2007 BCSC 953 Steernberg v. Steernberg

Before: The Honourable Madam Justice Martinson

Ruling - Costs

Counsel for Plaintiff	Appearing on her own behalf
Counsel for Defendants	K. Geddes
Date and Place of Hearing:	March 20, 2007
	Vancouver, B.C.

OVERVIEW

[1] This is a costs application in a claim under the Wills Variation Act, R.S.B.C. 1996, c. 490. The plaintiff, Cheryl-Lynn Steernberg, challenged her husband Peter Steernberg’s will. The defendants are Rik Steernberg as Executor, and Rik Steernberg and his three sisters, Marie Steernberg, Juliana Steernberg and Patricia Steernberg, and James Ellerton as beneficiaries. The trial took place from May 1 to 12, and May 23, 2006. I gave written reasons for judgment: Steernberg v. Steernberg Estate (2006), 32 R.F.L. (6th) 62, 28 E.T.R. (3d) 1, 2006 BCSC 1672. I concluded at ¶156 that “it is adequate, just and equitable that the Will be varied to provide that Mrs. Steernberg receives 15% of the Estate rather than 10%, and the children, including Mr. Ellerton, each receive 17%, rather than 18%.” Both counsel requested that any award should be a percentage of the net value of the estate.

[2] During the trial, Mrs. Steernberg raised the concern that the defendants took a substantial sum of money out of the estate for legal fees to defend the Wills Variation Act claim before the trial started. The parties agreed that this issue would be decided after the Court gave its decision on whether the will should be varied. The hearing to determine that issue, and costs generally, took place on March 20, 2007. The Court was advised that there had been various offers to settle, including a formal offer based on Rule 37 of the Supreme Court Rules.

[3] In an oral decision given on April 26, 2007, I concluded that the defendant children, not the executor, were defending the action. They took their legal fees for defending the action from the estate before, during or after the trial and were not entitled to do so; nor were they entitled to rely on their Rule 37 offer. Mrs. Steernberg was awarded her costs of the action. The defendant children were required to pay the costs personally. These are the reasons for those decisions.

BACKGROUND

[4] Rik Steernberg, in his capacity as Executor, retained counsel to act on his behalf in relation to the estate. He also retained litigation counsel in this Wills Variation Act action to act on his behalf as executor. He, in his personal capacity as a beneficiary, his three sisters and James Ellerton, retained the same litigation counsel to act for them in this action. Mrs. Steernberg also retained litigation counsel to advance her claim.

[5] The Rule 37 offer to settle was made on May 13, 2005 on behalf of the “defendants”. That offer was for “20% of the net value of the estate of Peter Steernberg.” It was signed in this way: “Solicitor for the Defendants, Frederik Bernard Steernberg, as Executor of the Estate of Peter Steernberg, deceased, AND James Ellerton, Juliana Miriam Steernberg, Patricia Marijka Steernberg, Maria Petronella Steernberg as Beneficiaries of the Estate.” It was not signed on behalf of Rik Steernberg in his personal capacity as a beneficiary. The estimated net value of the estate has varied as the Executor’s counsel has accounted for assets and liabilities over time.

[6] As noted, the first day of the trial was May 1, 2006. The evidence presented on behalf of the Executor is that the estimated net value of the estate as at April 28, 2006 was $1,151,750.94; the estimated net value of the estate as at May 5, 2006 was $1,176,328.12. Legal fees for the defendants’ litigation counsel of $148,250.62 were deducted before those net values were calculated, thereby significantly reducing the net value of the estate. No distinction was made between fees relating to Rik Steernberg’s role as Executor and the legal fees of the children as beneficiaries. Legal fees of counsel for the Executor, of $72,895.24, were also deducted before the net values were calculated.

[7] On June 8, 2006, shortly after the trial ended and before the reasons for judgment were issued, the estate paid the defendants’ litigation counsel’s invoice of $60,700.00. Since that date, and up to December 31, 2006, the estate recorded, but did not pay, four invoices for the defendants’ litigation counsel totalling $10,900. It also recorded, but did not pay, three invoices for the Executor’s counsel totalling $15,032.50.

[8] Mrs. Steernberg was also a beneficiary under the will. None of these payments were made or recorded with her consent. Her own legal fees are approximately $235,000. No funds from the estate were made available to her before, during or after the trial for her legal fees. She has not been in a position to pay them. She now acts on her own behalf and has consented to a solicitor’s lien being placed against her interest in the estate by her litigation counsel.

