Avoidable Legal Expenses in Estate Disputes

 

Its easy for legal expenses in emotional estate disputes to get out of hand. Some are surprised when I tell them that legal expenses can be in the hundreds of thousands of dollars. Although I generally associate expenses in that range with cases that go through a full trial, even without a trial, disputes can result in disproportionate expense. In some cases much of the expense can be avoided by forthright, early communication among the parties.

My point is illustrated by a recent assessment of lawyers’ bills in Mulder Estate, 2022 BCSC 406. This dispute was between the daughter of the deceased will-maker and her two brothers. The daughter, Leondra Ponnusamy, was named as the executor, and all three were beneficiaries of their mother’s estate. Her brothers, Ronald Mulder and Robert Mulder, asked for records of their mother, Alma Mulder’s bank accounts predating her death. Their sister refused, taking the position that as executor she did not have provide records of transactions that occurred before death. They claimed that she failed to repay $20,000 in loans. The also claimed that $35,000 that their mother had given to her was a loan, which she had to repay, rather than a gift, as she claimed. They further alleged that she received another $150,000 from their mom, and that she owed that amount to the estate.

Ultimately the dispute was settled out of court, after she did provide records, including records showing that she did not receive $150,000 and that she repaid the $20,000. But by then, the parties had incurred combined legal bills of about $300,000 in a $1.3 million estate. The sister had two lawyers involved, and the brothers had one lawyer.  

Although the Registrar did reduce the bills to some extent (25% for one lawyer, 20% for another and 5% for the third), the main point is that most of this could have been avoided.

Registrar Nielsen disagreed with the position the executor took initially that she had no obligation to provide disclosure of records prior to her mother’s death. She had a fiduciary duty, or in other words a duty of loyalty, to beneficiaries, and the circumstances called for full disclosure. Had she done so at the outset, the dispute could have been resolved with far less expense.

Registrar Nielsen wrote:

[63]         During the course of her evidence, the executor stated that she did not want her brothers seeing the per-death financial records as Ron and his wife Tammy had meddled in Alma’s finances while she was alive, and Alma had confided in Leondra that she resented this. Disclosure of the records would essentially be an affront to her mother’s memory. It is difficult to equate this stance with the definition and duties of a fiduciary provided by Dr. Waters [from Waters’ Law of Trusts in Canada, 4th ed].

[64]         In my view this was a case that cried out for full financial disclosure at the outset when it was first requested. The executor was both executor and beneficiary, and she had a pre-death history of receiving both gifts and loans from the deceased. Her relationship with her brothers had been fractured before she became executor, and Alma had indicated to Ron that Leondra was having financial difficulties. Mistrust in these circumstances was inevitable. It was not, in the words of Dr. Waters, “in the interests of the estate, or the beneficiaries” to withhold the financial information in these circumstances, from two of the three beneficiaries. 

[65]         When the executor is also a beneficiary, the fiduciary duty is particularly high when there is a pre-death history of loans and gifts to the executor by the deceased. She had a duty to identify and collect any unpaid debts owed to the estate. She alone had exclusive access to the financial records. Ron and Rob had no right to access those records without her consent, or court order. Without disclosure of the pre-death financial records, they were completely in the dark with respect to any debts owed to the estate, real or imagined.

[66]         As the litigation progressed needlessly, select financial records were disclosed, as the executor saw fit, to prove the allegations of the beneficiaries to be incorrect, or “false”, as submitted by counsel for the executor. Once disproved, the allegations were eventually withdrawn, although not as quickly as the executor would have liked.  

The brothers could also have brought an application to court to get the disclosure to get the documents early on.

What I find remarkable is that, although none of the parties were challenging their own lawyer bills, it took 24 days of hearing time for the bills to reviewed. We don’t know how additional expense the parties incurred arguing about each other’s lawyer’s bills.

Registrar Nielsen noted:

[72]         Following 24 days of evidence and argument in the within proceeding on what should have been the relatively narrow topic of legal fees, with the benefit of hindsight, there is no doubt in my mind that early disclosure of the financial records, when first requested, would have nipped the lion’s share of the subsequent litigation in the bud. The savings to the estate in legal fees would have been considerable. It may have also preserved what was left of the sibling’s fractured, but civil personal relationship.

British Columbia Court Services Branch Plans to Collect Hearing Fees Again

In a letter to the Trial Lawyers Association of British Columbia, the Assistant Deputy Minister, Court Services Branch, Ministry of Justice has advised that Court Services Branch intends to begin collecting hearing fees for civil matters set down for dates on or after August 1, 2016.  For the time being, the Court Services Branch will not collect fees for family matters.

As I wrote before, the majority of the Supreme Court of Canada held that the hearing fees in British Columbia were an unconstitutional impediment to access to the courts in Trial Lawyers Association of British Columbia v. British Columbia (Attorney General), 2014 SCC 59. Although the Supreme Court of Canada said that a province could charge hearing fees, the majority found British Columbia's regime unconstitutional, by exempting only those who are impoverished. The exemptions did not exempt those for whom the fees created undue hardship, but were not impoverished.

I have some doubts as to whether the changes the Government has made to the exemptions will pass constitutional muster, but the only prediction I will make is that there will be further litigation on this issue.

Irrespective of whether the Government of British Columbia can legally collect hearing fees, there remains the public policy issue of whether this is the right thing to do. I wish those making this decision would read and take to heart Mr. Justice McEwan's eloquent discussion about access to the courts in the Supreme Court of British Columbia's decision in this case, Vilardell v. Dunham, 2012 BCSC 748.

In making this decision, the Government of British Columbia does not appear to be taking access to justice seriously.

Cost Award in Hsia v. Yen-Zimmerman

I wrote an earlier post about the case Hsia v. Yen-Zimmerman, in which Mr. Justice Barrow upheld the validity of Chester Hun’s will, which had been challenged by two of his grandchildren. They had alleged that it had not been signed in accordance with the formal requirements of the Wills Act, and that Mr. Hun did not have testamentary capacity. Although one of the witnesses to the will had died, and the other could not be found, Mr. Justice Barrow applied a presumption that because the will bore the signatures of Chester Hun and two witnesses, that it was valid. He also found that Mr. Hun had capacity.

Since then, Mr. Justice Barrow has given his decision on court costs, at 2013 BCSC 624.

In British Columbia, after a decision is made on the substance of a law suit, the court may make an award of costs. Usually, the unsuccessful party is required to pay the successful party costs. Usually the costs do not fully indemnify the successful party for his or her legal expense, although in some cases the courts may award special costs, which may fully indemnify the successful party.

Cost awards in estate litigation are more complex than in many other types of disputes. There are different principles at play. There are some cases where the courts have found that the law suit was necessary because of something that the deceased did or that the circumstances were such that the matter should have been brought to the court. For example, the wording of the will might not be clear, and the court is required to interpret the will. Or there may be a genuine question about whether the will-maker had capacity to make a will. Sometimes, the courts have applied the rule that the successful party is entitled to costs from the unsuccessful party, but in others the courts have awarded costs out of the estate, or in some cases have even awarded costs out of an estate to the unsuccessful parties.

