Passing of Estate Accounts

In this paper we will explore some specific recent issues that have arisen in the case authorities that deal with passing of estate accounts. Specifically, this paper will focus on the jurisdiction of the registrar and standard of review, pre-taking of compensation, and accounting for pre-death transactions.

I.     The jurisdiction of a registrar and standard of review

      A.     Registrar’s Jurisdiction

The office of the registrar is a fixture of our court system. Despite its long history, some ambiguity remains about the jurisdiction of the registrar and, as a result, courts continue to reach apparently conflicting decisions on the applicable standard of review when considering a registrar’s Report and Recommendation and a registrar’s Certificate.

While it is clear that a registrar’s jurisdiction on a passing of accounts is taken from the terms of the order referring the matter to the registrar,[1] the scope of what a court may order a registrar to do remains uncertain.

The uncertainty underlying the role of the registrar is illustrated by Re Newton Trust.[2] In that case, the applicant sought to dismiss two petitions challenging the constitutional validity of Rule 32(2) of the former Rules of Court and sections 88, 99, and 100 of the Trustee Act. The petitioner was attempting to obtain a declaration of constitutional invalidity that would to nullify a decision of the registrar setting the remuneration of the petitioner as trustee some six years earlier.

The petitioner argued that since a registrar was not appointed pursuant to section 96 of the Constitution Act, 1867, a registrar had no jurisdiction to make any binding pronouncement and a certificate pursuant to former Rule 32(2) (current Rule 18-1(2)) setting the remuneration of a trustee was a binding pronouncement. The petitioner distinguished the case of Larson v. Larson[3] on the basis that Larson dealt only with recommendations of the registrar and the issue of whether a registrar could grant a binding certificate had not been decided.

These constitutional arguments were presented but not determined since the court found that the petitions were a collateral attack on a court order and dismissed the petitions. The court held that if the petitioner had concerns about the jurisdiction of the registrar, he should have raised the issue at the hearing or on appeal, not six years later by way of a different proceeding.

Notwithstanding the fact that the constitutional arguments did not prevail in this case, it does raise interesting questions about a registrar’s jurisdiction. The scope of a registrar’s jurisdiction was extensively considered by Madam Justice Huddart in Larson. After reviewing the history of the office of the registrar and the relevant jurisprudence, including constitutional questions, Huddart J found that fact-finding is not part of the “core” jurisdiction of a section 96 judge.[4] Therefore, she concluded, in carrying out an inquiry, assessment or accounting, registrars must at least have the power to find facts and make decisions about credibility. However, as the petitioner in Newton pointed out, Larson dealt with a Report and Recommendations.  It remains an open question as to whether a future litigant could successfully mount a constitutional challenge to the certification process, particularly in light of Rule 25-13(5) which makes certification the default procedure in estate accounting proceedings.

      B.     The Applicable Standard of Review

A related issue is the standard of review of a registrar’s decision, whether it be by Report and Recommendation or Certificate. In  Larson, on a review of a registrar’s recommendation, Huddart J held at para 97 that while it is clear that judges cannot effectively delegate the making of a decision, “findings of primary fact by a registrar cannot be disputed”.

The Court of Appeal considered and arguably softened the effect of this statement in Morgan v. Edwards,[5] holding: “As I read the scholarly judgment in Larson, supra, it seems to me all the learned judge was stating in that case was that usually a chambers judge will be reluctant to disturb ‘findings of primary fact’ made by a Registrar at a hearing.” The court went on to adopt the principle stated in Kozma v. Kozma[6] that a trial judge dealing with a registrar’s Report and Recommendation is not in an appellate role; it is for the judge to make the decision.

As noted in Re Newton Estate,[7] despite this relatively clear statement of law, courts continue, at times, to apply the “clearly wrong” or “error in principle” standard to a registrar’s Report and Recommendation.

