CITATION: The Bank of Nova Scotia Trust Company v. Haugrud, 2016 ONSC 8150
COURT FILE NO.: 05-72/14
DATE: 20161229
SUPERIOR COURT OF JUSTICE – Ontario
IN THE MATTER OF THE ESTATE OF DAVID MUNROE WELTON, deceased
RE: THE BANK OF NOVA SCOTIA TRUST COMPANY in its capacity as Estate Trustee of the Estate of David Munroe Welton, Applicant
A N D:
CATHERINE HAUGRUD, KYM WELTON, DAVID MUNRO WELTON JR., DARLENE ALICE MAY WELTON, MORGAN WELTON, GRAY WELTON, JACK HAUGRUD, EMMA HAUGRUD, and THE CHILDREN’S LAWYER, Respondents
Application under Rules 1.04, 14.05(3), 74.15(i), and 75.06 of the Rules of Civil Procedure, and Section 60 and 64 of the Trustee Act, R.S.O. 1990 c. c.T.23, as amended
BEFORE: MESBUR J.
COUNSEL: Justin deVries and Joanna Lindenberg, for Catherine Haugrud Robert Reuter and Kristjan Surko, for Darlene Welton Karen Watters for Paul Milne (responding to the motion) Melanie Yach for Scotiatrust in negligence claim against Paul Milne C. Vander Zee, for Scotiatrust Deb Stephens for Paul D. Milne and as agent for Scotiatrust, Estate Trustee Bianca La Neve for The Children’s Lawyer
HEARD: November 29, 2016
E N D O R S E M E N T
The application:
[1] This is an application to rectify a will. The Bank of Nova Scotia Trust Company (“Scotiatrust”) is the Estate Trustee of the estate of the late David Munro Welton, who died September 23, 2013. Scotiatrust began this application for directions in relation to the administration of certain aspects of the estate. This part of the application seeks rectification of part of subparagraph 5.(b)(v) of the deceased’s Secondary Will, executed on April 25, 2013. Paul Milne of the law firm, SimpsonWigle Law LLP drew the Secondary Will which deals with the deceased’s Secondary Estate. It defines the deceased’s Secondary Estate, among other things as:
(i) My shares in the capital stock of Davwel Investments Inc. (corporations incorporated under the laws of the Province of Ontario) and any other corporation none of the shares of which are listed on a public stock exchange (in this my Will collectively referred to as the “Corporations”);
(ii) All my assets held in trust for me by the Corporations;
(iii) Any amounts owing to me from the Corporations in the form of loans or otherwise, including declared but unpaid dividends ….
[2] Subparagraph 5.(b)(v) of the deceased’s Secondary Will reads:
My Trustees in their capacity a directors shall redeem 150 Class D Shares of Davwel Investments Inc. in both a cost and tax effective manner as determined by the directors for an amount which shall result in net redemption proceeds after tax of Two Million Dollars ($2,000,000.00) [“Redemption Proceeds”] and such Redemption Proceeds shall fall into my Secondary Estate and shall be dealt with by my Trustees in accordance with the provisions hereinafter established in this my Secondary Will;
[3] The Secondary Will goes on to require the Trustees to pay $1 million of the Redemption Proceeds to the deceased’s child David Munro Welton, Jr. (Junior) outright, and hold the remaining $1 million in a lifetime trust for the benefit of the deceased’s child Kym Welton. (Kym)
[4] While the provisions seem clear enough on their face, there are two problems with subparagraph 5.(b)(v), excerpted above.
[5] First, the deceased never owned any Class D shares of Davwel. There are only 300 Class D shares. The deceased’s third child, Catherine Haugrud, is the registered owner all of those shares.
[6] The deceased did own 1200 Class E shares in Davwel. These shares had similar attributes to the Class D shares. Both the Class D shares and Class E shares are non-voting and have a redemption value of $10,000 per share.