The cases are difficult—I would even say impossible—to reconcile. I am skeptical of attempts to even identify trends.

In Hsia, the executor, who was successful in proving that the will was valid, sought an order that the unsuccessful grandchildren pay costs, and that she be indemnified out of the estate for the difference between those costs and her legal expenses.

The unsuccessful grandchildren argued that they should also receive costs out of the estate, or at least not be ordered to pay costs. They agreed that the executor was entitled to be indemnified out of the estate for the executor's expenses.

Relying on the principles articulated in the Court of Appeal decision in Vielbigv. Waterland Estate (1995), 6 E.T.R. (2d) 1, the grandchildren argued that the circumstances were such that the lawsuit was need to ensure that the will was valid:

[6]             The defendants argue that the law remains as expressed in Vielbig v. Waterland Estate (1995), 6 E.T.R. (2d) 1 (B.C.C.A.). In that case Hinds J.A. adopted the analysis of Master Horn in Lee v. Lee Estate (1993), 84 B.C.L.R. (2d) 341 (S.C.), where he explained the general rules and the rationale for them. The general rule is that costs follow the event. When that rule is departed from, it is usually only to the extent of ordering the parties to each bear their own costs. Ordering the successful party to pay the costs of the unsuccessful party is very rare. In estate litigation, the rule is applied somewhat differently. Master Horn explained at paras. 13-14:

[13]      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... 

[14]      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 be have been necessary to enable the estate to be distributed. The action does not benefit the estate.

The plaintiff, on the other hand, pointed to the decision in Woodward v. Grant, 2007 BCSC 1549, in which Madam Justice Gray emphasized the role the rule that the unsuccessful party must pay costs to the successful party play in encouraging negotiated settlements:

[8]             In Woodward v. Grant, 2007 BCSC 1549, Gray J. reviewed the law relating to costs in estate litigation, including the Court of Appeal’s decision in Vielbig v. Waterland Estate (1995), 1 B.C.L.R. (3d) 76. She concluded that the kinds of cases in which it may be appropriate to order that the estate bear the costs of all parties to the litigation are ones in which either the validity of the will or the testamentary capacity of the testator is in issue. She noted, however, that even in those situations it cannot be said that the estate is “normally” ordered to pay the costs of all parties. She wrote that more recent authorities (Kirkham v. Fox, [1993] B.C.J. No. 2518 (S.C.) and Field v. James, [1999] B.C.J. No. 1398 (S.C.)) suggest a trend towards applying the usual rule that costs follow the event, at least where the issue is the testator’s capacity. She explained the likely justification for the trend writing at paras. 16 and 17 that:

[16]      The trend towards the general rule that costs should follow the event is likely, in part, a recognition of the significant costs that can be incurred in litigation and that consideration of costs can assist in achieving settlement. Providing that an unsuccessful party can recover its costs from an estate would discourage that party from taking into account the legal costs of proceeding when considering settlement. As a result, awarding costs from the estate could encourage probate litigation and discourage settlement. It would defeat the testator's intentions to the extent that the costs reduced the size of the estate available for distribution. 

[17]      As a result, costs should follow the event unless the court orders otherwise, exercising its discretion judicially.

In declining to award any costs to the grandchildren, Mr. Justice Barrow applied the principles set out in another case, Morton v.National Trust Co. Mr. Justice Barrow wrote at paragraph 10:

In exercising that discretion, the principles set out by Gow J. in Morton v. National Trust Co., [1993] B.C.J. No. 1523 (S.C.) apply. At paras. 39 and 40 he wrote:

[39]      R. 57(9) provides that costs of and incidental to a proceeding shall follow the event unless the court otherwise orders. In probate actions that has been the rule since 1907, subject however, to these provisos:

(1)   Where the testator or the residuary legatees have been the cause of the litigation;
(2)   If the circumstances lead reasonably to an investigation in regard to the propounded document;
(3)   The overriding discretion of the court.

[40]      If proviso (1) applies then ordinarily the court will grant the unsuccessful party costs out of the estate. If proviso (2) applies then ordinarily the court will not make an order for costs against the unsuccessful party. c.f. Hodson L.J. in Cutcliffe's Estate (1959), P. 6 at p. 13.

Mr. Justice Barrow found that there was nothing in the conduct of the will-maker, Chester Hun or of the executor that gave rise to the lawsuit. With respect to their allegation that Mr. Hun did not have capacity to make a will, there were no circumstances that reasonably lead them to require an investigation.

On the other hand, Mr. Justice Barrow did not award costs against the grandchildren. They reasonably raised the issue of whether the executor could rely on the presumption that the will was valid from the appearance that it was signed in accordance with the Wills Act formalities. He wrote:

[14]         As just noted, the conclusion regarding testamentary capacity turned, in part, on whether the presumption in Vout v. Hay was applicable. That issue turned on whether the Will had been executed with the requisite formalities. Given that one of the witnesses to the Will could not be identified, and hence could not be located, and the other had passed away, it may not have been unreasonable to require investigation into the circumstances surrounding the execution of the Will. 

[15]         There are two other circumstances of note in the matter at hand. These are relevant to the exercise of the overriding discretion referred to by Gow J. and Gray J. First, I do not question the bone fides of the defendants. I accept that they are now, and were prior to the deceased’s death, perplexed by the remote and distant approach their grandfather seemed to take towards them. It was because of that behaviour that they questioned his capacity. Second, while I concluded that the presumptions applicable to proving due execution were sufficient to establish that fact, that is not a conclusion that is free from doubt.

In the result, the grandchildren will have to fully bear their own legal expenses, but are not required to pay any costs to the executor, whose legal expenses will be paid out of the estate on a special costs basis.

B.C. Court of Appeal Holds that Hearing Fees are Constitutional

[This decision was overruled by the Supreme Court of Canada, 2014 SCC 59. See my post on that decision here.]

On Friday, February 15, 2013 the British Columbia Court of Appeal in Vilardell v. Dunham, 2013 BCCA 65, set aside Mr. Justice McEwan’sruling in the Supreme Court of British Columbia that the hearing fees charged by the Province of British Columbia to the party setting down a trial for the time spent in court are unconstitutional. The trial judge had found that the fees were an impermissible impediment to access to justice. I wrote about Mr. Justice McEwan’s decision here.

In allowing the Attorney General of British Columbia’s appeal, Mr. Justice Donald agreed that the hearing fees would be an unconstitutional impediment were it not for the Court’s power to relieve parties from the hearing fees.

The Supreme Court Family Rules and the Supreme Court Civil Rules both contain provisions allowing the court to order that no fees are payable if the court finds that a person is impoverished. Although the rules of court in effect when Vilardell went to trial were different, they had a provision allowing the court to relieve a person who was “indigent” from paying the fees. The current rule 20-5 (1) reads:

(1)  If the court, on application made in accordance with subrule (3) before or after the start of a proceeding, finds that a person receives benefits under the Employment and Assistance Act or the Employment and Assistance for Persons with Disabilities Act or is otherwise impoverished, the court may order that no fee is payable by the person to the government under Schedule 1 of Appendix C in relation to the proceeding unless the court considers that the claim or defence
(a) discloses no reasonable claim or defence, as the case may be,
(b) is scandalous, frivolous or vexatious, or
(c) is otherwise an abuse of the process of the court.
 