The confusion may persist because there is a separate line of authority relying on Godbout v. Lisson,[8] and older cases cited within that decision, stating that a judge should affirm a registrar’s decision if he or she found no error in principle. Godbout is a case dealing with a registrar’s assessment and certification of a lawyer’s accounts and all the cases that have followed it also deal with lawyers’ accounts.

However, within that context, the “clearly wrong” or “error in principle” standard appears to be well established. In Walker v. Schober,[9] the court held:

The standard of review of an appellate court of a registrar’s findings of fact made on a review of a lawyer’s account is that of an appeal court generally: the court will not interfere with the findings of fact unless there was some palpable or overriding error which affected the assessment of the facts or, in other words, the findings of fact appear to be clearly wrong.

The court went on to hold that “the chambers judge engaged in reweighing and reassessing the evidence, which was not within his powers as an appellate judge” and “[i]n short, the chambers judge’s assessment of the registrar’s factual findings proceeded on a wrong principle. He failed to apply the proper standard of review, which entails a deferential approach to findings of fact by a taxation officer, and he engaged in new fact finding, including drawing new inferences.”[10] This case has been followed in several recent cases including Mide-Wilson v. Hungerford Tomyn Lawrenson and Nichols.[11]

This judgment sits uneasily beside the statement in Larson that “[n]o one would disagree that the trial judge can be asked to draw different inferences from the primary facts, and to base her determination on the entitlement to maintenance and the appropriate amount on different inferences.”[12] The statement is also clearly contrary to the holding in Morgan that the trial judge is not in an appellate role.

This divergence is best explained by whether the registrar’s findings are certified. Huddart J in Larson did not limit Godbout to a registrar’s review of lawyers’ accounts and interpreted the higher standard in Godbout to apply to all certified findings under former Rule 32(2): “once the registrar’s findings are certified, the certificate binds the parties. The trial judge is in the role of an appeal court vis-à-vis those findings.”[13]

It is clear, then, that there are two very different standards of review of a registrar depending on whether the court is considering a Report and Recommendations in an application to vary or confirm under Rule 18-1(4), or whether the court is faced with an appeal or an application to vary a registrar’s Certificate.

      C.     Discussion

Coming back to Newton Trust, while the constitutional challenge may have been overstated (perhaps motivated by the need to overcome a limitations defence), the case raises important issues about the scope of what a registrar can do when certifying his or her results.

In Newton Trust, in order to recommend a fair and reasonable remuneration, the registrar was required to consider and offer his opinion on questions of law.[14] While it is clear that a registrar cannot determine questions of law, a registrar does not exceed his or her jurisdiction when such determinations are presented as a recommendation.[15] When the results of a registrar’s inquiry are presented as a recommendation, the judge still makes the decision and retains control over the proceeding.

The situation is different when registrar’s determinations are certified. In the case of a certificate issued under section 88 of the Trustee Act, like the one in the Newton Trust case, a certificate is binding if it is not varied or discharged under section 91 of the Trustee Act. The standard of review of a certificate is, as discussed, a deferential one.  If a registrar, in the reference order, is asked to consider matters that require a legal determination, and certify his or her results, the registrar is compelled to wade into the territory of making binding decisions between the parties in a manner that, according to the arguments made by the petitioner in Newton Trust, could be unconstitutional.

On a more practical level, particularly since the default procedure in estate accountings under the new Rules is certification,[16] counsel must now take great care in drafting reference orders to ensure that the registrar is not being asked to make findings and certify those findings, if doing so exceeds the scope of the registrar’s jurisdiction.  The order should confine those results that are to be certified to findings of fact. Where that is not possible, the orders should request a recommendation, leaving the final decision for the court.

This was the approach the court took in Lau v. Chan.[17]  The court was asked to, among other things, order that:

  • the trustees pass their accounts before the registrar;
  • the registrar be directed to construe the documents and determine the beneficial interest of a party;
  • the registrar recommend a fair and reasonable allowance for the trustees; and
  • the registrar certify his or her findings and that those findings become binding on the beneficiaries without further order of the court.