[7] Second, it is impossible to generate the required after tax Redemption Proceeds of $2 million from redeeming 150 shares of either Class D or Class E shares. The after tax proceeds of redeeming only 150 shares of either class would generate only $1 million after tax. That amount is insufficient to satisfy the bequests.
[8] In order to understand the confusion in the provision of the Secondary Will, it is helpful to consider some of the history of Davwel. Davwel is an investment company the deceased controlled. Before February of 2011, all the common and special shares were held by the David M. Welton Family Trust No. 2. As part of a corporate reorganization the Trust then made certain transfers of shares as follows:[^1]
• 300 Class D Special Shares to Catherine Haugrud
• 1,200 Class E Special Shares to David M. Welton
• 10,000 Class F Special Shares to David M. Welton
• 133 Common Shares to David M. Welton
[9] In April of 2013 the deceased revised his wills. First, he wrote to his accountant, Chuck Ormrod at KPMG setting out the shareholdings of Davwel. He correctly described himself as the owner of 100 common shares, 1,200 Class E special shares and 10,000 Class F special shares. He noted his daughter Catharine Haugrud as the owner of 300 Class D special shares. He asked the accountant to provide him with the current value of the capital stock by class.[^2]
[10] On April 8, 2013 the deceased met with his estates lawyer, Paul Milne, to discuss his estate planning needs. Mr. Milne deposes (and his notes of the meeting confirm) that the deceased referred to his owning Class D Special shares. Although Mr. Milne swears that he should have checked the shareholdings, and caught this error, he did not.
[11] On April 17 the accountant Mr. Ormrod spoke with the estates lawyer, Mr. Milne about the proposed estate plan. Mr. Ormrod’s notes of the conversation reflect the following:
150 Class D è D. Jr
150 Trust for Kim [sic]
[12] Mr. Ormrod acknowledges that he was mistaken in his reference to Class D shares. He says his confusion arose from an earlier reorganization plan for Davwel which had indeed contemplated the deceased owning 1,200 Class D shares. The class of shares was ultimately changed to Class E shares in order to provide the deceased with more flexible tax planning.
[13] Paul Milne, the estates lawyer, acknowledges that he made two drafting errors in drafting the wills. First, he says he mistakenly referred to the deceased’s having Class D shares, even though he had access to the correct information that would have told him the deceased owned no Class Ds but did own Class Es. Second, he says he misread his notes, and put the figure of 150 shares into the Secondary Will, as opposed to reflecting the deceased’s instructions that 150 shares were to be redeemed for each of Junior and Kym, for a total redemption of 300 shares. This, of course, is what Mr. Ormrod’s notes suggest. As a result of these errors, Mr. Milne says the Secondary Will does not reflect the deceased’s instructions and intent. He supports Scotiatrust’s application to rectify the Secondary Will and correct those errors by changing the reference to Class D shares to Class E shares, and changing the number of shares from 150 to 300 instead.
[14] Only the deceased’s widow opposes the application. Her opposition is tied, in part, to her separate proceeding against Mr. Milne. Her suit, which is framed in negligence, has been described as a “disappointed beneficiary” claim. In essence, the widow asserts she anticipated being left the residue of the deceased’s estate outright. She describes the residue as “all the assets of David’s Estate less the $2 million to be paid to David’s children and incidental costs or expenses associated with the Estate and its administration.”[^3] Instead, she is given a life interest in the residue, with a gift over to the deceased’s children on her death. Although the widow has acknowledged[^4] that her late husband intended to gift $2 million to Junior and Kym and also that Catherine was to use her shares in Davwel for her own benefit and for her sister Kym’s, the widow nevertheless opposes the rectification application. I have set out in the discussion section, below, more details of the widow’s position. The widow is seeking to consolidate her negligence claim with this estates proceeding. That motion will be scheduled after the release of these reasons.
