I. Introduction
A. Then and Now: The Duty to Account
All personal representatives and trustees (throughout this paper the term “trustee” represents both a true trustee and personal representative) have a duty to account to persons with a beneficial interest in the estate (Deutschmann Estate v. Fallis, 2011 BCSC 1009 at para. 53, affirmed 2011 BCCA 404).
The origins of the duty to account are traced, as with much of the law in the area of wills and estates, to the Ecclesiastical Courts of England. In his paper “The Last Word: Passing the Accounts in a Contentious Estate”, Scott Kerwin reviews these historical originals in some detail. For our purposes, it suffices to say that over time difficulties arose with policing the duty to account through the Ecclesiastical Courts and its jurisdiction over testamentary matters was eventually replaced by that of the Court of Probate, and today rests with the BC Supreme Court.
Further, what was once simply a common law duty has now been codified in the statutory duty prescribed by section 99 of the Trustee Act, R.S.B.C. 1996, c. 464. Subsection 99(1) reads:
99 (1) Unless his or her accounts are approved and consented to in writing by all beneficiaries, or the court otherwise orders, an executor, administrator, trustee under a will and judicial trustee must, within 2 years from the date of the grant of probate or grant of administration or within 2 years from the date of his or her appointment, and every other trustee may at any time obtain from the court an order for passing his or her first accounts, and he or she must pass his or her subsequent accounts at the times the court directs.
What this requires in practice, was described by Master Bouck (as Registrar) in Bernhard v. Wist, 2011 BCSC 101 at para. 99, citing Campbell v. Hogg, 39 O.W.N. 85, [1930] 3 D.L.R. 673 (Ont. P.C.):
[99] In order to account to the beneficiaries, the executor must provide:
1) an account showing of what the original estate consisted;
2) an account of all monies received; and
3) an account of all monies remaining on hand.
Where all beneficiaries agree with the trustee’s accounts, this requirement is straightforward and the accounts may be passed by consent. This paper, however, focusses on the situation many trustees find themselves in, specifically, with beneficiaries who are either unwilling or unable to consent to pass the accounts.
Beneficiaries may be unhappy with the remuneration being claimed by a trustee, expenditures made from the Estate or Trust, or with other alleged improprieties or deficiencies in the accounting.
Whatever the reason behind the challenge, when accounts do not pass by consent the matter must be brought before the court for a resolution. As a practitioner, understanding the procedural steps required to effect this passing of accounts, and the tools that are available through the Rules to effectively conduct a contested passing of accounts, is fundamental to an efficient and successful resolution.
On March 31, 2014 the new rules dealing with probate and estate administration under the Supreme Court Civil Rules, BC Reg 168/2009, came into effect. While the fundamental duty to account remains the same, the new rules have overhauled the procedures surrounding the passing of accounts. Effective July 1, 2015, additional amendments to the Rules came into force, amending portions of the procedure rules for passing of accounts.
B. Additional Resources
There is a wealth of CLE materials on the subject of passing of accounts. While this paper is focused on some practical tips and avoiding potential pitfalls, the following resources are recommended for those in search of more information in this area:
- British Columbia Probate and Estate Administration Manual (CLE: Vancouver, 2015 Update), Chapter 12, “Accounts”; Chapter 13, “Remuneration of Personal Representatives and Trustees”; Chapter 14, “Solicitors’ Remuneration”;
- M. Scott Kerwin, “Passing of Accounts and the New Probate Rules” (CLE: Vancouver, November 2013);
- M. Scott Kerwin, “The Last Word: Passing the Accounts in a Contentious Estate” (CLE: Vancouver, November 2012);
- Amy D. Francis and Claire N. Wilson, “Passing of Accounts: Some Practical Issues” (CLE: Vancouver, November 2011);
- Fiona Hunter, “Advising the Executor in Litigation” (CLE: Vancouver, November 2009); and
- Roger Lee, “Passing Accounts: Or, A Passel of Passing Problems” (CLE: Vancouver, November 2009 – update); and
- Roger Lee, “Passing Accounts: or, a Passel of Passing Problems” (CLE: Vancouver, November 2005).