The court held that ordering the registrar to construe the trust documents went far beyond what the court should be directing a registrar to do on a passing of accounts. After outlining the complexity of the issues involved, the court held:

these are matters where the responsibility for the final decision should rest with the court and not with the registrar. That means the registrar should report to the court, make recommendations to the court if appropriate, but that the court should hear from the parties and make the final order with respect to the accounts.[18]

Accordingly, the court declined to order that the registrar certify his or her findings.

II.     Pre-Taking

If a personal representative pre-takes compensation, he or she is in breach of trust.[19]  While a personal representative is entitled to remuneration for his or her work, the amount of that remuneration must be consented to by the beneficiaries, if they are all sui juris, or set by the court.

While there are some older authorities which appear to permit pre-taking or at least suggest that there is little consequence for an executor who pre-takes,[20] this is no longer the case in the more modern jurisprudence.

In the leading case on this issue, Re Pretlutsky,[21] the Court held that it was improper for a trustee to pre-take compensation without court approval or the approval of beneficiaries. However the Court went on to say that it is permissible for a trustee to estimate his or her expected allowance and retain that sum in the trust, so long as interest on the sum accrues to the beneficiaries.[22]

Pre-taking is a “serious matter,”[23] however the consequences of pre-taking in the era of low interest rates is not as significant as one might think. If the amounts pre-taken exceed the amount ultimately awarded by the court, the beneficiaries may be entitled to interest on the difference.[24] In other cases, court have awarded interest on the entire amount that was pre-taken.[25] In other cases, pre-taking has been excused completely. In Re Cohen,[26] Registrar Blok (as he then was) stated that, in circumstances where the trustee pre-took compensation in amounts that had been approved by the court on a prior passing of accounts, “the transgression, if any, is trivial” and the trustees were not ordered to pay interest on the amounts they pre-took.[27] In the very recent case of Zadra v. Cortese, the court reduced the trustee’s compensation by $3,368.36, which was interest calculated on the amount of compensation pre taken by the personal representative.[28]

III.     Right of beneficiary to an accounting for pre-death transactions

One of the most vexing problems for beneficiaries in estate accounting matters is access to information about pre-death transactions. Particularly in cases where the executor was, prior to death, acting under a power of attorney, it is not unusual for the beneficiaries to have concerns about funds or assets that made their way into the hands of the attorney/ executor during the Deceased’s lifetime such that they were not included in the affidavit of assets and liabilities filed with the application for probate. Obtaining an accounting for these assets is not always easy.

     A.     Beneficiaries have no right to accounting from POA during Deceased’s lifetime

An attorney has a duty to account to his or her principal and is in a fiduciary relationship with them.[29] The duty of the attorney to account to the donor is clear under our legislation.[30]

 

In her CLE paper “Dealing with the Rogue Attorney”, Kimberly Kuntz points out that, unlike Ontario, British Columbia law does not allow a prospective beneficiary or concerned family member to compel an accounting from an attorney while the donor of the power of attorney is alive and capacitated.[31] This means that it is very common for beneficiaries, at the time of their loved one’s death, to have unanswered questions about the management of estate assets prior to death.

     B.     Beneficiaries have limited right to an accounting from attorney after donor’s death

On the death of the donor, the attorney’s duty to account is owed to the executor of the donor’s will. Where the attorney and the executor are one and the same person, there is an obvious conflict. In these cases, the beneficiaries often wish to compel an accounting for pre-death transactions from the attorney/ executor. Based on recent authorities, it is not clear whether estate beneficiaries would be successful in obtaining such an accounting.

In Robillard v. Robillard Estate,[32] an attorney under an enduring power of attorney who became an executor was called upon to account in the context of a wills variation claim. The court made the finding of fact that the executor “contrary to his obligations as executor and trustee, treated his mother’s account, both before and after her death, substantially as his own”. The court ordered restitution from the executor for those funds that he improperly took from the estate, both before and after the death of the deceased. It appears that the question of whether the attorney had a duty to account that extended to the beneficiaries was not raised that case.

