2008 BCSC 506 Doucette v. Clarke

Before: The Honourable Mr. Justice Metzger

Reasons for Judgment

Counsel for Wayne Doucette:	M.J. Hargreaves
Counsel for Diane McInnes and Sidney Doucette:	J.M. Hutchison, Q.C.
Counsel for Joslin Clarke:	J. Campbell
Date and Place of Hearing:	20080328
	Victoria, B.C.

BACKGROUND

[1] This is an application for costs arising out my reasons for judgment at 2007 BCSC 1021 (the “Trial Judgment”), where I summarized the proceeding as follows at paras. 1-7:

[1] The two proceedings before the court involve interconnected questions about joint investment accounts, and the value and distribution of Mildred Doucette's estate. The parties consented to one trial of the two actions.

[2] Mildred Doucette died in Victoria, British Columbia on April 29, 2004. Her four adult children survive her: Joslin Clarke, Wayne Doucette (known as John), Diane McInnes, and Sidney Doucette (known as Louie). Mildred Doucette's ex-husband, Ernie Doucette, is not a claimant in these proceedings as they were divorced in 1981.

[3] Mildred Doucette executed her last will on October 5, 2000. She made Diane and Louie co-executors. She bequeathed $5,000 to John, $5,000 to Joslin, her house, now valued at approximately $420,000 and valued at approximately $240,000 shortly after date of death, to Louie, and the residue of the estate to Diane.

[4] Diane was the joint tenant with her mother on one bank account, which she admitted was to help her mother pay bills, one investment certificate, and one RRIF. These totalled approximately $230,389. Louie was a joint tenant with his mother on an investment certificate valued at $43,899. Joslin was a joint tenant with her mother on an investment certificate valued at $150,000. These values do not include interest earned. The three children have claimed their jointures, pursuant to the right of survivorship, and taken the money in the respective accounts.

[5] In a wills variation action commenced on February 22, 2005, John sued Diane, Louie and Joslin asking for a declaration that the jointures are subject to a resulting trust in favour of the estate and that there be a more equitable division of the estate. Joslin claims against Diane and Louie for the same relief.

[6] The co-executors take the unusual position that all of the jointures are gifts that fall outside of the estate with the exception of $50,000 of Joslin's jointure. On April 13, 2005, Diane and Louie, as co-executors of the estate, brought a trust action in an attempt to get Louie $50,000 from Joslin's $150,000 jointure by seeking a declaration that part of Joslin's jointure is held in trust for the estate. The co-executors ground their action in their mother's expressed intention, a few weeks before her death, that Louie should receive $50,000 as compensation for any income that he may lose by attending upon her in Victoria while she was ill.

[7] The proceedings raise two main issues:

1) Are the joint investment accounts resulting trusts that revert to the estate on Mildred Doucette's death or were they intended as gifts to pass to the surviving joint account holders by the right of survivorship?

2) Has Mildred Doucette made adequate provision in her will for the proper maintenance and support of her four adult children or should the court vary her will to satisfy her moral obligations to them?

[2] The trial lasted six days. As to the first issue, I held at para. 18 that:

... there is insufficient evidence of Mildred Doucette's intention at the time she signed the banking documents to rebut the presumption of resulting trust. As such, all of the joint investment and bank accounts (including the RRIF), worth approximately $424,000, are resulting trusts and form part of the estate.

[3] I then went on to consider the adequacy of the provisions made for each of the children in the will. I concluded as follows at para. 91:

Although a parent is entitled to favour certain adult children in her will, a parent also has moral obligations to all of her adult children. The evidence clearly establishes that Mildred Doucette favoured Louie and Diane and wanted them to be more favourably treated under her will. The court must respect Mildred Doucette's testamentary autonomy and intentions. However, the estate is worth in excess of $844,000. Given Mildred Doucette's poor treatment of John and Joslin throughout their lives, her joint responsibility for their estrangement, and John and Joslin's disabilities, she has failed in her moral obligations to make adequate provision for John and Joslin by only providing them with $5,000 each.