THE DEFENDANTS’ SUBMISSIONS

[9] The defendants say that costs should be determined as follows:

1. The Estate should pay Mrs. Steernberg’s costs from the commencement of the proceedings until May 13, 2005, which is the date of the offer to settle, at Scale 3;

2. Mrs. Steernberg should pay the Estate’s costs from the date of the offer to settle, at Scale 3; and

3. The legal fees incurred by the Executor should be payable from the Estate, as they were incurred in properly defending the Will.

[10] The defendants say that the application of Rule 37 is mandatory; when an offer to settle has been made, the trial judge has no discretion with respect to it. While the defendants agree that the Court retains a broad discretion in awarding costs (see Stiles v. British Columbia (Workers’ Compensation Board) (1989), 38 B.C.L.R. (2d) 307 (C.A.) at 310), they refer to Cridge v. Harper Grey Easton & Co. (2005), 37 B.C.L.R. (4th) 62, 5 C.P.C. (6th) 100, 2005 BCCA 33 at ¶21-26 and Brown v. Lowe (2002), 97 B.C.L.R. (3d) 246, 2002 BCCA 7, in support of the argument that, where Rule 37(24) applies, there is no room for judicial discretion.

[11] With respect to the taking of legal fees from the estate, the defendants say that the fees were properly paid by the estate in defending the will. This, they argue, is consistent with the Court of Appeal’s statements in Erlichman v. Erlichman Estate (2002), 211 D.L.R. (4th) 424, 99 B.C.L.R. (3d) 26, 2002 BCCA 160 and Wilcox v. Wilcox (2000), 190 D.L.R. (4th) 324, 79 B.C.L.R. (3d) 235, 2000 BCCA 491.

[12] The defendants acknowledge that Erlichman and Wilcox deal with determinations of costs after the trial is over, and not with the taking of legal fees from an estate before trial. However, they say that the same principles apply to both situations. They say that Rik Steernberg, as the Executor, has a duty to defend the will, and that duty would be meaningless if he could not access the necessary financial resources.

[13] The defendants say that in Erlichman and Wilcox, the claims were against the estate by reason of the fact that it was the testator who had created the issues that arose between the parties, through the provisions of the will in question. Because of this, the costs of all parties were ordered to be paid out of the estate. In the present case, they submit that two substantial issues arose from Mr. Steernberg’s will: the legal significance of the prenuptial agreement and the legal status of the Derby Road Property. They say that Mr. Steernberg left it to the Executor to sort out the challenge to his will; the costs should be borne by the estate.

[14] They acknowledge that the Court of Appeal in Wilcox v. Wilcox (2002), 8 B.C.L.R. (4th) 14, 48 E.T.R. (2d) 153, 2002 BCCA 574, concluded that the executors’ costs were to be separated from the costs incurred by the executors in their capacity as beneficiaries. However, they argue that this does not change the analysis. In the present case, they say that Rik Steernberg was acting qua Executor in defending the will.

[15] Generally, the defendants argue that the cases which discuss the neutral role of the executor are usually cases where the executor is a third party, and not a beneficiary under the will.

[16] The defendants disagree with the plaintiff’s submission that the taking of legal fees before trial depleted the value of the estate, thereby affecting the value of the offer to settle. They say that what is relevant is the net value of the estate, after taking into account all the legal fees which the estate must pay.

MRS. STEERNBERG’S SUBMISSIONS

[17] Mrs. Steernberg relies on a number of cases which support the position that the executor should act in a neutral role in Wills Variation Act actions: Wilcox Estate (Re) (2005), 13 E.T.R. (3d) 120, 2005 BCSC 83; Glanville v. Glanville (1998), 168 D.L.R. (4th) 332, 58 B.C.L.R. (3d) 240, 25 E.T.R. (2d) 258 (C.A.); Lee v. Horne (1993), 84 B.C.L.R. (2d) 341, 50 E.T.R. 297 (S.C.); Quirico v. Pepper Estate (1999), 91 A.C.W.S. (3d) 690, [1999] B.C.J. No. 2229 (QL) (S.C.). In this case, she says, the Executor did not act neutrally, to her detriment.

[18] She argues that this had two consequences. First, through the taking of legal fees before trial, the value of the estate was depleted. Thus, the 20% offer was, in dollar terms, lower than the 15% award that she received at trial. Second, she says it resulted in an uneven playing field, as the defendants had access to at least $148,000 in legal fees before the trial had even started, whereas she had access to nothing. Their $60,000 legal fees for the trial were paid immediately following the trial. She has not been able to pay her legal fees.

