Costs Award in Mazur v. Berg

In Mazur v. Berg, the plaintiff successfully applied to vary the will of her late common-law spouse, Victor Fennell. Mr. Fennell’s will left his estate to his son, Jesse Berg, whom he had also appointed as his executor. Madam Justice Adair varied the will to provide the plaintiff 55 percent of the estate. I wrote about the case here.

In reasons released last Thursday, January 28, 2010, Madam Justice Adair awarded costs out of the estate to both parties. She cited Erlichman v. Erlichman Estate, 2002 BCCA 160 and Wilcox v. Wilcox Estate, 2000 BCCA 491, as authority for the costs of the parties coming out of the estate.

Trial judges have discretion on the issue of court costs. The usual rule in litigation in British Columbia, including I suggest Wills Variation Act cases, is that the unsuccessful parties pay the successful parties their costs. The court costs generally do not fully indemnify the successful parties, but are based on tariffs set out in the Supreme Court Rules.

Most of the Wills Variation Act cases follow the leading authority of Vielberg v. Waterland Estate (1996), 6 E.T.R. (2d) 1 where Mr. Justice Hinds cited Master Horn in Lee v. Lee Estate (1993), 50 E.T.R 297:

[41] In Lee v. Lee Estate (1993), 50 E.T.R. 297, Master Horn extensively reviewed the law with respect to costs in actions brought under the Wills Variation Act or its predecessor, the Testator's Family Maintenance Act. At pp. 301-302 he stated:
An order for costs in favour of a completely unsuccessful party against a completely successful party is a most exceptional order. The general rule is that costs follow the event and, while a court may depart from this rule, any departure is usually in the way of depriving a successful party of costs and not of awarding costs to an unsuccessful party. In either case, the usual rule should not be departed from simply because an unsuccessful party did not expect to lose. (Baart v. Kumar (1985), 21 D.L.R. (4th) 705 (B.C.C.A.), at p. 711;Burnaby (District) Approving Officer v. Mutual Development Corp., [1971] 5 W.W.R. 97 (B.C.C.A.), at pp. 100 and 105;Donald Campbell & Co. v. Pollak, [1927] A.C. 732 (H.L.), at p. 776.)

In probate or administration actions or in proceedings for the construction of wills, the rule may be more frequently departed from. In such cases where the validity of a will or the capacity of the testator to make a will or the meaning of a will is in issue, it is sometimes the case that the costs of all parties are ordered to be paid out of the estate. This is upon the principle that where such an issue must be litigated to remove all doubts, then all interested parties must be joined and are entitled to be heard and should not be out of pocket if in the result the litigation does not conclude in their favour. The estate must bear the cost of settling disputes as a cost of administration. This is the reasoning which underlies such cases as Re Dingwall (1967), 65 D.L.R. (2d) 43 (Ont.H.C.); and McNamara v. Hyde, [1943] 2 W.W.R. 344 (B.C.C.A.); and Re Lotzkar Estate (1965), 51 W.W.R. 99 (B.C.C.A.). The question to be asked in such case is whether the parties were forced into litigation by the conduct of the testator or the conduct of the main beneficiaries.

But the case is different where the litigation does not relate to the validity of the will or the capacity of the testator or the construction of the will. Actions brought under dependants' relief legislation presume the validity of the will and the capacity of the testator and that his intentions are clear. There are not doubts to be settled. The remedies provided by such legislation are directed to the maintenance and support of the dependants of the testator and are based on public policy. The legislation does not invalidate the will, it merely permits the court to vary the provisions made by the testator. So an unsuccessful action under such legislation cannot be said to have been caused by a testator, or to have been necessary to enable the estate to be distributed. The action does not benefit the estate.

[42] Master Horn then went on and referred to Lukie v. Helgason (1976), 1 B.C.L.R. 1 (B.C.C.A.), where, at p. 15, Robertson J.A. said:
I look without favour on any idea that persons without meritorious claims under the Act to share in the estate of a testator may have a try at getting part of his estate without risk to themselves and at the expense of the persons whom the testator wished to benefit.

[43] And where, at p. 35, Carrothers J.A. stated:
Costs should follow the event and the respondents should pay the costs of the appellants throughout on a party-and-party basis.

[44] Master Horn referred at p. 303 to the decision of Wilson C.J.S.C. in Re Bow Estate, [1971] 4 W.W.R. 234 (B.C.S.C.) where, at pp. 239-240 the learned former Chief Justice said this:
Under The Testator's Family Maintenance Act there is no question of ambiguity or of the creation of a difficulty by the testator or of the petitioner being "led into the contest by the state in which the deceased left his papers". There is a simple assertion and denial of a claim under a statute. If the unsuccessful petitioner recovers costs from the estate it is frequently the effect that the successful litigants pay them through the diminution of the estate caused by the payment of the petitioner's costs.
Therefore good cause must be shown for departing from O. 65 which says that costs will follow the event. This means not just that an unsuccessful petition [sic] will not ordinarily recover costs, it means that he will ordinarily pay costs.

