1. Introduction
Recently, I posted a blog on a Supreme Court of Canada case,[1] which reviewed the equitable remedies of rescission and rectification and held that the remedy of rescission is not available to undo tax plans in order to avoid adverse tax consequences.[2] In it the Court followed its earlier decisions in Canada (Attorney General) v Fairmont Hotels Inc[3] (‘Fairmont’) and Jean Coutu Group (PJC) Inc v Canada (Attorney General),[4] which held that rectification is unavailable in those circumstances. But recent case law has also made it clear that these equitable remedies are still available in limited circumstances. Royal Trust Corporation of Canada v Horner[5] explores those limited circumstances. And in its additional reasons, Hoyle Estate[6] the court arguably makes a somewhat unexpected costs award.
2. Rectification
2.1 Facts
Una Hoyle had engaged in complex estate planning while her husband was and updated that plan with a new will and various trusts with the aid of Mr White, a lawyer. In 2009, Una engaged another lawyer, Isaac, to review her estate plan, since there were concerns about possible duplicate gifts. In 2010 Ms Isaac had Una sign a number of documents that were supposed to cure the problem of the duplicate gifts. However, also in 2010 Una engaged yet another lawyer, Mr Enns, to work together with Ms Isaac to review that estate plan. Ms Isaac then picked up the original estate planning documents from Mr White and discovered that Una had made a new will and settled the UH Trust in 2008, which meant that the duplicate gifts problem was still an issue. Moreover, the default distribution of her assets under the UH Trust of 2008 differed from Una’s instructions to Ms Isaac and the 2010 planning documents that she had drafted for Una. Ms Isaac concluded that a new document, the UH Trust Deed of Appointment should be executed to resolve these problems. She discussed this with Una and with Mr Enns. Ms Isaac then sent the documents, including a new will, to Mr Enns to have them executed by Una. The package contained an original and a copy of each document. Mr Enns attended to the execution and sent the documents back to Ms Isaac. However, she discovered that the documents did not include a signed copy of the UH Trust Deed of Appointment, although it did include two signed copies of the Spousal Trust Deed of Appointment. Shortly before she discovered this, she and Mr Enns learnt that Una had scored poorly on a capacity test, so they concluded they could no longer act for her.
Una died in 2018. Probate of her will was granted to her executor, Royal Trust, in 2019. Royal Trust concluded that because the UH Trust Deed of Appointment was not signed, the 2008 UH Trust Deed default distribution would have to be followed. However, this would be contrary to Una’s intentions. Therefore Royal Trust brought an application in which it asked the court either to rectify one of the signed copies of the Spousal Trust Deed of appointment and substituting the provisions of the UH Trust Deed of Appointment instead, or alternatively to cure the unsigned UH Trust Deed of Appointment under section 58 of the Wills, Estates and Administration Act.[7] Two of Una’s children opposed the application. The Litigation Guardian filed a response on behalf of minor and unborn issue but took no position on the relief sought by Royal Trust.
2.2 Analysis
The court held first, rightly I believe, that it had no jurisdiction to cure the unsigned UH Trust Deed of Appointment under section 58. That section empowers a court to cure a will or other ‘testamentary disposition document’ if it failed to comply with the statutory formalities for wills. The court rightly held that the UH Trust Deed of Appointment was not a ‘testamentary disposition document’ but an inter vivos document with immediate effect.[8] In any event the Trust Deed would not be subject to the statutory formalities for wills.
However, the court held that it had inherent jurisdiction to grant the equitable doctrine of rectification. It quoted from the decision of Brown J in Fairmont,[9] who said in paragraph 3, ‘…a court may rectify an instrument which inaccurately records a party’s agreement respecting what was to be done…’ However, Justice Brown also said in paragraph 36:
A party seeking rectification faces a difficult task in meeting this standard, because the evidence must satisfy a court that the true substance of its unilateral intention or agreement with another party was not accurately recorded in the instrument to which it nonetheless subscribed. A court will typically require evidence exhibiting a high degree of clarity, persuasiveness and cogency before substituting the terms of a written instrument with those said to form the party’s true, if only orally expressed, intended course of action.
