Rivard v. Morris
[Indexed as: Rivard v. Morris]
Ontario Reports
Court of Appeal for Ontario
Rouleau, Trotter and Paciocco JJ.A.
February 26, 2018
141 O.R. (3d) 36 | 2018 ONCA 181
Case Summary
Wills and estates — Estate administration — Interest — Respondents claiming entitlement to interest on legacies payable to them under father's will — Application judge erring in exercising his discretion to deny interest under rule of convenience on basis that respondents were estate trustees during much of administration period and delay was caused by their unsuccessful challenge to will — Any discretion to deny interest to legatee under rule of convenience applying only in clearest of cases — Respondents entitled to simple interest at rate of 5 per cent per annum from first anniversary of father's death.
Shortly before his death, the testator executed a new will in which he left legacies of money to his two daughters, the respondents, and made his son, the applicant, the residuary beneficiary. The respondents challenged the will on the basis of undue influence. They were unsuccessful. They then claimed entitlement to interest on the legacies from the first anniversary of the testator's death under the rule of convenience. The application judge exercised a discretion to deny payment of interest on the grounds that the respondents were estate trustees during much of the administration period and that the delay in paying the legacies was caused by their challenge to the will. The respondents appealed.
Held, the appeal should be allowed.
The application judge correctly found that rule 65.02 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 did not apply. Rule 65.02 has not subsumed the common law rule of convenience. It applies where courts administer an estate, while the rule of convenience applies where personal representatives administer the estate.
The rule of convenience, which provides for the payment of interest on legacies in a will if payment has been delayed for more than a year from the testator's death, is blunt and simple. Under the rule of convenience, interest is payable even if payment within the executor's year is impractical or impossible, and even where payment within the first year was never expected. Assuming without deciding that there is a discretion available to deny interest to legatees, it must apply only in the clearest of cases. The application judge erred in denying the respondents interest in this case. He erred in principle by linking the respondents' entitlement to interest to the reasonableness of the expectation that the estate could be distributed within a year; in giving undue weight to the role that an appropriately conducted, non-frivolous will challenge played in the delay; in considering the payment of interest to be a reward or penalty; and in relying on the respondents' irrelevant status as estate trustees.
The prejudgment interest provisions in the Courts of Justice Act, R.S.O. 1990, c. C.43 did not apply. Those provisions did not operate to replace the rule of convenience. The rate of interest to be applied in this case was the 5 per cent simple interest rate that the rule of convenience currently carries at common law. The respondents were entitled to simple interest at the rate of 5 per cent per annum from the first anniversary date of the testator's death.
Authorities Considered
Neuberger Estate v. York (2016), 129 O.R. (3d) 721, 2016 ONCA 191; Pizzey v. Crestwood Lake Ltd. (2004), 69 O.R. (3d) 306, considered.
Prong Estate (Re), 2011 ONSC 632, 65 E.T.R. (3d) 48, distinguished.
Other Cases Referred to
Barr (Re); Barton Estate (Re); Baty Estate (Re); British Columbia (Minister of Forests) v. Okanagan Indian Band, 2003 SCC 71; Carter (Re); Charles Osenton & Co. v. Johnston; Cornish Estate (Re), 2016 PESC 14; Cormack v. Indergaard, 2016 ABQB 544; Elwin v. Elwin; Foster v. Wyles; Friends of the Oldman River Society v. Canada (Minister of Transport); GEA Group AG v. Ventra Group Co., 2009 ONCA 619; Housen v. Nikolaisen, 2002 SCC 33; Hutcheon v. Mannington; In re Hoey (deceased), Gordon v. Russell and Others; Kinbauri Gold Corp. v. Iamgold International African Mining Gold Corp.; Kirkland (Re); Lightfoot (Re); Lynch's Estate (Re); MacIntyre Estate (Re); Maxwell v. Wettenhall; McDougald Estate v. Gooderham; Merritt Estate (Re); Nathanson (Re); Pearson v. Pearson; Planta v. Greenshields; Re Allen, Lewis v. Vincent; Re Beech, Saint v. Beech; Re Parry, Brown v. Parry; Sharp (Re); Sitwell v. Bernard; Spofford Estate (Re); St. Cyr v. Leitch; Thompson Estate (Re); Toomey v. Tracey; Toronto Standard Condominium Corp. No. 1908 v. Stefco Plumbing & Mechanical Contracting Inc.; Varley v. Winn; Walford v. Walford; Wood v. Penoyre.
Statutes Referred to
Administration Act 1969, 1969/52 (N.Z.), s. 39
Courts of Justice Act, R.S.O. 1990, c. C.43, s. 128
Interest Act, R.S.C. 1985, c. I-15, s. 3
Rules and Regulations Referred to
Civil Procedure Rules 1998, SI 1998/3132 (U.K.)
Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rules 14, 53, 65.01, 65.02(2), 75
Authorities Referred to
MacKenzie, James, Feeney's Canadian Law of Wills, looseleaf (2016-Rel. 64-9), 4th ed. (Toronto: LexisNexis, 2000)
Martyn, John Ross, and Nicholas Caddick, Williams, Mortimer and Sunnucks: Executors, Administrators and Probate, 20th ed. (London: Sweet & Maxwell, 2013)
Rocchi, Rosanne T., and Michael W. Kerr, "Legacies: A Matter of some Interest" (1997), 16 E. & T.J. 305
Thériault, Carmen S., Widdifield on Executors and Trustees, looseleaf (2016-Rel. 11), 6th ed. (Toronto: Carswell, 2002)
Procedural History
APPEAL from the order of S.K. Campbell J. of the Superior Court of Justice dated February 15, 2017 denying a claim for interest.