I ordered the house sold, and varied the will such that Louie received 35% of the entire estate, Diane and Joslin each received 25%, and John received 15%.

[4] Because I held that all of the jointures belonged to the estate by way of resulting trust, the executors’ claim against Joslin for a return of $50,000 effectively had its foundation removed and became, in one sense, moot.

[5] I will keep the two actions separate for the purposes of determining costs and refer to the first action as the “WVA Action” and the second action as the “Joslin Action”.

[6] Diane and Louie, the executors, say that all parties should have their costs on a party and party basis out of the estate because the litigation was caused by the fault of the testatrix, and the executors acted properly by upholding the testamentary intention of the deceased. John and Joslin say that Diane and Louie acted as beneficiaries rather than as executors and so should be required to pay their own legal costs personally. John and Joslin seek special costs.

WVA Action

[7] There were two major aspects to the WVA Action. The first was John’s assertion that the jointures were part of the estate as resulting trusts. The second was John’s assertion, supported by Joslin, that John should receive a larger part of the estate. The executors opposed both aspects of the WVA Action.

[8] An executor is a trustee, and accordingly owes a fiduciary duty to the beneficiaries of an estate. An executor is generally reimbursed in full by the estate for all costs incurred in the fulfilment of that role. The question is whether the list of things that an executor may properly do in their role as executor includes opposing an application under the Wills Variation Act, R.S.B.C. 1996, c. 490 (the "WVA"), for a variation of the will of the deceased. I am satisfied that the manner in which Diane and Louie opposed this application was to act as a beneficiary rather than as an executor.

[9] The costs award of the trial judge in Chan v. Lee, 2003 BCSC 513, together with the main judgment on the merits, was reversed in part on appeal at 2004 BCCA 644, but not on any basis that undermines the principle that applies in the case before me.

[10] In Chan, the plaintiff sisters succeeded in a WVA proceeding to vary their father’s will over the objections of the defendant brothers who were both executors and beneficiaries under the will. The sisters then sought special costs against the brothers personally. The brothers’ position was that party-and-party costs should be paid to the sisters out of the estate.

[11] At para. 8 of his reasons on costs, Mr. Justice Hood found that the defendants “were attacking the entitlement of the sisters and defending their own inheritance as beneficiaries and not as Executors” and that there “was nothing neutral or unbiased about the positions maintained by them”. He cited in particular that the brothers challenged the credibility of the plaintiffs and their relationships with the testator (para. 15). He agreed that it would be unjust to permit the defendants to take a position qua beneficiary at trial, and to then have their costs paid out of the estate when they lost, thus reducing the successful plaintiffs' ultimate distribution from the estate (para. 16). All of these comments are applicable to the case before me. Mr. Justice Hood concluded that the defendants were personally liable for the plaintiffs’ costs.

[12] It was argued before Mr. Justice Hood, as it was before me, that where a testator is found by the court to have failed to meet his obligations under the WVA, all parties ought to recover their costs out of the estate. Mr. Justice Hood rejected this argument at para. 10, stating that the kind of fault contemplated by that principle is where the will is invalid due to the testator lacking capacity, or unclear due to an ambiguity in the will.

[13] On appeal, Newbury J.A. noted at para. 57 (Lowe and Levine JJ.A. concurring on this point):

The [trial] judge ... rejected the argument that since the testator had been found not to have discharged his obligations as a judicious spouse and father, he himself was ‘at fault’ or in some way responsible for the action ... The [defendants] did not challenge this principle on appeal.

