Kyle Estate v. Kyle

2017 BCCA 329 Kyle v. Kyle Estate

COURT OF APPEAL FOR BRITISH COLUMBIA Citation: Kyle Estate v. Kyle, 2017 BCCA 329 Date: 20170915 Docket: CA43710 Between: Robert William Kyle, in his capacity as the alternate executor of the Will and Trustee of the Estate of John (Jack) Henderson Kyle Jr. Respondent (Plaintiff) And Helen Kyle, in her capacity as the named executrix of the Will and Trustee of the Estate of Christopher James Kyle, Deceased and 1537 Holdings Ltd. Appellants (Defendants) Before: The Honourable Madam Justice Saunders The Honourable Madam Justice Stromberg-Stein The Honourable Madam Justice Fenlon On appeal from: an order of the Supreme Court of British Columbia, dated May 13, 2016 (Kyle Estate v. Kyle, 2016 BCSC 855, Vancouver Registry No. S145573) Oral Reasons for Judgment Counsel for the Appellant: W. Baker, Q.C. R.W. Morasiewicz Counsel for the Respondent: H.H. Low, Q.C. Place and Date of Hearing: Vancouver, British Columbia September 11, 2017 Place and Date of Judgment: Vancouver, British Columbia September 15, 2017 Summary: The appeal is from an order declaring monies held in a joint account with one child of the deceased father were not the subject of a gift to that son, and ordering disgorgement of the amount to the four siblings (including the joint account holder), disgorgement of an increase in value of property owned by the joint holder on which a mortgage was reduced by application of

the monies, disgorgement of interest saved on the mortgage, pre-judgment interest and costs of full indemnification. Held: the appellant did not establish error in the key finding the monies were not gifted to him. The form of order, however requires amendment to reflect a resulting trust to the father, that is, to his estate, likely to be dealt with as a partial intestacy as the will had no residuary clause. The order for disgorgement of the increase in value, unconnected to the pay down of the mortgage, is set aside. The order for full indemnity costs is in error. The costs are party and party, at double the scale after the date an offer to settle the ongoing litigation was made. [1] SAUNDERS J.A.: Christopher Kyle, now deceased, was named as the executor of the Will of his father, John (Jack) Henderson Kyle, and trustee. He also held a joint banking account with his father at the time of his father's death on June 20, 2012. The account had a balance of $372,637.21, representing monies contributed by his father (initially $400,000) and interest earned thereon, less certain payments made from the account. [2] Robert Kyle is one of three brothers of Christopher Kyle. He is named as alternate executor and trustee of the Will and Estate of his father. [3] Without disrespect to any party, I will refer to the Kyles by their given names to avoid confusion. [4] Upon Jack's death,

Christopher transferred the funds in the joint account to his personal account as was allowed by the terms of the account agreement with the financial institution, and applied the funds to pay down a mortgage on real property a company owned by him, 1537 Holdings Ltd., had previously acquired. [5] It is fair to say Christopher was not candid when asked by his brothers if he knew about $400,000 they thought was missing from Jack's assets. Christopher dissembled when asked if he knew of the whereabouts of that sum and replied dishonestly. Along the way, Christopher received Letters Probate of Jack's Will, without disclosing the existence of the joint account or including the balance of it in the estate assets. [6] In time, the fact of the joint account became known and Robert commenced this action, referring to himself as alternate executor and trustee, against Christopher in his personal capacity, seeking return of the money to Jack's estate. [7] On filing his Response to Civil Claim, Christopher was in a clear conflict of interest. By defending the action, he was seeking to enhance his own wealth in opposition to the interests of the estate of which he was executor and trustee. He should have stepped aside immediately from his role as executor and trustee once he determined to defend the action. He did not do so. This has coloured the litigation and masked to some degree the