ANALYSIS

Taking Legal Fees from the Estate

[19] The case law draws a distinction between an executor’s neutral role and a beneficiary’s role in defending his or her own, or another beneficiary’s, inheritance. The neutral role involves providing the court with the information it needs relating to the estate itself. The fees reasonably incurred for that limited role are properly borne by the estate. Those fees must be separated from the fees incurred in defending the inheritance, which are to be borne by the beneficiaries personally.

[20] Theoretically, the court could have awarded the entire estate to Mrs. Steernberg in the Wills Variation Act action. I give this extreme example to illustrate this important underlying point: the nature and extent of the defendant beneficiaries’ entitlement to the estate was undetermined and uncertain because of Mrs. Steernberg’s claim. Legal fees were, therefore, being taken from a fund that was not assuredly theirs.

[21] In Vielbig v. Waterland Estate (1995), 121 D.L.R. (4th) 485, 1 B.C.L.R. (3d) 76 (C.A.), the British Columbia Court of Appeal approved the following summary of the law made by Master Horn in Lee v. Lee Estate (1993), 84 B.C.L.R. (2d) 341 (S.C.), with respect to costs in estate actions and actions under the Wills Variation Act:

An order for costs in favour of a completely unsuccessful party against a completely successful party is a most exceptional order. The general rule is that costs follow the event and, while a court may depart from this rule, any departure is usually in the way of depriving a successful party of costs and not of awarding costs to an unsuccessful party. In either case, the usual rule should not be departed from simply because an unsuccessful party did not expect to lose… .

In probate or administration actions or in proceedings for the construction of wills, the rule may be more frequently departed from. In such cases where the validity of a will or the capacity of the testator to make a will or the meaning of a will is in issue, it is sometimes the case that the costs of all parties are ordered to be paid out of the estate. This is upon the principle that where such an issue must be litigated to remove all doubts, then all interested parties must be joined and are entitled to be heard and should not be out of pocket if in the result the litigation does not conclude in their favour. The estate must bear the cost of settling disputes as a cost of administration… . The question to be asked in such case [sic] is whether the parties were forced into litigation by the conduct of the testator or the conduct of the main beneficiaries.

But the case is different where the litigation does not relate to the validity of the will or the capacity of the testator or the construction of the will. Actions brought under dependants’ relief legislation presume the validity of the will and the capacity of the testator and that his intentions are clear. There are not doubts to be settled. The remedies provided by such legislation are directed to the maintenance and support of the dependants of the testator and are based on public policy. The legislation does not invalidate the will, it merely permits the court to vary the provisions made by the testator. So an unsuccessful action under such legislation cannot be said to have been caused by a testator, or to have been necessary to enable the estate to be distributed. The action does not benefit the estate.

[22] The Court of Appeal in Wilcox said that in the context of a Wills Variation Act claim, where there is no issue with respect to the capacity of a testator or the validity of the will itself, the role of the executor is to remain neutral and provide information about the will to the court. As explained in Wilcox:

¶25 Under Rule 8(14) of the Rules of Court, the executors of the estate were required to be made a party to the Wills Variation Act proceeding. Generally speaking, an executor is required to play a neutral role in the litigation. As a result of having to play a neutral role, an executor generally receives special costs from the estate. However, when the executor is also a beneficiary, the costs must be separated. In Ewasew v. Ewasew (1996), 11 E.T.R. (2d) 309 (B.C.S.C.) those issues were canvassed by Mr. Justice Spencer, who stated:

[3] During argument before me, counsel for the Public Trustee, representing two infant beneficiaries, challenged the petitioner's right to have her costs of defending a Wills Variation Act proceeding brought by the widow. That issue was argued by counsel for the petitioner and by the respondent in person and it is appropriate to deal with it now so that when the accounts are passed the Master or Registrar dealing with them will have the benefit of a ruling.

[4] The petitioner was both executrix and one of four equal beneficiaries of the estate. As executrix she was required to be joined in the action by Rule 8(14) and bound to come into court to produce information about the estate. She was bound to keep a neutral position between the beneficiaries and the claimant, see In the Matter of the Estate of Ogilvie (unreported) Nanaimo Registry 0114/64, July 15, 1965 per Wootton J. at pp. 1 and 2. To the same effect see also Amighetti, The Law of Dependants' Relief in British Columbia (Carswell 1991) at p. 148 and also the statement at para. 16.29 of the B.C. Probate Practice Manual (C.L.E. 1984, June 1995 revision). As beneficiary however she was entitled to appear and defend the action to protect her inheritance from the applicant's attempt to win a share of the estate for herself. In this case that is what she did. So also did the two infant beneficiaries by their own counsel and so also did the respondent by her own counsel. The applicant's claim for a share under the will was rejected. The two infants were successful in their counterclaim for maintenance during their minorities.