The court concluded that the affidavits of Mr Enns and of Ms Isaac provided the requisite clear, convincing, and cogent evidence of their estate planning with Una as well as an explanation of what happened when the estate planning documents were executed. The court also concluded that Una understood that she would be signing the UH Trust Deed of Appointment, but mistakenly signed a second copy of the Spousal Trust Deed of Appointment instead. Thus, the court granted Royal Trust’s application to rectify one of the two executed copies of the Spousal Trust Deed of Appointment.
The court also found support for its decision in the United Kingdom Supreme Court decision of Marley v Rawlings.[10] It concerned a situation in which a husband and wife mistakenly signed each other’s mirror wills. In that case the court rectified one of the wills. It acted under English legislation that permits rectification of a will.[11] That legislation is similar to s 59 of WESA.
3. Costs
The parties then made submissions on costs. Royal Trust submitted that it should be fully indemnified for its expenses through a special costs award from the UH Trust and that the Litigation Guardian should be similarly indemnified. Royal Trust argued that trustees and litigation guardians are generally indemnified through a special costs award. The UH Trust in fact provided for Royal Trust’s indemnification and s. 95 of the Trustee Act[12] also presumptively entitles it to be indemnified for its expenses. But Royal Trust also argued that the two children who opposed the application were not entitled to be indemnified for their costs because their opposition was unfounded. The Litigation guardian took the same position. However, the two children argued that they were also entitled to special costs from the UH Trust.
The court stated that in modern estate litigation costs normally follow the event unless there are specific exceptions to the modern approach. One exception is that trustees, executors, and other representatives are generally indemnified through a special costs award for all reasonable litigation costs they have incurred in their representative roles. Since Royal Trust acted reasonably in bringing the application to correct the clerical error and the Litigation Guardian acted reasonably in appearing on behalf of minor and unborn and unascertained beneficiaries, they were entitled to be indemnified through a special costs award from the UH Trust.
However, the two children who opposed the application were not entitled to be indemnified, even though this was a case in which the trustees asked the court to address an issue about a trust instrument that arose as a result of Una’s actions when she executed the estate planning documents. When a trustee commences the proceedings, other participating parties are not automatically entitled to be indemnified from the estate or trust under the modern approach to costs in estate litigation. As the court noted in paragraph 18, ‘Such a principle would create the perception that there is nothing to be lost in pursuing such litigation and put estate and trust assets at unwarranted risk of being depleted’.[13]
The court acknowledged that the litigation became necessary because of Una’s unintended clerical error. Hence, it would be unfair to order to pay the costs of the Trustee and the Litigation Guardian personally. However, even though their legal submissions were of assistance to the court, they should not be indemnified out of the Trust, because their opposition to the application was unfounded and needlessly increased the length and complexity of the proceedings. For that reason it would be unjust to inflict this cost on the other beneficiaries. Consequently, they had to bear their own costs.
—
[1] Canada (Attorney General) v Collins Family Trust, 2022 SCC 26.
[2] https://welpartners.com/blog/2022/07/rescission-not-possible-to-avoid-adverse-tax-consequences/.
[3] 2016 SCC 56, [2016] 2 SCR 720.
[4] 2016 SCC 55, [2016] 2 SCR 670.
[5] 2022 BCSC 859. The court does not refer to the Collins Family Trust case, footnote 1, supra, because its reasons were handed down later.
[6] 2022 BCSC 729, 77 ETR 4th 152.
[7] SBC 2009, c 13 (‘WESA’).
[8] The court cited Quinn Estate v Rydland, 2019 BCCA 91, paras 36-37, and Waslenchuk Estate, 2020 BCSC 1929, paras 83 and 115-116 as authority on this point.
[9] Footnote 3, supra.
[10] [2014] UKSC 2.
[11] Administration of Justice Act 1982, c 53 (UK), s 20
[12] RSBC 1996, c 464. For a similar provision, see Trustee Act, RSO 1990, c T.23, s 23.1.
[13] Citing Hollander v Mooney, 2017 BCCA 238, para 112, which in turn cited McDougald Estate v Gooderham (2005), 255 DLR 4th 435 (ONCA), para 85.