character of the litigation which I view as, in essence, an action by the estate against a defendant for recovery of monies said to be owing to the estate. This matters on the issue of costs, as I will explain. [8] In the notice of civil claim, Robert sought a comprehensive order including: an accounting from Christopher; a direction that Christopher pass his accounts before the registrar of the court; an order removing Christopher as executor and trustee and revoking the grant of probate issued to him; a grant of probate to Robert as alternate executor and trustee; an accounting from Christopher of the joint account; judgment against Christopher in favour of the deceased's estate for the sum of $400,000 plus interest; damages against Christopher for breach of trust; a declaration that the company's properties are held in trust for the benefit of Jack's estate; and an order disgorging the benefits received from the funds. Robert did not seek an order for payment of any monies directly to himself or his siblings, or a declaration of trust in favour of himself or his siblings. [9] The main issue at trial was the proper characterization of the transactions creating the joint account and the deposit of $400,000 into it: did Jack make a gift of the right of survivorship, or of the monies, to Christopher or did the transactions create a resulting trust in favour of Jack and

subsequently his estate? Mr. Justice Burnyeat found Jack did not intend to make an immediate gift to Christopher of the funds, or to give him the amount remaining in the joint account at the time of his death: [84] I find that Chris has not met the onus of establishing, on a balance of probabilities, that his father intended an immediate gift of the monies that were deposited into the Joint Account or of establishing that his father intended an outright gift of the monies remaining in the account upon his death. The presumption of a resulting trust prevails. As I am satisfied that it was the intention of the Deceased to provide Chris with funds which could be distributed equally to all four brothers upon his death, I find that the resulting trust is in favour of the four brothers. [10] Consequent on the conclusion, the judge declared that Christopher held the funds that had been in the joint account, in trust for himself and his three brothers. The judge ordered those funds disgorged along with interest forgone on the money and interest not paid by Christopher's company because he applied those monies to the mortgage. The judge also ordered disgorgement of a portion of the increase in the value of the real property encumbered by the mortgage. He ordered Christopher to fully indemnify Robert for his court costs. [11] Christopher appealed from the order. He has since died and

Helen Kyle, his executrix, has been substituted as the appellant. [12] Four grounds of appeal are advanced: 1. the judge made a palpable and overriding error in holding the joint account was part of the estate, and in particular in failing to give effect to Jack's codicil and to the right of survivorship; 2. the judge erred in ignoring relevant evidence, misunderstanding evidence, or drawing erroneous conclusions from it; 3. the judge erred by ordering disgorgement of a proportionate increase in the value of the real property owned by the company; and 4. the judge erred by ordering Christopher to fully indemnify Robert for his court costs. [13] Jack's Will, self-drawn, was made June 26, 2000. In it Jack made monetary gifts to Patsy, Christopher, Robert and son, David, and left his interest in the family home to Patsy with provision that in the event Patsy predeceased Jack, the family home was to be sold and the proceeds divided equally between Christopher, Robert, David and son, John. The Will referred to "my savings accounts". It appears to dispose of all assets then held by Jack and did not have a residuary clause. [14] The judge recounted evidence that in the fall of 2000, Christopher asked Patsy for an early inheritance of $100,000, that Patsy agreed but determined each of her four sons should receive the same amount, and that Jack committed to Patsy he would do the same

thing. It may be that the judge misspoke in referring to 2000 and that date may be near the date the family home was sold. Nothing turns on that date. [15] In November 2011, Christopher, by deposit of $5.00, opened a new account at the financial institution he used. He said he did so at his father's request to arrange a joint account. A few days later, Christopher's new account was converted to a joint account when Jack signed the necessary documentation. At that time Jack was presented with the institution's short form Personal Account and Services Agreement which, under the heading "Right of Survivorship", provides that on the death of one of the joint tenants, "the balance in an Account may be withdrawn or made payable to the surviving joint tenant(s)". [16] On November 29, 2011, Jack wrote a cheque payable to himself in the amount of $400,000, drawn on his Royal Bank account and deposited in the joint account. No other deposits were made to the joint account, but certain interest payments were credited to it. [17] In December 2011, Jack and Patsy sold the family home and divided the proceeds of sale - $1,688,000 - equally. Jack deposited his half in his Royal Bank account. [18] In late December 2011, Jack gave cheques to each of his four sons, drawn on his Royal Bank account, in the amount of $50,000. Also in December 2012, Patsy gave each son $100,000. [19] In February