The Court of Appeal found that the relieving provision as drafted was too narrow. There are people who are not “indigent” or “impoverished” but for whom the hearing fees are not affordable. But the Court of Appeal held that by giving Rule 20-5 an enlarged interpretation to include persons “in need,” the Court would not have to strike down the hearing fees as unconstitutional. Mr. Justice Donald wrote at paragraph 41:

[41]         Granting an automatic exemption to recipients of employment or disability insurance suggests a more generous approach than was previously taken.  The enlarged scope of the exemption in Rule 20-5, then, should be read as saying “impoverished or in need”.  The phrase is intended to cover those who could not meet their everyday expenses if they were required to pay the fees.  Courts will continue to use their discretion to determine whether a litigant is impoverished or in need to the point that but for the hearing fees, they would be able to pursue their claim, thus qualifying for an exemption.

I don’t know if this is the final word for the courts. It may be that this decision will be appealed to the Supreme Court of Canada. But until then, the Government of British Columbia will be able to continue charge hearing fees, although the Supreme Court of British Columbia will have a broader power relieve from the payment of fees.

The Court of Appeal granted Ms. Vilardell’s application to be relieved from paying the hearing fees.

When I discussed Mr. Justice McEwan’s decision in my previous post, I wrote:

But irrespective of what the British Columbia Court of Appeal or Supreme Court of Canada may ultimately decide, his eloquent discussion of the fundamental role of our courts in civil society would be a good starting point of debate among British Columbians about how the Government of British Columbia funds not only British Columbia courts, but also other programs such as legal aid that are necessary for those who have the greatest need to get meaningful access to the courts. 

I hope that the Government of British Columbia will recognize that just because it is constitutionally permitted to charge hearing fees does not mean it is the right thing to do, or that it is good governance. It is neither.

Supreme Court of British Columbia Declares Hearing Fees Unconsitutional

In a decision released on May 22, 2012, Mr. Justice McEwan held that hearing fees charged by the Government of British Columbia for trials are unconstitutional.

The fees, which currently do not apply to the first three days of trial, but are $500 for each day for the 4^th through 10^th day of trial, and $800 for each day thereafter are charged to the party who sets a matter down for trial pursuant to Schedule C of the Supreme Court Civil Rules.

Vilardell v. Dunham, 2012 BCSC 748, arose out a custody case in which one of the parties applied to be relieved from the obligation to pay the hearing fees (which were charged at a different rates at the time of the custody case).

Mr. Justice McEwan heard arguments from the Attorney General of British Columbia, the Canadian Bar Association – British Columbia Branch, and the Trial Lawyers Association of British Columbia, as well as the parties. He considered expert economic evidence concerning the effect of the fees on access to the courts.

After an extensive review of the arguments, a careful analysis of the function of our courts, now and historically (going back to the Magna Carta), and a review of the history of the court fees, Mr. Justice McEwan held that the fees were an impermissible barrier to access to the courts.

To summarize and paraphrase his reasoning, the superior provincial courts play a central role in Canada’s constitutional democracy. They are the arbiter of the relative powers of the federal and provincial governments under the Constitution Act, 1867, and between the government and individual under the Canadian Charter of Rights and Freedoms. They also play a central role by providing for resolution of private disputes according to the rule of law.

Assess to the courts underpins our democracy in a manner analogous to the right of free expression and the right to vote. Limitations made by government on access to the courts undermine the rule of law and constitutional democracy.

He wrote at paragraphs 346 and 347:

[346]     There are several fundamental concepts embedded in these observations. A society that is governed by democratic principles is a society governed by the rule of law, the principle that the law applies to every person including the government and its agents. The right to vote is an incident of citizenship, and the laws consequent upon the exercise of that franchise apply to everyone within the jurisdiction of Parliament or the pertinent legislature. The courts operate in “functional symbiosis” with the legislative branches of government in fulfilling the purposes of democracy. Self-government clearly implies a process that begins with the law as it is or as it has been made by legislatures and includes the elaborations of the courts. Those elaborations, even in mundane matters, inform and enrich the law. As Resnick and Curtis note, the court is a public forum in which individuals may call the powerful, including governments, to account, compelling them to meet as equals. In the courts, cases are determined without regard to the distributions of power or wealth and influence that otherwise prevail in society. For this reason each case must be given the attention it requires, however small it may appear to be. The law is replete with examples of apparently inconsequential disputes which led to major changes or developments in the law, the most famous of which is arguably Donoghue v. Stevenson, [1932] A.C. 562.

[347]     Seen in this light, a court whose most frequent litigant controls and limits its availability to those who seek its assistance or protection is a court whose essence as a forum within the continuum of democratic lawmaking is compromised. The court is a forum in which minority rights, the values of inclusiveness, equality and citizen participation, and the constitutional commitment to the inherent worth and dignity of the individual, spoken of in Sauvé, are publicly advanced and vindicated. To the extent that government imposes limitations to deter or prevent litigants from seeking recourse to the courts, it undermines a fundamental premise of civil society: that there will be a place for everyone for the peaceful resolution of contentious issues according to law. To the extent the government imposes limitations on those who seek redress against government itself, it undermines its own accountability and legitimacy, and the rule of law itself. This is how the court is a core functional attribute of democracy. The Supreme Court’s observation in Sauvé that there is “no place” for the theory that elected representatives may disenfranchise a segment of the population in a democracy built on principle of inclusiveness, equality and citizen participation, must logically apply to legislation having the effect of depriving people of the means of vindicating their rights through the courts.

The hearing fees, in contrast to other more modest fees for services, such as filing fees, do represent a significant barrier to individuals, limiting and rationing access to the courts. The executive branch of government has in imposing the fees impermissibly interfered with functioning of the judicial branch. Mr. Justice McEwan wrote at paragraph 425(3):

(3)   Hearing fees are a barrier to access imposed by one branch of government over another. For the reasons I have set out, this creates a constitutionally untenable appearance of hierarchy. The court cannot fulfill its democratic function as an independent and impartial arbiter between government and the individual, or between individuals, if the government limits those who may come before the court by means of financial or procedural deterrents. In this respect, the AGBC’s position that as long as the government does not interfere with the cases the court is permitted to hear judicial independence is respected, is an inappropriately constricted view of the court’s constitutional place. So is the notion that it may tell the public, whose interests may occasionally be adverse to those of government, that for them the courts are a “valued but last resort.” Courts must be available to the public on precisely the same basis as they are available to government: as a place they are free to attend when they seek an authoritative determination of a right or legal position according to law. Going to law is not a form of failure or an act of deemed unreasonableness: it is better understood as an affirmative act of faith in the authority of the law.

