CITATION: Ker Estate v. Stevenson, 2009 ONCA 345
DATE: 20090430
DOCKET: C48783
COURT OF APPEAL FOR ONTARIO
Laskin, MacPherson and Armstrong JJ.A.
In the Matter of the Estate of Anna Penina Ker, deceased
BETWEEN
David Edward Ker and Gary Livingstone Black, estate trustees of the Estate of Anna Penina Ker, deceased
Applicants (Respondents in Appeal)
and
Lucio DeRose and Harry DeRose, by their litigation guardian the Office of the Children’s Lawyer, Andrea Helen Stevenson and Kirsten Patricia Stevenson
Respondents (Respondents in Appeal)
and
Jesse Stevenson
Respondent (Appellant)
Gavin Magrath and Sarah O’Connor, for the respondent (appellant)
J. Waldo Baerg, for the respondent (respondent in appeal)
Heard: January 5 and 6, 2009
On appeal from the Order of Justice James A. Ramsay of the Superior Court of Justice dated April 10, 2008.
Armstrong J.A.:
I. INTRODUCTION
[1] This appeal raises the issue of whether a judgment creditor may enforce an order for costs by garnishment of a sum of money set aside for the purchase of a non-commutable life annuity for the benefit of the judgment debtor under the terms of a will. The motion judge held that such a sum of money was available for garnishment. One of the beneficiaries of the estate, Jesse Stevenson, appeals the order of the motion judge. He also seeks leave to appeal the order of costs.
II. THE FACTS
[2] Anna Penina Ker (the testatrix) of Niagara-on-the-Lake died on January 15, 2006. Her last will and testament provided that the residue of her estate be divided into ten equal parts. Five equal parts were to be dealt with as follows:
Five (5) of such equal parts shall be used to purchase a non-commutable life annuity from an insurance company payable to my daughter, ANDREA HELEN STEVENSON, all matters in connection with this purchase to be in the discretion of my Trustees. Upon the death of my said daughter, or upon my death if she has predeceased me, the parts, or the balance then remaining shall be used to purchase a non-commutable life annuity from an insurance company payable to my grandson, JESSE STEVENSON, all matters in connection with this purchase to be in the discretion of my Trustees[.]
[3] One equal part was to be paid to the grandson of the testatrix, Jesse Stevenson, for his use absolutely.
[4] One equal part was to be set aside and used as an education fund for the benefit of a grandson of the testatrix, Luke DeRose. Similarly, one equal part was to be set aside and used as an education fund for the benefit of another grandson of the testatrix, Harry DeRose.
[5] Two equal parts were to be paid to the testatrix’s daughter, Kirsten Patricia Stevenson.
[6] Subsequent to the death of the testatrix, Kirsten Stevenson obtained an order of the Superior Court, dated December 13, 2007, in another proceeding involving the estate of her late father that required Andrea Stevenson to pay to Kirsten Stevenson the sum of $145,000 for the costs of that proceeding.
[7] Counsel for Kirsten Stevenson obtained a notice of garnishment dated January 25, 2008, directed to the trustees of the estate of the testatrix, which directed the trustees as follows:
YOU ARE REQUIRED TO PAY to the Sheriff of the City of Toronto,
(a) within ten days after this notice is served on you, all debts now payable by you to the debtor(s) [Andrea Stevenson]; and
(b) within ten days after they become payable, all debts that become payable by you to the debtor(s) [Andrea Stevenson] within six years after this notice is served on you,
subject to the exemptions provided by section 7 of the Wages Act. The total amount of all your payments to the sheriff is not to exceed $145,115.00 less $10 for your costs of making each payment.
[8] At the time of the service of the notice of garnishment on the estate trustees, the purchase of the non-commutable life annuity for Andrea Stevenson provided for in the will had not yet been finalized.
