Court Clarifies Costs of Estate Litigation in Complex Family Dispute
This Vancouver estate litigation between siblings over their father’s estate—and the costs of the estate litigation itself—lasted nearly a decade. The BC Court of Appeal’s ruling in in Hollander v. Mooney, 2017 BCCA 238, leave to appeal ref’d [2017] S.C.C.A. No. 356 clarified important principles for awarding costs in estate litigation.
Father’s estate planning leads to dispute among siblings
Litigation in the Hollander matter began in 2009 as a dispute among three siblings about a committeeship application concerning the estate planning of their father, Eldon Mooney. In 2008, Eldon executed a will and documents that resulted in most of his property being transferred into joint tenancy to himself and his two younger children, Gina and Mark. The effect of this estate planning was that on Eldon’s death, most of his property would vest in Gina and Mark. The exception was a RRIF from which Gail (Eldon’s eldest daughter) was to receive $200,000. Later in 2008, Eldon was hospitalized as the result of a head injury. Thereafter, Eldon appointed Gail and Gail’s daughter, Sasha, as his representatives pursuant to the Representation Agreement Act, R.S.B.C. 1996, c. 405.
Disagreement over father’s personal care/financial representation
In January 2009, Gina and Mark commenced committeeship proceedings, seeking the appointment of a professional trust company as committee over Eldon’s person and estate in place of Gail and Sasha. In 2009, Eldon executed a new will, leaving 1/3rd of the residue of his estate to Gail, 1/3rd to Mark, or if Mark predeceased him (which he did, requiring his widow, Joy, to step into the litigation that ensued as Mark’s executor) to Mark’s daughter Kendall, and 1/3rd to be shared by Gina’s adult children, with nothing to Gina. In October of 2010, Eldon, Gail and Sasha filed a counterclaim, putting into issue Eldon’s mental capacity to have made transfers and other inter vivos gifts to Gina and Mark done prior to the 2009 will.
Settlement agreement reached…and then challenged
Following a judicial settlement conference on January 10, 2011, the parties reached a settlement agreement which placed Eldon’s property in a trust and specified its distribution upon his death. Draft agreements were exchanged but no formal signed agreement was concluded before Eldon died a few weeks later on January 29, 2011. After Eldon’s death, conflict arose as to whether the settlement agreement was enforceable. Gina and Mark claimed that no agreement had been reached. Gail and Sasha brought an application to enforce the settlement. The judge found the settlement agreement was valid and enforceable, settled its terms, and approved the agreement on behalf of Eldon.
Costs awarded…and then appealed
Eldon’s property was valued at approximately $1.5 to $2.2 million. Gail and Sasha received at least $385,000 as reimbursement for their legal costs (paid from Eldon’s property) for the period from the commencement of proceeding to the date of his death, and as party and party costs (payable from Gina and Mark personally, in accordance with the modern approach to estate litigation costs, discussed below) for the period from January 29, 2011 to September 19, 2013. Gail and Sasha brought a series of costs applications, putting forward every possible argument to justify further reimbursement of their legal costs and expenses. The judge made costs orders, which Gail and Sasha appealed. In the end, the costs orders made by the trial judge were upheld. Gail and Sasha were awarded ordinary costs of two abandoned appeals, but were ordered to pay special costs to a non-party. The trial judge’s description of Gail and Sasha’s many costs applications and of the litigation itself was apt: “Tragically, one of the goals of the settlement process in January 2011 has not been accomplished. The parties didn’t avoid litigation and they didn’t save the expense and trouble and bad feeling of litigation.”
Traditional approach to costs in estate litigation
The traditional approach to costs in estate litigation was to order the costs of all parties to be paid out of the estate where the litigation arose because of the actions of the will-maker, or those with an interest in the residue of the estate, or where the litigation was reasonably necessary to ensure the proper administration of the estate. Public policy considerations underlie this approach. Where difficulties or ambiguities that give rise to the litigation are caused, in whole or in part, by the will-maker, it is appropriate that the will-maker, through his or her estate, bear the costs of their resolution. If there are reasonable grounds upon which to question the execution of the will or the will-maker’s capacity in making the will, it is again in the public interest that such questions be resolved without cost to those questioning the will’s validity.
Modern approach to estate litigation costs
The modern approach to fixing costs in estate litigation recognizes the need to restrict unwarranted litigation and protect estates from being depleted by litigation. The modern approach is to carefully scrutinize the litigation and, unless the court finds that one or more of the public policy considerations set out above applies, to follow the costs rules that apply in civil litigation (i.e. that costs follow the event and are assessed on a party and party basis unless the court otherwise orders). Gone are the days when the costs of all parties are so routinely ordered payable out of the estate that people perceive there is nothing to be lost in pursuing estate litigation.
Special costs to sanction reprehensible conduct
Special costs may be awarded where a party’s conduct is reprehensible and deserving of rebuke. This encompasses scandalous or outrageous conduct, but it also encompasses milder forms of misconduct. However, the fact that an action or an appeal “has little merit” is not in itself a reason for awarding special costs (unless the claim is so weak that it is clearly bound to fail). Something more is required, such as improper allegations of fraud, or an improper motive for bringing the proceedings, or improper conduct of the proceedings themselves before the conduct becomes sufficiently reprehensible to require an award of special costs. Assessing the nature of a party’s conduct and the necessity of any costs sanction is “particularly within the purview of the judge who heard the matter” and entitled to deference on appeal.
Litigation costs of a representative after authority ends
Where the litigant is a trustee, an executor, a committee, or a representative, they are generally indemnified against all reasonable costs and expenses incurred in fulfilling their role, including litigation costs. Gail and Sasha claimed that they were acting as Eldon’s representative for some five years after his death, and thus entitled to indemnification for the ensuing litigation. The Court of Appeal held that representatives cannot claim continued indemnity for expenses incurred after their authority to represent the adult ends. Gail and Sasha ceased to be Eldon’s representatives after his death on January 29, 2011. Thereafter, their participation in the litigation was on their own behalf and they were not entitled to reimbursement or indemnification from Eldon’s property as his representatives after his death.
Jurisdiction to award costs against a non-party
BC courts have the jurisdiction to order costs against a non-party. However, an award of costs against a non-party is unusual and exceptional, and should only be made in “special circumstances” such as fraudulent conduct, abuse of process, gross misconduct, or circumstances where the non-party is the “real litigant.” Gail and Sasha sought special costs from their sister-in-law, Joy, who was participating in the proceeding only as executor of her husband’s estate. The Court of Appeal held that Gail and Sasha’s claim for costs against a non-party (Joy personally) amounted to an abuse of process. Gail and Sasha were ordered to pay special costs to Joy.
Bottom line on costs of Vancouver estate litigation
The specter of costs in estate litigation should serve to prevent unwarranted litigation and protect estates from being depleted by unnecessary litigation. Contact our team for more information.