Counsel:
Evert Van Woudenberg, for appellants.
Myron W. Shulgan, for respondent.
The judgment of the court was delivered by
PACIOCCO J.A.:
Overview
[1] Alexander Rivard was survived by a son and two daughters. Sadly, since his death, the siblings have been fighting amongst themselves over his estate. First, the sisters unsuccessfully challenged their father's will that left most of his property to their brother. Now, the siblings are litigating about whether the brother, as estate trustee, should be paying the sisters interest on the money they were left under that will. If the sisters are entitled to interest payments, the money for the interest comes out of the brother's share of the estate, since he is the residuary beneficiary.
[2] The interest dispute came before an application judge. He recognized that there is a rule providing for the payment of interest on legacies in a will if those legacies are payable but payment has been delayed for more than a year. Yet the application judge decided not to apply that rule. He claimed, and exercised, a discretion not to do so on the basis that the sisters had been estate trustees during the administration of the estate, and the delay in payment was caused by their challenge to the will. The sisters have appealed that decision.
[3] I would allow the appeal. The common law rule providing for the payment of interest is often called the "rule of convenience". In my view, we need not decide whether there is judicial discretion to deny the payment of interest provided for under the "rule of convenience". Even if such discretion exists, the application judge did not exercise that discretion according to proper principles. In my view, interest is payable. I would grant the specific relief requested by the sisters and order the payment of $53,000 in interest on each of their legacies.
The Facts
[4] Alexander Rivard acquired appreciable farm property during his life. Shortly before his death, on October 24, 2013, it appeared that he was going to divide the farm property equally between his three children. During his life, he had already given his son, Steven Duane Rivard (the "brother"), a significant tract of farmland. In a will Alexander Rivard executed on August 1, 2013, he instructed that similar size farm properties be given to each of his two daughters, Janine Morris and Julianne Rivard (the "sisters"). That will provided that the balance of his estate was to be divided equally between the three children.
[5] Then things changed. On August 24, 2013, Alexander Rivard executed another, different will. In this, the last will he was to execute before he died, Alexander Rivard did not leave the sisters farm property. Instead, they were to receive legacies of money, $530,000 each. The brother would take the residuary of the estate, or what was left, which in this case consisted of significant farmland. As under the first will, Alexander Rivard appointed all three of his children as estate trustees.
[6] The sisters were disappointed. Suspicious of the second will, they decided to challenge it, alleging undue influence.
[7] Of course, this challenge held up the division of the estate. It was not until August 8, 2016 that the dispute was settled with a finding that the second will was valid. On consent, on October 18, 2016, the lands held in the estate were ordered to be conveyed to the brother on the condition he paid the money provided for in the will to the sisters. This finally occurred on October 24, 2016.
[8] Unfortunately, another dispute arose. The sisters claimed that they were entitled to interest, in addition to the face amount of their legacies. They claimed interest at 5 per cent per year, payable out of the brother's residuary estate, commencing one year after their father's death. The brother balked. He agreed to retain $63,600 until this dispute could be settled. The issue was referred to the application judge. The application judge confirmed the resignation of the sisters as estate trustees, and granted the parties leave to make submissions on the sisters' entitlement to interest on their legacies.
[9] On February 15, 2017, based on written submissions, the application judge sided with the brother, holding that no interest should be paid. The sisters would get the face amount of their legacies, and no more.
[10] The application judge reasoned that rule 65.02(2) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, a provision that, on its face, directs interest to be paid, did not apply.
[11] As I interpret his decision, the application judge then went on to recognize that a similar common law rule governing the payment of interest on legacies did apply. The application judge did not name this common law rule, but in my view he was referring to the "rule of convenience" that developed at equity, and that the sisters had cited. This rule provides for the payment of interest out of the residuary estate on specific and general legacies that are payable, but are delayed for more than a year after the death of the testator.
[12] After recognizing this common law rule, the application judge then claimed, and exercised, discretion not to award interest payments to the sisters. He relied primarily upon two considerations to deny interest: the sisters had been estate trustees during much of the administration period, and the sisters' challenge to the will delayed the administration and distribution of the estate.
[13] The application judge made clear that he was not assigning blame to the sisters for challenging the will. He recognized their right to do so. Given the challenge, however, the application judge concluded that it was not reasonable to presume that the sisters should have had their property in hand within a year of their father's death. He held, in the circumstances, that neither the sisters nor the brother should be rewarded or penalized by the passage of time. He denied interest and made no order as to costs.
[14] The sisters have accepted the decision upholding the second will. In these proceedings, they do, however, appeal the decision denying them interest on their legacies.
The Issues
[15] The sisters have launched several attacks on the application judge's decision, but ultimately three general issues arise.
[16] First, did the application judge err in holding that rule 65.02 does not apply?
[17] Second, did the application judge err in exercising discretion to deny interest on the sisters' specific legacies?
[18] Finally, if interest should have been paid, what rate of interest should have been applied?