III. THE MOTION FOR DIRECTIONS
[9] By notice of motion dated February 11, 2008, the trustees moved for directions in the Superior Court in respect of the notice of garnishment as follows:
i. whether the capital of Andrea Stevenson’s share of the Estate of Anna Penina Ker can be encroached upon to pay the said Notice of Garnishment;
ii. whether Jesse Stevenson’s rights would be prejudiced should the capital of Andrea Stevenson’s share be encroached upon.
[10] The motion for directions was heard in St. Catharines on April 10, 2008, by Ramsay J. of the Superior Court of Justice. Andrea Stevenson did not appear on the motion for directions. Her son, Jesse Stevenson, was represented by counsel. Kirsten Stevenson was also represented by her own counsel. Counsel for the Children’s Lawyer appeared in the interest of the underage beneficiaries. Counsel for the trustees appeared but did not take a position on the motion.
[11] In a brief oral decision, the motion judge determined that the capital available for the benefit of Andrea Stevenson held by the trustees had vested in Andrea Stevenson on the death of the testatrix and was available to satisfy the requirements of the notice of garnishment. He further held that Jesse Stevenson’s rights would not be prejudiced by the trustees’ giving effect to the notice of garnishment.
[12] The motion judge fixed the costs of the trustees at $1,500 and the costs of Kirsten Stevenson at $3,000 payable by Jesse Stevenson forthwith.
[13] Jesse Stevenson appeals to this court in respect of the order for directions and seeks leave to appeal the costs award. In this court, the only party to appear other than Jesse Stevenson was Kirsten Stevenson. Neither Andrea Stevenson nor counsel for the trustees appeared. No one has appeared for the underage beneficiaries.
IV. GROUNDS OF APPEAL
[14] The appellant raises the following grounds of appeal:
(i) the motion judge erred in holding that the legacy vested in Andrea Stevenson on the death of the testatrix and was therefore subject to garnishment;
(ii) the motion judge erred in failing to respect the wish of the testatrix contrary to the golden rule of estate litigation;
(iii) the motion judge erred in failing to treat Andrea Stevenson’s share as having already been converted into a non-commutable annuity;
(iv) the motion judge erred in failing to distinguish between a beneficiary’s right to demand payment of capital and the rights of third parties, such as judgment creditors, to make the same demand;
(v) the motion judge erred in finding that the encroach-ment on the capital of the share of Andrea Stevenson in favour of the judgment creditor was not prejudicial to the rights of the appellant.
V. ANALYSIS
(i) Did the motion judge err in holding that the legacy vested in Andrea Stevenson on the death of the testatrix and was therefore subject to garnishment?
[15] The motion judge relied upon In Re Robbins, [1907] 2 Ch. 8 (C.A.) in concluding that the legacy had vested in Andrea Stevenson on the death of the testatrix. In the Robbins case, the testator, Henry Robbins, by his will directed his trustees to purchase, out of the residue of his estate, a government annuity for his wife of the annual value of £400 for her life. Mr. Robbins died on October 11, 1905. His wife, Jemima Robbins, died sixteen days later on October 27, 1905. Mr. Robbins’s will was not proved at the time of his wife’s death. His wife had not made any election to take the value of the annuity in cash prior to her death. The question before the court was whether the personal representatives of Mrs. Robbins were entitled to be paid a lump sum in respect of the annuity. The judge at first instance and the Court of Appeal held that the legacy and the right to take its present value in a lump sum vested in Mrs. Robbins at the time of her husband’s death. Cozens-Hardy M.R., writing for the Court of Appeal, said at p. 11:
Now the effect of a direction to apply a definite sum of money in the purchase of a life annuity for the sole benefit of a particular individual has been often discussed, and now admits of no reasonable doubt. It is regarded as a legacy of the definite sum which will be satisfied by the purchase of an annuity, but unless and until the purchase is made it is regarded as a legacy of the definite sum vesting in the intended annuitant on the testator’s death. It makes no difference that the annuity is not directed to be purchased until some future period if the annuitant survives the testator and dies before that period. The legal personal representative of the intended annuitant can claim the definite sum as a legacy.
