropriate where the lower court gives no or insufficient weight to relevant considerations: Friends of the Oldman River Society v. Canada 

        Well before Tataryn was decided (but after Swain v. Dennison), summary trial procedures had of course been introduced in British Columbia and elsewhere. It was clear, certainly in this province, that summary trials were not limited strictly to cases in which there were no conflicts in the evidence. In Orangeville Raceway Ltd. v. Wood Gundy Inc. [1995] 6 B.C.L.R (3d) 391 (C.A.), which was not a WVA case, this court discussed the standard of review on appeals from summary trial judgments. At para. 44, the Court considered whether it was entitled to set aside the judgment below and substitute its own views for those reached by the chambers judge “simply because he did not have the advantage of observing the witnesses as their testimony was tested by cross-examination”. Mr. Justice Goldie for the Court answered this question in the negative, adopting the comments of Mr. Justice Taylor in an earlier case as follows:

So far as findings of fact are concerned, the onus on the appellant in an appeal against a summary disposition of issues made without oral testimony under R. 18A, cannot be merely to persuade the appeal court to a different view of the evidence. The appellant must show that the chambers judge reached a conclusion which cannot reasonably be supported. That is a heavier burden than merely to establish that the appeal court would have made different findings, or have drawn different inferences. [At para. 45; emphasis added.]

 

It has been said that an appellate court is in as good a position to draw inferences from proven facts as the trial judge. But this states only half the equation. The appellate court may be in as good a position but the burden is still on the appellant to demonstrate error, that is to say, that the position reached below after a summary trial cannot reasonably be supported.

 

 

S. 151 WESA- Leave To Bring Action On Behalf of Estate

Mischke v. Mischke Estate 2021 BCSC 1404 dealt with a S. 151 WESA application for leave by a beneficiary of their mother’s estate to commence an action on behalf of the estate against the executor and another sibling for alleged breach of trust for missing funds while the executor and the sibling handled a power of attorney for the deceased.

The Court refused the application on the basis that no arguable case had been presneted and reviewed the criteria for a S. 151 application.

The Law- S. 151 WESA

A beneficiary under a will who is of the view that litigation should be brought on behalf of an estate in a situation where the executor is unwilling to do so may seek leave of the court to commence proceedings under s. 151 of the WESA.

The relevant portions of this provision read as follows:

151 (0.1) In this section, “specified person” means a beneficiary, an intestate successor or a person who may commence a proceeding claiming the benefit of Division 6 [Variation of Wills] of Part 4 [Wills].

151 (1) Despite section 136 [effect of representation grant], a specified person may, with leave of the court, commence proceedings in the name of the specified person and on behalf of the estate of the deceased person

(a) to recover property or to enforce a right, duty, or obligation owed to the deceased person that could be recovered or enforced by the personal representative, or
(b) to obtain damages for breach of a right, duty or obligation owed to the deceased person.

151(3) The court may grant leave under this section if

(a) the court determines the specified person seeking leave
(i) has made reasonable efforts to cause the personal representative to commence or defend the proceeding,
(ii) has given notice of the application for leave to
(A) the personal representative,
(B) any other specified persons, and
(C) any additional person the court directs that notice is to be given, and
(iii) is acting in good faith, and

(b) it appears to the court that it is necessary or expedient for the protection of the estate or the interests of a specified person for the proceeding to be brought or defended.

 

In Malecek v. Leiren, 2021 BCSC 1052 at para. 40, Mr. Justice Giaschi conveniently set out the five conditions that must be satisfied by an applicant in order to obtain leave to bring a s. 151 WESA beneficiary action:

  1. the applicant must be a “specified person” within the meaning of the section;
  2. reasonable efforts must have been made to have the executor commence the proceedings;
  3. notice must have been given to the required persons;
  4. the applicant must be acting in good faith; and,
  5. the court must be satisfied it is necessary or expedient for the proceedings to be brought.