2012, Christopher wrote a cheque for $25,000 on the joint account payable to himself that he deposited in his own account. He testified he did this on Jack's instructions. The cheque carried the note "Xmas 2012". Two other relatively small cheques were written on the joint account to pay for Jack's care. [20] On March 18, 2012, Jack executed a Codicil, self-drawn, deleting the provision in the Will relating to the family home, changing the Will's reference to "savings accounts" to a reference only to the Royal Bank account, providing gifts for the grandchildren, and making other sundry changes. The Codicil did not include a residuary clause. [21] With that general description of events, I turn to the issues before us, recognizing that our task is the limited one described in Housen v. Nikolaisen, 2002 SCC 33. As to a question of law, our task is to determine whether the judge was correct; as to questions of fact or mixed fact and law, our task is to determine whether the judge made a palpable (obvious) and overriding (material) error. Absent such errors, we may not interfere with the judge's order. In respect to an allegation of error in an inference drawn, our task is to determine whether the fact is reasonably supported by the evidence. Finding of facts and weighing of evidence is a function particularly within the purview of the trial judge.

1. The Right of Survivorship [22] The first two grounds of appeal relate to the judge's conclusion that the presumption of resulting trust was not rebutted and that he could not find Jack intended, by opening the joint account, to have the balance of the account pass to Christopher alone on his death. [23] It is agreed by the parties that in circumstances of advancement of funds or assets, without consideration, the law presumes a resulting trust in favour of the donor. This presumption applies where a parent and a child create a joint account, meaning in circumstances such as those before us, the law presumes the funds in the joint account were held in trust for Jack or, upon death, his estate. The onus is thus upon Christopher to rebut the presumption; it was for Christopher to prove on a balance of probabilities that Jack intended an outright and immediate gift; when the account was provided: Pecore v. Pecore, 2007 SCC 17. The question whether Jack had the intention to gift the monies immediately or by operation of the right of survivorship, is a question of fact: Fuller v. Fuller Estatet 2010 BCCA 421. [24] Christopher testified at trial, saying Jack told him to "keep his mouth shut" about the joint account. He did not testify, however, that Jack said the money was or would be his, or indeed anything about the eventual disposition of the fund. Here this case is unlike most

cases in which the presumption is found to be rebutted. [25] The judge did not accept Christopher's submission that the advice to "keep his mouth shut" amounted to a declaration of an intention to make a gift. That conclusion, in my view, was open to the judge and is not one with which we can interfere. [26] What of the judge's treatment of other evidence? It is here that the appellant says the judge erred, in particular, he says the judge erred: 1. in declining to conclude from the substance of the Codicil that Jack intended the funds in the joint account to rest with Christopher; 2. in failing to give effect to the terms of the Personal Account and Services Agreement, in particular a long form agreement that describes in greater detail than the short one I have already mentioned, the effect of the right of survivorship; and 3. in finding Jack's intention was to provide for his sons equally. [27] In my view, none of these criticisms provide a basis upon which we may interfere with the judge's conclusions. [28] As to the effect of the Codicil, it is true that it makes no provision for a testamentary gift of the monies in the joint account. This feature, however, does not compel the conclusion Jack intended Christopher to retain the funds, in my view. It is simply a lacuna, one feature of the evidence from which the judge could, but was not required, to draw an inference. It is

to be remembered the Will and Codicil were both prepared without legal advice, which doubtless, had it been received, would have spotted the omission. [29] Nor do I consider the judge's failure to analyze the long form agreement an error that is either palpable or overriding. The judge concluded it was the short form agreement that was shown to Jack. In any case, neither agreement precluded a resulting trust. They appear to me to fill the primary function of clarifying the rights of the joint tenants on one part and the financial institution on the other, affirming the bank's obligation to allow withdrawal of the funds by a surviving joint tenant. They cannot be taken as conclusive evidence that as between the joint tenants there was no resulting trust, although without doubt they establish the joint account discussed in Pecore. [30] The appellant also complains that the judge found it was Jack's intention to share the proceeds of the property sale equally between his sons. He says this conclusion was speculation on the judge's part, an erroneous inference not reasonably supported by evidence, and a leap of logic. He urges on us a view of the evidence, especially in respect to Jack's intentions with respect to John, of unequal treatment of the children, consistent with preferring Christopher by giving him the money in the joint account. [31] On my review of the evidence there