Robbins was cited with approval by the Ontario High Court of Justice in Re Gildersleeve, [1934] O.W.N. 51, at p. 52.
[16] Counsel for the appellant distinguishes Robbins on the basis that the annuity in that case was not “non-commutable”. Counsel further submits that in more modern times, the courts have taken notice of non-commutable annuities and their utility in structured settlements. That said, I do not find that such a development advances the argument in this case on either side.
[17] Counsel for the appellant cited Morayniss v. McArthur (1980), 30 O.R. (2d) 226 (H.C.J.) in support of this ground of appeal. In that case, Mr. Morayniss, a solicitor, obtained a default judgment against his client, Mr. McArthur, for his fees and sought a charging order against Mr. McArthur’s share of his father’s estate. Morayniss obtained an order nisi under the Judicature Act, R.S.O. 1970, c. 228. The executor of the estate brought an application to prevent the order from being made absolute.
[18] In Morayniss, the will provided that the trustees of the estate were obliged to pay a life annuity to Mr. McArthur upon his reaching the age of 40 years. The judge hearing the application declined to exercise his discretion to make the charging order on the basis that Morayniss’s accounts should be assessed by a taxing officer and, in any event, that a charging order would not be available because Mr. McArthur had not yet reached the age of 40. The application judge concluded at p. 234:
In other words, I feel very strongly that in this particular case a charging order which would be of limited effect only, should be deferred until the judgment debtor becomes 40 and I therefore indicate that the trustee has shown cause why the order nisi should not be made absolute.
[19] Morayniss may be at odds with the reasoning in Robbins. If it is, this court is not bound by it. However, Morayniss is distinguishable from this case in that the charging order sought by the solicitor is given at the discretion of the application judge. The garnishment, on the other hand, is available to a judgment creditor as of right, once the garnishment order is obtained, pursuant to rule 60.08(1) of the Rules of Civil Procedure:
A creditor under an order for the payment or recovery of money may enforce it by garnishment of debts payable to the debtor by other persons.
[20] Also, Morayniss must be read in the context of what was apparently an ongoing solicitor/client relationship and that the debt in issue arose as a result of the solicitor obtaining a default judgment against his own client whom the application judge found to be unwell at the time.
[21] The respondent relies upon Robbins but also relies upon a judgment of the British Columbia Supreme Court, Lotzkar v. McLean (1979), 15 B.C.L.R. 259. In that case, the testator’s will provided that the residue of his estate was to be divided into two equal parts for his two children. He directed his trustees to use each of the two parts for the purchase of two life annuities – one for each of the children. The will further provided:
(v) … I give my Trustees absolute discretion to purchase such annuities from the Government of Canada or any life assurance company as they may deem advisable and I DECLARE that each of my said children JOSEPH LOTZKAR and LOUISE KETTLEMAN, shall not be allowed to have the value of such said life annuity in lieu thereof. …
(vii) IN THE FURTHER EVENT that any of my said children shall be living at my death and thereafter die before all the benefits from such Annuity so purchased for him or her have been paid to him or her as the case may be, I DIRECT my Trustees TO PAY AND TRANSFER OVER such remaining benefit to the issue of such child of mine upon such issue thereof attaining the age of twenty-one (21) years (and if more than one equally between them).
[22] The children, who were two of the three trustees, moved for directions requesting that each of them be paid a lump sum in lieu of the life annuities. The main issue addressed by the chambers judge was “whether or not [the two children] each have absolute beneficial interests and, if so, are the trustees bound to pay lump sums to each of them in lieu of the annuities if they so request”: Lotzkar at p. 261.