[19] The standard of review is clear. If rule 65.02 does apply, the application judge will have committed an error of law, reviewable on a correctness standard. Similarly, if the application judge claimed a discretion to deny the payment of interest that the law does not provide for, he will have erred in law, again reviewable for correctness: Housen v. Nikolaisen, 2002 SCC 33, at para. 8.
[20] If, however, the law grants discretion to withhold interest payments to the sisters, the exercise of that discretion is entitled to a high degree of deference. An appellate court will not interfere with the exercise of a discretion to decide what is fair and equitable unless the judge "applied the wrong legal standard or based his or her conclusions on irrelevant factors, or on factors to which he or she attached inappropriate weight": Toronto Standard Condominium Corp. No. 1908 v. Stefco Plumbing & Mechanical Contracting Inc., 2014 ONCA 696, at para. 32; and Friends of the Oldman River Society v. Canada (Minister of Transport), at pp. 76-77 S.C.R., quoting Charles Osenton & Co. v. Johnston.
[21] The authority of courts to interfere with discretionary decisions where "the wrong legal standard" has been applied warrants elaboration. As the Supreme Court has explained, "the criteria for the exercise of a judicial discretion are legal criteria, and their definition as well as a failure to apply them or a misapplication of them raise questions of law which are subject to appellate review": British Columbia (Minister of Forests) v. Okanagan Indian Band, 2003 SCC 71, at para. 43. See, also, GEA Group AG v. Ventra Group Co., 2009 ONCA 619, at paras. 58-59.
Analysis
A. Should rule 65.02(2) have been applied?
[22] Centuries ago, Ecclesiastical courts in England developed a practice of giving personal representatives one year after the death of the deceased to wind up the estate. To this day, it is still presumed, including in Ontario, that estates will be wrapped up within the "executor's year": Carmen S. Thériault, Widdifield on Executors and Trustees, looseleaf (2016-Rel. 11), 6th ed. (Toronto: Carswell, 2002), at pp. 5-6.3 to 5-6.4. This involves calling in the assets of the deceased, paying off the estate debts and converting the remaining assets to enable bequests and legacies to be distributed according to the will, and then doing so.
[23] For more than two centuries, the law of equity has recognized a related rule, often referred to as the "rule of convenience". According to this related rule, described in more detail below, "where no special time is fixed for the payment of a legacy, it carries interest . . . from the expiration of a year from the testator's death": Widdifield, at p. 5-6.3. See, also, James MacKenzie, Feeney's Canadian Law of Wills, looseleaf (2016-Rel. 64-9), 4th ed. (Toronto: LexisNexis, 2000), at p. 8.22. This rule was thoroughly reviewed in the 1997 article by Rosanne T. Rocchi and Michael W. Kerr, "Legacies: A Matter of some Interest" (1997), 16 E. & T.J. 305 ("Rocchi and Kerr").
[24] The "rule of convenience" can be easily explained, in my view. One of the maxims of equity is that it presumes as being done that which ought to be done. Since the beneficiaries should be enjoying the earning power of their legacies by at least the anniversary date of the testator's death, where that enjoyment is postponed and the testator has not provided an alternative date for payment of the legacy, interest is to be paid: Hutcheon v. Mannington (1791), 1 Ves. Jr. 366, 30 E.R. 338 (Ch.), at p. 367 Ves. Jr.; and Elwin v. Elwin (1803), 8 Ves. Jr. 547, 37 E.R. 467 (Ch.), at p. 557 Ves. Jr. This does not mean that the interest is itself a legacy: Foster v. Wyles, [1938] 1 Ch. 313, at p. 316. It does mean that equity takes steps to put the legatee in the position they would have been in had the legacy been distributed as the testator, not having set a different date for distribution, is presumed to have intended.
[25] This general rule has been adopted in Ontario: see Barton Estate (Re), affd ; and McDougald Estate v. Gooderham.
[26] Rule 65.02(2) is a legislated provision to the same effect. It directs that interest is to be paid on legacies from the end of one year after the death of the deceased, unless the will directs another time for payment. Some say that rule 65.02(2) has "codified" the "rule of convenience": see, e.g., Rocchi and Kerr, at p. 309. If the point is that rule 65.02(2) is a legislated provision that adopts the "rule of convenience", I agree. If the point is that rule 65.02(2) has subsumed the common law rule, I do not agree. In my view, rule 65.02(2) applies where courts administer an estate, while the "rule of convenience" itself applies where personal representatives administer the estate.
[27] This limited sphere of operation for rule 65.02(2) can readily be seen when it is situated within rules 65.01 and 65.02. Those rules provide as follows:
WHERE AVAILABLE
65.01(1) A proceeding for the administration of the estate of a deceased person or for the execution of a trust may be commenced by notice of application,
(a) by a person claiming to be a creditor of the estate of the deceased person;
(b) by a person claiming to be a beneficiary under the will or on the intestacy of the deceased person or under the instrument of trust; or
(c) by an executor or administrator of the estate of the deceased person or a trustee.
(2) A judgment for administration of an estate (Form 65A) or for execution of a trust shall be granted only if the judge is satisfied that the questions between the parties cannot otherwise be properly determined.
(3) Where no accounts or insufficient accounts have been rendered, the judge may, instead of granting judgment for administration of the estate or for execution of the trust, order that the executors, administrators or trustees render to the applicant a proper statement of their accounts and may stay the application in the meantime.