The implications of this decision go beyond the hearing fees at issue. Mr. Justice McEwan was critical of the shift in the manner governments in British Columbia over the last couple of decades have envisioned the court system, from a common good, funded by taxpayers, to a marketplace commodity, funded on a user pay basis. He wrote at paragraphs 429 through 431:

[429]     On the other hand, the courts are, by definition – that is, constitutionally – a common good. They are a first charge on government, not a “service” that competes for what is left over after government organizes its other priorities. It undermines the fundamental values of democracy, federalism and the rule of law informing the Constitution, elaborated in the case law, and evident in our history, to put a “price on justice” or to purport to re-imagine the courts as “services.” The position taken by the AGBC [Attorney General of British Columbia] in this case has shown not merely an error in its approach to an aspect of financing the courts, but a significant misunderstanding by the government of its responsibilities under, and the limitations on, its constitutional mandate under s. 92(14) of the Constitution Act, 1867.

[430]     In What Money Can’t Buy, The Moral Limits of Markets, (Farrar, Straus and Giroux, New York 2012), Michael J. Sandel observes:

At a time of rising inequality, the marketization of everything means that people of affluence and people of modest means lead increasingly separate lives. We live and work and shop and play in different places. Our children go to different schools. You might call it the skyboxification of American life. It’s not good for democracy, nor is it a satisfying way to live. 

 Democracy does not require perfect equality, but it does require that citizens share in a common life. What matters is that people of different backgrounds and social positions encounter one another, and bump up against one another, in the course of everyday life. For this is how we learn to negotiate and abide our differences, and how we come to care for the common good.

 [431]     The Court is an essential forum of that common life, and cannot perform its necessary function if it, like so much else, is subject to the values of the marketplace the government has used to justify the fees. Some things cannot be for sale.

The Attorney General of British Columbia may appeal this decision, and Mr. Justice McEwan’s reasons may not be the last word in the courts. But irrespective of what the British Columbia Court of Appeal or Supreme Court of Canada may ultimate decide, his eloquent discussion of the fundamental role of our courts in civil society would be a good starting point of debate among British Columbians about how the Government of British Columbia funds not only British Columbia courts, but also other programs such as legal aid that are necessary for those who have the greatest need to get meaningful access to the courts.

[Update: since I posted this, the B.C. Court of Appeal has allowed the Attorney General's appeal from this decision, but the Supreme Court of Canada reversed and upheld Mr. Justice McEwan's decision. See my post on the Supreme Court of Canada decision here.]

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.

The Effect of Offers to Settle on Court Cost Awards in British Columbia

The new British Columbia Supreme Court Civil Rules, which came into effect on July 1, 2010, includes changes to the rules respecting the effect on offers to settle on costs orders.


In British Columbia, the usual rule is that the successful party in a lawsuit is entitled to “costs” from the unsuccessful party. These costs do not usually cover all of the successful party’s legal expense, but cover a portion of it. The court has discretion over whether to award costs.

The Supreme Court Civil Rules allow a judge to consider offers to settle when making costs orders. The offers to settle must never be put before the court before the judge makes a decision on the substantive issues. But once the judge has made a decision, the parties may show the judge any offers to settle made in accordance with the rules.

The judge can take offers into consideration on costs in a number of ways. If the plaintiff has been successful at trial, but could have received as good or a better result if the plaintiff had accepted the defendant’s offer, the court may deprive the successful plaintiff of costs in respect of those steps in the lawsuit taken after the offer. If the claim is dismissed, the court may award the defendant double costs in respect of those steps taken after the offer. On the other hand, if the plaintiff makes and offer, and enjoys greater success than she would have if the defendant had accepted the offer, the court may award the plaintiff double costs from the time she made the offer.

The rules respecting offers to settle have been amended a few times over the last decade. At times they have been rigid.

The current Rule 9-1 is quite flexible. Rule 9-1 (5) and (6) provide as follows:

Cost options

(5) In a proceeding in which an offer to settle has been made, the court may do one or more of the following:

(a) deprive a party of any or all of the costs, including any or all of the disbursements, to which the party would otherwise be entitled in respect of all or some of the steps taken in the proceeding after the date of delivery or service of the offer to settle;

(b) award double costs of all or some of the steps taken in the proceeding after the date of delivery or service of the offer to settle;

(c) award to a party, in respect of all or some of the steps taken in the proceeding after the date of delivery or service of the offer to settle, costs to which the party would have been entitled had the offer not been made;

(d) if the offer was made by a defendant and the judgment awarded to the plaintiff was no greater than the amount of the offer to settle, award to the defendant the defendant's costs in respect of all or some of the steps taken in the proceeding after the date of delivery or service of the offer to settle.

[am. B.C. Reg. 119/2010, Sch. A, s. 21.]

Considerations of court

(6) In making an order under subrule (5), the court may consider the following:

(a) whether the offer to settle was one that ought reasonably to have been accepted, either on the date that the offer to settle was delivered or served or on any later date;

(b) the relationship between the terms of settlement offered and the final judgment of the court;

(c) the relative financial circumstances of the parties;

(d) any other factor the court considers appropriate.

In order to for the court to consider an offer to settle when awarding costs, the offer must be in writing, delivered to all of the other parties of record, and the offer must say that the party making the offer “reserves the right to bring this offer to the attention of the court for consideration in relation to costs after the court has pronounced judgment on all other issues in this proceeding."

Stewart v. McLean

In British Columbia, if you act as an attorney under a power of attorney, you have a fiduciary duty (or duty of loyalty) to the person who appointed you, and on whose behalf you are acting. But the mere fact that someone makes a power of attorney does not in-and-of-itself make the person named as the attorney a fiduciary.

This issue is discussed in a Supreme Court of British Columbia decision released last January. The case is Stewart v. McLean, 2010 BCSC 64.

Mona Stewart sued her brother, Donald McLean, his wife, and his two children. Her mother, Ellen McLean, had transferred her house into a joint tenancy with her brother, Donald McLean, she had forgiven a $50,000 debt he owed to her, and she had given each of Donald McLean, his wife and two children $70,000.

After Ellen McLean’s death on February 4, 2005, Mona Steward claimed that her brother had unduly influenced their mother to benefit his family. She also argued that he and his family held the benefits on a resulting trust for Ellen McLean’s estate.

Mr. Justice Punnett rejected Mona Stewart’s claims, and held that Ellen Stewart had freely made valid gifts to her son and son’s family.

A key factor in this decision was that when Mona Stewart and Donald McLean’s uncle Hilarious West died, he had left most of his wealth to Mona Stewart and her children. Donald McLean unsuccessfully sought to have his uncle’s will declared invalid in Alberta.

Mr. Justice Punnett found that Ellen McLean had conferred substantial benefits on her son and his family in order to balance the benefits Mona Stewart received from her uncle.

In finding that there was no undue influence, Mr. Justice Punnett first considered whether there was a presumption that arose that Donald McLean unduly influenced his mother, by virtue either that Ellen McLean had appointed her son as an attorney under a power of attorney, or that their relationship was one of dominance.

Ellen McLean had made a power of attorney, in which she named her son as her attorney. But she never delivered it to him, and he did not exercise it. Accordingly, Mr. Justice Punnett found that the power of attorney did not give rise to a fiduciary duty in the circumstances.

Mr. Justice Punnett also found that Donald McLean was not in a position to dominate his mother. He wrote:

[87] I find that the deceased, up until her death, was mentally acute, independent, and strong-willed. There is no evidence that she was vulnerable in her relationship with her son nor that he controlled her in any way. She was not dependent on him. While she relied upon him to take her to appointments and stores and to assist around her home, had he been unable to do so, she was capable of making alternate arrangements as evidenced by the various third parties she hired to attend to matters that were beyond her abilities.