[5] Included in the petitioner's accounts, still to be passed, are her solicitor's three bills totalling $19,703.15. An examination of those bills shows that most of the work represented was in defence of the action to vary the will. They contain no break-down of individual items from which a determination can be made about how much was to conduct the ordinary business of the estate.

[6] The reasons for judgment of my brother Parrett in the Wills Variation Act proceedings stated that he "would ordinarily expect that those costs required of her as executor would be paid out of the estate...". In defending the action, the petitioner performed two separate functions. First she brought forward the will and details of the estate for the assistance of the court. Second, she represented her own interests as a beneficiary, just as the other beneficiaries defended their own interests at their own cost. Where a beneficiary is not also the executrix it is clear that her or his own solicitor's costs are payable by the beneficiary and not by the estate. The rule should be no different where the beneficiary is also the executrix, but it will be important to break-out whatever part of the costs are attributable to the executrix's duties qua executrix as opposed to her actions as a defending beneficiary.

[7] When the executrix's accounts are eventually passed therefore, the Master or Registrar will be directed not to allow as part of the estate accounts whatever of the petitioner's legal costs were incurred to defend her personal inheritance from attack.

[23] I agree with Registrar Bouck in Wilcox Estate (Re) where, at ¶56, she describes as false the premise that any services rendered in defending a will are de facto to be borne by the estate. Mr. Justice Bouck in Quirico also addressed the requirement that the executor remain neutral in Wills Variation Act proceedings:

¶15 The primary duty of an executor is to preserve the assets of the estate, pay the debts and distribute the balance to the beneficiaries entitled under the will or, in accordance with any order made under the Wills Variation Act. An executor should not pick sides between the beneficiaries and use estate funds to finance litigation on their behalf under the Wills Variation Act. It is a matter of indifference to the executor as to how the estate should be divided. He or she need only comply with the terms of the will or any variation of it made by a court.

[24] It follows that it is inappropriate to withdraw funds from an estate at the start of the litigation, or throughout the course of the litigation, to fund the defence of a Wills Variation Act claim, as was done in this case, in the absence of a court order or the unanimous agreement of the beneficiaries. A will is defended in the sense used in the case law, where an allegation is made that the will itself is invalid. Examples would be challenges to the will on the basis that the testator lacked capacity or that there was undue influence. In a Wills Variation Act claim, on the other hand, the validity of the will itself is not being challenged and there is, therefore, no need for an executor to “defend” the will.

[25] Nor can it be said that the litigation in this case was caused by the testator. That characterization applies where the testator has left interpretation problems (for example, misnaming a beneficiary) which require a court’s intervention.

[26] There must be an accounting, not only as to the net value of the estate with all the legal fees relating to the defence of the Wills Variation Act claim accounted for (whether they were paid to the defendants’ litigation counsel or counsel for the Executor), but also with respect to income lost by the estate on the funds that ought to have been properly invested, but instead were used for legal fees.

The Rule 37 Offer

[27] The Rule 37 offer was made on behalf of Rik Steernberg, in his capacity as Executor, and the other defendants as beneficiaries. He was not entitled, in his neutral role as Executor, to make such an offer. He did not join in the offer in his personal capacity as beneficiary. It was, therefore, not an offer made on behalf of all persons beneficially interested in the assets of the estate, and hence would not be binding on the estate.

[28] In addition, the Rule 37 offer was made based on a percentage of an incorrect and significantly reduced value of the estate. It was reduced because the executor authorized the payment of the beneficiaries’ legal fees when he was not entitled to do so.

[29] The purpose of making a Rule 37 offer, broadly speaking, is to allow the party receiving the offer to assess the reasonableness of the offer. As the Court of Appeal said in Cridge at ¶23, the “purpose of Rule 37 is to encourage the settlement of litigation through prescribed consequences in costs as in sub-rule (24).” In this case, however, the offer was based on a percentage of the estate represented by the defendants to be an amount much lower than it ought to have been. Mrs. Steernberg was, therefore, not in a position to properly assess the offer. The offer was, therefore, not a valid Rule 37 offer. The Rule is only mandatory when there has been a valid offer.