WHERE A REFERENCE IS DIRECTED
65.02(1) A judgment for administration of an estate or for execution of a trust shall direct a reference, and the referee has power to deal with the property of the estate or trust, including power to give all necessary directions for its realization, and shall finally wind up all matters connected with the estate or trust without any further directions, except where the special circumstances of the case require interim reports or interlocutory orders.
(2) Interest on accounts taken in administration proceedings shall be computed on the debts of the deceased from the date of the judgment and on legacies from the end of one year after the death of the deceased, unless the will directs another time for payment.
(3) All money realized from the estate or trust shall forthwith be paid into court, and no money shall be distributed or paid out except by order of a judge or, on a reference, by order of the referee.
[28] It is evident from a plain, contextual reading of rule 65.02(2) that, on its own terms, it does not apply to all estate administrations. It provides for "[i]nterest on accounts taken in administration proceedings" (emphasis added), a term that, in context, describes applications governed by rules 65.01 and 65.02, and where a referee has been appointed to wind up the estate.
[29] In this case, there was no notice of application for a proceeding for the administration of an estate, no judgment given for the administration of an estate, and no reference.
[30] This litigation began as an application challenging a will. As is appropriate in contentious estate proceedings, such applications are brought under Rule 75: Neuberger Estate v. York, 2016 ONCA 191, at para. 1. They are not brought under rule 65.01, and do not ordinarily entail requests to have the court administer the estate.
[31] The specific application that led to the impugned interest entitlement ruling in this case was initiated by an originating notice of motion by the brother, seeking the removal of the sisters as estate trustees, and the distribution of the property. As the application judge recognised, the application was brought under rules 14 and 75, not under rule 65.01.
[32] I do not agree with counsel for the sisters that since rule 65.02(2) replicates the former Rule 435 it should be understood as applying to all applications to direct estate trustees to convey property. The current matter is governed by the proper construction of rule 65.02(2), not by former rules.
[33] In any event, in my view the former Rule 435 was never a comprehensive mechanism for governing the payment of interest on legacies. It, too, was found within a series of provisions that applied where estate administration was handed over to courts. The only decision that appears to treat the former Rule 435 as governing the payment of interests on legacies generally is Spofford Estate (Re). Other Ontario decisions on this issue rely on the common law rule.
[34] This is not to say that the legislated rule cannot influence the application of the common law rule, a point I will return to below.
[35] The application judge was therefore correct in finding that rule 65.02(2) does not apply. This does not, however, end the matter. As indicated, the parallel common law "rule of convenience" governs.
B. Was it an error to exercise discretion to deny interest?
(1) The rule used by the application judge
[36] The application judge did not state directly that the common law "rule of convenience" governed the payment of interest, but I believe that is what he concluded before exercising discretion not to order interest. His recognition of the rule is evident, in my view, when the ruling is read in light of the submissions made.
[37] As recognized in the brother's factum on appeal, during the application the sisters relied upon rule 65.05(2) and a "practice known as the rule of convenience" (emphasis in original). In opposition, the brother maintained that the interest provisions of the Courts of Justice Act, R.S.O. 1990, c. C.43 would govern the payment of interest by the estate.
[38] The application judge clearly did not rely on the Courts of Justice Act, for he did not cite it again after describing the brother's position. Instead, the application judge rehearsed, without naming, the "rule of convenience". He then explained why he would not be applying it:
When an estate is not a simple estate, the expectation that the administration will be concluded within the executor year may be unreasonable: see Prong Estate, Re, [sic] 2011 ONSC 632, 64 E.T.R. (3d) 48. In this matter the challenge of the Will delayed the administration and distribution of the estate for more than three years.
The application undertaken by the respondents was within their rights. However, I conclude that neither party should either be rewarded or penalized by the passage of time.
It is also worthy of repeating that the respondents became the estate trustees along with the applicant on August 19, 2014. They remained estate trustees until my order, initially together with the applicant and then on their own.
[39] In effect, the application judge recognized the "rule of convenience", but exercised discretion not to apply it.
(2) Did the rule of convenience apply?
[40] Although the "rule of convenience" has been articulated in modestly different ways in the case law, and there is disagreement on some points, "the principle . . . is too well settled to admit of doubt": Lightfoot (Re), at p. 420 D.L.R. Pursuant to this general rule, subject to terms in the will to the contrary, if a specific legacy of personal property, or a mixed fund of land and personal property, is payable under a will but is not paid to the beneficiary by the anniversary date of the death of the testator, the beneficiary will begin to earn interest on the value of the property from that date until they have received that property: Thompson Estate (Re); Baty Estate (Re); and Lynch's Estate (Re). As I explain below, in my view the rule goes farther and currently provides for simple interest at the rate of 5 per cent per annum.
[41] The "rule of convenience" is sometimes explained as allowing for the payment of damages or compensation for default or delay in payment beyond the executor's year. This was the view of the Ontario High Court's Smily J.: Barr (Re); and Merritt Estate (Re), at para. 2.