The law:
[15] There is no issue about the court’s jurisdiction to rectify a will. All parties refer to Robinson Estate v Robinson [^5] which sets out the basic framework for the court to do so. There, the court said:
Where there is no ambiguity on the face of the will and the testator has reviewed and approved the wording, Anglo-Canadian courts will rectify the will and correct unintended errors in three situations:
a) Where there is an accidental slip or omission because of a typographical or clerical error;
b) Where the testator’s instructions have been misunderstood; or
c) Where the testator’s instructions have not been carried out by the drafter of the will.
[16] The court will admit extrinsic evidence to establish the error “when it comes from the solicitor who drafts the will, makes the error and can swear directly about the testator’s intention.”[^6]
Discussion:
[17] First, I must determine if there is a mistake requiring rectification. While the actual words of the will are not ambiguous, it is apparent on reading the will as a whole a mistake has occurred in drafting the Secondary Will. The Secondary Will deals with the deceased’s shares in Davwel. It seems clear from all the evidence that the deceased intended his shares in Davwel to be redeemed to create net proceeds [Redemption Proceeds] of $2 million and to give half of the Redemption Proceeds ($1 million) to his son Junior, outright, with the other half ($1 million) being held in trust for the benefit of his daughter Kym.
[18] The Secondary Will as drafted cannot possibly create that result. First, because the deceased never owned any class D shares, and thus they cannot form part of his Secondary Estate. Second, because redeeming only 150 shares (whether Class D or Class E) would yield after tax proceeds of only $1 million, which is insufficient to create the necessary Redemption Proceeds ($2 million) required to fund the bequests for Junior and Kym.
[19] Here, the lawyer who drafted the will unequivocally admits his mistakes. The context for the mistakes is confirmed by the accountant, who sets out the background of how the mistakes occurred. Essentially, the confusion around the class of shares arose because the accountant was referring to the initial reorganization plan for Davwel, instead of the slightly different plan that was ultimately put in place. Although the deceased clearly and accurately set out the shareholdings in his letter to the accountant, neither the accountant nor the lawyer used the correct information, and instead maintained their reference to the earlier plan regarding the class of shares. I conclude it was an accidental slip or omission that resulted in the mistake regarding the class of shares.
[20] I also conclude the drafting solicitor misunderstood or failed to carry out the testator’s instructions, in that he failed to refer to either the correct class of Davwel shares or to the correct number of shares that would have to be redeemed in order to carry out the testator’s instructions.
[21] All three criteria in Robinson have been met. As I have said, however, the widow objects to the will being rectified on this motion. The widow does not really disagree the will should be rectified. She argues, however, that it is inappropriate for the court to do so on this motion. She takes the position the issue of rectification should occur only after a full trial of the issues. I disagree.
[22] The widow’s lawyer summarizes her evidence on this application as follows:[^7]
a) The deceased intended to provide each of his children $1 million on his passing. The estate was to pay Junior $1 million outright and any associated tax incurred by that disposition;
b) Catherine was to redeem the Class D Shares, which have an after tax value of $2 million. Half of those proceeds were for Catherine personally and she was to hold the remaining $1 million for Kym’s benefit. The deceased’s letter to Catherine dated April 25 regarding the Class D shares formed an integral part of the deceased’s testamentary planning.
c) The residue of the estate was to be left to the widow without conditions or reservations.
[23] The widow also argues the wills do not capture other aspects of the testator’s intentions. She suggests the solicitor’s drafting errors included failing to ensure the following:[^8]
a) Junior was to receive his $1 million out of the estate or Davwel’s cash, not the redemption of shares;
b) Catherine and Kym were to divide the after tax proceeds of the Class D shares. The widow also argues Catherine holds the Class D shares in trust for her sister Kym;
c) The Residue of the Estate was to pass to the widow; and
d) The deceased’s 50% interest in the matrimonial home was to pass to the widow, not to the estate.