[45] Here there was no question of the validity of the will, the testamentary capacity of the Testator, or of the meaning of the will. The Testator was not at fault in some way, thereby contributing to the appellant making an unsuccessful claim against his estate. In my view the general rule must prevail; costs should follow the event. I would not disturb the order of the summary trial judge whereby he dismissed the plaintiff's claim with costs.

[46] The usual rule in this Court that costs follow the event should be followed.

[47] I would dismiss the appeal with costs against the appellant in the court below and in this Court.

The court, in Mazur v. Berg, 2010 BCSC 109, does not cite Vielberg or the other cases that have followed Vielberg.

In deciding that the unsuccessful defendant should get costs out of the estate, Madam Justice Adair wrote:

Here Mr. Berg, as his father’s executor, was obliged to defend Mr. Fennell’s will, and the issues arose from provisions in the will. In my view, the appropriate order in this case is that the costs of all parties in the proceeding be paid by the estate, to fall rateably on the whole of the estate, as was ordered in Erlichman, with the proviso that there be a single set of costs for both defendants.

This stands in contrast to other authority, including Wilcox v. Wilcox, 2002 BCCA 574, where the court has said that the executor is supposed to remain neutral in a Wills Variation Act claim. In Wilcox, the court said:

[25] Under Rule 8(14) of the Rules of Court, the executors of the estate were required to be made a party to the Wills Variation Act proceeding. Generally speaking, an executor is required to play a neutral role in the litigation. As a result of having to play a neutral role, an executor generally receives special costs from the estate. However, when the executor is also a beneficiary, the costs must be separated.

Turner v. Turner

I have previously written about my concerns about using joint tenancies as an estate plan to transfer houses and other assets to children. Too often this is seen as a low cost, simple way to leave children an inheritance. In many cases people do this without really understanding the consequences of what they are doing.

The problems of using joint tenancies with children are again illustrated in a recent British Columbia case, Turner v. Turner, 2010 BCSC 49.

Luella Turner had three children: Richard Mastel, John Turner, and James Turner. In her later years, she was not close to Richard Mastel. She did not like his wife. In contrast, she had a very close relationship with her youngest son, James Turner, who lived with her until he was 39.

In 1996, she transferred her house into a joint tenancy with James Turner. This came about after she told him she was concerned that Richard’s wife might get her hands on the house, apparently referring to the Wills Variation Act. James Turner, who was a lawyer, told her that she could transfer her house into a joint tenancy, allowing it to pass outside of her estate, avoiding a challenge.

She saw a lawyer, Mr. Johnson, who handled the transfer. He did not testify at trial.

In 2006, after she had remarried, Luella Turner made a new will. In the will she provided that her husband could live in the house for life. If her husband didn’t want to use the house, or on his death, the will directed that the house be sold with the proceeds divided equally between James Turner and John Turner.

Luella Turner died on April 23, 2007. Her husband moved out of the home. James Turner then transferred the title into his sole name as the surviving joint tenant, and sold the house.

John Turner then sued James Turner for his share of the sale proceeds under the will. He alleged that James Turner held the house on a resulting trust for their mother’s estate. Accordingly, the house should pass under the will, not outside of the estate.

Mr. Justice Verhoeven held that James Turner did indeed hold the house on a resulting trust for the estate. The law in British Columbia is that when a parent transfers assets gratuitously to an adult child, there is a presumption that the child holds the assets in trust for the parent and the parent’s estate. This is a presumption only, and may be rebutted if the child can show that the parent intended a gift.

In this case, Mr. Justice Verhoeven found that both Luella Turner and James Turner treated the house as if it were still solely Luella Turner’s property. Although Luella Turner sometimes referred to the house as their house, this was consistent with the fact that James Turner lived with her. When she made her later will in 2006, she treated the house as her own. She told James Turner of her plans to leave the house to both John Turner and himself in the 2006 will, and he expressed disappointment, which is consistent with the view that he recognized that the house was still hers to leave in the will.

Mr. Justice Verhoeven’s comments are instructive of the type of advice Luella Turner should have received, but did not, when transferring the house into a joint tenancy with one of her children:

[89] Mr. Johnson charged no fees for his services. The account was for disbursements only. The defendant denies that Mr. Johnson waived fees as a courtesy to him. From the nature of the file and from the account, I infer that the time spent by Mr Johnson on the matter was very minimal. He met Mrs. Turner only once. He obtained scant information from her, and reviewed no documents.