[88] Because of the Deceased’s independence and strong-will, Donald would have been unable to exercise any power over his mother. Even if he had some discretion or power, he would not have been able to unilaterally exercise it. I find that the relationship between Donald and his mother was not a fiduciary relationship.

Mr. Justice Punnett further held that if a presumption of undue influence arose, it had been rebutted. Ellen McLean had received independent advice from a lawyer when she transferred her house into a joint tenancy with her son, and from her financial advisor when she made the $70,000 gifts to each of her son, his wife and their children.

Mona Stewart also sought to rely on the presumption of resulting trust. She argued that because her mother made the transfer of title to the house into a joint tenancy, the cash to Donald McLean and his family, and the forgiveness of debt were all made gratuitously, there is a presumption the Donald McLean and his family held the assets they received in trust for his mother’s estate.

Mr. Justice Punnett agreed that the presumption of resulting trust arose, but found that it had been rebutted by the evidence that Ellen McLean had intended to make gifts.

Mr. Justice Punnett found that there was no basis for Mona Stewart’s allegations, in particular her allegations of undue influence. He wrote:

[120] The plaintiff’s pursuit of this lawsuit in light of the facts and her complete lack of evidence appears to have been motivated by greed and retaliation directed towards her brother for opposing probate of their late uncle’s will. It is one thing to pursue litigation based on suspicious conduct grounded in facts, which may or may not be accepted by the trier of fact; it is another to pursue it and provide no substantive evidence in support. Her allegations were unfounded and her motive improper.

The court ordered Mona Stewart to pay the defendant’s costs on a special costs basis. The usually rule in British Columbia lawsuits is that the unsuccessful party must pay costs to the successful party, but these costs generally represent only a portion of the successful party’s legal expenses. The court may award special costs, which approach or equal actual legal expenses, as a way of punishing a party for its conduct in the lawsuit.

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.

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.

Improper Use of Caveats in Estate Disputes

[Since I wrote this post, the decision I discuss below has been overturned by the British Columbia Court of Appeal at 2010 BCCA 111.]

As I wrote in a previous post, In British Columbia, if you wish to oppose probate of a will you believe to be invalid, you can file a caveat, which will prevent the issuance of probate for six months, unless the will is proven in solemn form in court.

But you should not file a caveat unless you have some basis for challenging a grant of probate of a will or a grant of letters of administration. It is not appropriate in every case.

For example, in a recent decision of the Supreme Court of British Columbia, Chang Estate v. Chang, 2009 BCSC 529, Madam Justice Loo ordered that a caveat filed by one of the deceased’s sons be cancelled, and ordered him to pay special costs to the executor.

The deceased’s son, Da Wei Chang, had a dispute for several years with his parents concerning property they bought in Surrey. They had put the title into a joint tenancy with him, but severed the joint tenancy after he sued them in Small Claims Court.

After his mother’s death (his father having died earlier), he filed several caveats, which prevented his sister, the executor, from obtaining a grant of probate. The claims as set out in his caveats and in his Statement of Defense and Counterclaim are very confusing. His claims seem to be that his mother owed him money, and that his parents acted improperly in severing the joint tenancy. There was also some dispute over property they once had in Shanghai.

On an application by his sister to cancel the caveat, Madam Justice Loo found that Da Wei Chang did not have any valid claim to prevent probate and ordered the caveat cancelled.

She found that his actions in filing several caveats without foundation were vexations and an abuse of process. Accordingly, she ordered special costs against him. An award of special costs will fully or almost fully cover the other party’s actual legal costs. In British Columbia, the court may order special costs to punish a party for his conduct in the litigation.

Costs Award in Brydon v. Malamas

This post is a postscript to my post on Brydon v. Malamas, 2008 BCSC 749, a case in which the Supreme Court of British Columbia pronounced against a will made by Stella Sirgianidis. Mr. Justice Halfyard found that she did not have the mental capacity to make the will. The court also set aside a transfer of her land, of two bank accounts and of a beneficiary designation of her Registered Retirement Savings Plans.

After the decision, the parties were then given the opportunity to argue who should receive the court costs.

The usual rule in British Columbia is that court costs follow the event. This means that if you win a lawsuit, the losing party has to pay you some costs toward your legal expenses. Usually the costs awards do not fully indemnify the successful party, but they sure help.

Like many rules, there are exceptions. In disputes about estates, the courts sometimes allow unsuccessful parties their costs out of the estate, occasionally on a full indemnity basis. If the court determines that the lawsuit was in some sense caused by the deceased or by his or her conduct, then the court may allow all of the parties their costs. For example, if the will is poorly drafted causing ambiguities that the court must interpret, the court may exercise its discretion to award costs out of the estate even to the unsuccessful parties. The lawsuit can be said to be caused by the deceased, rather than those who end up in court.

There is a further principle that an executor or administrator is usually entitled to be reimbursed for his or her legal expenses related to the administration of the estate, including legal expenses in lawsuits.

In Brydon, one of the defendants, Jimmy Malamas, was named as an executor in the disputed will. He was also a beneficiary in the disputed will, and he would have benefited from the disputed transfers of the bank accounts and from the designation in the Registered Retirement Savings Plan if those transactions had been upheld.

Mr. Malamas, and the other defendant, Mary Malamas, argued that all parties should receive their costs on a special cost basis (which may fully indemnify the parties for their legal costs). They argued that the litigation was caused by the deceased’s conduct. She made the will and performed the transactions at a time when she was incapacitated.

Furthermore, as the named executor, Jimmy Malamas, argued that it was reasonable for him to bring the application to prove the validity of the disputed will. He argued that he should be fully indemnified as the named executor.

The plaintiff, on the other hand, sought her costs against the defendants personally, and opposed the payment of costs to the defendants out of the estate. She argued that the case did not fall into either of the exceptions cited by the defendants to the normal rule that costs follow the event.

In Brydon v. Malamas, 2009 BCSC 80, Mr. Justice Halfyard agreed with the plaintiff. He found that the defendants were acting in the lawsuit to protect their own interests as beneficiaries of the disputed will and the other disputed transactions. The lawsuit was in the nature of an adversarial contest among beneficiaries. He found that the defendants were involved in some of the suspicious circumstances concerning the making of the will and of the transactions. He also found that they were reckless as to Stella Sirgianidis’ mental capacity.

In the result, the defendants are required to pay the plaintiff’s costs, and are not entitled to any costs out of the estate.

B.C. Supreme Court Rules on Offers to Settle Changed

[Since I wrote this post, the Rules have been changed. I wrote an updated post on December 18, 2010 here.]

The British Columbia Supreme Court Rules have been amended to give the courts greater flexibility in awarding court costs after one party has made a formal offer to settle. Rule 37B replaced Rules 37 and 37A effective July 1, 2008.

