Sunday, November 13, 2011

Cost Award in Mawdsley v. Meshen

Last July, Madam Justice Ballance provided her decision on the issue of court costs in Mawdsley v. Meshen, 2011 BCSC 923. I previously wrote about the substantive issues in the case here. Mr. Meshen was successful in his application to vary his late common law wife, Joan Meshen’s will. But before her death, Ms. Meshen had transferred much of her wealth to a trust for herself, and then on her death for her children and her first husband’s brother. Mr. Mawdsley was not successful in challenging the trust. One of the grounds on which Mr. Mawdsley unsuccessfully attempted to challenge the trust, as well as other transactions, was that Ms. Meshen’s transfers of assets our of her name were fraudulent conveyances to defeat his claims as a “creditor or other.” The court found that he was not a creditor or other within the meaning of the Fraudulent Conveyance Act, and the transfers were not fraudulent conveyances. Accordingly, although he was successful in his Wills Variation Act claim, he received far less than what he was claiming.

Following her decision on the merits of the case, Madam Justice Ballance considered the issues of costs. In British Columbia, the usual rule is that the unsuccessful party has to pay court costs to the successful party or parties. These costs usually represent only a portion of the actual legal expenses the parties incur, but they can be substantial. In some cases the courts order “special costs” which provide a higher level of costs, sometimes even the full amount of the legal fees a party has incurred.

Mr. Mawdsley argued that as the successful party, he should recover costs from the defendants, which include Ms. Meshen’s children and the brother of her first husband. They, on the other hand, argued that he should be awarded some costs, reflecting his success on the Wills Variation Act issue, but they should also be awarded costs against him to reflect that he was not successful in challenging the trust and some of the property transfers Ms. Meshen made before she died. Their position was that costs should be apportioned.

The defendant beneficiaries also argued that Mr. Mawdsley should be required to pay “special costs” on the basis that he was not successful in his allegation that she fraudulently conveyed assets to the trust. He had also sought to set aside the trust on the basis that she had been unduly influenced and did not have capacity. He was not able to prove either allegation.

The executor of Ms. Meshen’s will and trustee of the trust she settled asked the court to order that he be fully indemnified for his legal expenses out of the estate and out of the trust.

Madam Justice Ballance set out in some depth the principles involved in cost awards. To summarize and paraphrase from her reasons:

  • The usual rule is that the successful party is entitled to costs from the unsuccessful party.
  • In some types of estate litigation, the courts may award costs to all parties out of the estate on the theory that the litigation was brought about by the conduct of the deceased.
  • More recent decisions have applied the rule that the unsuccessful party is required to pay costs to the successful party in disputes concerning the validity of wills.
  • In Wills Variation Act cases, the courts have followed the approach that the unsuccessful party pays the costs, but not in all cases.
  • Executors and trustees when acting within their fiduciary capacities are entitled to be indemnified for costs they reasonably incur. They may be indemnified in disputes over the validity of wills, even where the wills are found to be invalid.
  • Costs may be apportioned, but this is an exception to the usual rule that the successful party is entitled to costs. A party seeking apportionment must show that there are separate and discrete issues. There must also be a basis on which the judge can assess the time at trial attributable to the separate issues, and the result of the apportionment must be just.
  • The amount awarded to the successful party is not the proper method of assessing that party’s success for apportionment.
  • Special costs may be awarded against a party to discourage reprehensible conduct, including making unproven allegations of fraud or undue influence, both of which are serious allegations that can harm the reputation of a party. But the award of special costs is discretionary and the court will consider the particular circumstances.

Madam Justice Ballance found that it was appropriate in this case to apportion costs by awarding the Mr. Mawdsley his costs for only seven of the nine days of trial. She found that much of the evidence that related to those claims in which Mr. Mawdsley was not successful, was also relevant to his Wills Variation Act claim. But there were some discrete issues as well. She held that he should not receive his costs for the time spent at trial for testimony on the question of whether Ms. Meshen intended to put assets out of Mr. Mawdsley’s reach when she made the transfers or for the time spent on the question of whether Mr. Mawdsley had standing as a “creditor or other” to seek to have the transfers set aside under the Fraudulent Conveyance Act.

Madam Justice Ballance declined to award special costs against Mr. Mawdsley. She found that in making the fraudulent conveyance argument, he was not motivated by malice, nor was “it devoid of any evidentiary foundation, speculative [or] frivolous.” The allegation that a transfer was “fraudulent” for the purpose of the Fraudulent Conveyance Act does not necessarily imply immoral conduct. The Act does require proof of dishonesty or other moral blameworthy conduct for the court to set aside a transfer as a fraudulent conveyance.

With respect to the allegation of undue influence, Madam Justice Ballance found that it was not central to the case, but a secondary consideration.

Madam Justice Ballance held that the executor of the will, and trustee of the trust, is entitled to be indemnified for his legal expenses relating to those functions, to be paid in part out of the estate, and in part out of the trust.

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