is a basis on which the judge could say Jack intended equal treatment of his sons; evidence Jack intended to give "the boys" more money, and was "glad he would be able to look after his four boys and grandchildren"; that "he was going to treat all the boys equally"; and that "he was going to give ... equal amounts". Whether to accept that evidence was within the scope of the judge's role as fact finder. I conclude finding that Jack intended to treat his sons equally, a finding that contradicts Christopher's stance of a large gift to him alone, is not one with which we may interfere. [32] Counsel for the appellant wove through her able submissions other criticisms of the judge's findings of fact and his selection of evidence to accept or reject. These submissions were all open to be made at trial, but were points of argument that, if they were to be won, were required to be won at trial. It is not our proper role to engage in that exercise, once satisfied, as I am, that there was evidence upon which to base the facts found and inferences drawn. [33] It follows I would not interfere with the order insofar as it requires disgorgement of the monies in the joint account. [34] I would, however, interfere with the form of the order. The judge found a resulting trust in favour of the four sons. That conclusion was not available to the judge; a resulting trust is for the benefit of the

donor, that is, the original transfer or transferor, or his estate. This means the conclusion of a resulting trust requires disgorgement to the estate, in which case a partial intestacy exists. [35] Counsel for Robert advised the court that Patsy, who would benefit from an intestacy, disavowed her interest in the estate. Even so, that position, not recorded in the reasons for judgment, does not allow the court to simply assign the funds as if an express trust, never pleaded, and likely not proved, existed. In my view, the order of a resulting trust in favour of the four sons must be set aside and an order requiring disgorgement to the estate substituted, to be dealt with according to the law relating to estates and with whatever claims or waivers may be asserted.

2. Proportionate Share of the Increase in Property Value [36] The judge ordered a portion of the increase in property value, from the time of payment down of the mortgage to the date of trial, be disgorged. In my respectful view, this remedy was not available in the circumstances before the court. [37] In Wafers' Law of Trusts in Canada, D. Waters et al., 4th ed. (Toronto: Carswell, 2012), Professor Waters states at 527: Profits that result from the breach of a fiduciary duty can be disgorged in two ways: (i) imposing a personal debt on the fiduciary, requiring her or him to repay the gain; or (ii) by the imposition of a constructive trust requiring the fiduciary to transfer the gain. [Emphasis added.] [38] To same effect the Supreme Court of Canada in Soulos v. Korkontzilas, [1997] 2 S.C.R. 217 at para. 45, discussing the availability of a constructive trust to remedy a wrongful act absent unjust enrichment, set as a condition: (2) The assets in the hands of the defendant must be shown to have resulted from deemed or actual agency activities of the defendant in breach of his equitable obligation to the plaintiff; [Emphasis added.] [39] Here there is no relationship between the payment on the mortgage and acquisition of the property. The amount ordered to be disgorged did not result from the breach of the fiduciary duty through payment of the mortgage. There is, in my respectful view, no basis to require payment of any portion of the appreciation of the real property in the circumstances of this case. [40] I would allow the appeal against this aspect of the order.

3. Costs [41] The judge ordered costs to fully indemnify Robert, explaining: [5] Robert pursued this claim to recover funds for all beneficiaries. I am satisfied that it would be unreasonable for Robert alone to be burdened with the costs of the recovery when the benefit of his efforts are then shared equally by the four sons of the Deceased including Chris. At the same time, it would be inappropriate for all of the beneficiaries, other than Chris, to bear the legal costs and expenses of Robert. [6] This proceeding was brought against Chris as a fiduciary who personally appropriated funds which I found that the Deceased had provided to Chris with the intention that the funds were to be distributed equally to all four brothers upon the death of their father. [7] Had Chris disclosed the Joint Account at the outset and sought directions from the Court with respect to the administration of the Trust funds, that would have been an appropriate circumstance for which Chris would be entitled to receive his fees from the Estate. However, Chris did not disclose the Joint Account and secretly appropriated the Trust Funds for his own use. [8] This proceeding can be properly characterized as a proceeding for the recovery of misappropriated trust assets. It would not only be unjust and unreasonable but also contrary to public policy, if a breaching trustee was to be entitled to appropriate