The old Rule 37 provided mandatory costs consequences when one party made an offer that complied with the requirements of Rule 37. For example, if the plaintiff made an offer to settle, and the court awarded the plaintiff more that the offer, the plaintiff was entitled to ordinary costs to the date of the offer and double costs for steps taken after the offer. The offer could only be disclosed to the trial judge after the judge had ruled on the substantive issues. I have discussed offers under Rule 37 here.

Rule 37A applied to offers that did not meet all of the requirements of Rule 37, and provided that the court could consider the offer on the issue of costs.

The new Rule 37B will apply to all offers to settle complying with the new rule.

If an offer is made, and the party making the offer sets out that the party "reserves the right to bring this offer to the attention of the court for consideration in relation to costs after the court has rendered judgment on all other issues in the proceeding," the court may then consider the offer in determining who gets court costs, and how much. The court may deprive a successful party of costs, or may order that a party receive double costs for some or all steps in the lawsuit.

The court may consider whether the other party should reasonably have accepted the offer. The court may also consider the result, and the financial circumstances of the parties, as well as any other factors the court considers appropriate.

The text of the new Rule 37B, posted by Continuing Legal Education Society of British Columbia, is here.

I don't know the rationale for this change. I have notice quite a bit of litigation over when Rule 37 applied and when it did not. The results could be harsh in some circumstances. Although the purpose of the rules concerning offers to settle are to encourage negotiation, in some cases plaintiff's made offers under Rule 37 for the full extent of their claim, and defendants made offers under Rule 37 offering nothing.

I think a more flexible approach under the new Rule 37B makes sense.

Court Awards Successful Party Costs in Wills Variation Act Claim

In a Wills Variation Act lawsuit in British Columbia, the courts usually award the successful party court costs against the unsuccessful party. The costs don’t fully cover the successful party’s legal costs, but they can be substantial.

This general policy was reaffirmed in a Supreme Court of British Columbia decision released on April 29, 2008. The decision is Doucette v. Clarke, 2008 BCSC 506.

After a trial, reported at 2007 BCSC 1021, Mr. Justice Metzger varied the will of the late Mildred Lucy Doucette, in favour of two of her children, who were left very small portions of their mother’s estate in her will. The other two children, who were beneficiaries as well as the executors, had opposed the Wills Variation Act claim.

At trial, Mr. Justice Metzger also found that the executors held various assets that they claimed by right of survivorship as surviving joint tenants were held by them in trust for their mother’s estate. He also found that one of the other children held an account in trust for the estate.

On the issue of costs in respect of the Wills Variation Act claim, the two children who had opposed the Wills Variation Act claim sought to have their costs paid out of the estate. They sought their costs on the basis that they were acting to give voice to their mother. Mr. Justice Metzger rejected this argument. He held that as executors, the two defending children were required to remain neutral in the Wills Variation Act claim. In defending against the claim, the two children were protecting their interest as beneficiaries.

Mr. Justice Metzger ordered that the two defending children personally pay the plaintiff his costs. (Although the will was varied in favour of two children, only one of them had brought the Wills Variation Act claim.) The defending children argued that the lawsuit was caused by their mother in making a will that did not make adequate provision for their siblings. Accordingly, they argued, the estate should bear the costs, rather than the defending children personally.

In rejecting this argument, the court distinguished those cases in which the court may award costs to all parties because there was a question about whether the person who made the will had the necessary mental capacity or there was some ambiguity in the will, from a Wills Variation Act case. In capacity or interpretation cases, the courts often award costs to all parties on the theory that the lawsuit was caused by some fault of the testator or by other circumstances outside of the litigant’s control. But the policy of providing costs to all parties out of the estate does not apply to Wills Variation Act cases.

[Since I wrote this post, the British Columbia Court of Appeal has allowed an appeal of the trial judge's decision in Doucette v. McInnes on the substance of the claim. I have written a post on the Court of Appeal decision here. The Court of Appeal did not address the issue of costs. In my view the trial judge's analysis of the issue of costs discussed above is not affected by the Court of
Appeal decision.]

Cost Award in Stanton v. Stanton Estate

In British Columbia, the court may order an unsuccessful litigant to pay the successful party court costs. This is the usual rule in lawsuits in British Columbia. Cost awards will usually only partially offset the successful party's actual legal costs.

But if the court finds that the unsuccessful party acted reprehensibly in the lawsuit, then the court may award special costs. An award of special costs will often either fully compensate the successful party for his or her legal costs, or come close.

The court may order special costs where a party seeks to challenge the validity of a will, and makes allegations of undue influence without any factual basis.

This is what happened in Stanton v. Stanton Estate. Mrs. Ophelia Stanton challenged her late husband's will, which left most of his estate to his daughter from his first marriage. She waited two and a half years after probate before challenging the validity of the will. She claimed that her husband's daughter had undue influenced him. She also claimed that he did not have capacity to make a will.

She lost at trial, and on appeal.

On the issue of costs, Mr. Bernard in Stanton v. Stanton Estate, 2008 BCSC 470, awarded the defendant daughter special costs against Mrs. Stanton. He wrote, in his reasons for judgment,

[17] In addition to the baseless allegation of undue influence, the defendant alleges that the plaintiff, in launching a challenge to the validity of the will two-and-a-half years after the grant of probate, had oblique motives, one of which was as an act of retaliation to the defendant’s counterclaim in the Wills Variation action. The defendant points out that within three weeks of the defendant’s counterclaim, the plaintiff suggested, for the first time, that she would be challenging the validity of the Will. The defendant also submits that the plaintiff did not pursue the action with an expectation of success, but rather for “collateral benefit” in the Wills Variation action, and that this is borne out in correspondence from the plaintiff. I am satisfied there is merit to the allegation of oblique motives. It accounts for the otherwise inexplicable delay in launching a challenge to the Will, and for the relentless pursuit of a futile case whilst a Wills Variation action was outstanding.

[18] I am satisfied, in light of all the foregoing, that special costs ought to be awarded against the plaintiff. The plaintiff’s conduct throughout the proceedings was reprehensible in the sense that it is deserving of reproof. The plaintiff should not be permitted to diminish the estate with the costs of the proceedings challenging the validity of the Will.

Goods and Services Tax Reduced to 5% on January 1, 2008

The Goods and Serices Tax ("GST") rate will go down from 6% to 5% on January 1, 2008.

What rate applies to legal services that a lawyer provided in 2007, but billed in 2008?

According to Canada Revenue Agency's GST/HST Notice dated December 18, 2007, lawyers should collect 5% on all bills rendered on or after January 1, 2008, even if the services were provided before January 1, 2008.

If a lawyer bills his or her client before January 1, 2008, 6% GST is payable, even if the client waits until 2008 to pay.

Jung v. HSBC Trust Company – Round Three

Henry Lee decided to change his will. He had made a will in 1977, in which he left his entire estate to his brother Horace. (Mr. Henry Lee was not married, and did not have children.) He made the 1977 will himself using a store-bought will form.

So, Mr. Henry Lee bought another will form from a store. He filled out the will form himself in March 1985. The store-bought form was typewritten, with blanks. Mr. Henry Lee arranged for a couple of friends, Mr. and Mrs. Graham, to witness his signature.