C. Examining the New Rules
Part 25 of the Rules now governs estate matters.
Rule 25-13 deals specifically with remuneration and passing of accounts for estate matters and has been described as “a fairly complete code governing applications relating to passing accounts” (Lau v. Chan, 2015 BCSC 623 at para. 22). Under Rule 25-13(1) “[a] personal representative or a person interested in an estate administered by a personal representative” may apply for a passing of accounts.
Rule 25-14 contains many of the procedural requirements for the passing of contentious accounts, notably those for bringing the application (R. 25-14(1)) and service (R. 25-14(5)). The combined effect of Rules 25-13 and 25-14 is that the procedure for passing of accounts has been streamlined: if there is an existing court file for the estate an application for passing of accounts is brought within this file, without the need for filing a separate petition in a new court file. Where there is no existing court file, however, the process of passing the account may still be initiated under Rule 25-14 by requisition in Form P41. Of course, when passing accounts for a trust, ones looks to the Trustee Act, and commences the passing of accounts by way of a petition.
In addition to the notice of application or requisition filed under Rule 25-14(1), the party initiating the process of a passing of accounts must file two affidavits: A Form P38 Affidavit in Support of Application to Pass Accounts (pursuant to Rule 25-13(2)) and a Form P 40 Statement of Account Affidavit (pursuant to Rule 25-13(6)).
Rule 25-13(6) provides:
Affidavit required for passing of accounts and remuneration
(6) In addition to any other materials that may be required for an application under subrule (1) of this rule, the applicant must file the following:
(a) if the applicant is the personal representative, he or she must file a statement of account affidavit in Form P40
(i) describing the assets and liabilities of the estate as at the later of
(A)the date of the deceased’s death, and
(B)the last day of the period covered by the most recent of the accounts passed under this Part or approved and consented to in writing by all beneficiaries,
(ii)describing, in chronological order, capital transactions that occurred after the applicable date referred to in subparagraph (i),
(iii)describing, in chronological order, income transactions that occurred after the applicable date referred to in subparagraph (i),
(iv)describing the assets and liabilities of the estate as at the last day of the period covered by the accounts to be passed,
(v)describing all distributions made and any distributions anticipated to be made out of the estate,
(vi)including a calculation of the remuneration, if any, claimed by the applicant for
(A) the applicant, and
(B) any current and previous personal representative or trustee for whom a claim for remuneration has not yet been made, and
(vii) including any other details or information the court may require or the applicant may consider relevant;
(b) if the applicant is a person other than the personal representative, he or she must file an affidavit explaining why an accounting is required.
(emphasis added.)
In addition to the above affidavits, if the trustee is attempting a summary passing of the accounts, the trustee must also provide a summary of the work they have done as trustee. In a contentious passing of accounts, thought should be given to whether to provide affidavit evidence of the work done at the stage of obtaining the referral to the Registrar, or whether to wait to have the trustee testify in person as to their work done.
Once the process has been initiated, the new Rules also specify the powers of the court hearing the application (R. 25-13(3)):
Directions and referrals
(3) In an application under subrule (1), the court may do one or more of the following:
(a) hear and decide any matter relating to the accounts or the remuneration of the personal representative;
(b) direct the Registrar to conduct an inquiry, assessment or accounting in relation to any matter relating to the accounts or the remuneration of the personal representative;
(c) make any other order or give any direction that the court considers appropriate in the circumstances.
(emphasis added)
As can be seen, this Rule provides the court with broad discretion to tailor its response appropriately to the accounts at issue.
