Court of Appeal for Ontario

Date: 2018-08-03 Docket: C65060

Judges: Hoy A.C.J.O., van Rensburg and Pardu JJ.A.

Between

Steven Augustine Janicek, Jr. and Franklin Mark Janicek Applicants (Respondents)

and

John James Janicek, Andrew Ladislaus Janicek and Marianne Frances Janicek Respondents (Appellant)

Counsel

J. Douglas Skinner, for the appellant

Gemma Charlton, for the respondents

Heard

July 20, 2018

On Appeal

On appeal from the order of Justice J.C. George of the Superior Court of Justice, dated January 30, 2018, with reasons reported at 2018 ONSC 681, [2018] O.J. No. 503.

Reasons for Decision

Hoy A.C.J.O.:

[1] The trustees of the estate of the testatrix, Anne Emily Janicek, brought an application for advice and directions with respect to the construction of her will dated August 12, 2011.

[2] In para. 4(d) of her will, the testatrix directed that her Trustee obtain an appraisal as to the fair market value of the farm known as the "Home Farm" as at the date of her death, as soon as possible after the date of her death.

[3] The paragraph further provides that:

It is my wish that this home farm be kept within the Janicek family if possible. In accordance with that wish if any of my children, or a combination of the same, shall wish to purchase the said farm, they may do so at 75% of the appraised fair market value provided that they enter into an Agreement of Purchase and Sale with my Trustee within one year from my date of death with a closing date no longer than 60 days from the date of the Agreement of Purchase and Sale. In the event that none of my children, or combination of same, have agreed to purchase the said farm, within the prescribed time, the same shall be sold by my Trustee at a price to be determined by my Trustee in his sole and unfettered discretion.

[4] Paragraph 4(d) further provides that the proceeds are to be distributed to the children in the unequal shares set out in para. 4(d).

[5] The trustees – Steven Janicek and Frank Janicek – are two of the testatrix's five children. They are the respondents on this appeal.

[6] As of the first anniversary of the testatrix's death, the trustees had received competing offers from four children to purchase the farm for 75% of its appraised value: the appellant, John Janicek; Andrew Janicek; and each of the trustees. The trustees and Andrew Janicek had been willing to offer to purchase the farm in combination with the appellant, but the appellant wished to purchase the farm on his own. In the end, each of the four children submitted individual offers. The appellant is the only one of the children who farms full time for a living.

[7] Because they were uncertain as to which offer to accept, the trustees did not conclude an Agreement of Purchase and Sale with any of the children within one year of the testatrix's death and brought an application for advice and directions regarding the sale of the farm and for an order for vacant possession of the portion of the farm previously leased to the appellant.

[8] The application judge found that the testatrix's intention as to what should occur if there were competing offers from the children made within the prescribed time could not be ascertained. He ordered that the trustees are at liberty to sell the farm "to whomever they choose and at a price they determine, in their sole and unfettered discretion". At para. 19 of his reasons, he equates this with a sale on the "open market". The application judge further ordered that the proceeds should be distributed among the children in unequal shares, as provided for in para. 4(d) of the will. Finally, he ordered that the appellant was required to deliver vacant possession to the trustees.

[9] At the hearing of the appeal, counsel for the trustees acknowledged that the trustees are fiduciaries and that the sale of the farm pursuant to the application judge's order and the will must be effected in accordance with their duties as fiduciaries.

[10] While I am not in agreement with the entirety of the application judge's reasons, I agree with him that, properly construed, the will does not require the trustees to sell the farm to the appellant, in the event that the children make competing offers within the prescribed period. Further, at the hearing of the appeal, the appellant conceded this.

[11] He advances three arguments on appeal.

[12] First, he argues that the application judge erred in finding that he, the trustees, and Andrew Janicek had not concluded an agreement to purchase the farm together at 75 per cent of the appraised price in the form of the "Memorandum of Understanding" ("MOU") signed after the proceedings were commenced (and after the expiry of the one-year period provided for in the will) in an effort to settle their differences and in not giving effect to the MOU.

[13] It is not clear that the appellant sought an order before the application judge requiring the sale of the farm in accordance with the MOU. In any event, the application judge essentially found that the MOU was an "agreement to agree" and that parties were unable to negotiate the remaining details of the MOU because the appellant reverted to his original position that he alone should be able to purchase and own the farm.

[14] This finding is amply supported by the record and there is no basis to interfere with it.

[15] Second, and in the alternative, the appellant argues that if the parties did not conclude a binding agreement to purchase the farm together after the proceedings were commenced, it was because the trustees acted unreasonably. I understand him to submit that because the trustees acted unreasonably, he should be able to purchase the farm. The trustees submit that this was not argued below and the argument should not be entertained by the court.