[24] The widow’s argument that “the estate” was to pay $1 million to Junior outright, rather from the redemption of shares fails to take into account the wording of the Secondary Will, which governs the deceased’s Secondary Estate. That Secondary Estate consists primarily of the deceased’s shares in Davwel. Shares in Davwel were to be redeemed in order to create $2 million in Redemption Proceeds, to fund the bequests to Junior and to Kym. The widow’s argument “the estate” is to make the payment to Junior must fail.
[25] The widow argues that Catherine held her Class D shares in trust for her late father, and thus the Class D shares really fall into his Secondary Estate. The widow says this “trust” requires Catherine to redeem her 300 Class D shares to create net proceeds of $1 million for each of her and her sister. This argument also cannot succeed.
[26] The deceased himself never owned any Class D shares at any time. All the shares in Davwel were owed by the David M. Welton Family Trust No. 2 before the corporate reorganization. As part of that reorganization, the Class D shares were transferred to Catherine from the Trust and not from the deceased.
[27] The entire rationale behind the presumption of resulting trust is that where a person transfers property from his or her name into the name of the other, without consideration, the donee is presumed to hold the property in trust for the donor unless the donee can show the donor intended to gift the property to the donee. Since the deceased never owned any Class D shares at any time he was not the donor of the shares. Therefore there can be no resulting trust regarding the Class D shares in favour of the deceased and thus to the estate.
[28] Catherine was initially not aware that she owned the shares. The deceased initially planned for her to use the shares for the benefit of her sister Kym, who has some difficulties. There was discussion between the deceased and his professional advisors about Catherine’s Class D shares. The deceased wrote a letter to Catherine, setting out his wishes. Although he had initially written the letter referring to a “trust”, his professional advisors told him he could not do so, since Catherine had always owned the shares outright, and they could not then be imposed with any kind of trust. Ultimately, the deceased wrote a letter to Catherine, dated April 25, 2013, in which he said:
RE: Class D Special Share Certificate no. SD-2
Guidelines for Distribution upon my Death
Dear Catherine,
As you know these 300 shares were issued to you for your own account and for your sister Kym Welton. It is now my wish that upon my death that you split the proceeds of these shares to the extent of One Million Dollars ($1,000,000.00) which you will hold for the benefit of Kym Welton and the balance to be retained by you and used as you so desire.
I encourage you to seek advice from the following advisors for financial, tax and legal guidance …
[29] While the deceased imposed a moral obligation on Catherine (which she acknowledges and accepts), there can be no trust (resulting or otherwise) on Catherine’s Class D shares. Thus, there is no way any Class D shares can be used to carry out the deceased’s wishes.
[30] Since this is the case, there is no reason for Catherine to have any burden to show an intention of gift, as the widow suggests. As I see it, the widow’s trust argument must fail, and does not require any trial to determine that issue.
[31] The deceased’s intentions are clear from the Secondary Will itself: he wanted enough of his Davwel shares to be redeemed to create after tax Redemption Proceeds of $2 million in order to fund the bequests to Junior and Kym. Both Junior and Kym were to receive $1 million each out of the “Redemption Proceeds”. This clearly suggests their bequests were to come specifically from the redemption of the deceased’s Davwel shares, not “out of the estate” or “Davwel’s cash” as the widow suggests.
[32] Similarly, there is nothing in the will itself to suggest that Catherine and Kym were to divide the after tax proceeds of the Class D shares. First, Catherine is the registered owner of the Class D shares, and always has been. As I have said above, I see no way in which it could be said Catherine holds or held the shares in trust for her late father, so they could pass under his Secondary Will. Catherine can deal with her shares as she sees fit. While Catherine acknowledges a moral obligation to care for her sister Kym, (as her father wished) and use some or all of the value of her Class D shares to do so, she is under no legal obligation to do so.