[42] In my opinion, it is neither accurate nor helpful to think of the "rule of convenience" as providing for the payment of damages or compensation for delayed payment. Explaining the rule in this way implies that interest is owed because something wrongful has occurred that has delayed payment. Yet that is not how the rule works. Under the "rule of convenience", interest is payable even if payment within the executor's year is impractical or impossible, and whether or not the legacy has vested: Wood v. Penoyre (1807), 13 Ves. Jr. 325, 33 E.R. 316 (Ch.); Toomey v. Tracey (1883), 4 O.R. 708; and Widdifield, at p. 5-6.3. Interest is payable even where payment within the first year was never expected: Walford v. Walford, [1912] A.C. 658 (H.L.); Spofford Estate; and Carter (Re). Indeed, interest is payable under the "rule of convenience", "whether the assets have been productive or not", and even where the property is incapable of earning income during the period when interest is accumulating: Pearson v. Pearson (1802), 1 Sch. & Lef. 10 (Ch. Ir.), at p. 12; Sitwell v. Bernard (1801), 6 Ves. Jr. 520, 31 E.R. 1174 (Ch.); and In re Hoey (deceased), Gordon v. Russell and Others, [1944] NZLR 900 (S.C.), at p. 905.
[43] The rule has also been explained as based on the unfairness in not paying interest and thereby giving the residual beneficiary the benefit of money earned by the property designated in the legacies: Re Allen, Lewis v. Vincent (August 6, 2007), Auckland, 2006-404-2312 (N.Z.H.C.), at para. 31. It is true that if this were to occur it would be unfair: Foster, at pp. 315-16 Ch. In my view, however, this potential unfairness cannot account for the "rule of convenience" since, as indicated, the "rule of convenience" applies even if the estate has not earned income or cannot earn income.
[44] As I have explained, in my view, the most historically accurate and least misleading rationale for the "rule of convenience" is that it is a mechanism for promoting the full enjoyment of specific legacies. By imposing interest payment obligations at the end of the executor's year, specific legatees can more fully enjoy the benefits of the gifts that were intended where distribution has been delayed beyond the executor's year.
[45] It is obvious from the little I have said that the "rule of convenience" is blunt. By design, it is intended to "exact rough justice" and achieve convenience, even though "in particular cases both convenience and justice may be disappointed": Sitwell, at p. 540 Ves. Jr.; and Rocchi and Kerr, at p. 316. It is called a "rule of convenience" because it is a simple, predictable way of achieving the generally fair outcome of providing for the payment of interest on specific legacies.
[46] The value in having a simple, predictable rule is evident when it is appreciated that the "rule of convenience" is not a litigation rule. It is a rule that is meant to be applied by personal representatives even where courts are not called upon to order interest payments. Its rigidity and simplicity are intended to ease the administration of estates by saving personal representatives from having to predict what an estate could have earned, and courts from "endless and immeasurable" inquiries into the performance of the estate, should a more complex rule operate: Sitwell, at p. 540 Ves. Jr.
[47] It is also necessary to consider estate law's priorities, if this rule is to be fully understood. The most prevalent consideration in the law of estates is giving effect to the testator's intention. If the testator does not consider the rule of convenience to be fair, the testator is free to oust the rule by postponing or eliminating the right to interest, or by providing for a different rate of interest, since the will is paramount: Maxwell v. Wettenhall (1722), 2 P. Wms. 26, 24 E.R. 628 (Ch.).
[48] In my view, the "rule of convenience" applies in the instant case. The appellant sisters were provided with legacies of personal property, namely, money in the amount of $530,000 each. These legacies were payable in the relevant sense; there were no conditions delaying payment or contingencies assigned by the testator. Since the testator had not provided for any other time of payment, it was presumed that the testator wanted the legacies to be distributed within a year. Yet payment was delayed beyond the executor's year.
[49] None of the fixed exceptions to the "rule of convenience" operate. Indeed, most of those fixed exceptions operate to accelerate the entitlement to interest, such as where life estates are granted, the gift is of land, or where it is a legacy to an infant beneficiary or to pay creditors: see Widdifield, at pp. 5-6.5 to 5-8, 5-10 to 5-12. In those cases, interest is payable from the date of the testator's death.
[50] Counsel for the brother argues that the rule does not apply because the general power of postponement in the will, authorizing the executors to delay payment of the sisters' legacies, demonstrates the testator's intention not to have the "rule of convenience" apply. I agree that if a discretion to postpone is clear enough to show that the testator does not want legacies to be paid within the executor's year, as in Planta v. Greenshields, the testator's intention will override the "rule of convenience". However, general powers of postponement are not specific enough to achieve this. This is because a general authority to postpone payment does not signal an intention by the testator that interest is not to be paid, as there is nothing inconsistent between a power to delay distribution and an obligation to pay interest pending distribution. As Rocchi and Kerr point out, at p. 345, the weight of authority supports this position. In my view, LeBel J. was correct in Lightfoot (Re), supra, at p. 422 D.L.R., that where a will does not fix a date for payment, personal representatives who exercise a power to postpone do so subject to the will. As was recognized in Varley v. Winn (1856), 2 K & J. 700, 60 E.R. 963 (Ch.), at p. 708 K. & J., a discretion relating to the date of payment is intended to convenience the estate, not benefit the residuary legatees.
(3) Did the application judge err in exercising discretion not to apply the rule of convenience?
[51] No authority was produced before this court supporting the discretion of judges to deny interest where the "rule of convenience" applies. The brother relies upon Prong Estate (Re), 2011 ONSC 632, in support of the proposition that the "rule of convenience" should not apply where circumstances make the executor's year unreasonable. This case did not involve the "rule of convenience". It was about whether the appointment of the estate trustees should be revoked.