[16] Whether or not argued below, the record does not support this alternative argument. As noted above, the application judge found that the parties were unable to negotiate the remaining details of the MOU because the appellant reverted to his original position that he alone should be able to purchase and own the farm. The conduct of the appellant, and not that of the trustees, was the reason an agreement was not concluded.

[17] Third, the appellant argues that the application judge erred in making the order he did because the trustees frustrated the sale of the farm to him. In essence, he says that the trustees acted improperly by consulting with the other children to determine if they also wanted to make offers, after he had made an offer – the first offer received by the trustees. He acknowledges that because his first offer included the chattels on the farm (and not just the farm) at 75 per cent of their appraised price, his first offer was not in compliance with the will. The trustees submit that the appellant did not claim below that they breached their fiduciary duties and this court should not entertain this argument.

[18] The trustees brought an application for advice and directions with respect to the construction of the will. In response, the appellant did not assert a claim that the trustees breached their fiduciary duty. In any event, on this record I am not persuaded that the trustees consulted with the other children for the purpose of frustrating the appellant's objective of purchasing the farm. The will expressly contemplates that a combination of children may purchase the farm and does not give preference to the appellant. It was reasonable and appropriate for the trustees to consult with the other children and not simply invite the appellant to submit an offer that complied with the will and conclude an agreement of purchase and sale with him. As indicated above, Andrew, who is not a trustee, sought to purchase the farm.

[19] Accordingly, I would dismiss the appeal and order that the trustees are entitled to their costs of the appeal, fixed in the amount of $10,500, including HST and disbursements.

"Alexandra Hoy A.C.J.O."

"I agree G. Pardu J.A."

van Rensburg J.A. (Dissenting):

[20] I have read the reasons of the Associate Chief Justice proposing to dismiss the appeal. I agree with her conclusion that the appellant is not entitled to relief under the MOU, and rejecting this ground of appeal. While I do not agree with my colleague's observation that the conduct of the appellant was the reason the parties did not conclude an agreement after signing the MOU (as the record is contradictory and may be incomplete), I accept that the appellant is not entitled to relief in this appeal in respect of the MOU.

[21] With respect, however, I do not agree with my colleague's analysis or conclusions regarding the principal issue on appeal: whether the application judge erred in his treatment of the apparent competing offers for the farm by failing to give effect to the appellant's arguments that his attempt to purchase the farm had been frustrated by the actions of the estate trustees.

[22] For the reasons that follow, I would allow the appeal and direct the application to return to the Superior Court for a rehearing before another judge.

[23] There are two fundamental problems with the application judge's reasoning that I would characterize as reversible errors.

[24] The first is the application judge's failure to address the appellant's arguments and to resolve the question of whether the estate trustees attempted to frustrate the appellant's purchase of the farm. This was relevant to whether there were in fact "competing offers" for the estate trustees to consider.

[25] The will provided for a sale of the farm at the discounted price to "any" of the testatrix's children "or a combination of the same". The affidavits attached correspondence and emails between the parties and their counsel indicating that, after telling the appellant his offer was premature, the estate trustees were intent on a sale to four or more of the siblings (initially in the unequal shares referenced in para. 4(d) and then in equal shares), even after the appellant and his sister had rejected this option. It was only on the eve of the expiry of the one year period that the estate trustees and a third brother, Andrew, submitted individual offers to purchase the farm at the discounted price. The estate trustees had also obtained a second appraisal for the farm, which they did not disclose to the appellant (for a significantly higher price). The appellant contends that the estate trustees were upset by the discount, and wanted to recover the full value of the property, either by selling their respective interests after they became joint owners, or by forcing a sale under the second part of para. 4(d) of the will. This was contrary to the wish of the testatrix to keep the farm within the family if possible, for which she had provided expressly for a discounted sale to one or more of the children.

[26] Although, at paras. 11 and 12, the application judge referred to the appellant's concerns and set out some of the evidence he put forward, he did not attempt to resolve the issue of whether the estate trustees had attempted to frustrate a sale to the appellant. The application judge did not give consideration to the appellant's argument that the individual "competing offers" were advanced at the final hour only to frustrate his attempt to purchase the farm, and should not have been considered by the estate trustees, acting in accordance with their fiduciary duties. Instead, the application judge proceeded on the explicit assumption that there were competing offers that were validly made and in accordance with the will (at para. 22). He effectively ignored the appellant's argument, renewed on appeal, that it was only because of the estate trustees' actions that they were able to argue that there were competing offers.

[27] The application judge identified the issue as determining the testatrix's intention if there were competing offers within a year of her death. This led to the second problem with his decision.