Further, if the court refers the matter to the Registrar, under Rule 25-13(5), unless the court otherwise orders, the Registrar must certify his or her results in Form P39. Here the new Rules in Part 25 interact with Rule 18-1. Rule 25-13(5) provides:
Certification of results
(5) Unless the court otherwise orders, if the court directs the registrar to conduct an inquiry, assessment or accounting under subrule (3)(b),
(a) the registrar must, by certificate in Form P39, certify the result of the inquiry, assessment or accounting, and
(b) if filed under Rule 18-1(9), the certificate is binding, subject to appeal, on the persons interested in the estate who
(i) had notice of the inquiry, assessment or accounting,
(ii) consented to the accounts or the remuneration, or
(iii) are the subject of an order made under Rule 18-1(20)(b).
(emphasis added)
If the Form P39 certification is filed under Rule 18-1(9), the certificate is binding, subject to appeal, on the persons interested in the estate who had notice of the inquiry, assessment or accounting, consented to the accounts or the remuneration, or are the subject of an order dispensing with service made under Rule 18-1(20)(b).
Given the significance of referrals to the Registrars now available under Rule 25-13, in the next section I explore the referral to the Registrar in more detail, outlining some practical considerations.
II. Potential Pitfalls and Practical Tips
A. Summary Passing of Accounts where minor, unborn or unascertained beneficiaries
Frequently in passings of accounts there are beneficiaries who are minors (or potentially unborn or unascertained). In these circumstances, a passing of accounts cannot be avoided as the minor cannot agree to approve those accounts (see s. 19 of the Infants Act, R.S.B.C. 1996, c. 223).
Rule 25-14 (5) clearly states that the Notice of Application and other application materials must be served on “any other person who may be affected by the order sought”.
The Public Guardian and Trustee does not have the statutory authority to review the accounts of trustees on behalf of minors (unless they are the property guardian for the minor or have been ordered to review the accounts by the court.) The Public Guardian and Trustee will not sign a release or approval for the minor (See par. 3.96 of the Public Guardian and Trustee Handbook (CLE, 2015 update)).
For a trustee to have the protection that the accounts are properly approved and consented to, the provisions in the Rules relating to legally disabled persons (minors and the mentally incompetent) apply, as follows:
- Rule 20-2(2) requires any person under a legal disability to take part in a proceeding through his or her litigation guardian;
- A person who resides in BC may become the litigation guardian without being appointed by the Court (Rule 20-2(5)) (however, it is prudent practice to have the litigation guardian appointed by the Court (Rule 20-2(10));
- Rule 20-2(4) requires that a litigation guardian act by a solicitor unless the litigation guardian is the Public Guardian and Trustee; and
- Rule 20-2(7) requires that a litigation guardian sign and file their consent to act, unless they have been appointed by the court or are the litigation guardian under s. 35(1) of the Representation Agreement Act;
- Rule 20-2(8) requires a solicitor acting for the litigation guardian to file a certificate, before acting in a proceeding, state that she or he knows or believes:
- The person to be an infant and state the grounds for that belief; and
- That the proposed litigation guardian has no interest in the proceeding adverse to the person.
In a similar manner, the Court may appoint someone to represent an unborn or unascertained person pursuant to Rule 20-1(6).
The cumulative effect of the above, together with the process set out in Rule 25-14, creates the potential to attempt to enter into a streamlined procedure, where the accounts are not complicated and where all of the sui juris parties have consented:
- Determine a family member, or failing that, a solicitor who would be willing to act as litigation guardian for the minor;
- Have the litigation guardian retain a solicitor to act on their behalf;
- Provide the litigation guardian with a set of accounts in advance of the application, for their review and comments;
- When they are satisfied with them and any questions have been answered, obtain the litigation guardian’s consent to act as litigation guardian and obtain the certificate of solicitor, and file both;
- Attend in Chambers to obtain an Order:
- Appointing the litigation guardian;
- Passing the accounts in the proposed form, rather than requiring a reference to the Registrar; and
- Directing service of the Order on all the beneficiaries.
This process will only be possible if the consents of all of the sui juris parties can be obtained, otherwise it will be difficult to persuade a judge that the accounts should be passed in a summary fashion. See Roger Lee’s 2009 Paper, “Passing Accounts: Or, A Passel of Passing Problems p. 8.1.2 – 8.1.3.