Efforts to Have the Executor Bring the Proposed Proceeding

In situations where proposed beneficiary proceedings are to be brought against executors, it is not self-evident what would constitute “reasonable efforts” to cause executors to start such actions against themselves. This issue was canvassed at some length in Fry v. Fry, 2018 BCSC 1018 at paras. 49 to 58. The s. 151 WESA applicant in that case had essentially argued that when an executor is intended to be a defendant in the proposed proceeding and is therefore in an inherent conflict of interest, it would be nonsensical to require the applicant to first try to persuade the executor to commence such litigation. However, based on the wording of s. 151 and case law that has interpreted a similar provision in corporate legislation, Mr. Justice Milman concluded that the applicant must still give the executor reasonable notice of the request together with details of the nature of the claim that the applicant wishes the executor to pursue. At para. 57, he wrote:

In summary, I conclude that in a case such as this where the personal representative is an intended defendant, the applicant must, before commencing an action in the name or on behalf of the estate or seeking leave to do so:

(a) inform the personal representative of the specific allegations being made; and
(b) request that the personal representative take, or allow others to take, specific remedial action to address them.

While the precise form that such a notice and request for action requires will vary and is dependent upon the context, failure to make a reasonable effort to meet this requirement will be fatal to the application (Fry v. Fry, 2018 BCSC 1018, at para. 58).

The Applicant’s Good Faith

The s. 151 WESA applicant has the burden to demonstrate that the proposed proceeding is being brought in good faith. Evidence of the applicant’s motivation must be presented, as good faith cannot be presumed. Once again, Fry v. Fry, 2018 BCSC 1018, is instructive:

The requirement in s. 151(3)(a)(ii) that the applicant be acting in good faith was explained by Pearlman J. in the context of an application for leave to commence a derivative action in Luft v. Ball, 2013 BCSC 574, as follows at para. 46:

The applicant bears the onus of establishing that it is acting in good faith in bringing derivative proceedings. Good faith is not presumed; the applicant must adduce evidence to establish good faith: Creative Realty Corp. v. 333 Terminal Holdings Ltd., 2011 BCSC 638 at para. 19. The test of good faith is whether the action is brought primarily for the purpose of pursuing the claim on the company’s behalf. The factors to be considered include the applicant’s belief in the merits of the proposed claim, existing disputes between the parties, and alleged ulterior motives: Bennett v. Rudek, 2008 BCSC 1278 at para. 46. As Adair J. observed in Lost Lake Properties Ltd. [Lost Lake Properties Ltd. v. Sunshine Ridge Properties Ltd., 2009 BCSC 938] at para. 56, ultimately good faith is a question of fact to be determined on all of the evidence and the particular circumstances of the case.

The fact that the applicant may be motivated by self-interest will not disqualify that person from obtaining leave under s. 151 of the WESA. To the contrary, in light of the wording of s. 151(3)(b), good faith can be shown with evidence that the applicant is genuinely pursuing the proposed litigation for the benefit of the estate or out of the person’s own self-interest (Jiang v. Piccolo, 2020 BCSC 1584 at para. 69).

As with the “reasonable efforts to have the executor act” criterion, however, should the applicant fail to establish that the proposed proceeding is bona fide, leave to commence it will not be granted regardless of whether it may otherwise be meritorious.

Necessity or Expediency of the Proposed Proceeding

Section 151(3)(b) of the WESA provides that leave to bring a beneficiary proceeding can only be granted if it appears to the Court that it is “necessary or expedient for the protection of the estate or the interests of a specified person…”. Guidance on how to apply this provision was set out by Madam Justice Gray in Bunn v. Bunn Estate, 2016 BCSC 2146 at paras. 50-51:

A proceeding may be “necessary” under s. 151 of WESA if the personal representative is unwilling or unable to proceed. It may be “expedient” if it is in the best interests of the estate.

In this case, the applicant is a beneficiary of the Estate and seeks the order under s. 151 of WESA on the basis that the claim, if successful, will increase the value of the Estate. In such a case, in my view, to satisfy the court that it should exercise its discretion to grant leave to commence litigation on behalf of the estate, the applicant must show not only that there is an arguable case, but also that the potential relief in the action is sufficient to justify the inconvenience to the estate of being involved in the action, and that proceeding is overall in the best interests of the estate. In my view, that must involve a consideration of the costs of proceeding, including the potential of a costs award against the estate if it fails. Further, in my view, in determining whether the proposed lawsuit appears to be in the best interests of the estate, the court can consider the strength of the proposed claim based on a limited weighing of the evidence.

