The Court has Options Short of Removal
In the September 2024 decision in Deziel v. Deziel, the freshly appointed Justice Barbara McFarlane touched upon a number of interesting points that apply to estate litigation and the administration of an estate. Estate Litigation Lawyers and simply Estate Lawyers need to keep these concepts in mind.
We begin with Justice Barbara McFarlane’s own interesting background. She had been a Judge for only a few months when she rendered this decision. Justice McFarlane began her legal career as a law clerk, worked her way up to becoming a lawyer, then partner, eventually founding her own law firm and has now reached the heights of becoming a Superior Court Judge. Obviously, a woman of substantial intellect and self motivation.
In the case at hand, the facts are interesting. We have a relatively small estate composed of a bank account and a modest home.
The mother left a will, and two of the four children of the deceased were named as executors. The Will gave the specific authority to any one of the beneficiaries having the right to purchase the home from the estate. In the absence of that provision, only a court or the unanimous consent of all the beneficiaries can permit such self dealing.
One of the beneficiaries/executors purchased the home. In the end, the other beneficiaries were able to convince the court that the home was purchased for some $30,000 below market value, and that it was inappropriate for the purchaser to have deducted their estimate of the real estate commission that would have been paid had the property been sold on the open market.
Also, the deceased mother had written out a cheque to one of the beneficiaries for $40,000. It was supposedly a gift in recognition of that beneficiary’s care of the ailing mother in the last few years of her life. Unfortunately, the beneficiary did not cash the cheque until after the mother had passed away.
I direct our readers to another blog titled Gift Gone Wrong in which the various components of a valid gift are set out. In this case, the failure to cash that cheque prior to death, cut out one of the prime components of a valid gift, namely delivery. The gift was not delivered and as such the gift failed and the $40,000 had to be returned. Justice McFarlane pointed out that upon their customer’s death, the donor’s bank ( person who wrote the cheque ) can no longer negotiate a cheque. Section 167 of the Bills of Exchange Act states that the duty and authority of a bank to pay a cheque is determined by countermand or notice of the customer’s death. As such, if there is a revocation stop payment of the cheque or notice of the death of the customer, the bank can no longer cash the cheque. We discussed this in our prior blog article on the Teixera v. Markgraf estate.
Justice McFarlane also pointed out, and as we have expressed repeatedly in these blogs, the role of being an estate executor imposes upon one a fiduciary duty. A fiduciary duty is one at the highest level of responsibility. Quoting the 1992 Supreme Court of Canada in Norberg v. Wynriv the executor of an estate takes the financial power that would normally reside with the beneficiaries and the executor must exercise those powers in their stead and for their exclusive benefit.
The remaining beneficiaries who felt that they had been financially injured as a result of the errors made by the executors, brought an application to the court. They asked for various relief, including reversing the sale of the house and forcing the home to be placed on the open market and returning the $40,000 gift. One must consider that none of this makes any financial sense. The court application had to have been extremely expensive, with costs amounting to many tens of thousands of dollars. Any benefit that the aggrieved beneficiaries would have obtained would only result in a 25% increase in their share of the estate. On top of that, we have the familial devastation that would have echoed amongst the four surviving siblings.
Nonetheless, such is estate litigation, and this is what estate litigation lawyers deal with all the time. For this to have made any financial sense, at least one or two additional zeros needed to have been added to the amount in dispute.
While the judge found that the executors had breached their fiduciary duty, she exercised her discretion which is extremely wide. The judge penalized the executor who purchased the home, made him pay the estate the $30,000 shortfall and as well made the beneficiary who received the incomplete gift of $40,000 return it to the estate. This $70,000 was then split 4 ways. In other words, for all of the effort, each complaining beneficiary gained $17,500.
Justice McFarlane felt that she had a wide discretion on what tools to use to fix the situation. The judge held damages must be a flexible remedy of equity, including equitable compensation effecting fairness and justice in the specific situation. There are times when traditional remedies may not be available or appropriate.
The Judge showed ingenuity and flexibility in not removing the executors feeling that there was no malicious intent, but rather the actions of inexperienced parties dealing with a modest estate.
Once again, we point out that estate litigation calls upon numerous areas of the law and is a stew of competing legal interests. None of these are cheap to explore or put forward, and again from the sidelines one can only shake one’s head at the issues between these four siblings that lead as far as a court case. A sprinkling of a common sense and goodwill could have saved all concerned easily a combined $100,000 in legal fees.