In his new will, Mr. Henry Lee left Horace, hand wrote in the blank spaces:

My shares of Lee Bros. Holding Co. My property of 817 North Park St., Victoria, B.C. and 35% of cash & bonds to my brother Horace. 35% to my sister Estelle of cash & bonds. 35% divided evenly for my sisters Elsie, Edythe, Effie and my brothers Harold & Henry of cash & bonds.

Mr. Henry Lee died a few months after completing his new will. His savings and investments were worth over $600,000.

Horace Lee, whom Henry Lee had named executor of his 1977 will, and co-executor with Estelle Lee Jung of the 1985 will, took both wills to a lawyer, Mr. Barbour. The lawyer spoke on the telephone with one of the witness’s, Mr. Graham, who advised Mr. Barbour that when he witnessed the will, the portion with the gifts to Mr. Henry Lee’s siblings was still blank.

If Mr. Graham was correct in what he told Mr. Barbour, the most important part of the 1985 will, the gifts to siblings, would be invalid. In British Columbia, changes made to a will after it is signed and witnessed are not valid, unless made according to the formal requirements set out in the Wills Act. In this case the changes would not have complied if made after the will was signed and witnessed.

Horace Lee decided to change lawyers. He took the 1977 will—which left everything to Horace—to a second lawyer, who assisted Horace Lee in obtaining probate of the 1977 will. Horace Lee then kept Henry Lee’s entire estate for himself.

Estelle Lee Jung knew about the 1985 will, but she accepted Horace Lee’s word that it was invalid. None of the other siblings were aware of the 1985 will.

Horace Lee died in 2001 without a will. His estate was worth about $2.6 million. It was after his death that the 1985 will came to light. By then all of the other siblings, except Estelle Lee Jung had also died.

This is not the first time I have written about this case. I wrote here about the court’s decision after the first time it went to trial. I later wrote about the Court of Appeal decision ordering a new trial. Today’s post is on the decision after the second trial, in Jung v. HSBC Trust Company (Canada), 2007 BCSC 1740.

This case first went to trial in August and September, 2005. Although both Mr. and Mrs. Graham testified at the first trial that Mr. Henry Lee had written in the portion with the gifts before he and they signed the will, the trial judge preferred the evidence of Mr. Barbour that Mr. Graham had said that the will was not complete. The first trial judge found that the 1985 will was valid, except for the most important part. He also held that the clause in the 1985 will revoking the 1977 will was conditional on Mr. Henry Lee’s belief that he was validly changing the beneficiaries will. Accordingly, the first trial judge held that the portions of the 1977 will leaving the estate to Horace Lee remained in effect. (This is called the doctrine of dependant relative revocation.)

The Court of Appeal overturned the decision of the first trial judge. The Court of Appeal held that although the court could only consider Mr. Barbour’s evidence of his conversation with Mr. Graham for the limited purpose of assessing the reliability of Mr. Graham’s evidence that the Mr. Henry Lee had filled in the blanks before they signed the will.

At the second trial, Mr. Justice Silverman found Mr. Henry Lee had completed the gift portion of the 1985 will before he and the Grahams signed the will. Accordingly, the entire 1985 will was valid. The 1985 will revoked the 1977 will. Mr. Horace Lee should not have applied to probate the 1977 will.

In arriving at his decision, Mr. Justice Silverman applied a presumption that the will was properly completed unless there is some indication on the face of the will that it was not. He also accepted the evidence of Mrs. Graham that it was completed. In view of the previous inconsistent statement Mr. Graham had made to Mr. Barbour, Mr. Justice Silverman did not rely on Mr. Graham’s evidence.

Some of the defendants argued that Ms. Estelle Lee Jung had waited too long to sue. They argued that she knew about the 1985 will at the time Horace Lee applied to probate the 1977 will in 1987. The argued that she had either six years or ten years (depending on which section of the Limitation Act applied) to sue.

Mr. Justice Silverman found that the limitation period did not begin to run against Ms. Jung until after Horace Lee’s death. He found that Mr. Horace Lee had fraudulently concealed his knowledge that the 1985 will was valid from his sister Ms. Jung. He also fraudulently concealed his knowledge of the 1985 will from his other siblings. Accordingly, under section 6(1) of the Limitation Act, RSBC 1996, c. 266, the limitation period did not begin to run as against Ms. Jung until she was fully aware of the fraud. She did not wait too long to sue in the circumstances.

Because so much time had passed since Horace Lee had probated the 1977 will, and because Horace Lee had mixed the estate assets with his own, it would have been difficult to revoke the probate the 1977 will. It was too late to undo everything that happened. Instead, Mr. Justice Silverman ordered a payment out of Horace Lee’s estate to those beneficiaries (and in many cases their estates) who would have benefitted from the 1985 will on the basis of the value of Henry Lee’s estate when he died. In addition the beneficiaries are entitled to interest at rates set by the court registrar for prejudgment interest.

The interest begins to run from the date of the probate of the 1977 will in March, 1987. (It seems to me that this does not fully compensate the beneficiaries of the 1985 will, because the investments likely grew in value between the date of Mr. Henry Lee’s death, and the date of probate.)

The court also had to interpret the words “cash and bonds.” Mr. Justice Silverman found that Mr. Henry Lee intended those words to include Canada Savings Bonds, cash, bearer bonds and term deposits.

The usual rule in lawsuits in British Columbia is that the unsuccessful party pays some costs to the successful party. In this case, Mr. Justice Silverman exercised his discretion to depart from the usual rule, and award all of the parties their reasonable legal fees out of Horace Lee’s estate. He found that the litigation was caused by the conduct of Henry Lee and Horace Lee, rather than the parties to the lawsuit. In the trial judge’s words:

Hubert’s contributing action was his honest, but ill-advised decision, to use a store-bought form will without involving a lawyer. Horace’s contributing action was his bad faith and fraudulent behaviour.

The Decision on Court Costs in Woodward v. Grant

I wrote previously about Woodward v. Grant, 2007 BCSC 1192, a case in which the plaintiffs unsuccessfully challenged the validity of Joseph Roberts’ last will. The plaintiffs had alleged that Mr. Roberts’ did not have the capacity to make his last will. The court found that he had.

Last week, Madam Justice Gray released her reasons for judgment on the issue of court costs. The decision on costs is at 2007 BCSC 1549.

The first issue the court considered was whether the successful defendants were entitled to double costs because they had made a formal offer to settle under Rule 37 of the Supreme Court of British Columbia Rules of Court.

In this case, Madam Justice Gray found that the offer to settle was not relevant to the case. The offer was for $1.00 “in full and final satisfaction of the plaintiffs [sic] claim for general damages, special damages and court order interest….” But, the plaintiff’s were not seeking damages, but were seeking an order pronouncing against the validity of the will.

On the other hand, the court also rejected the plaintiffs’ submissions that their costs should come out of the estate.

Madam Justice Gray reviewed the case law, and noted that the trend in lawsuits over wills was for the court to award costs to the successful party against the unsuccessful party. There are exceptions in some cases where the court finds that there is an issue that needs to be litigated often brought about by the testator’s conduct. Sometimes, where capacity is in doubt, the courts have awarded costs to all parties out of the estate.