In other words, when considering whether leave should be granted on a s. 151 WESA application, it is permissible and expected for the Court to assess the evidentiary material tendered by the parties by performing a “limited weighing” of this evidence.

However, the Court cannot decide the merits of the case or deal with issues of credibility (Hoggan v. Silvey, 2021 BCSC 971, at para. 24). The assessment relates in particular to three interrelated questions: (1) is there an arguable case; (2) does the potential relief/recovery justify the time and expense of the proposed action; and (3) is the proceeding in the overall best interest of the estate (Malecek v. Leiren, 2021 BCSC 1052 at para. 44).

Dismissal of a Court Action For Delay

Dismissal of a court action for inordinate delay ( want of prosecution) requires four criteria:

1) Has there been an inordinate delay;
2) Is the inordinate delay inexcusable;
3) Has the delay caused or is likely to cause serious prejudice to the defendant; and
4) On balance does justice require a dismissal of the action?

Rule 22-7(7) provides that the court may order that a proceeding be dismissed if it appears that there is want of prosecution in the proceeding.

The BC Court of Appeal in Wiegert v. Rogers, 2019 BCCA 334 set out the relevant considerations in respect of applications for want of prosecution as follows:

1. On an application to dismiss for want of prosecution, it must be shown that there has been inordinate delay, that the inordinate delay is inexcusable, and that the delay has caused, or is likely to cause, serious prejudice to the defendant. In addition, the final and decisive question, which encompasses the other three, is whether, on balance, justice requires a dismissal of the action: Azeri v. Esmati Seifabad, 2009 BCCA 133 at para. 9; 0690860 Manitoba Ltd. v. Country West Construction Ltd., 2009 BCCA 535 at paras. 27–28.

Inordinate delay is delay that is immoderate, uncontrolled, excessive and out of proportion to the matters in question: Azeri at para. 8; Sahyoun v. Ho, 2015 BCSC 392 at para. 17.

2. In Sun Wave Forest Products Ltd. v. Xu, 2018 BCCA 63 at para. 25, the concept is relative: some cases are naturally susceptible of fast carriage or call for more expeditious prosecution than others. Although there is no universal rule as to when time starts to run, the date of commencement of the action is typically identified as the point from which delay is measured. The delay should be analysed holistically, not in a piece-meal fashion, and the extent to which it may be excusable is highly fact-dependent: Ed Bulley Ventures Ltd. v. The Pantry Hospitality Corporation, 2014 BCCA 52 at para. 38; 0690860 at para. 29.

3. Once a defendant establishes that delay is inordinate and inexcusable, a rebuttable presumption of prejudice arises: Busse v. Chertkow, 1999 BCCA 313 at para. 18.

The concern is with the prejudice that a defendant will suffer in mounting and presenting a defence if the matter goes to trial: 0690860 at para. 27.

Relevant matters could include failing memories, unavailable witnesses and the loss or destruction of physical evidence.

4. whether, on balance, justice requires dismissal of the action — again, the determination is highly fact-dependent.

Relevant matters could include the length of and reasons for the delay, the stage of the litigation, the context in which the delay occurred and the role of counsel in causing the delay (although negligence on the part of a plaintiff’s lawyer may not always amount to an excuse): International Capital Corporation v. Robinson Twigg & Ketilson, 2010 SKCA 48 at para. 45; 0690860 at para. 29.

Executors Denied Fees and Ordered to Repay Unauthorized Expenses

In Re Zaradic Estate 2021 BCSC 1037 the executors were awarded nil remuneration and ordered to pay back unauthorized expenses of approximately $10,000 to the estate.

The writer was counsel for the sole beneficiary of the estate and oppose the claim for both remuneration and expenses related to defending and rectifying a breach of trust and the unauthorized expense of taking the ashes of the deceased back to Croatia as it was not authorized by the will.

The will had a rather unusual clause stating that “ my trustees may claim remuneration for acting as trustees in the amount of 10% of the net value of the residue of my estate to be shared equally between them, in lieu of any executors or trustees fees.”

The executors claimed 10% of the gross value of the estate being approximately $110,000 in fees, but were awarded nil.