[52] There are similar cases considering the reasonableness of insistence on the executor's year where efforts are made to require accounts to be passed, or to limit the compensation of personal representatives: see, e.g., Cornish Estate (Re), 2016 PESC 14; and Cormack v. Indergaard, 2016 ABQB 544, but such decisions do not stand as authority for the discretionary application of the "rule of convenience".
[53] As explained, the "rule of convenience" is not predicated on the possibility of payment within the executor's year. The "rule of convenience" applies even where payment within the executor's year is impossible. It would involve a significant realignment of the rule, in my view, to permit courts to choose whether to pay interest based on how reasonable it is to expect the distribution of property within the executor's year to occur.
[54] No relevant Canadian cases supporting the discretion to deny interest have been found. No English cases doing so have been uncovered either. Re Allen, at para. 32, cites an unreported New Zealand decision, Cook v. Cook (20 April 2004), Greymouth, 2001-418-000004, that apparently recognizes a discretion to deny interest but Re Allen disapproves of Cook v. Cook on the basis that the decision was made without supporting authority. After a close examination of the case law, the court in Re Allen, at para. 33, held that, "unless the will provides otherwise, a legatee has a right to interest on the legacy as from the end of the executors' year".
[55] The reason there may be no authority supporting a discretion to deny interest may simply be that discretion is seen to be undesirable in this context. In Re Beech, Saint v. Beech, [1920] 1 Ch. 40, at p. 44, quoted in Re Parry, Brown v. Parry, [1947] Ch. 23, at p. 47, Eve J. appears to explain why
a departure from a salutary rule in matters of this kind -- introducing as it does an element of uncertainty in practice and administration -- can only be justified if the changed conditions on which it is founded continue at least as constant as those upon which the rule was itself framed.
[56] Expressing the same sentiment in more modern language, certainty is critical to the simplicity and the efficacy of a rule that is most often applied, not by courts, but by personal representatives. It is one thing to identify fixed exceptions to the "rule of convenience". It is another to leave the operation of the "rule of convenience" free-floating. Doing so would undercut its function as a "rule of convenience".
[57] In addition, the "rule of convenience" is predicated on what a testator, presumed to know the law, is presumed to intend where they have not opted out of the rule. Denying discretion is arguably a better way of having testators, rather than executors or courts, determine how to distribute their property, including the payment of interest on legacies.
[58] On the other hand, the "rule of convenience" is a rule of equity, and discretion is a hallmark of equity. Courts should arguably have the authority to adjust a rule of equity that produces unfairness.
[59] Moreover, while these provisions do not permit judges to deny interest altogether, in both England and New Zealand legislation has been passed conferring express discretion on courts to vary the rate of interest that will be paid: Civil Procedure Rules 1998, SI 1998/3132 (U.K.), (L. 17), Practice Direction 40A -- Accounts, Inquiries etc., at para. 15; and Administration Act 1969, 1969/52 (N.Z.), s. 39. To this extent, situational equity is permitted to trump certainty and simplicity.
[60] As interesting as this debate is, it is not necessary in this case to determine whether Canadian judges have legal discretion to refrain from applying the rule. In my view, even if such discretion exists, and notwithstanding the significant deference that would apply during appellate review, the decision of the application judge to deny interest cannot stand. The application judge failed to apply the proper principles, and based his conclusions on irrelevant factors and factors to which he attached inappropriate weight.
[61] First, in exercising discretion the application judge relied on the reasonableness of expecting the sisters' legacies to be distributed within the executor's year, given that distribution was delayed for more than three years by the challenge to the will. There are two components to this reasoning: the notion that the entitlement of interest is linked to the reasonableness of the expectation within the executor's year, and the role of the sisters in causing the delay. Both components are problematic.
[62] In my view, relying on the reasonable expectation of payment within the executor's year to determine an entitlement to interest is an error in principle. As indicated, the "rule of convenience" is not predicated on the possibility of payment within the executor's year. It does not depend on the wrongful failure by the personal representatives to distribute the estate within that period. The rule has long applied as a matter of routine, even in cases where distribution within the executor's year was known to be impossible from the get go. It is fundamentally inconsistent with the "rule of convenience" to use the reasonableness of the expectation of payment within the executor's year as a driving consideration in exercising a discretion whether to deny interest.
[63] To be sure, the reasonableness of the expectation of payment within the executor's year is an appropriate consideration where the legal issue at stake is about whether blame for delay or inaction is to be attributed to the personal representative, as in Prong Estate. The reasonable expectation of payment within the executor's year is inapt, however, in determining whether a legatee will enjoy their right to interest. The principle in Prong Estate, relied upon by the application judge, should not have been applied.
[64] It is also contrary to principle, in my view, to deny the sisters interest on their legacies because they started the litigation that caused the delay. If simply commencing litigation against the estate is a ground for denying entitlement to interest, even meritorious litigation will be discouraged.
[65] To be sure, it would be appropriate in exercising discretion to consider improper litigation conduct causing delay, as occurred in the New Zealand case of Re Allen, where the interest entitlement of legatees was reduced after they had engaged in so much vexatious litigation that an order had to be made barring them from bringing other claims. That is not, however, this case.