In Brown v. Brown,[33] an application to compel an accounting from a power of attorney was dismissed. Madam Justice Brown held that only the grantor or the grantor’s estate has the power to compel an accounting.[34] It is notable that the applicant in Brown was seeking an accounting from an attorney in circumstances in which the donor was still alive and capable. It is therefore clearly distinguishable from a case in which those beneficially interested in the donor’s estate are concerned about the management of that estate during the donor’s lifetime. Unfortunately, the Brown case has recently been relied upon to undermine the entitlement of a beneficiary on an estate accounting to receive an accounting for pre-death transactions undertaken by the attorney who is also the executor.

In Strodl v. Edmonson,[35] the deceased’s daughter was the executor and had a power of attorney during the deceased’s lifetime. The executor sought to pass her accounts and in the reference order, sought a provision stating that “there shall be no inquiry into the accounting of [the executor’s] activities while exercising her authority under the Power of Attorney granted to her…” Master McDiarmid stated that:

The duty of an attorney to account for actions taken by the attorney during the lifetime of the attorney’s principal is separate from the duty of executors and trustees appointed under a will to pass their accounts.[36]

The Court went on to cite Ontario authorities supportive of the proposition that only the grantor, or the grantor’s estate, has the power to compel an accounting. The dilemma presented to the Court was summarized as follows:

[11]         It is the executor’s duty to bring into the estate all assets of the deceased which existed at the date of death. In a situation such as is before the court, where the attorney and one of the executors are the same person, if there was evidence that the attorney had misappropriated the deceased’s funds, the attorney/executor would need to renounce her executorship. Complications of this sort may be at odds with the just, speedy and inexpensive determination of matters on the merits.

[12]         The difficulty facing a registrar is that the registrar is asked to pass accounts, set remuneration for the executors/trustees and release the executors/trustees for the accounts for the time period in which the accounts were passed. From a practical perspective, the registrar needs to be satisfied as to the starting point. The materials before me question that starting point, which is, of course, the assets and liabilities existing at the date of death.

Ultimately, Master McDiarmid made a direction for document production but expressly held that “What I order is not the same as ordering the attorney to account.”[37] This was a practical approach that allowed the necessary disclosure to be provided to the beneficiaries, without interfering with case authorities that limit the right of those beneficiaries to an accounting from an attorney.

The unspoken problem faced by the beneficiaries in this and many cases is this. It is all well and good to say that an attorney/ executor who has potentially self dealt as attorney is in a conflict of interest and needs to step down as executor so an independent executor can compel an accounting. The reality is that no one other than the attorney/ executor is likely to know about the wrongdoing until an accounting is made to the beneficiaries. In other words, the accounting provides the necessary disclosure that reveals whether the conflict exists. This is why decisions like Strodl, while not going so far as to provide the beneficiaries with a right to an accounting from the attorney, at least puts the beneficiaries in a position where they can get the necessary information to know if a conflict exists.

C.     Options for proceeding

Once the beneficiaries have enough information to establish that the executor/ attorney is in a conflict, there are a number of avenues open for proceeding. In the recent case of Re Ching Estate,[38] a beneficiary brought an “asset recovery action”  seeking to recover assets that the executor improperly received during the deceased’s lifetime. The beneficiary also sought to have an interim administrator appointed pending the outcome of that action. The Court held that:

even a “perceived” conflict of interest between an executor’s personal interests and her obligation to administer the trusts in the will in the interests of the beneficiaries may cause this court to intervene to appoint a new executor or an administrator to avoid even the appearance of conflict.[39]

If there is sufficient evidence to establish even a perceived conflict of interest, the executor can be removed and an independent personal representative can be appointed on an interim or permanent basis.