[14] I am satisfied that para. 10 of the trial judgment remains good law. I also conclude that the pre-Chan authorities confirm that an executor-beneficiary cannot recover from the estate his or her legal costs flowing from his or her participation in a WVA proceeding. The exception might be where an executor participates in a WVA proceeding only to the point of waiving solicitor-client privilege, for example, so that the solicitor who drew up the will can testify to put the testatrix’s reasons for disinheriting someone before the court. The principle in Vielbig (paras. 40-45) that costs of an unsuccessful action to vary the will be borne personally is equally applicable to an unsuccessful opposition to a variation.

[15] In reaching this conclusion, I have not overlooked the final paragraph of Erlichman v. Erlichman, 2002 BCCA 160, which appears on its face to be to a contrary effect. Erlichman does not analyze the earlier authorities (one of which is from that same court) regarding the costs implications of an executor-beneficiary contesting a WVA proceeding. I am satisfied the costs order in Erlichman represents what the Court of Appeal found to be appropriate in the circumstances of that case. Chan was released after Erlichman and stands for the proposition that the law remains as established by the earlier authorities.

[16] I do not accept the argument of counsel for Diane and Louie that executor-beneficiaries are permitted to defend a WVA Action in the manner that Diane and Louie did here in order to “give voice to the testatrix” and then to claim their costs from the estate. Had they merely presented to the court the testatrix’s letter explaining her reasons for effectively disinheriting John, they may have been acting as neutral executors. However, they went beyond that neutral role. They participated as parties who testified, called witnesses, challenged the credibility of the other parties, and made submissions. The fact that I varied the will in a way that preserved some recognition of the testatrix’s testamentary autonomy does not change this result. The law requires an executor to remain neutral. Counsel for the executors did not cite any authority, with the arguable exception of the last paragraph of Erlichman discussed above, that would permit an executor to enter the fray of a WVA proceeding at the cost of the estate with the explanation that it was to defend the testatrix’s intentions.

[17] It follows that Louie and Diane must personally bear their costs in contesting the WVA Action without reimbursement from the estate. I will accordingly direct the registrar to disallow Diane and Louie from claiming reimbursement for their legal costs for the WVA Action from the estate when they pass the estate’s accounts (see Wilcox v. Wilcox, 2002 BCCA 574 at para. 25). In addition, the costs award that I make in favour of John for the WVA Action is recoverable against Louie and Diane personally.

Joslin Action

[18] The question here is whether costs for the Joslin Action should be awarded differently than for the WVA Action, so I will consider whether Rule 57(15) is engaged in this case. I applied that rule in my recent decision on costs in Laichkwiltach Enterprises Ltd. v. F/V Pacific Faith (Ship), 2008 BCSC 282, at paras. 32-34:

[32] Counsel for both sides agree that the leading authority is British Columbia v. Worthington (Can.) Inc. (1988), 29 B.C.L.R. (2d) 145 (C.A.), a decision of a 5-judge panel of our Court of Appeal. At issue was a costs award following a 41 day trial relating to the failure of a piece of industrial equipment. The trial judge ultimately dismissed the plaintiff's claim due to his finding that the equipment failure resulted from something done by the plaintiff's own employee. However, in assessing costs, the trial judge applied the equivalent of what is now Rule 57(15) and awarded the plaintiff costs associated with the 14 days of trial spent on two unsuccessful defences raised by the defendant. Esson J.A. (Carrothers and McLachlin JJ.A. concurring) provided the following balanced guidance on the use of Rule 57(15) at pages 167-170:

[Rule 57(15)'s] purpose, in my view, is to give trial judges a discretionary power to effect a just result between parties in cases which have been prolonged by issues such as those raised here by the defendants ...

I accept that it would be error in principle to interpret R. 57([15]) as requiring the court to award to the plaintiff the costs of any issue on which the defendant failed ...

It does not matter that the onus of proof on those issues may have rested on the plaintiff. What does matter is that they were issues deliberately introduced into the litigation by the defendants with full knowledge that they would necessarily increase, to a very substantial degree, the costs and expense of the action ...