[66] As the application judge recognized, the sisters were entitled to challenge the will. In Neuberger Estate, this court recognized broad interests in the validity of wills, so much so that a challenge to a will is approached not adversarially but inquisitorially, with regard to the special responsibility to the testator to ensure that a document is entitled to probate. There is no suggestion in this case that the sisters' will challenge was frivolous or improperly taken, and no intimation that they did not proceed with the litigation in an efficient manner. Justice Carey, who upheld the validity of the will, recognized that the appellant sisters acted promptly in contesting the will. Moreover, some of the delay in distributing the estate was occasioned by the sisters' successful efforts to remove the brother's counsel from the record for a conflict of interest, and they consented to orders to move the litigation along. In my view, if there is a discretion to deny interest where the "rule of convenience" applies, the value of certainty and simplicity would require that it is a discretion that could be exercised only in the clearest of cases. This is not one of those cases.
[67] The second reason offered by the application judge for denying interest, that "neither party should either be rewarded or penalized by the passage of time", is also contrary to the relevant principles. The payment of interest is not a reward. The "rule of convenience" provides it is an entitlement, based on the presumed intention of the testator. Moreover, it is wrong to consider the payment of interest from the residuary estate to be a penalty. While all beneficiaries are to be treated with an even hand, identified legacies -- be they specific, general or demonstrative -- take priority over residual legacies. A residual legacy is a "what is left" legacy. It consists of what remains, if anything, after debts and identified legacies are paid. It is not a penalty to a residuary legatee to use residual funds to ensure that the beneficiaries of identified legacies enjoy the full benefit of what they have been left. The loss to the residual beneficiary that this entails is a function of their status as a residuary beneficiary.
[68] More importantly, if interest is not paid to legatees, the residual beneficiary gets the benefit of any income or interest earned on the value of property that the testator designated for those legacies. I am aware that no rental income was earned on the estate property in this case, but it is important to bear in mind that the bulk of the estate consisted of the farmland that the brother ultimately received. It would not have been in his interest to sell the farmland and convert it into income earning investments. As well, having received that farmland, he has the benefit of any increase in its value. The prospect of the payment of interest was not, in my view, properly characterized as a penalty to be avoided.
[69] Finally, in denying interest the application judge relied on the fact that, during much of the material time, the sisters were estate trustees. Their status as estate trustees, twice mentioned by the application judge, is of no bearing here. They were not disentitled, as estate trustees of the will that was ultimately probated, to contest the validity of that will, and there is no suggestion that they misused their positions to advantage their challenge.
[70] Nor can there be any suggestion that they waived their right to interest by failing, when estate trustees, to convert the contested farm property into income earning property. As the application judge who upheld the will found, it was the intention of the father to keep the farm property in the family. The retention of the farm property, and the loss of earned income, was not only true to the testator's wishes, it ultimately inured to the brother's benefit.
[71] In sum, it is my view that the application judge erred in principle by linking the entitlement of the sisters to interest to the reasonableness of the expectation that the estate could be distributed within a year; in giving undue weigh to the role that an appropriately conducted, non-frivolous will challenge played in the delay; in considering the payment of interest to be a reward or a penalty; and in relying on the sisters' statuses as estate trustees.
[72] As I have said, given the importance of certainty and predictability, if there is a discretion available to deny interest to legatees, it must apply only in the clearest of cases. A case in which distribution is delayed because legatees bring an appropriately conducted, non-frivolous challenge to a will, and where the residuary beneficiary ultimately receives the key estate asset along with any appreciation in its value, is not one of the clearest of cases, let alone the kind of case that warrants recognizing a discretion that has not yet found support in the law.
[73] I would therefore allow the appeal and order the payment of interest.
C. What amount of interest is to be paid?
[74] For reasons that I will explain, it is my view that the rate of interest to be applied in this case is the 5 per cent simple interest rate that the "rule of convenience" currently carries at common law: Kirkland (Re), at pp. 84, 87 D.L.R.; Sharp (Re); and Carter (Re).
[75] Although the brother did not address the interest rate issue overtly, it is implicit in his position that the appropriate rate of interest should be the prejudgment interest rate provided for in s. 128 of the Courts of Justice Act, currently 0.8 per cent. I say this because it was his contention that the discretion to pay interest on the legacies comes from the prejudgment interest provisions, and not the "rule of convenience". I do not agree. In my view, the prejudgment interest provisions do not apply, and therefore do not direct the rate of interest that should be paid. The "rule of convenience" and the prejudgment interest provisions are distinct.
[76] First, the prejudgment interest provisions provide for the payment of interest from the date of the cause of action, whereas the "rule of convenience" supports claims that commence with the entitlement of the receipt of property.
[77] Second, the interest payments are made for different purposes. The "rule of convenience" is meant to enable the legatee to enjoy the earning potential of a property right that has arisen but is delayed, even where the delay occurred without wrongdoing. In contrast, the prejudgment interest provisions are intended to encourage the settlement of claims by those who wrongfully resist claims for the payment of money: Kinbauri Gold Corp. v. Iamgold International African Mining Gold Corp..
[78] Third, the prejudgment interest provision in s. 128 of the Courts of Justice Act presupposes a claim related to an order for the payment of money, on which the interest is added "thereon". This means that s. 128 would not apply if the sole issue is the payment of interest on a legacy that is not in dispute.