[23] The chambers judge held that the two children were entitled to lump sum payments in lieu of the life annuities. He said at p. 262:
Most of the relevant law is concisely expressed in the following short extract from Jarman on Wills, 7th ed. (1930), vol. 2, p. 1109:
(vii) Sum given to buy Annuity. – Where there is a bequest of a sum of money to buy an annuity, the annuitant is entitled to have the money, because the annuity might at once be sold, and it would be idle to compel the annuitant to have an annuity which he could resell; this is the case even where the testator shows clearly that he means the annuity to be held by trustees as a personal provision for the annuitant, or even where he expressly declares that the annuitant shall not be allowed to accept the value of the annuity in lieu thereof, or that it shall cease on alienation, unless such a condition is made effective by a gift over. [Underlining added.]
The chambers judge also observed that if the purchase of the annuity had been restricted to a Government of Canada annuity, the children would not have been entitled to call for a lump sum because the Government Annuities Act, R.S.C. 1970, c. G-6, s. 10(1), makes the property in an annuity or the benefits arising therefrom inalienable. The chambers judge further observed that, in any event, a Government of Canada annuity was not available in this case because the amounts involved were larger than the amounts permitted to be paid under the Government Annuities Act. In the case at bar, the trustees’ discretion was absolute and permitted them to purchase the annuity from a life assurance company.
[24] Further support for the motion judge’s conclusion can be found in the scholarly literature. In John G. Ross Martyn, Stuart Bridge & Mika Didham, Theobald on Wills, 16th ed. (London: Sweet & Maxwell, 2001), at para. 40-05, the learned author states:
The annuitant is entitled to the fund though there may be a direction that he is not to be allowed to accept the value of the annuity; or though the trustees are empowered to apply the annuity for the benefit of the annuitant if incapacitated. [Footnotes omitted.]
Also, C. H. Sherrin et al, Williams on Wills, 8th ed. (London: Butterworths, 2002), states:
In these cases the annuitant has a right to claim in cash the price to be paid for the annuity, and, if he dies before the purchase, his representatives have a similar right, even when his death occurs immediately after that of the testator. [Footnotes omitted.]
[25] I accept Robbins as governing the situation presented in this case and I would not give effect to this ground of appeal.
(ii) Did the motion judge err in failing to respect the wish of the testatrix contrary to the Golden Rule of estate litigation?
[26] Counsel for Kirsten Stevenson conceded that if the trustees paid out the funds pursuant to the notice of garnishment, it would have the effect of frustrating the intent of the testatrix. That said, the law as articulated by the English Court of Appeal in Robbins to the effect that the legacy of Andrea Stevenson vested on the death of her mother leads to that result.
(iii) Did the motion judge err in failing to treat Andrea Stevenson’s share as having already been converted into a non-commutable annuity?
[27] There is no basis for concluding that the legacy of Andrea Stevenson had been converted into a non-commutable annuity. The evidence is to the contrary. An application form for the annuity had been received by the solicitors for the estate from an insurance broker on January 23, 2008, but had not been completed when the solicitors received the notice of garnishment on January 25, 2008.
(iv) Did the motion judge err in failing to distinguish between a beneficiary’s right to demand payment of capital and the rights of third parties, such as judgment creditors, to make the same demand?
[28] Counsel for the appellant argues that while a beneficiary may be able to call for a payment of a lump sum in lieu of the purchase of an annuity, a third party judgment creditor has no such right. In the view that I take of the applicable law, there is no basis to conclude that the trial judge erred in failing to make that distinction. According to the applicable law, the sum of money available for the purchase of the annuity vested in Andrea Stevenson and was therefore subject to garnishment.
(v) Did the motion judge err in finding that the encroachment on the capital of the share of Andrea Stevenson in favour of the judgment creditor was not prejudicial to the rights of the appellant?
[29] The appellant submits that the enforcement of the garnishment order would consume virtually all of his mother’s share of the estate capital and there would be little, if any, funds left to benefit him after her death. He argues that he is akin to a remain-derman and that the motion judge erred in failing to consider the prejudicial effect on his interest in the estate. In my view, the provision in the will benefiting the appellant on the death of his mother is conditional on there being funds remaining in respect of the legacy to his mother. There is nothing in the will that requires the trustees to preserve any funds for the benefit of the appellant after his mother’s death. I can find no error in the finding of the trial judge on this issue.