My purpose in referring to these matters is not to establish that the defences were "spurious" or "unjustifiable" or "improper", or that to put them forward amounted to misconduct. Nothing of that kind need be established as a basis for invoking the rule - it is enough that there was mixed success on issues or parts of the proceeding. The relevance of those matters is that they are circumstances connected with the case which render it manifestly fair and just that the defendants should pay the costs resulting from their having raised those issues ...

The most persuasive argument put forward by the appellants was perhaps that which might be described as "in terrorem". It raises the spectre of every judgment of dismissal resulting in a costly and painful process in which the court will be invited to dissect and analyze every issue and subissue with a view to apportioning costs. That consequence, were it to materialize, would be most undesirable. I see no reason why it should materialize. It is now well over a decade since the unfettered discretion in the present statute and rules came into force. There has not, to my knowledge, been an excessive number of applications to apportion costs. I see nothing in the circumstances of this case which should encourage lawyers to conclude that such application should be brought except in relatively rare cases.

[33] Rule 57(15) gives a discretion to the trial judge to "redress the basic unfairness that would result" if the ultimately successful party were to recover costs for unnecessary and costly issues that it raised and lost: Webber v. Canadian Aviation Insurance Managers Ltd., 2003 BCSC 274, at para. 23. Sinclair Prowse J. added the further requirement that "the circumstances of the case must establish that the failure to apportion costs would result in basic unfairness" (para. 26). Webber was followed in Chan et al v. Lee et al, 2006 BCSC 155, at paras. 25, 27. The Rule 57(15) discretion exists in part to discourage parties from raising "red herring issues" (Van Halteren v. Wilhelm (1997), 22 C.P.C. (4th) 319 (B.C.S.C.)). The Rule ought to be invoked sparingly, lest every trial be followed by a meticulous costs post mortem which would add yet further expense and be contrary to the interests of justice. As stated by Vickers J. in Gotaverken Energy Systems Ltd. v. Cariboo Pulp & Paper Co. (1995), 9 B.C.L.R. (3d) 340 at 343 (S.C.):

Rule 57(15) was not designed to allow for a minute dissection of the success or failure of litigants on the completion of a trial. It envisioned there would be discrete issues, occupying distinct portions of time in the life of the trial, upon which an objective observer could say one or other of the parties was successful in the result.

[34] When invoked, the apportionment pursuant to Rule 57(15) is usually "based upon an estimate of the court time consumed by each issue": Ferguson v. Ferguson (1996), 28 B.C.L.R. (3d) 39, at 43.

[19] A preliminary question to be determined in this case is who won the Joslin Action. As stated previously, its foundation was undercut by my finding at the first step of the WVA Action that the jointures belonged to the estate. As a result, Joslin did not hold a $150,000 instrument from which the executors could recover $50,000. I would not give effect to the executors’ argument that the executors achieved what they sought in the Joslin Action – that $50,000 be brought back into the estate – but for different reasons. The Joslin jointure was brought into the estate based on an argument advanced by John that was opposed by the executors. On the other hand, although the order resulting from the Joslin Action was a simple dismissal order, this was not because Joslin won on the merits. The claim in the Joslin Action was that the testatrix had formed an actual intention to withdraw $50,000 from the Joslin jointure to give to Louie, but that she had died before being able to do so. The merits were never considered in my judgment because, as counsel for the executors says, the issue became moot.

[20] Joslin submits that the action was brought against her pursuant to a conflict of interest. The claim against her was brought by the executors on behalf of the estate who claimed to be representing the intention of the testatrix. That intention was said to be for the $50,000 to go to Louie. However, if the $50,000 was brought into the estate, the original will would see that entire amount go to Diane who was the sole residual beneficiary. Louie testified in cross-examination that his expectation was that if the Joslin Action was successful, Diane would simply give the money to him. There is no cause of action at law by which Louie could have sued Joslin for the $50,000. Joslin says that Louie and Diane improperly used the estate as a vehicle for bringing an action for Louie’s personal benefit that he could not have brought in his personal capacity. Counsel for Joslin brought this matter to the attention of counsel for Diane and Louie in 2006 by letter.