trust assets, refuse to return such assets to the trust thereby compelling a legal proceeding and then to receive his legal fees from the estate. In those circumstances, it would also be unjust and contrary to public policy that the party who misappropriated trust assets to then expect that the cost of pursuing those assets would be borne by the estate rather than by the beneficiary who misappropriated the assets. [9] I am satisfied that Robert should be fully indemnified and that his legal costs and expenses should be payable by the Defendants, either directly or out of the funds which would ordinarily be available to Chris from the Estate. Acting in his capacity as an alternate Executor, Robert pursued the claim against Chris. All of the beneficiaries benefit from the pursuit of the claim. [10] If I am found to be incorrect in concluding that Robert should be fully indemnified for his legal costs and expenses after the quantification of the same on an assessment by the Registrar, then I will deal with the question of whether an award for special costs should be made. [42] The judge held in the alternative that an order for special costs would be appropriate: [11] Ordinarily, Special Costs are only available for misconduct in the course of the litigation itself: Panghali Estate v. Panghali, 2014 BCSC 647. However, in exceptional circumstances, special costs can be awarded

where pre-litigation conduct also warrants rebuke. [12] In proceedings involving the misconduct of an executor or a trustee including where the executor has acted dishonestly and in breach of fiduciary obligations, the beneficiary may obtain an award of Special Costs against the executor personally and, if the executor is a beneficiary under the estate, these costs can come out of the executor's share of the estate: Gutierrez Estate v. Gutierrez, 2015 BCSC 185; Szpradowski (Guardian ad litem of) v. Szpradowski Estate (1992), 44 E.T.R. 89, 4 C.P.C. (3d) 21 (B.C.S.C.); Robiliard v. Bandick, 2015 BCSC 211. In this regard, I adopt the following statement made in Szpradowski, supra: [14] An award of Special Costs against Chris in favour of Robert is the appropriate order to be made if full indemnity is found not to be appropriate. As the Trustee of the funds held in the Joint Account, Chris misappropriated those funds for his own benefit by transferring the funds to 1537 so that mortgages against properties owned by 1537 could be retired. Chris then breached his duties as Executor by refusing to disclose and pursue the funds held in the Joint Account for the Estate. The refusal to disclose led his mother and then Robert to incur legal costs to locate the assets of the Deceased. While the initial inappropriate actions and the breaches of obligations owed to the Estate took place

prior to the commencement of this litigation, the breaches of fiduciary duty continued throughout the litigation without abatement and without apology: a) Chris breached his fiduciary duty as trustee of the funds held in trust by him for the Deceased by not distributing the funds to the beneficiaries; b) Chris breached his fiduciary duty as Executor by not including the Joint Account as an estate asset; c) Chris comingled trust assets with his personal assets; d) Chris was not able to continue to perform his duties neutrally and in the best interest of all beneficiaries under the Will and the Trust; e) Chris failed to provided information regarding the Estate assets to the beneficiaries; and f) Chris failed to distribute funds to the cash legatees pursuant to the Will. [43] In the further alternative, the judge held: [23] Robert made his first offer on June 19, 2014 prior to the action being commenced and prior to document and oral examination for discovery. On February 17, 2014, Robert made his second offer to settle the action. The total of the award against the Defendants in favour of Robert is in an amount significantly higher than any of the offers made by Robert for Chris to pay $344,167 (the June 19, 2014 and February 17, 2014 offers) or $300,000 (the July 7, 2015 and October 6, 2015 offers). [24] The acceptance by the Defendants of any of the offers made by the

Plaintiff would have saved all parties the cost and expense of a trial that lasted for more than a week and a further hearing day for costs. The acceptance by the Defendants of the first offer made by the Plaintiff would have saved all parties the entire costs of the within action as this action would not have been necessary. [25] It would have been reasonable for Chris to accept the offer made by Robert as it represented a significant reduction of the amounts removed from the Estate not even accumulated interest. Regarding the relative financial circumstances of the parties, it is clear that all of the beneficiaries would receive significant funds from the Estate so that neither Robert nor Chris are economically disadvantaged. I also take into account that the actions, lack of action and misdirection by Chris has caused considerable emotional upset to his mother and to his three brothers. [26] Accordingly, if Special Costs are not available, I order double Party and Party (Scale B) Costs to be assessed by the Registrar if an agreement regarding those costs cannot be reached. The amount is to be payable forthwith by Chris and, if not paid forthwith, the amount payable or as agreed is to be subtracted from the amounts available ordinarily to Chris under the Estate of his father. [44] In my respectful view, the order for full indemnification costs must be set aside. I say this because an order for costs in litigation is made under the Supreme Court Civil Rules. It is well accepted that a judge may not award costs not authorized by the Rules: Gichuru v. Smith, 2014 BCCA 414 at para.