[33] Second, I fail to see how the deceased could possibly have intended Catherine and Kym to divide the after tax proceeds of the Class D shares as part of his estate plan. Since the deceased never owned the Class D shares, they cannot form part of his Secondary Estate, and thus cannot be part of his estate plan.
[34] Whether the residue of the estate was to pass to the widow, or whether she was to receive only a life interest is the very issue the widow’s “disappointed beneficiary” suit is all about. She has not challenged the validity of the wills. She has not applied for rectification. She has sued the drafting solicitor saying that he should have drafted the wills to provide for her to receive the residue. She describes the residue as “all the assets of David’s estate less the $2 million to be paid to David’s children and the incidental costs or expenses associated with the Estate and its administration.” Presumably, if she succeeds, her damages will be calculated on the basis of what the residue would be worth when compared with the value of the life interest she receives under the provisions of the wills.
[35] Finally, the widow’s suggestion concerning the matrimonial home is somewhat baffling. The widow and the deceased had held title to their home as joint tenants, with right of survivorship. The widow herself unilaterally severed the joint tenancy prior to her husband’s death. She advised no one of this fact.[^9] Had she not severed the joint tenancy, the deceased’s interest matrimonial home would indeed have passed to her, rather than to the estate. Since she severed the joint tenancy, the deceased’s half interest passed to the estate. I am at a loss to see that the results of the widow’s actions can be laid at the feet of the drafting solicitor. That issue, however, is not before me on this motion. No doubt it will be part of the widow’s argument in her solicitor’s negligence claim against Mr. Milne as a disappointed beneficiary.
[36] The only issue before me on this aspect of the application is the question of whether paragraph 5.(b)(v) of the Secondary Will should be rectified. It is clear to me it should be, and the rectification should be as requested by Scotiatrust. It is only in this way the Secondary Will can accurately reflect the deceased’s intentions and instructions.
Conclusion:
[37] The motion for rectification is therefore granted. The Secondary Will of David Munro Welton (the “Deceased”) dated April 25, 2013 shall be rectified nunc pro tunc to reflect the instructions and intention of the Deceased by removing the number “150” and the letter “D” from subparagraph 5.(b)(v) of the Secondary Will and inserting the number “300” and the letter “E” respectively, in their place so that subparagraph 5.(b)(v) of the Secondary Will shall be as follows:
My Trustees in their capacity a directors shall redeem 300 Class E Shares of Davwel Investments Inc. in both a cost and tax effective manner as determined by the directors for an amount which shall result in net redemption proceeds after tax of Two Million Dollars ($2,000,000.00) [“Redemption Proceeds”] and such Redemption Proceeds shall fall into my Secondary Estate and shall be dealt with by my Trustees in accordance with the provisions hereinafter established in this my Secondary Will;
[38] If the parties are unable to agree on the issue of costs of this application within 3 weeks of the release of these reasons, they may then make brief written submissions to me. Submissions shall be no more 2 pages in length. They will include each party’s costs outline, as contemplated by the Rules, supporting dockets, if requested by another party, and details of each lawyer’s billing rate, number of hours spent, and year of call.
[39] The moving party shall deliver submissions within 5 weeks of the date of these reasons, with any responding submissions to be delivered within 1 week of receipt of the moving party’s submissions.
MESBUR J.
Released: 20161229
[^1]: Resolutions of the Board of directors of Davwel Investments Inc. dated February 10, 2011 [^2]: Email dated April 5, 2013 from deceased to Chuck Ormrod. [^3]: Widow’s statement of claim in Court File CV-15-526248 at paragraph 64 [^4]: Ibid at paragraph 18 [^5]: 2010 ONSC 3484, affirmed by 2011 ONCA 493 [^6]: Ibid, S.C.J. decision at paragraphs 26 and 27 [^7]: Widow’s factum at paragraph 20 [^8]: Widow’s factum, paragraph 81 [^9]: In her affidavit sworn July 9, 2014 the widow states she severed the joint tenancy without her husband’s knowledge or consent.