[90] The four sticky notes, which I must assume to be in the handwriting of Mr. Johnson, appear to indicate that a very brief discussion took place between Mr. Johnson and the deceased about the transfer. They appear to include the words “strictly client’s idea” and to make cryptic reference to the three sons, noting that the oldest son is well off, the second son has received $18,000 and “all wills have said house to Jim” and “Jim being the one who has done everything”. Some parts of the notes are not capable of interpretation.

[91] In fact on the evidence there was only one prior will, the 1976 will.

[92] Even if Mr. Johnson had been available to testify at the trial I could not have given much weight to such scanty records.

[93] There is no reference in the notes relating to any discussion by Mr. Johnson with the deceased concerning the meaning and effect of joint tenancy.

[94] James Turner acknowledges that he did not provide any legal advice to his mother concerning the transaction, other than telling her that by means of putting the property in joint tenancy, a challenge under the Wills Variation Act could be avoided. He discussed no alternative courses of action with her. He says that he was not a wills and estates lawyer and did not know of any alternative courses of action.

[95] He acknowledges that he did not discuss with her anything about what she could or could not do with the property once it was in joint tenancy. He did not tell her that she would have to consult him in future regarding any major decisions about the property. On cross-examination he frankly conceded that while in his mind she “appeared to understand everything” he really could not say that she was fully informed and had a full understanding of the consequences to her of the transaction.

[96] A gift cannot be revoked, whereas a testamentary disposition such as a will can be altered at any time. There is no evidence that this critical difference was explained to Mrs. Turner or that she understood it. Specifically, it was not explained to her that by placing the title in joint tenancy with her son James, she could never change her mind, and that she could no longer deal with the property through her will.

[97] The potential consequences of making a gift of a joint tenancy interest in the property were profound. As a joint tenant, James Turner could have moved for a partition and sale of the property, whereupon Mrs. Turner would have been obliged to purchase his interest in the property, which she was not in a position to do. She had no assets, and minimal income. She could have been forced out of her own home, and would have received only one-half of the sale proceeds. Her share of the proceeds might have been insufficient for her to find alternative accommodation. There is no evidence that any of this was explained to her.

[98] On the defendant’s own evidence, the deceased did not offer any reason for making a gift of the interest in the property to him. There is no evidence for example that he agreed to remain with her or to take care of her in future.

[99] The only clear evidence of the deceased’s motivation for the transfer is that of her concern about a potential claim under the Wills Variation Act.

[100] There was no advice given to her as to how substantial that concern would be in the circumstances. There was no advice as to whether there might be other means to deal with her concern.

[101] As I interpret Mr. Johnson’s file and the circumstances relating to the dealings with Mr. Johnson, the deceased got no meaningful legal advice from Mr. Johnson. Essentially, he simply carried out the transaction as the deceased and James Turner asked.

In the result, JamesTurner is required to share the proceeds of the sale of the house with his brother John Turner.

Graham v. Chalmers Appeal

Last week the British Columbia Court of Appeal ever-so-slightly varied the Supreme Court of British Columbia decision in Graham v. Chalmers.

As I previously wrote, the trial judge in Graham v. Chalmers, varied the will of the late Dolores Jean Graham, who had left a quarter of the residue of her estate to each of her two children and her two grandchildren. Madam Justice Fenlon varied the will to provide gifts of $100,000 to each of the grandchildren, with the residue of the estate (worth about $1 million at the time of trial) divided between the two children.

The Court of Appeal in its decision reported at 2010 BCCA 13 substantially upheld the result, but said it was preferable to divide up the estate by percentages. Madam Justice Kirkpatrick wrote at paragraph 42:

The trial judge varied the Will by providing a lump sum of $100,000 to each of the grandchildren and directing that the remainder of the estate of approximately $800,000 be divided equally between Janet Graham and Sandi Chalmers. The order was obviously premised on the increase in value of the estate between the date of Mrs. Graham’s death to the trial date. The variation of $100,000 to each of the grandchildren would otherwise not be logical in the context of the value of the estate at the testatrix’s death and the court’s finding that adequate provision had not been made for Janet Graham. Although there are practical reasons for expressing the division in this manner in this case (where the estate has been liquidated and is held in trust), there are pitfalls in doing so. There may be cases in which the estate is made up of unliquid assets the value of which may fluctuate between the date of death, the trial date, and distribution of the estate. In those cases, it is preferable to express the order in terms of percentages, except of course, in respect of specific bequests that are not disturbed by the variation. The potential difficulty that might arise is that the specific bequest directed by the variation order could, in extreme circumstances of a precipitous decline in the value of the residue, eliminate the intended gift to residual beneficiaries.

The Court of Appeal then varied the will to provide that each of the grandchildren is entitled to ten percent of the estate, with each of the two children entitled to forty percent of the estate.