84. The only two alternatives authorized are special costs and party and party costs. [45] Special costs are in the nature of indemnification and their level may be established by the judge to provide complete or partial indemnity. While I appreciate the term special costs may carry with it a sense of sanction because special costs are most frequently awarded to express disapproval of reprehensible conduct, that is not always the case, as explained in Smithies Holdings Inc. v. RCV Holdings Ltd., 2017 BCCA 177, para. 56, citing Gichuru at para. 90. [46] The question then is whether special costs at a full indemnification or lesser level, should have been awarded, as the judge would have done. In my view, the answer is no. The judge relied largely upon pre-litigation conduct of Christopher, conduct he found warranted an expression of disapproval, to justify an order of special costs. However, the order was made just four days before this Court's judgment in Smithies was pronounced and, thus, the judge did not have the benefit of this Court's reasoning. In reasons for judgment of Mr. Justice Goepel, this Court concluded: [134] In the result, I am of the view that a bright line can and should be drawn so that judges will be able to exercise their discretion in like cases in a like manner. Special costs should be reserved to punish and deter reprehensible conduct in the course of

litigation. Pre-litigation conduct should not be considered in determining whether such an award is appropriate. There are other suitable mechanisms to censure pre-litigation conduct. [47] On this reasoning, the main basis for the judge's conclusion does not support an order for special costs. [48] Before us, Robert says the order should be maintained on the judge's finding of reprehensible conduct in the course of the litigation, and on the basis described in para. 56 of Smithies as exceptions to the usual criteria for special costs. [49] The difficulty with the respondent's first proposition is that the continuing conduct mentioned by the judge is the very subject of the litigation and was a triable issue. As I have said, Christopher should have recognized the conflict of interest inherent in his defending the proceeding (I note parenthetically with the assistance of counsel who is not counsel on the appeal), and so should have stepped down as executor. Yet he had the right to defend the action, and it cannot be said that failing to recognize the conflict caused any greater cost to the estate than would have been experienced had he been merely an adversary defending the claim. [50] Nor, in my view, does the exception referred to in para. 56 of Smithies apply here where the litigation was of the garden variety adversarial nature. [51] I recognize that the judge found great

fault with Christopher's failure to include the monies in issue within the estate, and his use of the monies in the meantime. Yet the character of those funds was legitimately in issue. The fault really was failing to step aside as executor on being presented with a conflict of interest, a fault that in these circumstances did not expand the scale of litigation or diminish the estate. A simple application to court to remove Christopher for reasons of conflict easily could have sorted out the problem, and would not have affected the outcome of this adversarial proceeding. [52] That leaves only the possibility of double costs. Robert agrees that the date used by the judge for calculation of any double costs is wrong as pre-dating commencement of the litigation. The first offer of settlement after commencement of the action, was made February 15, 2015. In my view, Robert is entitled to party and party costs to that date and double costs thereafter. This will leave Robert to claim the balance of his costs from the estate, upon passing of accounts. Conclusion [53] For the reasons just expressed, I would allow the appeal of the order made May 13, 2016 only to the extent of: (1) setting aside para. 1 of the order declaring a trust in favour of the four sons; (2) setting aside the order for disgorgement of a portion of the value of the real property, that is, para. 7; (3) setting aside

para. 8; and (4) providing that Christopher's share of the estate will be $25,000 less than the share received by his brothers (as had been contemplated by para. 8 of the order of the judge). [54] Further, I would set aside the order for costs made May 5, 2017, and substitute an order for party and party costs up to February 15, 2015, and thereafter double costs. [55] I thank counsel for your able representations on this case. [56] STROMBERG-STEIN J.A.: I agree. [57] FENLON J.A.: I agree. "The Honourable Madam Justice Saunders"