[21] Diane and Louie contend that there was nothing wrongful in bringing the Joslin Action. They say that there was no attempt to hide the path that the money would travel if the action were won, and that it would be inappropriate to impute a sinister intent to them. They say that they were doing exactly what they were required to do as trustees of the estate – take the action necessary to bring into the estate the assets that rightfully belong to it. They submit that it would be inconsistent to fault them for opposing the jointures being estate assets in the WVA Action and then to fault them for asserting exactly that with respect to the Joslin jointure. There was independent evidence that the testatrix had an intention to withdraw $50,000 from the Joslin jointure but that she was told by the bank that it was locked in for the time being. In effect, they say that the Joslin Action was pursued on the basis of an actual intention, rather than on the basis of the legal presumption that governed in the WVA Action. They say that there is no sense in looking at who the ultimate beneficiary of an estate asset will be when determining the propriety of the executors seeking to bring assets into the estate, which is the executors’ obligation vis-à-vis the beneficiaries as a whole.

[22] I have concluded that Joslin has not established that it was wrongful for the executors to bring the Joslin Action. In the Joslin Action, there was evidence of an actual intention to withdraw the funds from the Joslin jointure. This is a reasonable basis upon which an executor could decide to initiate litigation. The fact that they took the wrong position in the WVA Action should not cause this court to award costs against them in the Joslin Action.

[23] Unlike the jointure issue in the WVA Action which added very little in time or cost, I find that the Joslin Action added 15% to what the length of the trial would otherwise have been had the executors not brought that separate claim against Joslin in April 2005. The Joslin Action required its own set of pleadings. More to the point, however, Joslin was required to retain counsel solely as a result of the Joslin Action. Had the executors not brought the Joslin Action, Joslin would have simply appeared as a witness in the WVA Action to support John and would have had no legal costs. Furthermore, her counsel had to prepare and be present for a 6 day trial. See the Chan appeal at para. 61.

[24] I note that John is entitled to his costs for the entire trial on the same basis.

[25] Therefore, vis-à-vis Joslin, the Joslin Action did increase the costs and expense of these proceedings to a “very substantial degree”. Failing to sever costs would also result in the “basic unfairness” of depriving Diane and Louie of having their legal costs in prosecuting the Joslin Action paid by the estate, when I have found that the Joslin Action, unlike the WVA Action, was properly litigated by them in their representative capacity (Webber at para. 23). I find that this is one of those “relatively rare cases” for the invocation of the court’s discretion to sever issues for the purposes of costs, and I therefore find that Rule 57(15) is applicable to this case.

[26] It was the submission of counsel for Diane and Louie that all parties should have their costs out of the estate. While John opposed costs being paid out of the estate in favour of Diane and Louie who lost the WVA Action, he did not oppose costs being paid out of the estate in favour of Joslin who at worst could be said to have come out a little better than even, having lost her jointure but been awarded one quarter of what remains of the estate after this litigation. In the unique circumstances of this case, and given the concession of Diane and Louie in submissions on this point, I have concluded that Joslin shall have her costs out of the estate.

SCALE OF COSTS

[27] By default, litigants are entitled to costs on a party-and-party basis. In this case, John and Joslin submit that the executors should be liable for special costs because they misconducted themselves. Apart from the allegation of conflict of interest with respect to the Joslin Action which I have rejected above, four main grounds of misconduct are advanced. Firstly, there is an allegation of conflict of interest in the WVA Action. Secondly, there is Diane’s conduct described at para. 78 of the Trial Judgment where almost immediately after her mother’s death, she called Joslin into the room where her mother’s body lay and demanded that Joslin give $50,000 to Louie. Thirdly, there is the assertion that Diane intentionally gave false or incomplete evidence with the intention to mislead the court. Lastly, there is the allegation that counsel for the executors behaved inappropriately during cross-examination and closing submissions in accusing Joslin of lying without an evidentiary foundation. A number of these grounds were also at issue in Chan at paras. 20-28 where special costs were ordered by the trial judge.