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Written by: Albert Oosterhoff
Posted on: February 2, 2023
Categories: Commentary, WEL Newsletter
1. Introduction
Recently, I posted a blog on a Supreme Court of Canada case,[1] which reviewed the equitable remedies of rescission and rectification and held that the remedy of rescission is not available to undo tax plans in order to avoid adverse tax consequences.[2] In it the Court followed its earlier decisions in Canada (Attorney General) v Fairmont Hotels Inc[3] (‘Fairmont’) and Jean Coutu Group (PJC) Inc v Canada (Attorney General),[4] which held that rectification is unavailable in those circumstances. But recent case law has also made it clear that these equitable remedies are still available in limited circumstances. Royal Trust Corporation of Canada v Horner[5] explores those limited circumstances. And in its additional reasons, Hoyle Estate[6] the court arguably makes a somewhat unexpected costs award.
2. Rectification
2.1 Facts
Una Hoyle had engaged in complex estate planning while her husband was and updated that plan with a new will and various trusts with the aid of Mr White, a lawyer. In 2009, Una engaged another lawyer, Isaac, to review her estate plan, since there were concerns about possible duplicate gifts. In 2010 Ms Isaac had Una sign a number of documents that were supposed to cure the problem of the duplicate gifts. However, also in 2010 Una engaged yet another lawyer, Mr Enns, to work together with Ms Isaac to review that estate plan. Ms Isaac then picked up the original estate planning documents from Mr White and discovered that Una had made a new will and settled the UH Trust in 2008, which meant that the duplicate gifts problem was still an issue. Moreover, the default distribution of her assets under the UH Trust of 2008 differed from Una’s instructions to Ms Isaac and the 2010 planning documents that she had drafted for Una. Ms Isaac concluded that a new document, the UH Trust Deed of Appointment should be executed to resolve these problems. She discussed this with Una and with Mr Enns. Ms Isaac then sent the documents, including a new will, to Mr Enns to have them executed by Una. The package contained an original and a copy of each document. Mr Enns attended to the execution and sent the documents back to Ms Isaac. However, she discovered that the documents did not include a signed copy of the UH Trust Deed of Appointment, although it did include two signed copies of the Spousal Trust Deed of Appointment. Shortly before she discovered this, she and Mr Enns learnt that Una had scored poorly on a capacity test, so they concluded they could no longer act for her.
Una died in 2018. Probate of her will was granted to her executor, Royal Trust, in 2019. Royal Trust concluded that because the UH Trust Deed of Appointment was not signed, the 2008 UH Trust Deed default distribution would have to be followed. However, this would be contrary to Una’s intentions. Therefore Royal Trust brought an application in which it asked the court either to rectify one of the signed copies of the Spousal Trust Deed of appointment and substituting the provisions of the UH Trust Deed of Appointment instead, or alternatively to cure the unsigned UH Trust Deed of Appointment under section 58 of the Wills, Estates and Administration Act.[7] Two of Una’s children opposed the application. The Litigation Guardian filed a response on behalf of minor and unborn issue but took no position on the relief sought by Royal Trust.
2.2 Analysis
The court held first, rightly I believe, that it had no jurisdiction to cure the unsigned UH Trust Deed of Appointment under section 58. That section empowers a court to cure a will or other ‘testamentary disposition document’ if it failed to comply with the statutory formalities for wills. The court rightly held that the UH Trust Deed of Appointment was not a ‘testamentary disposition document’ but an inter vivos document with immediate effect.[8] In any event the Trust Deed would not be subject to the statutory formalities for wills.
However, the court held that it had inherent jurisdiction to grant the equitable doctrine of rectification. It quoted from the decision of Brown J in Fairmont,[9] who said in paragraph 3, ‘…a court may rectify an instrument which inaccurately records a party’s agreement respecting what was to be done…’ However, Justice Brown also said in paragraph 36:
A party seeking rectification faces a difficult task in meeting this standard, because the evidence must satisfy a court that the true substance of its unilateral intention or agreement with another party was not accurately recorded in the instrument to which it nonetheless subscribed. A court will typically require evidence exhibiting a high degree of clarity, persuasiveness and cogency before substituting the terms of a written instrument with those said to form the party’s true, if only orally expressed, intended course of action.