It may also be that section 151 of the Wills, Estates and Succession Act,[40] provides an option for beneficiaries seeking to make a claim, or even just to obtain an accounting, from an attorney.  This section states:

     151  (1) Despite section 136 [effect of representation grant], a beneficiary or an intestate successor may, with leave of the court, commence proceedings in the name and on behalf of the personal representative of the deceased person

(a) to recover property or to enforce a right, duty or obligation owed to the deceased person that could be recovered or enforced by the personal representative, or

(b) to obtain damages for breach of a right, duty or obligation owed to the deceased person.

While this section has yet to be tested in any reported cases of which the authors are aware, it does appear that the section could provide some relief to the beneficiary who has been unable to attain a fulsome accounting from an executor for pre-death activity undertaken by the executor acting under a power of attorney. Presumably in such a case, the beneficiary could seek leave of the court to pursue an accounting if the court is not prepared to require an executor to furnish an accounting for activities taken by the attorney as part of the reference order.

 

[1] Moore v. Expansion Holdings Ltd., 96 BCLR (2d) 178 at p. 186

[2] 2013 BCSC 1665 (“Newton Trust”)

[3] (1993), 80 BCLR (2d) 303 (“Larson”)

[4] Larson, at para 65

[5] 2001 BCCA 29, at para 17

[6] (1985), 64 BCLR 355 (CA)

[7] 2015 BCSC 1402, at paras 30 – 31

[8] (1988), 33 BCLR (2d) 334 (CA)

[9] 2008 BCCA 19, at para 34 (“Walker”)

[10] Walker, at paras 35 and 41

[11] 2013 BCCA 559

[12] Larson, at para 98

[13] Larson, at para 53

[14] See the registrar’s decision at Re Newton Trust, 2005 BCSC 1049, at paras 138 – 140, for example.

[15] Larson, at paras 61 – 64 citing BC Hydro & Power Authority v. Hallcraft Const. Co. (1986), 6 BCLR (2d) 74.

[16] See Rule 23-15(5)

[17] 2015 BCSC 623 (“Lau”)

[18] Lau, at para 42

[19] Zadra v. Cortese, 2016 BCSC 390 (“Zadra v. Cortese”), at para 49

[20] Re Knoch (1982), 12 E.T.R. 162 (Ont. Surr. Ct.), Herron v. Moffatt (1879), 7 P.R. 438, Re Davis, [1936] O.W.N. 146 (Ont. H.C.)

[21] [1982] 4 W.W.R. 309 (BCSC)

[22] Re Pretlutsky, supra, at para 10

[23] Zadra v. Cortese, at para 90

[24] Re Wright Estate (1990), 43 E.T.R. 69 (Ont. Gen. Div.)

[25] Re Bellomo Estate (1989), 36 E.T.R. 123 (Ont. Dist. Ct.), Re Tigert Estate (2002), 48 E.T.R. (2d) 301 (Ont. S.C.J.)

[26] 2005 BCSC 1049.

[27] This decision of Registrar Blok is the same decision that the Petitioners in Newton Trust unsuccessfully sought to nullify on constitutional grounds.

[28] Zadra v. Cortese, at para 93

[29] Re Sangha, 2013 BCSC 1965 at para 98

[30] Power of Attorney Act, RSBC 1996, chapter 370, (as amended), s. 19(d) and Power of Attorney Regulation, B.C. Reg. 20/2011, section 2

[31] Kimberly-Anne Kuntz, “Dealing with the Rogue Attorney” CLE BC Estate Litigation – 2009 Update

[32] 2015 BCSC 1417

[33] 2011 BCSC 649 ( “Brown”)

[34] Brown, at paras 114-118

[35] 2016 BCSC 323 (“Strodl”)

[36] Strodl, at para 9

[37] Strodl, at para 17

[38] 2016 BCSC 1111 (“Ching”)

[39] Ching, para 22

[40] SBC 2009, c. 13