It may also be possible attempt to obtain such an Order through the Consent Order process, in certain circumstances.
B. The Referral to the Registrar and the Scope of the Registrar’s Jurisdiction
As mentioned above, in estate matters, the referral to the Registrar for a passing of accounts is now done by application to the court pursuant to Rule 25-13(3), requiring the application to be served pursuant to Rule 25-14(5). This reflects a change from the previous method used by personal representatives under Rule 21-5(70) of applying on a without notice basis for an order referring the passing of accounts to the Registrar. It also differs from the previous route used by beneficiaries, which required them to initiate the process by filing a petition under a new court file.
A Registrar’s jurisdiction, and the limits upon it, are created by the reference order, statute and s. 96 of the Constitution Act, 1867.
On referral for a passing of accounts, the Registrar’s jurisdiction is defined by the referral order. This creates an opportunity at the outset to identify the appropriate terms and conditions for the referral, and to seek relief that may be required from the Supreme Court in complicated and contentious estate matters. Careful thought and consideration should be paid to the terms on which the referral is sought when the passing of accounts will be contentious.
As mentioned above, under Rule 25-13(5) the default position is now that the Registrar’s results will be certified, “unless the court otherwise orders”. This is an important point to note, as it affects the role of the Registrar on referral. Where the Registrar’s results are to be certified, the Registrar’s report is akin to reasons for judgement (thus prompting the Rule 18-1(2) statement that if directed, and filed, the certificate “is binding on the parties to the proceeding”). However, thought and attention must be given to the directions given to the Registrar by the referral Order.
On a passing of accounts “the function of the court is to determine whether the executor has exercised his duties under the will properly and in accordance with the law”. In a similar manner, when passing accounts arising out of a trust, the function of the court on a passing of accounts is to determine whether the Trustee has exercised her duties under the Trust properly and in accordance with the law. (Re: Estate of Fannie Cleverley 2000 BCSC 1454)
The jurisdiction of the Registrar is constrained by the directions given to them by the Court referring the issue to them. (Moore v. Expansion Holdings Ltd. (1994), 96 BCLR (2d) 178 at 186)
The law is clear that a Registrar cannot make determinations on questions of law. (British Columbia Hydro and Power Authority v. Hallcraft Construction Co. (1986), 6 BCLR (2d) 74 (S.C.))
Further, should a party wish to invoke the court’s jurisdiction for the relief they seek, they must invoke the jurisdiction of the Court to resolve the issues in an appropriate procedure. (Mehan (Guardian ad Litem of) v. Mehan, 2011 BCSC 1430 at paras. 4 to 6)
On the other hand, if the court “otherwise orders” that the Registrar’s report not be certified, then the role of the Registrar is altered. Although he or she may still provide his or her opinion on points of law, these will not be binding on the court when it reviews the Registrar’s report. (Laird v. Lyne Estate (Re), 2005 BCCA 437) The Registrar’s primary function in this case is to make findings of fact. As such, where the Registrar’s report is not certified, but rather put before the court for confirmation, the passing of accounts becomes a two-step process with the roles of finders of fact and law being divided between the Registrar and the court.
When bringing an application for passing of accounts, it is therefore useful to consider whether you wish to request the court to “otherwise order” that the Registrar’s report not be certified. On the one hand this will require further time and expense, but on the other it may be useful to have the issues determined by the courts after the Registrar has laid out the facts.
Further, the simplicity of the statement that the Registrar’s jurisdiction is defined by the referral order masks the underlying issue of what may appropriately be referred to the Registrar for determination. This issues was recently address by Mr. Justice Johnston in Lau v. Chan, where he discussed the boundaries of appropriate referrals to the Registrar for a passing of accounts as follows at paras. 35-39:
[35] Some of the directions Ms. Chan seeks would have the court attach to the order for the passing of the accounts terms that would call upon the registrar to construe the underlying trust documents. I refer here to the request the registrar be directed to inquire into and report on things like the validity of the alter ego trust and any exercise by the deceased of a special power of appointment under the trust, or the validity of the terms of paragraphs 9 and 10 of the testamentary instrument of November 13, 2009.