[30] I also conclude that the offer was invalid because of ambiguity and uncertainty. In my view, an offer of a percentage of an uncertain net value is akin to an offer of a monetary settlement that is uncertain. Where a Rule 37 offer for monetary settlement is made, the amount of that offer must be certain.

[31] In On Side Restoration Services v. Strata Plan NW 1815 (2005), 20 C.P.C. (6th) 185, 2005 BCCA 562, an offer to settle had been made for a dollar sum plus interest. The Court of Appeal held that the offer was invalid because, by including interest, it failed to unambiguously state a certain amount, as required by Rule 37:

¶15 The Strata Corporation submits that the offer varies from day to day with the amount of accumulated interest and fails to meet the rule's requirement of certainty. Counsel relies on Hine v. Bentley (1979), 14 B.C.L.R. 10 (S.C.), where Esson J. (as he then was) held with respect to the predecessor to Rule 37(3) that an offer to accept a fixed sum "plus interest at 8 percent per annum" from a fixed date failed to comply with the rules. …

¶16 Hine v. Bentley was followed by this Court in Kurtakis v. Canadian Northern Shield Insurance Co. (1995), 45 C.P.C. (3d) 294 (C.A.).

¶17 The respondents submit that the offer here, properly interpreted, was limited to interest to the date of the offer and is not objectionable as open ended and uncertain. However, as Esson J. observed in Hine, that is only one possible interpretation of the offer. At best it is ambiguous. In my view, the offer here is indistinguishable from the offer found objectionable in Hine and it fails to unambiguously states certain amount [sic] as required by the subrule. The order for double costs cannot be supported on that ground and it is unnecessary to consider the other objections to the offer to settle.

[32] In addition to On Side, Kurtakis v. Canadian Northern Shield Insurance Co. (1995), 17 B.C.L.R. (3d) 197, 45 C.P.C. (3d) 294 (C.A.), Tilbury Cement Ltd. v. Seaspan International Ltd. (1991), 47 C.P.C. (2d) 292, 25 A.C.W.S. (3d) 20 (S.C.) and Hine v. Bentley (1979), 14 B.C.L.R. 10 (S.C.) support the proposition that the amount of a monetary offer to settle must be certain. Moreover, Morck v. Soragnese (1994), 87 B.C.L.R. (2d) 263, 24 C.P.C. (3d) 38 (S.C.), Leung v. MDSI Mobile Data Solutions Inc., 2002 BCSC 1780 and Sharpe v. Brokerhouse Distributors Inc. (2005), 12 C.P.C. (6th) 370, 2005 BCSC 619, all suggest that an offer to settle must be clear and unambiguous.

[33] The amount of the offer was uncertain in this case because it was based on a percentage of the net value of the estate. The net value of the estate fluctuated over the time period when the offer was in effect. As a result, the sum contemplated by the offer would not necessarily be the same “on the day of the offer and the day of the payment-in or consent to judgment” (Hine v. Bentley (1979), 14 B.C.L.R. 10).

[34] Such an uncertain offer defeats the purpose of the Rule. The person receiving the offer is not in a position to assess its reasonableness and should not pay the “prescribed consequences in costs.”

Costs Generally

[35] The Court has a broad discretion as to costs, which must be exercised judiciously. I have considered the issues relating to other conduct raised by the parties. There are conflicts in the evidence that I am not able to resolve. That conduct will, therefore, not be taken into account in assessing costs.

[36] Mrs. Steernberg was successful in having the will varied; she was substantially successful. She did so at a time when there was an “uneven playing field”. The defendants had their legal costs paid out of the estate throughout, whereas she did not, even though she was also a beneficiary.

CONCLUSION

[37] As a substantially successful party, Mrs. Steernberg is entitled to her costs, payable under the Schedule in existence at the time of the trial, at Scale 3: Fotheringham v. Fotheringham (2001), 13 C.P.C. (5th) 302, 2001 BCSC 1321, leave to appeal refused (2002), 172 B.C.A.C. 179, 2002 BCCA 454.

[38] The beneficiaries must pay her costs personally, not out of the estate.

[39] I direct that the Executor pass his accounts before the Registrar and that the Registrar enquire into, and make recommendations, with respect to the net value of the estate after taking into account: first, appropriate legal fees; and second, the income that ought to have been earned on the funds, inappropriately removed for legal fees, had they remained invested in accordance with the Executor’s duty to invest.

______________________________

Martinson J.