[79] It is possible to go on. The Courts of Justice Act provisions do not operate to replace the "rule of convenience", and there is nothing in the decision in Pizzey v. Crestwood Lake Ltd. to the contrary. That case simply holds that where no interest rate is set after a bank note matures but is not paid, and where a litigated claim has been made, a court should use the prejudgment interest regime to compensate the claimant for the interest withheld.
[80] None of this is to say that the prejudgment interest provisions never apply where there is a delay in paying legacies under a will. In St. Cyr v. Leitch, [1992] O.J. No. 2778 (Gen. Div.) the prejudgment interest provisions operated to require the executor to pay, out of his own pocket, prejudgment interest after improperly withholding payment. It is fitting in such circumstances that the interest be paid by the executor and not out of estate assets under the "rule of convenience". The current point is that the prejudgment interest rate provisions do not govern interest to be paid under "rule of convenience".
[81] Having said this, the 5 per cent common law rate of interest is not, itself, beyond doctrinal criticism. Varying explanations for the selection of a fixed 5 per cent simple interest rate have been offered.
[82] As Rochi and Kerr explain, at pp. 312-16, early English authority attempted to identify applicable rates of interest based on the typical earning potential of estates, in a context in which the law requires cautious investment. As a matter of convenience, rates were not set based on the earning potential of the specific estate, or the rates actually earned by the estate. Litigation was discouraged in this way, and things were kept simple. As explained by the Lord Chancellor Eldon in Sitwell, at pp. 539-40 Ves. Jr.:
[I]t is a general rule, that where no interest is given by will . . . it is only to be allowed at 4 per cent from the end of the year; though it may appear to have produced in the period interest at 5 per cent. Particular justice is disappointed in particular cases: but upon this principle . . . the inquiry as to the state of the personal estate, when each and every part could be got in and made productive, is endless and immeasurable, the Court cuts the knot by doing what in general cases is convenient; though in particular cases both convenience and justice may be disappointed.
[83] Initially, interest amounts varied modestly over time -- between 4 per cent and 6 per cent over three centuries -- but the rates are now set by statute in England. The rates are regularly reviewed by the Lord Chancellor with the concurrence of the Treasury and are linked to the interest payable on money paid into court. Currently, the rate of interest is negligible: 0.1 per cent.
[84] Conversely, as Rocchi and Kerr explain, at p. 312: "In Ontario, 5% appears to have been the accepted rate, but the cases do not demonstrate any suggestion that the rate is tied to an anticipated rate of return." Not surprisingly, over the centuries there have been anomalous decisions where judges have applied different rates of interest close to that amount, but judges in these cases tend not to purport to be exercising a case by case consideration. Instead, they appear to have been attempting to define an appropriate general rate at the time: see, e.g., Nathanson (Re).
[85] Some Canadian cases that have applied a 5 per cent rate appear simply to have been mimicking the English practice of the day, while others tie the rate of interest expressly or by implication to the legal interest rate provided for in s. 3 of the Interest Act, R.S.C. 1985, c. I-15: Lynch's Estate; and MacIntyre Estate (Re). In Merritt Estate, Smily J. commented, at para. 4, that "it is well established that [the rate of interest] should be the legal rate, which is 5%". Section 3 of the Interest Act provides:
- Whenever any interest is payable by the agreement of parties or by law, and no rate is fixed by the agreement or by law, the rate of interest shall be five per cent per annum.
[86] It can be seen, then, that the 5 per cent interest rate is not grounded in a uniform or compelling legal basis. Moreover, a policy case can be made that courts should move away from the 5 per cent rate. Arguably, the current practice of imposing an interest rate that is materially out of line with the market interest rate is not in keeping with the underlying purpose of the "rule of convenience" of ensuring that legatees enjoy the earning potential of a property right that has arisen where enjoyment has been delayed. Perhaps the English example should be followed of using a periodically adjusted but fixed statutory interest rate by analogy for the "rule of convenience", such as the rates provided for in the prejudgment interest provisions, the post-judgment interest provisions or the rate set under Rule 53 of the Rules of Civil Procedure for prejudgment interest on non-pecuniary damages.
[87] This, however, is not the case for deciding whether such a change should be made. We have not been asked to readjust the rate used under the "rule of convenience", and we have not been presented with argument on this issue. Even though a 5 per cent interest rate may seem aggressive relative to the current prime rate, given the state of authority and the manner in which this case was presented before us, I see no reason to deviate from the established 5 per cent rate in this case.
Conclusion
[88] In my view, the sisters are entitled under the "rule of convenience" to simple interest at the rate of 5 per cent per annum from the first anniversary date of their father's death. I would allow the appeal, set aside the application judge's decision and order the brother, as estate trustee, to pay interest in the amount of $53,000 to each of the sisters.
[89] As agreed between the parties, I would also order costs to be paid to the sisters, together, in the amount of $15,000, inclusive of disbursements, plus HST.
Appeal allowed.
Notes
1 While on its face the English statute, not unlike rule 65.02(2), applies solely to cases where accounts of legacies are directed in a judgment, the practice is apparently commonly followed by analogy by administrators out of court, most prudently where the consent of the parties is obtained or the variation is confirmed by a court: John Ross Martyn and Nicholas Caddick, Williams, Mortimer and Sunnucks: Executors, Administrators and Probate, 20th ed. (London: Sweet & Maxwell, 2013), at p. 1395.
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