[36] With respect to these requests, these are matters that this court, and not its registrar, should deal with. If Ms. Chan wishes to question the validity of the alter ego trust and/or paragraphs 9 and 10 of the testamentary instrument, it should bring the appropriate action seeking construction of these documents or attacking their validity.
[37] Ms. Chan also requests that the court direct the registrar to report on the appropriateness of the manner, timing and proportionality by which the trustees of the alter ego trust funded $5 million to Deborah’s fund, including seeking an assurance and the use of the $5 million insurance monies received by the companies, and the nature and extent of the beneficial interest held by Daphne’s trustee in the Deborah’s fund, including the $5 million added to Deborah’s fund.
[38] The respondents suggest in argument that the trustees had alternate sources to fund Deborah’s trust (that trust is not before the court on this petition), and that the trustees did not need to take somewhat over $2 million from assets from which she was entitled to benefit. This apparently prompts the request that the registrar be directed to explore the appropriateness of the manner, timing and proportionality of the funding of Deborah’s trust. That, and the further request that the registrar be directed to construe the documents to determine what, if any, beneficial interest Daphne’s trust had, or has, in any portion of Deborah’s fund goes far beyond, in my view, what a court should be directing a registrar to do on a passing of accounts.
[39] These arguments, if Ms. Chan has these arguments, on matters such as appropriateness, timing and proportionality, are arguments that should be brought to this court and not sent by this court to a registrar.
These statements echo previous distinctions made with respect to the appropriate subject matter for a Registrar’s referral in Curtis Estate, 2003 BCSC 2073 at para. 24:
[24] I conclude on that point by saying I agree with Registrar Blok when he says of Mr. Curtis that he was unsuccessful on this application and these steps were more in the nature of litigation than in the nature of the passing of accounts proper. Mr. Curtis took on the role of a litigant as opposed to someone who is a beneficiary making a reasonable inquiry. He pursued the action as a litigant. And if the effect of it is that he, being unsuccessful, has to bear the responsibility of costs, then that is his choice.
(emphasis added)
Finally, in circumstances where the subject matter is beyond the jurisdiction of the Registrar or would more properly be determined by the courts, the Rules provide a mechanism for the Registrar to refer issues to the Supreme Court. Rule 18-1(10) provides:
Opinion of the court
(10) Before the master, registrar or special referee has concluded a hearing of an inquiry, assessment or accounting, he or she may, in a summary or other manner, ask the opinion of the court on any matter arising in the hearing.
The use of this option ties into the issue of the appropriate jurisdiction of the Registrar, and the importance of framing the issues being referred to the Registrar appropriately at the beginning.
Where there are issues arising out of the fundamental validity of the underlying documents being construed, or the exercise of discretion of the trustee, it may be appropriate for the legal challenge to be brought before the passing of accounts is dealt with.
C. Use of the Statement of Errors and Omissions
Rule 18-1(17) provides:
Particulars of errors in account
A party who alleges that there are errors or omissions in an account must file and serve on all parties of record a notice of those errors with brief particulars.
This Statement of Errors and Omissions is an opportunity for the party alleging errors in an account to both set out the specific errors and omissions they will require to be addressed by the Registrar at the hearing, properly falling within his or her jurisdiction, and potentially to request the Registrar to seek the opinion of the court on specific matters under Rule 18-1(10) (where appropriate).
The Statement of Errors and Omissions is filed with the court, and should be given appropriate thought and consideration. The trustee should require any beneficiary to provide it to them before attending at the first pre-hearing conference, and a beneficiary contesting accounts should draft the Statement of Errors and Omissions with thought and care, to ensure their issues are appropriate dealt with at the hearing.