The court concluded that the affidavits of Mr Enns and of Ms Isaac provided the requisite clear, convincing, and cogent evidence of their estate planning with Una as well as an explanation of what happened when the estate planning documents were executed. The court also concluded that Una understood that she would be signing the UH Trust Deed of Appointment, but mistakenly signed a second copy of the Spousal Trust Deed of Appointment instead. Thus, the court granted Royal Trust’s application to rectify one of the two executed copies of the Spousal Trust Deed of Appointment.
The court also found support for its decision in the United Kingdom Supreme Court decision of Marley v Rawlings.[10] It concerned a situation in which a husband and wife mistakenly signed each other’s mirror wills. In that case the court rectified one of the wills. It acted under English legislation that permits rectification of a will.[11] That legislation is similar to s 59 of WESA.
3. Costs
The parties then made submissions on costs. Royal Trust submitted that it should be fully indemnified for its expenses through a special costs award from the UH Trust and that the Litigation Guardian should be similarly indemnified. Royal Trust argued that trustees and litigation guardians are generally indemnified through a special costs award. The UH Trust in fact provided for Royal Trust’s indemnification and s. 95 of the Trustee Act[12] also presumptively entitles it to be indemnified for its expenses. But Royal Trust also argued that the two children who opposed the application were not entitled to be indemnified for their costs because their opposition was unfounded. The Litigation guardian took the same position. However, the two children argued that they were also entitled to special costs from the UH Trust.
The court stated that in modern estate litigation costs normally follow the event unless there are specific exceptions to the modern approach. One exception is that trustees, executors, and other representatives are generally indemnified through a special costs award for all reasonable litigation costs they have incurred in their representative roles. Since Royal Trust acted reasonably in bringing the application to correct the clerical error and the Litigation Guardian acted reasonably in appearing on behalf of minor and unborn and unascertained beneficiaries, they were entitled to be indemnified through a special costs award from the UH Trust.
However, the two children who opposed the application were not entitled to be indemnified, even though this was a case in which the trustees asked the court to address an issue about a trust instrument that arose as a result of Una’s actions when she executed the estate planning documents. When a trustee commences the proceedings, other participating parties are not automatically entitled to be indemnified from the estate or trust under the modern approach to costs in estate litigation. As the court noted in paragraph 18, ‘Such a principle would create the perception that there is nothing to be lost in pursuing such litigation and put estate and trust assets at unwarranted risk of being depleted’.[13]
The court acknowledged that the litigation became necessary because of Una’s unintended clerical error. Hence, it would be unfair to order to pay the costs of the Trustee and the Litigation Guardian personally. However, even though their legal submissions were of assistance to the court, they should not be indemnified out of the Trust, because their opposition to the application was unfounded and needlessly increased the length and complexity of the proceedings. For that reason it would be unjust to inflict this cost on the other beneficiaries. Consequently, they had to bear their own costs.
—
[1] Canada (Attorney General) v Collins Family Trust, 2022 SCC 26.
[2] https://welpartners.com/blog/2022/07/rescission-not-possible-to-avoid-adverse-tax-consequences/.
[3] 2016 SCC 56, [2016] 2 SCR 720.
[4] 2016 SCC 55, [2016] 2 SCR 670.
[5] 2022 BCSC 859. The court does not refer to the Collins Family Trust case, footnote 1, supra, because its reasons were handed down later.
[6] 2022 BCSC 729, 77 ETR 4th 152.
[7] SBC 2009, c 13 (‘WESA’).
[8] The court cited Quinn Estate v Rydland, 2019 BCCA 91, paras 36-37, and Waslenchuk Estate, 2020 BCSC 1929, paras 83 and 115-116 as authority on this point.
[9] Footnote 3, supra.
[10] [2014] UKSC 2.
[11] Administration of Justice Act 1982, c 53 (UK), s 20
[12] RSBC 1996, c 464. For a similar provision, see Trustee Act, RSO 1990, c T.23, s 23.1.
[13] Citing Hollander v Mooney, 2017 BCCA 238, para 112, which in turn cited McDougald Estate v Gooderham (2005), 255 DLR 4th 435 (ONCA), para 85.
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