[28] After referring to the principles for interpretation of wills, including the "armchair rule" (where the court considers indirect evidence relating to the surrounding circumstances at the time of execution of the will), the application judge did not go on to apply the rule. Instead he concluded, at para. 30, that there was no extrinsic evidence of the testatrix's intention.

[29] In fact, there was such evidence that was put forward by all of the parties, including the occupations of the various children at the time the will was made and their respective dealings with the farm. It is unclear whether the application judge ignored this evidence, or rejected it. In any event, he did not address the evidence in an effort to determine the testatrix's will in the event of competing offers from some of her children. It was important for the application judge to use the means at his disposal, including the evidence of surrounding circumstances, to attempt to give meaning to the first part of para. 4(d) of the will, before permitting the estate trustees to proceed with a sale in their discretion under the second part. This is especially the case given the wish of the testatrix for the farm to remain in the family.

[30] There were other errors in the application judge's recitation of the facts and analysis that, while not palpable and overriding, cast doubt on his disposition of the application.

[31] The application judge misidentified the competing offers as an offer by the appellant and an offer by the estate trustees and Andrew jointly (at paras. 5 and 30). There was no joint offer; the competition was between four individual offers. The application judge referred to a sale by the estate trustees at "a price to be determined by [them] in their sole and unfettered discretion" as a sale on the open market, and stated that it is only if a sale is "on the open market" that the proceeds would be shared in the percentages set out in para. 4(d) (at paras. 35 and 36). Para. 4(d) simply provides for the proceeds to be distributed to the children in the specified unequal shares; this provision would apply to any sale, whether or not at the discounted amount. It is difficult to determine the extent to which these errors informed the application judge's analysis. However, they reinforce, in my view, the need to set aside his order and to refer the matter to another judge of the Superior Court for a new hearing.

[32] My colleague notes, at para. 6, that the estate trustees and Andrew had been willing to offer to purchase the farm in combination with the appellant, but the appellant wished to purchase the farm on his own. Indeed, the fact that the estate trustees would have preferred a sale to the brothers jointly appears to be at the root of the conflict between the parties. While the will contemplated a sale of the farm to any one or more of the testatrix's children, the estate trustees did not have the ability under the will to require the appellant to participate in a purchase of the property jointly or as tenants in common.

[33] In the end, there were competing individual offers, including their own, that the estate trustees had to consider. When they were unable to determine what to do, they sought the assistance of the court. As I have explained, the application judge did not address certain issues that were before the court: whether there were in fact competing offers, or whether the estate trustees were acting to frustrate a purchase by the appellant; and if there were competing offers, to consider the evidence of surrounding circumstances at the time the will was made to determine what the testator would have done to resolve the conflict – and at the same time to achieve her overriding objective of keeping the farm in the family.

[34] Finally, as I would propose to allow the appeal, I will briefly address the application judge's primary reason for directing that the estate trustees are at liberty to sell the farm property to whomever they choose and at a price they determine in their sole and unfettered discretion.

[35] At para. 22 of his reasons, the application judge noted that, while not raised in argument, there was an issue respecting the effective dates of the two appraisals of the farm property. He concluded that the first appraisal was invalid as it did not assess the property's value at the time of the testatrix's death (but two months later), that consequently nobody made an offer at 75% of the appraised value within the one year deadline, and that the second part of para. 4(d) therefore applied. It was only in the event he was wrong, that the application judge went on to consider what to do assuming there were competing offers. In their factum, the respondents sought to uphold this part of the decision, although in oral argument they may have retreated somewhat from this position.

[36] In my view it was an error for the application judge to decide the application based on an argument not raised by any party, that the first appraisal (for $1.3 million) was "invalid". The estate trustees commissioned the first appraisal which valued the farm in December 2012, and not at the date of the testatrix's death two months earlier. They obtained a second appraisal (for $1.7 million), not because of the incorrect date, but because they thought the first appraisal was too low, and they did not provide the second appraisal to the appellant until the one year had passed. There is nothing to suggest that the different appraisals depended on their effective dates two months apart. The estate trustees did not base their own offers on the second appraisal, and quite properly they did not argue on the application that the first appraisal was invalid. This would have permitted them to avoid the first part of para. 4(d) by relying on their own mistake in commissioning the first appraisal, and a second appraisal that was not revealed to the appellant until it was too late. The application judge's reasoning at para. 22 favours form over substance, and cannot be correct.

[37] For these reasons I respectfully disagree with my colleague's proposed disposition of the appeal. I would therefore allow the appeal and award costs of the appeal to the appellant. I would reserve the costs in the court below to the judge rehearing the application.

Released: August 3, 2018

"K.M. van Rensburg J.A."