D. Using the Pre-hearing Conference and Directions from the Registrar
Another important tool is the pre-hearing conference. A pre-hearing conference is an opportunity for the parties to define the issues on referral and for the Registrar to make directions, where appropriate. As stated by Registrar Block (as he then was), the overall goal of a pre-hearing conference is:
… to ensure reasonable pre-hearing disclosure and preparation so that when the hearing takes place it is done fairly and efficiently and there is much less likelihood that a party will complain of ambush and request an adjournment.
Byl v. Carrier Lumber Ltd., 2003 BCSC 1337 at para.11.
AN-8 (effective 2011/03/01) is the Administrative Notice for Pre-Hearing Conferences in Registrar’s Matters and provides as follows:
Summary:
This Administrative Notice sets out the circumstances in which a pre-hearing conference may be required to be held in respect of matters to be heard before a registrar of the court. The purpose of a pre-hearing conference is to assist in defining the issues that may be before the registrar and to make directions (as appropriate) in respect of (a) the production of documents; (b) oral examinations for discovery; (c) service of notices to admit; (d) service of experts’ reports; (e) service of witness lists; (f) any other matter that may assist in the just and efficient determination of the issues (see Rule 23-6(5) of the Supreme Court Civil Rules and Rule 22-7(5) of the Supreme Court Family Rules). This Administrative Notice is being issued to ensure consistency in service throughout the Province and to assist Supreme Court Scheduling in booking hearings before a registrar.
Direction:
When a pre-hearing conference is required
1. Pre-hearing conferences for registrars’ hearings are required to be set for registrars’ matters in the following circumstances:
…
d. All matters estimated to require, in Vancouver, New Westminster and Victoria, one day or longer of hearing time; and in all other locations, one half day or longer of hearing time.
How to schedule a pre-hearing conference
2. If any of the above circumstances apply, a party should obtain a date for the pre-hearing conference from Supreme Court Scheduling.
3. In registries where the appointment date is obtained at the same time as the prehearing conference date, both dates should appear on the Appointment.
4. In registries where the appointment date will not be set until after the prehearing conference, the subsequent Appointment hearing date may be set by Requisition and the fee for filing the Requisition (if any) will be waived. The Appointment should indicate on its face that the hearing date will be set after completion of the pre-hearing conference.
(emphasis in original)
The pre-hearing conference is a critical tool in a contentious passing of accounts in establishing the manner in which the passing of accounts will proceed on a procedural basis, including production of documents, examinations for discovery, use of notices to admit, service of experts reports and service of witness list, as well as any other matter for the just and efficient determination of the issues.
Given the issues that must be determined, the amount of time required for the pre-hearing conference is appropriate to consider. There is also the potential for more than one pre-hearing conference, should that be required.
Rule 23-6(5) provides that a registrar may make the following directions at a pre-hearing conference:
Registrar’s directions at pre-hearing conference
(5) Without limiting Rule 18-1(5), a registrar conducting a pre-hearing conference may give directions for the conduct of any registrar’s hearing, whether or not that registrar’s hearing is before the registrar conducting the pre-hearing conference, including, without limitation, directions respecting the following:
(a) the production of documents;
(b) oral examinations for discovery;
(c) service of notices to admit;
(d) service of experts’ reports;
(e) service of witness lists;
(f) any other matter that may assist in the just and efficient determination of the issues.
As a result, the pre-hearing conference is a critical tool for parties to obtain directions from the Registrar that will streamline the process for the passing of accounts. Given the nature of some of the more contentious passing of accounts, there may be the need for more than one prehearing conference.
Although there is no provision within the Rules to have one Registrar assigned as the pre-hearing conference Registrar, it may be a consideration to consider an agreement between counsel, together with the approval of the Registrar, for one Registrar to hear all pre-hearing matters.
Normally, where a Registrar issues directions at a pre-hearing conference these directions are followed, fulfilling the purpose of the conference. However, it is important to be aware of the distinction between orders and directions, and to clarify the nature of the Registrar’s ruling.
In Byl v. Carrier Lumber Ltd., 2003 BCSC 1337 at para. 13, the court noted:
[13] Thus at pre-hearing conferences Registrars, and Masters sitting as Registrars, typically make directions or orders of various sorts for the pre-hearing preparation of the proceedings. It must be noted, however, that very little of this procedure is set out or prescribed in either the Legal Profession Act or the Rules of Court.