[30] For the above reasons, I would dismiss the appeal.
VI. LEAVE TO APPEAL COSTS BEFORE THE MOTION JUDGE
[31] The motion judge ordered costs of $1,500 to the trustees and $3,000 to Kirsten Stevenson to be paid by the appellant.
[32] The appellant submits that the original motion for directions was brought in respect of the intention of the testatrix to benefit her daughter Andrea Stevenson by the provision of a non-commutable life annuity. The appellant submits that his role was to uphold the intention of the testatrix as expressed in the will. Therefore, the costs should be paid by the estate. In my view, this is a mischaracterization of the issue before the court. The intention of the testatrix was clear and was not in issue.
[33] The appellant further submits, in the alternative, that the litigation arose because the respondent, Kirsten Stevenson, sought to enforce an unrelated debt against Andrea Stevenson’s share in the estate. The motion was brought by the trustees in response to the notice of garnishment for the benefit of the beneficiaries of the estate.
[34] Finally, the appellant submits that the quantum of the costs awarded is exorbitant.
[35] The respondent submits that the traditional rule in estate litigation that the estate bears the costs of all parties is no longer applicable since this court’s judgment in McDougald Estate v. Gooderham (2005), 255 D.L.R. (4th) 425. In McDougald, Gillese J.A., writing for the court, said at paras. 79 and 80:
Traditionally, Canadian courts of first instance have followed the approach of the English courts. While the principle was that costs of all parties were ordered payable out of the estate if the dispute arose from an ambiguity or omission in the testator’s will or other conduct of the testator, or there were reasonable grounds upon which to question the will’s validity, such cost awards became virtually automatic.
However, the traditional approach has been – in my view, correctly – displaced. The modern approach to fixing costs in estate litigation is to carefully scrutinize the litigation and, unless the court finds that one or more of the public policy considerations set out above applies, to follow the costs rules that apply in civil litigation. Four cases usefully illustrate this modern approach.
[36] While this case could be characterized as primarily a dispute between two of the beneficiaries, there was a dearth of legal authority on the specific issue to be determined. In my view, the trustees adopted a reasonable course in seeking the decision of the court, given the lack of judicial authority in Ontario. The issue, while of significant importance to beneficiaries, appears to have broader implications in respect of the rights of judgment creditors to proceed by way of garnishment in the circumstances presented here.
[37] The motion judge gave no reasons why he ordered the appellant to pay the costs of both the trustees and the appellant. In fairness, he was not provided with comprehensive submissions on the issue. Nevertheless, counsel for the appellant made the following submission:
I think the costs should come out of the estate and particularly, Your Honour, I think that these are, these were important points that trustees needed direction on, and that the litigants should not be punished for bringing this motion for directions and making submissions to the court.
In my view, the motion judge erred in failing to appreciate the need for the trustees to bring the application before him and the broader issue that was involved.
[38] I would give leave to appeal the order for costs and allow the appeal by setting aside the motion judge’s order and replacing it with an order that the costs of the trustees in the amount of $1,500 and of the respondent Kirsten Stevenson, in the amount of $3,000, should be paid by the estate. I do not agree that the quantum of costs is exorbitant.
VII. COSTS OF THE APPEAL
[39] Counsel for the respondent, Kirsten Stevenson, in effect, seeks costs on a substantial indemnity basis. In my view, this case should not attract substantial indemnity costs. Success has been divided in this court. However, most of the time was spent on the merits. I would award costs to the respondent, Kirsten Stevenson, on a partial indemnity scale fixed in the amount of $3,500, inclusive of disbursements and GST, payable by the appellant.
RELEASED:
“APR 30 2009” “Robert P. Armstrong J.A.”
“JL” “I agree John Laskin J.A.”
“I agree J.C. MacPherson J.A.”