But in this case, Madam Justice Gray found that the dispute was in substance adversarial between beneficiaries, some of whom would have benefited financially from a previous will. She found it appropriate to order that the unsuccessful plaintiffs pay the defendant’s court costs.

I don’t think there is a clear cut rule on whether the court will award costs out of the estate to all parties in a dispute concerning the validity of the will, or require the unsuccessful party to pay the successful party’s costs. In reading this case, and other cases, the cost awards may tend to reflect the trial judges’ views on the relative merits of the each side’s position. If a party has a reasonably good case to put forward, he or she may be awarded costs out of the estate, even if he or she loses. But, if the court finds that the unsuccessful party did not have a sufficiently good case to bring to trial, the court is more likely to apply the ordinary rule in lawsuits in British Columbia that the unsuccessful party must pay the successful party’s costs.

Offers to Settle and Court Costs

[Since I wrote this post, the Rules have been changed. I wrote an updated post on December 18, 2010 here.]


In British Columbia court cases, the judge has discretion to award court costs to a party. The usual rule is that the unsuccessful party is required to pay costs to the successful party. The costs do not generally fully cover the party’s legal fees, but the court costs award can be substantial.

Rule 37 of the Supreme Court Rules is designed to facilitate settlements before trial. If the plaintiff makes an offer to settle that complies with Rule 37, and receives an award after a trial that is equal to or better for the plaintiff than the offer, the plaintiff is entitled to costs up to the date of the offer, and double costs thereafter.

The defendant may also use Rule 37 to make offers. If the defendant makes an offer, and the plaintiff is successful at trial, but does not get a result that is better than the defendant’s offer, the plaintiff is entitled to costs only to the date of the offer, and the defendant is entitled to costs thereafter. If the plaintiff loses at trial, the defendant receives costs up to the date of the offer, and double costs thereafter.

Rule 37 can be used by either side to put pressure on the other to accept an out-of-court offer by increasing the potential costs to the other side if he or she loses, or does not do better than the offer.

When a party makes an offer to settle under Rule 37, he or she may not disclose the offer to the judge during the trial. After the judge has ruled on the substantive issues in the case, the parties may disclose the offer when making submissions on costs.

[Update: Effective July 1, 2008, Rule 37 was replaced by a more flexible Rule 37B. See my post on the amendment here.]

Estate Litigation Costs: A Case Study

As I previously wrote, Mrs. Cheryl-Lynn Steernberg successfully made a claim for a larger share of her husband's estate under the Wills Variation Act, RSBC 1996, c. 490. After a trial, Madam Justice Martinson increased Mrs. Steernberg's share from 10 % to 15% of the estate. You can read the decision here.

On June 28, 2007, in Steernberg v. Steernberg, 2007 BCSC 953, Madam Justice Martinson released her reasons for judgment on the issue of costs. The general rule in British Columbia is that the successful party receives some costs from the unsuccessful party. The costs generally cover only a portion of the successful party's actual legal expenses. But, as with most rules, there are exceptions.

Madam Justice Martinson considered a couple of significant issues. First, she considered whether the executor of Peter Steernberg's will was entitled to pay his legal fees out of the estate for defending against Mrs. Steernberg's claim. Secondly, she considered whether to award costs against Mrs. Steernberg because before the trial the defendants had offered to settle with Mrs. Steernberg for 20% of the net value of the estate (the assets less liabilities and expenses).

The court was clear that the executor was not entitled to pay his legal fees out of the estate for defending against Mrs. Steernberg's claim. The executor's duty in a Wills Variation Act action is to remain neutral. In this case, the executor was also a beneficiary. As a beneficiary, he was entitled to defend against the claim, but at his own expense.

Madam Justice Martinson distinguished Wills Variation Act cases from those cases in which the executor is defending the validity of the will. For example, the executor may be entitled to have his or her legal expenses paid out of the estate if someone is claiming that the testator did not have the capacity to make a valid will. But, in Wills Variation Act cases, the validity of the will is not challenged. The executor has no need to defend the will, and has a limited role of providing the court with information about the estate.

The court ordered the executor to repay the funds he took out of the estate to pay his legal bills in opposing Mrs. Steernberg's claim.

Madam Justice Martinson also considered the effect of the defendants' offer to settle on the basis that Mrs. Steernberg would receive 20% of the net value of the estate.

Rule 37 of the Supreme Court Rules is a rule designed to facilitate settlements of lawsuits. If the defendant(s) offer to settle with a plaintiff in compliance with Rule 37, and the plaintiff is successful, but does not get a better result at trial than what the plaintiff would have received under the offer, the plaintiff will receive court costs only in respect of those steps taken before the date of the offer. The plaintiff must then pay costs to the defendant(s) in respect of those steps taken after the date of the offer. The theory is that the plaintiff should have accepted the offer to settle, instead of going to trial. Accordingly, there can be financial consequences visited on a plaintiff who does not accept a reasonable offer. (There are similar rules to facilitate offers from plaintiffs to defendants.)

The defendants argued that, because they offered a higher percentage of the net estate than the percentage Mrs. Steernberg received at trial, she should receive costs to the date of the offer, and then be required to pay costs for all of the steps taken after the date of the offer.

Madam Justice Martinson rejected the defendants' position. She found that the defendants' offer did not comply with Rule 37.

First, the offer did not come from all of the defendants in their personal capacities. The executor made the offer as executor, together with the other beneficiaries. The executor did not make the offer as a beneficiary. Accordingly, the offer was not made on behalf of all of those beneficially entitled to the estate.

Secondly, the offer was based on the net value of the estate after the executor had taken funds for his legal fees for defending against Mrs. Steernberg's claim. Accordingly, the 20% offered was 20% of a lesser amount than the net value of the estate after repayment of the legal fees improperly taken. Accordingly, at the time the offer was made, Mrs. Steernberg could not properly assess the offer.

Thirdly—and most significantly for estate litigation practice—Madam Justice Martinson held that an offer of a percentage of the net value of an estate is not sufficiently certain to fall within Rule 37. The value of an estate fluctuates over time. To comply with Rule 37, the offer must be for a certain amount.

Madam Justice Martinson awarded Mrs. Steernberg her costs, to be paid by the defendants personally (not out of the estate).

Above all, this case offers a cautionary lessen in the economics of estate litigation. It appears to me from the reasons that the estate will be worth roughly $1.3 million after the executor repays the legal fees improperly paid out of the estate. The court increased Mrs. Steernberg's share by 5% (10% to 15%), which is an increase of roughly $65,000. But, her legal fees were $235,000, which is $170,000 more than my estimate of her benefit. Although she will also get costs from the defendants, I doubt that those costs will be anything near $170,000. Sadly, although Mrs. Steernberg won her case, she will come out behind financially.

If I have added the numbers up correctly, it appears from the reasons for judgment that the combined legal expenses of the defendants were approximately $300,000 (a small portion of which might have been incurred in estate administration unrelated to the law suit). The court reduced the defendants' shares of the estate, and they are required to reimburse Mrs. Steernberg for a portion of her legal expenses.

The parties spent in the neighbourhood of a half-million dollars on this lawsuit. This is why it is usually a good idea to consider mediation at a relative early stage of the proceedings.