While entering directions are orders may be useful in certain circumstances, it should be noted that this may not always be appropriate. Fraser and Horn, in their comprehensive text Conduct of Civil Litigation in British Columbia, 2d ed (Toronto, Ont: LexisNexis Canada, 2007-2015) at 55-4 make the following distinction between an order and a direction made by a Registrar:
Not all decisions of a mater or registrar are subject to appeal under Rule 23-6(8). Directors by a master or registrar given for the conduct of a hearing at a prehearing conference or a ruling relating to the admission of evidence or production of documents will not found an appeal separate from an appeal on the merits. So long as the decision is identifiably an order or decision it may be appealed in chambers under Rule 22-1(1)(d). But in many cases a registrar will perform a ministerial act which does not involve the making of any order or decision within the meaning of 23-6(8) … There is no provision from an appeal from such a ministerial act.
It is wise to consider asking the Registrar for clarification at the pre-hearing conference as to whether they are making orders, which should be reflected in an entered Order, or directions.
E. Law Relating to Document Disclosure
The entitlement of a beneficiary to production of trust documents, and the scope of that entitlement, often arises at a pre-hearing conference. There is a significant body of law with respect to the entitlement of beneficiaries to trust documents. This law is extensively dealt with in Rhys Davies, QC’s paper “Beneficiaries’ Right to Documents from Their Trustee or Their Executor” (CLEBC: Vancouver, Estate Litigation – 2005 Update) and updated by Lauren Blake in her paper “Legal Entitlements of Beneficiaries in Discretionary Trusts” (PBLI, Trusts: Beyond the Basics, June 10, 2014).
When trust documents are necessary for the purposes of preparing for the passing of accounts, requesting disclosure of the required trust documents should be made at the pre-hearing conference, with reference to the supporting case law.
F. Parallel Proceedings
It is not unusual in a contested passing of accounts for there to be allegations of negligence or breach of trust on the part of the trustee. These allegations may arise either:
(a) before the passing of accounts is commenced, and be the subject of a separate court action; or
(b) during the process of the contested passing of accounts occurring.
Careful consideration must occur as how to proceed when allegations such as these are brought against the trustee.
If an action has been brought against the trustee before the passing of accounts is commenced, the general practice is that the passing of accounts should be postponed pending resolution of that lawsuit: Nordquist Estate, 1997 CanLii 1661 (BCSC); Diana M. Davidson & Co. v. Dobrasnki, 1999 CanLii 5516 (BCSC); Roberts & Baker v. Kemp, 2003 BCSC 1847 and TD Canada Trust Company v. Cheifetz et al, [2005] O.A.C. 120(C.A.)
However, the postponement is not automatic, and counsel should be aware that there have been circumstances in which the Court has declined to order a postponement. See, for example, Laird v. Lyne Estate, 2005 BCCA 347 where the BC Court of Appeal declined to reinstate an appeal of Gerow J’s refusal to interfere with Master Baker’s “judgment” call not to adjourn the Registrar’s hearing while there was an outstanding breach of trust action.
If, in fact, a beneficiary either discovers or determines they have a cause of action against the trustee in the middle of a contested passing of accounts, consideration must be given to the procedural decisions the beneficiary must then make. They must consider the appropriate forum within which to raise the issue they wish to, and how to handle the overlap between the Registrar’s hearing and their potential action against the trustee.
As written by Amy Francis and Claire Wilson in their 2011 paper “Passing of Accounts: Some Practical Issues”:
The parties have a number of options in these circumstances. If, during the course of the passing of accounts, facts are revealed that may give rise to a claim for breach of trust or some other cause of action, one option is for a party to request that the Registrar ask the opinion of the court on the issue pursuant to Rule 18- 1(1)). Having the issue referred to the court would likely result in the legal issue being placed on the litigation track. In circumstances where there is already a pending action against the executor, the beneficiary could also simply adjourn the Registrar’s hearing pending the outcome of the action.