Costs Award in Gould v. Royal Trust

Barbara Gould applied to vary the will of her late mother, Sylvia Gould, under the Wills Variation Act. The Court ruled against her on that issue, but did award her $75,000 out of her mother’s estate for unjust enrichment for the care she provided to her mother, and the funds she expended on her. I wrote about this decision here.

In British Columbia, the court usually awards the successful party court costs against the unsuccessful party. What happens in a case like this where Barbara Gould’s brothers were successful as beneficiaries of their mother’s will in defending the Wills Variation Act claim, but Barbara Gould was successful in her claim for unjust enrichment?

Although in most cases the court will determine who was substantially successful, and award that party his or her costs, the court may apportion costs where the court finds that success was divided between the parties.

Mr. Justice Pearlman, in Gould v. Royal Trust Corp. of Canada, 2010 BCSC 16, released on January 8, 2010, found that it was appropriate to apportion costs between the plaintiff, on the one hand, and her brothers, on the other. There were two separate and discrete issues in the lawsuit: the Wills Variation Act claim, and the unjust enrichment claim. The court could weigh the approximate amount of time spent on each issue, and the relative importance of each issue to the parties. Apportionment would be just in this case.

Applying these criteria, Mr. Justice Pearlman wrote:

[28] In my view, taking into account not only the allocation of trial time between the two discrete issues in this litigation, but also the relative importance of those issues to the parties, a fair apportionment of costs is 30 percent to the plaintiff and 70 percent to the personal defendants. That apportionment produces a just result in so far as it reflects the plaintiff’s partial, but limited success at trial, and also recognizes the measure of success achieved by the personal defendants in opposing the Wills Variation Act claim.

[29] The plaintiff is entitled to 30 percent of her costs assessed at Scale B from the personal defendants and the personal defendants are entitled to 70 percent of their costs assessed at Scale B from the plaintiff.

These Scale B costs do not reflect the full amount each party’s legal fees and expenses, but are determined according to tariffs under the Supreme Court Rules.

The executor, Royal Trust Corp. of Canada, which played a neutral role in the lawsuit, is entitled to be fully indemnified for its reasonable legal expenses out of Sylvia Gould’s estate.

Re Collett Estate

The recent decision in Re Collett Estate, 2009 BCSC 1800, illustrates how important it is for executors and trustees to carefully scrutinize the will, their powers, and to act prudently when making distributions or loans out of an estate.

After John Allan Collett died on February 9, 1992, the Supreme Court of British Columbia varied his will under the Wills Variation Act. The will, as varied required his executors and trustees to hold the residue of his estate in trust for his wife during her lifetime. The trustees had discretion to give capital to his wife during her lifetime. The wills variation order further provided that on Mrs. Collett’s death the remainder would be divided into two, with half going to those of their two children who were alive on Mrs. Collett’s death, and half going to those of their five grandchildren who were alive on Mrs. Collett’s death. If a child died before Mrs. Collett, his or her share would go to his or her issue “per stirpes.” Similarly, if a grandchild died before Mrs. Collett, the share that would have gone to that grandchild if he or she were living would go to the deceased’s grandchild’s issue “per stirpes.”

During Mrs. Collett’s lifetime, the trustees made distributions and loans to the children and grandchildren. The will, as varied, did not give authority to the trustees to make distributions or loans to anyone other than Mrs. Collett during her lifetime. But Mrs. Collett did not complain. Moreover, she was one of the trustees.

One of the loans the trustees made was a loan of $60,000 to one of the grandchildren, Michael Collett. He agreed that the loan plus interest at 7% per annum would be deducted from his share of his grandfather’s estate. His portion was anticipated to be in excess of $150,000.

Tragically, Michael Collett died before his grandmother. She left surviving him a daughter (actually she was en ventre sa mere when he died).

When Mrs. Collett died, Michael Collett’s daughter was entitled under the will as varied to a portion of the estate. The trustees sought to deduct the amount owing on Michael Collett’s loan from his daughter’s portion. The Public Guardian and Trustee of British Columbia, on behalf of Michael Collett’s daughter objected.

Mr. Justice Gaul held that Michael Collett’s daughter was entitled to her full portion of the estate, without any setoff for the loan made to her father. The will, as varied by the court, made her a beneficiary in her own right of her great-grandfather’s estate (because her father had died before Mrs. Collett, while she survived Mrs. Collett). She was not claiming through her father’s estate.

The trustees had breached their duties of care, and acted without authority when making the loan. They anticipated that Michael Collett would be entitled to a portion of the estate. But because he did not outlive Mrs. Collett, he never became entitled to a portion of the estate. The only recourse for repayment of the loan the trustees would have is against Michael Collett’s estate (which had greater liabilities than assets).