[28] The question is whether the conduct of the defendants is deserving of reproof or rebuke (Chan at para. 25, citing Laye v. College of Psychologists (British Columbia) (1999), 59 B.C.L.R. (3d) 349 (C.A.)).

[29] I am satisfied that it was improper for the executors to deny that the jointures formed a part of the estate. John’s assertion had the effect of enlarging the estate – the precise interest that the executors were supposed to represent. Instead of conceding that point to John, the executors denied that the jointures were gifts. I find on the facts of this case that the executors were acting in a conflict of interest between their position as executors (who should have supported the assertion of resulting trust) and their position as beneficiaries (who wished to retain their jointures as gifts for their personal benefit). While the main authority cited in my judgment was released by the Supreme Court of Canada only shortly before the trial, all counsel were aware of it before the trial commenced. The executors had the opportunity to consider conceding the jointure issue rather than forcing John to prove that issue. That conflict of interest existed at all times irrespective of the ultimate judgment.

[30] I accept that executors who act in the position of a conflict of interest may be penalized on costs. However, in this case, I find that the length of trial and degree of legal expenses would have been essentially unchanged even if they had properly conceded the jointure issue. Almost all of the same evidence would have been led in any event to attack the will as failing to meet the testatrix’s obligations under the WVA.

[31] Although the executors’ counsel’s attacks on the credibility of Joslin were vigorous and at times offensive, it is my view that they were not “over the line” such as to attract censure by way of a costs award. Similarly, it is true that I found Diane not to be a credible witness and that her behaviour immediately after her mother’s death was callous and high handed (paras. 77-78 of Trial Judgment), but after considering the degree of the misconduct, the awkwardness of penalizing such conduct with costs, and the impracticality of parsing this aspect of the proceeding, I do not consider it appropriate to change the costs award on account of this misconduct. I note in this respect that the Court of Appeal in Chan concluded at para. 60 that in the circumstances of that case, an award of special costs “threaten[s] to turn a result that is less than ideal into a punitive one”. The Court of Appeal thus substituted costs “on the usual scale”. Considering the allegations of misconduct both individually and together, I conclude that it is not appropriate to order special costs in the circumstances of this case. All costs will therefore remain on a party-and-party basis.

RESULT

[32] I make the following order as to costs:

· Diane and Louie are personally responsible for all of the costs incurred by them for the WVA Action. When their executors’ accounts are eventually passed, I direct the Master or Registrar to disallow 85% of the costs or disbursements associated with this entire proceeding, which amount I have apportioned to the WVA Action.

· Diane and Louie are entitled to have all of the costs incurred by them for the Joslin Action paid by the estate. When their executors’ accounts are eventually passed, I direct the Master or Registrar to allow 15% of the costs or disbursements associated with this entire proceeding, which amount I have apportioned to the Joslin Action.

· Diane and Louie are entitled to have one-half of their costs incurred by them for this costs application paid by the estate. When their executors’ accounts are eventually passed, I direct the Master or Registrar to allow 50% of their costs from this costs application and to disallow the other 50%.

· John is entitled to his costs of the entire proceeding, including this costs application, from Diane and Louie personally (jointly and severally) on a party and party basis; and

· Joslin is entitled to her costs of the entire proceeding, including this costs application, from the estate on a party and party basis.

[33] These costs orders will figure into the calculations of what is to be distributed from the estate, with appropriate set-offs applied before the distributions are made.

"R.W. Metzger, J."

The Honourable Mr. Justice Metzger

Citation:	*Doucette v. Clarke,*
	2008 BCSC 506