However, there may be practical reasons why a party simply wishes to press ahead with the passing of accounts, even in the face of a pending or potential claim against the executor. The Registrar’s hearing may provide a more expeditious and less expensive forum to deal with some, if not all, of the issues between the parties. The question then arises as to how far a Registrar is likely to go on a passing of accounts in considering evidence relating to matters such as resulting trust and breach of trust which could form the subject matter of separate litigation.
(p. 5.1.7)
When considering how best to proceed when a beneficiary decides to bring a new cause of action in the middle of a contested passing of accounts, consideration must be given to numerous significant issues:
(a) Whether the Registrar has the authority, pursuant to the Order referring the reference to them, to make the factual determinations necessary to resolve the issue;
(b) Whether the Registrar has the authority, pursuant to the Order referring the reference to them, to make recommendations that would assist in the resolution of the issue (for example, whether specific assets fall into the estate on the basis of a resulting trust, or pass by right of survivorship to a joint tenant)(see, for further discussion, Amy Francis and Claire Wilson, above, p. 5.1.7);
(c) If there are reasons the parties wish to pursue the issues in the context of the contested passing of accounts rather than a separate claim, whether the Registrar has the jurisdiction to make that determination, or whether the parties can agree to some form of process that would give the Registrar jurisdiction
(See Amy Francis and Claire Wilson, above, p. 5.1.7 to 8).
Finally, parties should weight the potential cost savings of dealing with numerous issues at the Registrar’s hearing with the potential findings of fact made by a Registrar on the basis of an evidentiary record that may be limited by the lack of discovery and other pre-trial evidence-gathering tools clearly provided by the Rules. Whether the Registrar’s Report is conclusively binding, or must be referred to the Supreme Court for confirmation, upon conclusion the Order of the Court that issues when either made or confirmed would “conclusively determine those issues before the court on the confirmation application”. (For further discussion, see Amy Francis and Claire Wilson, above, p. 5.1.8).
III. A Few Concluding Notes
It is likely that in a contested passing of accounts, issues of the appropriate remuneration for the trustee, and indemnification for their legal fees and other incurred expenses will be raised.
Unless a compensation agreement is in place, pursuant to s. 88 of the Trustee Act a trustee may claim reasonable remuneration for his or her services, consisting of:
….a fair and reasonable allowance, not exceeding 5% on the gross aggregate value, including capital and income, of all the assets of the estate by way of remuneration for his or her care, pains and trouble and his or her time spent in and about the trusteeship, executorship, guardianship or administration of the estate and effects vested in him or her under any will or grant of administration, and in administering, disposing of and arranging and settling the same, and generally in arranging and settling the affairs of the estate….
As alluded to in the introduction, disputes about a trustee’s remuneration can often precipitate a contested passing of accounts. On a passing of accounts, the Registrar will assess the trustee’s claimed remuneration. Relevant to this assessment are the magnitude of the estate; the care and responsibility involved; the time occupied in the administration of the estate; the skill and ability displayed; and the success achieved in the final result (Re Newton Trust, 2005 BCSC 1049 at para.128, citing Re Toronto General Trusts Corporation v. Central Ontario Railway Company 1905), 6 O.W.R. 350 (Ont. H.C.) and Re McColl Estate (1968), 65 W.W.R. 110 (B.C.S.C.)).
The Registrar may also have to consider whether the trustee should be indemnified for legal costs, and other disbursements, properly incurred in the discharge of his or her duties.
Whether legal fees were properly incurred is a distinct issue from the appropriateness of a lawyer’s fees. The former is an appropriate consideration on a passing of accounts, while the latter is a separate matter to be dealt with by way of review under the Legal Profession Act, S.B.C. 1998, c. 9.
Further discussion on this topic is provided by Scott Kerwin in his paper “Passing of Accounts and the New Probate Rules” and in Chapter 17 of the Probate Manual, cited above.