The beneficiary successfully argued that the executors conduct was so egregious that they should be denied fees.

Essentially they relied upon an assessed value of the property for the previous year, and attempted to sell the property to their daughter for that price and even advanced the sum of $13,000 of estate monies to ensure that the daughter had enough money to complete the purchase of the deceased home.

The beneficiary filed a certificate of pending litigation to stop that sale, and the property was sold 3 months later for approximately 50% more than the aborted sale.
The legal fees incurred to remedy the in completed sale were a proximally $4500 and you to the breach of trust, the registrar ordered that those monies be paid back to the estate.

Remuneration

An executor is entitled to remuneration to a maximum of 5% of the gross aggregate value of the estate, including capital and income, of all the assets of the estate at the date of the passing, unless the Will provides otherwise. In the present case, the Will allowed for remuneration up to 10% of the net value of the residue of the estate.

Sections 88-90 of the Trustee Act, R.S.B.C. 1996, c. 464 provides:

Setting remuneration of trustees and guardians

88(1) A trustee under a deed, settlement or will, an executor or administrator, a guardian appointed by any court, a testamentary guardian, or any other trustee, however the trust is created, is entitled to, and it is lawful for the Supreme Court, or a registrar of that court if so directed by the court, to allow him or her a fair and reasonable allowance, not exceeding 5% on the gross aggregate value, including capital and income, of all the assets of the estate by way of remuneration for his or her care, pains and trouble and his or her time spent in and about the trusteeship, executorship, guardianship or administration of the estate and effects vested in him or her under any will or grant of administration, and in administering, disposing of and arranging and settling the same, and generally in arranging and settling the affairs of the estate as the court, or a registrar of the court if so directed by the court thinks proper.

(2) The court or a registrar of the court if so directed by the court, may make an order under subsection (1) from time to time, and the amount of remuneration must be allowed to an executor, trustee, guardian or administrator, in passing his or her accounts, in addition to any other allowances for expenses actually incurred to which the trustee, executor, guardian or administrator may by law be entitled.

(3) A person entitled to an allowance under subsection (1) may apply annually to the Supreme Court for a care and management fee and the court may allow a fee not exceeding 0.4% of the average market value of the assets.

Application for remuneration

89 The court may, on application to it for the purpose, settle or direct the registrar to settle the amount of the compensation, although the estate is not before the court in an action.
Application

90 Nothing in section 88 or 89 applies in any case in which the allowance is set by the instrument creating the trust.

The criteria to be considered in determining the appropriate amount of remuneration are set out in a number of cases, the leading of which is Re Toronto General Trust Corporation and Central Ontario R.W. Co., [1905] O.J. No. 536 [Toronto General Trust]. At p. 354, the court lists the criteria as: the magnitude of the trust; the care and responsibility involved; the time occupied in administering the trust; the skill and ability displayed; and finally, the success achieved in the final result.

Remuneration does not need to be fixed as a percentage of the gross aggregate value of the estate, it may be calculated as a lump sum, provided it does not exceed 5% of the total value of the estate as provided in the Trustee Act, or in this case, 10% of the net value of the residue of the estate pursuant to paragraph 5 of the Will. See Turley Estate (Re), [1955] B.C.J. No. 34 (B.C.S.C.).

An executor can also claim a fee for annual care and management of the estate, in addition to the remuneration allowance under s. 88(1) of the Trustee Act. Also see s. 88(3) of the Trustee Act. The fee allowed must not exceed 0.4% of the average market value of the estate assets. The personal representative can apply annually for a care and management fee.

The executors argued that under section 90 of the Trustee act that the court had no jurisdiction to not allow the 10% as provided by the will, but the court found that section 90 did not apply as that was simply a ceiling that could be claimed, and not an entitlement as a matter of right that is contemplated by section 90 of the Trustee act.

The executors incurred legal fees of approximately $25,000 to defend the court claim brought by the beneficiary to set aside the conveyance to the daughter, and for legal fees incurred respect to the passing of accounts.

The court found that the general rule is that executors are awarded their costs of passing their accounts on a special card cost basis, but in the present case the conduct of the executors was a significant breach of trust, and awarded only the sum of $7000 in legal fees that related to the actual passing of accounts, as opposed to defending the court action.